Seafood companies face a difficult third quarter

“Production and shipping costs are the main pressures that seafood businesses are facing.”

Nguyen Hoai Nam

HANOI: The growth momentum of the seafood industry is likely to slow down in this third quarter due to the rising pressure of production and transportation costs, while purchasing power in major markets is expected to decrease.

The seafood industry witnessed a strong recovery after being affected by the Covid-19 pandemic.

In the first seven months of 2022, seafood exports earned nearly Us$6.7bil (Rm30bil), a gain of 35% year-on-year.

The Vietnam Association of Seafood Exporters and Producers (VASEP) expects that in 2022, seafood export turnover can exceed the target of Us$10bil (Rm45bil), an increase of 12% to 15% over last year.

However, Nguyen Hoai Nam, deputy general-secretary of VASEP, said that businesses are still suffering from the impact and consequences of the pandemic, while high inflation weighs on purchasing power in the country’s seafood consumer markets and higher aqua feed prices.

“Production and shipping costs are the main pressures that seafood businesses are facing,” Nam said, of which, production costs, or the high price of aqua feed in particular, causes the price of Vietnamese seafood products to pick up, reducing competitiveness with other countries’ products.

The expenses of animal feed for pangasius and shrimp account for 65% to 70% of the cost.

Meanwhile, shipping and labour costs have both increased over the past two years due to issues related to Covid-19, port congestion and soaring fuel prices.

The cost of a container going to the US West Coast is currently about 400 million dong (RM76,453) and going to Europe is US$10,000 to US$12,000 (RM44,830 to RM53,796). Other costs such as packaging and chemicals also increased.

Cashflow and credit tightening since the beginning of August are other problems for the industry.

Nam said that some major markets of Vietnamese seafood, such as the United States and the European Union, record high inflation, meaning consumers have to limit spending, and the purchasing power of seafood was at risk of decline.

Many importers announced that they do not have orders from now until the end of October. Therefore, businesses are unlikely to have enough cashflow to repay bank loans.

And without paying old debts, they will not be able to borrow new loans, affecting purchasing activities of shrimp and fish.

The business picture in the first seven months of 2022 showed positive growth.

In July, Vinh Hoan Corp’s revenue reached nearly 1.2 trillion dong (Rm229.4mil), up nearly 13% month-on-month and 48% yearon-year. Many other seafood enterprises recorded big profits in the first six months of 2022.

However, the story is different in the third quarter of 2022, as VASEP expected it to slow down, with the total export turnover expected to reach about Us$3bil (Rm13bil), lower than in the second quarter.

One of the reasons is the scarcity of raw materials for shrimp and seafood. Meanwhile, world shrimp demand is forecast to be less positive in the last months of the year.

A leader of a seafood export business said that recently, orders have started to slow down, and consumers’ purchasing power is affected by exchange rate fluctuations in the EU, while in the US market, people gradually tighten spending.

Some importers reported a delayed delivery time of three-to-five months.

Shrimp and pangasius are two key export products of Vietnam’s seafood industry, but difficulties and challenges are inevitable when feed prices are getting higher and competitive pressure emerges from some markets.