Numerous difficulties

At the 2024 Vietnam Economic Forum, themed “Resolving difficulties related to capital and market for export enterprises”, Tran Nhu Tung, Chairman of the Board of Directors of Thanh Cong Textile Garment Investment Trading Joint Stock Company, said that textile and garment export in 2024 is better than 2023, however the sector has not regained the peak of previous years. Textile and garment businesses have more orders. But in a very competitive environment, due to the unimproved prices and increased logistics costs, businesses have to share freight costs with purchasing partners, negatively impacting profits. Rising costs, customers’ demand for greener and cleaner goods, and unimproved prices create double pressure on textile and garment businesses.

Explaining the increase in logistics costs, Le Thi Thanh Minh from European - American Market Department, under the Ministry of Industry and Trade (MoIT), said due to the tense situation in the Red Sea, sea transport was diverted through Cape of Good Hope (Africa), prolonging shipping time and increasing shipping costs because the Suez Canal is the shortest route transporting from Asia to Europe. Therefore, shipping costs from Vietnam to the Americas and Europe in early 2024 increased, compared to the end of 2023. By March, shipping rates to the Americas and Europe decreased but were still higher than the average of 20% in previous years.

Not only did train fares increase, but surcharges also increased sharply without warning, causing businesses frustration. Shipping time lasts 10-15 days, causing disruptions and delays in the supply chain. Red Sea tensions led to a shortage of empty containers and high empty container prices. "World fluctuations also cause crude oil prices to increase, affecting input costs for businesses”, Minh said.

According to Vietnam Commercial Counselor in Saudi Arabia Tran Trong Kim, tensions in the Middle East have appeared before, but became more tense in the first quarter. Accordingly, shipping companies must take detours through Europe and Africa, instead of the Suez Canal. The tonnage of ships entering the Suez Canal has decreased by 42%; while the total entering the Cape of Good Hope increased by 87%, with an average travel time of seven days. Even corporations such as DP and international shipping company Evergreen Marine have suspended all transport trips through the Red Sea or ordered ships to leave the area. These have increased costs and delayed deliveries in the second quarter of 2024.

Worryingly, after recent retaliation by Israel and Iran, the situation has become more tense. As a result, the orders from Vietnamese businesses have decreased and tourists from Vietnam could not go to destinations around the Middle East. Monitoring the local situation, recent cargo routes have been affected, severely impacting trade between Vietnam and Saudi Arabia. All ships must change their delivery schedules, by up to 15 days, and transport companies increase freight rates by up to 15%. These issues may reduce Vietnam's import-export turnover in the near future.

Risk management and prevention

Experts also believe that the geopolitical tension in the world won’t end soon, so export businesses need to proactively develop response plans, such as market diversity, paying attention to force majeure clauses when signing export contracts, and updating market information early from state management agencies.

Specifically, the Vietnam Trade Office in Saudi Arabia recommended three contents. Firstly, domestic agencies and organisations continue to provide associations and businesses with information to anticipate difficulties when travelling to Saudi Arabia and Yemen in the near future. “The businesses should strengthen import hubs without travelling through the Red Sea, because currently there are still some ports in the area that are not affected and still operate normally”, Kim said.

Secondly, when dealing with import businesses in this area, it is necessary to sign a payment contract, via L/C letter of credit and sign a security contract. Thirdly, invitations to participate in large orders with good prices, for humanitarian and relief purposes must be verified through the Vietnamese Embassy and Trade Office here, to avoid fraud.

Vu Tien Loc, Chairman of the Vietnam International Arbitration Centre (VIAC), also stressed that when implementing contracts, businesses need to pay close attention and consult with legal and market experts, as well as be especially cautious because fraud may appear in international trade in the current period.

“Vietnamese businesses are often quite superficial when signing contracts as they only care about profits and losses. Meanwhile, businesses that want sustainable business relationships must closely follow international regulations and need the participation of experts to support businesses and ensure safe transactions. Besides, they should include measures to manage risks, prevent and resolve disputes in their plans”, Loc added.

Businesses also need to pay attention to regulations on dispute resolution when signing international trade contracts. Businesses often have the habit of handling disputes by taking each other to court, while in international trade, resolving disputes by arbitration is a necessary choice. In addition, the current international market is the market of buyers, so businesses should choose an international arbitration centre in Vietnam to benefit more in terms of costs and conditions and better legal assurance for businesses.

The representative from the MoIT noted that the businesses diversify their supply of goods. When signing contracts, they should pay attention to force majeure clauses, buy adequate insurance to avoid risks, and improve updates from the MoIT, Ministry of Foreign Affairs and Ministry of Transport, to grasp information early.

“Currently, some businesses have switched to delivering goods through the intermodal railway from Vietnam through China and Russia to Europe”, Minh said.