Lowering logistics expenses in the maritime transport sector necessitates proactive measures from businesses and active involvement from regulatory agencies.
Sea freight rate prediction is challenging
Information from the Vietnam Maritime Administration (VMA) indicates that international container shipping rates peaked in September 2021 as the impact of the Covid-19 pandemic led to congestion in the shipping supply chain. Subsequently, fares gradually declined, and they returned to nearly pre-pandemic levels by the end of 2023. However, freight rates surged again at the beginning of 2024, especially for routes to Europe and America, driven by armed conflict in the Red Sea region. Cargo ships had to alter their routes to circumnavigate the Cape of Good Hope, resulting in shipping times extending from ten to 14 days compared to before and causing freight rates to soar to twice the levels seen at the end of 2023. As of early March 2024, fares have shown a gradual decrease, currently down by 29 percent compared to the peak in January 2024, but remaining 53 percent higher than the same period last year.
According to the VMA, sea freight rates are challenging to forecast and heavily reliant on the international market. With up to 80-90 percent of goods bound for Europe and America on a buy-CIF-sell-FOB basis, where the seller delivers goods to a port in Vietnam, the hiring of vessels and payment of freight rates are mainly undertaken by foreign partners. Only about 10-20 percent of goods are directly paid for by Vietnamese import-export businesses. Consequently, freight rate hikes mainly impact small customers with short-term contracts and fluctuating cargo volumes. However, for customers with long-term transport contracts covering a year, freight rates are less susceptible to price fluctuations during the contract period.
The VMA reports that the maritime transport market is expected to undergo various complex changes in the foreseeable future due to ongoing armed conflicts. As a result, import-export enterprises must proactively make production and transportation plans to ensure that entering into long-term contracts significantly mitigates the impact of fluctuating freight rates.
In Vietnam, currently, there are 38 foreign shipping companies providing container transport services, handling over 90 percent of the import-export cargo volume. Among them, ten major shipping lines manage long-distance transportation to the Americas and Europe. Most foreign shipping companies operating in Vietnam have representatives as wholly foreign-owned enterprises, acting on behalf of the shipping lines to conduct business activities and serve as agents under contracts.
Addressing concerns about potential pressure from shipping lines on Vietnamese shippers, Ms. Nguyen Thi Thuong, Head of the Transport and Maritime Services Department at the VMA, highlighted Vietnam's position as the third-largest market in the region, trailing only behind Singapore and Malaysia in terms of import-export cargo volumes through its ports. With such a significant market, shipping lines are hesitant to exert pressure. In reality, sea freight rates are globally standardized, and surcharges are applied uniformly at all seaports. Current rates in Vietnam are not the highest in the region. However, she emphasized the need for more transparent management.
Transparent freight rates and surcharges
If sea freight rates predominantly affect smaller-scale shippers negatively, then the service surcharges imposed by shipping lines impact all Vietnamese shippers, irrespective of their import-export scale. Mr. Nguyen Hoang Anh, Secretary of the Vietnam Ship Agents, Brokers, and Maritime Services Providers Association (Visaba), mentioned that foreign shipping lines currently levy approximately ten types of surcharges on cargo being loaded or unloaded at ports. Among these, the largest is the container handling fee, uniformly applied by all shipping lines to both export and import cargo.
According to Mr. Phan Thong, Secretary-General of the Vietnam Shippers' Council, the recent sudden changes in port handling surcharges have significantly affected shippers. When Circular No.39/2023/TT-BGTVT by the Ministry of Transport, which adjusted the container handling fee by about 10 percent, was enacted, shipping lines tripled the surcharge compared to the revised loading and unloading fee, leading to considerable losses for shippers. Currently, the container handling service fee has risen by approximately 4-20 percent, ranging from US$120-US$155 per 20-foot container and $180-$220 per 40-foot container.
Mr. Le Do Muoi, Director of the VMA, highlighted several shortcomings in freight rate and surcharge management. He pointed out that shipping lines often list freight rates at excessively high levels to comply with pricing regulations while actual rates remain undisclosed, citing business confidentiality. Moreover, surcharge listings lack details such as start and end times, reasons for collection, and records of listing and changes. Vietnamese shippers, typically not involved in negotiating transportation contracts, are compelled to accept terms set by shipping lines to obtain cargo. Furthermore, shipping lines' surcharge prices are not registered or declared to authorities, hampering rate and surcharge control. Therefore, a more comprehensive management mechanism is necessary beyond the current pricing disclosure system.
According to Director Le Do Muoi, the VMA has partnered with relevant agencies like the Import-Export Department under the Ministry of Industry and Trade and the Price Management Department under the Ministry of Finance to convene meetings with shipping lines offering container cargo transportation services by sea regarding the surge in sea freight rates. The VMA has also directly collaborated with shipping lines and related associations to explore solutions for managing the increase in sea freight rates. Shipping lines have pledged to review container loading and unloading surcharge prices and other fees to ensure they are adjusted more appropriately.
Ms. Nguyen Thi Thuong, Head of the Transport and Maritime Services Department at the VMA, outlined a fundamental solution to reduce logistics costs in the maritime port sector. She mentioned that the Law on Price 2023 will come into effect on July 1, 2024, and based on this, the Ministry of Finance is drafting guiding decrees. The Ministry of Transport has proposed to the Ministry of Finance to include shipping line surcharges for container goods in the list of declared prices in the draft decree guiding the Law on Price 2023. Under this mechanism, shipping lines must declare their surcharges for sea freight container transportation to the management authority. Any price adjustments must be reported to the management authority, along with the reasons for the change. This approach is expected to improve the management of shipping line surcharges compared to price listing.
Various types of surcharges for goods
Various surcharges are imposed on both export and import goods. Exported goods typically incur charges for container loading and unloading, documentation, sealing, and customs declarations (for shipments to the US and Europe). Imported goods, on the other hand, are subject to charges for container loading and unloading, container cleaning, container imbalance, and telex release. Container loading and unloading fees constitute the largest portion of these charges. Additionally, some shipping lines may levy extra fees for container imbalance, container repairs, and cargo tonnage declaration. Some surcharges, which are irregular and may occur periodically or seasonally, have different policies depending on the time and the shipping line. Examples of these include port congestion surcharges, fuel surcharges, and peak season surcharges.
Vietnam's top 3 seaports for container throughput
Vietnam boasts three seaports ranked among the top 50 globally in terms of container throughput, comprising Ho Chi Minh City Port, Hai Phong Port, and Cai Mep - Thi Vai Port. In terms of shipping routes, Hai Phong Port serves 69 intra-Asia routes, two US-Asia routes, and one Asia-Europe route. The Ho Chi Minh City port cluster operates 106 intra-Asia routes, one US-Asia route, and two Asia-Europe routes. Meanwhile, the Ba Ria - Vung Tau port cluster manages nine intra-Asia routes, 21 US-Asia routes, and five Asia-Europe routes.
