2022 Year – end letter

2022 Year – end letter

What a crazy year it’s been!

Three decades in the trade, two decades of forming and managing our ACC, coincidentally it is also the time that international commodities and financial markets are at peak of its development in history, we have never ever witnessed such turbulent, volatile changes and shocks locally nor internationally.

Looking back at the Thailand bath crisis 1998, GFC 2008 and 2018 crisis then continued by 02 years of Covid-19 (2020 and 2021), our psychology and attitude are quite different. And frankly speaking, we were a bit behind the events!

It was naturally and understandable that we were so stressed and desperate during the pandemic. Then first half of the year, we were back to business after Covid lockdown overjoyed and optimistically.

First mission to tackle was logistic issue. Ocean freight has increased 500%-600% but no space for loading as result of bumper shipping volume and gigantic demand worldwide. Massive default or delay then huge time and effort have wasted to reach a solution.

Just when dusts seem settled, and we started acceleration then the storm appears on the skyline.

To extinguish inflation, Fed raised rates at a speed and size that no one ever seen before. Markets were panic and crashed. Commodities and other financial indexes are the first to hit. Coffee, with its high liquidation and sensitive natural, head south immediately. With the cash market tighten up, the structure turned to inverted and trading would be a mess in that context.

China, with its totalitarian and dogmatic regime, remained extensive and strict lockdown. As 60% of Vietnam rubber production heads to the above market, that lockdown leads to dramatic drop of consumption and trading price too.

By its aggressive and chauvinism remnants, Russian putin invaded Ukraine pushing world market to higher level of chaotic. This market is closed due to nonpayment facility.

Locally, heatwave from Fed blew to SBV and the local Dong was down about 7.8%. At first glance it appeared supportive to local commodities exporters, but big hand players on terminal pushed prices 20% down, from 2300$ to 1850$ level. Bear and inverted market set trap to traders like us.

At the same time, SBV cut credit availability at least 15% even to the A class client like us. This reduction made the pipeline stuck and local sellers resisted when price fell from 53k/ton to 42k/ton level.

To make thing worst, lending rate jumped from 6.0 to 9.5% p.a (this was nominal as the number is much higher in fact). With our annual turnover of about 2.0trillion, this change was a very heavy burden on our cashflow. An extra cost of more than 50% our original costings! Even a huge part of this would be transferred to other partners in the supply chain, a punch is still a punch indeed!

On the tax policy, exporter cannot get the VAT refunded after the goods exported. The refundable amount accumulated eroding their cashflow and some of our peers had to close their business or brought the case to the court against tax authorities.

Furthermore, in 3rd quarter, differential level suddenly narrowed from -400ism to -200ism and this hammer smashed all logical, disciplined traders in pieces.

In weeks of December, out off guard, the Dong evaluated from 24,850 to 23,750, flushed away 4.5% of any receivable invoices! And December is our peak of export season with multimillion USD turnover. Too bitter to swallow.

Is that enough for a year???

What had we done to cope with the above?

Logistic is again an Ace confirming our diversion strategy and service attitude, professionalism a good pick. They are 30% above the KPI and ready to take charge in 2023. What a team!

Thank to our regional expansion, part of our operation is based outside and that International portfolio helped bright up other grey areas.

Also, with the pandemic behind, the office for rent and buildings operates as normal. Occupation rate is above 85% and brings Mekong to the A list in our portfolio.

Trade desk for soft commodities is swiftly diverted to domestic market thank to our current network of clients (both buying and selling side). This helps limiting risk of international trades, nonpayment risk, FX risk and other exposures. This is crucial to maintain our cashflow, our turnover as normal while generate a reasonable margin.

Financial operations were a well mixed. There was almost no income from transit trades, FX or derivatives as Libor and local exchange rates were not for us, but we have escaped local junk bond market crisis. Our discipline and financial knowledge are shield to this local madness which now washed thousand trillion away from balance sheet of local entitles and investors. We slightly hit by December FX position but not with the rest of 11 months of the year.

In our view, soon lending rate will be down and stabilized bringing fresh air to our financial operations.

Credit supply will resume as normal as SBV needs to ease its policy to avoid recession, and trade will be more facilitate.

The Dong is stronger recently but will soon be devaluated to fill the gap with competitors and avoid trade deficit then export will have advantage.

2 of 3 dilemmas (Fed rates, China lockdown and Russian invasion) are now solved and hopefully 2nd half of 2023 will be time for business.

However, looking at grandeur picture, our main concern is a potential secession. IMF has just worked out a stern warning for 2023 that ‘since 2001, except the GFC 2008 and pandemic 2020, this year would be the most challenging and difficult one”.

Headwinds is still visible, we will remain calm and cool in 1st even 2nd quarter of 2023, continue what we have done in 4th quarter of 2022, especially on cost cutting and risk management. Logistic, domestic trade and services are still prioritized while more diversifications will be approved. But more than ever, our motto mirrors Captain Nemo of Nautilus, Mobilis in mobili

Entering 3rd decades of business, ACC is alike Spartan at the Battle of Salamis 2500 years ago, stay low and hold tight, remain resilience and perseverance, our agile and vigorous formation will sail over the troubled water.

And this is Sparta! This is ACC!

Thank you and Goodbye 2022! Happy and Lucky 2023!


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