Sea freight rates hit record highs
According to the Vietnam Pepper Association (VPA), in the first 6 months of 2021, pepper exports are estimated at 155,000 tons, worth 500 million USD, down 7% in volume but up 41% in value over the same period last year before.
Besides the impact and influence of the Covid-19 epidemic, logistics costs are the main cause of many difficulties and losses for pepper businesses’ exports.
The reason for the increase in sea freight rates given by carriers is the consequence of the Covid-19 epidemic leading to a shortage of containers. However, Vietnam’s goods exports in the first five months of 2021 increased over the same period. In addition, container throughput through Vietnamese ports in the first quarter of 2021 has nearly doubled over the same period last year. Thus, the information about the lack of empty containers from shipping lines is considered by VPA to be completely incorrect.
“Pepper enterprises buckling the price”
For pepper Viet Nam, the US is the main and most important market with export volume accounting for 20-25% per year, always maintaining a stable purchasing power until now. In addition, the EU is also a key market and a target market for most businesses in the context of Free Trade Agreements (FTAs) increasing the purchasing power of this market.
However, these are the two sea freight routes with the most galloping and unusual increase in freight rates with an increase of about $1,500-2,000 for a 40-foot container every two weeks. According to VPA, it is not excluded that the cost increase from the intermediary unit is a shipping agent (FWD) which resonates to create false psychology on the issue of the price increase.
In fact, the US market always buys goods on CNF terms with all risks of shipping costs borne by Vietnamese enterprises. The term of the delivery contract always ranges from 1 month or more. Businesses can take the initiative in the source of goods, but with the transportation stage, the opposite is true.
This causes supply chain disruptions. Goods produced but cannot be exported force enterprises to hire more warehouses for storage, money is stagnant, customers do not receive goods, and businesses do not have the money nor dare to import more raw materials to produce production, directly affecting the production and consumption of goods by farmers.
The risk of losing key export markets
Currently, the increase in sea freight rates is a very serious issue that negatively affects the pepper export situation. Sea freight rates are too high, leading to exporters losing the market to direct competitors like Brazil because the shipping cost from Brazil to the US is only 1/3 of that from Vietnam, and from Brazil to the EU is only 1/10 of that from Vietnam.
Exporters are forced to accept all risks to try to retain these two important markets by trying to maximize profits, even accepting losses. However, the galloping increase in freight rates, with no downward trend, causes businesses to be eroded, facing the risk of bankruptcy.
Faced with many difficulties, VPA proposed that 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 Logistics Service Enterprise Association report to the Prime Minister to work with shipping lines, consider finding ways to solve the problem of lack of containers, lack of space and return freight rates to the way they were before.
At the same time, the Association wants the Government and ministries and sectors to continue to influence, requiring carriers to publicly and transparently charge freight rates on the company’s official website, and publish a clear fee schedule. . It is recommended that the authorities continue to have direct dialogues with major shipping lines, request shipping agency units to apply a common price increase to avoid the current tariff disturbances, and stop the phenomenon of FWDs abuse of power to oppress businesses, etc.