Suez Canal fiasco adding to prolonged trade difficulties

The blockage at the Suez Canal could have been much worse were it not for a successful dredging operation. Photo: AFP

The exports of Tien Dat Wood Technology JSC to Europe are suffering additional effects from the congestion in the Suez Canal, while the pressure of a supply chain disruption by COVID-19 still exists. A third of the company’s current output is exported to the European market. This figure will rise to a higher level by the end of this year, an expected 60 containers per month when Tien Dat completes the equipment upgrade at its third plant.

Tran Quoc Cuong, deputy director of Tien Dat, told VIR, “The company is currently waiting for the machinery to be imported.”

If the ships pass through South Africa’s Cape of Hope, Cuong worries that the journey from Europe to Vietnam will take “another two weeks and come with significantly increased costs.”

Salvage teams on last week’s Monday finally freed the colossal container ship Ever Given, ending a week-long crisis that had clogged one of the world’s most vital waterways and halted billions of US dollars a day in maritime commerce.

The incident also affected the plans of Dalat Worsted Spinning Co., Ltd. (DWS), a subsidiary of German Südwolle Group. DWS produces wool yarns from wool in the Central Highlands city of Dalat for export to the European market, with the largest buyer being Germany. As the global health crisis remains largely under control in Vietnam, with the situation also getting better in Europe, Alessandro Di Palma, general director at Südwolle, hopes now to handle the “large amounts of inventory that got accumulated during the pandemic, helping the plant to operate at its correct capacity.”

European and Vietnamese trade is promoted by the EU-Vietnam Free Trade Agreement, which helps to partially limit the negative impact of the pandemic.

Data from the Ministry of Industry and Trade shows that in 2020, Vietnam exported goods to Europe with a turnover of $43.7 billion and imported wares worth $18.5 billion. In the first three months of 2021, Vietnam exported $9.6 billion to Europe and imported $4 billion from this market, corresponding to a growth rate of 14.2 and 15.4 per cent on-year.

Europe’s measures to control COVID-19 are taking slowly effect, with some countries gradually reopening their economies. Vitajean Co., Ltd. hopes to regain its production and export momentum in the second quarter, and other textile and garment exporters such as Vitajean, Garment 10, and Vinatex are betting on the long-term growth potential of this market of more than 600 million consumers to reduce the negative effects of the US-China trade tensions and COVID-19.

Their expectations, however, meet the risks from supply chain interruptions that cause some exporters to consider changing their sourcing plans. Nguyen Huu Thanh, director of Eurolink JSC, considered importing raw materials from South Korea – a country that allows apparel and footwear products to enjoy cumulative origin rights when exporting to the European market. “Eurolink is dependent on 85 per cent of high-end raw materials imported from this market,” Thanh said.

Meanwhile, the average shoe export prices of Vietnam are no longer low, partly due to the higher labour costs. Currently, the average price lies somewhere around $17 per pair, with the average export price of Europe being $25 per pair.

Meanwhile, the average export price of shoes worldwide sits at only $9 per pair, according to calculations of the Vietnam Leather, Footwear and Handbag Association.

Tran Thanh Hai, deputy director of the Agency of Foreign Trade under the Ministry of Industry and Trade, said that imports and exports between Vietnam and Europe are mainly transported by sea, passing through the Suez Canal, and only small volumes are transported by air and rail.

However, the incident at the Suez Canal contributed to increasing the difficulties for Vietnamese importers and exporters, while the shortage of containers and the rising cost of ships due to the pandemic continued to stress global supply chains.

The incident on the Suez Canal – an important point on the journey to Europe – demonstrates the role of logistics in global trade. Some of Vietnam key export sectors to the European market in 2020 included phones and accessories ($10 billion); computers, electronic products, and components ($6.5 billion); and machinery, equipment, and tools ($3.5 billion).

The congestion on the Suez Canal has finally been resolved, but extreme market fluctuations and incidents like with the Ever Given can occur at any time, showcasing the sensitive state of international routes.