Foreign shipping lines have imposed many unreasonable surcharges on Vietnamese traders, hurting their chances of competing with other suppliers. Photo: Luu Quang Pho
The government should prevent foreign shipping lines from imposing unreasonable surcharges on Vietnamese traders, according to Khuat Van Lieu of the Vietnam Shippers’ Council.
Foreign lines have capitalized on the country's under-developed transportation industry by imposing a slew of irrational surcharges (e.g. "container lid repairs").
These surcharges should be calculated in transportation fees, Lieu told a recent online meeting between leaders at the Ministry of Transport, shipping firms and port authorities. Countries like Sri Lanka have successfully implemented such rules on foreign shipping operators, he noted.
A report issued last year by the Vietnam Competition Authority under the Ministry of Industry and Trade alleged that foreign shipping companies may have artificially lowered their international shipping rates to crush local competition.
Some of these companies, the report noted, offered international rates that were dwarfed by domestic ones.
Foreign shipping firms charged US$30-50, or even $10 to ship a 40-foot container from Vietnam to Singapore, at a time when shipping the same container from Hai Phong to Ho Chi Minh City cost VND1.3 million ($61.79)--despite the latter route being much shorter than the former.
Foreign lines made up those losses by tacking on surcharges, the report claimed.
Danish shipping giant Maersk recently announced plans to impose a $50-100 port congestion surcharge one every 20-45 foot container discharged at Ho Chi Minh City’s Cat Lai Port starting on August 1. “This surcharge is meant to cover the additional vessel costs associated with delayed berthing at a congested port,” the company said in a letter to its customers.
Other shipping lines like Hamburg Sud of Germany, CMA CGM of France have also increased port congestion surcharges on shipments unloaded at Cai Lai port, which handles more than 80 percent of the goods that come in and out of Ho Chi Minh City and neighboring localities.
According to the Vietnam Association of Seafood Exporters and Producers (VASEP), the surcharges will raise production cost for local firms at a time when they can't increase their retail prices due to flagging demand.
In addition to port congestion surcharges, fees like the "container imbalance" charge, the "demurrage" charge, and "container service" charge have been imposed on local traders.
Deputy Minister of Transport Nguyen Van Cong said domestic firms remain stuck on the sideline of the logistics sector, which grows by an average of 20 percent every year, as they lack expertise, financial strength and high-capacity vessels capable of operating on long international routes.
According to the Vietnam Logistics Business Association, most local firms are small and medium-sized and have a registered capital of between VND 4-6 billion ($190,000-286,000). Only about 5-7 percent of staff have received basic logistics training.
Local shipping firms transport just 10-12 percent of Vietnam’s total import and export volume, mainly on short-haul trips within ASEAN and to China.
Foreign companies do the rest.
Vietnam now has some 1,700 ships, but, only 450 of them can operate on international routes, according to the Vietnam Maritime Administration.
Another reason that local firms have no other choice but to accept foreign surcharges is their practice of buying and selling goods under CIF (cost, insurance, and freight) and FOB (free on board) agreements. In both cases, transportation choices are made by foreign partners, Cong said.
In addition, many Vietnamese companies have implemented outsourcing contracts for foreign partners like Nike, which signed long-term shipping contracts with international logistics companies, according to a representative from the Vietnam Maritime Administration.
To solve the issue, the administration and local traders will soon meet with the heads of foreign firms to negotiate surcharges and fees, Cong said.
Domestic firms struggle
To help local shipping firms, the government has stopped licensing new foreign ships seeking to offer domestic container shipping services. Only two foreign lines continue to offer the service, but local firms continue to struggle to survive due to the economic slowdown's impact on demand.
In 2013, local ships ran between Hai Phong and Ho Chi Minh City carrying roughly 50-60 percent of their capacity.
Many local shipping firms had to slash their rates and suffered losses to keep customers. Others temporarily suspended operations to cut losses, said Do Xuan Quynh, general secretary of the Vietnam Ship Owners Association.
Maritime shipping costs are now equal to one-fourth of their 2008 rates. To help local firms overcome the difficulties, the government should offer them financial support, he said.
Echoing him, Truong Dinh Son, vice general director of shipping firm Vitranchart, said 75-80 percent of local companies’ capital come from bank loans. Thus, the government should help them access loans at interest rates commensurate with other ASEAN lenders (two percent annually).
Local enterprises now pay annual interest rates of 8-10 percent on their loans.
Vu Duc Then, vice chairman of Diem Dien Sea Transport Association in the northern province of Thai Binh, proposed the government reduce the added-value tax imposed on domestic shipping firms to five percent between 2014 and 2016, from the current 10 percent.
High interest rates and low customer demand have both prevented ship owners from improving their fleet.
The number of container ships in the world has grown 6.8 percent, annually, for the past 4 years.
In Vietnam, fleets have only grown by 1.1 percent, according to the Vietnam Maritime Administration.