Deep-Sea Freight Rates Plummet, Exports Surge.

17 August, 2024

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While freight rates are on a downward trend, there are clear signs of growing cargo volume – Illustrative image

In early July 2024, according to data from the maritime consulting firm Drewry, the spot freight rate for a 40-foot container from Shanghai, China, to New York, USA, reached $9,387 on July 11. This figure is double that of February, although it is still lower than the peak of $16,000 during the COVID-19 pandemic. The cost of shipping a 40-foot container from South Korea to the European Union also increased for the second consecutive month, up 121.6% from the previous year.

Experts attribute the rate hike mainly to shipping lines rerouting their vessels to avoid the Suez Canal due to security risks in the Red Sea, resulting in longer transit times and increased costs.

The surge in ocean freight rates, congestion at some Asian ports, and a shortage of empty containers have had a significant impact on the competitiveness of Vietnamese goods in the international market.

However, the upward trend in global ocean freight rates has shown signs of cooling down. This is considered a positive signal for the Vietnamese market, bringing many benefits to customers, reducing transportation costs, and facilitating booking processes, resulting in improved business efficiency for cargo owners.

Falling Rates, Rising Cargo Volume

According to a report from the Vietnam Maritime Administration (under the Ministry of Transport), compared to July, by mid-August, ocean freight rates had dropped on all routes, with the most significant decrease observed on the Asia-US West Coast and Europe routes (a drop of about 20-30%). Rates on other routes also declined by approximately 15-25%.

Currently, the rates are 44% lower than the historical peak in September 2021, during the pandemic. On average, rates drop by about 3-4% each week compared to the previous week.

The Vietnam Maritime Administration forecasts that ocean freight rates will continue to fall due to positive market influences and the resolution of congestion issues at major ports.

Notably, the administration also provided a positive outlook, stating that while rates are declining, cargo volume is showing clear signs of growth.

As evidence, the administration cited that the cargo volume handled by Vietnamese ports in the past seven months reached nearly 500 million tons, a 15% increase compared to the same period in 2023. Of that, container cargo reached 16.9 million TEUs, up 21%, while import-export container volume reached 10.8 million TEUs, a 16.6% increase.

Specifically, the Cai Mep – Thi Vai deep-water port area handled 3.329 million TEUs of import-export container volume in the first seven months, a 38.4% increase compared to 2023. The Lach Huyen port area also experienced container volume growth, reaching 954,840 TEUs, a 53% increase.

Multiple Strategies to Stabilize Freight Rates

Given the nature of Vietnam’s import-export cargo transportation, only 10% of cargo to the US and 20% to Europe are directly booked and contracted by Vietnamese shippers. Most Vietnamese shippers follow the CIF (Cost, Insurance, and Freight) and FOB (Free on Board) trading terms, where the foreign partner takes responsibility for booking and paying freight rates (accounting for 80-90%).

Large Vietnamese shippers, with stable cargo volume, often enter into long-term contracts with carriers. These long-term contracts are not affected by market fluctuations, and rates remain stable throughout the contract’s validity.

Small shippers, with unstable cargo volume, are directly impacted by rate fluctuations. Moreover, some shippers do not contract directly with carriers but instead work through forwarders who provide additional services beyond transportation, such as customs clearance and cargo insurance. As a result, small shippers bear the additional cost of the forwarder’s margin.

Ocean freight rates for containers are market-driven and influenced directly by supply and demand. As a link in the global supply chain, Vietnam’s container freight rates to foreign countries are also adjusted according to the global market rates. Vietnamese shippers bear the risk of rate fluctuations by adjusting the purchase (or sale) price of their goods.

To support shippers amid volatile global ocean freight rates, the Vietnam Maritime Administration conducted inspections and monitored service rates, surcharges, and the market for empty containers with shipping lines and the actual situation at several northern and southern ports.

The shipping lines affirmed that there was no shortage of empty containers in the Vietnamese market, even during the high-rate period. They also committed to providing more empty containers to Vietnam to meet the rising demand for containerized cargo.

The administration also instructed the Port Authorities and the Maritime Sector to enhance the monitoring of service rates and surcharges for cargo transportation by sea…

“The Port Authorities have continuously innovated and reformed administrative procedures to expedite the clearance of vessels and cargo at ports, ensuring smooth maritime operations. In recent years, the Vietnamese port system has handled 100% of the cargo volume without any congestion issues,” said a representative of the Vietnam Maritime Administration.

Regarding freight rate stabilization, the administration suggested that cargo owner associations should consider long-term contract signing to minimize the impact of global rate fluctuations and provide operational stability for their member companies. The associations should act as intermediaries to aggregate their members’ cargo volume and negotiate long-term, stable contracts with carriers, reducing the risk of rate volatility.

Despite the declining rates, the Vietnam Maritime Administration continues to advise businesses to closely monitor the global ocean freight rate market to proactively respond to potential adverse market changes.

Phan Trang