Tensions in the Red Sea will have a positive impact on a number of industries in Vietnam such as shipping, oil and gas, and aviation while exporters to Europe may feel contrary effects, Yuanta Securities Vietnam has said.
The Suez Canal, which connects the Red Sea, is the shortest sea route between Asia and Europe, and holds special importance for oil and liquefied natural gas (LNG) transportation. About 10% of global trade (17,000 ships/year) passes through the canal each year.
Experts say that the tensions in the Red Sea mean heightened risks to global trade flows and increased shipping costs. Data shows that the container shipping price index to China has now risen 124% compared to before the tensions broke out, similar to 2021 when the Panama Canal was obstructed.
According to Yuanta Vietnam Securities, these factors support exchange-listed Vietnamese transportation companies such as Hai An Transport and Stevedoring JSC (listed on the Ho Chi Minh Stock Exchange - HoSE as HAH), Vietnam Container Shipping JSC (HoSE: VSC), and Gemadept JSC (HoSE: GMD).
In addition, Red Sea tensions may lead to increases in oil and gas prices because 10% of seaborne oil and 8% of LNG are transported through the Suez Canal, according to Clarksons data. Oil shipments to Asia may be delayed while goods transportation may bear additional war insurance premiums. If the conflict expands into the Strait of Hormuz, near the Red Sea, the impact will be stronger.
In the past, Iran has several times threatened to and attacked cargo ships passing through the Strait of Hormuz, and the last two times caused Brent oil prices to rise in December 2011 (18 %) and in July 2028 (15%).
Therefore, higher oil prices will have a positive impact on some oil and gas companies such as PV Drilling (PVD), PV Technical Services (PVS), PV Gas (GAS), and CNG Vietnam (CNG).
In addition, the Red Sea incident has also resulted in a shortage of empty containers while demand for containers from the U.S. and Europe remains high. Container shipping rates from Shanghai to major cities in Europe and the U.S. have increased 8-25% in the past month.
Yuanta Securities Vietnam expects some companies to benefit from this, including HAH, VSC and the container business of Hoa Phat Group (HoSE: HPG).
Vietnamese aviation may be another beneficiary. Xeneta data shows that the global average air cargo spot rate peaked at $2.6 per kilogram in December 2023. However, the securities firm noted that this impact will not be significant.
On the contrary, rising transportation costs and extended shipping time could have a significant impact on trade between Vietnam and Europe, Yuanta Vietnam analysts say. However, they believe that the impact on Vietnam's import-export industry won’t be large because trade with Europe accounts for only 15% of the country’s total external trade.
The brokerage firm notes that Vietnam's key shipments to Europe such as textiles, footwear, and phones and components may be affected by a combination of extended delivery time, increased freight rates, and higher insurance costs, posing risks for export businesses.
It advises investors to be more cautious with large exporters to Europe if tensions persist.