Outlook For Sea Transport In 2012

Vietnam’s maritime transport industry is plagued with difficulties and challenges this year

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Fierce competition right in the home market is also a matter of great concern for Vietnam's shipping businesses

Viet Hai Shipping and Properties Corporation (VSP), a unit under the umbrella of the Vietnam Shipbuilding Industry Group (Vinashin), is currently topping the list of maritime entities in the red with losses up to VND535 billion. The company’s listing is on the verge of cancellation in accordance with the regulations of the State Securities Commission. International Labor and Services Joint Stock Company (ILC) incured a loss of VND32 billion, Vinaconex Transportation Joint Stock Company (VCV) more than VND6.5 billion, and Southern Container Shipping Joint Stock Company over VND37 billion.

Vietnam Ocean Shipping Joint Stock Company (VOS) has yet to publish its fourth-quarter financial statement but the losses in the third quarter already stood at over VND51 billion. In the first nine months of 2011, the company incurred accumulated losses of more than VND45.7 billion. Saigon Shipping Joint Stock Company has not released its fourth-quarter statement either, but it already recorded a combined VND19.6 billion loss in the first nine months of last year.

Some businesses made small profits. Hanoi Maritime Holding Company, for example, earned the after-tax profit of VND108 million. Seagull Shipping Company reported profit of over VND2.7 billion last year. Dong Do Marine Joint Stock Company (DDM) claimed VND1.3 billion of profit in its financial statement. Meanwhile, Vietnam National Shipping Lines (Vinalines) reported a hefty loss of VND660 billion in the year’s first half, but the year-end report of 2011 and the outlook for 2012 showed that the firm had made a spectacular escape from its loss-making situation.
Though Vinalines did not mention why it was able to escape losses in the report, the answer is definitely not sea transport because Vinalines’ shipping fleet including the vessels transferred from Vinashin is only capable of transporting 3.4 million tons in total. Among those, several large ships are newly invested, so the profitable transport business to make up for the losses of over VND660 billion within six months is hardly possible.

The aforesaid firms are all listed enterprises. Apart from them, there are small shipping companies using finance-leased ships also suffered from severe losses. Several firms saw their financial situations worsening to the point that they had to abandon their ships and numerous disputes erupted, resulting in ships being seized and crew members’ wages owed, making it difficult for financial companies to recover their capital. The most typical cases are of the shipping companies Gia Hai, Bien Nam, Phuc Hai, Nam A, Phuong Mai and Trai Thien.

Early 2012: difficulties heap up

The Baltic Dry Index (BDI) has remained low since January 2012, around 700-800 points, even plunging to 695 points in early February. Meanwhile, oil prices have constantly risen, from US$800 per ton in early January to US$902.9 a ton on March 9.

Given the already low charges while fuel prices are on the rise, it is still uneasy for maritime transporters to lure cargos. With few goods departing, many shippers can only earn from one-way transport, as their ships have to travel with no load on the return trips, leading to rising costs. Moreover, ship owners are burdened with servicing bank debts due to hefty loans for shipbuilding. Since most enterprises borrowed loans to build ships in the heyday of maritime transport in the years 2007 and 2008, loans have begun to fall due.

The same happens to ships for financial leasing. When business owners signed contracts to hire or buy ships with financial companies, the shipping industry was prosperous, thus many ship leasing contracts were of great values and high interest rates. As enterprises run into difficulties, the pressure on interest rates and ship costs become unbearable to ship operators. Transport charge hike only makes up for fuel costs and crew payments. They even have no money to repair ships, and adjust ship profiles in accordance with the international standards, causing their ships to be seized during the tests at various ports worldwide, thus making it difficult for enterprises to repay their debts to banks and financial firms.

Moreover, the fierce competition in the home market is also worth mentioning. There are currently over 600,000 tonnages of foreign-flagged vessels involving in domestic shipping business. These ships belong to the world’s giants, so their engagement in both local and international shipping with large investment capital will create more competitive advantages for foreign shipping lines against Vietnamese-flagged ships.

The global trade is not satisfactory enough for shipping charges to surge drastically as cargo load redundancy is now quite common. Furthermore, the potential burden that leaves a major impact on operational costs of Vietnamese ship owners is the changes in the international marine industry, such as the application of the International Safety Management Code (ISM Code), the International Ship and Port Facility Security (ISPS) and the Standards of Training, Certification and Watchkeeping (STCW 95), not to mention the rampant pirate situation, international terrorism, commercial fraud and legal conflicts between nations.

Therefore, Vietnam’s maritime transport industry is full of difficulties and challenges this year. The expectation for the shipping industry to make short-term breakthroughs in the remainder of 2012 seems to be a tough task to achieve.

(*) Director of ShipOffer Corp. - ShipOffer.Com

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