Sea Freight Rates to Europe and US Alarmingly High

The current state of the ocean shipping market has reached a crisis point more severe than that experienced during COVID-19, as noted by industry experts. The cost of shipping containerized goods to Europe and the United States via ocean routes is escalating sharply due to congestion at many Asian seaports, ongoing conflicts in the Red Sea, and critical shortages of empty containers.

Container freight rates have surged, now 17% higher than January 2024 and reaching 45% of the peak price level observed during the pandemic outbreak in September 2021

According to Drewry - an independent maritime research center, container freight rates from Asia to Europe and the US have increased significantly. By May 2024, the shipping cost continued to soar again. The current cost is 17% higher than in January 2024 and equal to 45% of the peak price level during the pandemic outbreak in September 2021.

The recent volatility of shipping prices is attributed to conflicts in the Red Sea, forcing ships to go around the Cape of Good Hope (Africa), thereby making the journey longer by 9-14 days.

Another cause is local congestions at a Singapore port with a large number of containers waiting to leave this port. In addition, the sudden increase in demand for empty containers from the Chinese market places significant pressure on shipping prices.

Exporters face difficulties

Mr. Le Duy Hiep, Chairman of the Vietnam Logistics Business Association (VLA), said that the recent increase in freight rates has caused difficulties for merchandise importers and exporters. Besides, businesses have also faced enormous risks as well as contract fines if they are late in delivery.

A representative of EZ Shipping Logistics Co., Ltd. said that rising sea freight rates have brought on headaches to many exporters because Vietnam's export shipments to major markets such as the US and the EU depend heavily on foreign shipping firms. In fact, shipping costs currently account for over 15% of product costs but all empty containers are concentrated in China due to higher costs than other countries. Thus, Vietnam is forecast to confront a shortage of empty containers and shipping freight prices will be pushed up in the coming time.

Indeed, Vietnamese businesses have almost no choice because Vietnam's shipping fleet is currently only serving 10% of the market demand for international shipping, largely focusing on routes to China, Japan, South Korea and Southeast Asia. Major foreign shipping lines have no space or have increased prices while domestic exporters have no other because they are dependent on foreign shipping lines.

Urgent solutions

According to expert forecasts, sea freight rates will remain high till the end of the third quarter of this year. Therefore, exporters should make efforts to find ways to reduce ship freight costs. Many may even have to consider the option of consolidating exports to be transported by plane or may have to temporarily suspend exports of less important orders or ask to extend delivery time.

Mr. Ho Quoc Luc, President of Sao Ta Food Joint Stock Company, advised businesses to consider shifting exports to neighboring markets such as Japan, South Korea and Australia with more stable prices. Currently, sea freight rates to North America and Western Europe have increased by 100% from the off-peak period while sea freight rates to Asian and Australian markets are more stable.

Before this reality, the Vietnam Maritime Administration (Vinamarine) has recently asked relevant agencies to further control shipping lines with ocean container shipping services and request them to list prices and surcharges beside ocean container shipping freight rates (rates and surcharge rates). Shipping lines are required to comply with regulations on price and surcharge quotation beside ocean container shipping rates and seaport service prices according to Decree 146/2016/ND-CP of the Government.

To meet the rising demand for goods redirected from Singapore ports to Vietnam’s ports, Vinamarine directed maritime port authorities and seaport companies to speed up freight clearance at ports, reduce administrative procedures, and facilitate vessels to release commodities at ports.

In the long term, Vinamarine will continue to work with relevant customs authorities to accelerate the release of long-clogged goods at seaports and supplement regulations on funding allocation for canal dredging to increase the responsibility of relevant agencies. Moreover, the agency will add a mechanism to encourage businesses to adopt the green port model and participate in green transport corridors to have more advantages in attracting goods sources and expanding transport routes.

By Huong Giang, Vietnam Business Forum