'Diagnosing' the reason why shipping rates are increasing day by day

Freight rates increase vertically

Vincent Clerc, CEO of Danish shipping giant Maersk, said container shipping costs have increased “almost vertically” over the past month. Specifically, in the week ending June 6, Drewry’s container freight index increased 12% to $4,716 per FEU (40-foot container), an increase of 181% year-on-year and 232% higher than the 2019 average.

'Diagnosing' the reason why shipping rates are increasing day by day

For example, the Shanghai to Genoa route rate was $6,664 per FEU, up 213% year-on-year. Additionally, the Shanghai to New York route rate recently reached $6,463 per FEU, up about 142% year-on-year, while the Shanghai to Los Angeles route rate recently reached $5,975 per FEU, up about 215% year-on-year.

According to the Vietnam Maritime Administration, statistics from the beginning of June 2024, the price of shipping container goods by sea to European countries and the United States is on an upward trend, the world container index increased by 12% to 4,716 USD/40-foot container last week.

According to data from the international logistics exchange Phaata, freight rates on the Ho Chi Minh City -US route are rising sharply. Meanwhile, the Drewry World Container Index (WCI) increased by 12% to $4,716 per 40-foot container in the week from May 30 to June 6, and by 181% compared to the same period last year. From Shanghai to Genoa, freight rates increased by 17% to $6,664 per 40-foot container. Freight rates from Shanghai to New York increased by 6% to $7,214 per 40-foot container.

Mr. Truong Dinh Hoe - General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP) - informed that the world's vital shipping routes from the Red Sea to the Gulf of Aden have been severely affected by the escalating geopolitical conflict in the Middle East. For a long time, the Mandab Strait - one of the busiest shipping routes in the world with a capacity to handle about 15% of the value of global maritime trade - has been significantly disrupted by attacks by Houthi rebels on cargo ships in recent times. Most cargo ships still avoid moving into the Red Sea area, with the number of daily movements down by two-thirds compared to the same period last year.

The drought in the Panama Canal, which handles 5% of global maritime trade, has gradually improved as daily transits have increased. However, the Panama Canal’s capacity remains below the normal daily average of 34-40 transits, and cargo traffic is expected to return by 2025. A recent blockage in Singapore has raised concerns about supply chain disruptions and rising commodity prices.

“The congestion in Singapore stems from many factors, from the trend of changing shipping routes when the Red Sea is unstable to the rush to transport goods before the new tariffs imposed by the US on Chinese goods take effect,” Mr. Truong Dinh Hoe shared.

Many industry experts say that the US plan to impose heavy tariffs on many types of Chinese goods from August 2024 has caused Chinese exporters to boost exports ahead of schedule. Therefore, many Chinese exporters are paying higher prices to shipping lines to secure space on ships bound for the US and Europe.

Chinese businesses are willing to pay up to 1,000 USD for a slot on the ship, while Vietnam only pays 600 USD. Therefore, shipping lines have almost always prioritized China, reducing trips to other countries, including Vietnam, leading to the current situation of huge price increases.

Mr. Do Ngoc Tai - General Director of Tai Kim Anh Seafood Processing Joint Stock Company - informed that shipping rates have increased dramatically by 40% since May due to the war in the Middle East and China collecting empty containers to prepare for exporting to the United States before the new tax deadline. Similarly, with the EU market, shipping rates have increased dramatically by 60% due to having to go around, China collecting empty containers to export to the United States.

In the pepper and spice industry, Ms. Hoang Thi Lien - President of the Vietnam Pepper and Spice Association - informed that pepper exporting enterprises are facing double difficulties when pepper prices increase, businesses cannot buy goods, along with that, transportation costs increase. The reason may be that China collects empty containers for export.

Narrowing business profit margins

Some export businesses reported that the freight rate for a container to the US market has increased from nearly 3,000 USD to nearly 7,400 USD; the peak season fee is usually around 300 USD/container, but now shipping lines have reported an increase to 1,000 USD/container... Shipping rates fluctuate daily. Shipping lines also quote prices weekly instead of 15-30 days as before.

Meanwhile, Vietnamese businesses have almost no choice because in terms of international shipping, the Vietnamese shipping fleet is currently only responsible for transporting about 10% of the market share, mainly transporting routes such as China, Japan, Korea and Southeast Asia. Vietnam's export activities to major markets such as the United States, EU... depend on foreign shipping lines.

Notably, according to Vincent Clerc, the sharp price increases could prompt more Western retailers to move Christmas goods in larger volumes and earlier than usual. This could put additional pressure on global supply chains. Retailers who replenish their inventories earlier are in a dilemma. The more they try to order goods early to avoid late deliveries, the more delays they see.

Mr. Nguyen Hoai Nam - Deputy General Secretary of VASEP - said that the sea freight fee is being recorded to increase again, causing difficulties for the seafood industry. Because businesses in the industry mainly operate in export, using more than 1 million containers each year, but currently, it is very difficult to book containers.

Meanwhile, Mr. Ho Quoc Luc - Chairman of the Board of Directors of Sao Ta Food Joint Stock Company - said that sea freight rates to North America and Western Europe increased by 100% compared to the low season, while the prices for routes to Japan, Korea, and Australia were more stable. The increase in freight rates will reduce the company's profits.

In the face of the above situation, the Vietnam Maritime Administration has just requested the Maritime Port Authorities to coordinate with Maritime Sub-Departments and relevant authorities, associations and units to strengthen the supervision of maritime transport businesses and providers of container cargo transportation services by sea in posting prices and surcharges outside the price of container cargo transportation services by sea (prices and surcharges outside the price); compliance with the validity of posting prices and surcharges outside the price as prescribed in Decree No. 146 of the Government.

Units are assigned to monitor and report to the Department when there is congestion at seaports, as well as when there is an abnormal imbalance in container shells serving import and export goods.

The Vietnam Maritime Administration in Ho Chi Minh City is assigned to preside over and coordinate with the Maritime Administration in Hai Phong and the Maritime Port Authorities in Ho Chi Minh City, Vung Tau, and Hai Phong to monitor statistical data on price increases/decreases and surcharges for a number of shipping lines providing container freight services to Europe and the United States, including: Maersk, MSC, CMA-CGM, ONE, Hapag-Lloyd, Evergreen, HMM, COSCO, Yang Ming, OOCL...

At the same time, proactively work with representatives of the above shipping lines in Vietnam and related units to grasp the reasons for increasing/decreasing service prices when there are signs of sharp increase/decrease and other issues related to the shipping line.

Source: https://congthuong.vn/bat-benh-ly-do-gia-cuoc-tau-bien-tang-cao-tung-ngay-325713.html