Geopolitical Events Influencing the Port Industry
Escalating conflicts in the Middle East are significantly impacting the world’s critical shipping routes connecting Asia with the Americas and Europe, particularly through the Suez Canal. Global supply chains are disrupted as shipping costs surge due to rerouting around the Cape of Good Hope instead of the Suez Canal. Attacks by Houthi forces in Yemen on commercial vessels in the Red Sea have forced shipping companies to reroute via the Cape of Good Hope, adding 3,300 nautical miles to the journey, causing cargo volumes passing through the Suez Canal to drop by 55%. Consequently, longer travel distances and extended transit times have driven up shipping rates from Shanghai to Rotterdam more than eightfold, from $1,000 in late October 2023 to $8,300 in July 2024.
Global Freight Rate Index (Source: FiinRatings, Drewry)
The Panama Canal also faces challenges due to an extended dry season since 2023, which has limited daily transit capabilities. Despite the rainy season, severe drought in 2023 has left insufficient water to operate the locks. Unlike other waterways, such as the Suez Canal, the Panama Canal—which typically handles about 6% of global maritime trade—relies on rainfall for its Gatun and Alajuela artificial lakes. The Panama Canal Authority expects to restrict vessel passage through the canal until the end of the year, with possible further restrictions if the drought persists.
Declining Cargo Traffic Through Both Canals (Source: UN Trade and Development)
The challenges faced by these strategically located canals have increased costs for maritime businesses. The impact of rising shipping costs and extended transit times negatively affects the economy’s import-export demand, thereby reducing port throughput. Additionally, cargo volumes arriving at Vietnamese ports may decline due to congestion at ports in Singapore, China, and Malaysia, as mandatory rerouting disrupts schedules and reduces port calls.
Asia-to-Europe Routes Post-Red Sea Conflict (Source: MDS Transmodal, FiinRatings)
Global Maritime Industry and Recovery Prospects
Despite geopolitical tensions and rising costs, the logistics industry may see a recovery in throughput thanks to increased production activity, which could ease average freight rate pressure. Lower fuel costs also offer a positive factor. According to an SSI report, the primary theme for the port industry in 2024 will be a throughput recovery driven by improving import-export demand, particularly with inventory restocking in the US and Europe, while supply is expected to remain stable through 2025.
SSI experts also forecast modest economic growth in the US, with no severe recession or significant job and income losses. Retailers are expected to restock after inventory reductions over the past 1.5 years. Central bank interest rate cuts could further support consumer spending and production, boosting cargo volumes and port throughput. Export-import growth is expected to increase by 10% year-over-year in 2024, with cargo volume growth also at 10% year-over-year (measured in TEUs), especially in the first half of 2024 due to a low 2023 base. Deeper ports may experience even higher growth at 15% year-over-year, compared to 7% year-over-year growth at transshipment ports primarily serving intra-Asia trade.
Freight rates are expected to gradually stabilize as supply and demand reach equilibrium, although rates may remain high compared to historical levels. However, continued or escalating geopolitical tensions in the Red Sea could further drive demand for cargo transport amid the tight supply-demand conditions due to the Russia-Ukraine conflict.
Vietnam’s Maritime Industry and Key Highlights
Despite certain challenges from economic downturns domestically and internationally, Vietnam’s port industry recorded positive results in 2023 with slight cargo volume growth. The port industry outlook for 2024 remains optimistic as import-export volumes surged in the first half of the year, and orders have resumed even though prices remain stable. However, challenges persist as geopolitical conflicts continue to drive up freight rates, and some key exports face anti-dumping investigations in the US and EU markets.
Vietnam’s Monthly Export Volume (Source: FiinRatings)
According to FiinRatings, cargo throughput is projected to continue growing at a CAGR of 8.3-11.3% through 2030. Group 1 ports are expected to grow at 4.4-7.9% CAGR, Group 4 ports at 7.2-9.1% CAGR, and other ports (Groups 2, 3, and 5) at 12.9-16.7% CAGR. Growth drivers for Groups 1 and 4 mainly stem from containerized goods, while Groups 2, 3, and 5 are driven by dry cargo.
Alongside the visible challenges, there are significant highlights for the sector. According to the Vietnam Maritime Administration, freight rates have seen the most significant reductions on the Asia-US West Coast and Europe routes, with drops of about 20-30% month-on-month. This positive signal for the shipping market benefits businesses by lowering transport costs, making booking easier, and enhancing business efficiency. Although freight rates remain high compared to previous periods, reduced rates amid declining oil prices are a favorable development. The year-end seasonal uptick in global consumer demand is expected to boost sea transportation demand.
Shipping companies are seeing increased activity with the vibrant export-import market. Meanwhile, Vietnam’s port infrastructure continues to expand, offering potential for industry breakthroughs. Vietnam boasts three ports in the world’s Top 50 largest, including Hai Phong, Ho Chi Minh City, and Cai Mep. Storage facilities are increasing significantly in number and are well-equipped, supporting high cargo handling capacities.
In June 2024, it was widely noted that the Cai Mep port cluster was ranked seventh globally in the Container Port Performance Index (CPPI) by the World Bank and S&P Global Market Intelligence. Cai Mep’s top-seven achievement surpassed major international transshipment hubs like Yokohama (9th), Hong Kong (15th), and Singapore (17th). Administrative reforms by port regulatory authorities have facilitated higher productivity for companies. Cai Mep has embraced digitalization, automation, and enhanced IT applications. Over the years, it has maintained high productivity, handling up to 130 containers per hour, even as cargo volumes and shipping schedules increase.
Container terminals at Cai Mep are equipped with modern, synchronized facilities, enabling the port to handle large vessels with a high regional standard of throughput. Several terminals accommodate mother vessels over 10,000 TEUs, with CMIT handling 214,121 DWT vessels with 18,300 TEU capacity, Tan Cang Cai Mep handling 160,000 DWT vessels with 14,000 TEU capacity, and Gemalink handling 232,000 DWT vessels with over 24,000 TEU capacity. These vessels travel directly to Europe, the US East and West Coasts, and Northern Europe without requiring intermediate transshipment. Cai Mep is thus poised to become one of the region’s most active logistics hubs.
Conclusion
In general, port operators have stable profitability, with EBITDA margins averaging around 30%, relatively high compared to many other sectors. This is due to high industry entry barriers, low operational costs, and regulated service prices that generally cover investment costs.
For Vietnam, the port industry is well-positioned for growth due to its strategic location and increasing international trade, particularly with regional partners like China, South Korea, and Japan. Vietnam’s deep-water ports, such as Cai Mep-Thi Vai and Lach Huyen, continue to benefit from handling large vessels, supporting transshipment demand in the global supply chain. This advantage allows domestic ports to face limited competition, with stable pricing and investment levels.
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