Container shortages causing price hikes and export struggles

Container shortages causing price hikes and export struggles (photo: shutterstock)

Nguyen Dinh Tung, general director of Vina T&T Group, told VIR that there is a demand for about 2,000 containers in the market, but shipping lines can only meet about half of that. Thus, only enterprises with large market shares in export markets, long contracts, and financial resources can hire a limited number of containers.

“While China is exporting its goods at all costs, a 40-foot container to the US costs up to $4,000, instead of the $1,500 at the beginning of the year,” Tung explained, adding that these increased costs put “high pressure on domestic exporters as the profit for agricultural goods sits around a tiny margin of $1-2 per kilogramme.” In contrast, China mainly exports high-value goods, such as phones and electronic components. Thus, it is not too difficult to add shipping costs as its companies’ profit margins remain reasonable. This was reinforced last week, as China’s National Bureau of Statistics announced that its November composite purchasing managers’ index stood at 55.7 points, higher than October’s 55.3 – showing that the Chinese economy is regaining its growth momentum after radical pandemic prevention measures.

Prevalent scarcity

According to a survey by the Vietnam Logistics Business Association (VLA), about 40 per cent of enterprises said they had difficulties delivering and receiving empty containers at gathering places, with some exporters even receiving notice that there is no empty container available for their already booked cargo ship.

More than 40 per cent of businesses made reservation departments of shipping lines responsible, saying they had accepted more bookings than there were containers available, while another 17 per cent said sales departments could simply not access rentable empty containers.

For many exporters, the lack of containers is unacceptable. According to Phan Van Co, marketing director of V Rice Co., Ltd., a series of his company’s rice export orders are due for delivery but still waiting for shipping lines to announce the container gathering points. Meanwhile, the cost of his firm’s shipments is increasing day by day as 5-10 per cent extra fees are added at the port, while shipping by sea now takes 7-10 days longer than usual. Currently, Vietnam cannot compete with China, said Nguyen Tu Uyen, general director at CMU Logistics Transportation Co., Ltd. “Vietnamese exporters are paying around $4,000 per 40-foot container, while their Chinese counterparts are willing to pay up to $6,000.”

An announcement by the US Federal Maritime Commission showed Vietnam is no exception when it comes to the lack of available containers as the office launched an investigation into the business practices of foreign shipping lines at US ports. The move came after American exporters complained that they were refused by foreign shipping lines as these allegedly gave priority for empty containers to be returned to Asia for Chinese goods.

As COVID-19 hit, many shipping lines went into hibernation. Trade gradually increased again in the second quarter and container rents began to rise at the beginning of the third quarter, as Chinese economy gradually recovered, with exporters launching goods for the year-end holidays. China’s sustained recovery will also depend on its US relations. However, as US and Chinese negotiators in August agreed to continue implementing the trade agreement that both signed in January, China may import an additional $200 billion worth of American goods in the next two years, meaning China may once again adjust its supply chains, thus adding to the container issue.

Dire outcome

CMU’s Uyen warned that if the shortage of containers is not quickly remedied, exporters and logistics firms will be the ones to suffer. “For the moment, we revised the company’s service operations and reduced our rates by 40 per cent on domestic routes to support our customers and keep the revenue running,” Uyen said. “However, we cannot cut costs further as our fleet’s size would be narrowed, and who knows how long we could withstand those losses.”

Meanwhile, domestic rates of shutdowns and dissolutions are high across the entire Vietnamese logistics industry. About 585 transportation and warehousing firms have completed dissolution procedures in the first nine months of 2020, according to the General Statistics Office, and since May a fifth of such enterprises have reduced their activities.

While government support in the form of tax and fee reductions for pandemic-battered logistics firms is “highly appreciated” as PT Transport Logistics Co., Ltd.’s director Nguyen Thuy Trinh said, most receivers see this only as a temporary measure.

The impact of COVID-19 on the sector was more pronounced in the second quarter, not only because of declining trade but also due to shortage of workers and inability to change crew members following regulations on isolation for importing countries.

As prices for 40-foot containers are now more than twice as high as at the beginning of the year, some shipping lines like South Korea’s Hyundai Merchant Marine reduced their weekly runs from three to just one, noted Trinh. “Because containers are scarce, those shippers reduce the number of trips to ensure profits,” she explained.

As China remains the main source for globally-demanded goods and raw materials, shipping lines often seem to prioritise empty containers to be returned there, before arranging them for other markets in the region, such as Vietnam, Thailand, and Indonesia. The global logistics market is now being driven by resumption of trade flows amid the pandemic. Furthermore, trade facilitation policies by the government have also assisted local exporters’ expansion. Nonetheless, freight rates and lack of available containers remain bottlenecks, reducing their competitiveness.