High international freight shipping rates may lead to bankrupcy for exporters

Phuc Sinh Group's factory in Binh Duong

Shipping lines are making huge profits thanks to... the Covid-19 pandemic

At the beginning of 2019, Vietnam's economy was developing quite well, and business was full of enthusiasm. We still remember at that time millions of containers exporting all kinds of goods, ships full of containers from Vietnam to all over the world. The freight rate from the port of Ho Chi Minh city going to the main European ports at that time was also quite attractive, about USD 600/20' fcl container. No one thought the world would change dramatically in just a few years with the COVID pandemic.

At the beginning of 2019 and 2020, we did not realize how terrible the pandemic was, so we still signed future sales contracts for a few months to a year. In fact, because we have not experienced major changes in the world for nearly 40 years, we are not fully aware that things can change and disappear in just a few months.

With the COVID epidemic starting in Wuhan (China), Asian countries were not the first to suffer the crisis but European countries. That's why the bottlenecks in operating and distributing goods in Europe began.

In early February 2019, the ship price from Ho Chi Minh to Hamburg increased from USD 600/container 20'fcl to USD 800/container 20'fcl. At this time, exporters had almost no reaction. Anyway,  USD 800 per container of 20' fcl is still reasonable. Then the freight increased to USD 1,000 and then USD 1,500/20' fcl container. Exporters began to feel terrible. Freight rates increase and shipping companies play the "lack of space" mentality. This means that seats on the ship are not available, and the company cuts ships, leaving buyers in a position where they have no choice.

On the one hand, the shipping company said that there was no room and cut containers-ships, and on the other hand, it also predicted that freight rates would continue to increase. At this time, the exporter hesitates or not? Or wait for shipping rates to decrease, because an increase to USD 900/cont 20' fcl means a 150% increase in value, while the selling price of the agricultural products is not much profitable? The world is flat, but agricultural goods are always sold cheap, profit margins are very low. Accepting shipments at a price of USD 1,500/cont will result in a loss of USD 900/cont 20'fcl compared to the original calculation, while the export quantity is hundreds of thousands of containers.

After 2020, the Covid situation escalated across European countries to the US, leading to thousands of deaths and pushing blockades in cities around the world. For this reason, the shipping company increased the freight rate regardless, from $1,500 to $ 4,950/20' fcl container.

2022 is the peak year for freight rates, up to $ 8,000 for a 20' fcl container, or some customers even have to buy freight up to $ 9,000/20' fcl container due to operating difficulties and the Covid pandemic.

Ship freight to the US in 2019 was $ 2,250 - 2,350/cont 40' fcl, then by 2022, exporters will have to pay "sky-high" prices: $ 21,000/cont 40' fcl and some people have to buy up to $25,000 USD- 29,000/cont 40' fcl.

Normally, in 2019, Phuc Sinh Joint Stock Company paid about VND 3.2 billion/month for ship freight, but in 2022, we have to pay VND 32 billion/month. Seeing the 10-fold difference in numbers, I felt shocked and devastated.

From 2021–2022, all shipping lines will make big profits, such as MSC, CMA, Maersk, etc... And Maersk Line shipping company profits up to $ 30 billion before taxes. Shipping lines see the Covid pandemic as where they make the most money.

Phuc Sinh Group's factory in Binh Duong

If we look back, we see that the shipping company's tactics are no different from robbery. They often say: Do you want to go or not? that's it! Or if exporters don't accept the price they offer, they are ready to throw exporters’ goods down. That behavior is no different from that of the mafia, extremely cruel, pushing many businesses into a state of exhaustion.

Why? Because we - the exporters with contracts that have sold CFR/CNF to customers, still have to buy freight. (CFR/CNF: Delivery includes cost and freight, meaning the seller delivers the goods with export customs clearance, loading the goods onto the ship of the carrier hired by the seller at the port of loading. The seller must pay the freight vessel to carry goods to the named port of destination).

Vietnam is the largest exporter in the world with countless products, from seafood, rice, coffee, leather shoes, wooden furniture, pepper, vegetables, cashew nuts..., etc. We pay them for it. Why don't we have any positions?

I want to reiterate, Phuc Sinh Joint Stock Company itself had to pay international shipping fees ranging from VND 3.2 billion to VND 32 billion/month - a horrifying number. If we look at the whole economy, the damage is terrible. Hundreds of thousands of companies have been doing business and building for many years, but now, due to expensive shipping fees, they are losing money and then going bankrupt.

And in 2023, we will once again find ourselves in that situation. In October 2023, when we were in Kohn (Germany) attending the fair, we heard about the war between Hamas and Israel. At that time, I was very sad and worried, because we had a lot of customers on both sides. In fact, the spices we sell in Israel account for up to 70% of the market share, so if there is a war, our customers will be affected the most, and there will be many worries and pain.

Then the first thing I was told was that the shipping price from USD 700/Cont 20' fcl from Ho Chi Minh City port to Hamburg increased to USD 1,500 and then to USD 4,100/Cont 20' fcl. In my head, I thought, "Another increase?". I think of the terrible feelings about freight rates of 2020-2021-2022!

There are many shipping companies that have containers on board but are still cruel and unreasonable to the point of blatantly charging "war surcharges". Freight to New York, USA from $2,200/cont 40' fcl to $ 5,000 and $7,100/cont 40' fcl. They used their old cards again, reducing the number of ships without space and challenging exporters.

In fact, instead of going through the Sue Canal, shipping lines now have to go through the Cape of Good Hope, a longer route but unable to increase prices so much! But they didn't encounter any symmetrical resistance, so they kept doing it. In the past, they "robbed" in the dark, but now they blatantly "eat" on the backs of businesses in broad daylight! And in 2023-2024, we will see huge pre-tax profits of shipping lines.

They do business in Vietnam, and we, the "huge" exporters of all goods going around the world, need to have a voice, the departments need to have a voice to make them less greedy! A shipping company's profit of 30 billion USD a year is too terrible, and the money is taken from export companies like in Vietnam!

2024 will be a year full of challenges and difficulties around the world. Hopefully we will unite and share to overcome it together. Hopefully departments will speak up more strongly; Shipping companies should not push exporters into bankruptcy because of their "sky-high" international freight rates…