Q4 2012

www.businessmonitor.com

VietnaM

freight transport Report
INCLUDES BMI'S FORECASTS

ISSN 1750-5364
Published by Business Monitor International Ltd.


VIETNAM
FREIGHT TRANSPORT
REPORT Q4 2012
INCLUDES 5-YEAR FORECASTS TO 2016

Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: August 2012

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Vietnam Freight Transport Report Q4 2012

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Vietnam Freight Transport Report Q4 2012


CONTENTS
BMI Industry View ............................................................................................................................................ 5
SWOT Analysis ................................................................................................................................................. 7
Vietnam Freight Transport SWOT ......................................................................................................................................................................... 7
Vietnam Political SWOT ........................................................................................................................................................................................ 8
Vietnam Economic SWOT ...................................................................................................................................................................................... 9
Vietnam Business Environment SWOT................................................................................................................................................................. 10

Industry Trends And Developments ............................................................................................................ 11
Maritime ................................................................................................................................................................................................................... 11
Multimodal................................................................................................................................................................................................................ 14
Air ............................................................................................................................................................................................................................. 14

Market Overview ............................................................................................................................................. 16
Industry Forecast ........................................................................................................................................... 20
Macroeconomic Outlook ........................................................................................................................................................................................... 20
Road Freight ............................................................................................................................................................................................................. 20
Table: Road Freight, 2009-2016.......................................................................................................................................................................... 20
Rail Freight............................................................................................................................................................................................................... 21
Table: Rail Freight, 2009-2016 ........................................................................................................................................................................... 21
Air Freight ................................................................................................................................................................................................................ 21
Table: Air Freight, 2009-2016 ............................................................................................................................................................................. 21
Maritime And Inland Waterways .............................................................................................................................................................................. 22
Table: Maritime Freight, 2009-2016 ................................................................................................................................................................... 22
Table: Inland Waterway Freight, 2009-2016 ....................................................................................................................................................... 22
Trade ........................................................................................................................................................................................................................ 23
Table: Trade Overview, 2009-2016 ..................................................................................................................................................................... 23
Table: Key Trade Indicators, 2009-2016 (US$mn) .............................................................................................................................................. 23
Table: Main Import Partners, 2002-2009 (US$mn) ............................................................................................................................................. 24
Table: Main Export Partners, 2002-2009 (US$mn) ............................................................................................................................................. 24


Global Oil Products Price Outlook ............................................................................................................... 25
Table: BMI Oil Price Forecasts, 2011-2016 ........................................................................................................................................................ 25

Political Outlook ............................................................................................................................................. 32
Domestic Politics ...................................................................................................................................................................................................... 32
Long-Term Political Outlook .................................................................................................................................................................................... 33

Macroeconomic Outlook ............................................................................................................................... 36
Table: Vietnam – Economic Activity, 2011-2016 ................................................................................................................................................. 38

Company Profiles ........................................................................................................................................... 39
Vietnam Airlines Cargo ....................................................................................................................................................................................... 39
Vinatrans ............................................................................................................................................................................................................. 41

Vietnam Demographic Data .......................................................................................................................... 43
Table: Vietnam's Population By Age Group, 1990-2020 ('000) ........................................................................................................................... 44
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) .................................................................................................................. 45
Table: Vietnam's Key Population Ratios, 1990-2020........................................................................................................................................... 46
Table: Vietnam's Rural And Urban Population, 1990-2020 ................................................................................................................................ 46

BMI Methodology ........................................................................................................................................... 47

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How We Generate Our Industry Forecasts .......................................................................................................................................................... 47
Transport Industry ............................................................................................................................................................................................... 47
Sources ................................................................................................................................................................................................................ 48

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BMI Industry View
Vietnam's main export partners, the US, China and Japan, are all set to suffer slowdowns during 2012, but
the bleak global economic climate will not prove to be such a great obstacle for Vietnam as its freight
transport industry appears to be heading towards a period of sustained healthy growth. Although BMI has
downgraded its real GDP growth forecast from 5.8% to 5.2% for 2012, Vietnam's freight industry appears
to be bucking the negative trend, with the shipping sector leading the way, followed by road, air and rail
respectively.
In the shipping sector, Cai Mep International Terminal (CMIT) achieved a cargo-handling record for
Vietnam, having handled 2,100 containers in 11.5 hours for Danish ocean carrier Maersk Line, underling
the positives surrounding this sector over the mid term. Aside from this, CMIT witnessed strong growth
as of early July 2012, and is expected to handle almost 600,000 twenty-foot equivalent units (TEUs) by
the end of the year, or 50% of the total passing through the port, according to Transport Weekly.
Headline Industry Data
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2012 rail freight tonnage is set to increase by 3.04% to 8.44mn tonnes.

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2012 air freight tonnage is forecast to rise by 5.73% to 206,970 tonnes.

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Tonnage handled at the Port of Ho Chi Minh City in 2012 is forecast to grow 7.44% in 2012,
whereas tonnage handled at the Port of Da Nang is forecast to increase 3.08%.

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2012 road freight tonnage is forecast to grow by 6.48% to 663.25mn tonnes.

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2012 total trade is forecast to rise by 6.23%

Key Industry Trends
APMT Puts Cai Mep On The Map
We believe the positive growth outlook in terms of throughput at Cai Mep is in no small part attributable
to APM Terminal (APMT)'s operation of the terminal over the past year. The terminal operator has put
an onus on investment and has also attracted new clients operating on key trade routes. We believe
APMT's presence will support continued growth at the port over the medium term (2012-2016) as it
continues to improve the port's facilities and attract shipping lines keen to capitalise on Vietnam's positive
macroeconomic outlook.
Kerry Logistics Constructs New Warehouse
Hong Kong-based Kerry Logistics underlined its commitment to expanding its network in Vietnam with
the announcement in July 2012 of the construction of a new warehouse. The facility will cover an area of
11,000 square metres (m2) in the Song Thang area of Ho Chi Minh City. Construction work has already

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started and is likely to be concluded in Q113. Upon completion, the company will have a total of nine
warehouses with a capacity of 62,000m2 in Song Thang. The facilities are aimed at fulfilling rising
demand for storage places.
Air China Cargo Chasing Growth In Intra-Asia
There is a growing trend of major freight companies showing an interest in the intra-Asia market, first
noted in the container shipping sector, that is currently picking up pace in the air cargo market, BMI has
noted. Air China Cargo, the freight subsidiary of Air China, is reportedly preparing to launch a cargo
service linking China with Vietnam, the airline's second cargo venture into Asia in 2012.
Key Risks To Outlook
Providing a risk to the downside to Vietnam's freight industry is the fact that we expect to see external
demand remaining subdued in the months ahead and we also expect new export orders to remain stagnant
in 2012. This should in turn lead to an overall slowdown in net exports. Accordingly, we see net exports
growing at just 6.0% in 2012, which is significantly lower than the 16.9% estimated for 2011.
On the upside, air freight development in the country could be about to see something of a boom, with
carriers becoming increasingly interested in Vietnam. As well as Air China Cargo planning to enter the
market (as we examine in more detail in the Trends and Developments section of this report), other
airlines that have begun freight flights to Vietnam this year are Saudi Airlines Cargo, Air Hong Kong
(on behalf of DHL) and Asiana Cargo.
Also providing good news going forward for the country is the fact that Vietnam's geopolitical
significance will rise over the coming decade, as the US courts it as a potential ally to counterbalance
China. Although Hanoi is wary of Beijing's rise, it will avoid a formal alliance with Washington, instead
charting a careful middle course between China and the US to maximise its strategic independence. This
should provide upside risk for Vietnam's freight industry in that the US is currently by far and away
Vietnam's top export partner.


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SWOT Analysis
Vietnam Freight Transport 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: it stretches for
thousands of kilometres on a north-south axis, creating a need for long-distance
freight haulage.
Recovery of the nation's ports in 2010 is expected to continue over the mid-term to
2016.
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 network is considered to be in good condition. Just 26% of the network
has two or more lanes and only 29% is tarred.
Traditionally low investment in rail, with the potential for cost-effective bulk rail freight
being underutilised.
Decades of under-investment have left the country with a port infrastructure system
that is poor by international standards. Overcapacity is therefore a growing problem.
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 is unable to develop its
infrastructure to keep up with the pace of demand.
Vietnam is vulnerable to any slowdown in Chinese investment. Indeed, the Chinese
government issued a warning to foreign shipping companies operating in the South

China Sea in mid-April 2012, following an incident which saw the Philippine navy
frigate Gregorio del Pilar involved in a stand-off with two Chinese surveillance vessels
after it had intercepted Chinese fishing vessels traversing the region.
A drop in international demand for exports would negatively affect 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 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 2012 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 undemocratic 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 wide-scale 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 7.1% annually between 2000 and 2011.
The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 14.0% in 2010.
Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving
the economy vulnerable to global economic uncertainties in 2012. The fiscal deficit is
dominated by substantial spending on social subsidies that could be difficult to
withdraw.
The heavily-managed and weak currency reduces incentives to improve quality of
exports, and also keeps import costs high, 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 rising 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. According to
Transparency International's 2011 Corruption Perceptions Index, Vietnam ranks 112
out of 183 countries.
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 know-how.
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
Maritime

APMT Puts Cai Mep On The Map
BMI believes Cai Mep's positive throughput growth outlook for 2012 is in large part attributable to APM
Terminal (APMT)'s operation of the terminal over the past year, as the company has poured in
investment and attracted new clients operating on key trade routes. We believe APMT's presence will
support continued growth at the port over the medium term (2012-2016) as it continues to improve
facilities and attract shipping lines keen to capitalise on Vietnam's positive macroeconomic outlook.
Cai Mep International Terminal (CMIT) at the Port of Ho Chi Minh City (also known as New Saigon
Port), which is made up of a collection of terminals lying 50 kilometres (km) away from Vietnam's capital
city, is on course to handle nearly 600,000 twenty foot equivalent units (TEUs) in 2012 – its first full
calendar year of operation – according to projections from Maersk Line's sister company APMT. CMIT
accepted its first vessel on March 30 2011 and in the following nine months to 2012 handled
186,000TEUs.
APMT's strong growth projection for CMIT in 2012 supports BMI's forecast for the Port of Ho Chi Minh
City over the medium term. In 2010 (last available data), the port handled 2.85mn TEUs, growing 17.2%
from 2009. While we expect this rate to slow year-on-year (y-o-y) to 7.9% in 2012, this still represents
solid throughput growth. Over the medium term (2012-2016), we believe the port's positive growth will
continue. We forecast TEU throughput to grow at an annual average of 6.7% over the period, bringing the
total to 4.1mn TEUs in 2016.
BMI highlights the substantial investments APMT has made in CMIT since it opened in March 2011 as
an important driver of growth. In addition to helping to construct the port, which it did through a joint
venture (JV) with Saigon Port and Vietnam National Shipping Lines (Vinalines), APMT purchased two
laden reach stackers, an empty reach stacker, two empty container handlers and a 25-tonne forklift – all of
which were delivered by Konecranes in 2011. Weak infrastructure is one of the main factors holding
back Vietnam's shipping sector – the country ranks 111th out of 145 countries on the World Economic
Forum's Global Competitiveness Report on the Quality of Port Infrastructure. As such, APMT's
commitment to improving CMIT's facilities is an important step both for the terminal and the country's
shipping sector as a whole.
Investment in the port has allowed Cai Mep to attract a client base of some of the major players in the box
shipping sector. While a foregone conclusion, given APMT's close connection with the company, Maersk
Line began pulling into the port in August 2011, boosting throughput as expected. More significantly,

CMIT has added CMA CGM and the Grand Alliance – comprising shipping lines Hapag-Lloyd,
Nippon Yusen Kaisha (NYK), and Orient Overseas Container Line (OOCL) – to its client list. These

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lines not only provide positive prospects for the port given their direct impact on throughput volumes, but
their presence also signals the industry's confidence in the terminal's growth outlook and growing role in
the region.
An important aspect of the addition of these lines to the terminal is that they have exposed CMIT to the
two largest maritime trade routes: Asia-Europe and Asia-America. Maersk has added the port to its
Transpacific string from Asia to North America, while CMA CGM and the Grand Alliance have placed it
on their Asia-Europe routes, marking the first time Vietnam had been directly connected on either of
these trade routes.
We highlight that Vietnam previously only played a role as a feeder port, relying on the transhipment of
containers through one of Asia's larger, better equipped ports such as Singapore. Exposure to these routes
is in large part attributable to the port's ability to handle ultra-large container ships, which are becoming
the standard for shipping containers on Asia-Europe trade routes. This was demonstrated in December
2011, when CMA CGM's 13,820TEU Laperouse docked at the terminal. We believe CMIT's proven
capacity for handling these vessels marks an important step for the terminal and will be a key driver of
growth over the medium term.
Furthermore, BMI highlights the effect Vietnam's positive macroeconomic outlook will have on
throughput volumes at CMIT. Nominal GDP is forecast to grow at an average annual rate of 6.8% over
the medium term, with GDP per capita set to grow almost twice as fast over the period, at 12.5%
annually. A key driver of this growth will be the country's booming export sector. By 2016, we forecast
the country's exports climbing 83% to US$178.6bn, from their 2011 level of US$97.8bn, providing a

boost to the country's shipping sector. Additionally, CMIT's strategic location some 50km upriver from
Vietnam's capital, Ho Chi Minh City, will make it an attractive option for shipping lines looking to take
advantage of this burgeoning growth.
Vinalines Cuts Newbuild Budget By A Third
BMI believes Vietnamese National Shipping Lines (Vinalines)'s decision to reduce its spending on
newbuilds is prudent considering the current operating environment in the shipping industry, especially in
the dry bulk sector. Additionally, the company must address internal problems that have reduced its
efficiency and profitability relative to its peers. However, if Vinalines can correct these problems and
endure the difficult operating environment over the medium term (2012 to 2016) it will be well positioned
to take advantage of growing trade in the region over the longer term.
Vinalines announced that it will cut its newbuild budget by 32%, from VND100trn (US$4.78bn) to
VND68trn (US$3.25bn) on fleet renewal to 2020. The Ministry of Transport explained that the decision
to scale back was reached because of negative prospects for the shipping market. Vinalines primarily
leases its 154 vessels, the majority of which are dry bulk carriers, with only one of its 16 subsidiaries,

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Vietnam Ocean Shipping Company, handling shipping services with its own fleet. The company
accounted for 45% of Vietnam's shipping capacity in 2011.
Vinalines is following the trend of cutting back on ship orders, which has emerged in the shipping
industry in recent years on the back of overcapacity in the dry bulk sector. With rates depressed to
historically low levels on the Baltic Dry Index (BDI), shipping companies have largely changed their
focus from expanding fleet size to maintaining profitability, or in many cases simply limiting losses.
We believe it is wise for Vinalines to follow this strategy given the gloomy outlook for the dry bulk
sector. Having expanded its fleet substantially in recent years, the purchase of an additional US$4.78bn

worth of vessels would be imprudent without a definitive end in sight to the difficulties in shipping
industry.
BMI also maintains that the cut-back is prudent in consideration of circumstances unique to Vinalines. In
2010, the company acquired 36 ships as part of an asset offloading of the then debt-ridden Vietnamese
shipbuilder Vinashin. This was a widely unexpected, and perhaps unwanted, gift as two-thirds of the
vessels did not meet technical requirements and required further investment to make them compliant.
With the planned expansion to the fleet announced in March 2010, and the acquisition of vessels from
Vinashin coming only a few months later in August, it seems that the decision to cut back on newbuilds
was inevitable.
Beyond its unplanned expansion in 2010, Vinalines has experienced numerous operational difficulties
that BMI believes must be addressed before spending on fleet expansion. The state-run shipping line has
had as many as seven ships detained in the first four months of 2012 as a result of clients' inability to pay
for the charter, or because the vessels did not meet technical requirements. Vinalines' subsidiaries have
also suffered losses due to declining values on old vessels, many of which were breaking the rule that
bans local companies from purchasing ships that are more than 15 years old.
Furthermore, loss-making acquisitions, as well as accusations of corruption, are indicative of the
organisational improvements that are needed. In February 2012, the company's general director, along
with two others, including a state auditor, were arrested for embezzlement. Vinalines has also attracted
criticism for its purchase of a 43-year-old floating dock for US$14.1mn, which is yet to be operational
despite further investment of over US$19mn.
With such a strong foothold in Vietnam all ready, there is still hope for Vinalines, but it has a long way to
go before it can become a strong and profitable shipping company. If Vinalines is able to correct the
issues that have plagued the company it may be able to successfully capitalise on growing intra-Asia
trade, especially to and from Vietnam as it continues its rise as a key manufacturing hub in the region.
BMI maintains that the decision to cut back spending on newbuilds will improve the firm's ability to
navigate the difficulties facing the dry bulk sector over the medium term (2012 to 2016), and will allow
the company to focus its efforts on improving its fundamentals.

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Multimodal
Kerry Logistics Constructs New Warehouse
Hong Kong-based Kerry Logistics is to expand its network in Vietnam with the construction of a new
warehouse, the firm announced at the end of July 2012. The facility will cover an area of 11,000 square
metres (m2) in the Song Thang area of Ho Chi Minh City. Construction work has already started and is
likely to be concluded in Q113. Upon completion, the company will have a total of nine warehouses with
a capacity of 62,000m2 in Song Thang. The facilities are aimed at fulfilling rising demand for storage
places.
The global logistics service provider also declared that it had completed the expansion of an automotive
facility at the Kerry Logistics Centre Laem Chabang (KLCLC) in June 2012. This expansion measures
some 2,968m2 with the aim of accommodating the requirements of a luxury car manufacturer, according
to Port Calls Asia.
It was also announced in July that Kerry Logistics had acquired a plot of land of some 55,000m2 in
Eastern Seaboard Industrial Estate (ESIE) in Rayong Province, Thailand. The plot will house an
automotive logistics centre in an area that is cluttered with car manufacturers such as Ford and General
Motors.

Air
MASkargo Launches New Asian Freighter Service
The cargo division of Malaysia Airlines announced in May 2012 that it had launched a new Asian
freighter service, reported the Journal of Commerce. MASkargo will operate the bi-weekly service
between Kuala Lumpur in Malaysia, Ho Chi Minh City in Vietnam and Bangkok in Thailand. It will
utilise MASkargo's fleet of three A330-200 freighters. The service is intended to extend MASkargo's
Asian operations.
We continue to forecast growth in Malaysian air freight volume to accelerate to 3.9% (up from an

estimated 2.7% in 2011), reaching 1.37mn tonnes. The main factor behind this increase will be the growth
of intra-Asian trade, in moves such as the one highlighted above, which will offset a slower performance
by the domestic economy.
Air China Cargo Chasing Growth In Intra-Asia
The trend of interest from major freight companies in the intra-Asia market, first noted in the container
shipping sector, is now picking up pace in the air cargo market. Air China Cargo, the freight subsidiary
of Air China, is reportedly preparing to launch a cargo service linking China with Vietnam, the airline's
second cargo venture into Asia in 2012.

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According to Air China Cargo's chief operating officer, Titus Diu, the carrier is to launch an all cargo
service in Q312 linking Shanghai with Hi Chi Minh City in Vietnam via Singapore, followed by a direct
flight back to Shanghai.
BMI notes that the planned route once again highlights Air China Cargo's determination to expand its
coverage of the intra-Asia air freight market – a common trend for the company in 2012, with the carrier
also launching an air freight service connecting Shanghai with Chennai in India in March.
The company has a fairly low exposure to intra-Asia, currently operating cargo services to only Tokyo
and Osaka in Japan, Chennai, Taipei in Taiwan and Hong Kong. However, we believe the intra-Asia trade
route offers huge potential; and while container lines have been quick to react to its possibilities, the air
freight sector is only now becoming more involved.
Our positive view on intra-Asia trade growth stems from the development of the Chinese economy. While
the country's economic growth is slowing, BMI predicts it will continue to expand at a robust annual
average of 6.5% in the medium term (2012-2016). This will enable the country to continue its
development toward becoming a major importer, rather than solely an exporter. Trade patterns will

develop in line with the trend, as China seeks goods from outside its borders. The country appears keen to
patronise its Asian neighbours, thereby keeping transport costs low – as the signing of the ASEAN-5
China Free Trade Agreement (FTA) which came into force in January 2010 shows.
The growth outlook for intra-Asia trade is highlighted in Air China's latest cargo data and explains why
the company has concentrated on boosting its Asia coverage in 2012. Although the smallest percentage of
the company's air freight operations, regional air cargo volumes for June 2012 have increased by 46.5%
to 6,168 tonnes. This compares with growth of just 1.7% in the company's international freight operations
and the decline of 1.2% in the volumes of domestic cargo transported by the carrier in June 2012.
Vietnam is, in BMI's opinion, an obvious choice for air cargo operators seeking to expand their intra-Asia
coverage. The country is fast becoming the factory of Asia and container lines and port operators have
already spied its potential, with new box terminals launched in the past 18 months and the country now
linked directly by container ships to the US and Europe.
Vietnam's air freight development is the next logical step and carriers are becoming increasingly
interested in the country. As well as Air China Cargo planning to enter the market, airlines that have
started freight flights to Vietnam in 2012 are Saudi Airlines Cargo, Air Hong Kong (on behalf of DHL)
and Asiana Cargo. This interest will continue to drive already robust air freight growth in Vietnam,
where the sector has grown by an annual average of 16% between 2000 and 2012 (last available data) and
is forecast by BMI to grow by a further 30.5% over the medium term (2012-2016).

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Market Overview
Recovery Signs Evident
There are currently signs of recovery on the horizon in Vietnam as we head into the final quarter of 2012.
Real GDP growth accelerated from 4.1% year-on-year (y-o-y) in Q112 to 4.4% in Q212 and we expect

the pace of economic growth to pick up steadily over the coming months as recent rate cuts begin to feed
through to the economy. We have recently upgraded our 2013 real GDP growth forecast for Vietnam
from 6.5% to 6.9%.
That said, economic headwinds that have hit in 2012 in the US and eurozone should continue to act as a
dampener on external demand throughout the year, especially in the case of the US, which is by some
distance Vietnam's top export partner. Also, another of Vietnam's largest export partners, China, is set to
see a cooling of GDP growth in both 2012 and 2013, as is Japan. This suggests that production activity in
the manufacturing sector and other export-based industries could face difficulties, with a negative
effect on the freight transport industry expected as a result.

Vietnam To Ride Out The Global Economic Storm
Vietnam Real GDP, 2000-2016 (% change y-o-y)

e/f= BMI estimate/ forecast. Source: Asian Development Bank, General Statistics Office

Retail sales have moderated considerably since November 2010, when the State Bank of Vietnam (SBV)
initiated its monetary tightening cycle. Retail sales growth slowed from 32.5% in November 2010 to
22.6% in June 2011, indicating that the measures have dampened private consumption growth.
Nonetheless, retail sales remain at double-digit growth rates, indicating that private consumption growth
remains resilient. This supports our view that private consumption would remain resilient on the back of
robust labour market conditions and rising wages in Vietnam, boding well for containerised imports.

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Vietnam Freight Transport Report Q4 2012

However, public spending cuts and a subdued outlook on gross fixed capital formation (GFCF)

growth due to high lending rates would lead to continued moderation in domestic demand throughout the
year.
Prior to 2007, policymakers outlined that foreign direct investment (FDI) inflows into the export sector
should gradually reduce the state's role in driving the economy, providing a spur for Vietnam's freight
industry. However, recent economic data suggest that this has not been the case. While exports have risen
from 76.9% of GDP in 2007 to 80.7% in 2011, mainly driven by private sector export of processed food,
agricultural products and mined resources to South East Asian countries, state-owned enterprises' share of
the economy has remained stubbornly high at 33.7% of GDP in 2011, compared with 35.9% in 2007.
The total share of the state's ownership in the economy is even larger at around 39% of GDP, when taking
into account of joint-stock companies – in which the state holds a controlling stake while the private
sector is allowed to invest and share in the profits. From our perspective, further measures to reduce the
state's control over the economy and allow the private sector to allocate capital more efficiently, will play
a key role in determining the country's growth prospects over the medium term.
Road Freight Remains The Dominant Force In Tonnage Terms
Road transport is the most advanced in terms of freight sector privatisation and is by far the dominant
mode for freight in Vietnam, with a market share of around 75% of domestic cargo. Few foreign
companies are present in the market and there are many small, family-owned road freight companies
operating informally.

Road Continues To Dominate
Vietnam Freight Transport Mode Breakdown (% of total 2012f)

Source: General Statistics Office of Vietnam

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Vietnam Freight Transport Report Q4 2012


Vietnam has a national road network of 180,549 kilometres (km), according to the latest data provided by
the CIA's World Factbook. BMI believes the sector requires substantial investment as the quality of
Vietnam's road infrastructure was judged by the World Economic Forum (WEF) to be very poor, ranking
123rd out of 142 countries surveyed in its Global Competitiveness Report 2011-2012.
Vietnam's railway transport sector has just one operator, the Vietnam Railway Corporation (VRC),
established in April 2003 as a state corporation operating railway transport and related services.
Vietnam's rail network totals 2,632km. The network is of mixed-gauge, comprising 2,105km of 1.000m
gauge and 527km of 1.435m gauge.

Room For Improvement Across The Board (Especially Road)
Vietnam Transport Infrastructure Rankings

* Rail infrastructure is measured out of 123. Source: World Economic Forum's Global Competitiveness Index

Latest data puts the total amount of airports in Vietnam with paved runways at 37, with seven unpaved.
This total puts the country in a poor 97th place in comparison with other countries.
Vietnam's dense river and canal network provides the country with a highly developed inland waterway
system of 17,702km. This is the second largest sub-sector involved in domestic cargo transport,
accounting for 25-30% of total transport volumes.
Vietnam's seaport network comprises of many small and medium-sized entities, with inefficient
distribution. Most large ports are located on 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 due to traffic congestion.

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Vietnam Freight Transport Report Q4 2012

Vietnam's port infrastructure is poor by international standards. The WEF's 2011 Global Competitiveness
Report ranks it 111th out of 142 countries, placing it 12th in the region, just one place ahead of the
Philippines, the regional underperformer.
Investment And Development Outlook
According to our key infrastructure projects database, there are US$171bn-worth of infrastructure
projects planned or currently under way in Vietnam's transport sector. One of the most expensive of these
is a US$3.6bn plan to build the Van Phong International Entrepot. The project will begin with the
construction of two deep water ports in Dam Mon that will be able to accommodate container ships with
tonnage of 9,000 twenty-foot equivalent units (TEUs) and the capacity to handle 0.5mn TEUs per year.
The project is currently suspended, however, due to an ongoing review of geological conditions at the
site.
The air freight sector will undoubtedly benefit from the planned construction work on a new passenger
terminal at Long Thanh international airport. Costing an estimated US$6.7bn, the work would also
incorporate a new runway, providing capacity for 100mn passengers a year. A tender for investment
consultancy work was under development as of December 2011.

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Vietnam Freight Transport Report Q4 2012

Industry Forecast
Macroeconomic Outlook
Signs Of A Recovery
There is evidence that Vietnam is staging something of a recovery in terms of headline growth. Real GDP
growth accelerated from 4.1% y-o-y in Q112 to 4.4% in Q212 and we expect the pace of economic

growth to pick up steadily over the coming months as recent rate cuts begin to feed through to the
economy. We have recently upgraded our 2013 real GDP growth forecast for Vietnam from 6.5% to
6.9%. In line with our view that prices will stabilise over the coming months and that we will see a pickup
in demand in 2013, we believe that the SBV will refrain from introducing further rate cuts. Accordingly,
we are maintaining our forecasts for the SBV's policy rate to remain at 10.00% throughout 2012.
We expect Vietnam's two biggest export partners, China and Japan, to encounter differing growth patterns
in 2012. China's rapid growth will cool somewhat to 7.5% in 2012, down from 9.2% in 2011, and this is
set to slip again in 2013 and beyond over the mid term. Although Japan will avoid the contraction it saw
in 2011, it will still only post 1.4% growth in 2012, which we also forecast will fall in 2013. This will
impinge on Vietnam's freight industry, due to its exposure to these economies.

Road Freight
Road Freight Continues To Dominate
Vietnam's largest sector in tonnage handled terms is to enjoy healthy growth both in 2012 and over the
forecast period. BMI is predicting average growth over our forecast period of 6.11%, which would see
tonnage reach 806.85mn tonnes by 2016. For 2012, we expect annual growth to be 6.48%, ever so
slightly up on 2011's estimate but down on the impressive growth figures recorded between 2007 and
2010, inclusive.

Table: Road Freight, 2009-2016

2009

2010

2011e

2012f

2013f


2014f

2015f

2016f

Road freight, '000
tonnes
513,629.90 585,024.50 622,880.48 663,249.02 703,847.87 746,473.03 791,173.03 837,813.57
- % change y-o-y

12.66

13.90

6.47

6.48

6.12

6.06

5.99

5.90

Road freight, mn
tonnes/km


30,261.40

34,467.73

36,840.47

39,338.57

41,850.92

44,488.66

47,254.80

50,141.02

- % change y-o-y

8.20

13.90

6.88

6.78

6.39

6.30


6.22

6.11

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

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Vietnam Freight Transport Report Q4 2012

Rail Freight
Rail Recovers From Contractions
The country's rail freight sector is to continue the positive year-on-year (y-o-y) growth that it enjoyed last
year, following four years of annual contractions between 2007 and 2010. In 2012, we have forecast y-o-y
growth of 3.04%, following 2011's estimated 4.83%. Over the mid term to 2016, average annual growth
is set to come in at 3.05%, which will translate as tonnage increasing from 8.44mn tonnes in 2012 to
9.51mn tonnes by the end of 2016.

Table: Rail Freight, 2009-2016

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

2009


2010

2011e

2012f

2013f

2014f

2015f

2016f

8,068.10

7,809.92

8,187.28

8,436.00

8,686.15

8,948.78

9,224.20

9,511.57


-4.87

-3.20

4.83

3.04

2.97

3.02

3.08

3.12

3,805.10

3,901.00

4,085.13

4,309.66

4,535.47

4,772.56

5,021.18


5,280.60

-8.77

2.52

4.72

5.50

5.24

5.23

5.21

5.17

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

Air Freight
Growth Steady, But Work To Be Done
The air freight sector is set to follow the lead more of the road sector than the rail sector over the mid
term. We forecast annual average growth of 5.47% between 2012 and 2016, while 2012's growth
is projected to come in at a slightly better 5.73%. This scenario will see tonnage throughput increase from
206,970 tonnes in 2012 to 255,450 tonnes by the end of 2016. However, the huge double-digit growth
(33.24%) witnessed in 2010 will be a thing of the past.

Table: Air Freight, 2009-2016


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

2009

2010

2011e

2012f

2013f

2014f

2015f

2016f

139.60

186.00

195.76

206.97


218.25

230.08

242.50

255.45

6.24

33.24

5.25

5.73

5.45

5.42

5.40

5.34

316.60

428.00

448.89


473.63

498.52

524.64

552.04

580.63

7.10

35.19

4.88

5.51

5.25

5.24

5.22

5.18

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

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Vietnam Freight Transport Report Q4 2012

Maritime And Inland Waterways
Ho Chi Minh Leads The Way
The Port of Ho Chi Minh is once more expected to lead the way in tonnage growth rate terms over the
mid term, while also dwarfing the Port of Da Nang in actual tonnage handled. Year-on-year (y-o-y)
tonnage throughput growth at the Port of Ho Chi Minh is set to be a very healthy 7.44% in 2012, to reach
35.94mn tonnes. Over the medium term (2012-2016), the port will handle a y-o-y average of 6.41%. At
the Port of Da Nang, average growth is predicted to come in at 3.51% over the forecast period, as tonnage
handled at the port rises from 2012's 3.99mn tonnes to 4.60mn tonnes by the end of 2016.
Meanwhile, inland waterways will also enjoy relatively healthy growth of 4.89% over the medium term,
coming in slightly better than our forecast growth of 5.06% for 2012.

Table: Maritime Freight, 2009-2016

2009
Port of Ho Chi Minh City
(Saigon New) throughput,
tonnes '000

2011e

2012f

2013f

2014f


2015f

2016f

19,140.00 31,132.00 33,450.71 35,937.79 38,299.31 40,675.88 43,117.72 45,626.73

- % change y-o-y
Port of Da Nang
throughput, tonnes '000

2010

-5.15

62.65

7.45

7.44

6.57

6.21

6.00

5.82

3,132.00


3,303.04

3,868.00

3,987.31

4,135.48

4,284.59

4,437.79

4,595.21

14.21

5.46

17.10

3.08

3.72

3.61

3.58

3.55


- % change y-o-y

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

Table: Inland Waterway Freight, 2009-2016

2009
Inland waterway
freight, '000
tonnes
- % change y-o-y
Inland waterway
freight, mn
tonnes-km
- % change y-o-y

2010

2011e

2012f

2013f

2014f

2015f

2016f


135,688.40 142,201.44 148,378.09 155,881.97 163,428.66 171,352.01 179,661.03 188,330.78
2.00

4.80

4.34

5.06

4.84

4.85

4.85

4.83

25,365.20

25,593.49

26,752.09

28,053.76

29,362.86

30,737.30


32,178.64

33,682.55

2.00

0.90

4.53

4.87

4.67

4.68

4.69

4.67

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

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Vietnam Freight Transport Report Q4 2012

Trade

Table: Trade Overview, 2009-2016

Real

2009e

2010e

2011e

2012f

2013f

2014f

2015f

2016f

Imports, real growth, % yo-y

-13.81

22.40

11.30

6.15


5.10

4.70

4.60

4.44

Exports, real growth, %
y-o-y

-15.00

24.81

11.00

6.30

6.10

6.00

5.83

5.75

Total trade, real growth,
% y-o-y


-14.40

23.61

11.15

6.23

5.60

5.35

5.22

5.10

73.27

90.90

111.17

125.76

140.48

156.95

174.37


193.40

- % change y-o-y

-12.87

24.06

22.29

13.12

11.71

11.72

11.10

10.92

Exports, US$bn

63.63

80.27

97.89

110.90


125.06

141.45

159.00

178.57

- % change y-o-y

-9.57

26.14

21.96

13.28

12.77

13.11

12.41

12.31

Total trade, US$bn

136.91


171.17

209.06

236.65

265.54

298.40

333.37

371.97

- % change y-o-y

-11.37

25.03

22.14

13.20

12.21

12.37

11.72


11.58

Nominal
Imports, US$bn

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

Table: Key Trade Indicators, 2009-2016 (US$mn)

2009

2010

2011e

2012f

2013f

2014f

2015f

2016f

2,078.21

2,666.48

3,438.71


3,905.93

4,414.82

5,003.85

5,634.41

6,347.44

-16.26

28.31

28.96

13.59

13.03

13.34

12.60

12.65

1,583.74

3,436.62


3,359.21

3,835.32

4,315.85

4,853.22

5,421.75

6,140.73

-23.61

116.99

-2.25

14.17

12.53

12.45

11.71

13.26

Exports


412.56

594.33

727.85

833.19

947.94

1,080.75

1,222.93

1,381.23

- % change y-o-y

-27.00

44.06

22.47

14.47

13.77

14.01


13.16

12.94

2,769.30

3,300.36

4,323.16

4,938.88

5,560.34

6,255.30

6,990.56

7,746.91

-11.66

19.18

30.99

14.24

12.58


12.50

11.75

10.82

Exports

536.96

1,622.95

1,818.39

2,110.56

2,428.78

2,797.12

3,191.42

3,695.74

- % change y-o-y

-72.63

202.25


12.04

16.07

15.08

15.17

14.10

15.80

51,400.66

60,547.73

74,088.85

83,838.38

Agricultural raw materials
Imports
- % change y-o-y
Exports
- % change y-o-y
Ores and metals

Imports
- % change y-o-y

Iron and steel

Imports

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93,678.54 104,682.67 116,325.01 128,785.82

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Vietnam Freight Transport Report Q4 2012

- % change y-o-y

-5.03

17.80

22.36

13.16

11.74

11.75

11.12

10.71


33,558.08

40,806.05

49,905.21

56,870.98

64,458.15

73,240.02

82,641.10

92,983.62

-1.60

21.60

22.30

13.96

13.34

13.62

12.84


12.51

47,971.77

59,491.63

72,732.80

82,265.21

-12.02

24.01

22.26

13.11

11.70

11.71

11.09

10.82

8,507.05

11,085.59


15,819.79

17,834.37

20,028.66

22,568.48

25,287.37

28,382.74

-32.73

30.31

42.71

12.73

12.30

12.68

12.05

12.24

7,497.36


9,659.44

13,936.54

15,825.26

17,731.54

19,863.30

22,118.70

24,594.26

-39.19

28.84

44.28

13.55

12.05

12.02

11.35

11.19


Manufactured goods
Exports
- % change y-o-y
Imports
- % change y-o-y

91,886.24 102,645.30 114,028.37 126,369.45

Fuel
Exports
- % change y-o-y
Imports
- % change y-o-y

e/f = BMI estimate/forecast. Source: UNCTAD, BMI

Table: Main Import Partners, 2002-2009 (US$mn)

2002

2003

2004

2005

2006

2007


2008

2009

Mainland China

2,158.84

3,138.55

4,595.10

5,899.70

7,391.30

12,710.0
0

15,652.1
0

16,441.0
0

Japan

2,504.65


2,982.06

3,552.60

4,074.10

4,702.10

6,188.90

0.00

7,468.09

Korea

2,279.60

2,625.44

3,359.40

3,594.10

3,908.40

5,340.40

7,066.30


6,976.36

955.24

1,282.19

1,858.60

2,374.10

3,034.40

3,744.20

4,905.60

4,514.07

2,533.49

2,875.82

3,618.40

4,482.30

6,273.90

7,613.70


9,392.50

4,248.36

Thailand
Singapore

Source: IMF's Direction of Trade Statistics

Table: Main Export Partners, 2002-2009 (US$mn)

2002

2003

2004

2005

2006

2007

2008

2009

United States

2,453.15


3,939.56

5,024.80

5,924.00

7,845.10

10,104.5
0

11,868.5
0

11,355.8
0

Japan

2,436.96

2,908.60

3,542.10

4,340.30

5,240.10


6,090.00

8,537.90

6,291.81

Mainland China

1,518.33

1,883.12

2,899.10

3,228.10

3,242.80

3,646.10

4,535.70

4,909.03

66.67

74.67

120.20


103.90

155.70

236.90

516.90

2,486.49

1,328.33

1,420.86

1,884.70

2,722.80

3,744.70

3,802.20

4,225.20

2,276.72

Switzerland
Australia

Source: IMF's Direction of Trade Statistics


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