Vietnam’s export activities to major markets like the US, EU, etc., heavily rely on foreign shipping lines. However, these carriers have recently been canceling sailings continuously, leading to a sudden spike in ocean freight rates, posing challenges for import-export businesses.
The soaring ocean freight rates have become a vexing issue
Ocean freight rates are escalating daily
During the week ending June 6th, Denmark’s Maersk Line announced that Drewry’s container freight index had risen by 12% to $4,716 per FEU (40-feet equivalent unit). This represents an 181% increase compared to last year and a staggering 232% increase over the 2019 average. For instance, shipping costs from Shanghai to Genoa reached $6,664 per FEU, marking a 213% increase from the previous year. Additionally, rates from Shanghai to New York recently hit $6,463 per FEU, an increase of approximately 142%, and to Los Angeles, they reached $5,975 per FEU, up about 215% compared to the same period last year.
Vincent Clerc, CEO of Maersk, noted that the sharp rise in rates could prompt many retailers in the West to enhance their cargo transportation efforts, especially during the Christmas shopping season, with increased volume and earlier delivery times. This could further strain the global supply chain, as retailers compete to place orders exceeding actual demand.
According to data from the international logistics trading platform Phaata, freight rates from Ho Chi Minh City to the US show a strong upward trend. Drewry’s World Container Index (WCI) also recorded a 12% increase to $4,716 per 40-feet container during the week of May 30th to June 6th, marking an 181% increase compared to the same period last year. Specifically, freight rates from Shanghai to Genoa saw a 17% increase to $6,664 per 40-feet container, while rates to New York rose by 6% to $7,214 per 40-feet container.
Why Are Ocean Freight Rates Skyrocketing?
Red Sea Tensions Impacting Ocean Freight Rates
The re-routing of shipping lanes from the Red Sea around the Cape of Good Hope has led to capacity shortages and congestion. Additionally, the surge in shipping demand has caused spot container freight rates on major routes to inflate dramatically.
Currently, the maritime shipping market is facing a severe crisis, even surpassing the disruptions experienced during the COVID-19 pandemic. The number of containers awaiting loading at ports has reached an overwhelming level. Due to the shortage of vessels, shipping rates have increased by 2 to 2.5 times compared to two months ago. The primary cause is the ongoing crisis in the Red Sea affecting the Panama Canal.
US-China Trade War Influences Ocean Freight Rates
Some companies have noted that the US government plans to impose substantial tariffs on goods originating from China starting in early August. Consequently, Chinese exporters and US importers are rushing to complete import-export procedures to avoid these tariffs. They are willing to pay higher freight rates to secure slots and preempt container space. Currently, a significant volume of goods from Chinese exporters is “bottlenecked” at Singapore ports, estimated to represent around 26% of the region’s total container capacity.
Escalating tensions in the Red Sea are one of the key factors driving up ocean freight rates
The Impact on Businesses Amid Soaring Ocean Freight Rates
Mr. Nguyen Hoai Nam, Deputy Secretary-General of the Vietnam Association of Seafood Exporters and Producers (VASEP) highlighted the significant challenges posed by current ocean freight rates for the seafood industry. As a sector heavily reliant on import and export, utilizing over 1 million containers annually, securing containers has become exceedingly difficult.
Mr. Phan Van Co, Marketing Director of Vinarice, also emphasized that both domestic and international ocean freight rates have surged at an alarming pace, complicating rice export operations. He shared, “Since April 2024, the cost to transport a container of rice from Can Tho to Ho Chi Minh City has reached 10 million VND for businesses. Currently, shipping rates are increasing daily and have surged by 100-200% compared to previous rates, making it challenging for businesses to continue exporting without incurring significant losses.”
A representative from a fresh fruit and vegetable exporting company to the United States also expressed concerns over the relentless rise in logistics costs, particularly maritime shipping. For perishable goods that cannot afford delays in delivery, the company is compelled to use air freight despite exorbitant costs, even accepting losses to maintain their customer relationships.
Seeking Solutions to Cope with Current Ocean Freight Rates
Experts forecast that ocean freight rates are likely to remain high through the end of Q3 this year. Therefore, export businesses need to intensify their efforts to optimize transportation costs by seeking temporary alternative suppliers to mitigate the substantial freight expenses.
Companies might also consider consolidating shipments for air transport or temporarily halting exports for less critical orders, requesting extensions on delivery times.
According to the Ministry of Industry and Trade, businesses should also consider strategies to redirect exports to more favorable markets, such as China, Japan, and ASEAN countries. Mr. Hồ Quốc Lực, Chairman of the Board of Directors of Sao Ta Foods Joint Stock Company, noted that ocean freight rates to North America and Western Europe have increased by up to 100% from their lowest points, whereas routes to Japan, South Korea, and Australia have remained more stable.
In response to this situation, the Vietnam Maritime Administration has mandated that companies enhance their oversight of maritime transport businesses to ensure compliance with the regulations on listing prices and surcharges beyond the basic ocean freight rates, as stipulated by Government Decree No. 146/2016/NĐ-CP.
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