Q4 2014
www.businessmonitor.com

VIETNAM
FREIGHT TRANSPORT REPORT
INCLUDES 5-YEAR FORECASTS TO 2018

ISSN 1750-5364
Published by:Business Monitor International


Vietnam Freight Transport Report
Q4 2014
INCLUDES 5-YEAR FORECASTS TO 2018

Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: July 2014

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Vietnam Freight Transport Report Q4 2014

CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................. 10
Freight Transport .................................................................................................................................... 10
Political ................................................................................................................................................. 13
Economic ............................................................................................................................................... 14
Business Environment .............................................................................................................................. 15


Industry Forecast .............................................................................................................. 16
Road Freight ......................................................................................................................................... 18
Table: Road Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Inland Waterways .................................................................................................................................. 20
Table: Inland Waterway Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rail Freight .......................................................................................................................................... 22
Table: Vietnam Transport Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table: Rail Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Air Freight ............................................................................................................................................ 24
Table: Air Freight (Vietnam 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Maritime Freight ................................................................................................................................... 26
Table: Maritime Freight (Vietnam 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Trade ................................................................................................................................................... 28
Table: Trade Overview (Vietnam 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: Key Trade Indicators, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: Top Import Destinations, 2004-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table: Top Export Destinations, 2004-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Market Overview ............................................................................................................... 32
Industry Trends And Developments ................................................................................ 39
Multimodal ...........................................................................................................................................
Maritime ..............................................................................................................................................
Road ....................................................................................................................................................
Air ......................................................................................................................................................


39
39
41
41

Company Profile ................................................................................................................ 42
Vietnam Airlines Cargo ............................................................................................................................ 42
Vietnam Petroleum Transport Company (VIPCO) .......................................................................................... 45
Vietnam National Shipping Lines (Vinalines) ................................................................................................ 47

Political Outlook ................................................................................................................ 51
Domestic Politics ..................................................................................................................................... 51
Table: Vietnam Political Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

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Vietnam Freight Transport Report Q4 2014
Long-Term Political Outlook ..................................................................................................................... 56

Oil Price Outlook ............................................................................................................... 61
Bunker Fuel: No End To Downtrend ........................................................................................................... 61
Table: BMI Bunker Fuel Price Forecast, 2014-2018 (USD/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Slower Fall, But Fall Nonetheless .............................................................................................................
Longer Term Trends Continue To Press HSFO ............................................................................................
Risks To Outlook ....................................................................................................................................

Jet Fuel: Relative Short-Term Stability With Long-Term Risks .........................................................................

63
67
68
69

Table: BMI Jet Fuel Price Forecast, 2014-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Longer Term Dynamics: Consolidation Poses Risk ....................................................................................... 74
Risks To Outlook .................................................................................................................................... 75
Diesel/Gasoil: Short-Term Overhang To Dissipate ......................................................................................... 76
Table: BMI Diesel/Gasoil Price Forecast, 2014-2018 (USD/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Supply Keeps Market Down .....................................................................................................................
Higher Crude Prices, Tighter Market To Provide Support ..............................................................................
Long-Term Outlook: Diesel To Find Demand Support ...................................................................................
Risks To Outlook ....................................................................................................................................

76
78
79
82

Macroeconomic Forecasts ............................................................................................... 83
Table: Foreign Direct Investment By Country Of Origin (Top Five) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Demographic Forecast ..................................................................................................... 89
Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Methodology ...................................................................................................................... 93
Industry Forecast Methodology ................................................................................................................ 93
Sector-Specific Methodology .................................................................................................................... 94
Sources ................................................................................................................................................ 95

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Vietnam Freight Transport Report Q4 2014

BMI Industry View
We have downgraded Vietnam's growth forecast from 5.9% to 5.7% in 2014 on the back of weaker-thanexpected H1 2014 growth numbers, combined with the risk of a an economic backlash from China (see
'Political Tensions Pose Downside Risks To Growth', June 10). . That said, we have maintained our forecast
for growth to come in at 6.4% in 2015, and we continue to believe that the economy will be driven by
growth supportive government policies, as well as a strong outlook for foreign investment and exports. This
is welcome news to the country's freight industry.

Real GDP growth came in at 5.3% year-on-year (y-o-y) in Q214, according to the General Statistics Office
(GSO), bringing growth for the first half of the year to 5.2% y-o-y. This marks an acceleration when
compared to the 4.9% registered in the first half of 2013, and chimes with our view that the economy will
continue to accelerate into 2014 and 2015. Growth was predominantly driven by strength the services sector
as well as the industry and construction sectors, which contributed 2.6 and 2.1 percentage points
respectively to growth.


Although we see strong growth ahead, we have revised down our growth forecast for 2014 from 5.9% to
5.7% on the back of a slightly weaker than expected first half of the year, combined with the potential for an
economic backlash from the ongoing political dispute with China (see 'Political Tensions Pose Downside
Risks To Growth', June 10). That said, we have kept our 2015 real GDP growth forecast unchanged at 6.4%.

We are sticking to the majority of our forecasts from last quarter, with the sole exception of the Port of Ho
Chi Minh City, which we have slightly upgraded. Therefore, growth across the Vietnamese freight mix is
set to be fairly healthy this year with road freight set to be the outperformer in annual gains terms at 6.01%.
Meanwhile, rail and air freight will see y-o-y increases of 3.12% and 3.00% respectively.

Headline Industry Data
■

2014 rail freight tonnage is set to increase by 3.12% to 6.73mn tonnes.

■

2014 air freight tonnage is forecast to rise by 3.00% to 189,210 tonnes.

■

Tonnage handled at the Port of Ho Chi Minh City in 2014 is forecast to grow 6.17.57%, whereas tonnage
handled at the Port of Da Nang is forecast to increase 7.00%.

■

2014 road freight tonnage is forecast to grow by 6.01% to 811.04mn tonnes.

■


2014 total trade is forecast to rise by 6.55%.

© Business Monitor International

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Vietnam Freight Transport Report Q4 2014

Key Industry Trends

MASkargo Expands Presence In Hanoi - The cargo division of Malaysia Airlines (MASkargo) has
introduced its new airbus A330-200 freight flight to Hanoi, Vietnam, according to a company statement
issued on April 17 2014. The flight will head for Hanoi's Noi Bai International Airport on every Wednesday
and Friday from the Kuala Lumpur International Airport. The move is line with the company's efforts to
increase its presence in the Vietnamese market.

Government Approves Hanoi Road Project - The Vietnamese government has approved plans to build the
Ring Road No 5 route around Hanoi, it was announced in May 2014. The 330km-long project is expected to
cost about USD4bn. The proposed project will pass through 36 districts and the provinces of Ha Nam, Hoa
Binh, Hai Duong, Thai Binh, Thai Nguyen, Bac Giang and Vinh Phuc. The road is expected to be
completed by 2020.

Government To Implement 14 Infrastructure Projects In Ho Chi Minh City - The Vietnamese government
will implement 14 infrastructure projects in Ho Chi Minh City, Vietnam, with the USD9.44bn-worth of
infrastructure projects including the repair and improvement of the Luong Dinh Cua Street and the
construction of the new Ha Noi Expressway-Eastern Ring Road link road. The projects will be implemented
under the public-private partnership, build-transfer and build-operate-transfer models.


Key Risks To Outlook

Despite the rise in political risk, the Vietnamese economy continues to motor on, and we forecast growth of
5.9% for 2014, although any escalation in political risk would pose downside risks. Exports were up by
16.9% y-o-y in the first four months of the year, while imports rose by a slower 13.7% y-o-y over the same
period, resulting in a trade surplus of USD683mn. Industrial production expanded by 6.0% y-o-y in April,
and by 5.4% y-o-y in the January-April period, driven by growth in textiles (22.4%), televisions (32.9%),
and automobiles (16.7%).

Although we do not envisage a swift resolution to the current dispute between Vietnam and China, we do
not believe that it will escalate into military conflict either. That said, we caution that continued political
unrest domestically, and a deteriorating environment for Chinese immigrant workers, could result in a
decline in foreign investment, which would weigh on the country's economic outlook.

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Vietnam Freight Transport Report Q4 2014

We have been arguing that China's growing military presence in the region would continue to dominate
Vietnam's foreign policy agenda (see 'China To Dominate Foreign Policy Agenda', February 2014), with
the deployment in early May of the drilling rig HD-981 by China in Vietnam's waters a case in point.
Although we do not believe that the ongoing political dispute will escalate into military action and will
instead be resolved diplomatically, we highlight that it could result in a further deterioration of Vietnam's
relations with China.

Moreover, it also sends a clear signal that China will continue to consolidate its economic, political and
military influence in the region. Given these dynamics, we have downgraded Vietnam's Short-Term

Political Risk Ratings from 79.0 to 76.9, with declines in the public unrest and security sub-components.

© Business Monitor International

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Vietnam Freight Transport Report Q4 2014

SWOT
Freight Transport
Vietnam Freight Transport Industry SWOT Analysis

Strengths

■

Vietnam's strong domestic growth rate, coupled with its geography - it stretches for
thousands of kilometres on a north-south axis, creates a need for long-distance
freight haulage.

■

A recovery of activity levels at the nation's ports in 2010 is expected to continue over
the mid-term to 2018.

■

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.


Weaknesses

■

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 a growing problem.

■

Unresolved business environment issues and lack of significant improvement in
access to infrastructure financing means that we remain very conservative on the
growth potential of Vietnam's freight sector.

■

A slowdown affecting the US economy has a knock-on effect on Vietnam due to it
being the Asian country's largest export partner.


■

Vietnamese shipping company Vinashinlines has announced that 90% of its vessels,
including Diamond Way and Sea Eagle, have been sold. The firm added that a number

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Vietnam Freight Transport Report Q4 2014

Vietnam Freight Transport Industry SWOT Analysis - Continued

of the carriers had been purchased for prices above their original valuation, Hellenic
Shipping News reported in early October 2013.
Opportunities

■

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.

■

The Vietnamese province of Dong Nai is to clear land near the proposed Long Thanh
International Airport in order to develop infrastructure facilities. Under a plan
submitted to the government, 21,000 hectares in three communes in Cam My District
and seven communes in Long Thanh are to be cleared for establishing new residential
and urban areas, industrial zones, research institutes and international service
centres.

■

The president of Russian Railways (RZD) has explained his belief that an investment
in the construction of a new rail line in southern Vietnam will come in at more than US
$2bn. Speaking to IA Prime, Vladimir Yakunin said that 'it is difficult to talk about it
now, because there is no project', but as it stands, an agreement of intent was signed
on March 11 2013 between RZD, Vietnamese Railways and the mineral deposit
company An Vien, also from Vietnam.

■

It was announced in June 2013 that the Laos government is to build a new railway
line between the country and its Asian neighbours, Vietnam and Thailand. The 220km
line will run from Laos's Western border with Thailand to the Lao Bao border gate in
Vietnam. Construction will commence in August 2013 with an expected completion
date of the second half of 2017.

■


The 900,000 twenty-foot equivalent units (TEUs) deepwater Lach Huyen
terminal project will entail a total investment of US$1.2bn and is likely to become
operational in 2015. The terminal, likely to ease port congestion in Haiphong, will be
able to accommodate vessels with a capacity ranging between 8,000TEUs and
9,000TEUs.

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Vietnam Freight Transport Report Q4 2014

Vietnam Freight Transport Industry SWOT Analysis - Continued
■

The Asian Development Bank (ADB) has announced that it will provide a US$410mn
loan for the Vietnamese government, reports KHL Group. The loan will enable the
government to develop a new arterial road between Ho Chi Minh City, the Mekong
Delta and the south of the country.

■

Vietnam-based Rang Dong Group has filed a petition to secure approval for
developing Phan Thiet airport, reported the Daily in August 2013, citing the
company's chairman Nguyen Van Dong.

■

Two berths at Vietnam's first state-built seaport, the Cai Mep-Thi Vai international

port in Ba RiaVung Tau province, are set to be leased for 30 years, according to
official sources.

■

The World Bank stated at the start of 2014 that improved infrastructure could improve
the country's economy substantially.

Threats

■

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 and to political risk in
the sensitive South China Sea, subject to competing sovereignty claims.

■

A drop in international demand for exports would negatively affect Vietnam's freight
transport sector.

© Business Monitor International

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Vietnam Freight Transport Report Q4 2014

Political
SWOT Analysis

Strengths

■

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.

Weaknesses

■

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.

Opportunities


■

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.

Threats

■

Macroeconomic instabilities continue 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 wide-scale environmental damage.

© Business Monitor International

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Vietnam Freight Transport Report Q4 2014

Economic
SWOT Analysis

Strengths

■

Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.1% annually between 2000 and 2012.

■

The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20.7% in 2012.

Weaknesses

■

Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy

vulnerable to global economic uncertainties. 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.

Opportunities

■

WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam
greater 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.

Threats


■

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.

© Business Monitor International

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Vietnam Freight Transport Report Q4 2014

Business Environment
SWOT Analysis

Strengths

■

Vietnam has a large, skilled and low-cost workforce, which 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.

Weaknesses

■

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 2012 Corruption Perceptions Index, Vietnam ranks 123
out of 176 countries.

Opportunities

■

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.

Threats

■

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.

© Business Monitor International

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Vietnam Freight Transport Report Q4 2014

Industry Forecast
The Vietnamese government will continue to promote pro-growth policies, by running a fiscal deficit albeit a declining one - maintaining a dovish stance with regard to monetary and exchange rate policy,
restructuring many state owned enterprises (SOEs), promoting foreign direct investment and exports as well
as attracting developmental-type aid. For the first six months of the year, we estimate that the government
posted a fiscal deficit of approximately 4.3% of GDP, with spending rising by 9.7% year-on-year (y-o-y).

At the same time, the State Bank of Vietnam (SBV) has maintained a dovish bias since the beginning of the
year, cutting its refinancing rate by 50 basis points in March to 6.5% in an effort to spur lending. Indeed, the
SBV recently also devalued the Vietnamese dong by 1% in June, in what we believe is a pre-emptive move

to boost exports in the event of a slowdown driven by the ongoing political spat with China. Given low
inflationary pressures, we would not be surprised to see either another cut to the refinancing rate, or another
adjustment to the currency before year-end in the event of a slowdown in growth, although it is not our core
view. Combined, both accommodative monetary and fiscal policy will continue to support growth over the
coming quarters.
Meanwhile, we have downgraded Vietnam's growth forecast from 5.9% to 5.7% for 2014 on the back of
weaker-than-expected first half of 2014 growth numbers, combined with the risk of a an economic backlash
from China. That said, we have maintained our forecast for growth to come in at 6.4% in 2015, and we
continue to believe that the economy will be driven by growth supportive government policies, as well as a
strong outlook for foreign investment and exports.

© Business Monitor International

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Vietnam Freight Transport Report Q4 2014

GDP To Enjoy Healthy Medium Term
Real GDP, % change y-o-y (2000-2018)
8

7

6

2018f

2017f


2016f

2015f

2014f

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002


2001

2000

5

Vietnam - Real GDP growth, % y-o-y

Souce: Asian Development Bank, General Statistics Office

To keep pace with growth, Vietnam will need to invest in its logistics sector, but BMI expects a lot of this
investment to come from outside logistic and freight transport companies which will be keen to enter and
expand into this high growth market. We believe that rapid urbanisation, driven by a healthy pipeline of
government-led infrastructure projects over the next five years, will continue to spur rural-urban migration
and foreign direct investment (FDI) into developed cities such as Ho Chi Minh and Hanoi. We have also
already witnessed this to some extent in Vietnam's port sector, with considerable investment being made by
container shipping lines and global port operators in the development of modern box terminals at Vietnam's
ports.

This investment in the country's maritime sector has ensured that Vietnam's manufacturing growth can be
achieved with greater links between the country and its main export partner the US. Direct container
shipping links between Vietnam and the US have been in operation since 2009, which have cut both time
and cost, as previously Vietnamese shipments had to be transhipped via Singapore.

Demand from the US for Vietnam's manufactured goods looks set to continue growing, with Vietnam's
exports set to benefit from the slow but steady recovery in the US economy.

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Vietnam Freight Transport Report Q4 2014

Vietnam's export outlook will also continue to be bolstered by China's growth outlook. Although we project
China's economic growth to slow over the medium term, the country's real GDP growth outlook remains
robust.

Vietnam plays a key role in China's coal supply chain. Vietnam is China's fifth-largest coal supplier
providing the country with the thermal coal it requires for its power stations. Vietnam's role in this supply
chain looks set to continue, although BMI highlights that China is trying to decrease its power sectors'
reliance on coal. While we believe that the percentage supplied by coal fired power plants within China's
overall energy mix will slip over the medium term, it will nevertheless remain above 70%.

However, we note that China's fake data is expected to distort more export numbers until at least June,
making it difficult for the analysts to assess the strength of the country's trade. Despite the crackdown in
May 2013 on the practice of inflated invoices, which were used to disguise capital inflows, over-invoicing
is still prevalent. This implies that the export data then was artificially boosted, making the recent data look
weak by comparison. According to Royal Bank of Scotland, the government data that revealed the March
exports had unexpectedly declined 6.6% y-o-y marked the height of distortions (Bloomberg). China is
hesitant to revise figures that it acknowledged were inflated, but this leaves the analysts to do a lot of
explanation on why the trade numbers are better than they appear.

BMI believes that Vietnam's textile sector will also benefit from the development of China's middle class,
as the country starts to import more from abroad.

Road Freight

Road Dominates And Offers Best Links Into China


Despite its low standing in road infrastructure, with the Global Economic Forum's Competitiveness Report
2013/14 ranking Vietnam's roads a very poor 102 out of 142 globally, and placing it last in comparison with
13 of its Asia peers, the country's logistics needs are primarily met by road. In 2014 and beyond, we predict
that road freight volumes in Vietnam will account for the majority of freight carried in the country.

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Vietnam Freight Transport Report Q4 2014

Road Reliant
Freight Mode Breakdown (% Of Total), 2013

Source: BMI

In 2014, we anticipate road freight volumes continuing to impress with y-o-y tonnage throughput growth of
just over 6%. However, this will not quite hit the heady heights of the double digit growth enjoyed back in
2012 and the preceding five years. Over the medium term, we forecast road freight volume growth will
average 7.59% per annum, reaching a projected 1.10bn tonnes by the end of 2018.

There is, however, upside risk to this forecast as more foreign logistics companies, with considerable road
freight expertise, expand in Vietnam. Both FedEx and DHL have expanded their role in Vietnam in recent
times. While some companies are breaking into Vietnam by developing their own operations in the country,
others are getting a head start by acquiring and joining up with domestic freight operators. This is the route
CEVA Logistics has taken entering into a joint venture with its long-term business partner Indo Trans
Logistics Group.

Road freight plays a key role not only in Vietnam's domestic logistics sector, but also in the country's export

supply chain. Road is the main form of transport linking Vietnam's factories to the country's ports and also
plays a key role in linking Vietnam with its second-largest export partner China.

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Vietnam Freight Transport Report Q4 2014

Vietnam's northern border links the country's with the south of China. Road links continue to be developed
between the two and with them trucking services. Kerry Asia Road Transport (Kart), for example, offers
a twice-weekly trucking link connecting Shenzhen and Hanoi.

Table: Road Freight, 2011-2018

2011

2012

2013

2014f

2015f

2016f

2017f


2018f

Road Freight 654,127.10 722,156.40 765,070.40 811,036.61 878,167.51 949,432.46 1,024,120.02 1,102,546.65
Tonnes (000)
Road freight
tonnes, % yo-y

11.43

10.40

5.94

6.01

8.28

8.12

7.87

7.66

Road freight
tonnes-km
(mn ton km)

40,130.10

43,902.40


46,790.70

50,070.85

54,324.79

58,840.69

63,573.48

68,543.21

Road freight
tonnes-km,
% y-o-y

10.92

9.40

6.58

7.01

8.50

8.31

8.04


7.82

e/f = BMI estimate/forecast. Source: National Statistics Agency

Inland Waterways
Mekong Offers Trade Links With Neighbours

Vietnam's inland waterways play a considerable role in the country's freight transport sector, making it the
second-largest freight transport mode in the country. In 2014, we are sticking to last quarter's forecast that
the inland waterways sector will increase by 6.64% to reach 192.821mn tonnes, which will be slightly down
on 2013's estimated 7.31% annual growth figure. Over our forecast period, we anticipate average annual
growth of 6.34%.

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Vietnam Freight Transport Report Q4 2014

Mekong Offers Trade Connections
Map Of The Mekong River

Source: BMI

Vietnam's inland waterways stretch for 47,130km and the country's dense network of waterways ranks its
seventh in the world in terms of length. The country's inland waterways include the Mekong River, which
enables freight connections with Vietnam's neighbours. Although we highlight that the River's full potential
has not been reached and so development in the River is an area for potential investment.


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Vietnam Freight Transport Report Q4 2014

Table: Inland Waterway Freight, 2011-2018

2011
Inland
Waterway
Freight Tonnes
(000)

2012

2013

2014f

2015f

2016f

2017f

2018f


160,164.50 168,493.00 180,812.70 192,821.44 205,047.81 218,027.10 231,629.74 245,913.37

Inland
waterway
freight tonnes,
% y-o-y

11.05

5.20

7.31

6.64

6.34

6.33

6.24

6.17

Inland
Waterway
freight tonneskm (mn ton
km)

34,371.70


37,018.30

39,344.40

42,347.78

45,596.91

49,046.13

52,661.00

56,456.84

Inland
Waterway
freight tonneskm % y-o-y

8.50

7.70

6.28

7.63

7.67

7.56


7.37

7.21

e/f = BMI estimate/forecast. Source: National Statistics Agency

Rail Freight

Network Lacking And No Impetus To Develop It

Despite rail's potential as an overland trade link for Vietnam with its three neighbours, the mode's role in the
country's freight transport sector remains small. In 2013, we estimate that Vietnam's rail freight volumes
accounted for a negligible percentage of the total with the country's rail network transporting just 6.73mn
tonnes of freight.

In 2014, the rail freight sector is poised to register steady, if uninspiring, annual growth of 3.12%, which
will at least provide a welcome return to positive growth following last year's contraction of 6.82%. Indeed,
positive growth has been lacking from this sector over recent years but is set to return at least over our
forecast period, with an average annual growth of 4.62% pencilled in between 2014 and 2018.

There are two key factors that we believe have held back Vietnam's rail freight development and will
continue to do so.

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Vietnam Freight Transport Report Q4 2014


Table: Vietnam Transport Network

Length (km)
Road

206,633

Railway

2,632

Inland Waterway

47,130

Source: CIA World Factbook (accessed January 21 2014)

The first is the quality of Vietnam's railway infrastructure. The World Economic Forum's Global
Competitiveness Report 2013/14 gives Vietnam's rail infrastructure a low ranking, placing it 58th globally
out of 123 countries measured. A major problem for Vietnam's rail freight development is the relative
shortness of the country's rail network. Vietnam's railway lines extend for just 2,632km; this compares with
the country's 206,633km network of roads and 47,130km network of inland waterways.

The second drawback for freight rail development in Vietnam is its gauge incompatibility with China.
Vietnam's network is dominated by narrow gauge, which accounts for 80% of the total. While the country
has some standard gauge track, this system only accounts for 20% of the total.

This means that rail freight trade between Vietnam and China is slowed by gauge changes, making road
freight a more cost- and time-effective alternative; this stymies potential rail-freight projects between the
two nations.


BMI highlights that developments in Vietnam's rail network are taking place, but these have been focused
on expanding the country's passenger network (eg, a planned high-speed railway link between Vietnam and
Laos).

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Vietnam Freight Transport Report Q4 2014

Table: Rail Freight, 2011-2018

2011
Rail freight tonnes ('000)
Rail freight tonnes, % y-o-y
Rail freight tonnes-km (mn ton
km)
Rail freight tonnes-km, % y-o-y

2017f

2018f

7,285.10 7,003.50 6,525.90 6,729.53 6,958.33 7,306.25 7,715.40

8,178.32

-7.33


2012

4,576.92

2.60

3.40

2016f

4,162.00 4,024.60 3,804.10 3,903.01 4,020.10 4,160.80 4,343.88
-5.48

3.12

2015f

6.00

-3.30

-6.82

2014f

5.60

5.08


-3.87

2013

3.00

5.00

3.50

4.40

5.37

e/f = BMI estimate/forecast. Source: National Statistics Agency

Air Freight
On Growth Trajectory As Vietnam Gets Better Connected

Vietnam's air freight sector may only account for a small percentage of the country's freight transport sector;
although this is not expected to change, there is a lot of growth potential in this sector. The government has
ambitious plans to modernise and expand the country's airport infrastructure over the long term.

Since early 2012, Vietnam has announced that it was in the search for foreign investors to help construct
two international airports: the USD1.2bn Van Don International airport in the northern province of Quang
Ninh and the USD10bn Long Thanh International airport in the southern province of Dong Nai.

For 2014, we are once again sticking to previous forecasts. We therefore anticipate that the Vietnamese air
freight sector will grow by 3.00%, up from 2013's 2.80%, to reach 189,210 tonnes. Over the forecast period,
we predict Vietnam's air freight levels to grow on average per annum by 3.96% to reach 223,040 tonnes.


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Vietnam Freight Transport Report Q4 2014

Taking Off
Vietnam Air Freight Tonnage, 000 tonnes
250
200
150
100
50

2018f

2017f

2016f

2015f

2014f

2013

2012


2011

2010

0

Vietnam - Air Freight Tonnes (000)

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

BMI expects the increase of air freight connections for Vietnam will come through the development of
intra-Asia air freight routes. In 2012, Air China Cargo and Malaysia's MASKargo added services to Ho
Chi Minh City. Vietnam is also becoming globally better connected by air. In 2012, Emirates added a link
with the country and Dubai, and in 2013, Finnair announced that it planned to launch new cargo routes to
Hanoi.

While still at the development stage, Vietnam is seeking to play a greater role in the electronics supply
chain, a key source of demand for air freight transport options. One example has been the impact the local
production of iPhones has had on China's air freight sector. Plans are in place for Vietnam-based facilities to
produce Nokia phones, iPods, PlayStations and Sony laptops, which will all drive up air freight demand.

Vietnam's pharmaceutical sector exports much of its output, but the country also imports a lot. Vietnam's
trade in pharmaceuticals is forecast to grow in the double digits in percentage terms over the medium term.
The global pharmaceutical sector is increasingly turning to the aviation sector to meet its freight needs, with

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