Vietnam’s Middle East, Europe-bound exports lose competitiveness due to Red Sea tensions

Vietnam’s major exports to Europe and the Middle East like garments, coffee and smartphones might decline due to worsening Red Sea shipping disruptions and rising freight hikes, experts warn.

Garment firm Dony’s shipment left a Ho Chi Minh City port in December and only arrived in the Middle East a few days ago.

The sea trip, which usually takes 28-30 days, took three months, the company’s CEO Pham Quang Anh said.

“Our goods were sent to Singapore for consolidation and have been sitting there because the shipping company delayed its departure to wait for the rough sea to calm down. We do not know yet when the customers will receive the shipment.”

By “rough sea” he was referring to the conflicts plaguing the Red Sea for the past three months.

Besides, freight rates have skyrocketed to US$5,300 for a 40-foot container from $1,400 at the end of last year.

Transport costs from Vietnam to Europe have also increased, with freight to Hamburg, Germany, nearly tripling between December 2023 and January 2024, according to the Vietnam Maritime Administration.

Meanwhile, the Singapore-Rotterdam shipping route now takes 36 days instead of the usual 26 as cargo ships have to take a detour around the southern tip of Africa.

Garments and footwear exports are especially affected since air transport is not a feasible option.

“Textile goods have very low profit margins,” Anh said.

And the shipping disruption is expected to worsen from the second quarter onwards, financial services provider HSBC forecast in a recent report.

By then, all exports to the Middle East and Europe, including major ones like coffee and smartphones, will be affected, the report said.

At the 12th Ocean Dialogue last Friday, Permanent Deputy Minister of Foreign Affairs Nguyen Minh Vu too said that the increased costs and disruptions resulting from the Red Sea tensions would cut into Vietnamese exports’ competitiveness.

Dr Irfan Ulhaq, a lecturer in logistics and supply chain management at RMIT Vietnam, said: “The conflict has increased insurance and fuel costs, adding financial pressure on Vietnamese exporters and potentially affecting their global competitiveness.”

Furthermore, industries reliant on timely supply chains and perishable goods are especially susceptible to shipping disruptions, he pointed out.

“Delays in importing raw materials and components can significantly impede production.”

His colleague, Dr. Majo George, concurred adding that the impact of the Red Sea tensions would be complex and multifaceted.

According to the two experts from RMIT, businesses have to reassess their supply chain and explore safer, albeit costlier, shipping routes.

They might even consider moving production closer to target markets or use AI and blockchain technologies to improve supply chain management, the experts said.

For the time being many exporters have resorted to air transport, leading to large volumes of air cargo from Vietnam to Europe in January.

As for exports with low profit margins like garments and footwear, many companies are temporarily focusing on other markets.

“My firm’s only choice is to focus on the domestic, Asia and North America markets until the conflicts subside,” Dony’s CEO said.