Gasoline retailers feel abandoned in unresolved supply quandary

In recent weeks many gasoline stations in Hanoi, Hai Phong and Ho Chi Minh City have put up "out of fuel" signs or are selling limited amounts of gas per customer as owners say their commission is too low to cover costs.

At a recent meeting with representatives of the Vietnam Chamber of Commerce and Industry (VCCI), retailers said that their commission is VND100-VND200 ($0.0043-0.0085) per liter of gasoline, which is not enough to cover transportation costs for delivery to their stations, which is VND150-250.

Retailers said they also need to pay other expenses such as overhead and staff salaries, and that if the low-commission continues, shortages are likely to reoccur.

A retailer who operates eight stations in Ho Chi Minh City, who asked not be identified, said that in recent months he has sought official permission to temporarily shut down his business due to losses, but that his request was rejected.

As fuel is considered a special commodity, retailers are not allowed to close their shops at will, but need to seek official approval to do so. However, if they are not allowed to increase prices at will, they will have to sell at a low commission, which means they will have to cover expenses with their own money.

Giang Chan Tay, director of fuel retailer Boi Ngoc in the southern province of Tra Vinh, said that retailers are at a disadvantage and suffer prolonged losses, which has led to a disruption in supply, even though there is in fact no shortage of fuel.

In Vietnam fuel suppliers sell to distributors who then sell to retailers, and the latter can only buy from one source, either directly from a supplier or from a distributor. Meanwhile, the seller determines how big the commission is for the retailer.

"Distributors can give a VND500 commission or a zero commission, and we cannot negotiate," Tay said. "If we do not accept the commission, we will not get the supply, and authorities might fine us for not selling."

This mechanism leads to problems for retailers. One of them, who operates in the northern province of Ha Giang, said that the authorities once went to his station and found out that the fuel tank was empty. They ordered him to call the distributor to buy more.

The distributor agreed on the phone to send the supply to him with zero commission, but after the authorities left, the distributor called back and said that he would not send the fuel.

"If we want the supply, we need to pay them VND200-VND700 per liter," the retailer said.

"We feel abandoned and dominated," he said.

Another systemic problem is that distributors are allowed to source from many different suppliers, and that means their stations can order from different sources, while independent retailers can only source from one distributor.

For these reasons retailers are proposing that regulations be changed to reduce or remove distributors from the the supply chain to lower middle-man costs.

If they are to remain in the system, they should not be allowed to establish their own retail outlets, retailers added.

Tay proposed that the government set a minimum commission for retailers, for example 5% of how much distributors charge, to ensure fairness.

Retailers also want to source from at least three different distributors instead of just one to remove exclusivity and protect them in situations when supply is low.

"We cannot keep paying for the losses to keep the market operating," said a retailer in nothern Vietnam.

There are around 17,000 retail stations across the country, of which 3,000 belong to state-owned companies; the rest are private firms.

Dau Anh Tuan, VCCI vice secretary-general and director of the legal department, said that the issues that retailers mentioned are widely reported and that upcoming regulatory changes need to take into account the vital role of retailers.

Although retailers have been calling for autonomy in determining retail prices, the Ministry of Industry and Trade has recently advised Prime Minister Pham Minh Chinh that the government should continue to have the final say in retail prices to ensure control over the market.

But the ministry said that regulations should be modified to include more retailers expenses, such as overhead and transportation.

It also proposed that fuel prices be adjusted every seven days, down from the current 10 days.