When the shipping industry witnessed signs of recovery, the sector is preparing to face a new crisis.
Vietnam Maritime Corporation (VIMC) targets 2023 consolidated revenue at VND13,354 billion, down 13% from 2022, and pre-tax profit at VND2,330 billion, down 24% from a year earlier. Last year, the revenue source of shipping declined, said Nguyen Canh Tinh, General Director of the company, said.
Arising abnormalities
VIMC’s business condition illustrates the challenges the shipping industry has been facing. 2022 marks the economic recovery from the worldwide COVID-19 pandemic. Since late 2022, the global economic crisis and maritime sector uncertainty have been evident. After peaking in September 2021, freight rates shipping decreased, notably in the last six months of 2022 and the early months of 2023. Domestically and globally, this situation has not improved.
The export estimate for woodchips shows that in the early months of 2023, orders from China, Japan, and Indonesia steadily dropped until June when just a few mild orders were placed. Many processing factories closed. Ship orders dropped in May and June as agricultural and food items fell on the market.
Unsold cement and clinker have shuttered certain cement factories. In both the Vietnamese and foreign markets, factories that sold a lot have lowered buy volume and price. Some manufacturers lose tens of billions of dong every month as output increases.
Thermal power plants are currently the places that attract the most exchange of goods. However, due to many pressures on electricity prices and especially in the bidding stages to supply input materials through many intermediaries, the tariff has been brought down quite low.
Moreover, most Vietnamese shipping companies do not want to run this route because it is easy to incur fines due to unsecured purchase sources. There are many ships that have been waiting for months and still cannot leave the port because the exporters cannot arrange export permits.
This situation caused shipping companies to simultaneously lower their profit targets in 2023. Leaders of PetroVietnam Transportation Corporation (PVTrans) said that the Russia-Ukraine war is ongoing and has not yet returned. combined with public debt problems and other uncertainties still threatens to slow down global economic growth. Enterprises all forecast that economic growth will slow down in 2023.
Therefore, PVTrans has carefully planned its business in 2023 with revenue of VND 6,800 billion, equal to 71% over the same period; the expected profit after tax is VND 538 billion, equal to 46.5% compared to the implementation in 2022.
Fleet restructuring
When the economy falters, sea shipping is first to suffer. The shipping industry exploded with proposals in the second half of 2023. The shipping market is unstable since it sees a lot of products and ships.
After a little gain since the new year, bulk shipping routes are declining dramatically. Some bulk shipping from the Middle East to Vietnam costs $11-12/ton. For big ships of 50,000 tons, the Indonesia-Vietnam-Thailand-Cambodia coal route costs 8-10 USD and 11-12 USD for sea barges. The route from Vietnam to the Philippines, where many Vietnamese products go, is reduced to $12-13/ton.
According to Drewry and Freightos, container cargo freight rates on some main routes from Asia to Europe are down 81-85%, from Asia to America down 75-79%, and from America to Europe and Asia down 18-21% compared to last year. Shipping companies have discontinued one transit route that has benefited them in recent years. Shipping lines also decrease freight charges to attract consumers.
The shipping industry’s development cycle requires fleet reorganization during recessions. To consolidate the fleet and sell ships for cash, a ship liquidation may occur in the second half of 2023. Ship owners can avoid the fees of anchoring their ships in a poor market and make some money. VIMC plans to dispose of 24 ships in 2021–2025, totaling 617,000 tons. PVTrans will dispose of 20-25-year-old boats in 2023. Vosco will liquidate the Neptune Star and sell Dai Minh in 2024.
Mr. Nguyen Quang Minh, Chairman of the Board of Directors of Vosco, said that to meet the new IMO regulations, ships will be forced to reduce their speed by 30-40%. That will affect business efficiency. Besides, there is the trend of using green energy in the world transportation industry. Therefore, enterprises must plan to invest in new ships and newer machinery. Of course, one person’s difficulty will be another’s opportunity.
Import-export enterprises profit from lower sea freight charges. New import-export or capital market firms can dominate the market now. However, the economy is tough and these opportunities are scarce. Oversupply in European and Chinese markets causes depression and competition. The market won’t be active again until the fourth quarter of 2023 due to inventories. Thus, a Ho Chi Minh City Logistics Association (HLA) spokesman predicted a healthy shipping market in early 2024.
* La Quang Tri is Chairman of ShipOffer Group
Source: https://e.nhipcaudautu.vn/economy/shipping-industry-vessel-amid-ferocious-waves-3353414/
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