High seas piracy: shipping companies make huge profits, exporters drown: exec

While many exporters are on the verge of bankruptcy due to growing expenses, shipping companies are making huge profits, writes Phan Minh Thong, general director of Phuc Sinh Group, a leading coffee exporter in Vietnam.

Pandemic bonanza

At the beginning of 2019, Vietnam's economy was developing quite well and businesses were full of enthusiasm. We still remember that at that time, millions of containers exported all kinds of goods – ships full of containers from Vietnam sailed to all corners of the world. The freight rate from Ho Chi Minh City to the main European ports at that time was also quite attractive, at about $600 per 20-feet container. No one thought the world would change dramatically in just a few months with the Covid-19 pandemic.

At the beginning of 2019 and 2020, we did not realize how terrible the pandemic was, so we still signed contracts for a few months to a year. In fact, because we had not experienced major changes in the world for nearly 40 years, we were not fully aware that things can change and disappear in just a few months.

With the Covid-19 epidemic starting in China's Wuhan city, it was not Asian countries that were the first to suffer the crisis, but European countries. That's why the bottlenecks in operating and distributing goods in Europe were created.

In early February 2019, the shipping price from HCMC to Hamburg, Germany increased from $600 per 20 feet container to $800. At this time, exporters weren’t too concerned: $800 was still manageable. Then the freight increased to $1,000 and further to $1,500. Exporters were nervous now. Freight rates soared and shipping companies played the "lack of space" game.

The shipping companies said there were no rooms and cut their fleets, warning that freight rates would continue to increase. Buyers were left with no choice in a sellers’ market.

At this time, the exporter wondered whether to ship or wait for shipping rates to decrease, because an increase to $900 per container meant a 150% increase in shipping fees, while the selling price of the agricultural products did not have big margins. Agricultural goods were always sold cheaply with very low profit margins. Accepting shipments at a price of $1,500 per container would result in a loss of $900 per container compared to the original calculation, while the export quantity was hundreds of thousands of containers.

After 2020, the Covid-19 situation escalated across European countries to the U.S, leading to thousands of deaths and pushing blockades in cities around the world. Now, the shipping companies increased the freight rate from $1,500 to $4,950 per container.

2022 was the peak year for freight rates, going up to $8,000 per a container; some customers even had to pay $9,000 due to operating difficulties and the Covid-19 pandemic.

Shipping freight to the U.S in 2019 was $2,250-2,350 per 40 feet container in 2022; then exporters had to pay sky-high prices of $21,000. Some paid $25,000–29,000 per 40 feet container.

At Phuc Sinh JSC, we were paying about VND3.2 billion ($131,013) per month for shipping, but in 2022, this rose to VND32 billion ($1.31 million) per month. The 10-fold difference shocked me.

From 2021 to 2022, all shipping lines including MSC, CMA, and Maersk made huge profits. The Maersk Line shipping company earned profits of $30 billion before taxes. For shipping lines, the Covid pandemic was a bonanza.

If we look back, we see that the shipping company's tactics were no different from robbery. They said: Do you want to ship or not? That's it! If exporters didn't accept the prices they offered, they were ready to throw exporters’ goods down. Such behavior was extremely cruel, pushing many businesses into a state of exhaustion.

Why? Because we - the exporters with contracts that have sold goods on CFR/CNF basis to customers, still have to buy freight. (CFR/CNF: Delivery includes cost and freight, meaning the seller delivers the goods with export customs clearance, loading the goods onto the ship of the carrier hired by the seller at the port of loading. The seller must pay the freight vessel to carry goods to the named port of destination.

Vietnam is a big exporter with many products – seafood, rice, coffee, leather shoes, wooden furniture, pepper, vegetables, and cashew nuts. We pay for shipping companies; why don't we have any say?

I want to reiterate that just our group had to pay international shipping fees that rose from $131,013 to $1.31 million per month – a horrifying number. If we look at the whole economy, the damage is terrible. Hundreds of thousands of companies have been doing business and building for many years, but now, due to expensive shipping fees, they are losing money and going bankrupt.

History repeats itself

And in 2023, we once again found ourselves in the same situation. In October 2023, when we were in Germany to attend a fair, we heard about the conflict between Hamas and Israel. At that time, I was very sad and worried because we had a lot of customers on both sides. In fact, the spices we have exported to Israel account for up to 70% of the Israeli market share. So when the conflict occurred, our customers would be affected the most and there would be a lot of worry and pain.

Then the first thing I heard was that the shipping price of $700 per 20 feet container from HCMC to Hamburg, Germany had increased to $1,500 and then to $4,100. I asked myself "Another increase?" The terrible feelings about the 2020-2022 freight rates rose again.

There were many shipping companies that had containers on board, but it was still unreasonable to charge "war surcharges."

Freight to New York rose from $2,200 for a 40 feet container to $5,000 and then to $7,000. They played their old game again.

In fact, instead of going through the Suez Canal, shipping lines now have to go through the Cape of Good Hope (South Africa), a longer route, but shipping firms can’t increase prices by that much. But they didn't encounter any symmetrical resistance, so they kept doing it. In the past, they "robbed" in the dark, but now they blatantly do it in broad daylight! And in 2023-2024, we will see huge pre-tax profits for shipping lines.

They do business in Vietnam, and we, the exporters of all goods going around the world, need to have a voice. This level of greed is too much. A shipping company's profit of $30 billion a year is terrible – the money is taken from export companies like those in Vietnam!

2024 will be a year full of challenges and difficulties around the world. Hopefully, we will unite and share to overcome these together. Hopefully, concerned departments will speak up more strongly. Shipping companies should not push exporters into bankruptcy with their sky-high international freight rates.

* The article reflects the author's personal view only.