Q4 2011

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VietnaM

freight transport Report
INCLUDES BMI'S FORECASTS

ISSN 1750-5364
Published by Business Monitor International Ltd.


VIETNAM
FREIGHT TRANSPORT
REPORT Q4 2011
INCLUDES 5-YEAR FORECASTS TO 2015

Part of BMI’s Industry Survey & Forecasts Series
Published by: Business Monitor International
Copy deadline: August 2011

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Vietnam Freight Transport Report Q4 2011

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Vietnam Freight Transport Report Q4 2011


CONTENTS
CONTENTS ........................................................................................................................................................ 3
Executive Summary ......................................................................................................................................... 5
Headline Industry Data.......................................................................................................................................................................................... 5
Key Industry Trends ............................................................................................................................................................................................... 5

SWOT Analysis ................................................................................................................................................. 7
Vietnam Freight Transport Industry SWOT ........................................................................................................................................................... 7
Vietnam Political SWOT ........................................................................................................................................................................................ 8
Vietnam Economic SWOT ...................................................................................................................................................................................... 9
Vietnam Business Environment SWOT................................................................................................................................................................. 10

Industry Trends and Developments ............................................................................................................. 11
Air ........................................................................................................................................................................................................................ 11
Maritime .............................................................................................................................................................................................................. 11
Intermodal and Logistics ..................................................................................................................................................................................... 14

Market Overview ............................................................................................................................................. 16
Global Oil Products Price Outlook ............................................................................................................... 18
Table: Oil Product Price Assumptions, 2011 (Us$/Bbl) ...................................................................................................................................... 19
Table: Oil Product Price Forecasts, 2011-2015 (Us$/Bbl).................................................................................................................................. 21

Industry Forecast ........................................................................................................................................... 22
Macroeconomic Outlook...................................................................................................................................................................................... 22
Road Freight ........................................................................................................................................................................................................ 22
Table: Road Freight, 2008-2015.......................................................................................................................................................................... 22
Rail Freight ......................................................................................................................................................................................................... 23
Table: Rail Freight, 2008-2015 ........................................................................................................................................................................... 23
Air Freight ........................................................................................................................................................................................................... 23
Table: Air Freight, 2008-2015 ............................................................................................................................................................................. 23

Maritime and Inland Waterways.......................................................................................................................................................................... 24
Table: Maritime Freight - Throughput, 2008-2015 ('000 tonnes) ........................................................................................................................ 24
Table: Inland Waterway Freight, 2008-2015 ....................................................................................................................................................... 25
Trade ................................................................................................................................................................................................................... 25
Table: Trade Overview, 2008-2015 ..................................................................................................................................................................... 25
Table: Key Trade Indicators, 2008-2015 ............................................................................................................................................................. 26
Table: Vietnam's Main Import Partners, 2002-2009 (US$mn) ............................................................................................................................ 27
Table: Vietnam's Main Export Partners, 2002-2009 (US$mn) ............................................................................................................................ 27

Political Outlook ............................................................................................................................................. 28
Foreign Policy ..................................................................................................................................................................................................... 28
Domestic Politics ................................................................................................................................................................................................. 29
Long-Term Political Outlook ............................................................................................................................................................................... 31

Macroeconomics Outlook ............................................................................................................................. 34
Table: Vietnam - Economic Activity, 2008-2015.................................................................................................................................................. 36

Company Profiles ........................................................................................................................................... 37
Vietnam Airlines Cargo ....................................................................................................................................................................................... 37
Vinatrans ............................................................................................................................................................................................................. 39
Vietnam National Shipping Lines (Vinalines) ...................................................................................................................................................... 41
Vietnam Petroleum Transport Company (VIPCO)............................................................................................................................................... 43

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Vietnam Freight Transport Report Q4 2011


BMI Methodology ........................................................................................................................................... 44
How We Generate Our Industry Forecasts .......................................................................................................................................................... 44
Transport Industry ............................................................................................................................................................................................... 44
Sources ..................................................................................................................................................................................................................... 45

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Vietnam Freight Transport Report Q4 2011

Executive Summary
We have maintained our forecast for Vietnam's freight transport sector in 2011 and see this sector
performing well over the mid-term to 2015. Our overall view has two major components: a background of
high single-digit economic growth on the one hand (albeit at a slower rate than in 2010), while on the
other hand there are and some disparities in the pace of expansion of freight capacity by transport mode.
The pace of expansion is detrimentally affected by the infrastructure in the country, highlighted by the
fact that construction work on the Van Phong International Port has been stalled indefinitely and that BMI
believes Vietnam's ports need to begin accommodating mega vessels to maximise opportunities.
In terms of year-on-year (y-o-y) growth, road freight will lead the way in Vietnam in
2011 recording a growth rate of 6.88%, equating to 36.84bn tonnes per kilometre (bntkm). Rail freight
carried will grow 4.72%, although officials admit that this sector is plagued by insufficient track and
signalling. The air freight sector will also perform well this year, recording 5.3% growth in tonnage
carried, more than double the rate achieved in 2010. Inland waterways will see 4.34% growth in 2011 in
terms of tonnage carried, down slightly on last year.

Headline Industry Data
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Rail freight carried will increase by 4.72% in 2011 to 3.89bn tonnes/km

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Air freight tonnage will grow by 5.3% this year to 147,910 tonnes

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The real value of total trade will rise by 11.3% this year, with exports gaining 11.0%, behind
import growth of 11.6%

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Total volume handled at the Port of Ho Chi Minh City will rise 7.45% to 33.45mn tonnes in
2011, while volumes at the Port of Da Nang will rise 2.76% to 3.39mn tonnes.

Key Industry Trends
Air France-KLM Cargo's Asia Expansion Strategy Flying High - In June 2011, Air France-KLM Cargo
established a new connection between Vietnam and France, underlining the fact that airfreight links
between Vietnam and Europe are increasing - a phenomenon we also note in the shipping sector.
Van Phong Port Suspension Highlights Weakness In Business Environment - Work at the US$3.6bn Van
Phong International Port in the southern central province of Khanh Hoa has been suspended with no
indication of a resumption date due to, we believe, the escalating cost of capital in Vietnam, the lack of
proper planning for projects which lead to slow execution, and the lack of regulatory maturity in the
country's business environment.

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Vietnam Freight Transport Report Q4 2011

Vietnam Needs To Dig Deeper To Accommodate Mega Vessels - The projected increase in trade will
require Vietnam's ports to undertake considerable investment going forward. BMI believes that despite
recent large-scale foreign investment in the sector, further spending on port modernisation is needed if
Vietnam is to take full advantage of increasing trade and a particularly pressing issue, in the age of
increasingly large container vessels, is port depth.
Key Risks to Outlook
On the downside, although Vietnam's real GDP growth figure came in slightly better than expected at
5.7% y-o-y in Q211, we expect economic activity to continue to moderate in H211, and we see this as a
positive sign that government efforts to iron out macroeconomic imbalances in the economy remain on
track. Despite incipient evidence of a narrowing trade deficit, we warn that global economic headwinds
remain a downside risk to external demand. Accordingly, we are projecting real GDP growth to remain
subdued at 6.3% for 2011 (below the government's target of 6.5%), but we remain optimistic that we
could see a pickup in growth towards 7.2% in 2012.

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Vietnam Freight Transport Report Q4 2011

SWOT Analysis
Vietnam Freight Transport Industry SWOT

Strengths

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Weaknesses

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Opportunities

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Threats

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Vietnam's strong domestic growth rate coupled with its geography: a long country
stretching for thousands of kilometres on a north-south axis creates a need for longdistance freight haulage.
Recovery of the nation's ports in 2010 is expected to continue over the mid-term to
2015.
Vietnam's location on the South China Sea gives the country access to the main interAsian shipping routes, as well as access to the developing land transport links with
ASEAN countries, allowing the country scope to develop its trade logistics.
The generally poor state of the road network. Despite new highway construction, only

13.5% of the road network is considered to be in good condition, only 26% has two or
more lanes and only 29% is tarred.
Traditionally low investment in rail; although attempts are being made to rectify this,
the potential of rail for cost-effective bulk freight is being under-utilised.
Decades of under-investment have left the country with a port infrastructure system
that is poor by international standards.
The beginnings of local commercial vehicle production, which will help improve the
stock of lorries used by road haulage companies.
Chinese investment could bring about much needed improvements in the rail sector.
Growing international interest in Vietnam as a growth market within the box shipping
sector.
Vietnam risks losing out to neighbouring countries if it can't develop its infrastructure
to keep up with the pace of demand.
Vietnam is vulnerable to any slowdown in Chinese investment.
A drop in international demand for exports would negatively effect Vietnam's freight
transport sector.

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Vietnam Political SWOT

Strengths

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Weaknesses

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Opportunities

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Threats

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The Communist Party of Vietnam remains committed to market-oriented reforms and
we do not expect major shifts in policy direction over the next five years. The oneparty system is generally conducive to short-term political stability.
Relations with the US have witnessed a marked improvement, and Washington sees
Hanoi as a potential geopolitical ally in South East Asia.
Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party.
There is increasing (albeit still limited) public dissatisfaction with the leadership's tight
control over political dissent.
The government recognises the threat that corruption poses to its legitimacy, and has
acted to clamp down on graft among party officials.

Vietnam has allowed legislators to become more vocal in criticising government
policies. This is opening up opportunities for more checks and balances within the
one-party system.
Macroeconomic instabilities in 2010 and 2011 are likely to weigh on public acceptance
of the one-party system, and street demonstrations to protest economic conditions
could develop into a full-on challenge of undemocractic rule.
Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably be
unsustainable.
Relations with China have deteriorated over recent years due to Beijing's more
assertive stance over disputed islands in the South China Sea and domestic criticism
of a large Chinese investment into a bauxite mining project in the central highlands,
which could potentially cause widescale environmental damage.

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Vietnam Economic SWOT

Strengths

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Weaknesses


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Opportunities

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Threats

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Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.2% annually between 2000 and 2010.
The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20% in 2004.
Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving
the economy vulnerable to global economic uncertainties in 2011. The fiscal deficit is
dominated by substantial spending on social subsidies that could be difficult to
withdraw.
The heavily-managed and weak dong currency reduces incentives to improve quality
of exports, and also serves to keep import costs high, thus contributing to inflationary
pressures.
WTO membership has given Vietnam access to both foreign markets and capital,
while making Vietnamese enterprises stronger through increased competition.

The government will in spite of the current macroeconomic woes, continue to move
forward with market reforms, including privatisation of state-owned enterprises, and
liberalising the banking sector.
Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban
population to rise from 29% of the population to more than 50% by the early 2040s.
Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic instability,
which could lead to a potential crisis.
Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold, as they struggle to stabilise the economy.

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Vietnam Business Environment SWOT

Strengths

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Weaknesses

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Opportunities

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Threats

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Vietnam has a large, skilled and low-cost workforce, that has made the country
attractive to foreign investors.
Vietnam's location - its proximity to China and South East Asia, and its good sea links
- makes it a good base for foreign companies to export to the rest of Asia, and
beyond.
Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.
Vietnam remains one of the world's most corrupt countries. Its score in Transparency
International's 2010 Corruption Perceptions Index was 2.7, placing it in 22nd place in
the Asia-Pacific region.
Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
skills and knowhow.
Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This should offer foreign investors new entry
points.
Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern.

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

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Industry Trends and Developments
Air
Air France-KLM Cargo's Asia Expansion Strategy Flying High
Air France-KLM Cargo continued its Asia expansion drive by launching a new connection between
Vietnam and France in June 2011. Airfreight links between Vietnam and Europe are increasing - a
phenomenon we also note in the shipping sector - with ports of call in Vietnam becoming a regular
occurrence on Asia-Europe routes.
Air France-KLM Cargo will operate a twice-weekly freighter flight between Paris and Hanoi from June
12 2011. Boeing 777 Freighters will operate on the route. The new route marks a continuation of Air
France-KLM Cargo's Asia-focused strategy. Earlier this year the company launched a thrice-weekly
service to Phnom Penh in Cambodia via Bangkok and a thrice-weekly service connecting Amsterdam
with China's Xiamen. The Hanoi connection marks Air France-KLM Cargo's second Vietnam freighter
route, with the air carrier already offering thrice-weekly flights from Paris to Ho Chi Minh City.
The company's interest in linking France and Vietnam is understandable. Trade levels between the states
have increased by 151.8% in 1999-2009. French exports to Vietnam even weathered the global decline in
2009, increasing by 4.2% year-on-year (y-o-y).
BMI notes a trend of airfreight operators launching links between Vietnam and Europe, which in our
view is connected to Vietnam's development into the factory of Asia. In March 2011 Jade Cargo launched
an airfreight link between Vietnam and Amsterdam. Lufthansa Cargo has been operating a Frankfurt
Hanoi freighter flight for two years and Vietnam Airlines is looking into linking Hanoi with Paris,

Moscow and Frankfurt from late June 2011.
The increase in routes to Vietnam is great news for the country's airfreight volumes, and indicates that
BMI's predications are on course to be realised. We project that Vietnam's airfreight levels will increase
by 5.25% y-o-y in 2011 to 147,910mn tonnes. Over the mid term (2011-2015), we project air cargo levels
to increase by 33.5% to 187,560 tonnes.
The trend of increasing connection between Vietnam and Europe is not confined to the airfreight sector.
BMI has been highlighting the growing inclusion of Vietnamese ports on Asia-Europe container services,
as the country takes on a greater role in global trade.

Maritime
Van Phong Port Suspension Highlights Weakness In Business Environment
Construction work on the US$3.6bn Van Phong International Port in Vietnam's southern central province
of Khanh Hoa has been suspended with no indication of a resumption date. BMI believes this delay is due

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to the escalating cost of capital in Vietnam, the lack of proper planning for projects which lead to slow
execution, and the lack of regulatory maturity in the country's business environment.
The Van Phong port project, which is primarily constructed by state-owned Vietnam National Shipping
Lines (Vinalines), was suspended because of a reassessment of the geological conditions at the project
site. Initial explorative drilling did not sufficiently study the site's geology, resulting in inconsistencies in
pile design during the construction phase. According to Tran Huu Chieu, deputy general director of
Vinalines, there are only 114 steel columns driven in the project site - 6% of the total number of columns
needed - and many of them are higher than the required five to eight metres.
At present, Vinalines has asked the project designer - a joint venture (JV) between Japan-based Nippon

Koei and Vietnam-based Portcoast - to conduct the reassessment and resolve the issue. However, Chieu
added that the Portcoast is delaying the revision for the project because Vinalines refused to pay an
advance to Portcoast.
In addition to the geological reassessment, Vinalines has been ordered by the Ministry of Transport to
report on the project delay and identify the responsible parties. The port will only resume construction
once the government has made a decision, which is likely to be based on the report and the outcome of
the geological study.
BMI believes that there are three reasons for the project's current predicament. Firstly, based on media
reports, it appears that Vinalines is suggesting that the delay in revising the project is due to the designer ie, Portcoast. However, according to Portcoast, the company believes that the height of the steel columns
is not a major problem, as the excess length can be sawed off.

Whether or not there is a delay in payment or a demand for an advance, we believe that Vinalines'
unwillingness to provide capital could be because of the escalating cost of financing infrastructure
projects in Vietnam. According to Reuters, lending rates for businesses in Vietnam are as high as 22-27%,
the highest since 2008. This has made it exceedingly costly for large-scale projects to raise capital,
which has led to potential delays in project implementation.
Secondly, we believe that this exposure to the current high cost of financing is a result of a lack of proper
planning for the Van Phong project. Since the start of construction in October 2009, the design for the
port project has seen constant changes. The port was originally designed to handle container ships of
6,000 twenty-foot equivalent units (TEU), but this changed to 8,000TEU. The current plan for the project
is now 9,000TEU, but Vinalines has received government approval to change the port design to handle
12,000TEU and 15,000TEU container ships. This lack of proper planning appears to be a systematic
problem in Vietnam's business environment. According to a Khanh Hoa People's Committee report, the
Van Phong Economic Zone, which the port is expected to service, has attracted 101 projects, but only 16
of these projects have come into full operation.

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Lastly, we believe that there is a lack of regulatory maturity in Vietnam's business environment. This
error at the feasibility study stage highlights a lack of checks and balances to even ensure that large-scale
projects - the Van Phong port is estimated to cost US$3.6bn - are scrutinised carefully before
implementation. It further reinforces our view that Vietnam is one of the more risky markets in the Asia
Pacific region for infrastructure investment, due to its weak legal framework.
Regardless of the outcome, we believe that this delay is a negative signal to investors and highlights the
greater risks involved when investing in Vietnam's infrastructure as compared with other countries in the
Asia Pacific region.
BMI's business environment ratings show that risks in Vietnam's infrastructure sector are higher than the
regional average, where a lower score indicates greater risks. Furthermore, given the scale of the Van
Phong project, this could have a negative impact on Vietnam's economy given the importance of
sustained investment into Vietnam's port infrastructure towards economic growth (see 'Japanese
Investment In Lach Hyuen Port Highlights Sector's Importance', April 6 2011).
Vietnam Needs to Dig Deeper to Accommodate Mega Vessels
BMI maintains the view that Vietnam's ports need considerable investment if they are to handle a
projected increase in trade. Despite recent large-scale foreign investment in the sector, further spending
on port modernisation is needed if Vietnam is to take full advantage of increasing trade. A particularly
pressing issue, in the age of increasingly large container vessels, is port depth. Recognising the need to
cater for bigger vessels, Vietnam's prime minister has directed the country's ministry of transport and its
Maritime Administration to focus on developing deep water ports. A channel depth of about 14m is
required for non-tide restricted access for vessels with capacity of up to 8,000TEUs.
Many of Vietnam's ports have depths of just 12m. To remedy this Vietnam is to develop more deep water
ports to allow the country to ship goods directly to destination markets instead of transshipping through
Singapore, Malaysia and South Korea. Priority will be given to the Lach Huyen port complex in the
northern city of Hai Phong, and to Cai Mep and Ben Dinh port complexes in the southern province of Ba
Ria-Vung Tau in the next five years. In mid-March 2011 the country's first deep-water container port, Tan
Cang Cai Mep, in Ba Ria-Vung Tau, was commissioned, allowing direct shipments of goods to US and

Europe and cutting journey times by between seven and 10 days.
Malcolm Gregory, Cai Mep International Terminal (CMIT)'s chief commercial officer, concurs with our
view that vessel sizes have been increasing at a rate that has outpaced even recent port developments. He
told delegates at the Fourth Annual Vietnam Ports and Logistics Conference that 'sufficient access
channel depth will be one of the primary determining factors of which facilities cater to which segments
of Vietnam's container trade'. He said: 'long-haul transpacific and Europe trades... will continue to
migrate to the new deepwater terminals as newer, larger vessels come into service, so there is a very real
need for capacity and capability expansion.'

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BMI notes that Cai Mep's volumes have been increasing rapidly. The port, which was barely dented by
the global downturn, currently has 14 direct calls, up from zero two years ago, with further growth
expected as European direct services migrate from transshipment services via Singapore and Malaysia to
direct services from Cai Mep.
Vietnam's growing importance in the global container shipping sector is shown by the growth in box
throughput at the country's ports over the last decade. In 2009 (latest available data), total container
throughput at the country's ports reached 5.4mn TEUs, up 487% from 919,264TEUs in 1999. Year-onyear (y-o-y) container throughput growth averaged 20% over this period, with the port sector still posting
y-o-y volume increases in 2009, despite the global downturn in trade. This rapid growth has highlighted
the failings in the country's infrastructure.
BMI welcomes the government's push for deeper ports as the country's exports continue to increase. With
a rating of 3.56 in the World Economic Forum's 2010 Global Competitiveness Report, Vietnam's
infrastructure trails well behind regional leaders Singapore and Hong Kong. It comes just ahead of the
Philippines, with a rating of 2.92. BMI expects box throughput to continue its rapid growth, buoyed by a
favourable economic climate. In 2009 Vietnam's real GDP continued to grow, despite the downturn, and

in 2010 GDP increased by 6.8% y-o-y. BMI predicts continued growth in Vietnam's imports and exports,
averaging 16.2% and 16.5% over our forecast period to 2015.
DHL Global Forwarding Rolls Out New LCL Service
In July 2011 DHL Global Forwarding, a division of German logistics company DHL, rolled out its new
direct less-than-container-load (LCL) service between Ho Chi Minh City in Vietnam and Hong Kong.
The weekly service will be operated by DHL's in-house carrier Danmar Lines, and will cut down on
transit time and allow Vietnamese companies to access 12 major trading ports in North America and 11 in
North Asia. Vietnam is projected to become the fastest growing emerging economy by 2025, with a
potential annual growth rate of almost 10%.

Intermodal and Logistics
New Warehouse Opens In Binh Duong
In June 2011, Damco strengthened its Vietnamese network with the opening of a new 26,000km2
distribution centre in Binh Duong, some 30km from the capital Ho Chi Minh City. Designed to make the
most of growing national and international volumes, the facility is strategically located to make the most
of road transport links and it also serves the Cat Lai and Cai Mep ports.
Speaking on the development, Narin Phol, country manager for Damco in Vietnam and Cambodia, said:
'With this new facility, our customers will have greater flexibility in managing fluctuations in demand for
warehousing. The distribution centre will operate as an integrated logistics centre offering multipurpose
warehousing, a humidity-controlled environment, access to inland container depots and barge
connectivity.

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'It is also our vision to develop this facility into an international consolidation hub, linking the Indochina

region through our cross-border solutions.'

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Market Overview
In January 2007 Vietnam officially joined the WTO, an event seen as an important milestone in the
country's closer integration into the global economy. WTO membership has helped boost Vietnam's
international trade and develop its freight transport capabilities.
Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for
freight, with a market share of around 60% of domestic cargo. There are over 1,050 enterprises registered
in the road transport business, which include 16 state-owned enterprises (SOEs), 233 limited liability
companies, 350 private companies and 450 joint stock companies. Very few foreign-backed companies
are present.
Most road transport companies are of small or medium size, and each company, on average, owns about
50 vehicles. In addition, tens of thousands of individual household businesses exist that operate
informally in the road freight sector, and are thus difficult to account for and monitor.
Vietnam has a national road network of 222,179km. Of this, only 42,167km, or 19%, is paved. In
addition, recent surveys indicate that approximately 40% of the network is in poor to very poor condition
and will require substantial investment even to reach a maintainable condition. The quality of Vietnam's
road infrastructure was judged by the World Economic Forum (WEF) to be poor and was ranked 102 out
133 nations surveyed in the WEF 2010 Global Competitiveness Report.
Vietnam's railway transport sector has only one operator, the Vietnam Railway Corporation (VRC),
established in April 2003 as a state corporation operating railway transport and related services. The
government has announced plans to separate the management of rail infrastructure from passenger and
cargo services. Vietnam's rail network totals 2,600km (excluding sidings). The network is mixed-gauge,

comprising 2,169km of 1.000m gauge and 178km of 1.435m gauge. The network has 1,790 bridges
totalling 45km and 11.5km of tunnels. The principal axis is Hanoi-Ho Chi Minh City (1,726km). Other
lines emanating from Hanoi are to Hai Phong (102km), Lao Cai (296km) and Dong Dang (162km).
Railway infrastructure in Vietnam was ranked 58 out of 114 by the WEF.
There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines. Both are
majority state owned, although Australia's Qantas is now a minority shareholder in Pacific Airlines. The
government has announced plans to build the country's largest airport at Long Thanh in the southern
province of Dong Nai, at an estimated cost of US$8bn. The authorities also plan to expand Noi Bai
International airport in Hanoi. The three major airports handling freight are located at Ho Chi Minh City,
Hanoi and Da Nang, each of which have international connecting flights. Minor airports such as Cat Bi at
Haiphong are generally used for domestic flights to the three larger hubs. In 2010, Vietnam's air transport
infrastructure was ranked 84/ 133 nations by the WEF.

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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. 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 of 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 to and from ports, due to traffic congestion. Except for several
new or upgraded ports, most have been operating for many years and lack investment and are seriously
degraded.
The loading and unloading equipment in some ports is obsolete, leading to low productivity. The average
productivity of a Vietnamese port is only 2,500 tonnes/m per wharf, or 40-50% of productivity of other
ports in the region.
Vietnam's port infrastructure is poor by international standards. The World Economic Forum's 2010
Global Competitiveness Report gives it a score of 3.56, putting it just ahead of the regional
underperformer, the Philippines, which scores 2.92, and well behind regional leaders Singapore and Hong
Kong. Increasing international interest in Vietnam's port sector on the back of growing intra-Asia trade
should help to close the gaps in infrastructure investment.

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Global Oil Products Price Outlook
After The Party
The oil market has seen few more turbulent periods than the first half of 2011. With the oil price buffeted
into the air by the outbreak of military conflict in Libya, and the bulls on the rampage over fears of
contagion to the rest of the Middle East, H111 saw oil product prices hitting two-year highs. Like any
party, however, nagging feelings that such excess was unhealthy kept on recurring, with the signs of
demand destruction becoming clear by the end of Q1. As the year wore on, the euphoric optimism about
prices began to wear off as demand remained weak, prompting a sudden slip in product prices in early
May.

Lightening Doesn't Strike Twice

Singapore Oil Product Prices, August 2004-August 2011 (US$/bbl)

Source: Bloomberg

These first signs of a hangover emerging were crystallised by the International Energy Agency (IEA)'s
May 2011 Oil Market Report, in which the Paris-based club slashed its oil consumption forecasts due to
weak economic data and the persistent high prices. At the time, end-user prices in IEA member states had
risen for the fifth successive month. Year-on-year (y-o-y), gasoline prices were up 35% while diesel had
risen by 40%. Heating oil and low-sulphur fuel oil had climbed by 40% and 41% respectively. Month-onmonth prices also soared, with Germany witnessing the biggest increase in gasoline prices of 12% and the
UK's diesel prices growing by 6.2%.
US gasoline prices also rose steadily throughout the early part of 2011, from US$109.83 per barrel (bbl)
in January to US$140/bbl in April. Prices were supported by lower inventories and refining outages
which reduced supply, while gasoline imports from Europe fell as European refiners cut volumes on

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Vietnam Freight Transport Report Q4 2011

sustained high Brent crude prices. Prices were also supported by a build-up in demand towards the start of
the peak summer driving season, starting at the end of May. Despite a slight retreat from the peak of
around US$170/bbl, these prices have proved too high for many motorists, with clear signs of demand
destruction emerging during driving season.

Table: Oil Product Price Assumptions, 2011 (Us$/Bbl)

Q111


Q211e

Q311f

Q411f

Rotterdam Premium Unleaded

110.58

130.33

123.11

103.83

NY Harbour Unleaded

115.13

129.96

119.35

115.37

Singapore Premium Unleaded

113.06


127.40

119.88

108.01

Global average

112.92

129.23

120.78

109.07

Rotterdam

122.09

134.76

127.57

108.97

NY Harbour

123.89


135.91

122.28

107.61

Singapore

120.66

133.23

123.80

110.97

Global average

122.21

134.63

124.55

109.19

Rotterdam

117.13


129.87

122.04

102.46

Singapore

118.69

133.23

128.51

107.46

Global average

117.91

131.55

125.27

104.96

Rotterdam

100.15


112.76

113.70

98.50

Singapore

104.67

111.86

106.28

95.38

Global average

102.41

112.31

109.99

96.94

Gasoline

Jet/kerosene


Gasoil/diesel

Naphtha

e/f = estimate/forecast. Source: BMI

Motorists were not the only oil product consumers unhappy with the higher prices of H111. Year-on-year
air freight traffic growth slowed throughout the first half of 2011, turning negative in May on weak
demand in Asia, Africa, and most OECD countries. The International Air Transport Association (IATA)
estimates that fuel had already increased from 13% of airline operating costs in 2001 to 30% by 2010.
With European jet/kerosene prices in Rotterdam averaging US$140/bbl in April, further pain was piled on
the airline industry, although the sharp drop off in May prices brought some relief.
At present, the EIA is forecasting an increase in regular-grade gasoline retail prices from US$2.78 per
gallon in 2010 to US$3.60 in 2011 (+29%), with a further increase to US$3.67 in 2012. On-highway
diesel fuel retail prices, which averaged US$2.99/gallon in 2010, are predicted to be US$3.87 in 2011 and

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Vietnam Freight Transport Report Q4 2011

US$3.95 in 2012. As well as the impact of sustained high crude oil prices on these price projections, the
EIA also expects refining margins to widen in 2011, from US$0.34/gallon on gasoline in 2010 to
US$0.47/gallon in 2011, with diesel margins rising from US$0.38/gallon to US$0.44/gallon.
Revised Forecasts
During Q211, BMI estimates that the global wholesale price for premium unleaded gasoline was
US$129.23/bbl. This compares with US$112.92 in the previous quarter of 2011.
Gasoline prices in Q211 were up 16.4% from US$87.95/bbl in the equivalent period of 2010. For Q311,

we are currently assuming a global unleaded price of US$120.78/bbl, representing a 6.5% drop from the
estimated Q2 level and a y-o-y rise of 42.2%. For the whole of 2011, the BMI calculation for gasoline is
an average US$116.19/bbl. The overall y-o-y rise in 2011 gasoline prices is put at 31.5%.

Still Uncomfortable Levels
Product Price Forecasts, Q111-Q411 (US$/bbl)

e/f = estimate/forecast. Historical data source: IEA; forecasts: BMI

Gasoil in Q211 averaged an estimated US$131.55/bbl, based on a BMI-calculated composite global
price. This represents a y-o-y rise of 46.6% over Q210. For 2011 as a whole we are currently assuming a
global gasoil price of US$121.34/bbl, based on weaker prices in H211 counteracting the bullish trend
earlier in the year. The full-year outturn nevertheless represents a 35.8% increase on 2010 levels.
Jet prices also saw significant increases in Q211 on the back of higher oil prices, rising from an average
of US$122.21/bbl in Q111 to US$134.63. Prices in Q211 were significantly higher than a year earlier,
increasing by 48.2%. BMI is currently forecasting a 2011 average global price of US$119.62.

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Vietnam Freight Transport Report Q4 2011

BMI currently expects naphtha to average US$105.41/bbl over the course of 2011, due to a dip back
below US$100/bbl in Q4. After a rapid run up in prices from US$102.41/bbl in Q1 to an estimated
US$112.31/bbl in Q2, we see a gradual fall-back to US$109.99 in Q3.
Looking further ahead, we see gasoline prices falling to US$109.99/bbl in 2012, before dropping to a
more stable level of US$105.48/bbl in 2012. Gasoil prices will recover somewhat from Q411 levels of
US$104.96/bbl to average US$112.16/bbl in 2012, with longer-term prices likely to average

US$106.32/bbl. Jet/Kerosene should witness a gentler landing, dropping from US$107.79/bbl in 2012 to
US$106.99/bbl in 2013, while naphtha should fall from US$105.90/bbl in 2012 to US$100.39/bbl in
2013.

Table: Oil Product Price Forecasts, 2011-2015 (Us$/Bbl)

2011

2012

2013

2014

2015

Rotterdam Premium Unleaded

116.96

113.70

107.77

107.77

107.77

NY Harbour Unleaded


114.53

105.25

103.42

103.42

103.42

Singapore Premium Unleaded

117.09

111.02

105.26

105.26

105.26

Global average

116.19

109.99

105.48


105.48

105.48

Rotterdam

114.27

100.47

105.99

105.99

105.99

NY Harbour

122.42

109.88

107.81

107.81

107.81

Singapore


122.17

113.03

107.16

107.16

107.16

Global average

119.62

107.79

106.99

106.99

106.99

Rotterdam

117.88

112.02

106.18


106.18

106.18

Singapore

124.80

112.30

106.47

106.47

106.47

Global average

121.34

112.16

106.32

106.32

106.32

Rotterdam


106.28

112.44

106.57

106.57

106.57

Singapore

104.55

99.36

94.21

94.21

94.21

Global average

105.41

105.90

100.39


100.39

100.39

Gasoline

Jet/kerosene

Gasoil/diesel

Naphtha

e/f = estimate/forecast. Historical data source: IEA; forecasts: BMI

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Vietnam Freight Transport Report Q4 2011

Industry Forecast
Macroeconomic Outlook
Slightly Slower Growth In 2011
The real GDP growth figure for Vietnam came in slightly better than expected at 5.7% year-on-year (y-oy) in Q211. However, we expect economic activity to continue to moderate in H211, and we see this as a
positive sign that government efforts to iron out macroeconomic imbalances in the economy remain on
track. Despite incipient evidence of a narrowing trade deficit, we warn that global economic headwinds
remain a downside risk to external demand. Accordingly, we are projecting real GDP growth to remain
subdued at 6.3% for 2011 (below the government's target of 6.5%), but we remain optimistic that we
could see a pickup in growth towards 7.2% in 2012.

As far as political risk is concerned, territorial disputes in the South China Sea between Vietnam and
China sparked anti-China demonstrations in Vietnam in June 2011, and we see increasing risks that Hanoi
may be pressured to take a tougher stance against Beijing in an attempt to ease public unrest. Meanwhile,
the lack of a credible third party to facilitate a compromise between both parties in order to agree on a
resolution means that bilateral relations should remain heated in the medium term.

Road Freight
High Single Digit Growth In the Mid Term
BMI is maintaining its forecasts for road haulage over the medium term, to 2015. The year 2011 will see
slower growth than 12 months previous, at 6.88%, equating to 36.84bn tonnes per kilometre (bntkm). In
terms of tonnage, 2011 will see growth of 6.47%, to 599.86mn tonnes, rising to 789.14mn tonnes at the
end of our forecast period, in 2015. Road freight growth will continue expanding vigorously, averaging
7.37% a year in the five years to 2015. This rate will exceed the average for GDP growth, a pattern
consistent with this stage of Vietnam's industrialisation process.

Table: Road Freight, 2008-2015

2008

2009

2010

2011f

2012f

2013f

2014f


2015f

455,898.
40

494,649.
80

563,406.
12

599,863.
21

641,689.
03

688,531.
87

738,564.
31

789,140.
46

- % change y-o-y

13.02


8.50

13.90

6.47

6.97

7.30

7.27

6.85

Road freight, mn
tonnes/km

27,968.0
0

30,261.4
0

34,467.7
3

36,840.4
7


39,562.6
2

42,611.2
9

45,867.5
6

49,182.1
0

- % change y-o-y

13.47

8.20

13.90

6.88

7.39

7.71

7.64

7.23


Road freight, '000 tonnes

f = BMI forecast. Source: General Statistics Office of Vietnam

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Vietnam Freight Transport Report Q4 2011

Rail Freight
Contraction Consigned To the Recent Past
Rail freight is forecast to recover in 2011, with year-on-year (y-o-y) tonnes/km growth of 4.7% to
3.893bntkms, following a contraction of 2.30% in 2010. Average annual growth over the next five years
will be 5.2%, below overall economic growth, suggesting that Vietnam's poor track infrastructure and
signalling systems are limiting the potential for this freight transport mode. In terms of tonnage volume
carried by rail, BMI predicts that 2011 will see a recovery of 4.8%, to 8.187mn tonnes, compared with a
contraction of 3.20% in 2010.

Table: Rail Freight, 2008-2015

Rail freight, '000 tonnes
- % change y-o-y
Rail freight, mn
tonnes/km
- % change y-o-y

2008


2009

2010

2011f

2012f

2013f

2014f

2015f

8,481.10

8,068.10

7,809.92

8,187.28

8,620.20

9,105.06

9,622.93

10,199.0
6


-6.29

-4.87

-3.20

4.83

5.29

5.62

5.69

5.99

4,170.90

3,805.10

3,717.58

3,893.05

4,094.36

4,319.82

4,560.63


4,799.43

7.43

-8.77

-2.30

4.72

5.17

5.51

5.57

5.24

f = BMI forecast. Source: General Statistics Office of Vietnam

Air Freight
Growth Soars To Approach Pre-Slowdown Levels
In terms of air cargo volume, BMI forecasts growth of 5.3% to 147,910 tonnes in 2011, the best y-o-y
figure since 2007. Over our forecast period to 2015 we expect tonnage growth to average 5.9% a year,
just below the general rate of economic expansion. In terms of freight carried (volume x distance), we
expect growth of 4.9% in 2011 to 327.73mntkms, compared with 2010's contraction of 1.3%.

Table: Air Freight, 2008-2015


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

2008

2009

2010e

2011f

2012f

2013f

2014f

2015f

131.40

137.60

140.54

147.91

156.38


165.85

175.98

187.56

1.39

4.72

2.13

5.25

5.72

6.06

6.10

6.58

295.60

316.60

312.48

327.73


345.23

364.83

385.76

408.23

5.61

7.10

-1.30

4.88

5.34

5.68

5.74

5.82

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

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Vietnam Freight Transport Report Q4 2011

Maritime and Inland Waterways
Total Tonnage: Saigon New Port To See Strong Volume Growth
The huge tonnage throughput growth at the Port of Ho Chi Minh City (Saigon New Port, SNP) in 2010
will not be matched in 2011, but healthy growth is still predicted over the medium term. In 2011 we
expect 7.45% y-o-y growth, to 33.45mn tonnes, down considerably on the mammoth 62.65% growth
estimated in 2010. We believe medium-term growth will be vigorous, with the annual average between
2011 and 2015 coming in at 8.06%.
We forecast that volumes at the Port of Da Nang (PDN) will increase by 2.76% in 2011, to 3.39mn
tonnes, down on 2010's 5.46% growth. Average volume growth at PDN across the forecast period to 2015
will be 3.44%, below the general GDP growth rate (reflecting capacity limitations at the port).
Container Throughput: Da Nang Leads The Way
PDN is set to see 7.09% container handling growth to 95,520 twenty-foot equivalent units (TEUs) in
2011, after achieving an estimated 27.94% jump a year earlier. At SNP, container handling growth is
forecast to increase 4.35% to reach 2.974mn TEUs. Over the forecast period, PDN will see average y-o-y
growth of 8.1%, while SNP will lag slightly behind this on 5.64%.

Table: Maritime Freight - Throughput, 2008-2015 ('000 tonnes)

Port of Ho Chi Minh City
(Saigon New)
- % change y-o-y
Port of Da Nang
- % change y-o-y

2008


2009

2010

2011f

2012f

2013f

2014f

2015f

20,180.0
0

19,140.0
0

31,132.0
0e

33,450.7
1

36,111.7
8

39,148.5

4

42,406.2
5

45,959.9
4

-21.17

-5.15

62.65e

7.45

7.96

8.41

8.32

8.38

2,742.26

3,132.00

3,303.04


3,394.27

3,498.97

3,618.45

3,746.62

3,911.86

0.19

14.21

5.46

2.76

3.08

3.41

3.54

4.41

e = estimate; f = BMI forecast. Source: Port authorities

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