At its current state, Vietnam’s fleet is not able to compete with international shipping lines in the ocean shipping market as it only accounts for about 10% of the market share, and the rest is taken by foreign peers, according to Viet Dragon Securities Company (VDSC).
It is estimated that general cargo vessels account for about 60% of the total fleet, followed by dry cargo vessels (15%) and bulk cargo (10%). Meanwhile, the number of container ships is only about 4%, and specialized ships account for about 11%.
With the “buying CIF and selling FOB” practice, the right to hire transport belongs to foreign partners. Therefore, the ocean shipping business is mainly handled by foreign shipping companies, VDSC commented.
Since the economic recession in 2008, the picture of the shipping industry has not been bright due to strong fluctuation of fuel oil prices. Meanwhile, on the supply side, many ships were built and acquired in the period before 2008, which made the handling capacity exceed demand. This intensified price competition.
Moreover, most of these vessels were built and bought during the golden time of shipping industry, which were very costly. Many players have had to borrow from banks to expand their fleet. When freight rates fell while fuel costs and interest rates surged, many shipping operators suffered losses. The total fleet size, accordingly, also shrinks sharply as many businesses had to restructure, liquidating vessels to pay back loans.
In September, Prime Minister Nguyen Xuan Phuc will preside over a conference on developing ocean shipping and coastal transport. VDSC expected the government to have clearer guidelines to implement solutions to clear difficulties the sector faces.
Notably, the Ministry of Transport proposed that the government assign the Ministry of Finance to consider adding shipping enterprises to the list of enterprises entitled to corporate income tax (CIT) incentives with a tax rate of 10% in 15 year. The current CIT rate for shipping businesses is 20%
The move is predicted to have a direct impact on the profit-making liners. Since then, these businesses can improve retained earnings to reinvest, modernize their fleets and improve competitiveness with foreign shipping lines. In contrast, some players who still have hefty accumulated losses will not benefit immediately from the CIT incentives. However, the remaining solutions are expected to create a more favorable long-term business environment for these shippers.
