Q3 2010

www.businessmonitor.com

VietnaM

freight transport Report
INCLUDES 5-YEAR FORECASTS TO 2014

ISSN 1750-5364
Published by Business Monitor International Ltd.


VIETNAM
FREIGHT TRANSPORT
REPORT Q3 2010
INCLUDES 5-YEAR FORECASTS TO 2014

Part of BMI's Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: April 2010

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Vietnam Freight Transport Report Q3 2010

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Vietnam Freight Transport Report Q3 2010


CONTENTS
Executive Summary ......................................................................................................................................... 5
SWOT Analysis ................................................................................................................................................. 7
Vietnam Freight Transport Industry SWOT ........................................................................................................................................................... 7
Vietnam Political SWOT ........................................................................................................................................................................................ 8
Vietnam Economic SWOT ...................................................................................................................................................................................... 8
Vietnam Business Environment SWOT................................................................................................................................................................... 9

Market Overview ............................................................................................................................................. 10
Industry Trends And Developments ............................................................................................................ 12
Multimodal/Logistics ........................................................................................................................................................................................... 12
Road .................................................................................................................................................................................................................... 12
Air ........................................................................................................................................................................................................................ 15
Maritime .............................................................................................................................................................................................................. 15

Global Oil Products Price Outlook ............................................................................................................... 19
Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl)............................................................................................................................ 21
Table: Oil Product Price Data And Forecasts, 2007-2014 (US$/bbl) ................................................................................................................. 22

Industry Forecast ........................................................................................................................................... 23
Road Freight ........................................................................................................................................................................................................ 23
Air Freight ........................................................................................................................................................................................................... 23
Maritime Freight ................................................................................................................................................................................................. 23
Rail Freight ......................................................................................................................................................................................................... 24
Trade Overview ................................................................................................................................................................................................... 24
Table: Air Freight, 2007-2014 ............................................................................................................................................................................. 24
Table: Maritime Freight, 2007-2014 (throughput, ‘000 tonnes ........................................................................................................................... 25
Table: Rail Freight, 2007-2014 ........................................................................................................................................................................... 25
Table: Road Freight, 2007-2014.......................................................................................................................................................................... 25
Table: Inland Waterway Freight, 2007-2014 ....................................................................................................................................................... 26

Table: Trade Overview, 2007-2014 ..................................................................................................................................................................... 26
Table: Key Trade Indicators, 2007-2014 ............................................................................................................................................................. 27
Table: Main Import Partners, 2002-2008 (US$mn) ............................................................................................................................................. 28
Table: Main Export Partners, 2002-2008 (US$mn) ............................................................................................................................................. 28

Company Profiles ........................................................................................................................................... 29
Doan Xa Port ....................................................................................................................................................................................................... 29
Table: Doan Xa Port's Financial Performance, 2007 And 2008.......................................................................................................................... 30
Vietnam Airlines .................................................................................................................................................................................................. 31
Vietnam Petroleum Transport Jsc (VIPCO)......................................................................................................................................................... 33
Table: Vietnam Petroleum Transport's Key Financial Data, 2007-Q109 ............................................................................................................ 34

BMI Methodology ........................................................................................................................................... 35
How We Generate Our Industry Forecasts .......................................................................................................................................................... 35
Transport Industry ............................................................................................................................................................................................... 35
Sources ................................................................................................................................................................................................................ 36

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Vietnam Freight Transport Report Q3 2010

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Vietnam Freight Transport Report Q3 2010


Executive Summary
In early March, 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 for 2020 and the long-term plan until 2030. The plans include the development of
the North-South road with a total length of 3,262km, construction of seven roads in the north with a total
length of 1,099km, and the development of seven routes with a total length of 984km in south area.
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 disclosed estimates that it will require close to US$60bn in the period up to
2020 to fund road infrastructure projects.
Vietnam's strong macroeconomic performance has helped the freight transport industry, but the ride could
get a little bumpy. In BMI's view, the country began emerging from the recession a little too fast in 2009,
leading to a growing risk of overheating, rising inflation, and a widening trade deficit. As a result we see
something of a 'double dip' scenario with fiscal and monetary tightening on the cards. The macro
downside is the danger of policy 'stop-go' and political risk in advance of the 11th National Congress of
the Communist Party, due to be held in January 2011.
Road building is proceeding at a rapid pace and the number of vehicles in circulation is also expanding
sharply as living standards rise and cities expand across Vietnam. Indeed, it can be argued that a large
part of the country's economic growth is road-based. After a number of years of double-digit growth,
freight carried by road slumped by 8.6% in 2009 to 25.62bntkm. In 2010, we see a moderate recovery of
4.8% to 26.84bntkm.
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 also playing a part. In Vietnam
itself, the industry is experiencing intense competition, underlined by the launch of a joint venture
(JV) backed by Malaysia-based AirAsia. In terms of air cargo volume, BMI sees growth of 3.7% to
125,320 tonnes this year, compared to a contraction of 6.8% in 2009.
After suffering two years of falling cargo levels in 2008 and 2009, Saigon New Port (SNP) - the country's
largest - is on a recovery phase. Volume slumped 21.2% in 2008 and fell by a further 5.2% to 19.14mn
tonnes last year. As the global trade recovery makes itself felt, BMI is forecasting 6.2% growth this year

to 20.33mn tonnes. Port of Da Nang (PDN), a smaller facility in central Vietnam, better suited to oceangoing vessels, has on the whole experienced less volatility. Unlike SNP to the south, it suffered only one
year of falling cargo levels. Volume handled turned negative only in 2009, falling by a smaller 6.8%. This

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year we see throughput at PDN rising by 2.3% to 2.62mn tonnes and thereafter the port should see its
volumes growing by 2-3% per annum.
Rail freight carried fell by an estimated 6.1% in 2009 and in a similar fashion to other transport modes, is
set to experience a partial recovery this year, with growth of 3.2% to 3.907bntkm. Average annual growth
over the next five years will be 4.8%, below overall economic growth. 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 recent years, Vietnam has enjoyed strong export led growth but as the internal market gathers pace we
expect overall trade growth to ease down. In real terms, exports and imports combined were growing at
over 20% per annum earlier this decade, but in the global downturn of 2009 they contracted by 14.5%.
This year, we expect total trade to recover with 5.4% growth, followed by 6.2% expansion in 2011. For
the rest of our forecast period to 2014, however, trade growth will remain in the relatively slower range of
6-7% per annum.

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Vietnam Freight Transport Report Q3 2010


SWOT Analysis
Vietnam Freight Transport Industry SWOT

Strengths

Weaknesses

Opportunities

Threats

ƒ

Strong growth rate coupled with geography (a long country stretching for thousands of
kilometres on a north-south axis creates a need for long-distance freight haulage).

ƒ

Rapid recovery from 2009 downturn in port throughput volumes in 2010.

ƒ

Location on the South China Sea gives Vietnam access to main inter-Asian shipping
routes, as well as access to the developing land transport links with ASEAN countries,
allowing the country scope to develop its trade logistics.

ƒ

Generally poor state of road network. Despite new highway construction, only 13.5%
of road network is considered in good condition, only 26% has two or more lanes and

only 29% is tarred.

ƒ

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.

ƒ

Decades of under-investment have left Vietnam with a port infrastructure system at
th
99 out of 133 countries in the World Economic Forum Competitiveness Report.

ƒ

The beginnings of local commercial vehicle production will improve the stock of lorries
used by road haulage companies.

ƒ

Growing international interest in Vietnam as a growth market in box shipping sector.

ƒ

Opening of deepwater container terminal in May 2009 improved direct shipping links
to the US.

ƒ

Potential 'stop-go' in economic growth as the government may be forced to tighten

monetary and fiscal policy in response to overheating.

ƒ

State-owned freight firms 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 Freight Transport Report Q3 2010

Vietnam Political SWOT

Strengths

Weaknesses

Opportunities

Threats

ƒ

Communist Party 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 stability.


ƒ

Relations with US are generally improving, and Washington sees Hanoi as a potential
ally in South East Asia.

ƒ

Corruption among government officials is threat to legitimacy of Communist Party.

ƒ

Rising (if limited) public dissatisfaction with leadership's tight control of dissent.

ƒ

Government recognises threat corruption poses to its legitimacy, and has acted to
clamp down on graft among party officials.

ƒ

Has allowed legislators to become more vocal in criticising government policies. This
is opening up opportunities for more checks and balances in the one-party system.

ƒ

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.

ƒ


Although strong domestic control will ensure little change to political scene in the next
few years, over the longer term, the one-party-state will probably be unsustainable.

ƒ

Relations with China have deteriorated 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 widespread environmental damage.

Vietnam Economic SWOT

Strengths

Weaknesses

Opportunities

Threats

ƒ

One of the fastest-growing economies in Asia in recent years, with GDP growth
averaging 7.6% annually between 2000 and 2007.

ƒ

Economic boom has lifted many Vietnamese out of poverty, with the official poverty
rate falling from 58% in 1993 to 20% in 2004.


ƒ

Still suffers from substantial trade, current account and fiscal deficits, leaving
economy vulnerable as the global economy continues to suffer in 2010. Fiscal picture
is clouded by considerable 'off-the-books' spending.

ƒ

Heavily managed and weak dong reduces incentives to improve quality of exports,
and also serves to keep import costs high, thus contributing to inflationary pressures.

ƒ

WTO membership has given Vietnam access to foreign markets and capital, while
making Vietnamese enterprises stronger through increased competition.

ƒ

In spite of current macroeconomic woes, government will continue market reforms,
including privatisation of state-owned enterprises and liberalisation of banking sector.

ƒ

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.

ƒ

If government focuses too much on stimulating growth and fails to root out inflationary

pressure, it could prolong macroeconomic instability, possibly leading to crisis.

ƒ

Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold, as they struggle to stabilise the economy.

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Vietnam Freight Transport Report Q3 2010

Vietnam Business Environment SWOT

Strengths

Weaknesses

Opportunities

Threats

ƒ

Large, skilled, low-cost workforce has made the country attractive to foreign investors.

ƒ


Location (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.

ƒ

Weak infrastructure. Roads, railways, ports inadequate to cope with economic growth.

ƒ

120 out of 180 countries in Transparency International’s 2009 Corruption
Perceptions Index.

ƒ

Increasingly attracting investment from key Asian economies, such as Japan, South
Korea and Taiwan. This offers possibility of transfer of high-tech skills and knowhow.

ƒ

Privatisation of state companies and liberalisation of banking sector should offer
foreign investors new entry points.

ƒ

Ongoing trade disputes with US, and general threat of US protectionism.

ƒ

Labour unrest is a lingering threat. A failure by the authorities to boost skills levels
could leave Vietnam a second-rate economy for an indefinite period.


th

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Vietnam Freight Transport Report Q3 2010

Market Overview
In January 2007, Vietnam officially joined the World Trade Organisation (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 some 93,300km. Of this, only 23,418km, or 25%, 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.
Vietnam's railway transport sector has only one operator, namely the Vietnam Railway Corporation
(VRC), established by law 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).
There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines. Both of
these airlines 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 Haiphong are generally used for domestic flights to the three larger hubs.
Vietnam's shipping fleet statistics indicate that by the end of 2002, the country had 819 vessels with a
total capacity of 2.123mn DWT and ranked 60th out of 150 countries around the world (but fourth in
ASEAN after Singapore, Malaysia and Thailand). The average vessel size is 2,650DWT. Currently, there
are more than 400 ships with a capacity below 1,000DWT that operate on domestic routes.

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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, 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.

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Industry Trends And Developments
Multimodal/Logistics
Kerry Logistics launched the first phase of its new logistics centre in Danang in central Vietnam, it was
reported in April. The facility is scheduled to be fully completed in H210 and will cover an area of nearly
9,000m2. The new facility will complement the company's existing 62,500m2 facility in Ho Chi Minh
City and a 10,300m2 facility in Hanoi. This will enable the company to provide complete coverage in
north, central and south Vietnam. Kerry Logistics primarily offers integrated logistics, international
freight forwarding and supply chain solutions with headquarters in Hong Kong. It operates a total area of
more than 1.7mn m2 and provides services in 24 countries. The company maintains a fleet of nearly
5,600 vehicles and a staff of more than 10,000.
In early March, France-based tyre manufacturer Michelin appointed Denmark-based logistics group
Damco to provide logistics and customs clearance services in Vietnam. The contract is applicable for
three years and will enable Damco to manage Michelin's exports from Thailand into Vietnam, as well as

inland transportation, cross-docking and distribution to customers in Vietnam. Damco will also supervise
Michelin's warehouse operations in Hanoi and Ho Chi Minh City. The contract will facilitate Michelin to
distribute directly to nearly 100 dealers throughout the country. Industry observers believe the contract
will improve trade prospects for Damco and contribute to the company's trade and financial position.

Road
South Korean steel producer POSCO Engineering and Construction (POSCO E&C) was in late March
seeking approval from Vietnam's transport ministry for its expressway investment project, reported Dau
Tu. The project involves construction of a 97km-long six-lane expressway from Nghi Son Dist in Thanh
Hoa province to Hong Linh Dist in Ha Tinh province. The company will work with local partners of
state-owned Vietnam Expressway Investment and Development Company (VEC) to secure funds of
about VND25.29trn (US$1.33bn) for the public private partnership (PPP) project. Vietnam's road
network is in poor condition. Vietnam's Ministry of Transport and Communications has disclosed
estimates that it will require close to US$60bn in the period up to 2020, to fund road infrastructure
projects.
South Korean company Keangnam Enterprises won two contracts related to A4 and A5 sections of the
Noi Bai-Lao Cai Highway project in Vietnam, it was reported in March. The company secured the
contracts from VEC. The A4 package, worth VND1.64trn (US$87.79mn), includes the construction of a
30km-long four-lane expressway in the provinces of Phu Tho and Yen Bai. The VND1.98trn
(US$106mn) A5 package is for the construction of 41.5km-long four-lane expressway in Yen Bai
province. Both are expected to be finished within 36 months.

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In early March, 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 for 2020 and the long term plan until 2030. The plans include the development of
the North-South road with a total length of 3,262km, construction of seven roads in the north with a total
length of 1,099km, construction of three routes with a total length of 264km in central and highland areas,
and the development of seven routes with a total length of 984km in south area. 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
disclosed estimates that it will require close to US$60bn in the period up to 2020 to fund road
infrastructure projects.
The transportation department of Hanoi in Vietnam proposed the construction of six overhead roads
between 2010 and 2015. The road projects are expected to cost more than VND32trn (US$1.65bn). The
overhead roads would cover: Lac Long Quan - Yen Phu road; Nga Tu So - Nga Tu Vong - Minh Khai Vinh Tuy bridge road; Noi Bai - Mai Dich - Phap Van; Hanoi Rail Station - Xa Dan - Pham Ngoc Thach Ton That Tung - Kim Giang-road 70; Tran Duy Hung - Lieu Giai - West Lake; and, Giang Vo - Lang Ha
- Thanh Xuan.
Vietnam was due to start construction of a 220km long coastal road in March 2010. The road, which will
run through Kien Giang and Ca Mau provinces, is expected to cost US$440mn. The governments of
South Korea and Australia and the Asian Development Bank (ADB) will co-operate on the road project.
The road will be a part of the 1,000km-long link known as the Thailand-Cambodia-Vietnam Southern
Coastal Road Corridor. The ADB believes that the new road, which will traverse poor regions in the three
countries, will enhance social and economic development of those regions. The increased traffic levels in
Vietnam's urban areas and the country's general fast-paced economic development have increased the
volume of exports and imports to and from the country, thus creating a pressing need for better
infrastructure between ports and inland. 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.
It was announced in February, Japan's government would increase its participation in co-financing
infrastructure projects in Vietnam, as part of a wider venture to spearhead the involvement of Japanese
companies in the development of infrastructure in the region. The Japanese government earmarked
JPY75bn (US$822mn) for three infrastructure projects in Vietnam, according to a report by the Japanese
daily newspaper Nikkei. The three projects would be developed by Japanese companies. The three
projects are: the construction of a water system in Hanoi by NGK Insulators and Metawater, a

subsidiary of Fuji Electric Holdings; installation of communications systems on the trunk highway
between Hanoi and HCM City by Central Nippon Expressway; and, construction of a biomass power
plant near HCM City by J-Power.

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According to the report in Nikkei, the Japanese government will offer export credit guarantees to the
Japanese companies to insure against payment irregularities by the host governments/entities. The
Japanese government has spearheaded the expansion of Japanese companies abroad, especially in Asia,
through establishing relations with governments. Being the second largest donor of official development
assistance after the United States, Japanese loans have played a significant role in financing infrastructure
projects in Asia. The influence that the Japanese government has established in the Asia Pacific region
has enabled the overseas expansion of Japanese companies. Vietnam is a case in point. Japanese
companies and development bodies (JICA mainly) have been highly active in Vietnam. The flagship
project that Japan has managed to become involved with is the planning of the high speed railway in
Vietnam. With the surge in investments in Vietnam's infrastructure sector, Japanese companies certainly
have much to look forward to in the country.
According to BMI forecasts, infrastructure will account for the largest share of total construction industry
value, its share rising from an estimated 45% in 2009 to 51.5% in 2014. Furthermore, according to our
forecasts, infrastructure industry value will register robust growth in the coming years. The infrastructure
industry value was an estimated VND46trn (US$2.4bn) in 2009 and this is forecast to rise to VND134trn
(US$7.8bn) by 2014 - an average annual real growth of almost 15%. However, it should be noted that
there have been sour moments in the relations between Japan and Vietnam during their JV in
infrastructure. Taisei Corporation and Kajima Corporation were banned from participating in road and
bridge construction projects in Vietnam for one year (until June 2010) because of involvement with the

Can Tho Bridge, which collapsed in September 2007, killing 52 people.
Bloomberg quotes Tran Quoc Viet, the director of quality control at the Ministry of Transport, who said
that 'this is punishment for the Japanese companies'. According to Bloomberg, the bridge collapsed owing
to 'unforeseen weaknesses of the two concrete supports on either side that collapsed causing the bridge to
fall'. Taisei and Kajima spokespeople have confirmed that they received notice of temporary suspension
on June 20 2009. Vietnam was in January seeking loans from the World Bank (WB) and the Japan
International Cooperation Agency (JICA) to finance the construction of an expressway costing US$2.5bn,
reported The Saigon Times Daily. The 130km-long expressway, will connect Danang City to Quang Ngai
Province. Work would be carried out by the state-owned Vietnam Expressway starting in 2010. JICA is
expected to fund a 65km-long section from Danang City to Tam Ky in Quang Nam Province. The WB is
expected to fund the remaining 66km-long stretch from Tam Ky to Quang Ngai Province.
Vietnam's Transport Ministry approved the term-end report for the Ben Luc-Long Thanh highway
project, reported Intellasia. The project, involving investments of US$1.7bn, will be carried out by the
state-owned Vietnam Expressway Investment and Development Company (VEC). The 58km-long
highway will have four lanes totalling 27.5m in width. VEC, the main investor, is considering acquiring
loans from the Asian Development Bank (ADB) and using its counterpart capital to finance the project.

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Air
Vietnam Airlines (VNA) registered a 2.3% year-on-year (y-o-y) increase in cargo throughput to 131,220
tonnes in 2009. The airline reported a 13% y-o-y increase in domestic airfreight traffic to 87,000 tonnes.
VNA expects a turnover of VND32trn (US$1.78bn) in 2010, with a profit US$8.3mn - 30% higher than
2009's turnover of US$1.36bn and 42% less than 2008's profit of US$14mn. VNA plans to triple its
existing aircraft fleet of 50 by 2020. VNA was established as a state-owned airline in 1989 and merged

with a number of service companies in 1996 to give it its present form. The airline operates 64 routes to
20 domestic and 24 international destinations. The carrier provides passenger air services to 25
destinations in 15 countries. Its cargo operations serve 20 destinations in Asia, the Middle East, Australia
and Europe, with partner networks serving other destinations.

Maritime
Vietnam suspended a contract with China State Construction Engineering Corporation (CSCEC) due
to its presence on the World Bank's list of ineligible firms. Vietnam has benefitted substantially from
World Bank support over recent years and made the move to protect funding from the institution. CSCEC
was awarded an US$60.6mn contract to dredge and upgrade the Bhieu Loc-Thi Nghe Canal in 2006 - a
project funded by the World Bank. However, this contract was subsequently suspended according to the
director of the Ho Chi Minh City environment project management unit, Phan Hoang Dieu, quoted in a
report by the German Press Agency, DPA. CSCEC was put on the World Bank's list of debarred firms,
which contains companies which are not eligible to bid for World Bank-funded projects. The project ran
into trouble in November 2009. Following delays in the project, CSCEC was given an extension to the
original deadline. However, when the deadline expired in February 2010, the World Bank stated that it
would not approve new funding for the project if CSCEC was the contractor.
Consequently, although CSCEC carried out around 70% of the project, it has now been taken off the
project. The contract was due to be retendered via an international bidding process, with the canal now
due to be finished in 2011. CSCEC was one of seven firms which incurred sanctions by the World Bank
in January 2009, following a collusion scandal in the Philippines. The seven firms, from both China and
the Philippines, were debarred after the World Bank's Integrity Vice Presidency uncovered evidence of a
cartel made up of both local and international firms. According to a press release from the World Bank,
the sanctioned companies 'participated in a collusive scheme designed to establish bid prices at artificial,
non-competitive levels and to deprive the borrower of the benefits of free and open competition'. The
cartel bid for contracts for phase one of the Philippines National Roads Improvement and Management
Program (NRIMP 1). CSCEC was subsequently debarred for five years, expiring January 12 2015. The
move will protect Vietnam's ability to receive funds from the World Bank. The institution has been a
major support to Vietnam's infrastructure sector, helping to finance investments where funding may
otherwise not have been available. In the last five years (2005-2009), the World Bank has granted loans


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Vietnam Freight Transport Report Q3 2010

worth US$4,760mn to Vietnam for projects and US$915mn has already been allocated for 2010.
Infrastructure has received around US$2bn of funding between 2005 and 2009, including energy and
mining.
Vietnam National Shipping Lines (Vinalines) said in March that it was planning to continue its recent
fleet expansion programme with the acquisition of 40 new-build vessels. The purchase is likely to depend
on the government supporting the programme through the provision of state funding. According to
Seatrade Asia, Vinalines was targeting expenditure of US$2bn on new ships, which will be built at
Vietnamese yards. The expansion aims to increase the company's fleet from 2.7mn deadweight tonnes
(DWT) to 6-7mn DWT by 2015. Vinalines is Vietnam's largest commercial shipping line, comprising, in
terms of capacity, about 45% of the country's total fleet. In 2006, the government approved a US$1.8bn
expansion programme to expand the company's fleet to 136 ships or 2.6mn tonnes of capacity by 2010 by
building and purchasing new vessels. The growth of Vietnam's maritime sector coincides with the
expansion of the country's trade network; Vietnam joined the World Trade Association in 2007 and since
then total trade has shown strong growth, expanding by 22.1% and 11.4% y-o-y in 2007 and 2008
respectively before declining by 14.5% in 2009. With a recovery in imports and exports expected in 2010
(forecast at 4% and 5% respectively by BMI), demands on the country's freight transport sector are
expected to increase over the next few years.
The success of the company's latest expansion programme, however, will depend on its ability to source
additional government funding, which, given the country's current economic situation, may prove
difficult. While the state has indicated its intention to promote the growth of its trade sector, it faces
growing pressure to tame public spending in the wake of a rising budget deficit. Strong growth in
consumer spending has stoked imports, and the country's trade deficit is estimated by BMI to have

reached 13.3% of GDP in 2009. In our view, the government is currently prioritising the development of
its infrastructure sector above its shipping fleet, which in terms of size ranks some way below other Asian
states. According to an estimate by law firm Dwayne Morris, government expenditure on infrastructure
will comprise 11% of GDP a year over the next few years. 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. Besides much-needed development of the country's
shipping fleet, BMI believes the expansion would also greatly benefit the country's nascent shipbuilding
sector. The industry, in our view, is well placed for growth given its greater competitiveness against
markets such as Japan and South Korea and a potential US$2bn order would be a significant coup for the
shipyards.
The Vietnam Coal and Mineral Group (Vinacomin), Vietnam National Oil and Gas Group
(PetroVietnam) and Electricity of Vietnam (EVN) were likely to put forward a joint proposal to the

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Vietnamese government to set up a coal import steering committee, it was reported at the beginning of
March. The move is aimed at avoiding coal scarcity in the country which is expected to affect power
generation in the near future. The groups said the usage of coal for power generation purposes is rapidly
increasing in the country. Tran Xuan Hoa, Vinacomin's general director, said that coal demand in
Vietnam is estimated to increase to 11.4mn tonnes in 2010 and 63.2mn tonnes in 2015 and further to
196mn tonnes in 2020. He added that the country needs to import nearly 100mn tonnes of coal by 2020 in
order to meet such huge demand.
In early 2010, Dubai Ports World (DP World) officially opened a new container terminal at the

Vietnamese Port of Saigon. BMI expects Vietnam's ports sector to experience strong growth as
international shipping lines warm to the opportunities presented by the country's growing export sector.
Phase one of DP World's Saigon Premier Container Terminal (SPCT) was completed in October 2009.
The terminal has two berths and 15,000 20-foot equivalent units (TEUs) of storage capacity. The initial
berthing depth at the terminal is 9.5m, allowing it to accommodate ships with a capacity of 4,000TEUs.
Additional dredging is expected to increase the depth at SPCT to 12m by 2015. The terminal is reported
to have cost US$360mn to build, with investment provided by DP World and local operator Tan Thuan
Promotion Company (IPC).
As demand for container shipping increases, Vietnam's port sector continues to attract foreign investors.
Throughput at the country's container ports increased by 500% between 1998 and 2008, which alerted the
government to the need for further investment in the sector to keep up with future demand. The Vietnam
Maritime Administration (Vinamarine), cited by Lloyd's List, has outlined the need for US$20-25bn to be
invested by 2020. Much of this is expected to come from the private sector, and, in particular,
international operators. SPCT follows the inauguration of the country's first deepwater container port at
the Cai Mep terminal complex at Ho Chi Minh City's Saigon New Port, which opened in May 2009. The
deepwater facilities have led to the opening of the first direct shipping routes between Vietnam and the
US west coast.
International shipping lines have been drawn by the opportunities presented by Vietnam's growing
manufacturing sector, while increased trade links between South East Asian states may also see
Vietnamese ports become regional transhipment hubs. BMI expects international investment in Vietnam's
maritime sector to continue to grow over the next few years. We believe significant outside investment
will be necessary if the sector is to raise the US$25bn needed to increase capacity to the levels required to
meet the demands of the country's growing exports sector. BMI's country risk analysts forecast Vietnam's
exports to grow by 5% y-o-y in 2010, after which they are expected to grow by an average of 7.35% a
year between 2011 and 2014.
Vietnam's Prime Minister Nguyen Tan Dung approved the Viet Nam Seaport Development Master Plan
in January 2010, which will require a total investment of VND360-440trn (US$19.5-23.8bn) by 2020.

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The plan aims to increase the transportation capacity of the country by 500-600mn tonnes goods by 2015,
900-1,000mn tonnes by 2020 and 2,100mn tonnes by 2030. The primary focus of the plan will be the
international transit port Van Phong in Khanh Hoa Province, development of the Lach Huyen seaport
complex in Hai Phong, and a seaport at the Nghi Son oil refinery from now to 2015. Though Vietnam has
266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to
transport goods from the port to the rest of the country. The increased traffic levels in Vietnam's urban
areas and the country's general fast-paced economic development have increased the volume of exports
and imports to and from the country, thus creating a pressing need for better infrastructure between ports
and inland. The new master plan will improve the port infrastructure in the country.

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Vietnam Freight Transport Report Q3 2010

Global Oil Products Price Outlook
Driving Slowly
Although products market conditions improved in the first quarter of 2010, the higher prices and wider
refining margins should not be interpreted as the beginnings of a sustained recovery. The absolute
increases in products demand outside key developing countries cannot support improved fundamentals.
Extended refinery downtime on the part of more astute operators has distorted the picture, along with
unusual weather factors. With inventories still alarmingly high, the outlook remains challenging. The rest
of the year is likely to be characterised by continuing stock surpluses and narrow refining margins.

Demand growth, particularly for jet and diesel, needs to be strong and sustained if the products markets
are to stage a convincing recovery. Otherwise, rising crude costs and weak product demand imply more
misery.
Toyota problems aside, the automotive industry faces a tough time ahead as scrappage schemes become a
fond memory. It is unlikely to be a good year in terms of vehicle sales, while existing car, truck and
aeroplane owners will be tempted to use them less thanks to higher fuel costs. Demand destruction seen in
2008 may be about to re-appear as pump prices soar and corporate and consumer incomes remain under
pressure.
The US-based Energy Information Administration (EIA) forecasts that regular-grade gasoline retail prices
will average US$2.92 per gallon during the summer, up from US$2.44/gallon in the equivalent period of
2009. This is an increase of nearly 20% that will anger most motorists and could dampen enthusiasm for
long journeys during the so-called 'driving season'. Those owners of sports utility vehicles (SUVs) who
did not take advantage of 2009's 'cash for clunkers' programme may still want to switch to economic
hybrids or sub-compacts, as the EIA predicts US pump prices exceeding US$3/gallon at times during the
driving season. Summer diesel averaging US$2.97/gallon in 2010 will not please truck drivers either, as
they paid only US$2.46/gallon in the summer of 2009.
The EIA states that, during this summer season, motor gasoline consumption will increase by just 0.5%
over the 2009 level. This modest improvement compares unfavourably with the summer of 2009, which
saw a 0.9% bounce in demand thanks largely to a US$1.37/gallon year-on-year (y-o-y) fall in gasoline
prices. This year's predicted US$0.50 increase may prove conservative, and the demand estimate could
prove optimistic.
Total US gasoline stocks at the onset of the driving season (using April 1 as the start-date) were 224mn
barrels (bbl), according to EIA data. This is 7mn bbl above the April 1 2009 level and 11mn bbl above the
five-year average for the same date. Subdued demand bodes ill for the US inventory trend. US distillate

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inventories are projected to start the summer season at 143.1mn bbl, almost matching 2009's record
143.6mn bbl, and 24mn bbl above the previous five-year average.
US refining margins widened in March, with those on the Gulf Coast averaging almost a dollar more than
the US$5.18/bbl seen in February. In Europe, refining economics also improved compared with earlier
months, and margins for Brent crude in Rotterdam rose from US$2.75/bbl in February to almost
US$3.30/bbl in March. In Asia, refining margins gained more than in the Atlantic Basin, with Singapore
Dubai crude margins soaring from US$1.35 to US$3.73/bbl in March.
April prices and margins appear to be holding up but the return of refining capacity from maintenance
during May could boost supply, and the ongoing addition of Asian capacity could weaken the local as
well as global market. If gasoline demand is subdued in the summer, hampered by ample stocks, we are
likely to see a return to margin misery for most refiners.
Revised Forecasts
BMI estimates that the global wholesale price for premium unleaded gasoline was US$87.61/bbl in
Q110. This compares with US$81.41/bbl in Q409. Gasoline prices in Q110 were up 68% from
US$52.22/bbl in the equivalent period of 2009. For 2010 as a whole the BMI assumption for gasoline is
an average of US$96.83/bbl, with the price expected to peak in July at more than US$105/bbl. We
forecast the overall y-o-y rise in 2010 gasoline prices at 38%.
In Q110 gasoil averaged US$84.12/bbl, based on a composite global price. This represents a y-o-y rise of
almost 54%. For 2010 as a whole we forecast an average price of US$92.45/bbl, probably peaking in
December 2010 at more than US$100/bbl. The full-year outturn represents a 37% increase from the 2009
level.
Jet prices averaged US$86.37/bbl in Q110, using the composite for New York, Singapore and Rotterdam.
The y-o-y increase was just over 52%, with jet lagging behind the gain in gasoil prices. Quarter-onquarter (q-o-q) the Q110 increase was just 3.6%. For full-year 2010 we forecast US$95.58/bbl, up from
US$70.66/bbl in 2009.
In 2009 naphtha was a surprisingly robust performer among the major refined products, gaining 92%
between January and December. In Q110 naphtha averaged US$79.30/bbl, compared with US$73.44/bbl
in Q409 and US$42.83/bbl in Q109. We put the 2010 average naphtha price at US$82.46/bbl, up 39% yo-y. Thanks to the stirring of petrochemicals demand in Asia, naphtha looks set to be the star performer in
2010.


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Vietnam Freight Transport Report Q3 2010

Looking further ahead, we see gasoline prices rising further to US$99.17/bbl in 2011 and stabilising at
around US$105/bbl from 2012. Gasoil is expected to climb to US$94.69/bbl in 2011, reaching a plateau
of just over US$100/bbl from 2012. The price of jet is forecast to average US$97.88/bbl in 2011 before
levelling out at just under US$104/bbl from 2012.

Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl)

Gasoline

Q409

Q110e

Q210f

Q310f

Q410f

Rotterdam premium unleaded

82.09


87.78

102.31

102.95

99.21

NY Harbour unleaded

81.66

86.59

100.46

103.74

102.76

Singapore premium unleaded

80.48

88.45

94.55

100.37


92.83

Global average

81.41

87.61

99.11

102.35

98.27

Rotterdam

80.92

83.77

92.93

97.59

97.82

Mediterranean

81.27


83.81

91.8

96.70

97.26

Singapore

81.79

84.77

90.91

97.82

94.26

Global average

81.33

84.12

91.88

97.37


96.45

Rotterdam

83.40

86.01

96.89

99.86

100.82

NY Harbour

83.90

87.90

96.56

102.92

105.59

Singapore

82.75


85.20

91.50

98.26

95.41

Global average

83.35

86.37

94.98

100.35

100.61

Gasoil

Jet/kerosene

e/f = estimate/forecast. Source: BMI

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Vietnam Freight Transport Report Q3 2010

Table: Oil Product Price Data And Forecasts, 2007-2014 (US$/bbl)

Gasoline

2007

2008

2009

2010f

2011f

2012f

2013f

2014f

Rotterdam premium unleaded

75.75

100.12


70.60

98.06

100.43

106.34

106.34

106.34

NY Harbour unleaded

78.75

102.54

69.70

98.39

100.76

106.69

106.69

106.69


Singapore premium unleaded

74.98

102.64

70.21

94.05

96.32

101.99

101.99

101.99

Global average

76.49

101.77

70.17

96.83

99.17


105.00

105.00

105.00

Rotterdam

77.02

122.62

68.74

93.03

95.27

100.88

100.88

100.88

Mediterranean

77.69

121.75


69.13

92.39

94.62

100.19

100.19

100.19

Singapore

77.03

119.53

69.01

91.94

94.16

99.70

99.70

99.70


Global average

77.24

121.30

68.96

92.45

94.69

100.26

100.26

100.26

Rotterdam

81.13

126.61

70.81

95.89

98.21


103.99

103.99

103.99

NY Harbour

82.48

127.13

71.18

98.24

100.62

106.53

106.53

106.53

Singapore

79.17

121.11


69.99

92.59

94.83

100.40

100.40

100.40

Global average

80.93

124.95

70.66

95.58

97.88

103.64

103.64

103.64


Gasoil

Jet/kerosene

f = BMI forecast. Source: 2000-2006 historical data: EIA. 2007/2008 historical data: IEA

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Vietnam Freight Transport Report Q3 2010

Industry Forecast
Vietnam's strong macroeconomic performance has helped the freight transport industry, but the ride could
get a little bumpy. In BMI's view the country began emerging from recession a little too fast in 2009,
with growing risk of overheating, rising inflation and a widening trade deficit. As a result, we see
something of a ‘double dip’ scenario with fiscal and monetary tightening on the cards. After GDP growth
of 5.5% in 2009, we predict a slower rate of expansion this year, at 4.4%. A key issue will be availability
of inward investment to boost transport infrastructure. The downside is a danger of policy ‘stop-go’ and
political risk in the run up to the 11th National Congress of the Communist Party in January 2011.

Road Freight
Road building is proceeding at a rapid pace, and the number of vehicles in circulation is also expanding
sharply as living standards rise and cities expand across Vietnam. Indeed, it can be argued that a large
part of the country's economic growth is road-based. After a number of years of double-digit growth,
freight carried by road slumped by 8.6% in 2009 to 25.62bntkm. In 2010, we see a moderate recovery of
4.8% to 26.84bntkm. Thereafter, however, road freight growth will gather pace, averaging 6.7% per
annum in the five years to 2014. This rate will exceed the average for GDP growth (5.9%), a pattern
consistent with this stage of Vietnam's industrialisation process.


Air Freight
Vietnam's airfreight industry is recovering modestly against a backdrop of a troubled global aviation
sector, with negative repercussions from the European volcanic ash crisis also playing a part. In Vietnam
the industry is experiencing intense competition, underlined by the launch of a joint venture (JV) backed
by Malaysia-based AirAsia. In terms of air cargo volume, BMI sees growth of 3.7% to 125,320 tonnes
this year, compared to contraction of 6.8% in 2009. Over the 2010-2014 forecast period tonnage growth
will average 5.3%, just below Vietnam’s rate of economic expansion. In terms of freight carried (volume
x distance), we expect to see growth of 3.3% this year to 280.96mntkms, after a fall of 6.2% last year.

Maritime Freight
After suffering two years of falling cargo levels in 2008 and 2009, Saigon New Port (SNP), the country's
largest, is on a recovery phase. Volume slumped 21.2% in 2008 and fell by a further 5.2% to 19.14mn
tonnes last year. As the global trade recovery makes itself felt, BMI forecast 6.2% growth this year to
20.33mn tonnes. Thereafter we see SNP achieving 7-8% annual tonnage growth through the rest of the
forecast period. It will not be until 2013, however, that volumes come back up to 2007 levels. In 2014
SNP should handle 27.69mn tonnes a year. Port of Da Nang (PDN), a smaller facility in central Vietnam,
better suited to ocean-going vessels, has on the whole experienced less volatility. Unlike SNP to the

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south, it suffered only one year of falling cargo levels. Volume handled turned negative in 2009, falling
by a smaller 6.8%. In 2010 we see throughput at PDN up 2.3% to 2.62mn tonnes and the port should see
its volumes growing by 2-3% per annum. By 2014 PDN will move just under 3mn tonnes.


Rail Freight
Rail freight carried fell by an estimated 6.1% in 2009 and in a similar fashion to other transport modes, is
set to experience a partial recovery this year, with growth of 3.2% to 3.907bntkm. Average annual growth
over the next five years will be 4.8%, below overall economic growth. 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
volume terms, freight carried by rail will recover by a modest 4.0% this year to 7.041mn tonnes.

Trade Overview
In recent years, Vietnam has enjoyed strong export led growth but as the internal market gathers pace we
expect overall trade growth to ease down. In real terms, exports and imports combined were growing at
over 20% per annum earlier this decade, but in the global downturn of 2009 they contracted by 14.5%. In
2010, we expect total trade to recover with 5.4% growth, followed by 6.2% expansion in 2011. For the
rest of our forecast period to 2014, however, trade growth will remain in the relatively slower range of 67% per annum. In nominal terms, exports will grow 6.2% this year to US$62.2bn, while imports, held
back by the expected credit and fiscal tightening, will expand by a slower 3.4% to reach US$74.2bn.
Total trade in value terms will be up 4.6% to US$136.3bn.
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.

Table: Air Freight, 2007-2014

Air freight, ‘000 tonnes
– % change y-o-y
Air freight, mn tonnes/km
– % change y-o-y

2007


2008

2009e

2010f

2011f

2012f

2013f

2014f

129.60

129.70

120.90

125.32

131.73

139.11

147.33

156.15


7.28

0.08

-6.78

3.65

5.12

5.60

5.91

5.98

279.90

290.00

271.98

280.96

294.03

309.06

325.79


343.74

3.90

3.61

-6.21

3.30

4.65

5.11

5.42

5.51

e/f = estimate/forecast. Source: General Statistics Office of Vietnam

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