Date
May-2014




Embassy of Denmark in Vietnam 2 / 8





Keywords

Transport, Logistics, Shipping, Infrastructure, Vietnam, Embassy of Denmark

Abstract

The transport and logistics sector in Vietnam is set to become an attractive
sector for foreign companies and investors. Obligations under Vietnam’s WTO
and bilateral and multilateral free trade agreements will open the logistics sector
further to foreign companies to compete on an equal footing with domestic
companies. The Vietnamese government is also considering greater involvement
of more private sector companies and investors in the expansion of domestic
infrastructure. Interested companies need to have international references,
invest time and resources into building local market knowledge over the long
term in order to take advantage of the opportunities within the Vietnamese
transport and logistics sector.

Introduction

Vietnam’s high economic growth over the last decade has led to a considerable
growth in trade. Increasing levels of imports and exports have driven growth in
Vietnam’s transport and logistics sector, a trend which is set to continue.

Upon WTO accession, Vietnam became a favored location towards many
foreign investors as a production hub beside China and India. Therefore,
foreign logistics companies are confident in the development opportunities in
Vietnam market.

Vietnam’s beneficial marine location has made it the target of high levels of
foreign investment into ports, and also gives the country access to the main
inter-Asian shipping routes. In addition, Vietnam’s location in the center of East
Asia is a major advantage for the country to develop the land transport links

with other countries in the region.

Despite the strengths and opportunities, Vietnam still has certain weaknesses
and threats such as poor infrastructure, no specific development plan and
corruption.

Sector Overview

Vietnam’s transportation and logistics sector has been growing steadily over the
last decade. In 2014, it is forecasted that road freight tonnage will increase by
6.05% to 811.35mn tonnes, rail freight tonnage will increase by 3.12% to
Embassy of Denmark in Vietnam 3 / 8

6.73mn tonnes and air freight tonnage will increase by 3.00% to 189,210
tonnes
1
.

Despite the current global economic downturn and the resulting decline in
Vietnam’s manufacturing and freight industry, the development of the
transportation and logistics sector will remain particularly important for
Vietnam’s economy, enabling Vietnam to have a competitive supply chain and
access to foreign markets.

According to World Bank’s recent report, logistics costs of Vietnam are about
on par with China’s and below those of Indonesia (where logistics costs are
estimated to be around 18 – 20 % of GDP). This finding is contrary to the most
used figure for Vietnam’s logistics costs of 25% of GDP.

However, Vietnam’s current infrastructure is underdeveloped and requires

substantial new investment for its upgrading and modernization. This
underdevelopment is also making Vietnam less attractive to investors.
Source: Global Competitiveness Report 2013 – 2014 (World Economic Forum)

Financing remains one of the main problems faced by the Vietnamese
government and private developers of transport infrastructure. Official
Development Assistance (ODA) remains very important for infrastructure
project financing in Vietnam. Another major challenge for Vietnam is the
synchronization of different infrastructure types (road, rail, port) in order to
increase the flow of goods throughout the whole supply chain.

According to Vietnam Logistics Business Association, Vietnam has about 1,200
logistics companies, mostly doing transport, warehousing, transport agency, etc.
Most of these companies are small and medium size, with paid up capital
around USD 200,000 – 300,000, and the employees who have sufficient logistics
training only account for 5 – 7%. Therefore, the 25 foreign multinational
logistics companies have achieved to occupy the total of 70 – 80% market share.

Despite the large amounts of foreign invested capital there is a concern about
overcapacity in the short term. At the same time Vietnam’s infrastructure is
highly underdeveloped hindering the development of the transport and logistics
sector. Higher levels of investment continues to be needed in order to improve
the synchronization in Vietnam’s infrastructure with the aim of improving the
flow of goods between ports and the production and consumer centers of
Vietnam.


1
Business Monitor International


Infrastructure
Quality of
roads
Quality of
railroad
infrastructure
Quality of port
infrastructure
Quality of air
transport
infrastructure
Rank
(out of
148)
82
102
58
98
92
Score
(1-7)
3.7
3.1
3.0
3.7
4.0
Embassy of Denmark in Vietnam 4 / 8


Road freight


According to CIA's World Fact Book, Vietnam has a national road network of
206,633km. In the near future, Vietnam still must invest substantially as the
quality of road infrastructure is very poor, with only 13.5% of the network is
considered to be in good condition, and just 26% of the network has two or
more lanes and only 29% is tarred
2
. Investment is currently concentrated on the
upgrading of existing roads and the construction of major national expressways.

Road freight plays a key role not only in Vietnam's domestic logistics sector, but
also in the country's export supply chain. Road is the main form of transport
linking Vietnam's factories to the key port terminals to handle larger container
vessels so that it can ship goods directly to destination markets, and also plays a
key role in linking Vietnam with its second-largest export partner China.

In 2014, it is forecasted that the annual growth will reach over 6% to 811.35mn
tonnes; and over the medium term, the road freight volume growth will reach an
average of 7.59% per year, to 1.10bn tonnes by the end of 2018
3
.

Inland Waterways

According to CIA's World Fact Book, the total length of Vietnam’s inland
waterways is 47,130km, ranking at 4
th
in the world (after China, Russia and
Brazil). The country’s main inland waterways include the Mekong River in the
South and Red River in the North; in which, the Mekong River takes up a much

larger share because of its freight connections with neighboring countries.
Because of its high potential, we can expect much development and investment
to come in the future for the inland waterways system.

Vietnam's inland waterways play a considerable role in the country's freight
transport sector, making it the second-largest freight transport mode in the
country. In 2014, it is forecasted that the annual growth will reach 6.67%, to
192.88mn tonnes
4
.

Maritime Freight

Vietnam is strategically situated along important international marine transit
routes and has a coastline that stretches 3,260 km. In 2010 (latest available data),
total container throughput at all ports reached 5.98mn TEUs, up 550% from the
919,264TEUs handled in 1999
5
.

The network of ports clustered around Ho Chi Minh City is by far the largest
and most technologically advanced in Vietnam. In 2014, container throughput
in the Port of Ho Chi Minh City will hit double-digit year-on-year growth, a
slightly up from 2013’s growth of 9.30%, reaching 4.23mn TEUs
6
.


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, 3

Business Monitor International

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, 5, 6, 7
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However, in general, Vietnamese ports are small by international standards both
in terms of maximum vessel sizes and storage capacity. The opening of the Cai
Mep International Terminal in 2011 (APM Terminals joint venture), introduced
the country’s first deep water port and the largest port in Vietnam, which can
service bulk vessels of up to 130,000 DWT and container vessels of up to
11,500 TEU. Most other ports in Vietnam are geared to service bulk vessels
below 30,000 DWT and generally lack the requisite facilities to service container
vessels.

The rapid growth in Vietnam's port volumes has attracted high levels of
international investment in its port terminals in recent years. However, there is a
concern that port capacity is reaching overcapacity. This is a particular concern
for operators at the Port of Cai Mep. Analysts have blamed the lack of landside
infrastructure for the underutilization of Cai Mep and others in the Ba Ria-
Vung Tau area. Poor infrastructure hinders freight and logistic companies in
connecting ports to the production and consumer centers of Vietnam.

Rail Freight

According to CIA's World Fact Book, Vietnam's rail network totals 2,632km.
The network is of mixed-gauge, comprising 2,105km of 1.000m gauge and
527km of 1.435m gauge. This obviously indicates the poor railroad
infrastructure with relatively short railway lines and gauge incompatibility with

other countries, leading to under-developed issues of rail freight in Vietnam.

In 2013, Vietnam’s rail freight volumes only accounted for as small as 6.53mn
tonnes, this is seen as another contraction in year-on-year growth – decreased by
6.82%. However, in 2014, it is expected that a positive growth of 3.12% is
possible, reaching 6.73mn tonnes
7
.

Recent changes to develop Vietnam’s rail network can be observed, but these
have been focused on expanding the country's passenger network, with the plan
to upgrade the existing rail lines, and also a revised plan from Japan
International Cooperation Agency to build the North-South high-speed railway
has been submitted to the Government, after the original plan was rejected in
2010 by the National Assembly.

Air Freight

Vietnam's air freight only accounts for a small percentage of the country's
freight transport. Although this situation cannot change dramatically in the
future, the government has built up plans to gradually develop and expand the
airport infrastructure. These plans are also in line with the government’s plan to
promote trading of certain goods such as electronic product, pharmaceuticals,
cosmetics, foodstuff, etc.

For 2014, it is forecasted that the Vietnamese air freight sector will see annual
growth of 3.00%, up from 2013's 2.80%, to reach 189,210 tonnes. Over the
Embassy of Denmark in Vietnam 6 / 8

forecast period to 2018, Vietnam's air freight may grow on average per annum

by 3.96% to reach 223,040 tonnes
8
.
5


Government policy

The government of Vietnam plans to invest heavily in upgrading infrastructure
to accommodate the continuously rising levels of trade and is looking for ways
to have a higher involvement of private sector actors in the sector. Investment
will include, expanding the road network, upgrading rail lines, developing deep
water ports to facilitate direct transportation to destinations and constructing
and expanding airports.

The transport sector will takes up the biggest shares in the total infrastructure
investment pipeline in Vietnam in the next 10 years, expected to account for 60-
65% in 2022. Therefore, it is expected that the transport infrastructure industry
value will grow by an average of 4.5% year-on-year between 2014 and 2017
9
.

According to a recent World Bank’s report, it is estimated that Vietnam will
need USD 25 billion a year for infrastructure investment, while the available
financial resource from the public and private sector combined is only USD 16
billion. Therefore, in the future, the government must put utmost effort to
utilize the state budget and finance support like ODA, also the government
must encourage the private sector, both domestic and foreign, to invest into
infrastructure projects.


Vietnam’s commitments under the WTO accession also require it to gradually
open up its domestic logistics market. Foreign investors could set up joint
venture logistics companies from 2007; then in 2012 100% foreign invested
enterprises were allowed for supply of international maritime transport services
and courier services; and from 2014, 100% foreign invested enterprises are
allowed for container station and depot services, storage and warehouse
services, freight transport agency services. This will significantly increase
competition between existing and new companies, between domestic and
foreign owned companies; but this also put the pressure on the government to
develop the infrastructure and the existing companies to improve their
competence.

Opportunities for Danish companies

To ensure adequate financing and requisite technology and know-how, Vietnam
will be reliant to a large extent on foreign partners. The Vietnamese government
may undertake public-private partnerships to develop new large ports and
terminals. This constitutes a great opportunity for Danish companies to get
involved in the sector’s development. However, Danish companies should be
prepared that the Vietnamese business environment is complex and
bureaucratic, especially for large infrastructure projects, in order to best plan for
the future investment into the country. Furthermore, Danish companies should


8, 9
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Embassy of Denmark in Vietnam 7 / 8

also need to foresee the increased international competition, especially from
Japan and China.


Official negotiations on a free trade agreement between the EU and Vietnam
were initiated in July 2012 and are expected to be completed by September
2014, which will further boost trade amongst the two partners. EU companies
will face more favorable trade and business conditions, once the agreement has
been finalized and implemented.

Any interested Danish companies in the fields of engineering, consulting,
equipment or construction will need to invest time, have international
references, and build local knowledge and resources to set the appropriate
strategy for successful entrance into the market. Attention should be paid to the
push for public-private partnership and the expected increase in private sector
involvement in the market.

Conclusion

The country’s need for investment to accommodate the rising volumes of trade
has led the government to encourage more private companies and investors to
take part in expanding and improving the infrastructure network. With heavy
investment in infrastructure planned for the short- and medium-term, there exist
ample opportunities for Danish companies within engineering, consulting,
equipment and construction to take part in the promising growth rates expected
within the transport and logistics sector of Vietnam.

Moreover, commitments under WTO accession as well as the negotiation of a
free trade agreement between Vietnam and the EU is bound to make the
transport and logistics sector more attractive for foreign investors willing to
invest the time and resources into establishing or expanding the presence on the
Vietnamese market.






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investment promotion agency of Denmark. The Trade Council benefits from around ninety
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time.
Ministry of Foreign Affairs of Denmark

Embassy of Denmark, Vietnam
19 Dien Bien Phu Street
Hanoi
Tel: +84 4 823 1888
Fax: +84 4 823 1999
E-mail:
www.um.dk