Crossborder Transportation of Vietnam with China

1. Introduction
China is the biggest market to which Vietnam exports due to its massive consumption
capabilities as well as territory advantages.

2. Modes of Transport
There are 4 common ways to transport from Vietnam to China: Water, Rail, Road, and
Air. Among them, freight is the most preferred but railways have been focused on in
recent years.

2.1. Rail Transport

2.1.1. Advantages:

Cost-effective for bulk: For delivering large quantities of goods, rail is by far the
superior option. It offers economies of scale - lowering costs for transportation since it
can accommodate bulk goods within a single trip - making it the cheaper option per
unit over long distances compared to freight.

Reliable schedules: Trains operate on fixed schedules, minimizing delays due to

traffic jams, accidents,.... This predictability is crucial for planning deliveries and
ensuring freshness for perishable goods.

Safety Assurance: Trains have a significantly lower rate of getting into accidents
compared to road transport, especially over long distances. This translates to lesser
product damage and fewer potential liabilities.

Reduced theft risk: Train cargoes are generally less vulnerable to theft compared to
trucks on open roads. This can be a significant advantage for high-value agricultural
goods.

2.1.2. Disadvantages:

Limited flexibility: Trains travel on fixed routes with designated loading and
unloading points. This can be inconvenient for products requiring delivery to specific
locations or those needing special handling.

Accessibility issues: Not all farms or markets have direct rail access. This might
necessitate additional transportation by truck, adding cost and complexity.

Speed limitations: Although reliable, trains can be slower than trucks for shorter
distances, especially when factoring in loading and unloading times.

Perishables: Refrigerated railcars may not be readily available or cost-effective for all
perishable goods. Without proper planning, perishable goods are more prone to
spoilage when transported by rail.
2.2. Road Transport

2.2.1. Advantages:

Flexibility: Trucks can deliver directly from farm to market, eliminating the need for
additional transportation and offering greater control over delivery schedules.

Accessibility advantage: Trucks can cover almost any terrain on land, making them
ideal for transporting products from remote farms or making deliveries to smaller
markets in China.

Speed for shorter distances: Trucks are generally faster than trains for shorter hauls,
especially for point-to-point deliveries. This is crucial for ensuring the freshness of
perishable goods.

Variety of products: Trucks can handle a wider variety of agricultural products,

including delicate or perishable goods requiring temperature-controlled environments.
=> reefers, dry vans,

2.2.2. Disadvantages:

More expensive for bulk transport: For large volumes and long distances, road
transport becomes expensive due to higher fuel costs compared to rail.

Traffic-related issues: Trucks significantly contribute to traffic congestion, which

leads to longer, unpredictable travel times and increased risks of accidents which can
jeopardize the goods.

Environmental impact: Freight transportation is reported to consume more fuel than

rail, which means it has a larger carbon footprint than trains, contributing more to
greenhouse gas emissions.

3. INCOTERM
Exported goods are commonly contracted under two delivery methods: FOB price or
CIF price.

3.1. FOB (Free On Board):

Vietnam primarily uses the Incoterm "FOB" (Free On Board) when exporting
agricultural produce to China.
Risk: The risk transfers from the seller to the buyer once the goods have been loaded
onto the vessel at the port of shipment. Any damage or loss that occurs during loading
or subsequent transportation is the buyer's responsibility.
Cost: The seller is responsible for the cost of delivering the goods to the port of
shipment, including packaging, export clearance, and loading onto the vessel. The
buyer bears the cost of transportation, insurance, and any subsequent charges from
the port of shipment to the final destination.

According to the Vietnam Coffee Association, before the global outbreak of Covid-
19, 90% of the coffee export volume was conducted under the FOB method.

In China, as the third-largest export market, accounting for 10-11% of the total
export turnover, the export to this market under the FOB price has decreased
significantly from 49% in 2018 to 43.2% in 2019, and further down to 39.1% in 2020.

3.2. CIF (Cost, Insurance, and Freight):

COVID-19 has accelerated the trend of using CIF.
The outbreak of COVID-19 has brought about significant changes in the export and
import of agricultural and aquatic products. The shipping freight rates on routes from
Asia to Europe and North America continue to rise significantly, and the container
shortage issue remains unresolved. Therefore, coffee importers no longer want to sign
FOB contracts, but instead request Vietnamese sellers to switch to CIF delivery. In
2020 and the first half of 2021, approximately 35% of coffee exporting enterprises
accepted the switch to CIF delivery.

Risk: The risk transfers from the seller to the buyer when the goods are loaded onto
the vessel at the port of shipment. The seller is responsible for obtaining insurance
coverage for the goods during transit.
Cost: The seller is responsible for the cost of delivering the goods to the port of
shipment, including packaging, export clearance, and loading onto the vessel. The
seller also covers the cost of transportation and insurance. However, the buyer is
responsible for any charges related to the destination port, customs duties, and other
import-related costs.

3.3. The current situation in Vietnam:

In developed countries, when exporting goods, sellers often strive to deliver the goods
with the condition of cost, insurance, and freight and sell based on CIF prices. When
purchasing goods, that is when importing, buyers always negotiate to acquire goods
based on the condition of delivery on board and purchase at FOB prices.

In our country, the majority of import-export businesses are currently operating in the
opposite manner. When exporting, Vietnamese businesses deliver goods based on
Cost, Freight and Insurance (CIF) prices, which means delivering goods to the buyer's
vessel at Vietnamese ports. When purchasing goods, most Vietnamese businesses
receive goods on board the seller's vessel at Vietnamese ports.

Pros and cons:

Pros:
With CIF exporting:
- Able to net cheaper delivery prices : We can be proactive in choosing a
transportation service provider within the country which is significantly
cheaper than a foreign transportation service
- More efficient handling of receipts -> easier time paying
With FOB importing:
- Laxer time to pay for the cost of transportation (when goods are transported to
its destination) => less stress on funding => less pricey imported goods
Cons:

When importing with CIF, we are buying goods with foreign currency => more
expensive goods + transportation and insurance => foreign currency would flow out
of our country more. While importing with FOB, we don’t receive enough foreign
currency from transportation and insurance costs to balance it out leading to a tilt
towards imports in trade balance.

While we are investing billions of VND in port construction, billions of USD in profit
from shipping are easily taken away by foreign fleets. Approximately 80% of
Vietnam's import-export cargo is transported by sea annually, but even with their best
efforts, Vietnamese shipping fleets can only capture about 20% of that market share,
while the remaining 80% of this profitable market is held by foreign shipping fleets.
The trade balance tilts towards imports.

4. Payment

On August 28, 2018, the State Bank of Vietnam issued Circular No. 19/2018/TT-
NHNN guiding foreign exchange management for border trade between Vietnam and
China.

According to Circular No. 19/2018/TT-NHNN of the State Bank of Vietnam, traders'

activities of buying, selling and exchanging goods and services across the Vietnam-
China border may be paid by the following ways:
1. Bank transfer, including:
- Payment in any convertible foreign currencies converted through permitted banks;
- Transfer of CNY through bordering branches bank branches in bordering
provinces;
- Transfer of VND through bordering branches bank branches in bordering
provinces.
2. Payment in VND or CNY cash.
3. Payment for the difference in value in offset agreements, export services with
goods, import services between exports and imports traded by through borderers
(banks in bordering provinces transfer as prescribed above).
Besides, the currencies used for cross-border trade between Vietnam and China
conducted by traders are convertible foreign currencies, VND or CNY.
=> Two main methods of payment popular with Vietnam when exporting goods to
China:

1. Cash in advance

Advantages:
- Could avoid all the risks of default problems with the order or
damages to the shipment.
- Provides the working capital you need to process the order
- There's no strain on cash flow

Disadvantages:
- In some cases, the buyers are not able to afford payment prior to the
shipment
– CIA is undesirable for importers because of the risk of not receiving
their order => the exporters may Receive fewer orders or even lose
their business to others who are willing to offer favorable terms to their
customers flexibly
 2. L/C (Specifically: L/C irrevocable at sight)

Advantages:
- The issuing bank makes payment immediately to the seller ( in 5
days)
- Can not alter any details without the consent of all parties.
- Protects the seller from shady buyers with hard-to-obtain credit
info that is working with a credit-worthy bank
- Protects the buyer as they do not have to pay until the goods
have arrived.

Disadvantages:
- Extremely time-consuming
- Convoluted process, hard to manage.
- Could even be expensive to maintain
-

REASONS:
=>Are extremely popular among Vietnam and other Asian countries,
through wire transfer or SWIFT system. It is commonly requested by
Vietnamese suppliers and is a standard way for importers to send
money abroad.

=> Ensures that both sellers and buyers get equal treatment, especially
between Vietnam and China. Vietnamese exporters preferred this
option for their trade as they tend to have high skepticism with Chinese
partners.

Source:https://viegoglobal.com/must-know-payment-methods-when-making-international-
trade-in-vietnam/
5. Examples

Livestock products exports:

For many years, most of Vietnam's livestock products, including pork, beef, and
chicken and buffalo meat, have been under unofficial quotas at border gates. This
export has faced border barriers, and inspection and control according to stricter
standards.

At present, Vietnam ships two products of the livestock industry to China, including
bird's nests and milk, under official export according to the protocol on exporting
bird's nests signed in 2022 and the protocol on exporting milk signed in 2019 between
the two countries.

Thanks to the protocol, Vietnam's exports of milk and milk products to China have
grown very rapidly in recent years. Those products have accounted for 93% of the
total export value of Vietnam's livestock products to China.

Notably, a freight train with 12 containers laden with Vietnamese milk departed from
the Cao Xa station in Hai Duong province to China’s port of entry on 2/5/2024. This
initial cargo run underscores Vietnam's ambition to bolster rail transport links into
China, which could offer a cost-effective, higher-volume alternative to traditional
trucking routes.

Tong Xuan Chinh, Deputy Director of the Department of Livestock Production, said
that in 2023, the export value of livestock products surged by 26.2% year on year to
515 million USD.