Vietnam at risk of losing pepper export markets due to high freight costs

Vietnam is at risk of losing out on major pepper export markets due to increasing logistics costs, according to the Vietnam Pepper Association (VPA).

In the first six months of 2021, Vietnam’s pepper exports were estimated at 155,000 tonnes, earning 500 million USD. The exports decreased by 7 per cent in volume year on year, though increased by 41 percent in value due to higher export prices, VPA said.

On top of the decrease in pepper output this year due to the COVID-19 pandemic, logistics costs are behind the decrease in pepper export volume.

The logistics costs include two main parts – wharf fees (including loading and unloading of goods, as well as administrative procedures) and costs related to shipping containers by sea.

The local enterprises said that the cost of shipping pepper from Vietnam to key export markets such as the US and the EU increased sharply in the first six months of 2021. This upward trend has shown no signs of slowing, according to the association.

VPA said freight costs for routes from Vietnam to the US and the EU have seen strong increases of 1,500-2,000 USD for a 40-foot container every two weeks.

The cost of shipping commodities now is about 13,500 USD for a 40-foot container from Vietnam to the US, much higher than 2,000-3,000 USD in 2020.

In 2020, this cost was stable at 800-1,200 USD for a 40-foot container shipped to the EU, but it has surged sharply since the beginning of 2021 to over 11,000 USD at present.

According to the association, shipping lines said the higher freight costs are due to a shortage of empty containers.

However, the number of containers through Vietnamese ports in the first quarter of 2021 has nearly doubled compared to the same period last year, while Vietnam’s exports also increased in the first five months of 2021, it said.

"Thus, the claims of a lack of empty containers given by the shipping lines is incorrect," VPA told chinhphu.vn.

VPA also said the freight for containers shipped from other Asian countries such as India to the US and EU have not increased as much as the freight for containers coming from Vietnam. This freight increase is unreasonable and abnormal because the oil prices and core cost of shipping, is at a much lower level than before.

This has caused US and EU importers to switch to buying pepper from Brazil because the shipping cost is only a third of that from Vietnam and to the EU is only one tenth. Additionally, the quality of Brazilian pepper is similar.

Vietnam’s pepper exporters are forced to cut back on profits and even accept losses to keep these two important markets, the association said.

Along with the impact of the COVID-19 pandemic over the past two years, the high freight cost has pushed many local export enterprises into difficulties. Meanwhile, most local pepper exporters are small and medium-sized enterprises with weak finance, so they face a high risk of bankruptcy or dissolution.

VPA has reported this situation to the Ministry of Industry and Trade, the Ministry of Transport, the Ministry of Agriculture and Rural Development, the General Department of Vietnam Customs and the Vietnam Association of Logistics Service Enterprises with a hope that the Government will develop solutions to remove these difficulties.