Exporters strain under soaring logistics costs and Middle East geopolitical risks

Amid mounting logistics cost pressures, many exporters are being forced to stretch their capacity to maintain orders and remain competitive in international markets.

Mr. Ta Quang Huyen, CEO of Hoang Son 1 JSC, noted that Vietnam is currently exporting large volumes of cashew nuts to Jordan, Israel, and Türkiye, primarily via the Suez–Red Sea corridor—one of the most critical maritime routes linking Asia and Europe. Should risks along this route escalate, vessels may be rerouted around the Cape of Good Hope, extending transit times by 8–10 days and significantly increasing war risk insurance premiums, thereby driving up freight costs.

At present, logistics expenses for exports to the Middle East account for roughly 10–20% of total costs and could rise by an additional 15–25% if tensions persist. However, most cashew shipments are conducted under FOB terms, allowing exporters to receive payment once goods are loaded on board, thereby mitigating risk. In contrast, exporters operating under CIF contracts face higher exposure, as shipments may be delayed or fail to reach buyers as agreed.

Mr. Nguyen Dinh Tung, CEO of Vina T&T Group, stated that the Middle East conflict is severely disrupting transportation and order fulfillment—not only for his company but for many exporters serving the region. Detours via the Cape of Good Hope have lengthened delivery times, leading to surging freight rates, insurance costs, and war-related surcharges.

“For fresh produce, prolonged transit significantly increases spoilage and shrinkage rates, exposing exporters to price renegotiations or order cancellations. At the same time, instability dampens overall demand due to inflation,” Tung told TheLEADER.

The situation is even more challenging, he added, given that agricultural products and fresh fruits typically carry relatively low value per container and operate on thin margins. With ocean freight rates rising and emergency or war-related surcharges ranging from USD 1,500 to 4,000 per container, these additional costs can effectively wipe out profits and even erode principal capital.

“For contracts previously signed on a CIF or C&F basis, exporters are compelled to absorb these substantial incremental freight costs to ensure timely delivery and preserve their credibility,” Tung emphasized.

From a competitiveness standpoint, Tung warned that if exporters fully pass through these soaring logistics costs into selling prices, Vietnamese fruits could quickly lose their competitive edge in distant markets. Importers may become hesitant to sign contracts and increasingly seek alternative suppliers located closer geographically to mitigate maritime risks and high freight costs.

Mounting pressure on businesses

In early March, immediately following the outbreak of conflict in the Middle East, Wan Hai Lines issued an urgent notice suspending all shipping services to the Middle East, the Red Sea, and the eastern Mediterranean (including Türkiye and Egypt). The decision took immediate effect until further notice, with freight rates raised to as much as USD 4,000.

The carrier also implemented safety measures for crews, vessels, and cargo, accompanied by emergency conflict surcharges of USD 2,000–3,000 per dry container and up to USD 4,000 per reefer or special equipment container. Customers were requested to promptly return empty containers to depots.

Beyond Wan Hai, major shipping lines have also adjusted operations. Maersk has indefinitely suspended transits through the Strait of Hormuz, warning of potential delays and route changes across Gulf ports.

Meanwhile, Hapag-Lloyd, a leading German container shipping company, has imposed a war risk surcharge of USD 1,500 per TEU on routes to the Persian Gulf, rising to USD 3,500 for refrigerated and special cargo.

According to the Private Economic Development Research Board (Board IV), several global carriers, including CMA CGM, have rerouted vessels via the Cape of Good Hope to avoid conflict zones, while MSC has temporarily halted bookings to the Middle East.

Domestically, recent spikes in fuel prices have further driven up inland logistics costs. Mr. Nguyen Nam Hai, Chairman of the Vietnam Coffee–Cocoa Association (VICOFA), noted that surging diesel prices are directly inflating domestic transportation expenses.

“Rising fuel costs are pushing up inland logistics expenses, while export coffee prices are largely dictated by global markets, limiting exporters’ ability to adjust selling prices to offset higher costs,” Hai explained.

The impact extends beyond exporters, as fuel price volatility affects the broader economy. However, industries heavily reliant on international shipping are bearing the brunt of these pressures.

In response to escalating input costs, many companies are reassessing production plans, logistics strategies, and export contracts to mitigate risks.

Mr. Nguyen Hoai Nam, Deputy Secretary General of the Vietnam Association of Seafood Exporters and Producers (VASEP), highlighted that logistics costs already account for a significant share of seafood export expenses. Rising fuel prices are driving up container transport, cold storage, and inland logistics costs.

According to VASEP, logistics volatility is affecting key export categories: shrimp margins are narrowing due to higher transport costs and longer delivery times; pangasius faces risks as the Middle East is a key consumption market; and tuna is under dual pressure from rising fuel costs in both harvesting and transportation.

“Many companies are reviewing logistics plans—from route selection and delivery schedules to renegotiating freight costs. However, given that many export contracts were signed earlier at fixed prices, most incremental costs must be absorbed by the exporters,” Nam said.

Experts from the Vietnam Logistics Business Association (VLA) identify three major layers of risk arising from Middle East tensions: energy, logistics, and exchange rates.

First, disruptions to strategic shipping routes could drive up oil and fuel prices, escalating transport costs. Second, carriers may reroute vessels, impose surcharges, or extend transit times, increasing logistics costs and disrupting delivery schedules. Third, geopolitical instability tends to strengthen the US dollar, exposing importers to exchange rate risks, as most freight, fuel, and insurance payments are denominated in USD.

Mr. Ngo Khac Le, Deputy Secretary General of VLA, advised exporters and logistics firms to closely monitor market developments, build cost contingencies, and proactively manage risks in transport and trade contracts.

He also highlighted the “End of Voyage” clause as a critical risk scenario. Commonly included in bills of lading, this clause allows carriers to terminate voyages and discharge cargo at unscheduled ports in cases of war, danger, or force majeure.

In many international disputes, courts and arbitration panels uphold this right, provided carriers can demonstrate that continuing the voyage was unsafe or impracticable and that they acted reasonably. However, the clause cannot be abused; if discharge is deemed unnecessary or unreasonable, cargo owners may still claim compensation.

“In practice, voyage termination can trigger a domino effect across global shipping networks, leading to port congestion, vessel and container shortages, and widespread schedule disruptions,” Le noted.

Risk mitigation strategies for businesses

According to Le, when notified that cargo has been discharged at an off-schedule port, companies should first review sales contracts and Incoterms to determine responsibility for risks and additional costs.

“Clarifying legal responsibilities provides a basis for selecting appropriate response strategies and negotiating with relevant parties,” he said.

Subsequently, companies should quickly evaluate handling options. In many cases, the most viable solution is to continue transporting the cargo to the original destination or an alternative port. Some firms may opt to de-stuff containers for redistribution or alternative handling.

Other options include redirecting the shipment to a new buyer or selling in the local market where the cargo was discharged, subject to legal and commercial feasibility.

Additional measures may involve returning the cargo to the origin port or storing it at a transshipment hub until market conditions stabilize. In extreme cases, if handling costs exceed cargo value, companies may need to consider abandoning the shipment to limit further losses.

At the same time, reviewing cargo insurance policies is essential to determine coverage scope and validity at the time of the incident. Cost control is another critical issue. When cargo is discharged at an unscheduled port, expenses can escalate rapidly, including container detention and demurrage, storage, and port handling charges.

Timely negotiation with carriers and logistics providers is therefore crucial to minimizing costs and identifying optimal solutions. “Early intervention can significantly reduce additional costs and prevent shipments from being stranded too long at transshipment ports,” Le emphasized.

Strengthening coordination across stakeholders

VLA experts also recommend that companies proactively coordinate with all stakeholders in the supply chain. This includes engaging with carriers to obtain updates and explore alternative routes, as well as negotiating with buyers or sellers to agree on handling solutions.

For transactions settled via letters of credit, early engagement with banks is necessary to address documentation and payment issues. Importantly, companies should retain all relevant documentation to safeguard their interests in case of disputes or insurance claims. Key documents include bills of lading, carrier notices, correspondence, storage receipts, sales contracts, insurance policies, and photographic evidence of cargo condition at discharge.

“These documents play a critical role in dispute resolution and insurance claims,” Le stressed. In the long term, companies are advised to strengthen risk prevention strategies. This includes reviewing transport contracts and bills of lading—particularly clauses related to war risks and route deviations—and incorporating contingency provisions into sales agreements.

Expanding insurance coverage across the logistics chain, diversifying shipping routes and transshipment hubs, and developing contingency logistics plans are also essential measures.

“Amid rising uncertainties in global shipping, a solid understanding of international trade, transport, and insurance frameworks will enable businesses to navigate disruptions and sustain stable operations,” Le concluded.

According to The Leader

Source