Published by BUSINESS MONITOR INTERNATIONAL LTD

Vietnam
Freight Transport
Report Q4 2009

ISSN: 1750-5364

Including 5-year industry forecasts

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Vietnam Freight Transport
Report Q4 2009

Including 5-year industry forecasts by BMI

Part of BMI’s Industry Survey & Forecasts Series
Published by: Business Monitor International
Publication date: August 2009

Business Monitor International
Mermaid House,
2 Puddle Dock,
London, EC4V 3DS,
UK
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:

© 2009 Business Monitor International.
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Vietnam Freight Transport Report Q4 2009

© Business Monitor International Ltd

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Vietnam Freight Transport Report Q4 2009

CONTENTS
Executive Summary .........................................................................................................................................5
SWOT Analysis.................................................................................................................................................7
Vietnam Road Haulage SWOT............................................................................................................................................................................... 7
Vietnam Political SWOT ........................................................................................................................................................................................ 7
Vietnam Economics SWOT .................................................................................................................................................................................... 8
Vietnam Business Environment SWOT................................................................................................................................................................... 8

Business Environment Ratings ......................................................................................................................9
Table: Asia Pacific Freight Business Environment Ratings................................................................................................................................... 9
Freight Industry Ranking..................................................................................................................................................................................... 10
Transport Intensity Index..................................................................................................................................................................................... 11
Vietnam Logistics Performance Index (LPI)........................................................................................................................................................ 11
Economic Risk Summary...................................................................................................................................................................................... 11
Political Risk Summary........................................................................................................................................................................................ 12

Business Environment Risk Summary .................................................................................................................................................................. 13
Legal Code/Corruption........................................................................................................................................................................................ 13
Red Tape.............................................................................................................................................................................................................. 13
Labour Force....................................................................................................................................................................................................... 14

Industry Trends And Developments ............................................................................................................15
Road .................................................................................................................................................................................................................... 16
Rail ...................................................................................................................................................................................................................... 16
Air........................................................................................................................................................................................................................ 17
Sea ....................................................................................................................................................................................................................... 17

Industry Forecast Scenario ...........................................................................................................................20
Global Oil Products Market Review .................................................................................................................................................................... 20
Table Global Oil Prices, 2003-2013 (US$ per barrel)......................................................................................................................................... 24
Macroeconomic Outlook...................................................................................................................................................................................... 25
Table: Vietnam – Economic Activity, 2006-2013................................................................................................................................................. 28
Transport Outlook ............................................................................................................................................................................................... 29
Table: Transport And Communications Data And Forecasts, 2006-2013 ........................................................................................................... 29
Table: Freight Carried, Domestic, 2006-2013..................................................................................................................................................... 31

Trade Environment.........................................................................................................................................32
Trade Agreements................................................................................................................................................................................................ 32
Tariffs/Non-Tariff Barriers .................................................................................................................................................................................. 32
Table: Value Of Imports By Category, 2006-2013 (US$mn)................................................................................................................................ 33
Table: Value Of Exports By Category, 2005-2013 (US$mn)................................................................................................................................ 34
Table: Top Export Destinations, 2002-2006 (US$mn)......................................................................................................................................... 35
Table: Export Trade, 2003-2006 (% Growth y-o-y)............................................................................................................................................. 36
Table: Import Trade, 2003-2005 (% growth y-o-y).............................................................................................................................................. 36
Table: Top Import Sources, 2002-2006 (US$mn) ................................................................................................................................................ 37


Market Overview.............................................................................................................................................38
Multi-Modal.............................................................................................................................................................................................................. 38
Competitive Landscape: Multi-Modal.................................................................................................................................................................. 38

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Vietnam Freight Transport Report Q4 2009

Road.......................................................................................................................................................................................................................... 41
Infrastructure....................................................................................................................................................................................................... 41
Competitive Landscape: Road ............................................................................................................................................................................. 41
Rail ........................................................................................................................................................................................................................... 45
Infrastructure....................................................................................................................................................................................................... 45
Competitive Landscape: Rail ............................................................................................................................................................................... 45
Air............................................................................................................................................................................................................................. 47
Infrastructure....................................................................................................................................................................................................... 47
Competitive Landscape: Aviation ........................................................................................................................................................................ 47
Company Profile: Vietnam Airlines ..................................................................................................................................................................... 51
Water ........................................................................................................................................................................................................................ 53
Infrastructure....................................................................................................................................................................................................... 53
Competitive Landscape: Maritime....................................................................................................................................................................... 54
Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) ........................................................................................................................... 59
Table: Vietnam Petroleum Transport’s Key Financial Data................................................................................................................................ 60
Company Profile: Doan Xa Port.......................................................................................................................................................................... 61
Table: Doan Xa Port’s Financial Performance ................................................................................................................................................... 62
Pipelines ................................................................................................................................................................................................................... 63
Competitive Landscape........................................................................................................................................................................................ 63


Country Snapshot: Vietnam Demographic Data .........................................................................................64
Section 1: Population........................................................................................................................................................................................... 64
Table: Demographic Indicators, 2005-2030........................................................................................................................................................ 64
Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 65
Section 2: Education And Healthcare.................................................................................................................................................................. 65
Table: Education, 2002-2005 .............................................................................................................................................................................. 65
Table: Vital Statistics, 2005-2030........................................................................................................................................................................ 65
Section 3: Labour Market And Spending Power .................................................................................................................................................. 66
Table: Employment Indicators, 1999-2004.......................................................................................................................................................... 66
Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................ 66

BMI Forecast Modelling .................................................................................................................................67
How We Generate Our Industry Forecasts .......................................................................................................................................................... 67
Transport Industry ............................................................................................................................................................................................... 67
Sources ..................................................................................................................................................................................................................... 68

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Vietnam Freight Transport Report Q4 2009

Executive Summary
According to reports in early June, foreign investors have once again raised concerns about Vietnam's
infrastructure. Rapid economic growth is placing a heavy burden on existing infrastructure, and
investments, tangled in red tape and regulatory obstacles, have not been able to keep pace. The latest
concerns were raised during a conference in Ho Chi Minh City, organised by the International Finance
Corporation and the Vietnamese Planning and Investment Agency. The country's port infrastructure was

once again in the spotlight, with foreign investors urging the government to invest not just in creating
maritime hubs, but also in creating a better intermodal transport system to move cargo to and from the
ports. The chairman of the American Chamber of Commerce said that delays in construction of
supporting infrastructure for ports was also a key issue that hindered operations and raised costs,
IntellAsia reported. One example of the latter point is the delay in the development of roads around ports
in Ba Ria-Vung Tau province in South Vietnam. This has in turn caused delays in the construction and
commencement of operations of the country's new ports. Vietnam still has a cost advantage against China
when it comes to manufacturing wages, but much FDI flow is still diverted to southern China because it is
much easier to get input goods to factories and finished goods out owing to China's superior
infrastructure.
Taking this and other developments such as the downturn in the global economy into consideration,
BMI’s newly released Vietnam Freight Transport Report concludes that shipping traffic will increase by
an annual average of 4.2% in 2009-2013, measured in tonnes per km. A number of factors underpin this
forecast. One is sharpness of the contraction in international trade this year: Vietnam’s trade will fall by
13.9%. Pulling in the opposite direction however is the still-realistic prospect of a long, export-led boom
in Vietnam. Annual GDP growth is likely to average 6.5% in 2009-2013, only a little slower than the
7.8% rate achieved in the preceding five-year period.
Our overall outlook for the nascent freight transport industry across the different modes is bullish despite
the recession. Although the next two years will be tough, air freight will grow by an annual average of
7.9% over the next five years. In road haulage, we have trimmed our forecast to take account of the
economic slowdown, but we still see turnover running ahead of the general rate of economic expansion in
Vietnam. We see road freight growing by an annual average of 7.9% over the next five years, followed
closely by pipeline throughput (7.5%), rail (7.0%), and maritime freight (4.2%, as already mentioned).
Full World Trade Organization (WTO) membership, achieved in early 2007, can be seen as supportive of
greater freight transport turnover relative to GDP across all modes, particularly so for shipping. We now
expect total freight carried growth across all modes, measured in million tonne-km (mntkm), to average
5.0% per annum in 2009-2013.

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Vietnam Freight Transport Report Q4 2009

Under BMI’s freight transport rating system, Vietnam achieves a composite score of 54.3 out of a
potential maximum of 100. Vietnam’s stronger points are freight growth, transport infrastructure growth
and the transport intensity index, which measures the dynamism of the country’s foreign trade. BMI
views Vietnam as being weaker in the other four categories: economic and political long-term risks, and
the country’s regulatory and competitive environment (corruption is a particular problem).
According to our latest estimates, the total value of transport and communications GDP will rise to
US$6.7bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP.

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Vietnam Freight Transport Report Q4 2009

SWOT Analysis
Vietnam Road Haulage SWOT

Strengths

ƒ 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

Weaknesses


ƒ 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. Construction of the second north-south highway
may be a waste of resources given the pressing need for improvement of secondary
roads

Opportunities

ƒ The beginnings of local commercial vehicle production, which will help improve the
stock of lorries used by road haulage companies

Threats

ƒ The attractiveness of other modes of freight transport, particularly inland waterways
and coastal shipping. If progress towards a better-integrated national road network is
too slow, freight growth will divert away from the trucking industry

Vietnam Political SWOT

Strengths

ƒ The Communist Party government appears committed to the market-oriented reforms
necessary to double 2000’s GDP per capita by 2010, as targeted. The one-party
system is generally conducive to short-term political stability
ƒ Relations with the US are generally improving and Washington sees Hanoi as a
potential geopolitical ally in South East Asia

Weaknesses

ƒ Corruption among government officials poses a major threat to the legitimacy of the

ruling Communist Party
ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership’s tight
control over political dissent

Opportunities

ƒ The government recognises the threat that corruption poses to its legitimacy and has
acted to clamp down on graft among party officials
ƒ Vietnam has allowed legislators to become more vocal in criticising government
policies. This is opening up opportunities for more checks and balances within the oneparty system

Threats

ƒ Vietnamese dissidents are seeking external help, especially from the US. This could
complicate Vietnam-US relations, with Washington having criticised Hanoi over its
restrictions on religious freedom
ƒ 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

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Vietnam Freight Transport Report Q4 2009

Vietnam Economics SWOT

Strengths


ƒ Vietnam has been one of the fastest-growing economies in Asia in recent years,
averaging growth of 8.0% a year
ƒ 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

Weaknesses

ƒ Vietnam suffers from substantial trade, current account and fiscal deficits, leaving the
economy vulnerable to external shocks. The fiscal picture is clouded by considerable
‘off-the-books’ spending
ƒ The heavily managed and weak dong currency reduces incentives to improve the
quality of exports, and also serves to keep import costs high, thus contributing to
inflationary pressures

Opportunities

ƒ WTO membership has given Vietnam access to both foreign markets and capital,
while making Vietnamese enterprises stronger through increased competition
ƒ The government will continue to move forward with market reforms, including
privatisation of the state-owned enterprises sector and liberalising the 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

Threats

ƒ Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government fails to curb inflation, it risks prolonging
macroeconomic instability, which could lead to a potential crisis
ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on

hold, as they struggle to stabilise the economy

Vietnam Business Environment SWOT

Strengths

ƒ Vietnam has a large, skilled and low-cost workforce that has made the country
attractive to foreign investors
ƒ 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

Weaknesses

ƒ 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
ƒ Vietnam remains one of the world’s most corrupt countries. Its score in Transparency
International’s 2008 Corruption Perceptions Index was 2.7, lower than the regional
average of 4.6

Opportunities

ƒ Vietnam is attracting investment from key Asian economies, such as Japan, South
Korea and Taiwan. This offers possibility of transfer of high-tech skills and know-how
ƒ 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

Threats

ƒ Ongoing trade disputes with the US and the general threat of American protectionism,
which will remain a concern

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

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Vietnam Freight Transport Report Q4 2009

Business Environment Ratings
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
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).

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
ranking

Hong Kong

60.0

81.0

70.5


70.0

74.7

72.8

71.2

1

Australia

42.5

90.1

66.3

75.0

82.2

79.3

70.2

2

India


67.5

61.0

64.2

60.0

55.8

57.5

62.2

3

China

80.0

38.3

59.1

60.0

66.5

63.9


60.6

4

Singapore

50.0

74.3

62.1

80.0

39.4

55.6

60.2

5

Indonesia

40.0

71.3

55.7


50.0

65.4

59.2

56.7

6

Japan

47.5

54.4

51.0

75.0

63.5

68.1

56.1

7

Vietnam


45.0

64.3

54.6

55.0

52.5

53.5

54.3

8

Thailand

40.0

59.2

49.6

55.0

58.1

56.8


51.8

9

South Korea

45.0

46.4

45.3

60.0

62.5

61.5

50.2

10

Taiwan

47.5

35.6

41.6


65.0

74.2

70.5

50.2

11

Philippines

40.0

41.1

40.5

50.0

72.6

63.6

47.4

12

Pakistan


50.0

47.6

48.8

55.0

35.0

43.0

47.1

13

Malaysia

40.0

31.6

35.8

60.0

68.8

65.3


44.6

14

Scores out of 100, with 100 highest. Source: BMI

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Vietnam Freight Transport Report Q4 2009

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 Ranking
Our overall freight transport rating for Vietnam stands at 54.3 (out of a theoretical maximum score of
100). This is composed of a score of 54.6 for potential returns (reflecting factors such as market size,
growth and the competitive environment), which gets a 70% weighting, and a lower score of 53.5 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 13.8% in 2004-2008
and, according to our projections, will decelerate to an annual average of 5.0% in 2009-2013.
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 under way 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
more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive
markets.

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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 2004 through to 2013. As such, it is a mix of actual performance (the
five-year 2004-2008 period) and projected performance (2009-2013). In Vietnam’s case, actual average
annual trade growth in 2004-2008 was a very strong 27.6%, which in our projections will ease
substantially to 5.8% per annum in 2009-2013. The annual average across the 10 years as a whole is

16.7%.

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.

Economic Risk Summary
Bad Debt Ratio Rising
The State Bank of Vietnam (SBV) stated on July 20 that the banking sector had registered an increase in
bad debt to 2.52% of total loans at the end of June, compared with 2.17% at the end of 2008. However,
we believe the true rate of non-performing loans, using international standards could be considerably
higher. Moreover, we believe the bad debt ratio is also disguised by the rapid increase in credit growth
since the government extended its interest-rate subsidy programme in April. The SBV has reported a

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cumulative loan growth of 17% in H109, putting the government's 25% credit growth target for 2009 as a
whole in danger.
Long-Term Risk
The 3.1% y-o-y expansion in Q109 was the lowest on record, but more recent macroeconomic data
suggest that the government and central bank's stimulus measures are now gaining traction. We thus
acknowledge upside risks to our 2.9% growth forecast for 2009, but refrain from an upward revision due
to the still precarious state of the global economy. On the political front, the economic downturn has not
yet seen any material repercussions, but we have nevertheless decided to lower our short-term political
risk ratings on the back of high inflation and rising unemployment undermining public acceptance of oneparty rule. Meanwhile, regional tensions have risen due to China's more assertive claims for sovereignty
in the South China Sea.
We maintain our below-consensus 2.9% GDP growth forecast for 2009, but are now acknowledging
upside risks to this forecast. This is due to strong fiscal and monetary stimulus bolstering domestic
demand, and a weaker dong softening the contraction in external demand. With global economic
conditions expected to improve slightly in 2010, we maintain our 5.0% growth forecast for next year. We
also maintain our expectation that the government will stepwise depreciate the dong towards
VND19,000/US$ by the end of the year. However, this carries risks to macroeconomic stability as public
confidence in the dong has been impaired by expectation of higher inflation and speculation about a
devaluation.

Political Risk Summary
Religious Rights an Obstacle
We believe that Hanoi's stern position on limiting religious freedom will continue to weigh on USVietnamese relations after 14 people were detained following a clash with police preventing them from
rebuilding a church in the city of Dong Hoi in central Vietnam on July 22. The incident follows an appeal
by 37 US senators for Hanoi to free Nguyen Van Ly, a catholic priest and political dissident, given an

eight-year prison sentence in March 2007 for spreading propaganda against one-party rule. While not
creating any serious dissonance, we believe the government's repression of Catholics may prevent closer
cooperation to check China's growing naval influence in the South China Sea.
Long-Term Risk
The crackdown on trade union activists, bloggers and other political dissidents has left little doubt that the
Communist Party of Vietnam has no intention of moving towards increasing political freedom.
Nonetheless, the widening cracks in the government's monopoly on information remain a long-term threat
to one-party rule. This has been particularly evident in Hanoi's efforts to silence domestic criticism of
China, which has risen due to a controversial Chinese investment in bauxite mining in the central

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highlands. However, while Chinese investment into the extractive sector is likely to remain a contentious
issue in the short term, we believe that economic integration carries the key to improved Sino-Vietnamese
relations over the longer term.

Business Environment Risk Summary
The sharp deterioration in economic conditions both domestically and globally has prompted the
Vietnamese government to shift its attention from economic reforms to devising measures to support
growth in the short term in the face of slumping global demand. Only 73 out of a planned 262 stateowned enterprises (SOEs) were equitised, i.e. transformed into shareholder-owned companies, in 2008,
and initial public offerings of SOEs like Bao Viet have been unsuccessful, largely due to the high pricing
of shares. While continued delays in the equitisation process are expected, we are not expecting any shift
in the government's economic reform agenda, which will continue to support economic activity.
Airport Upgrade Approved
Prime Minister Nguyen Tan Dung has approved a plan to upgrade Cam Ranh domestic airport, near Nha

Trang in central Vietnam, to an international airport with an investment of US$600mn. The airport's
capacity will be enhanced to handle 5.5mn passengers and 100,000 tonnes of cargo annually. The
government also plans to further increase annual capacity to 8mn passengers and 200,000 tonnes of cargo
by 2030. The upgraded airport will include an area of more than 650 hectares and will be used for both
civil and military purposes.

Legal Code/Corruption
Legal Code
Vietnam’s judicial system is based on communist legal theory and the French civil law system.
Corruption
Vietnam has a bad record on transparency. The state was ranked 121st (out of 180) in Transparency
International’s Corruption Perceptions Index in 2008, with a score of 2.7.

Red Tape
Vietnam compares favourably with its regional peers in terms of bureaucracy, and about the same as
developed states. According to World Bank data, 28 separate procedures are required to enforce a
contract, which takes an average of 120 days. The East Asia and Pacific average is 24 and 193,
respectively, while the process involves 18 procedures and 213 days in high-income OECD states.

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Conversely, World Bank data state that it takes 11 procedures and 56 days to start a business in Vietnam,
compared with an average of nine and 61 in East Asia and Pacific and six and 25 in high-income OECD
states.


Labour Force
Size
Reliable data on the labour force in Vietnam are difficult to find. However, it is estimated that the
working age population in the country is 42.1mn, approximately 61% of the total. An estimated 10.2mn
live in urban areas, with the remaining 31.9mn in rural areas. ‘Technically skilled workers’ form an
estimated force of 8.84mn, accounting for 20.99% of the total. The south-east region has the highest rate
of skilled workers (30.13%), followed by the Red River delta (27.99%) and Coastal South Central
(20.85%). The lowest rate was reported in the north-west region.
Education
The adult male illiteracy rate was estimated at 4% for males and 9% for females in 2000, with the youth
illiteracy rate 3% for both genders.
Regulation
The Vietnam labour force is comparatively heavily regulated, according to World Bank’s Employment
Laws Index. Its score of 56 indicates that regulations are tighter than the East Asia and Pacific average,
and a bit tighter than OECD high-income states. Disaggregating the data, the regulations for hiring
workers are looser than those for firing workers, with scores of 43 and 48, respectively, the combination
of which suggests a more regulated workforce than regional peers.
Issues
Fears of growing unemployment and rising social unrest in the cities is slowing down the reform of
SOEs. The SOEs are an inefficient and loss-making legacy of a different era, and would have gone
bankrupt a long time ago if the market had had its way. However, the fear of creating mass
unemployment in the cities by laying off surplus labour has prevented meaningful reform. As a result, the
SOEs continue to crowd out the more productive private sector, while adding to the government’s fiscal
woes by forcing the state to absorb their losses.

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Industry Trends And Developments
According to reports in early June, foreign investors have once again raised concerns about Vietnam's
infrastructure. Rapid economic growth is placing a heavy burden on existing infrastructure, and
investments, tangled in red tape and regulatory obstacles, have not been able to keep pace. The latest
concerns were raised during a conference in Ho Chi Minh City, organised by the International Finance
Corporation and the Vietnamese Planning and Investment Agency. The country's port infrastructure was
once again in the spotlight, with foreign investors urging the government to invest not just in creating
maritime hubs, but also in creating a better intermodal transport system to move cargo to and from the
ports. The chairman of the American Chamber of Commerce said that delays in construction of
supporting infrastructure for ports was also a key issue that hindered operations and raised costs,
IntellAsia reported. One example of the latter point is the delay in the development of roads around ports
in Ba Ria-Vung Tau province in South Vietnam. This has in turn caused delays in the construction and
commencement of operations of the country's new ports. Vietnam still has a cost advantage against China
when it comes to manufacturing wages, but much FDI flow is still diverted to southern China because it is
much easier to get input goods to factories and finished goods out due to China's superior infrastructure.
In another conference organised by the Asian Development Bank in February 2009 called 'Strengthening
Public Private Partnerships For Infrastructure Investments In Vietnam', a core theme among the
participants was the absence of an enabling institutional and regulatory/legal environment, which hinders
the proliferation of PPPs. Law firm Duane Morris identified four main reasons behind the limited
participation of the private sector in infrastructure in Vietnam. First, the weak governance structures of
the state-owned companies that dominate the construction and utilities sectors; second, difficulty in
accessing domestic capital; third, projects can experience delays due to the weak regulatory environment,
which can prove to be costly; and finally the support of the government is often uncertain. In BMI's
global Business Environment Ratings, Vietnam's score in terms of Infrastructure is 37.2 out of 100, below
the regional average of 41.6.
Vietnam added to its growing status as a major international trading power after announcing it would cut
import tariffs on a variety of goods in order to meet World Trade Organisation (WTO) regulations.
According to the Journal of Commerce (JOC), the East Asian country will reduce tariffs on a number of

imported items until the end of 2009. The Vietnamese government is reported to already have agreed to
reduce import duties on more than 10,000 goods by approximately 4% from 2009-2013 as part of the
conditions of the country becoming a WTO member in 2007. BMI views the agreement as a further sign
of Vietnam's growing status as a major trading power. Furthermore, the decision to relax import
restrictions may be based on the government's acknowledgement of the country's growing exports sector,
which BMI predicts will outpace the growth in imports in real terms from 2010. Since joining the WTO,
BMI notes that Vietnam has made significant strides in improving its trade links, particularly its links
with Western import markets. The most significant single development has been the construction of the

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country's first deepwater container port at the Cai Mep terminal complex at Ho Chi Minh City's Saigon
New Port which was officially inaugurated in May 2009. The facility has opened up direct container
shipping links with the United States with major container lines APL and Mitsui O.S.K. Lines Ltd
(MOL) becoming the first carriers to offer direct services between Vietnam and the US. APL President
Eng Aik Meng said the new service represented 'a new era for trade with Vietnam and marks its increased
importance as a manufacturing and export centre'. BMI notes that while Vietnam's port infrastructure is
still relatively underdeveloped when compared with other major Asian export nations, continuing
developments within the nation's port sector are expected to ease congestion in coming years following
the implementation of a US$4.5bn government port investment programme. We believe that, following
APL's endorsement, other major liners will look to increase direct services between Vietnam and western
consumer markets. This is expected to offer a considerable boost to the country's export sector, providing
an outlet for the Vietnam's growing manufacturing industry.

Road

Vietnam's Ministry of Transport began work on a 121km-long expressway connecting Ninh Binh
province to Nghi Son, in Thanh Hoa province, on June 16, reported VNBusinessNews. The construction
of the expressway is part of a programme to upgrade the North-South national road. Total investment in
the project is forecast to be VND32trn (US$1.9bn). 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 should be noted that in the past 10 years, large-scale projects have been
implemented and more are under way or in the pipeline; therefore, the ratio of paved to unpaved is
arguably looking better. Vietnam's Ministry of Transport and Communications disclosed estimates that it
will require close to US$60bn to 2020 to fund road infrastructure projects.
The Hanoi city People's Committee is to invest VND881.6bn (US$50.9mn) in a project to upgrade the 1A
National Highway, from Ngoc Hoi to Cau Gie, in Thuong Tin dist and Phu Xuyen district, according to a
report in IntellAsia in June. Hanoi Department of Transportation has been given the responsibility to carry
out the project as part of its mandate to develop the transportation network, and upgrade the route
capacity. The roads and ports sectors are seeing the greatest level of activity in transport infrastructure,
with the government funnelling public funds and loans from multilateral institutions for their
development. 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.

Rail
The Railroad Management Board Region 2 in Vietnam announced in June that the project for upgrading
the railroad between Vinh-Nha Trang would be officially launched in Q309, according to IntellAsia. The

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upgrade on the railroad, with a total length of 700kms, is expected to cost VND4trn (US$231.8mn). 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 is expecting financial assistance from China as well as other international sources to develop a
128.5km long railway line from Ho Chi Minh City to the Cambodian border. A China-based consulting
group was scheduled to submit a feasibility study to the Vietnam Railway Department by the end of June
2009. Construction was set to begin in 2010. Linking the railways of the South East Asia is part of the
ASEAN rail link and the Trans-Asian rail projects. An efficient transport network is vital to any emerging
economy, and will assist countries such as Cambodia and Vietnam in continuing the impressive economic
growth rates that they have posted in recent years.
A memorandum of understanding (MoU) has been signed between the Vietnam Railway Department and
an associated company of China National Machinery Import & Export Corp (CMC) and China
Railway Construction Corp Limited (CRCC) to survey and assess the urban railway line No 1 from
Nam Thang Long to Lang Hoa Lac in Hanoi, Vietnam. Under the terms of the MoU, the CMC-CRCC
associated company will provide a report on the viability of the project and China's commitment to the
Vietnam Railway Department. Vietnam's poor infrastructure has always been a hindrance for investors,
and the government is making efforts to overhaul its roads, railways, airports and ports to address the
problem. Vietnam's transport infrastructure has received attention and investments throughout the
country. Major cross-country and domestic projects have been announced and they are either in planning
stages or under construction, but most are expected to come on stream before 2015.

Air
The prime minister of Vietnam, Nguyễn Tấn Dũng, has given the go-ahead for the planned VND10.52trn
(US$0.59bn) upgrade for Cam Ranh International Airport, reports IntellAsia. The upgrade will enable the
airport to handle 27 aircraft during peak hours, and to receive 5.5mn passengers and nearly 100,000
tonnes of commodities per year by 2020. Vietnam's airports have been one of the focuses of the country's
upgrade plans for its transport infrastructure. In May, the Vietnamese Government gave approval to a
master zoning plan, drawn up by the Ministry of Transport, which proposes the development of 10
international airports across the nation, reports Asia Pulse. The plan proposes both the expansion of the

current airports and construction of new airports.

Sea
According to Thanh Nien Daily in the second half of July, state-owned Vietnam National Shipping
Lines (Vinalines) is to build the first two wharves of the deep-water port at Van Phong Bay in the central

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province of Khanh Hoa. The company will begin building in October 2009 as a part of a project to
develop the international transshipment port, primarily to serve Asian trade. The two berths will have the
capacity to handle vessels of up to 9,000 twenty-foot equivalent units (TEUs). Vinalines will further
develop the other berths with the capacity to handle ships between 12,000 and 15,000 TEUs. Cargonews
Asia reports that the new International Transshipment Port of Van Phong will have between 36 and 42
berths. The Ministry of Transport's Vinamarine International Co-operation Department stressed the
country's port sector requires significant investment if it is to keep pace with wider economic
development.
Dubai-based port operator Dubai Ports World (DP World) was to launch the Saigon Premier Container
Terminal (SPCT) on October 1 2009. The terminal is a joint venture between DP World and Tan Thuan
Industrial Promotion Company (IPC) and is on the Soai Rap River near Ho Chi Minh City, Vietnam.
SPCT will provide services to Ho Chi Minh City and the surrounding industrial zone area. SPCT will
have a capacity of 800,000TEUs annually, increasing to 1.5mn TEUs after the completion of the second
phase. DP World has become one of the world's largest port operating companies. Focusing on the
container business, the company owns 45 terminals and 13 new developments in 29 countries. Its capacity
stands at 54mn TEUs and is expected to increase to around 90mn TEUs by 2017, when the new terminals
are ready.

Building for the second phase of the Cai Cui seaport project in Vietnam's Can Tho city began after an
inaugural ceremony by Prime Minister Nguyen Tan Dung on July 11 2009. The prime minister said that
once fully operational, the port would cut transportation costs in the Mekong delta and would help reduce
congestion at the Saigon port. The second phase, worth VND600bn (US$34mn), includes 500m of
wharves, modern handling facilities and a logistic area. BMI notes that while Vietnam's port
infrastructure is still relatively underdeveloped compared with other major Asian export nations,
continuing developments within the nation's port sector are expected to ease congestion in years to come.
PricewaterhouseCoopers (PWC) executive director for south east Asian infrastructure is quoted in the
Saigon Times saying, 'Vietnam will need to increase the levels of infrastructure investment at twice the
growth rate of GDP to increase its overall national competitiveness'.
The CKYH Alliance said it would begin a direct service between Vietnam and the US East Coast from
mid-August 2009. The alliance will start by adding Ho Chi Minh City to its current AWE-4 (All Waters
East Coast-4) service, managed by Kawasaki Kisen Kaisha (K-Line). It is considered to be the first
direct service from Ho Chi Minh City to Norfolk and New York. Alliance members include Coscon, KLine, Yang Ming and Hanjin Shipping Company. Industry observers believe the service will reduce
transit time and provide easier access to and from Vietnam. This will possibly result in improving profit
levels. We predict Vietnam's export sector will become one of the strongest in the region, despite a
projected decline in 2009.

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South Korea's Hanjin Shipping Company has announced in June the launch of a new service, the SJX
(Southeast and Japan Express), from June 21 2009. The new service would connect South East Asia and
Japan with the US west coast, and included a direct call at the new deepwater port in Ho Chi Minh City,
Vietnam. The service will use six vessels, each with a capacity of 4,000TEUs. Industry observers believe
the new service will prove a more economical option for customers, as it will reduce the cargo transit

time. Moreover, the service will also increase the company's coverage of key ports in Asia and the US.
We forecast that Vietnam's export sector will become one of the strongest in the region, despite a
projected decline in 2009.
Vietnam commenced operations of its first deep-water port, SP-PSA Port, on May 29 2009, with the
arrival of the container ship APL Alexandrite. The port is a joint venture between Saigon Port and PSA
Singapore, with a capacity of 2.2mn twenty-foot equivalent units (TEUs). The ship, with a 3,821TEU
capacity, is a part of the first direct service between Vietnam and the US. We predict Vietnam's export
sector to become one of the strongest in the region, despite a projected decline in 2009. As Western
consumer demand recovers from 2010, we forecast Vietnam's exports to grow by an average of 7.1%
year-on-year (y-o-y) over our 2010-2013 forecast period. BMI predicts that Vietnam's exports and
imports will reach US$79.3bn and US$86.5bn respectively by 2013, with an average annual trade growth
of 3.8% over our 2009-2013 forecast period.

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Industry Forecast Scenario
Global Oil Products Market Review
Spinning The Wheels
As a barometer for current and future products demand, the world’s autos industry continues to be a cause
of great concern, in spite of government initiatives that have stabilised the situation. The industry is now
just spinning its wheels while waiting for the recession to end and consumer activity to recover.
European car sales rose in June for the first time in 14 months as government-backed incentives boosted
demand at Volkswagen (VW) and Fiat in particular. New-car registrations increased by 2.4% to 1.46mn
vehicles, the first monthly gain since April 2008, according to the Brussels-based European Automobile
Manufacturers’ Association (EAMA). Sales for the first six months of 2009 fell by 11% to 7.43mn cars.

State scrappage incentives, topped by Germany's EUR2,500 bonus for car buyers who trade in old
vehicles, have favoured sales of smaller models. So-called ‘premium’ carmakers are not benefiting on the
same scale.
European deliveries by VW rose by 9.5% to 312,302 cars. Meanwhile, Turin-based Fiat recorded a 12%
gain, selling 125,640 vehicles in the region. Germany led the June expansion, with a 41% sales surge,
reflecting the generous terms of its incentives. The French market grew by 7%, while Italy advanced by
12%. Central and Eastern European demand continued to contract, declining by 25% in June and 27% for
the first half of the year as a whole.
Registrations for Mercedes-Benz slipped by 1.4% to 61,530 vehicles. BMW’s European sales fell 13%
to 60,454 cars. VW’s Audi unit bucked the trend among premium brands, achieving a 5.8% gain to
62,639 cars and sports utility vehicles (SUVs).
However, a July 2009 report in the Wall Street Journal suggested that European car sales may slump in
2010 after scrappage programmes come to an end. Analysts quoted suggest that EU car plants will have
an excess capacity of 7.2mn vehicles in 2010.
The French government plans a gradual phase-out of its EUR1,000 car sales incentive, which had been
due to expire at the end of 2009, a report in Les Echos stated, citing industry minister Christian Estrosi.
While the scrappage bonus cannot be ‘maintained indefinitely’, the government is working on a phased
withdrawal, Estrosi was quoted as saying. Renault’s CEO Carlos Ghosn said in July that the expiry of
state-backed incentives in France and elsewhere threatened to offset any improvement in demand and
prevent a European sales recovery in 2010.

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In the US, it has been predicted that autos sales probably will rise to an annual rate of more than 10mn in
H209 as fleet operators finally replace their ageing vehicles. Purchases in the first half of the year were

abnormally low by historical standards. Fleet purchases, along with the federal government’s scrappage
programme, may push the annual rate to more than 9.9mn, the highest in any month so far this year. Sales
of cars and light trucks in 2008 totalled 13.2mn.
General Motors and Chrysler, which have both left bankruptcy, need a 10mn annual sales rate to break
even, according to the US government. Fleet sales can account for as many as 3mn vehicles annually.
However, rental-car companies such as Hertz have been keeping vehicles longer.
Dean Maki, chief US economist at Barclays Capital, is among those predicting that automakers will
crank up production to meet demand spurred by the scrappage programme. A rebound in the industry’s
output would help pull the economy out of the recession, he said.
Nissan expects Japanese sales to improve in July, helped by government incentives. Under a government
programme beginning on June 19, consumers can apply for a JPY250,000 subsidy if they scrap a car that
is more than 13 years old to buy a new one and for JPY100,000 for a new car purchase without scrapping
an old one.
Chinese car sales have begun to pick up, after the earlier slump. VW, which is the biggest overseas
carmaker in the country, boosted first-half sales in China by 23% after a government stimulus package
helped spur demand. Sales to consumers jumped to 652,222 units. The overall passenger car market
(excluding minivans), grew 22% from a year earlier. China is on course to pass the US as the world’s
largest auto market in 2009, after the government halved retail taxes on small cars and gave out subsidies
in rural areas to help revive flagging demand.
Demand In The Doldrums
The downturn continued through the second quarter. In May, OECD oil products consumption fell by an
estimated 7.4% year-on-year (y-o-y). Europe, Asian OECD states and North America registered losses for
the 13th consecutive month. The Pacific region suffered particularly badly, with a decline in demand of
more than 11%, in spite of greater gasoline usage. North America's 8.1% fall was spread across all
product groups. Europe fared better by comparison, with a 4.3% reduction in May demand.
According to the International Energy Agency (IEA)’s July 2009 report, preliminary weekly data for the
US showed an 8.1% y-o-y fall in June demand. All product categories bar residual fuel oil saw losses,
scaring the bulls and undermining belief in the country's economic recovery. The weakness in diesel
demand (-13.4% y-o-y) is particularly worrying, as it is a barometer of underlying economic activity.


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According to the American Petroleum Institute (API), US demand for crude oil and petroleum products
declined by 5.4% y-o-y during June. Total petroleum product deliveries, excluding exports, averaged
18.61mn barrels per day (b/d), down 1.07mn b/d from a year ago, the API said in its monthly oil report.
Demand fell by 6% to 18.75mn b/d in the first half of 2009, the lowest level for the six-month period in
more than 10 years.
The downturn is having the greatest impact on distillate demand, with industrial and transportation use of
diesel hit particularly hard. The situation for jet is no better, and gasoil consumption is sufficiently weak
to see inventories in OECD Europe above the five-year average. In fact, Europe is storing up trouble with
a glut of middle distillates. Much of an estimated 50mn bbl of products in floating storage is reportedly
sitting offshore Europe. This bodes ill for prices over the next few months.
False Dawn For Gasoline
Bullish market observers will have been alarmed by the apparent absence of the seasonal upturn in US
gasoline demand. Given that gasoline prices soared in June thanks to hopes of a good driving season, the
market must now be very concerned about the likely trend for the rest of the summer. For a second year in
a row, the US driving season either petered out early, or never got going at all. Gasoline demand actually
fell by an estimated 1.5% y-o-y in June, early July data are not encouraging and the US-based American
Automobile Association (AAA) expects a drop in vehicle miles travelled (VMT).
Gasoline prices took off in June, stirring hopes that it would be a strong US driving season. By 22 June,
the average US regular gasoline price had reached US$2.69 per gallon. At the beginning of the quarter the
average price was US$2.04/gallon, so there had been an increase of almost one-third to the June peak. In
mid-July, the price had fallen for the third week in a row, dropping to US$2.53/gallon. A year earlier it
was US$4.12, but drivers did not respond by tackling long journeys. Prices decreased throughout the
country, with the biggest drop seen in the Midwest.

During Q209 BMI estimates that the global wholesale price for premium unleaded gasoline was
US$69.89/bbl. Gasoline prices in Q209 were down from US$127.92 in the equivalent period of 2008 (45.4%). Fore the third quarter of the year we forecast an average global gasoline price of US$63.70/bbl.
For the whole of 2009, the BMI assumption is an average US$62.12/bbl. The overall y-o-y fall in 2009
gasoline prices is 40.0%.
Jet Jitters
In July the International Air Transport Association (IATA) reversed its rather optimistic prediction from
the previous month that declines in the demand for air travel may have bottomed. It said that the May
2009 decline in the number of people flying was the biggest monthly fall for the year so far. Confidence
has slipped among IATA members, and many carriers do not expect conditions to improve until the end
of the year at the earliest. In its quarterly business confidence survey, the IATA reported that passenger

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travel numbers in May fell 9.2% during the month. All airlines surveyed were suffering through pricing
declines, with half saying they expect yields to fall further this year.
The cutting of fuel surcharges, the impact of swine flu and the downgrading to economy class have all
contributed to airline misery, but the primary concern has been a glut of excess capacity. Capacity cuts
have come at about half the rate of the declining traffic trend, putting pressure on prices, IATA said. The
number of passengers flying on premium tickets fell by 23.6% y-o-y in May 2009, according to the
IATA. That follows a 22% decline in April. Meanwhile, the number of passengers flying economy fell
7.6%, after growing 0.3% in April.
Premium traffic in the North Atlantic was down by 16.5% in May y-o-y. Travel across the North and
mid-Pacific was down by 30.7%, and travel in Europe was down 30.6%. Q2 losses at the eight biggest US
airlines may be US$1.2bn, said Michael Linenberg, a Bank of America analyst in New York. Jet fuel
prices climbed by 32% in the quarter, although the US$1.59/gallon average was down 58% y-o-y.

According to the API, US jet fuel demand in June plunged by 19.4% y-o-y to 1.31mn b/d.
Jet prices averaged US$66.87/bbl in Q209, using the composite for New York, Singapore and Rotterdam.
The annual decrease was 57.3%, and the monthly low during the first half was US$53.75 in February
2009, with the price reaching US$77.19/bbl in June 2009. For Q309 we are assuming an average global
jet price of US$67.65. For 2009, the annual level is forecast to be US$65.17/bbl. This compares with
US$124.95/bbl in 2008.
Diesel Drifts
In the US, mid-July diesel prices were almost 47% below the all-time high seen a year earlier, averaging
US$2.54/gallon against US$4.76 in July 2008. Prices had fallen for the third successive week, with
declines seen in every region but the biggest drop taking place on the West Coast. US diesel’s low point
was in mid-March 2009, at US$2.02/gallon. The year’s high of US$2.62 was reached during the week of
June 22, a rise of almost 30% from the low point. June US deliveries of distillates, which include heating
oil and diesel, declined by 279,000b/d (-7.4%) to 3.48mn b/d, according to API data.
Overall oil product demand in Europe during May fell by 4.3% y-o-y, with diesel down 3.6%, according
to IEA data. In France, diesel demand contracted sharply and registered a 4.7% fall in May. The European
gasoil market was expected to come under increased pressure in July on the back of huge export flows
from the US and Russia.
Gasoil in Q209 averaged US$65.37/bbl, based on a composite global price. Our revised Q309 forecast is
for global gasoil at an average US$ 68.45/bbl, a 51.2% y-o-y decline. For 2009 as a whole, the BMI
forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December.

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Table Global Oil Prices, 2003-2013 (US$ per barrel)


2003

2004

2005

2006

2007

2008

2009f

2010f

2011f

2012f

2013f

OPEC basket

28.10

36.05

50.64


61.08

69.08

94.08

55.00

60.00

65.00

70.00

70.00

WTI

31.06

41.49

56.59

66.02

72.26

99.56


57.51

62.74

67.97

73.20

73.20

Brent

28.83

38.27

54.52

65.14

72.52

96.99

56.29

61.42

66.53


71.65

71.65

Urals

27.04

34.50

50.87

61.35

69.51

94.49

55.55

60.61

65.66

70.71

70.71

Dubai


26.76

33.69

49.54

61.52

68.37

93.56

55.60

60.66

65.72

70.77

70.77

f = forecast. Source: BMI

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