In recent months, Vietnamese companies that heavily depend on fuel have been thrust into a challenging landscape, characterized by soaring fuel prices. These escalating costs are stretching operational cash flows and forcing businesses to reassess their strategies to survive in this tightening financial environment.
The Eastern Bus Station in Ho Chi Minh City. Photo courtesy of the bus station.
The ripple effects of recent fuel price increases have echoed across various sectors, triggering a steep rise in input costs, exposing operational bottlenecks, and amplifying the risk of disruptions. The transportation industry has particularly felt these pressures, where fuel expenses often constitute a significant share of overall operating costs.
For instance, Viet Tan Phat Co., which services passenger routes between Ho Chi Minh City and the Central Highlands, operates a fleet of approximately 100 sleeper buses and limousines. Each vehicle consumes between 1,800 and 2,500 liters of fuel monthly. With the latest adjustments, the company has faced an additional expense of VND1-1.5 billion (around $57,000) per month. This financial strain is compounded by the fact that passenger demand has yet to rebound fully post-pandemic.
“Passing on higher costs to customers remains a delicate balancing act,” a company representative explained. The customer base primarily comprises workers and students, making them highly sensitive to price changes. A sharp increase in fare could lead to a significant drop in demand.
Long-haul routes, stretching 300-600 km across mountainous terrain, amplify fuel consumption. Additionally, they reduce operational efficiency due to extended turnaround times, further intensifying the financial pressures on transport operators.
On the freight transport side, a representative from a southern container transport company noted that their fleet, consisting of 80-100 tractors, consumes around 300,000-350,000 liters of fuel monthly. A mere VND1,000 ($0.04) rise in fuel costs per liter translates to an increased monthly expenditure of around VND300-350 million ($13,300).
Larger logistics firms are dealing with an even greater magnitude of challenge, with monthly fuel consumption peaking at 500,000-700,000 liters. Recent price hikes have added costs in the range of several billion dong (approximately VND1 billion or $38,000) to their operational budgets, severely impacting profitability.
In parallel, supply chain disruptions are compounding existing challenges. In the construction sector, Dacinco Construction Investment Co., which operates around 200 vehicles for an airport project, faces rising prices amid unstable supply. Their current operations are sustained by fuel reserves; however, the risk of disruption looms large if supply cannot be maintained.
While stockpiling fuel serves as a temporary solution, ongoing supply chain issues threaten stability. This is particularly critical in large-scale infrastructure projects where timely transport of materials is essential for meeting construction deadlines.
Firms Seek Workarounds to Maintain Operations
In an effort to sustain operations without incurring significant losses, companies are implementing various measures. These include optimizing operational processes, restructuring costs, and renegotiating contracts—even if it means sacrificing profit margins.
Transportation firms are re-evaluating their routes, minimizing empty runs, and enhancing load factors. A representative from a logistics company stated, “We are reviewing all routes, minimizing empty trips, and consolidating cargo to cut fuel costs per journey.”
Some businesses have begun investing in fuel-efficient vehicles and piloting electric alternatives for short routes. However, transitioning to these more environmentally friendly options requires time and capital. On the commercial front, many firms are renegotiating contracts to include fuel surcharges, aiming to distribute the financial burden among clients.
“When fuel prices surge, we must adapt our rates based on cargo volume and distance,” explains Chau Quoc Nhat, a transport company director in Hue city. “Otherwise, our operations aren’t sustainable.” Nevertheless, this adjustment process remains fraught with challenges, as customers themselves are grappling with rising costs that might lead them to reduce orders.
Le Tan Thanh Tung, deputy CEO of logistics firm Vitraco, observes that many businesses are compelled to absorb parts of the expense. “Fuel prices might climb by 30-40%, but we can raise service prices by only 10-20%. The remainder must be absorbed,” he stated.
In addition to these adjustments, companies are taking proactive steps to lower indirect costs, such as administrative expenses. However, fixed costs like driver wages and vehicle maintenance remain largely unchanged, placing additional strain on finances.
Despite these strategies, many companies believe internal measures will only offer temporary relief. They are appealing for supportive policies, including tax reductions on fuel, flexible use of price stabilization funds, transparent mechanisms for fuel surcharges, short-term credit support, and improved access to domestic fuel supplies.
Tung emphasizes that effective fuel price management is crucial for alleviating cost pressures. With fuel accounting for up to 30-40% of operational costs, sustained volatility or supply interruptions could rapidly erode profits and potentially drive some firms into financial distress.
As companies navigate through these challenges, it becomes increasingly clear that a stable, transparent, and predictable policy environment will be vital for fostering long-term competitiveness and resilience in the face of rising operational costs.