Fear of cost escalation hits businesses

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Fear of cost escalation
The price of animal feed has increased by about 20%, greatly affecting businesses in the seafood industry. Photo: T.Hoa

The increase in business expenses is higher than revenue

Reporting to Prime Minister Pham Minh Chinh at the National Conference between the Prime Minister and businesses on the morning of August 11, Mr. Truong Van Cam, Standing Vice Chairman and General Secretary of the Vietnam Textile and Apparel Association, acknowledged textile and garment enterprises are facing many difficulties and challenges at the end of 2022.

In particular, Vietnam’s textile and garment goods are mainly exported, so it is affected by global geopolitical fluctuations. For example, high inflation in the US and Europe has diminished the purchasing power of workers, causing orders to decrease.

Besides, Vietnamese enterprises are facing rising costs in fuel, input materials especially transportation costs at 3 times higher than in the last 5 years due to the ongoing Russia-Ukraine conflict.

According to Mr. Nguyen Hoai Nam, Deputy General Secretary of the Vietnam Association of Seafood Exporters and Producers, the worryingly high increase in production costs is followed by product prices skyrocketing and threatens to reduce competitiveness. In particular, the price of animal feed since the pandemic has increased by about 20%. Remarkably, catfish and shrimp enterprises suffer from the hike of rising costs because input materials are accounting for 65-70% of the overall expense.

According to a report of the Ministry of Planning and Investment, in the last months of the year, businesses still face many difficulties due to the hike of gasoline, raw materials, input materials, logistics costs which is followed by the escalation of production and business costs. Particularly, the cost of construction packages increased by 18-30% from time to time, logistics costs was 3-5 times higher. The increase in costs of enterprises was higher than the increase in revenue in the second quarter of 2022 compared to the previous quarter and the same period last year.

Mr. Nam also said that, in the past two years, shipping costs and labor have also increased due to the pandemic.

Currently, the price of transporting a container as well as other input costs such as packaging, chemicals, transportation, and integration has all skyrocketed. For example, a container to Europe has increased four times to US$10,000-12,000 and to the West Coast of the US is at VND400 million.

Therefore, seafood businesses in particular and businesses, in general, need the attention of ministries and sectors to take measures to support and direct cost reduction, especially for animal feed prices.

Given the impact of high fuel prices, Mr. Nguyen Quoc Ky, Chairman of the Board of Directors of Vietravel, said air transportation is difficult, fuel prices are high, sometimes accounting for over 60% of the cost while the price of petrol adjustment is usually delayed after 1 month.

As a result, airlines are not immediately benefiting at the time of the price cooling down.

According to Mr. Le Quang Trung, Vice Chairman of the Vietnam Logistics Business Association, logistics businesses highly appreciate the efforts and results achieved in operating and stabilizing gasoline prices. But he said that it is necessary to maintain and ensure stable gasoline prices at least until the second quarter of 2023.

In terms of rising transport prices, Mr. Le Quang Trung said that Vietnamese businesses do not benefit, instead, profits “fall into the pockets” of large foreign firms. Therefore, he suggested that it is necessary to increase connectivity based on large logistics center platforms. In addition, it is urgent to support the development of fleets and ports with Vietnamese brands.

“Vietnam is in need of importing some certain goods, but the Vietnamese fleet is still quite small compared to the world fleet, so it is very necessary to have a mechanism to win the right to transport for 20-30% of import and export volume,” proposed Mr. Le Quang Trung.

Reasonable price management

Due to such difficulties, according to Mr. Pham Tan Cong, Chairman of the Vietnam Confederation of Commerce and Industry (VCCI), the authorities need to actively improve the business environment, enhance international competitiveness with a focus on reforming administrative procedures, business conditions, cutting costs for businesses including time and human resources costs.

In addition, businesses and associations also expressed a desire to prolong a number of support policies, create favorable mechanisms to encourage private investors, and promptly support businesses in the face of pressure on prices and manufacturing charges.

Fear of cost escalation
The Prime Minister talks with delegates attending the Conference. Photo: VGP

Therefore, Minister of Agriculture and Rural Development Le Minh Hoan emphasized the role of state management agencies in cooperation with enterprises. In response to the direction of the Prime Minister and Deputy Prime Minister Le Van Thanh, the Ministry of Agriculture and Rural Development has been self-sufficient in input materials and cooperated with associations and businesses to proactively stabilize input material sources.

According to Minister of Industry and Trade Nguyen Hong Dien, the Ministry will continue to implement solutions to stabilize production, ensure large balances, supply and demand for basic and essential goods such as: stable prices of gasoline, fertilizer, etc. electricity, coal with the support of the development of enterprises. Closely monitor gasoline price movements and coordinate with the Ministry of Finance to regulate prices accordingly; update information on markets, prices, and changes in policies of importing countries so that enterprises can grasp information actively and flexibly in production and business; support the digitization of business operations, contributing to reducing time and costs.

Sharing this difficulty with businesses, at the conference, Prime Minister Pham Minh Chinh directed that ministries, branches and localities should push up supporting measures in order to reduce taxes, fuel fees, raw materials and fuel inputs for production and business; research and develop alternative raw materials to replace current imported ones.

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