The exodus of fuel distribution and retail companies: Reasons behind the withdrawal

DNHN - According to the Ministry of Industry and Trade, as many as 16 fuel companies have requested to return their distribution licenses since the beginning of the year.

While the Ministry states that the participation and withdrawal of businesses from the fuel market is "frequent" and "normal," the significant increase in the number of companies returning their licenses in the first five months of 2024 has raised concerns within the fuel business community about the management and licensing process of the authorities. At one point, there were nearly 350 fuel distribution companies in the market.

As of now, Vietnam has 298 fuel trading entities. Compared to the peak of 330 companies in 2023, the market has seen a departure of 32 businesses. Among these are major firms like Xuyen Viet Oil, whose license was revoked by the Ministry of Industry and Trade in August 2023 for violations related to taxes and the Fuel Price Stabilization Fund, and Hai Ha Petro, whose license was revoked in January 2024.

Ms. Nguyen Thuy Hien, Deputy Director of the Domestic Market Department at the Ministry of Industry and Trade, explained that the Ministry had previously requested key distributors to report on their business conditions as per regulations. The review revealed that many could not maintain these conditions and chose to voluntarily return their certificates.

According to Tuoi Tre Newspaper, a fuel distributor in Dong Nai mentioned that some distributors stopped operating partly due to the withdrawal of several key distributors' licenses, which disrupted their operations. Many distributors were originally established for financial and real estate investments, and the revocation of licenses forced these distributors to cease operations.

Additionally, market fluctuations and tighter regulatory controls, such as stricter invoicing requirements for fuel sales, have made the business less profitable, prompting many companies to exit the market.

Mr. Hung, a distributor in Ho Chi Minh City, expressed concerns that the number of distributors and retail businesses exiting the market might increase. Proposed amendments to fuel trading decrees by the Ministry of Industry and Trade are worrying businesses with restrictions that could further tighten their operations. One such regulation is that distributors "can only purchase fuel from primary trading entities."

Currently, there are about 30 primary trading entities compared to over 300 distributors, who play a crucial role in delivering fuel to many provinces across the country.

New regulations could also pose challenges such as requiring distributors to own storage facilities with a minimum capacity of 2,000m³, transport vehicles, testing labs, and at least five retail stores along with 10 stores belonging to agents or franchisees. In remote areas, many primary trading entities lack extensive storage and retail networks. If distributors are limited to sourcing from primary traders, it would complicate storage and transportation, especially amid market volatility, impacting fuel supply.

A distributor in Binh Duong added that during localized fuel shortages in many provinces, some units unable to procure fuel from primary traders had to turn to other distributors to mitigate prolonged closures.

Restricting distributors to sourcing only from primary traders could lead to supply chain disruptions, increased transportation and storage costs, and logistical challenges. Mr. Thanh, a major distributor in the North, warned that this regulation could stifle wholesale market development, forcing fuel companies to cut sales, reduce workforce, and face financial difficulties, potentially disrupting supply chains and reducing market competition.

In a petition sent to the National Assembly Standing Committee and relevant ministries, a group of fuel distributors highlighted that thousands of distributors, agents, and retailers are dependent on primary trading entities. The rule allowing distributors to purchase only from primary traders might favor large enterprises, undermining fair competition in the supply and distribution chain.

Businesses have long operated with extremely low or no profit margins to stay afloat. Although retail fuel discounts have recently increased, allowing companies to cover labor costs, rent, and other expenses, challenges remain.

There are numerous regulations on fuel trading that are seen as cumbersome and fail to create a favorable, transparent, and equitable business environment. Many small fuel trading companies constantly struggle, particularly with frequent fuel price adjustments.

Economist Vu Dinh Anh pointed out that the current pricing mechanism, which calculates backward from retail prices, primarily affects retail businesses.

Experts note that losses are prevalent throughout the supply chain, from primary traders to distributors, wholesalers, agents, and retail outlets. Many companies have significantly reduced sales commissions to limit agent withdrawals, resulting in retail losses and forced reductions in business volumes.

Furthermore, high costs of importing fuel to Vietnam are not fully accounted for in the state-regulated base price, prompting companies to limit imports to minimize losses.

Credit tightening, rising fuel prices, and an increasing VND/USD exchange rate have compounded import costs, leaving primary traders financially strained and unable to import large quantities. They mainly maintain sufficient inventory for their distribution networks and required reserves.

Ha Nguyen