Neighboring export markets to be prioritized

Data from Drewry, an independent provider of research and consulting services to the maritime and shipping industry, reveals that the most substantial increases in freight rates have been seen on routes from Asia to Europe and the Americas. Meanwhile, routes returning from the Americas and Europe to Asia, as well as intra-Asia transport, have exhibited less fluctuations. In response to the challenges this presents, Vietnamese businesses are increasingly focusing on diversifying their export markets to reduce any reliance on specific regions.

Problems in exports

Mr. Dang Dinh Long, CEO of Mega A Logistics, highlighted the tight shipping conditions on routes to Vietnam’s key export markets, particularly to Europe, where freight rates are high and space is limited. Vietnamese enterprises used to be primarily focused on FOB (Free-on-Board) for exports and CIF (Cost, Insurance, Freight) for imports, with less concern about freight rates as their partners managed such matters. However, with more Vietnamese businesses now adopting CIF terms for exports, recent changes in freight rates have had a significant impact.

Mr. Nguyen Minh Nhat, Director of Nhat Nam Construction Mechanical Plywood, noted that while the wood industry is recovering quite well, continual increases in sea freight costs since May this year have triggered apprehension among many businesses. In response, they are focusing on maintaining customer relationships, increasing supply volumes, and accepting lower profits to manage these challenges in the short term. Long-term strategies include exploring closer ASEAN markets for export opportunities.

Industries heavily reliant on exports, such as textiles and footwear, which export 70-80 per cent of their production, are particularly susceptible to global market fluctuations and heavily impacted by rising sea freight rates. Clothing manufacturer Dony Garment has shifted its focus to Southeast Asian markets like Singapore, Indonesia, Malaysia, and Cambodia since late in the first quarter of this year. “These markets are fiercely competitive but offer logistical advantages with transportation costs and times often more favorable than domestic options,” said company Director Mr. Pham Quang Anh. “Given the current landscape, this is a prudent strategic move.”

Similarly, Mr. Nguyen Van Thu, Chairman of GC Food, said companies must accept higher freight charges when negotiating with customers. His company is prepared to accept lower profits and cover shipping costs to facilitate operations and maintain orders, and is also actively exploring markets nearby to boost exports.

Due to the seasonal nature of their goods, agricultural enterprises often enter into short-term contracts, leaving them vulnerable to rising transportation costs. “Excessive increases in transportation costs force us to opt for longer shipping routes,” according to Ms. Vo Thanh Chau from the Thanh Tuoi Import-Export Company in Binh Chanh district, Ho Chi Minh City. “However, perishable items like fruit and fresh produce are prone to significant losses from this.” To mitigate the losses, Thanh Tuoi has temporarily halted exports to markets with excessively high shipping costs.

In southern Ba Ria-Vung Tau province are many businesses that have proactively sought new markets, focusing on ASEAN, China, South Korea, and Japan. Traditional market demand is declining sharply due to escalating freight costs. As a result, the province’s exports in the first half of this year have gradually rebounded from these new markets and exhibited handy growth. Ms. Mai Thi Nhan, Director of the Ngoc Tung Co., Ltd, noted that while these challenges have affected operations to some extent, the company is transitioning towards retail and nearby markets in the short term to alleviate the pressure.

Seeking new markets

Many exporters and importers are gravely concerned about the worsening port congestion during the peak shipping months, which are now on the horizon. The Vietnam Logistics Service Business Association (VLA) predicts that shipping rates may continue to rise, as most vessels traveling from Asia to Europe are detouring around the Cape of Good Hope at the southern tip of Africa to avoid the conflict in the Red Sea, adding 9-14 days to the journey. Container ship congestion off the coasts of Singapore, Malaysia, South Korea, and China also remains an issue. According to Mr. Le Duy Hiep, Chairman of the VLA, exporters and importers are not only dealing with rising costs due to the recent increase in freight rates but also taking on higher risks and potential contract penalties for late deliveries.

In this context, the Ho Chi Minh City Department of Industry and Trade has advised exporters and importers to closely monitor the situation, proactively study and adopt appropriate plans, and communicate with their buyers. If necessary, delivery times may need to be extended. “Businesses should intensify their search for new export markets to reduce their reliance on certain regions,” a Department representative recommended. “They should also strengthen cooperation within the industry to share transportation costs and negotiate better freight rates with shipping lines. Leveraging science and technology can also increase product competitiveness.”

From the perspective of a regulatory agency, Department Director Mr. Bui Ta Hoang Vu said that together with various associations it is exploring niche markets and regions of potential such as India, the Middle East, Africa, and ASEAN, to help local enterprises gain access to markets where Vietnam holds strengths. Policies to defer the tax payments and debt repayments of businesses will also be implemented over the course of the second half of this year, providing further support for maintaining export growth.

Meanwhile, Mr. Nguyen Duy Hung, Vice President of the Dong Nai Import-Export Association in the southern province of Dong Nai, recommended that businesses seek reputable Tier 1 shipping agents to avoid booking through multiple agents, which can lead to higher shipping rates and surcharges than those published by the shipping lines themselves. Businesses must also understand and control the cost structure of shipping by route and unit of goods, to make optimal transportation choices.

In response to rising shipping rates, the Vietnam Maritime Administration recently held meetings with container port enterprises, shipping lines, and agents in the northern and southern regions. Mr. Le Do Muoi, Director of the Administration, noted that small-volume shippers are the most affected by rising shipping costs, whereas large-volume shippers with stable goods sources and long-term contracts benefit from stable rates while their contracts are in effect.

To mitigate the impact, Mr. Muoi urged industry associations to enhance their efforts, unite member businesses to develop production and transportation plans, and try to negotiate long-term contracts with shipping lines, thereby minimizing the impact of rising shipping rates, especially during complex and unpredictable market conditions.

The Ministry of Industry and Trade also suggests that businesses consider redirecting exports to more favorable markets closer to home, such as China, Japan, and ASEAN, to lessen the impact of higher shipping costs.