Tuesday , May 28 2024

Greenback surge wrong-foots Vietnam exporters

Rubber producer Casumina has been borrowing in dollars at an interest rate of 2-3% per year against 5-6% for dong loans, but the greenback’s gain over the dong has neutralized the advantage.

“The market has dampened,” said CEO Pham Hong Phu, adding that export has been difficult lately due to plunging orders in other countries because of geopolitical tensions and inflation.

This is why the rising USD is becoming a challenge to the company which exports half of its products, he told VnExpress.

If the greenback continues to rise, Casumina will face more financial difficulties in the last quarter as export revenues will not be enough to cover expenses.

The company is one of many businesses that are or will be affected by the surging dollar. The surge has pushed up input costs for manufacturing companies and placed an additional burden on factories that have already seen orders decline on declining global consumption.

The dollar climbed to a new peak against the dong Thursday, having gained over 4% this year against the Vietnamese currency.

The USD Index is hovering around a 20-year high after the U.S. Federal Reserve increased its policy rates by 0.75% points for the third time in a row to control inflation.

The rising greenback is causing challenges to wood and furniture manufacturers who have to pay with the stronger dollar for imported inputs like paint and accessories, said Nguyen Liem, chairman of the Binh Duong Furniture Association.

“It is difficult to make business decisions with the stronger dollar. We are not benefiting from it.”

Rising transportation cost is set to be another issue.

Whenever the dollar gains 1%, businesses will have to pay another 1% for sea shipping, explained Tran Duc Nghia, CEO of logistics company Delta International.

“When the exchange rate goes up, the cost of fuel, parts and imports will also rise.”

Experts say that there’s a strong tendency for the dollar to strengthen whenever the global economy is in some sort of crisis, and the Russia-Ukraine tension, inflation in developed countries and concerns about the property market in China have given investors enough reasons to buy more of the greenback as a safe haven currency.

In previous years a stronger dollar usually increased profits for Vietnamese exporters, but many say that’s not the case now.

Ho Quoc Luc, chairman of food exporter Sao Ta, said that the company is facing higher transportation costs in exporting to Europe as the euro weakens against the dollar.

The fall of the Japanese yen, which has depreciated 20% to a 24-year low against the dollar, means that it is also declining against the Vietnamese dong, and that his company is gaining less from its sales to Japanese buyers, Luc told local media.

Some manufacturers, however, have managed to gain from a rising dollar.

CEO Doan Sy Loi of Taiwanese footwear maker Chang Shuen said that its orders from the U.S. have surged 300% after the pandemic as smaller competitors went bankrupt.

This has offset a 70% decline in orders from Europe, he said, adding that gains from the stronger greenback have allowed the company to increase staff salary starting this July.

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