Tensions between Russia – Ukraine: Concerns about rising Logistics costs and the greatest risk to the Supply chain?
Tensions between Russia – Ukraine: Concerns about rising Logistics costs and the greatest risk to the Supply chain?

Tensions between Russia – Ukraine: Concerns about rising Logistics costs and the greatest risk to the Supply chain?

Due to the impact of the attack from Russia on Ukraine, the world crude oil price has just risen to the highest level in more than 7 years, surpassing the threshold of 105 USD/barrel in the context of concern that the energy supply will still be interrupted. Vietnam is also one of the countries heavily affected by the Russia-Ukraine crisis, the economic consequences are and will continue to take place in the near future. As a result, many fields will face a lot of pressure and difficulties, especially for logistics…

Logistics costs will “escalate” ?

The tense war between Russia and Ukraine may continue for a long time, which will increasingly adversely affect gasoline prices in the world in general and in Vietnam in particular. World economic experts assess that the crisis between Russia and Ukraine can have an impact at the macro level and in the worst case, the price of gasoline may increase to 120 – 140 USD/barrel.

In Vietnam, after the adjustment of the Ministry of Industry and Trade – Finance, each liter of E5 RON 92 gasoline from 3pm on March 1 costs 26,070 VND (an increase of 540 VND); RON 95 is 26,830 VND (up 550 VND). Highest price ever! After receiving this information from the inter-Ministry of Industry and Trade – Finance, many businesses providing transportation services and logistics systems expressed concern.

The sudden increase in gasoline prices will greatly affect businesses in Vietnam in general and the transportation system and logistics activities in particular. Previously, businesses had to struggle with the Covid-19 pandemic, the economy had not yet recovered. Now, there is a new problem that is the high price of gasoline, which has a heavy impact on the transportation industry operating in the logistics system. The reason is because petrol fees play a very important role in the current cost of logistics, accounting for more than 30% of the total costs.

The increase in transportation fees has had a significant impact on the logistics structure with a series of increased fees such as: petrol fees, tolls, labor fees, wharf fees, etc.

Difficulties pile up difficulties on the logistics system in Vietnam. The logistics industry is facing a serious shortage of containers. Empty containers to store export goods are now scarcer than ever. The reason is because shipping containers by sea is very difficult, if traveling by road and with the current high gasoline price, it will incur a lot of costs. This is the difficulty most logistics enterprises in Vietnam are facing.

In particular, the cost of exporting containers to Europe has doubled compared to before. The continuous price increase has put great pressure on the logistics industry, forcing businesses to cut all costs in order to adapt to survive.

Besides, the world price of petrol has increased, the cost of petrol for the truck fleet has increased by 5-7%, forcing businesses to have a plan to change prices. For the logistics industry, gasoline prices account for about 35% of freight rates. Therefore, if not adjusted according to the cost of gasoline prices, businesses may face heavy losses.

The supply chain of Vietnamese agricultural products has been severely affected

Vietnam’s agricultural trade with Russia and Ukraine is decreasing significantly. Vietnam exports to Russia annually about 500 million USD (in 2021 it will be 550 million USD) of agricultural – forestry – fishery products. In which, there are a number of products with significant export value such as seafood ($164 million, accounting for 3% of total seafood exports), coffee ($173 million, accounting for about 6%), pepper and cashew nuts (60 million, accounting for about 2%). When the conflict broke out, export transactions to Russia were halted due to banking risks, lack of shipping and high costs.

In addition, the absence of Russia from the SWIFT payment system may lead to slower payments. Russian businesses can look for other foreign currencies to pay. Currently, there are about 50 Vietnamese enterprises licensed to export seafood to Russia. There are businesses that have delivered goods to their partners in Russia but have not received the money and are worried about how difficult it will be to collect the money when Russia is removed from the SWIFT system.

According to businesses, the thing that worries them most in the tension between Russia and Ukraine is the rising price of gasoline in the world and in Vietnam. Because the cost of transporting export goods has been too high recently, making the business not very profitable.

In addition to difficulties in exporting agricultural products, the Russia-Ukraine tension also makes businesses worry because it will affect fertilizer prices in the near future. Recently, the price of fertilizers in the country has been escalating. Fertilizer businesses are concerned that the Russia-Ukraine tension will cause fertilizer prices to continue to increase.

*Source: Synthesis

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