Vietnam coffee company chief bemoans lack of cooperation on rising freight costs

Coffee buyers and sellers need to work together to deal with recent global volatility, otherwise export enterprises will struggle to survive, writes Phan Minh Thong, general director of Phuc Sinh Group, a leading Vietnamese coffee exporter.

The Covid-19 pandemic, as well as the recent Israel-Hamas conflict, have driven up train rates significantly. If exporters sell under cost and freight (CFR) terms, they will have to pay for freight. Before the pandemic, we paid an average of VND3.2 billion ($125,909) for freight per month, but during the pandemic, we had to spend up to $32 billion ($1.25 million) to ship less goods.

Pandemics and conflicts constitute force majeure clauses, and shipping companies have taken the chance to fix higher prices for exporters. We decided to talk with buyers across the world regarding maritime freight. Surprisingly, when many buyers learned about the increase in freight charges, they instantly shared price support for the CFR contracts they acquired. This makes us feel like we're sharing and collaborating to overcome obstacles.

Small- and medium-sized purchasing companies in Europe, America, and the Middle East are eager to share expenses with us when we work together. Many companies have actively supported 50% of the variable fee difference. Even when signing new contracts, they include stipulations that, in the event of a war, natural disaster, or pandemic, if shipping prices rise, each party will bear half of the risk.

However, we have noticed that most large enterprises and long-standing businesses do not tolerate this sharing. They use the justification that the contract had been signed and finalized by the buyer, so they can't amend it. This is a really difficult situation that demands a great deal of patience to persuade purchasing partners to work with you.

We sell a lot of products to huge corporations around the world. They had problems with consumption during and after the pandemic, so they asked us to halt deliveries because they had no buyers, despite the fact that we had purchased a full warehouse and paid interest to the bank. They frequently requested delayed deliveries of three, six or even nine months, placing sellers in a tough position without cash flow to pay bank interest because credit contracts for raw materials last three to six months. We were powerless in that situation. However, nine months later, when inventory was low, it was time to sell, so they pressed us to expedite the delivery schedule.

When they requested late deliveries, the coffee contract was at $2,500/ton, and the price of input materials was also cheap. But nine months later, when inventory was low, the coffee price was $4,200/ton, and they urged us to deliver at the original price. They gave us almost no room for delay. The largest companies in the world always find ways not to cooperate on freight issues. That is the reason why our strategy focuses on small- and medium-sized companies. We choose family-owned companies with abundant and flexible financial resources, and they understand world fluctuations and are willing to cooperate.

When signing a contract, we disclose all of the obstacles and issues associated with this business to the customers. Who can predict a pandemic or a war?