Offering service rate cut, ports operate with losses

Undercutting each other’s service prices, many ports around the country appear to be competing with each other in a fatal race to the bottom.
A spokesperson of the Hai Phong Port Co. said in their scramble to attract shippers, many ports had repeatedly lowered their service charge while the government refused to assume any regulatory role in the issue.

Container service cost had recently been cut by up to 30 percent, which not only lowered the ports’ profits but also drove some to losses, he said.

A representative of a port in the central region also said it had cut service cost by 20 percent since the beginning of this year.

The ports were forced to reduce their service costs because those in the central region were situated too close to each other, enabling shippers to ignore a port that charged high rates to turn to another, he said.

Ho Kim Lan, general secretary of the Vietnam Port Association (VPA), said the fierce competition among the ports had benefited no one but the shippers, who could enjoy low port service costs while charging their customers exorbitant fees for their various services.

VPA said port service cost in Vietnam was always lower than that of neighboring countries, despite having the same service quality.

Lan said many ports in Vietnam charged shippers only $32 a TEU (twenty-foot equivalent units), while the respective figures in Thailand, China and Singapore were $55, $76 and $117.

“Despite the huge investment they made and the modern technologies they possess, the deep-water ports in Ba Ria – Vung Tau have the sharpest rate cuts in the country, setting the trend for others to follow,” he said.

Ports in Ba Ria – Vung Tau area now offer a service rate of only $32 for a 20-feet container and $50 for a 40-feet container, while the shippers charge the goods owners $72 for a 20-feet container and $115 for a 20-feet container.

Insiders said the port industry would likely lose $34 million this year, assuming the rate of reduction continued to be kept at 15 percent as last year.

VPA blamed the ports’ steep charge reduction on the recent booming of ports in Ba Ria – Vung Tau. As many new ports capable of receiving 130,000-ton vessels became operational this year, an oversupply of port services over demand means many ports have been operating at only 20 percent of their capacity.

An expert in port construction said most of the ports in Ba Ria – Vung Tau were joint ventures between Vietnamese businesses and foreign investors.

If the ports continue to operate at a loss for much longer, they would likely be taken over by the foreign investors, he warned.

“Since most of the Vietnamese port operators have weak financial muscles and rely mainly on bank loans, they would have to sell their stakes to the foreign investors when they can no longer take any losses further,” he said. – Tuoitre

Tags: Vietnam ports