Orders are gradually improving compared to this time last year, but before they can celebrate, export businesses are struggling because of escalating shipping rates, establishing new ground.

Even though they have had to get used to rising freight rates through prolonged epidemics and geopolitical tensions, businesses are still quite shocked. Along with the increase in input costs such as labor, packaging and other "unnamed" costs..., all are eroding small profits; It can even cause many businesses to fall into loss.

The tense situation in the Red Sea that has taken place since the end of last year is one of the main factors causing sea freight rates to climb to a new price level; While this is a transport route that plays an important role connecting Asia with Europe and America. This is also the reason why many shipping companies have to change their schedules and accept to go farther to avoid the Red Sea area.

The increase in shipping rates is even greater when the US plans to impose strong tariffs on many types of Chinese goods from next August, causing this country's exporters to boost exports ahead of schedule. Specifically, the freight price per 40-foot container to the US is currently up to 7,300 USD, while in March 2024, this price is only about 3,000 USD (an increase of more than 2 times).

Even, according to the director of a coffee export business in Ho Chi Minh City, at one time, the cost of a 40-foot container exporting goods to the US was up to 8,000 USD. With that rate, if exported, businesses are sure to lose money.

Seafood businesses are much more tired due to higher costs, because the specific characteristic of exporting frozen processed goods is having to rent refrigerated containers, while renting refrigerated containers is not easy. Mr. Nguyen Hoai Nam, Deputy General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), also affirmed: "Ordering containers at this time is very difficult. Large shipping companies are reducing trips and the number of ships, so logistics costs are pushing up very high."

Vietnam's export activities to large and important markets of Vietnam such as the US, EU... all depend on foreign shipping companies. In 2023 alone, there will be about 150 billion USD of electronics, phones, textiles, agricultural and aquatic products... exported to the US and EU.

Sea transport is suitable for most types of goods, especially agricultural - forestry - fishery products, electronics... because the transport capacity of sea transport is not limited like other forms of transport. Because of this, it will be very difficult for export businesses to find alternative solutions when sea freight rates to the US and EU fluctuate.

In that context, for exporters, diversifying transportation methods in the short term can only be drawn up on paper and not easily applied. The reason is, transporting goods by air is very expensive, transporting goods by rail is not common and is not feasible for export destinations in Europe or North America; So shipping by sea, even if the price increases, we still have to accept it.

Ocean freight rates still show no signs of settling down as the Shanghai Container Transport Index - a measure of container shipping rates - increased by 12.6%, to 3,000 points in the first week of June. This is the first time since August 2022 that this index exceeded 3,000 points. It is predicted that this price increase will continue as more and more exporters book places to export goods to the US and Europe via sea. Most likely, freight rates will not only increase on some routes, but may cause a domino effect on other routes.

When transportation prices are likely to increase, when Vietnamese businesses still depend on objective factors; When the geopolitical conflict in the Middle East has not ended and many markets have reduced consumption, the solution that many businesses have responded to is to sell goods in moderation; At the same time, try to negotiate a new contract with an increased unit price to offset costs.

In addition, another way is to try to find more export orders from nearby markets; less affected by geopolitical conflicts such as ASEAN, Japan, Korea... to compensate for the decline in orders from other markets. Along with their own efforts, export businesses believe that state management agencies need to strengthen monitoring; There may be measures to influence pricing policies and external surcharges for some shipping companies to Europe and the US such as Maersk, MSC, CMA, Evergreen, Cosco... This is also an effort to indirectly support Vietnamese export businesses in the current difficult situation.

Source: VASEP