Raw material "bottlenecks" and constantly increasing sea freight prices are two big concerns, containing risks for agricultural export enterprises in the second half of this year. This makes businesses themselves and relevant management agencies need to have more appropriate plans and solutions to minimize the burden of input costs and avoid the risk of losing orders and losses.

Container freight rates are skyrocketing again, creating great pressure on agricultural export enterprises.

In a recent meeting between the Vietnam Cashew Association (Vinacas) and the General Department of Customs, one of the main issues raised was the "cheating" situation of raw cashew suppliers from abroad.

"Bottleneck" of input materials

Specifically, as recommended by Vinacas, there needs to be measures to deal with foreign raw cashew suppliers who violate contracts signed with Vietnamese partners. These are goods that have arrived at the port, have been put into a bonded warehouse or are being transported at sea but unilaterally terminate the contract, take the goods and sell them to other buyers at a higher price.

According to reports, many domestic cashew processing enterprises in May and June 2024 only received about 50% of raw cashew output according to purchasing contracts from African partners; leading to a shortage of raw materials and pressure when fulfilling export orders.

Because some West African partners ask for support to increase prices, delay deliveries or not send documents for Vietnamese manufacturers to receive goods. Even batches of cashews currently at sea continue to be offered at higher prices.

From this, we can see that the problem of cashew exporting enterprises is that they have long depended on imported raw materials, so when foreign raw cashew suppliers (like Africa) show signs of "turning the tables" as in recent times. This will lead to huge risks when having to properly implement export contracts in the second half of this year.

Not only in the cashew industry, the risk of raw material shortages is a common concern for export agricultural product processing enterprises, leading to the risk of contract fines and even loss of orders. For example, in the seafood industry. Ms. Le Hang, Communications Director of the Association of Seafood Exporters and Producers (Vasep), said there is some concern about the raw material situation in the second half of this year. Because the price of shrimp and pangasius raw materials has decreased, farming households are losing money and may abandon their ponds en masse, leading to a shortage of raw materials.

Not only that, Ms. Hang also pointed out that the lack of seafood ingredients is even more difficult because of the new regulations in Decree 37; Decree 38 was recently issued in April 2024 and takes effect from May 19, 2024.

“Regulations such as the minimum size of some key exploited and exported species, regulations prohibiting the mixing of domestic and imported materials into the same export shipment; 72h and 48h advance notice regulations for foreign ships and imported container ships... make compliance very difficult. Therefore, the source of raw materials is even tighter," noted Vasep's communications director.

And because of this inadequacy, tuna exporters are worried that the target of 1 billion USD in tuna exports will be difficult to achieve this year due to the current tight material bottlenecks.

The concerns of agricultural product processing enterprises about raw materials can also be clearly seen in the new report released from the General Statistics Office on production and business trends in the processing industry. Specifically, for raw materials and energy sources for production, 44.9% of businesses recommended that the State need policies to stabilize raw material prices; energy and 30.5% of businesses recommended that the Government, Ministries, branches and localities must stabilize the supply of raw materials for production.

On the other hand, for input factors for production and business, to reduce pressure on rising input costs for businesses; 50.1% of businesses in the processing industry proposed that the State continue to reduce lending interest rates so that businesses have capital for production and business.

Uneasiness about container freight rates

In addition to concerns about input materials, businesses exporting agricultural products in the second half of this year are worried about the problem of constantly increasing transportation costs. This causes businesses to suffer damage and suffer losses on previously contracted orders. Especially in cases where businesses sell goods in the form of CIF (the seller bears the shipping costs), so when shipping costs increase, they also have to bear this increased cost.

For example, in the case of Phuc Sinh Joint Stock Company (specializing in exporting coffee and spices), recently it had to pay an additional 5,000 USD for each export container when the shipping price in April 2024 was about 2,700 USD/container; but by June 2024, it will increase three times, with a price of nearly 8,000 USD/container.

On the July 1 newsletter of the Vietnam Logistics Service Business Association (VLA), there was information quoted from Drewry (Independent Maritime Research Center); said it is expected that shipping rates from China will continue to increase next week due to congestion problems at Asian ports.

In June 2024, freight rates for international multi-trip trains increased by 100% compared to the previous 3 months. In particular, train fares to the US more than doubled. The price for a 40-foot container in March 2024 was 2,950 USD but has now increased to 7,350 USD.

Therefore, to minimize risks and losses in the second half of this year, agricultural exporters are required to find ways to reduce freight costs. In particular, the plan is to find a temporary replacement supplier, in order not to incur a large cost of freight.

Furthermore, relevant management agencies also need to implement solutions to help agricultural export activities minimize risks and damages. For example, in June, the Vietnam Maritime Administration organized direct working sessions with container seaport enterprises, shipping lines, and agents in the Northern and Southern regions.

Especially promoting inspection and monitoring of service prices at seaports, container freight prices by sea, and surcharges in addition to service prices at the port. Thereby contributing to minimizing the impact of freight prices during the current period of complex and unpredictable market developments.

Source: Finance Magazine