Logistics industry in precarious situation

Despite recording positive business results in the first nine months of the year, logistics enterprises are in a precarious situation due to instabilities in gasoline supply and prices coupled with deep drops in shipping rates.

In the first nine months of this year, sea freight transport reached more than 77.8 million tons, up 27.5% over the same period last year. Sea freight shipping rates increased by nearly 5% year-on-year in the third quarter and over 11% in the nine-month period. As a result, most shipping and port companies listed on the Vietnamese stock exchanges reported strong profit growth.

In the third quarter, PetroVietnam Transportation Corporation (PVTrans), listed on the Ho Chi Minh Stock Exchange (HoSE) as PVT, recorded an after-tax profit of nearly VND390 billion ($15.7 million), more than 2.5 times higher than that in the same period last year. In the first nine months, the firm made a before-tax profit of more than VND1.03 trillion ($41.54 million), exceeding the yearly plan by 72%.

Hai An Transport and Stevedoring JSC (HAH), listed on the HoSE as HAH, also saw its post-tax profit over 2.7 times higher than that in the same period last year, reaching VND270 billion ($10.88 million).

Another "big face" in the shipping industry, Gemadept (GMD), reported good business results with its Q3 profit expanding by more than 76% to nearly VND290 billion ($11.68 million). After nine months, GMD fulfilled up to 94% of the year's after-tax profit target and enjoyed a year-on-year profit growth of nearly 84%.

Similarly, Vietnam National Shipping Lines (Vinalines), listed on the unlisted public company market UPCOM as MVN, posted a net profit of over VND2.77 trillion ($111.68 million) in the three quarters, up more than 30% over the same period in 2021 and exceeding the year's plan by 10%.

In addition, Da Nang Port JSC (CDN), Dinh Vu Port Investment & Development JSC (DVP), Dong Nai Port JSC (PDN) and many other businesses also boasted huge net profits in the third quarter.

Despite the positive business picture, the tickers for this group could not avoid negative impacts as the VN-Index, which tracks the HoSE’s performance, has plunged by 30% since April and has many times been named among the worst performers in the world.

By the end of the November 14 session, PVT stood at VND15,550 ($0.63) per share, down more than 38% compared to the beginning of the year. HAH dropped even deeper, reaching the 15-month bottom to VND25,850 ($1.04) per share, down 62% from the year-beginning. Similarly, GMD declined by 11%; MVN, 47%; CDN, 18%; and DVP, 27%.

According to the Private Economic Development Research Board (Board IV) under the Prime Minister's Advisory Council on Administrative Procedure Reform, logistics enterprises say they face difficulties from instability in gasoline supply and prices in Vietnam and the world.

In the last two months, petrol and oil scarcity has been seen in many economic hubs, seriously affecting the operation of transport enterprises - an important link in the chain of logistics services. Although the situation has eased, temporarily, many have forecast the recurrence of gasoline and oil shortages, especially in the year-end months - the peak time for logistics activities.

Besides, the world oil price may be pushed to a high level as the oil supply from the U.S. strategic reserve is decreasing; and oil exports from Russia will fall before the EU imposes sanctions on the country and then activate the entire embargo by the end of this year.

In particular, the sea freight rates plunging to pre-pandemic levels is also a big difficulty for the logistics industry. According to maritime market research firm Drewry, the average container freight rate has dropped to a very low level compared to the beginning of the year, with a year-on-year fall of 67%.

In its recent report, SSI Research believes that a large number of ships will return to the domestic market, since renewing their charter contracts will become more difficult. As a result, increased supply could put pressure on freight rates, which are estimated to fall by 30% on average in 2023.

This securities company holds that the boom in shipping demand in the past period was mainly due to the impact of the Covid-19 epidemic, so it was less sustainable than the period before the 2008 crisis, when the globalization process occurred strongly, with worldwide trade expansion.

Besides, shipping lines are now also more cautious when investing in building new ships, with the rate of new shipbuilding orders to the total fleet reaching only 28%, significantly lower than the 70% during the 2008 crisis.

On the other hand, challenges to the shipping industry also stem from the new regulation of the International Maritime Organization to be applied from 2023, which requires shipping lines to reduce emissions by lowering speed, upgrading ships or buy carbon credits. According to SSI Research, the new regulation could reduce the fleet's operating capacity by 5-10%.

For its part, Vietcombank Securities believes that escalating geopolitical tensions and the global recession may put pressure on the revenue and profit growth of shipping enterprises at the end of 2022 and in 2023.