Haian ships do cargo at Cai Mep - Thi Vai port area. Source: Internet.

Logistics enterprises, sublimation shipping lines

SSI Research's Ports and Shipping Industry Outlook reported that, in the first half of 2022, congestion on the US West Coast has improved significantly, but congestion has shifted to the US East Coast. Severe congestion also occurred in Europe and the Mediterranean and was exacerbated by strikes at many ports around the world.

In the domestic shipping market, due to the lack of supply of ships, from the first quarter of 2022, domestic freight rates have increased for some routes with high demand. SSI Research estimates that freight rates have increased by 50% compared to the average in 2021. In addition, carriers also apply a fuel price fluctuation surcharge to offset the increase in fuel costs.

In particular, the freight rate for liquid cargo has skyrocketed due to the impact of the conflict between Russia and Ukraine. Specifically, the demand for liquid cargo shipping increased in both volume and distance, as Europe began to reduce its dependence on Russian oil and gas products, leading to the need to import petroleum products by cargo ship instead of using gas pipelines as before.

As Russia accounts for 40% of Europe's oil and gas imports, the move has resulted in a significant increase in demand for liquid cargo ships. Russia's shift to selling petroleum products to other markets such as India or Iran also increases transportation demand.

In that context, the business results of many logistics enterprises and shipping lines recorded very high profit growth. Specifically, Gemadept Joint Stock Company achieved VND978 billion in net revenue in the second quarter of 2022, up 30% over the same period in 2021; profit after tax reached VND334 billion, up 88% over the same period last year. In the first 6 months, Gemadept net profit is VND653 billion, up 87%.

Meanwhile, at Transimex Joint Stock Company, net revenue decreased by 53% to VND667 billion in the second quarter of 2022, but profit after tax still increased by 44% to VND167 billion. Accumulated in the first half of the year, Transimex net profit is VND414 billion, nearly double that of the first half of 2021. With such results, this logistics enterprise has completed 96% of its profit plan for the whole year.

Hai An Transport and Loading Joint Stock Company also recorded impressive growth in the second quarter and first six months of 2022. In which, the revenue of the second quarter reached VND929 billion, double the same period last year; net profit rose nearly 3.3 times, to VND324 billion. In general, in the first six months of the year, this enterprise achieved a net profit of VND587 billion, 3.2 times higher than in the first half of 2021.

Explaining this sublimation, General Director Vu Thanh Hai said that in April and May 2021, the company has invested in two more Haian East and Haian West ships, so the number of ships in the second quarter of this year is more than the same period last year. In addition, domestic freight rates, ship rental rates increased sharply and the number of vessels for lease this period increased, and profits from associated companies also increased sharply.

Difficult to reduce fares

While logistics enterprises and shipping lines have achieved impressive profits, exporters must continue to struggle to bear the costs. Than Duc Viet, General Director of Garment 10 Corporation, said that although the Covid-19 pandemic has been basically controlled, the disruption of the global supply chain has not been resolved.

The situation was aggravated when the war between Russia and Ukraine caused oil prices to skyrocket and logistics costs could not be reduced. Accordingly, not only is it a burden for enterprises in the export process, logistics costs also cause the price of input materials to increase sharply, greatly affecting the profit margin of enterprises because the selling price cannot increase when the price increases. Inflationary pressure is increasing in consumer markets.

Phan Van Co, Marketing Director of Vrice Co., Ltd. also said that the price of a container going to the US is currently US$9,000-11,000, to Europe is US$6,000-7,000 depending on the port, so logistics costs are still a burden for export enterprises.

Assessing the logistics situation, SSI Research believes that congestion at US and European ports cannot be overcome before 2023 because congestion still occurs in many stages of the supply chain, including lack of wharves, lack of trucks, warehouses and workers.

Accordingly, the port infrastructure needs time to adapt to the newly built larger ships before the congestion is resolved. In addition, the global movement of goods is heavily dependent on China and its "Zero Covid" strategy. Experts from SSI Research believe that it will not be until the second half of 2023 that congestion will gradually improve, when Covid-19 prevention measures are removed in most markets (including China).

The positive point is that the supply of new-built container ships will increase sharply and enter the market, thereby creating pressure to bring down freight rates. However, the issue of supply chain congestion is still the main factor determining the rate adjustment process, while there is currently no sign that the port congestion will improve.

Therefore, SSI Research believes that freight rates will need a long time to adjust from the peak, rates will gradually decrease but remain high in the second half of 2022. By 2023, if the congestion is resolved and China reopens, freight rates may drop sharply but will still be higher than pre-Covid levels because carriers have to bear much higher investment and operating costs than before.

In the domestic market, freight rates will also remain at the peak in 2023 because the market is still short of supply, and most of the Vietnamese fleet is leased in foreign markets with long-term contracts. Fuel surcharges are also added to freight rates to reflect rising fuel prices, supporting carriers in the face of oil price fluctuations. Demand in Asia remains strong, as the region benefits from supply chain shifts from China to neighboring countries, which helps support the consolidator segment.