Incident shows need for logistics resilience

What role does the Suez Canal play when it comes to Vietnamese trade?

Tran Thanh Hai, deputy director of the Ministry of Industry and Trade’s Agency of Foreign Trade

The Suez is the world’s vital navigation channel. For Vietnam, this is a delivery channel with Europe and a part of the east coast of America.

In 2020, Vietnam’s exports to Europe reached a turnover of $43.7 billion, and imports from this market were $18.5 billion. In the first two months of 2021, the export figure was $7.5 billion, and imports $3.1 billion, corresponding to the growth rate of 18 and 12 per cent, respectively. Europe is currently Vietnam’s fourth-largest trading partner after China, the United States, and South Korea.

In addition to a small volume of goods transported by air and rail, imports and exports between Vietnam and Europe are still transported by sea, passing through the Suez Canal.

Which markets and commodities are most affected and need to be taken into consideration?

Goods exported to Europe will be affected the most. The EU’s main exports to Vietnam are high-tech products including electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products. Vietnam’s main exports to the EU are telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, seafood, and furniture.

The Suez Canal incident exposed the weakness of the global supply chain. It also exposed a shortage of containers, thus the unexpected issue was also one of the factors that increased concerns of importers and exporters, especially in context of a lack of empty containers.

In the current context, impacts on natural disasters and epidemics greatly affect the global supply chain.

Businesses need to proactively plan to adapt and withstand external impacts on the supply chain, and build a contingency plan in case of instability.

Although the route has reopened, trade will still have to catch up. How does the Ministry of Industry and Trade support local importers and exporters, and what are the lessons for them?

The ministry directed the Vietnam Trade Office in Egypt to closely monitor the progress to inform import and export businesses. We also coordinated with the Ministry of Transport to understand the schedules of key ports and take necessary measures in case the incident at the Suez Canal persisted.

Along with the scarcity of containers and rising shipping rates, the incident at the Suez Canal shows the essential role of logistics in economic development and trade in particular, and global supply chains can be affected and broken anytime and anywhere. Thus businesses need to have strategies to improve their resilience, diversify, and make backup plans for emergencies to reduce damage to a low level.

For the Asia-Europe transport route, businesses should consider and take advantage of the intermodal rail transport plan. With the transit time from Vietnam to Germany only about 29-30 days and the cost is only marginally higher than the shipping rate at this time, this could be seen as a suitable choice in the current context.

Furthermore, insurance should be mentioned. Some importers and exporters still underestimate the role of insurance, seeing insurance as a cost, not as a tool to prevent risks. Recent changes have forced them to change this way of thinking.

How do you evaluate Vietnam’s import and export situation in the first quarter?

In the first quarter, export value increased 22 per cent while import increased 26 per cent, trade surplus was over $2 billion. The world is still under the impacts of the pandemic, combined with shortages of containers, rising shipping rates, and most recently the incident on the Suez Canal.

The growth in exports is contributed by businesses’ efforts and relevant authorities through taking advantage of trade agreements.

Currently, the electronics and wood furniture industries are benefiting thanks to the high demand in the European and North American regions. However, the difficulties in textiles and clothing, as well as footwear, are still great due to the impact of the supply chain breakdown, not only in the supply but also in the operation chain. Regarding import activities, the main product is mainly raw materials for export orders.