Vietnam freight transport report q1 2011
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Q1 2011
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VietnaM
freight transport Report
INCLUDES 5-YEAR FORECASTS TO 2015
ISSN 1750-5364
Published by Business Monitor International Ltd.
VIETNAM FREIGHT
TRANSPORT REPORT
Q1 2011
INCLUDES 5-YEAR FORECASTS TO 2015
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy Deadline: December 2010
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Vietnam Freight Transport Report Q1 2011
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Vietnam Freight Transport Report Q1 2011
CONTENTS
Executive Summary ......................................................................................................................................... 5
SWOT Analysis ................................................................................................................................................. 7
Vietnam Freight Transport SWOT ......................................................................................................................................................................... 7
Vietnam Political SWOT ........................................................................................................................................................................................ 8
Vietnam Economic SWOT ...................................................................................................................................................................................... 9
Vietnam Business Environment SWOT................................................................................................................................................................. 10
Business Environment Rating ...................................................................................................................... 11
Table: Asia Pacific Freight Business Environment Ratings ................................................................................................................................. 11
Freight Industry Ratings ...................................................................................................................................................................................... 12
Transport Intensity Index ..................................................................................................................................................................................... 13
Vietnam Logistics Performance Index (LPI) ........................................................................................................................................................ 13
Industry Trends and Developments ............................................................................................................. 14
Multimodal/Logistics ........................................................................................................................................................................................... 14
Road .................................................................................................................................................................................................................... 14
Rail ...................................................................................................................................................................................................................... 14
Air ........................................................................................................................................................................................................................ 15
Maritime .............................................................................................................................................................................................................. 16
Market Overview ............................................................................................................................................. 20
Industry Forecast Scenario ........................................................................................................................... 22
Macroeconomic Forecast .................................................................................................................................................................................... 22
Road Freight ........................................................................................................................................................................................................ 22
Table: Road Freight............................................................................................................................................................................................. 22
Air Freight ........................................................................................................................................................................................................... 23
Table: Air Freight ................................................................................................................................................................................................ 23
Maritime Freight ................................................................................................................................................................................................. 24
Table: Maritime Freight ...................................................................................................................................................................................... 24
Rail Freight ......................................................................................................................................................................................................... 25
Table: Rail Freight .............................................................................................................................................................................................. 25
Table: Inland Waterway Freight .......................................................................................................................................................................... 25
Trade Overview ................................................................................................................................................................................................... 26
Table: Trade Overview ........................................................................................................................................................................................ 27
Table: Key Trade Indicators ................................................................................................................................................................................ 28
Table: Main Import Partners (US$mn) ................................................................................................................................................................ 29
Table: Main Export Partners (US$mn) ................................................................................................................................................................ 29
Macroeconomic Outlook...................................................................................................................................................................................... 30
Table: Vietnam – Economic Activity .................................................................................................................................................................... 32
Company Profile ............................................................................................................................................. 33
Vietnam Airlines .................................................................................................................................................................................................. 33
Doan Xa Port ....................................................................................................................................................................................................... 35
Vietnam Petroleum Transport Jsc (VIPCO)......................................................................................................................................................... 37
Country Snapshot: Vietnam Demographic Data ......................................................................................... 39
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Section 1: Population........................................................................................................................................................................................... 39
Table: Demographic Indicators, 2005-2030 ........................................................................................................................................................ 39
Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 40
Section 2: Education And Healthcare .................................................................................................................................................................. 40
Table: Education, 2002-2005 .............................................................................................................................................................................. 40
Table: Vital Statistics, 2005-2030 ........................................................................................................................................................................ 40
Section 3: Labour Market And Spending Power .................................................................................................................................................. 41
Table: Employment Indicators, 1999-2004 .......................................................................................................................................................... 41
Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 41
BMI Methodology ........................................................................................................................................... 42
How We Generate Our Industry Forecasts .......................................................................................................................................................... 42
Transport Industry ............................................................................................................................................................................................... 42
Sources ................................................................................................................................................................................................................ 43
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Vietnam Freight Transport Report Q1 2011
Executive Summary
At the end of August 2010, Vietnam was said to be considering establishing a joint venture (JV) to
upgrade Phu Bai International airport in Thua Thien-Hue province. The government has urged the
Ministry of Transport to submit a JV plan involving foreign investment to upgrade the airport. The
country's Prime Minister Nguyen Tan Dung has approved a master plan to invest VND12.5trn
(US$642mn) in the modernisation of the airport by 2020. The project will increase the airport's annual
passenger capacity to 5mn by 2020 from the current capacity of 500,000 passengers, which will be further
increased to 9mn passengers by 2030. The airport's annual cargo capacity will also be increased to
100,000 tonnes by 2020 and 200,000 tonnes by 2030. The Vietnamese government has ambitious plans to
modernise and expand the country's airport infrastructure, though some plans - like the Long Thanh
international airport - have been in the pipeline for years with little progress being made. However, the
government's willingness to get projects off the ground provides grounds for optimism.
Moving into 2011, we believe Vietnamese macro-economic growth is being driven primarily by domestic
consumption and infrastructure investment. On the negative side, exports are being constrained by what
we see as a double-dip global economic slowdown led by important trading partners such as the US and
China. A widening trade deficit will be a drag on growth. The interplay of these factors has led BMI to
maintain our GDP estimate for 2010 at 6.7% growth, a rate we see slowing to 5.6% in 2011. Although
these growth rates are slower than the high single-digit percentages experienced before 2009, they are still
relatively supportive of the freight transport sector.
Over the next five years, we are predicting that growth will come out at a fairly vigorous annual average
of 6.3%. Risks to this projection remain. Overheating is one of them, with the possibility of inflation
rising too sharply. On the political front, the National Congress of the Communist Party due to be held in
early 2011 is still a factor persuading the government to keep consumption levels expanding.
Road building and road usage are both expanding strongly. Indeed, it can be argued that a large part of the
country's economic growth is road-based. In 2011, we see a relatively moderate growth rate of 6.9% to
30.19bntkm.
Vietnam's airfreight industry is recovering modestly against the background of a troubled global aviation
sector, with repercussions from the European volcanic ash crisis in Q210 also playing a part. In Vietnam
itself the industry is beginning to experience intense competition. In terms of air cargo volume, BMI sees
growth of 5.3% to 147,910 tonnes in 2011, compared to growth of 2.1% in 2010.
BMI is projecting strong growth in 2011 volume handled at the Port of Ho Chi Minh City (also known as
SNP, Saigon New Port), up by 7.5% to 21.84mn tonnes, after the 6.2% rate estimated in 2010. Going
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forward, we believe growth will be vigorous. SNP is also expected to see 4.4% container handling growth
to 2.627mn TEUs in 2011, following growth of 3.5% experienced in 2010. At Da Nang Port (DNP) we
see 2011's volume gaining by 2.8% to 2.68mn tonnes. DNP will see box growth of 7.1% to 58,919 TEUs
Rail freight carried increased by an estimated 6.7% in 2010, and is set to experience a bit of a slowdown
in 2011, with growth of 4.7% to 4.251bntkms. This suggests that Vietnam will not be making the most of
the potential of rail, one of the most fuel-efficient forms of bulk transport.
In real terms, Vietnam's total trade (imports + exports) recovered by 5.4% in 2010, a rate which we see
accelerating slightly to 6.2% in 2011 despite the effects of the 'double dip' global economic slowdown.
Over the five years to 2014, we calculate that total foreign trade will expand at an annual average rate of
6.5%, just ahead of the growth of the economy as a whole (+6.3%). Over this period, exports will grow at
an average per annum rate of 7.3%, ahead of imports at 5.9%. In nominal terms, exports will gain 15.4%
to US$73.37bn in 2011, while imports will grow 14.9% to US$87.0bn. We expect Vietnam to continue to
run a balance of trade deficit throughout our five-year forecast period running to 2014. In the immediate
short term, the deficit will widen as the growing economy sucks in more imports, despite the effects of
two devaluations of the Vietnamese dong (in November 2009 and February 2010).
Vietnam's principal export commodities are crude oil and manufactured goods. The country's main
imports are machinery and equipment.
Vietnam's main export partners are the US, Japan, Australia, China and Germany. The country's main
sources for imports are China, Singapore, Japan, South Korea and Thailand. Vietnam's geographic
position on the South China Sea allows the country access to the main transpacific and intra-Asian
shipping routes, enabling the country to meet its trading needs.
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SWOT Analysis
Vietnam Freight Transport SWOT
Strengths
Weaknesses
Opportunities
Threats
Vietnam's strong domestic growth rate coupled with its geography: a long country
stretching for thousands of kilometres on a north-south axis creates a need for longdistance freight haulage.
Recovery at the nation's ports in 2010 is expected to continue over the mid-term.
Vietnam's location on the South China Sea gives the country access to the main interAsian shipping routes, as well as access to the developing land transport links with
ASEAN countries, allowing the country scope to develop its trade logistics.
The generally poor state of the road network. Despite new highway construction, only
13.5% of the road network is considered to be in good condition, only 26% has two or
more lanes and only 29% is tarred.
Traditionally low investment in rail; although attempts are being made to rectify this,
the potential of rail for cost-effective bulk freight is being underutilised.
Decades of under-investment have left the country with a port infrastructure system
ranked 99th our of 133 countries by the World Economic Forum Competitiveness
Report.
The beginnings of local commercial vehicle production, which will help improve the
stock of lorries used by road haulage companies.
Growing international interest in Vietnam as a growth market within the box shipping
sector.
The opening of a deepwater container terminal in May 2009 set up better direct
shipping links to the US.
Potential 'stop-go' in economic gowth as the government may be forced to tighten
monetary and fiscal policy in response to overheating.
State-owned freight companies may be unprepared to compete effectively as the
doors are gradually opened for international companies to enter the Vietnamese
market.
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Vietnam Political SWOT
Strengths
Weaknesses
Opportunities
Threats
The Communist Party government appears committed to market-oriented reforms,
although specific economic policies will undoubtedly be discussed at the 2011
National Congress. The one-party system is generally conducive to short-term
political stability.
Relations with the US are generally improving, and Washington sees Hanoi as a
potential geopolitical ally in South East Asia.
Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party.
There is increasing (albeit still limited) public dissatisfaction with the leadership's
tight control over political dissent.
The government recognises the threat that corruption poses to its legitimacy, and
has acted to clamp down on graft among party officials.
Vietnam has allowed legislators to become more vocal in criticising government
policies. This is opening up opportunities for more checks and balances within the
one-party system.
The slowdown in growth in 2009 and 2010 is likely to weigh on public acceptance of
the one-party system, and street demonstrations to protest economic conditions
could develop into a full-on challenge of undemocractic rule.
Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably be
unsustainable.
Relations with China have deteriorated over the past year due to Beijing's more
assertive stance over disputed islands in the South China Sea and domestic criticism
of a large Chinese investment into a bauxite mining project in the central highlands,
which could potentially cause widescale environmental damage.
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Vietnam Economic SWOT
Strengths
Weaknesses
Opportunities
Threats
Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.6% annually between 2000 and 2009.
The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20% in 2004.
Vietnam still suffers from substantial trade, current account and fiscal deficits,
leaving the economy vulnerable as the global economy continues to suffer in 2010.
The fiscal picture is clouded by considerable 'off-the-books' spending.
The heavily-managed and weak dong currency reduces incentives to improve quality
of exports, and also serves to keep import costs high, thus contributing to inflationary
pressures.
WTO membership has given Vietnam access to both foreign markets and capital,
while making Vietnamese enterprises stronger through increased competition.
The government will in spite of the current macroeconomic woes, continue to move
forward with market reforms, including privatisation of state-owned enterprises, and
liberalising the banking sector.
Urbanisation will continue to be a long-term growth driver. The UN forecasts the
urban population to rise from 29% of the population to more than 50% by the early
2040s.
Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic
instability, which could lead to a potential crisis.
Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold, as they struggle to stabilise the economy.
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Vietnam Business Environment SWOT
Strengths
Weaknesses
Opportunities
Threats
Vietnam has a large, skilled and low-cost workforce, that has made the country
attractive to foreign investors.
Vietnam's location - its proximity to China and South East Asia, and its good sea
links - makes it a good base for foreign companies to export to the rest of Asia, and
beyond.
Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.
Vietnam remains one of the world's most corrupt countries. Its score in Transparency
International's 2009 Corruption Perceptions Index was 2.7, placing it in 22nd place in
the Asia-Pacific region.
Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of hightech skills and knowhow.
Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This should offer foreign investors new entry
points.
Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern.
Labour unrest remains a lingering threat. A failure by the authorities to boost skills
levels could leave Vietnam a second-rate economy for an indefinite period.
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Business Environment Rating
Table: Asia Pacific Freight Business Environment Ratings
Limits of potential returns
Risks to realisation of returns
Freight
transport
market
Country
structure
Limits
Market
risks
Country
risk
Risks
Overall
rating
Regional
rank
Singapore
52.5
79.6
66.1
80.0
90.1
86.0
72.1
1
Australia
50.0
83.4
66.7
75.0
81.7
79.0
70.4
2
India
62.5
71.0
66.7
60.0
60.8
60.5
64.9
3
South Korea
47.5
76.4
61.9
60.0
74.6
68.7
64.0
4
China
72.5
47.6
60.1
60.0
68.4
65.0
61.6
5
Japan
52.5
50.5
51.5
75.0
83.6
80.2
60.1
6
Malaysia
42.5
67.0
54.7
60.0
70.9
66.6
58.3
7
Vietnam
50.0
71.3
60.7
55.0
50.5
52.3
58.1
8
Thailand
42.5
72.5
57.5
55.0
58.6
57.1
57.4
9
Indonesia
50.0
71.4
60.7
50.0
46.8
48.1
56.9
10
Hong Kong
47.5
39.5
43.5
70.0
84.3
78.5
54.0
11
Pakistan
50.0
54.3
52.2
55.0
32.6
41.6
49.0
12
Philippines
40.0
55.6
47.8
50.0
49.7
49.8
48.4
13
Taiwan
27.5
38.0
32.8
65.0
72.5
69.5
43.8
14
Scores out of 100, with 100 highest. Source: BMI
The freight transport sector in the Asia Pacific region offers one of the most attractive business
environments for the industry worldwide. There are various reasons for this. First, the region offers a
powerful combination of future growth and economies of scale. It contains arguably the two most
significant of the four BRIC (Brazil, Russia, India and China) economies, which, it is argued, are the
powerhouses of future global growth. China and India combine vast geographical size, large populations,
globally competitive labour costs and as yet untapped infrastructure potential. To this must be added the
'third BRIC', Russia, which, although outside the region, has critically important trade and transport links
to Asia (such as crude oil exports to China). Second, at a 'big picture' level, most of the regional power
centres are committed to reasonably pragmatic and relatively stable, market-based policies. Countries that
in the past were either fervently communist (China, Vietnam) or capitalist (Malaysia, Taiwan) share a
much wider non-ideological common ground focused on how to achieve a sustainable rise in living
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standards. This is not to say, of course, that the area is free of tensions and flash points (North Korea,
China-Japan, India-Pakistan to name just a few).
Strong freight transport growth rates are combined with a very encouraging infrastructure investment
picture across most of the region.
By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to
smaller/higher value loads continues. Rail freight will benefit from long-distance economies of scale,
whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route.
Shipping is being lifted by the surge in trans-Pacific commodity and manufacturers' trade routes, while air
freight is growing on the back of liberalisation and the budget airline boom. While the freight transport
industry in the region suffers from patchy regulation and in some areas there are ongoing issues with
corruption and cronyism, it is on the whole much more open and competitive than in the past. A strong
positive factor is the dynamic and outward facing role played by foreign trade.
Freight Industry Ratings
Our overall freight transport rating for Vietnam stands at 58.1 (out of a theoretical maximum score of
100). This is composed of a score of 60.7 for potential returns (reflecting factors such as market size,
growth and the competitive environment), which gets a 70% weighting, and a lower score of 52.3 for
risks to those returns (reflecting factors such as market orientation, regulatory environment and other
country-risk issues), which gets a 30% weighting.
Vietnam's freight transport traffic, measured in mntkm, rose by an annual average of 10.2% in 2005-2009
and, according to our projections, will decelerate to an annual average of 7.4% in 2010-2014.
According to official information, there is a wide range of transport sector investment projects in the
pipeline, across road, rail, air and sea. Work is underway to develop the Mekong basin area, and new
seaports are planned. While there is no doubt that Vietnam's transport infrastructure is expanding, our
rating for this category is constrained by poor planning and limited project management experience.
Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that
the reform process started nearly two decades ago. The country gained access to the WTO in 2007. In the
transport sector, state-owned enterprises (SOEs) continue to be dominant in many areas. There is not yet a
clear legal framework for the protection of passenger and freight customer rights.
Freight transport competition remains limited, with SOEs dominating key transport modes. There are few
foreign entrants, although we expect more to arrive during the forecast period. To be able to operate in the
country, significant negotiations and procedures are required. Although the government favours attracting
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more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive
markets.
Transport Intensity Index
This index is derived by calculating the average annual growth rate for total trade (imports plus exports)
over a 10-year period running from 2005 through to 2014. As such, it is a mix of actual performance (the
five-year 2005-2009 period) and projected performance (2010-2014). In Vietnam's case, actual average
annual trade growth in 2005-2009 was a strong 18.8%, which in our projections will ease substantially to
11.1% per annum in 2010-2014. The annual average across the 10 years as a whole is 16.8%.
Vietnam Logistics Performance Index (LPI)
In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as 'the first in-depth
cross-country assessment of the logistics gap among countries'. The LPI was calculated on a five-point
scale and based on survey responses from over 800 logistics professionals. Countries were given an
aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the
quality of customs, infrastructure and international shipments, logistics competence, tracking and tracing,
domestic logistics costs and timeliness.
In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9. For comparison with
the major OECD economies, the Netherlands was ranked second in the world with an LPI of 4.2;
followed by Germany (third with an LPI of 4.1), the UK (ninth, LPI of 4.0) and the US (14th, LPI of 3.8).
In comparison with other Asian economies, Singapore was the world number one with an LPI score of
4.2, followed by Australia (17th, LPI of 3.8) and Taiwan (21st, LPI of 3.6). Then came South Korea (25th,
LPI of 3.5), Malaysia (27th, LPI of 3.5), China (30th, LPI of 3.3), Thailand (31st, LPI of 3.3) and Indonesia
(43rd, LPI of 3.0). Vietnam was therefore close to the bottom end of the regional LPI ranking, ahead of
Papua New Guinea (95th, LPI of 2.4) and Laos (117th, LPI of 2.3). In terms of the different components of
the index, Vietnam's best performing areas, ranked in order, were domestic logistics costs, timeliness,
international shipments, and tracking and tracing. Weaker areas in descending order were customs,
logistics competence, and infrastructure.
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Industry Trends and Developments
Multimodal/Logistics
Damco, the logistics division of Denmark-based shipping group AP Moller Maersk, is to establish a new
logistics centre in Vietnam at a cost of more than US$4mn. The company will construct the 26,000m2
logistics facility at Binh Duong, 25km from Ho Chi Minh City, as part of its expansion plans in a key
growth market. According to Damco Asia-Pacific CEO Tony Hotine, the company has positioned the
new facility strategically to cater for the rising customer needs for quality and flexible integrated logistics
solutions. BMI believes increased trade integration in South-East Asia will create opportunities for
freight transport operators in the region. Damco has been building its presence in the South-East Asian
market and in 2009 opened a new transportation hub in Thailand's Samrong district. Growing interest in
the region has been supported by increased trade integration.
Road
Vietnam's Ministry of Transport in October approved an investment of VND28trn (US$1.44bn) for the
Da Nang-based Quang Ngai expressway project. The 26m-wide, 139.5km-long expressway connects Hoa
Vang, Da Nang City with Tu Nghia District, Quang Ngai province. The road is expected to be built
according to road standard level A and has been designed to include four lanes for speeds of 120 km/h.
The section from Da Nang to Tam Ky (Quang Nam) would be financed by Japan International
Cooperation Agency (Jica). The Tam Ky city to Quang Ngai part, would be financed by the World Bank
and counterpart funds.
In March 2010, Vietnam's Prime Minister Nguyen Tan Dung approved VND350trn (US$18.09bn) for the
construction and development of the road system in the country. The funds were approved under the
development scheme of 2020 and long-term plan until 2030. Vietnam has a total road network of
222,000km - the 20th largest globally - although only 19% of it is paved, indicating the poor condition of
road infrastructure in the country. Vietnam's Ministry of Transport and Communications has estimated
that it will require close to US$60bn in the period up to 2020, to fund road infrastructure projects.
Rail
In October 2010, it was reported that Vietnam had started to build Hanoi's first metro line which will be
12.5km long. It will link Nhon in Tu Liem suburban district and the Hanoi railway station in the inner
district of Hoan Kiem. The US$1bn Nhon-Hanoi railway line will have 12 stations, four will be
underground. The line is to run with a maximum speed of 80km/h. It is scheduled to come online by 2015
and would carry 300,000 passengers daily. EUR283mn (US$384mn) in funding has been secured from
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the French government, while the remaining funds will come from Europe Investment Development Bank
and the city's state budget.
BMI notes that urban railways have proliferated in Vietnam as urbanisation rates increase, with most
major cities in South East Asia now either having their first metros in operation, or planning to build
them. Urbanisation trends in the country coupled with steady population growth is exerting increased
pressure on urban infrastructure and this will only continue to grow in the next few years. Crucially,
urban railways are much more commercially viable than the more 'risky' regional rail projects, where poor
national infrastructure and uncertain demand can potentially limit returns and foreign investor interest.
In September, is was reported that Spanish group GEV and Ho Chi Minh City (HCMC)'s Urban Railway
Management Board had signed a cooperative agreement to implement a metro railway line within
HCMC. BMI believes this project will be the first of many incursions by Spanish firms into Vietnam's
transportation infrastructure. The HCMC metro project will cost US$1.85bn and will involve the
construction of the No. 5 metro railway line running from Bay Hien crossroad to Saigon Bridge. It will be
carried out under an Engineering, Procurement and Construction (EPC) contract.
The first phase of the project will cost EUR500mn (US$649mn) and will be funded by the Spanish
government through the use of Official Development Assistance (ODA). As for the second phase, the
Asian Development Bank and Spain are currently considering the level of investment for the project. The
first phase of the metro project is expected to commence at the end of April 2011. In 2009, foreign direct
investment (FDI) in Vietnam from Spanish sources was only US$9.7mn, while as a matter of comparison
FDI from Korea and the United States were significantly larger at US$1,597.7mn and US$5,948.2mn
respectively. However, this lack of investment seems set to change.
In December 2009, both countries signed a memorandum of understanding (MOU) to cooperate in areas
such as science, technology and social affairs. The MOU also stated details for the capital provision for
the No. 5 metro line and a list of Vietnamese projects that could require Spanish financing. With the
strengthening of economic ties between the two countries, there is certainly considerable scope for greater
Spanish involvement in Vietnam's booming infrastructure industry. However, BMI does point out that
Vietnam's business environment still suffers from high levels of corruption and heavy delays in project
development, and these two areas represent significant downside risk to Vietnam's growth potential.
Air
At the end of August Vietnam was said to be considering establishing a joint venture (JV) to upgrade Phu
Bai International airport in Thua Thien-Hue province. The government has urged the Ministry of
Transport to submit a JV plan involving foreign investment to upgrade the airport. The country's Prime
Minister Nguyen Tan Dung has approved a master plan to invest VND12.5trn (US$642mn) in the
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modernisation of the airport by 2020. The plan includes construction of parking plots for 20 aircraft by
2020 and expansion of the current runway before the construction of a second runway after 2030. The
project will increase the airport's annual passenger capacity to 5mn by 2020 from the current capacity of
500,000 passengers, which will be further increased to 9mn passengers by 2030. The airport's annual
cargo capacity will also be increased to 100,000 tonnes by 2020 and 200,000 tonnes by 2030. The
Vietnamese government has ambitious plans to modernise and expand the country's airport infrastructure,
though some plans - like the Long Thanh international airport - have been in the pipeline for years with
little progress being made. However, the government's willingness to get projects off the ground provides
grounds for optimism.
The Association of Asia Pacific Airlines (AAPA) in Late July reported that carriers based in the Asia
Pacific region recorded a 30.4% year-on-year (y-o-y) surge in freight tonne km (FTK) in June 2010,
according to Air Cargo News. This signifies solid recovery in the economy. In the same period, the
carriers also registered a 34.8% y-o-y growth in international air cargo demand. In June 2010, the airlines'
average international cargo load factor jumped by 4.5 percentage points to 70.8%, while its freight
capacity grew 22% y-o-y. BMI believes the air freight sector is on course for a solid recovery in 2010;
however, the industry must continue to navigate a number of potential challenges. With demand in the US
and other Western markets expected to experience a sluggish recovery, we believe the main source of
growth for AAPA lines in 2010 will come from local markets, in particular growing consumer bases such
as China.
Maritime
Ha Long Shipbuilding Company, an affiliate of the Vietnam Shipbuilding Industry Group, successfully
launched another car carrier, Violet Ace, on October 2 2010. The carrier has a capacity to transport 4,900
cars per voyage. The ship was designed by Naval Progetti Design Institute (Italy), approved by
Classification Society DNV (Norway), which also supervised the construction. The modern car carrier is
185.6 metres (m) long, 32.26m wide and 36.10m high and has a speed of 19.8 nautical miles per hour.
Violet Ace features 13 decks -11 garage decks, one crew deck and one cabin deck - apart from a volley
ball yard, a sports house, a mini swimming pool and a heliport. It is the second ship constructed by Ha
Long Shipping Company under a contract with Israel-based Ray Shipping Company.
In September, it was reported that a new terminal development in the north of Vietnam had become the
latest example of an international company investing in the country's shipping sector. As the Vietnamese
market continues to grow, BMI expects more and more companies to make these new container terminals
ports of call on their East-West services. Vietnam National Shipping Lines (Vinalines) received the goahead from Vietnamese Deputy Prime Minister Hoang Trung Hai to set up a joint venture (JV) to build
two wharves at the northern port of Haiphong. The JV has been agreed with Japanese companies MOL,
NYK and Itochu Corporation, and it is projected that the wharves will cost US$350mn. The new
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development at the port will enable it to accommodate vessels capable of carrying up to 8,000 20-foot
equivalent units (TEUs).
Once the development is completed in 2015, it is expected that the port will handle 855,000TEUs
annually, and will account for around half of all containers handled in north-Vietnamese ports. BMI notes
that this is further evidence of Vietnam's growth as a destination for container ships. Up until recently it
was not a port of call for ships traversing the major Asia-Europe trade lane, and was instead served by
feeder vessels from regional transhipment hubs. However, in September both South Korean company
Hanjin Shipping and Israeli line Zim Integrated Shipping Services added the South-East Asian
country to their major services. Hanjin Shipping has also made Vietnam a port of call on its transpacific
services. Haiphong is not the only port in Vietnam where a major terminal is being developed.
In addition to adding Vietnam to its Asia-Europe and transpacific services, Hanjin Shipping is also
investing, along with MOL and Wan Hai Lines, in the Tan Cai Mep International Terminal in the south of
the country, which is due to come online in 2011. BMI can understand container lines' interest in the
country. Vietnam's trade with the US and Europe has been steadily increasing over the decade. According
to data from the IMF's Direction of Trade Statistics, Vietnamese exports to Europe reached US$1.8bn in
2008, a y-o-y increase of 51%, while imports from Europe grew by 78% to US$1.6bn. We believe that
the market has huge potential, and that those lines investing early, whether by developing container
terminals or by adding Vietnamese ports to the rotations of their major East-West services, will be
rewarded by huge growth.
Vietnam's state-owned shipping and port operator Vietnam National Shipping Lines (Vinalines) was in
mid-September said to be planning to divest its 21.8% stake in Vietnam Container Shipping within the
following three months, reported Vietnam News Brief Service, as cited by Turkish Maritime. This move
by Vinalines is part of its strategy to re-restructure its capital sources. Vinalines has concluded the sale of
unsecured corporate bonds worth US$51.32mn in the domestic market. The company registered a 146%
y-o-y surge in pre-tax profit to US$35.31mn in H110. Vinalines is Vietnam's largest commercial shipping
line, comprising, in terms of capacity, about 45% of the country's total fleet. Vietnam's shipping sector
has suffered from a lack of investment and is underdeveloped in relation to those of several other Asian
nations. According to data provided by UNCTAD, the capacity of Vietnam's fleet was 3.14mn DWT in
2007, making it the 11th largest national fleet in the Asia Pacific region and less than half the size of that
registered under the Philippines, which has a comparable population.
Vietnam National Shipping Lines (Vinalines)'s plans for expansion were fast-forwarded in Q3 2010 with
the shipping company taking on 36 vessels from debt-laden Vietnamese shipbuilder Vinashin. Although
BMI notes that Vinalines was already planning to expand its fleet, it is unlikely that it planned to do so in
this manner, and it now faces the challenge of getting substandard vessels up to scratch, an extra
expensive for the company. Vinaline's Chairman Duong Chi Dung, has stated that up to two-thirds of the
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acquired vessels cannot be used currently as they fail to meet technical requirements. He estimates that
the company will need to spend US$26mn to repair the vessels and purchase insurance cover. Dung has
stated that he expects some financial aid from the government for the project. The 36 ships are part of an
asset offloading from Vinashin, which is in debt to the tune of US$4.5bn.
The shipbuilding company is expected to be rescued by the government, but has been forced to shed the
vessels it owns, with Petro Vietnam being the other company to acquire vessels from the troubled
shipbuilder. Vinalines stated earlier in 2010 that it planned to expand, and was seeking state funding for
40 new-build vessels. In 2006, the Vietnamese government approved a US$1.8bn expansion programme
to expand the company's fleet to 136 ships - 2.6mn deadweight tonnes (DWT) - by 2010. In March 2010
the shipping line pledged a new round of expansion, seeking to increase its fleet to 6-7mn DWT by 2015.
BMI questions whether this fleet expansion will go ahead since the line has now acquired 36 vessels,
particularly as the government is expected to be tapped to provide funds for the ships' refurbishment and
so may not be willing to also finance Vinalines' new-build plan. BMI suspects that the 36 ships, along
with their need for investment to get the up to scratch, are something of an unwanted gift for the
company. On the positive side, the company has been able to expand its fleet a lot quicker than if it had
waited for new builds to come online.
However, considering the current state of the shipping sector, with container shipping recovering
sluggishly following a massive decline in 2009 and dry bulk shipping struggling as Chinese demand dries
up, Vinalines may not have chosen to expand immediately. The lead time on new-build vessels of 18
months would have allowed its fleet to come online at a time when overcapacity is not such a threat.
Further to this, BMI believes that by ordering new builds, Vinalines would have had control over the
expansion of its fleet and the specifications of the vessels it was ordering. By acquiring a job-lot of
Vinashin vessels, Vinalines has ceded this control.
The US and Vietnam in early July 2010 signed a memorandum of understanding (MoU) that will see
containers destined for the US scanned for nuclear materials before they disembark. BMI believes that
this is evidence of the continued American drive to tackle what it feels is its Achilles' heel, with the belief
that the country's port sector could be a route for a potential terrorist attack. We think that Vietnam had
little choice but to sign the MoU, given the increasing importance of US trade to the country. The
agreement was signed by the US and Vietnam on July 2 and paves the way for the US Department of
Energy's National Nuclear Security Administration (NNSA) to work with Vietnamese ministries to install
radiation-detection equipment in Vietnamese ports.
The agency will provide, install, maintain and train Vietnamese staff in the operation of container
scanners. Kenneth Baker, NNSA's principal assistant deputy administrator for NNSA's Office of Defense
Nuclear Nonproliferation stated in the agency's press release: 'Our partnership with Vietnam will greatly
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strengthen our capability to prevent nuclear and radiological smuggling through the maritime system in a
key, strategic region of the world. We appreciate Vietnam's efforts and commitment to keeping these
dangerous materials out of the hands of terrorists, smugglers and proliferators.'
The MoU between the two countries is part of a wider US programme that ultimately aims to scan 100%
of US-bound containers at foreign ports on the basis that they constitute a potential threat to national
security. Increasingly wary of asymmetric attacks on its own soil since 9/11, this is part of a raft of
legislation passed in recent years that aims to prevent another such attack. In July 2007, the US
government passed a bill requiring foreign ports to have scanning procedures for US-bound cargo in place
within the next five years.
BMI has noted that these plans have met with some dissent, however, and have been labelled by
Christopher Koch, president and CEO of the World Shipping Council, in an address to the US Senate
Committee on Commerce, Science and Transportation as 'unworkable'. We believe that these extra
security measures have the potential to cause significant delays and congestion in ports. Given how
import an export partner the US has become for Vietnam, it is unlikely that the South-East Asian nation
could have done anything but sign the agreement. The two countries signed a bilateral trade agreement in
2001, and since 2002 the value of Vietnamese exports to the US has grown by more than five times.
Vietnamese exports to the US are now worth 50% more than the country's second-placed export partner,
Japan.
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Vietnam Freight Transport Report Q1 2011
Market Overview
In January 2007, Vietnam officially joined the WTO, an event seen as an important milestone in the
country's closer integration into the global economy. WTO membership has helped boost Vietnam's
international trade and develop its freight transport capabilities.
Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for
freight, with a market share of around 60% of domestic cargo. There are over 1,050 enterprises registered
in the road transport business, which include 16 state-owned enterprises (SOEs), 233 limited liability
companies, 350 private companies and 450 joint stock companies. Very few foreign-invested companies
are present.
Most road transport companies are of small or medium size, and each company, on average, owns about
50 vehicles. In addition, tens of thousands of individual household businesses exist that operate
informally in the road freight sector, and are thus difficult to account for and monitor.
Vietnam has a national road network of 222,179km. Of this, only 42,167km, or 19%, is paved. In
addition, recent surveys indicate that approximately 40% of the network is in poor to very poor condition
and will require substantial investment even to reach a maintainable condition. The quality of Vietnam's
road infrastructure was judged by the World Economic Forum (WEF) to be poor and was ranked 102 out
133 nations surveyed in the WEF 2010 Global Competitiveness Report.
Vietnam's railway transport sector has only one operator, the Vietnam Railway Corporation (VRC),
established in April 2003 as a state corporation operating railway transport and related services. The
government has announced plans to separate the management of rail infrastructure from passenger and
cargo services. Vietnam's rail network totals 2,600km (excluding sidings). The network is mixed-gauge,
comprising 2,169km of 1.000m gauge and 178km of 1.435m gauge. The network has 1,790 bridges
totalling 45km and 11.5km of tunnels. The principal axis is Hanoi-Ho Chi Minh City (1,726km). Other
lines emanating from Hanoi are to Hai Phong (102km), Lao Cai (296km) and Dong Dang (162km).
Railway infrastructure in Vietnam was ranked 58 out of 114 by the WEF.
There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines. Both are
majority state owned, although Australia's Qantas is now a minority shareholder in Pacific Airlines. The
government has announced plans to build the country's largest airport at Long Thanh in the southern
province of Dong Nai, at an estimated cost of US$8bn. The authorities also plan to expand Noi Bai
International airport in Hanoi. The three major airports handling freight are located at Ho Chi Minh City,
Hanoi and Da Nang, each of which have international connecting flights. Minor airports such as Cat Bi at
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Vietnam Freight Transport Report Q1 2011
Haiphong are generally used for domestic flights to the three larger hubs. In 2010, Vietnam's air transport
infrastructure was ranked 84/ 133 nations by the WEF.
UNCTAD shipping fleet statistics indicate that by the end of 2007, Vietnam had 387 commercial vessels
with a total capacity of 3.14mn DWT and ranked 28th out of 162 countries around the world (but fourth
in ASEAN after Singapore, Malaysia and Thailand). The average vessel size is 2,650DWT.
Vietnam's fleet structure lacks specialised container vessels, bulk cargo ships, large oil and liquefied
petroleum gas (LPG) tankers. Multi-function ships and bulk cargo ships account for 87% in number and
63% in tonnage, and container ships account for only 2.2% in number and 9% in tonnage. The largest
local operator is the Vietnam National Shipping Lines (Vinalines).
Vietnam's dense river and canal network provides the country with a highly developed inland waterway
system. This is the second-largest sub-sector involved in domestic cargo transport, accounting for 25-30%
of total transport volumes. Currently, the inland waterway transport sub-sector is managed by two state
corporations affiliated to the Ministry of Transport, one SOE affiliated to the Vietnam Inland Waterway
Authority, and some enterprises managed by other ministries, operating in support of the power
generation, cement and paper industries. In addition, there are about 230 co-operatives and hundreds of
inland waterway transport enterprises in the country.
Vietnam's seaport network comprises many small- and medium-sized entities, with inefficient
distribution. Most big ports are located far inside rivers, like Hai Phong and Ho Chi Minh City, with
limited depth at the entrance. Some ports are located in big cities, thus making it difficult to connect with
other modes of transport for cargo transfer from and to ports, due to traffic congestion. Except for several
new ports or upgraded ports, most ports have been operating for many years and lack investment and are
seriously degraded.
The loading and unloading equipment in some ports is obsolete, leading to low productivity. The average
productivity of a Vietnamese port is only 2,500 tonnes/m per wharf, or 40-50% of productivity of other
ports in the region.
Though a series of new port investments are expected to see conditions gradually improve during the next
few years, for the time being the quality of Vietnam's port infrastructure is judged to be poor and was
ranked 99 out of 133 nations by the WEF.
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Industry Forecast Scenario
Macroeconomic Forecast
Going into 2011 we believe Vietnamese macro-economic growth will be primarily driven by domestic
consumption and infrastructure investment. On the negative side, exports are being constrained by what
we see as a 'double-dip' global economic slowdown led by important trading partners such as the US and
China. A widening trade deficit will be a drag on growth. The interplay of these factors has led BMI to
maintain our GDP estimate for 2010 at 6.7% growth, a rate we see slowing to 5.6% in 2011. Although
these growth rates are slower than the high single digit percentages experienced before 2009, they are still
relatively supportive of the freight transport sector. Over the next five years we are predicting that growth
will come out at a fairly vigorous annual average of 6.3%. Risks to this projection remain. Overheating is
one of them, with the possibility of inflation rising too sharply. On the political front, the National
Congress of the Communist Party due to be held in early 2011 is still a factor persuading the government
to keep consumption levels expanding.
Road Freight
Road building and road usage are both expanding strongly. Indeed, it can be argued that a large part of the
country's economic growth is road-based. In 2011 we see a relatively moderate growth rate of 6.9% to
30.19mntkm. Thereafter, however, road freight growth will gather pace, averaging 7.4% per annum in the
four years to 2014. This rate will exceed the average for GDP growth (6.3%), a pattern consistent with
this stage of Vietnam's industrialisation process.
Table: Road Freight
2007
Road Freight
Tonnes (000)
Road Freight
Tonnes %
Change y-o-y
Road Freight
Tonnes/Km (mn)
Road Freight
Tonnes/Km %
Change y-o-y
2008
2009e
2010f
2011f
2012f
2013f
2014f
403,361.80 455,898.40 494,649.80 461,256.12 491,103.26 525,345.72 563,695.58 604,656.75
19.12
13.02
8.50
-6.75
6.47
6.97
7.30
7.27
24,646.90
27,968.00
30,261.40
28,242.09
30,186.26
32,416.72
34,914.74
37,582.85
20.01
13.47
8.20
-6.67
6.88
7.39
7.71
7.64
Source: General Statistics Office of Vietnam
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Air Freight
Vietnam's airfreight industry is recovering modestly against the background of a troubled global aviation
sector, with negative repercussions from the European volcanic ash crisis in Q210 also playing a part. In
Vietnam itself the industry is beginning to experience intense competition. In terms of air cargo volume,
BMI sees growth of 5.3% to 147,910 tonnes in 2011, compared with growth of 2.1% in 2010. In the
medium term, the 2010-2014 forecast period, tonnage growth will average 5.1%, just below the country's
general rate of economic expansion. In terms of freight carried (volume x distance) we expect to see
growth of 4.9% in 2011 to 327.73mntkms, after contraction of 1.3% in 2010.
Table: Air Freight
Air Freight Tonnes (000)
Air Freight Tonnes %
Change y-o-y
Air Freight Tonnes/Km
(mn)
Air Freight Tonnes/Km %
Change y-o-y
2007
2008
2009e
2010f
2011f
2012f
2013f
2014f
129.60
131.40
137.60
140.54
147.91
156.38
165.85
175.98
7.28
1.39
4.72
2.13
5.25
5.72
6.06
6.10
279.90
295.60
316.60
312.48
327.73
345.23
364.83
385.76
3.90
5.61
7.10
-1.30
4.88
5.34
5.68
5.74
Source: General Statistics Office of Vietnam
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Maritime Freight
BMI is projecting strong growth in 2011 volume handled at the Port of Ho Chi Minh City (also known as
SNP, Saigon New Port), up by 7.5% to 21.84mn tonnes, after the 6.2% rate estimated in 2010. We believe
growth will be vigorous. SNP is also expected to see 4.4% container handling growth to 2.627mn TEUs
in 2011, following growth of 3.5% experienced in 2010. At Da Nang Port (DNP) we see 2011's volume
gaining by 2.8% to 2.68mn tonnes. DNP will see box growth of 7.1% to 58,919 TEUs
Table: Maritime Freight
2007
2008
2009e
2010f
2011f
2012f
2013f
2014f
25,600.00
20,180.00
19,140.00
20,329.57
21,843.71
23,581.42
25,564.47
27,691.79
Port of Ho Chi
Minh City
(Saigon New)
throughput,
tonnes, % y-o-y
28.00
-21.17
-5.15
6.22
7.45
7.96
8.41
8.32
Port of Da Nang
throughput,
tonnes '000
2,736.94
2,742.26
2,556.42
2,615.48
2,687.72
2,770.63
2,865.24
2,966.73
Port of Da Nang
throughput,
tonnes, % y-o-y
15.43
0.19
-6.78
2.31
2.76
3.08
3.41
3.54
Port of Ho Chi
Minh City
(Saigon New)
throughput,
tonnes '000
Source: Port authorities
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