Businesses have a "headache" with transportation prices

Freight rates to some distant markets such as the United States and the European Union (EU) have increased to US$7,000-8,000.

Spike

Representing businesses in the wood and forest products industry, Mr. Ngo Sy Hoai, Vice President and General Secretary of the Vietnam Wood and Forest Products Association (VIFOREST), said that Vietnam's wood industry has risen to rank 5th in the world in exports and ranked 2nd in the group of wood products with high added value, wood exports reaching 170 markets around the world. In the first 6 months of 2024, wood exports are estimated to reach US$7.8 billion, an increase of over 21 percent compared to the same period last year.

VIFOREST representative shared that businesses in the wood and forest products industry are having a "headache" due to the sudden increase in sea freight rates. According to businesses, sea freight rates to some distant markets such as the United States and the European Union (EU) have increased to US$7,000-8,000, or even higher, while one month ago, it was only at US$3,000-4,000. Furthermore, businesses are still finding it difficult to order empty containers, having to wait for long time for containers to transport.

Sharing more about this issue, Mr. Le Quang Trung, Deputy General Director of Vietnam Maritime Corporation, Vice Chairman of Vietnam Logistic Services Business Association (VLA) said, in the past 6 months, shipping costs have increased very high, many transport routes connecting from Vietnam and Southeast Asia to Europe or the East and West coasts of the United States have increased approximately during the Covid-19 period.

The reason is due to the impact of geopolitical conflicts in the world and the crisis in the Red Sea, causing shipping companies to change their routes. Instead of going directly through the Suez Canal, they have to go around the Cape of Good Hope (South Africa), increasing the distance to over 8,000 nautical miles and extending the time by 2-3 weeks. This affects shipping plans, delivery plans and also affects the quality of goods.

In addition, Mr. Le Quang Trung said, some manufacturers are implementing a "tax evasion" strategy when some international markets such as the United States, the EU plans to adjust tax increases, so transportation demand also tends to increase... In addition, unclear information before the US Presidential election also affected market psychology, locally increasing transportation demand in the last months of the year.

Along with increased transport costs, according to Mr. Tran Thanh Hai, Deputy Director of the Import-Export Department (Ministry of Industry and Trade), the increase in surcharges is also a notable issue, so the authorities have worked with shipping lines to try to bring those surcharges into line. Even if there is an increase, it is not too high or unreasonable, it can be at an acceptable level to support businesses to ensure effective exports.

Share risks, stabilize trade

Regarding the above situation, businesses and transport and logistics businesses must come up with a response plan. According to Mr. Le Quang Trung, with the companionship of Government agencies as well as close coordination between world logistics associations and manufacturers, logistics costs will be adjusted. In addition, this requires companionship and coordination between businesses and shipping companies, seaport operators, and ships to arrange appropriate delivery plans, especially paying attention to the issue of arranging empty containers to ensure the needs of production and export of goods.

In addition, the VLA representative also commented that variable freight rates have reached their peak, so shipping lines are trying to adjust their plans to stabilize in the direction of mitigation.

According to experts, businesses can make efforts to negotiate to find ways to reduce ship freight costs or can consider the option of temporarily suspending exports of less important orders... At the same time, it is necessary to strengthen cooperation between logistics service providers, regulatory agencies and other businesses to share risks and stabilize trade. Previously, the Ministry of Industry and Trade also repeatedly recommended that businesses need to negotiate contracts with importers, reduce production costs, convert to higher value-added production and diversify markets...

However, according to Dr. Irfan Ulhaq, lecturer in Logistics and Supply Chain Management, RMIT University, pressures on transportation prices or supply chain disruptions can be a push for businesses operating in Vietnam to reconsider their supply chains.

He emphasized, this can promote a shift towards a near-shoring strategy (production in neighboring countries) or re-shoring (returning to domestic production) to bring production activities closer to move production closer to key markets, although such changes will come with challenges and push up costs. Therefore, innovative solutions and strategies are needed to minimize challenges and maintain competitive advantage in the global market.