Foreign ocean carriers call shots on freight costs

Freight costs are fluctuating on a regular basis, putting pressure on exporters. Photo: Le Toan

Ho Duc Lam, chairman of the Vietnam Plastics Association, expressed his concern for the over 3,000 plastics manufacturers as they have been suffering under the pandemic and in exporting cargo overseas due to the increase of freight costs.

Lam said that this chaotic situation has been going on for the past year, with no positive changes so far.

“Our members have to complete orders from foreign partners, but they don’t know whether their goods can be exported. Numerous manufacturers cannot export due to either a lack of empty containers or missing booking confirmations from carriers and forwarders. As a result, the volume of unsold products increases, leading to plunging revenues and a lack in cash inflow that threatens their operations,” Lam said.

Representatives of other business associations in Vietnam also expressing frustration at a webinar organised last week discussing the ocean-freight charges amid the ongoing pandemic by the Vietnam Maritime Administration under the Ministry of Transport, and the Agency of Foreign Trade under the Ministry of Industry and Trade.

A representative of the Vietnam Pepper Association told VIR, “Our members are almost numbed by the rocketing ocean-freight costs during the past year.”

The representative reported that in the first six months of the year, the pepper sector had an export capacity of 155,000 tonnes with an export turnover of $500 million, down 7 per cent in quantity but up 40 per cent in value. The soaring fees for logistics, including seaborne-freight costs, are the main threat impacting local exporters.

Tran Phuoc Hau, deputy general director of Pearl Trading Services and Import-Export JSC said, “Costs for transporting freight by sea from Vietnam to overseas, especially to the United States and the European Union, increase every two weeks without any fixed schedule at all. Normally, we have between one and two months to prepare our cargo after signing the contract, and the selling prices are calculated based on the freight costs at the time. However, we cannot just charge arbitrarily high selling prices with the explanation that the freight costs will change non-stop. Thus, we are forced to accept the risks.”

Hau further explained, “Working with foreign carriers and forwarders is tedious. They don’t agree to sign long-term contracts with us. There are many times that we are in an awkward situation in which we had to store goods in the warehouse for a long time to wait for booking confirmations. However, after receiving such confirmation, forwarders sometimes inform us that they run of empty containers. The company had to work with foreign partners due to delays in sending goods. Numerous partners cancelled the orders and look for other suppliers.”

Statistics published by the Vietnam Pepper Association showed that the transporting charge for a 40-feet container to the EU is $11,000 per container, up to 13 times more compared to 2020. Meanwhile, freights to the US are currently charged at an average of $13,500 per 40-feet container, up to six times higher than last year.

At present, there are 10 foreign ocean carriers operating in Vietnam, including Evergreen, COSCO, MSC, and Maersk.

At the webinar, representatives of the carriers CMA-CGM, Evergreen, and COSCO said that they all publish freight costs on their websites. The difference between the listed charges and costs, in reality, depends on the demand and supply of the market and the agreement between manufacturers and forwarders. Thus, carriers would not interfere in these agreements.

Responding to this opinion, the representative of the Vietnam Pepper Association told VIR that domestic container carriers do not have the capacity to carry cargo overseas. Thus, exporting goods depends absolutely on foreign ocean carriers, but these do not work directly with manufacturers and exporters. Meanwhile, the monopoly of forwarders brings them in a position to manipulate freight charges.

“The problem is that the forwarders are just an intermediary for booking confirmations and to provide information to carriers. They do not have the function to take care of all the necessary legal procedures for exporting cargo,” the representative said.

“In addition, foreign carriers cannot deny their responsibility in this situation. Members of the association complained that almost all cargo is gathered at Cat Lai Port before being exported. However, carriers often put their containers at Cai Mep Port and then ask manufacturers and exporters to hire ships to take these back to Cat Lai,” he added. “In another case, carriers have available shippers at the port but they inform customers that there is no one here and then ask the customers to pay charges to manoeuvre their cargo to the port. These unreasonable situations make manufacturers and exporters suffer more damage.”

Hoang Hong Giang, deputy director of the Vietnam Marine Administration, said at the webinar, “The administration will send documents to carriers and forwarders to ask them to explain the consecutive increase on freight costs. It is necessary to ensure transparency in freight charges.”

Besides that, Giang pointed out that the administration advises competent authorities to develop appropriate regulations, requiring carriers to ensure the stability of shipping lines and trips, as well as the number of vehicles and schedules when they operate in Vietnam.