VPA proposes about the status of pepper transportation charges

After receiving feedback from businesses, on July 9, 2021, the Vietnam Pepper Association (VPA) sent a document to the Ministries of Industry and Trade, the Ministry of Transport, the Ministry of Agriculture and Rural Development, and the Ministry of Agriculture and Rural Development. Village, General Department of Vietnam Customs and Vietnam Association of Logistics Service Enterprises reflected on the increase in freight rates in recent times.

Specifically:

1. Actual situation of container volume through Vietnam’s seaports in the first months of 2021

In the first 6 months of 2021, Vietnam’s pepper exports are estimated at 155,000 tons, with a turnover of 500 million USD, compared to the same period in 2020, the export volume decreased by 7% but the export turnover increased by 41%. The decrease in pepper export volume in addition to the decrease in output in 2021 and the impact of the Covid-19 epidemic, logistics costs are the main cause of many difficulties and serious damage to the export situation of enterprises. Karma.

Logistics costs here include 2 main parts: wharf fees, loading and unloading, administrative procedures at the port of export and costs related to shipping containers by sea. Each export container will include the following costs (the fee schedule is a relative price, the difference between shipping lines or compared to the reality is around 5%):

According to the synthesis from businesses, the freight rates to the key import markets of pepper from January 2021 to June 2021 are always in an increasing trend with a very high margin and no sign of stopping. with the main reason given by the shipping company as a consequence of the Covid-19 epidemic leading to a shortage of containers.

However, Vietnam’s goods exports in the first 5 months of 2021 increased over the same period. Specifically:

– Vietnam’s export turnover in the first 5 months of 2021 recorded a positive growth compared to the same period last year.

Second, according to the chart below, container throughput through Vietnamese ports in the first quarter of 2021 has nearly doubled compared to the same period last year.

Thus, the information given by the shipping lines is completely inaccurate.

Source: https://diendandoanhnghiep.vn/gia-cuoc-van-chuyen-tang-nhieu-doanh-nghiep-nhanh-van-tai-bien-lai-lon-197148.html

Rate increase chart from October 2020 to June 2021

Source: Market price summary

2. Enterprises have to buckling up with the galloping freight rates in a confusing way

For Vietnamese pepper, the US is the main and important market with export volume accounting for 20-25% per year and has always maintained a stable purchasing power until now. And besides, the EU is also a key market and the target market of most businesses in the context of free trade agreements that further boost the purchasing power of this market.

However, these are the two sea freight routes with the most galloping and unusual increase in freight rates with an increase of about 1,500-2,000 USD for a 40-foot container every 2 weeks. Enterprises understand that carriers are also being affected in many ways and on a large scale, leading to higher freight rates. However, the increase needs to be strictly controlled, publicly transparent and with a pre-announced roadmap.

In fact, the US market always buys goods on CNF terms, with all risks of shipping costs borne by Vietnamese businesses. The term of the delivery contract always ranges from 1 month or more. Businesses can take the initiative in the source of goods, but with the transportation stage, the opposite is true. Enterprises sometimes even within a month cannot find a booking confirmation for delivery, and when they find a Booking, the shipping price has increased by more than 1,500 USD / 1 40-foot container. .

Shipping charges to the US and EU currently increase continuously, fluctuating every 2 weeks and the increase is unannounced, sometimes it spikes; In particular, the cost increase from the intermediary unit is a shipping agent (Forwarder – FWD for short) which creates a false psychology of price increase. This is also an important link because most businesses work with shipping lines through the intermediary FWD. This is evidenced when the market is currently emerging with many different prices for seats on the same ship.

Compared to 2020, freight rates to Europe were usually stable at $800-1,200 for a 40-foot container, but now increased over $11,000, which is 12-13 times more than the price at the beginning of 2020. Freight to the US from $2,000-3,000 for a 40-foot container from the beginning of 2020 to now has increased to $13,500, ie an increase of 5-6 times. Especially for American goods, all bookings to the US are required to book through FWDs that have US contracts with shipping lines. While it is important to understand that FWD is only an intermediary to get booking confirmations and provide information to shipping lines, it does not have the function to take care of all the necessary legal procedures for a successful export. a cargo container.

Even when exporting businesses accept to pay high prices to deliver goods to customers in time for delivery, they still cannot find a booking for delivery. Shipping lines are also ready to cancel bookings (Booking confirmation) for pre-booked bookings to resell to other businesses when they pay higher freight rates, leading to a situation of scrambling to book ships. This causes the supply chain to be interrupted, goods produced but cannot be exported, forcing businesses to rent more warehouses, money is stagnant, customers do not receive goods and businesses also have no money. as well as do not dare to import more raw materials for production, affecting the production and consumption of goods of farmers.

Meanwhile, why hasn’t the rate from other Asian countries like India to the US and Europe increased as much as in Vietnam?

This increase is unreasonable and unusual because the price of oil – the core cost of making up the cost of sea transport is at a much lower price than before. This also leads to another question that is whether or not shipping lines intentionally hoard containers and space on ships to create a phenomenon of scarcity of space, scarcity of container shells to profit from in order to push up prices. Freight rates continue to skyrocket. Enterprises urgently need the intervention of the Government and Ministries to clarify whether there is a phenomenon of price handshake from shipping lines and shipping agents? And if so, how should it be handled?

3. Losing the key export market, facing the risk of bankruptcy

Currently, the increase in sea freight rates is a very serious issue that negatively affects the export situation of pepper, the galloping, continuous and unscheduled increase in sea freight rates causes Exporting enterprises face many difficulties and challenges. Shipping rates are too high, leading to export businesses losing the market to our direct competitors.

Specifically:

Recently, the US and EU have switched to buying pepper from Brazil because the quality of pepper is not too different from that of Vietnam and most importantly, the shipping cost from Brazil to the US is only 1/3 of that from Vietnam. and from Brazil to the EU is only 1/10 of that from Vietnam.

With a continuous increase in freight rates and no downward trend as at present, Vietnam’s pepper industry will completely lose its competitiveness in the US and EU markets and so on, Vietnamese agricultural products will go where? The risk of losing key markets to competitors is very urgent.

Currently, exporters are forced to accept all risks in order to try to retain these two important markets by trying to maximize profits or even accept losses to retain customers. However, the galloping increase in freight rates, with no such downward trend, causes businesses to be eroded, shriveled and certainly cannot stand any longer. Especially in the past two years, the prolonged impact of the Covid-19 epidemic has caused businesses to be worn out and exhausted, while most of the pepper exporters are small and medium-sized enterprises, with great potential. If the financial strength is weak, the risk of bankruptcy or dissolution of the enterprise is very high.

4. Seeking help from the authorities

Facing the above-mentioned difficulties, the Vietnam Pepper Association respectfully requests the Ministry of Industry and Trade, the Ministry of Transport, the Ministry of Agriculture and Rural Development, the General Department of Vietnam Customs and the Business Association to Vietnam Logistics Service reported to the Prime Minister to work with shipping lines, consider finding ways to solve the “problem of lack of containers, lack of space” and bring freight rates back to the way they were before.

At the same time, the Association also proposes the following solutions:

– The association wants the Government and ministries and sectors to continue to influence carriers to publicly and transparently charge freight rates on the company’s official website, and to publish a clear fee schedule.

– Recommend the authorities to continue direct dialogue with major shipping lines to request shipping agents to apply the general price increase to avoid the current tariff disturbances, to stop the phenomenon of FWDs. abuse of power or coercion of enterprises.

– Clarifying the role and function of FWDs (shipping agents), absolutely do not allow the phenomenon of agents to act on their own, buy seats from shipping lines, then add abnormally high differences and resell them to other carriers. export enterprises.

The Vietnam Pepper Association and its member businesses hope to receive timely support and direction from the ministries, branches and related units to soon solve the difficulties faced by businesses in terms of costs. logistics costs and help businesses overcome the current “crisis” in freight rates.

VPA