Political tensions and Vietnamese businesses' concerns about orders

Since the beginning of the year, the global market has gradually recovered, and businesses' import and export activities have improved as more orders have been signed. However, the complex context and geopolitical conflicts have negatively affected trade activities. Businesses are facing many difficulties and risks.

Shipping goods by sea has become more expensive since the start of the year due to conflict in the Middle East and restrictions on operations on the Panama Canal. The attacks have severely disrupted international trade on the vital route between Europe and Asia, which carries about 15% of the world's shipping traffic.

In fact, the escalating tension in the Red Sea has forced shipping lines to take detours, leading to increased shipping costs to and from some import-export markets. This has significantly affected Vietnamese businesses, especially those doing business with partners in the US, Canada, EU, and UK markets.

Export businesses face the fear of "drying up orders"

Many exporters have noted that orders will become more difficult from the second quarter of 2024. Disruptions in the Red Sea have posed risks to ASEAN economies. After three months of tensions in the Red Sea, the number of cargo ships passing through the Suez Canal has dropped by more than 50% compared to December 2023. Spot freight rates have tripled in trade from Asia to Europe.

Vietnam - a highly open economy is directly affected by the above difficulties. Shipping time by sea is extended by dozens of days, causing concern for both exporters and buyers. At the same time, the impact is even greater when tensions are not only in Russia - Ukraine but also spreading to Iran - Israel...

Not stopping there, many manufacturing enterprises also encountered difficulties when the import of input materials was delayed. The prices of input goods also increased. Even agriculture - the industry that is considered the pillar of the economy - the export industry has had many bright spots in recent years, but agricultural export enterprises also struggled in the first months of the year. The reason was that the prices of input materials and transportation costs both increased dramatically.

Not yet free from shocks in raw material prices and freight rates, businesses continue to face the challenge of “rising exchange rates”. In particular, the US Federal Reserve’s (FED) continued delay in its plan to cut interest rates for a long time could further affect the world economy. Higher interest rates in the US will also spread to other economies as the appreciation of the greenback will disrupt trade and borrowing in USD. Economies that rely on imported goods, such as Japan, face a double whammy from a stronger greenback and rising USD-denominated oil prices. Oil prices have now increased by about 20% since early December and could rise further if the conflict in the Middle East worsens.

For Vietnam, the record strong increase of the USD compared to VND since the beginning of this year has caused headaches for businesses whose inputs depend on imported raw materials because the capital cost to import raw materials, machinery, equipment, etc. has all increased. Many businesses have signed contracts to import raw materials in advance, so when the exchange rate fluctuates in an upward direction, import costs will increase further. Even if the USD continues to increase in the coming time, it will cause the VND to depreciate, inflation will increase, leading to many negative consequences for the production and business activities of businesses.

In fact, at many export enterprises, most enterprises only have orders for the second quarter of 2024 while the order outlook for the following months is not very bright.

Mr. Nguyen Van Khanh - Chairman of the Ho Chi Minh City Leather and Footwear Association admitted that most businesses in the industry are still facing many difficulties in terms of orders. Many factories are still cutting workers due to a sharp decrease in export orders. According to a recent survey by the association, only about 40% of businesses in the association have orders until May and June. Most of the orders are exported to Europe and the US. The rest, from the third quarter to the end of the year, still have no orders.

And in the context of escalating political tensions, export businesses are once again facing the risk of losing orders. More worryingly, in labor-intensive export industries such as textiles, footwear, wood, etc., thousands of workers are at risk of losing their jobs.

Source: https://congthuong.vn/xung-dot-chinh-tri-cang-thang-va-noi-lo-don-hang-cua-doanh-nghiep-viet-315769.html