Vietnam freight transport report q1 2010

... of any information hereto contained Vietnam Freight Transport Report Q1 2010 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q1 2010 CONTENTS Executive Summary ... leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page Vietnam Freight Transport Report Q1 2010 Business Environment Ratings The freight transport. .. International Ltd Page 34 Vietnam Freight Transport Report Q1 2010 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market

Q1 2010 www.businessmonitor.com VietnaM freight transport Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 1750-5364 Published by Business Monitor International Ltd. Vietnam Freight Transport Report Q1 2010 Including 5-year industry forecasts by BMI Part of BMI’s Industry Survey & Forecasts Series Published by: Business Monitor International Publication date: December 2009 Business Monitor International Mermaid House, 2 Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2009 Business Monitor International. All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Freight Transport Report Q1 2010 © Business Monitor International Ltd Page 2 Vietnam Freight Transport Report Q1 2010 CONTENTS Executive Summary .........................................................................................................................................5 SWOT Analysis.................................................................................................................................................6 Vietnam Road Haulage SWOT............................................................................................................................................................................... 6 Vietnam Political SWOT ........................................................................................................................................................................................ 6 Vietnam Economics SWOT .................................................................................................................................................................................... 7 Vietnam Business Environment SWOT................................................................................................................................................................... 7 Business Environment Ratings ......................................................................................................................8 Table: Asia Pacific Freight Business Environment Ratings................................................................................................................................... 8 Freight Industry Ratings ........................................................................................................................................................................................ 9 Transport Intensity Index..................................................................................................................................................................................... 10 Vietnam Logistics Performance Index (LPI)........................................................................................................................................................ 10 Economic Risk Summary...................................................................................................................................................................................... 10 Political Risk Summary........................................................................................................................................................................................ 11 Business Environment Risk Summary .................................................................................................................................................................. 12 Legal Code/Corruption........................................................................................................................................................................................ 12 Red Tape.............................................................................................................................................................................................................. 12 Labour Force....................................................................................................................................................................................................... 13 Industry Trends And Developments ............................................................................................................14 Road .................................................................................................................................................................................................................... 14 Rail ...................................................................................................................................................................................................................... 14 Air........................................................................................................................................................................................................................ 14 Sea ....................................................................................................................................................................................................................... 15 Industry Forecast Scenario ...........................................................................................................................17 Global Oil Products Price Outlook...................................................................................................................................................................... 17 Table: Oil Product Price Assumptions, Q108-Q409 (US$/bbl)............................................................................................................................ 19 Table: Oil Product Prices, 2007-2014 (US$/bbl) ................................................................................................................................................ 20 Macroeconomic Outlook...................................................................................................................................................................................... 21 Table: Vietnam – Economic Activity, 2006-2014................................................................................................................................................. 23 Transport Outlook ............................................................................................................................................................................................... 23 Table: Freight Transport Data And Forecasts, 2006-2014.................................................................................................................................. 24 Table: Freight Carried, Domestic, 2006-2014 (mn tonnes-km) ........................................................................................................................... 25 Trade Environment.........................................................................................................................................26 Table: Total Value Of Imports By Category, 2006-2014 (US$mn) ...................................................................................................................... 27 Table: Value Of Exports By Category, 2006-2014 (US$mn)................................................................................................................................ 28 Table: Vietnam’s Top Export Destinations, 2002-2006 (US$mn)........................................................................................................................ 29 Table: Vietnam’s Export Trade, 2003-2006 (% growth y-o-y)............................................................................................................................. 30 Table: Vietnam’s Import Trade, 2003-2005 (% growth y-o-y)............................................................................................................................. 30 Table: Vietnam’s Top Import Sources, 2002-2006 (US$mn) ............................................................................................................................... 31 Market Overview.............................................................................................................................................32 Multi-Modal.............................................................................................................................................................................................................. 32 Competitive Landscape........................................................................................................................................................................................ 32 Road.......................................................................................................................................................................................................................... 35 © Business Monitor International Ltd Page 3 Vietnam Freight Transport Report Q1 2010 Infrastructure....................................................................................................................................................................................................... 35 Competitive Landscape........................................................................................................................................................................................ 35 Rail ........................................................................................................................................................................................................................... 39 Infrastructure....................................................................................................................................................................................................... 39 Competitive Landscape........................................................................................................................................................................................ 39 Air............................................................................................................................................................................................................................. 42 Infrastructure....................................................................................................................................................................................................... 42 Competitive Landscape........................................................................................................................................................................................ 42 Company Profile: Vietnam Airlines ..................................................................................................................................................................... 46 Water ........................................................................................................................................................................................................................ 48 Infrastructure....................................................................................................................................................................................................... 48 Maritime Competitive Landscape ........................................................................................................................................................................ 49 Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) ........................................................................................................................... 55 Table: Vietnam Petroleum Transport’s Key Financial Data................................................................................................................................ 56 Company Profile: Doan Xa Port.......................................................................................................................................................................... 57 Table: Doan Xa Port’s Financial Performance ................................................................................................................................................... 58 Pipelines ................................................................................................................................................................................................................... 59 Competitive Landscape........................................................................................................................................................................................ 59 Country Snapshot: Vietnam Demographic Data .........................................................................................60 Section 1: Population........................................................................................................................................................................................... 60 Table: Demographic Indicators, 2005-2030........................................................................................................................................................ 60 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 61 Section 2: Education And Healthcare.................................................................................................................................................................. 61 Table: Education, 2002-2005 .............................................................................................................................................................................. 61 Table: Vital Statistics, 2005-2030........................................................................................................................................................................ 61 Section 3: Labour Market And Spending Power .................................................................................................................................................. 62 Table: Employment Indicators, 1999-2004 more recent?]................................................................................................................................... 62 Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................ 62 BMI Methodology ...........................................................................................................................................63 How We Generate Our Industry Forecasts .......................................................................................................................................................... 63 Transport Industry ............................................................................................................................................................................................... 63 Sources ..................................................................................................................................................................................................................... 64 © Business Monitor International Ltd Page 4 Vietnam Freight Transport Report Q1 2010 Executive Summary Container shipping line APL said in October 2009 that it was launching a new Japan-Thailand-Vietnam (JTV) service to strength its regional short sea network and to better service local manufacturing and consumption markets. Starting from October 30 the service would link Japan, South China, Hong Kong, Thailand and Vietnam. Three ships would operate the JTV, each with a 1,200 twenty-foot equivalent units (TEU) capacity. Jason Wong, APL vice-president for Inter-Asia was quoted in the media saying ‘the new service will support a trading circle encompassing key origins and destinations ranging from South East and East Asia to North Asia’. The port rotation was listed as Tokyo, Yokohama, Kobe, Chiwan, Hong Kong, Laem Chabang, Ho Chi Minch City, Kaohsiung, and back to Tokyo. Since our last report we have raised our macroeconomic forecasts for Vietnam. After GDP growth in 2008 of 6.2% we have now boosted the estimate for 2009 to 5.1% growth (was 2.0%). Our forecast for 2010-2014 is for an annual average GDP growth rate of 7.3% per annum, on a par with the also 7.8% average rate achieved in the preceding five-year period. We maintain some adjustments to mode-specific freight carried forecasts. In road haulage, we have trimmed our forecast to take account of the global downturn and lower freight demand. We still see road-freight turnover running ahead of the general rate of economic expansion in Vietnam. Air freight is beginning to emerge from a difficult period. WTO membership has been supportive of greater freight transport turnover relative to GDP across all modes, but particularly so for shipping. On the downside, the 2009 contraction in trade had a particularly strong impact on shipping and Vietnam is expected to export less coal by sea as its domestic power needs rise. The net result of this is that we expect freight carried growth across all modes, measured in million tonne kilometres (mntkm), to average 7.6% a year in 2010-2014. According to our latest estimates, transport and communications GDP will have risen by 6.3% in 2009, 1.2 percentage points (pps) faster than overall GDP, which we estimate to have increased by 5.1%. For the 2010-2014 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole in value terms. It will achieve average annual growth of 8.3%, versus 7.3% for overall GDP. The total value of transport and communications GDP will rise to US$7.6bn in nominal terms by 2014, representing 4.5% of Vietnam’s GDP. By modes, we project that air freight to be the fastest growing, rising by 9.5% per annum, followed by rod haulage at 9.3%, pipelines (8.4%), rail (8.0%), and shipping (7.2%). © Business Monitor International Ltd Page 5 Vietnam Freight Transport Report Q1 2010 SWOT Analysis Vietnam Road Haulage SWOT Strengths ƒ Vietnam’s strong domestic growth rate coupled with its geography; a long country stretching for thousands of kilometres on a north-south axis creates a need for longdistance freight haulage Weaknesses ƒ The generally poor state of the road network. Despite new highway construction, only 13.5% of the road network is considered to be in good condition, only 26% has two or more lanes and only 29% is tarred. Construction of the second north-south highway may be a waste of resources given the pressing need for improvement of secondary roads Opportunities ƒ The beginnings of local commercial vehicle production, which will help improve the stock of lorries used by road haulage companies Threats ƒ The attractiveness of other modes of freight transport, particularly inland waterways and coastal shipping. If progress towards a better-integrated national road network is too slow, freight growth will divert away from the trucking industry Vietnam Political SWOT Strengths ƒ The Communist Party government appears committed to the market-oriented reforms necessary to double 2000’s GDP per capita by 2010, as targeted. The one-party system is generally conducive to short-term political stability ƒ Relations with the US are generally improving and Washington sees Hanoi as a potential geopolitical ally in South East Asia Weaknesses ƒ Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership’s tight control over political dissent Opportunities ƒ The government recognises the threat that corruption poses to its legitimacy and has acted to clamp down on graft among party officials ƒ Vietnam has allowed legislators to become more vocal in criticising government policies. This is opening up opportunities for more checks and balances within the oneparty system Threats ƒ Vietnamese dissidents are seeking external help, especially from the US. This could complicate Vietnam-US relations, with Washington having criticised Hanoi over its restrictions on religious freedom ƒ Although strong domestic control will ensure little change to Vietnam’s political scene in the next few years, over the longer term, the one-party state will probably be unsustainable © Business Monitor International Ltd Page 6 Vietnam Freight Transport Report Q1 2010 Vietnam Economics SWOT Strengths ƒ Vietnam has been one of the fastest-growing economies in Asia in recent years, averaging growth of 8.0% a year ƒ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004 Weaknesses ƒ Vietnam suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable to external shocks. The fiscal picture is clouded by considerable ‘off-the-books’ spending ƒ The heavily managed and weak dong currency reduces incentives to improve the quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures Opportunities ƒ WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition ƒ The government will continue to move forward with market reforms, including privatisation of the state-owned enterprises sector and liberalising the banking sector ƒ Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s Threats ƒ Inflation and deficit concerns have caused some investors to re-assess their hitherto upbeat view of Vietnam. If the government fails to curb inflation, it risks prolonging macroeconomic instability, which could lead to a potential crisis ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilise the economy Vietnam Business Environment SWOT Strengths ƒ Vietnam has a large, skilled and low-cost workforce that has made the country attractive to foreign investors ƒ Vietnam’s location – its proximity to China and South East Asia, and its good sea links – makes it a good base for foreign companies to export to the rest of Asia and beyond Weaknesses ƒ Vietnam’s infrastructure is still weak. Roads, railways and ports are inadequate to cope with the country’s economic growth and links with the outside world ƒ Vietnam remains one of the world’s most corrupt countries. Its score in Transparency International’s 2008 Corruption Perceptions Index was 2.7, lower than the regional average of 4.6 Opportunities ƒ Vietnam is attracting investment from key Asian economies, such as Japan, South Korea and Taiwan. This offers possibility of transfer of high-tech skills and know-how ƒ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector. This should offer foreign investors new entry points Threats ƒ Ongoing trade disputes with the US and the general threat of American protectionism, which will remain a concern ƒ Labour unrest remains a lingering threat. A failure by the authorities to boost skill levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page 7 Vietnam Freight Transport Report Q1 2010 Business Environment Ratings The freight transport sector in the Asia Pacific region offers one of the most attractive business environments for the industry worldwide. There are various reasons for this. First, the region offers a powerful combination of future growth and economies of scale. It contains arguably the two most significant of the four BRIC (Brazil, Russia, India and China) economies, which, it is argued, are the powerhouses of future global growth. China and India combine vast geographical size, large populations, globally competitive labour costs and as yet untapped infrastructure potential. To this must be added the ‘third BRIC’, Russia, which, although outside the region, has critically important trade and transport links to Asia (such as crude oil exports to China). Second, at a ‘big picture’ level, most of the regional power centres are committed to reasonably pragmatic and relatively stable, market-based policies. Countries that in the past were either fervently communist (China, Vietnam) or capitalist (Malaysia, Taiwan) share a much wider non-ideological common ground focused on how to achieve a sustainable rise in living standards. This is not to say, of course, that the area is free of tensions and flash points (North Korea, China-Japan, India-Pakistan to name just a few). Table: Asia Pacific Freight Business Environment Ratings Limits of potential returns Risks to realisation of returns Freight transport market Country structure Limits Market risks Country risk Risks Overall rating Regional rank Singapore 52.5 79.6 66.1 80.0 90.1 86.0 72.1 1 Australia 45.0 90.1 67.6 75.0 82.2 79.3 71.1 2 India 62.5 71.0 66.7 60.0 60.8 60.5 64.9 3 South Korea 47.5 76.4 61.9 60.0 74.6 68.7 64.0 4 China 72.5 47.6 60.1 60.0 68.4 65.0 61.6 5 Malaysia 42.5 67.0 54.7 60.0 70.9 66.6 58.3 6 Vietnam 50.0 71.3 60.7 55.0 50.5 52.3 58.1 7 Japan 42.5 72.5 57.5 55.0 58.6 57.1 57.4 8 Indonesia 50.0 71.4 60.7 50.0 46.8 48.1 56.9 9 Hong Kong 47.5 39.5 43.5 70.0 84.3 78.6 54.0 10 Thailand 40.0 59.2 49.6 55.0 58.1 56.8 51.8 11 Philippines 40.0 55.6 47.8 50.0 49.7 49.8 48.4 12 Pakistan 50.0 47.6 48.8 55.0 35.0 43.0 47.1 13 Taiwan 27.5 38.0 32.8 65.0 72.5 69.5 43.8 14 Scores out of 100, with 100 highest. Source: BMI © Business Monitor International Ltd Page 8 Vietnam Freight Transport Report Q1 2010 Strong freight transport growth rates are combined with a very encouraging infrastructure investment picture across most of the region. By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to smaller/higher value loads continues. Rail freight will benefit from long-distance economies of scale, whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route. Shipping is being lifted by the surge in trans-Pacific commodity and manufacturers’ trade routes, while air freight is growing on the back of liberalisation and the budget airline boom. While the freight transport industry in the region suffers from patchy regulation and in some areas there are ongoing issues with corruption and cronyism, it is on the whole much more open and competitive than in the past. A strong positive factor is the dynamic and outward facing role played by foreign trade. Freight Industry Ratings Our overall freight transport rating for Vietnam stands at 58.1 (out of a theoretical maximum score of 100). This is composed of a score of 60.7 for potential returns (reflecting factors such as market size, growth and the competitive environment), which gets a 70% weighting, and a lower score of 52.3 for risks to those returns (reflecting factors such as market orientation, regulatory environment and other country-risk issues), which gets a 30% weighting. Vietnam’s freight transport traffic, measured in mntkm, rose by an annual average of 10.1% in 2005-2009 and, according to our projections, will decelerate to an annual average of 7.6% in 2010-2014. According to official information, there is a wide range of transport sector investment projects in the pipeline, across road, rail, air and sea. Work is under way to develop the Mekong basin area, and new seaports are planned. While there is no doubt that Vietnam’s transport infrastructure is expanding, our rating for this category is constrained by poor planning and limited project management experience. Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that the reform process started nearly two decades ago. The country gained access to the WTO in 2007. In the transport sector, state-owned enterprises (SOEs) continue to be dominant in many areas. There is not yet a clear legal framework for the protection of passenger and freight customer rights. Freight transport competition remains limited, with SOEs dominating key transport modes. There are few foreign entrants, although we expect more to arrive during the forecast period. To be able to operate in the country, significant negotiations and procedures are required. Although the government favours attracting more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive markets. © Business Monitor International Ltd Page 9 Vietnam Freight Transport Report Q1 2010 Transport Intensity Index This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2005 through to 2014. As such, it is a mix of actual performance (the five-year 2005-2009 period) and projected performance (2010-2014). In Vietnam’s case, actual average annual trade growth in 2005-2009 was a strong 17.8%, which in our projections will ease substantially to 10.8% per annum in 2010-2014. The annual average across the 10 years as a whole is 14.3%. Vietnam Logistics Performance Index (LPI) In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as ‘the first in-depth cross-country assessment of the logistics gap among countries’. The LPI was calculated on a five-point scale and based on survey responses from over 800 logistics professionals. Countries were given an aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the quality of customs, infrastructure and international shipments, logistics competence, tracking and tracing, domestic logistics costs, and timeliness. In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9. For comparison with the major OECD economies, the Netherlands was ranked second in the world with an LPI of 4.2; followed by Germany (third with an LPI of 4.1), the UK (ninth, LPI of 4.0) and the US (14th, LPI of 3.8). In comparison with other Asian economies, Singapore was the world number one with an LPI score of 4.2, followed by Australia (17th, LPI of 3.8) and Taiwan (21st, LPI of 3.6). Then came South Korea (25th, LPI of 3.5), Malaysia (27th, LPI of 3.5), China (30th, LPI of 3.3), Thailand (31st, LPI of 3.3) and Indonesia (43rd, LPI of 3.0). Vietnam was therefore close to the bottom end of the regional LPI ranking, ahead of Papua New Guinea (95th, LPI of 2.4) and Laos (117th, LPI of 2.3). In terms of the different components of the index, Vietnam’s best performing areas, ranked in order, were domestic logistics costs, timeliness, international shipments, and tracking and tracing. Weaker areas in descending order were customs, logistics competence, and infrastructure. Economic Risk Summary Vietnam Borrows Dollars Japan will lend Vietnam US$1bn annually between 2010 and 2012, allowing Vietnam to bolster its foreign exchange reserves. The State Bank of Vietnam (SBV) also announced on October 21 that it will borrow US$1bn from the World Bank for the same purpose. The Asian Development Bank has estimated that Vietnam's foreign exchange reserves fell from US$23.0bn to US$17.6bn between January and June, as Vietnamese authorities supported the value of the dong. High inflation and a wide trade deficit have already forced the government to depreciate the currency by 7.2% since August 2008. We believe that further devaluations will be necessary in 2010 to rein in the trade deficit. © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q1 2010 Long-Term Risk The 3.9% year-on-year (y-o-y) expansion in H109 was the lowest on record, but macroeconomic data in Q209 and Q309 suggest that the government and central bank's stimulus measures are now gaining traction. We have thus revised up our growth forecast for 2009 from 2.9% and 4.5%, but caution that Vietnam will need support from a pick-up in global demand for a sustained economic recovery. On the political front, the economic downturn has not yet seen any material repercussions in the form of street protests. However, a campaign launched by Vietnamese Catholics to reclaim church property confiscated by the state has put a spanner in the wheels of Hanoi's efforts to improve relations with the Vatican and the US. We have revised up our 2009 GDP growth forecast from 2.9% to 4.5% on the back of governmentsupported resilience in domestic demand and a slightly improved export outlook. However, the stimulusdriven performance in 2009 could come back to haunt Vietnam in 2010 as the government and central bank will most likely need to stem a resurgence of inflation. We are thus content with raising our 2010 GDP growth forecast from 5.0% to 5.5%. In the longer term, we see annual GDP growth rising back towards 8% in 2013 as the effects of the global recession in 2009 fade. Political Risk Summary US Attacks Lack of Political Freedom The US House of Representatives approved a resolution on October 21 calling for the release of all political prisoners in Vietnam. The resolution named 18 internet bloggers who have been jailed for criticising the communist regime and demanded that Vietnam 'become a responsible member state of the international community by respecting individuals' freedom of speech'. Earlier in the month the US embassy in Vietnam had criticised the jailing of nine activists for displaying pro-democracy banners. Congressman Joseph Cao demanded the US return Vietnam to its 2006 status as a 'country of particular concern', which could bring economic repercussions. Long-Term Risk Tension between China and Vietnam remains high as the conflict over the disputed Paracel and Spratly Islands in the South China Sea has intensified. This has paved the way for a further rapprochement between Hanoi and Washington to check the expanding military might of Beijing. However, these tentative efforts are being undermined by Hanoi's repression of Catholic activists seeking to expand religious rights in the nominally atheist republic. With Vietnam becoming an increasingly important potential ally, we believe the Obama administration will turn a blind eye to these human rights transgressions. © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q1 2010 Business Environment Risk Summary Vietnam is making headway in improving its dilapidated infrastructure with construction on a number of ports, power plants and road projects being commenced in 2009. Nonetheless, it will take a number of years, if not decades, until Vietnam's infrastructure rating of 37.2 comes anywhere near the 68.0 China scores in the same area. On the legislative front, the government's privatisation process is gaining pace again with an initial public offering of state-owned Bank for Investment and Development (BIDV), the country's second-largest bank, scheduled for H110. We also foresee improvements in the business environment from the Vietnam-Japan Economic Partnership agreement and a free trade agreement currently under negotiation with the European Union (EU). Port Enhances Trade Opportunities Dubai's DP World announced on October 18 that the first vessel had been handled at the newly built Saigon Premier Container Terminal, a US$230mn joint venture (JV) between the company and the Vietnamese-state owned Tan Thuan Industrial Promotion Company The new terminal, located on the western bank of the Soai Rap River, will have a capacity of 1.5mn TEU per year and serve Ho Chi Minh City. In our view, this additional trade capacity is a positive development that will help prevent potential bottlenecks as planned closures of outdated facilities along the Saigon River proceed over the next 10 to 15 years. Legal Code/Corruption Legal Code Vietnam’s judicial system is based on communist legal theory and the French civil law system. Corruption Vietnam has a bad record on transparency. The state was ranked 121st (out of 180) in Transparency International’s Corruption Perceptions Index in 2008, with a score of 2.7. Red Tape Vietnam compares favourably with its regional peers in terms of bureaucracy, and about the same as developed states. According to World Bank data, 28 separate procedures are required to enforce a contract, which takes an average of 120 days. The East Asia and Pacific average is 24 and 193, respectively, while the process involves 18 procedures and 213 days in high-income OECD states. Conversely, World Bank data state that it takes 11 procedures and 56 days to start a business in Vietnam, compared with an average of nine and 61 in East Asia and Pacific and six and 25 in high-income OECD states. © Business Monitor International Ltd Page 12 Vietnam Freight Transport Report Q1 2010 Labour Force Size Reliable data on the labour force in Vietnam are difficult to find. However, it is estimated that the working age population in the country is 42.1mn, approximately 61% of the total. An estimated 10.2mn live in urban areas, with the remaining 31.9mn in rural areas. ‘Technically skilled workers’ form an estimated force of 8.84mn, accounting for 20.99% of the total. The south-east region has the highest rate of skilled workers (30.13%), followed by the Red River delta (27.99%) and Coastal South Central (20.85%). The lowest rate was reported in the north-west region. Education The adult male illiteracy rate was estimated at 4% for males and 9% for females in 2000, with the youth illiteracy rate 3% for both genders. Regulation The Vietnam labour force is comparatively heavily regulated, according to World Bank’s Employment Laws Index. Its score of 56 indicates that regulations are tighter than the East Asia and Pacific average, and a bit tighter than OECD high-income states. Disaggregating the data, the regulations for hiring workers are looser than those for firing workers, with scores of 43 and 48, respectively, the combination of which suggests a more regulated workforce than regional peers. Issues Fears of growing unemployment and rising social unrest in the cities is slowing down the reform of SOEs. The SOEs are an inefficient and loss-making legacy of a different era, and would have gone bankrupt a long time ago if the market had had its way. However, the fear of creating mass unemployment in the cities by laying off surplus labour has prevented meaningful reform. As a result, the SOEs continue to crowd out the more productive private sector, while adding to the government’s fiscal woes by forcing the state to absorb their losses. © Business Monitor International Ltd Page 13 Vietnam Freight Transport Report Q1 2010 Industry Trends And Developments Road In October 2009 the government said that the Vietnam Road Administration, part of the ministry of transport, would allocate VND1.4trn (US$78.4mn) worth of government bonds for upgrading National Highway 25. The highway links Phu Yen province to the highlands province of Gia Lai, both in the country’s central region. The highway was due to be completed by the end of 2012. Rail In late October 2009 it was reported that the cost of building an 191km express rail link between Ho Chi Minh City and the Mekong Delta city of Can Tho had risen to an estimated US$9.63bn, up from an initial estimate of US$4bn. Lao Dong newspaper said the initial lower cost estimate had been made by Chungsuk Co of South Korea. The ministry of transport had appointed the Vietnam Railway Administration as the main investor for the project. Air Starting in late October, Korean Air Cargo said it had launched a regular B747-400F twice-weekly freighter service between Incheon and Hanoi, with a stop-over in Singapore. The Korean airline said the service would take advantage of growing trade with Hanoi; it had already been operating a regular airfreight service to Ho chi Minch City since 1998. Vietnam’s first privately-owned airfreight company said in October that it would commence operations in the first quarter of 2010. Trai Thien AirCargo said it would specialise in cargo operations on domestic and international routes, with a focus on northeast and south east Asian markets. It said it would be using Boeing 737-300 aircraft, converted from passenger to cargo payloads. The company is part of the Ho Chi Minch-based Trai Thien Group which is also active in shipping, operating four cargo ships with a total capacity of 13,391 deadweight tonnes (DWT). The Civil Aviation Administration of Vietnam said it was reducing take-off and landing fees charged to international airlines by 5%, effective until March 1 2010. The decision was said to be a response to a proposal made by the Air Operator’s Commission (AOC) and Vietnam Airlines. Vietnam now hosts a total of 44 airlines, of which 33 are mainly passenger operators, and 11 are cargo-only. © Business Monitor International Ltd Page 14 Vietnam Freight Transport Report Q1 2010 Sea At the beginning of November state media reported that work had begun on a US$3.6bn international container port in Khanh Hoa province in the centre of the country. The Van Phong port would be completed by 2020 with 42 wharves and the capacity to move 200mn tonnes of cargo a year. Prime Minister Nguyen Tan Dung was quoted saying at a launching ceremony that the port would operate ‘at regional level and be very competitive in the future’. Construction would take place over four phases with the first due for completion by 2015. Container shipping line APL said in October it was launching a new Japan-Thailand-Vietnam (JTV) service to strength its regional short sea network and to better service local manufacturing and consumption markets. Starting from October 30 the service would link Japan, South China, Hong Kong, Thailand and Vietnam. The JTV would be operated by three ships, each with a 1,200 TEUS capacity. Jason Wong, APL vice-president for Inter-Asia was quoted in the media saying ‘the new service will support a trading circle encompassing key origins and destinations ranging from South East and East Asia to North Asia’. The port rotation was listed as Tokyo, Yokohama, Kobe, Chiwan, Hong Kong, Laem Chabang, Ho Chi Minch City, Kaohsiung, and back to Tokyo. The US$360mn Saigon Premier Container Terminal (SPCT) was officially opened in October with the Asta Rickmers, operated by French shipping company CMA CGM, the first container vessel to use the facility. SPCT, with the capacity to handles 1.5mn TEUS per annum, is a JV between the Vietnamese state-owned Tan Thuan Industrial Promotion Co., and Dubai Ports World (DPW). Taiwan's Formosa Plastics Group is rapidly emerging as one of the largest, if not the largest, foreign investors in Vietnam. The group has disclosed that it will live up to its commitment to the government to build a deep-sea port in Son Duong, next to the Vung Ang Economic Zone, where it is investing US$19.2bn in petrochemical, steel and oil refinery projects. A spokesperson for the group said that the firm is hoping Son Duong will become the largest deep-sea port in Southeast Asia. The estimated cost of building the port is US$1.2bn, and it is designed to accommodate vessels with a capacity of between 200,000 and 400,000 deadweight tonnes (dwt). The other port in the region, the Vung Ang Port, has the capacity to accommodate ships of around 45,000DWT. The company did not give a timeframe for the construction. The new port will significantly bolster Formosa Group's transport capabilities to and from the Vung Ang Economic Zone. The economic zone is designed to house the steel industry, shipbuilding, mechanical manufacturing and local industrial production. The group is currently building a steel manufacturing unit and has received the government's approval to build a petrochemical complex and an oil refinery. The Vietnamese government has been keen to develop surrounding infrastructure for the economic zone to attract a greater number of companies, hence committing Formosa Group to the Son Duong project. In March 2009, the government awarded a contract for the construction and operation of the Vung Ang 2 thermal power plant to supply the economic zone. The plant will be operational in 2013, © Business Monitor International Ltd Page 15 Vietnam Freight Transport Report Q1 2010 eventually reaching a capacity of 1.2 gigawatts (GW), and has an estimated cost of US$1.2bn. In terms of road and rail links, the economic zone is near the national highways 8 and 9, which link the zone to Laos. Major investments have been pledged for the port sector in Vietnam as port operators, shipping companies and manufacturers seek to capture the growth of Vietnam's export market. With investments taking place, the slow yet steady improvement of Vietnam's port infrastructure is reflected in the better score it has received in 2009 in the Global Competitiveness Report. In 2009-2010, Vietnam placed 99th out of 133 countries, up from 112th place in the 2008-2009 report, which assessed 134 countries. In late August the vice-chair of the southern Vietnamese province of Ba Ria-Vung approved a plan for the construction of a major road artery that will link the ports and industrial zones in the area. Ports in the region include those of the Cai Mep district, one of the maritime hubs of Vietnam. This is a welcome development for Vietnam's infrastructure, where investments have been funneling into ports, but surrounding infrastructure poses constraints to trade. According to the plan, the road will be built in two phases. The first phase pertains to the construction of an 8.3km road and five bridges, but no specific route has been announced. Construction will start during the fourth quarter of 2009 and be completed by 2012. The second phase will start construction in 2012 and be completed in 2015 and pertains to the construction of a 3.2km road and a bridge. The total estimated cost of the project is VND6.3trillion (US$350mn). The Department of Transport will own the new road. Initial plans called for the construction of an inter-port road system to begin from the lower Cai Mep container port, pass through the Tan Thanh District and finish at the Phuoc An Port, the Saigon Times reports. Activity has mainly been concentrated on boosting the capacity of the southern economic zone, especially in the Thi Vai River area. Major global port operators with interests in the region include Hutchison Port Holdings, Singapore's PSA International, Saigon Port, Denmark's Maersk and France's CMA CGM, all of which have been involved in the operations and development of major Vietnamese ports in the Thi Vai River in an effort to enter one of Asia's most promising markets. American Shipper estimates the amount invested in Vietnamese ports is close to US$4.5bn, and that up to eight new terminals are under development at Vung Tau along an 'S-shaped channel'. Most of these new builds are expected to open in 2011. However, investors have expressed concern that the infrastructure surrounding the ports, such as roads and railways will not be able to handle the rising trade volumes that are expected to pass through the new ports. Saigon Times cites data from the Vietnam Maritime Administration that estimates that the throughput at the ports of Ho Chi Minh City, Dong Nai and Ba- RIA Vung Tai will be 100mn tonnes in 2010 and double to 222mn tonnes by 2020. . © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q1 2010 Industry Forecast Scenario Global Oil Products Price Outlook Tanks Still Brimming Global product markets lost more ground in September, thanks to continuing distillate stock building and the narrowing of the gasoline crack spread. Refiners were again obliged to trim operating levels as margins contracted. Margins for West Texas Intermediate (WTI) crude at the US Gulf Coast halved in September. European refinery performance improved as a result of precautionary run cuts. The Rotterdam Brent margin widened in September by almost 50% to US$3.92 per barrel (bbl). Sadly, Singapore refinery profitability came under increased pressure and a continuation of Asia Pacific’s margin weakness bodes ill for downstream investment. Casting a long shadow over the oil market is the excessive stock position, with refined product inventories in particular forming a barrier capable of blocking further price appreciation. Early October saw US stockpiles of distillate fuel, including heating oil and diesel, climb to their highest level since January 1983, according to US Energy Department data. Gasoline inventories also jumped to 214.4mn bbl as refiners boosted output. While there are indications that gasoline consumption trends have stabilised in the US, there is no evidence of such an improvement in distillate demand. US refiners such as Valero Energy and Sunoco have been cutting throughputs more aggressively than at any time since the early 1980s, even though a cold winter is being predicted. Temporary plant closures appear to be spreading, and maintenance activity either brought forward or extended. Refiners fear that even low temperatures will not provide a sufficiently large demand boost to drain overflowing storage tanks. The margin for producing heating oil and diesel may decline by more than one-third by January 2010, according to Energy Security Analysis. The Energy Department predicts that heating costs in winter 2009/10 will fall 8% across the US, even as the north east is faced with potentially frigid weather. February 2010 futures contracts in early October showed that the premium of heating oil to crude oil will average US$5.00-5.50/bbl in January 2010, down from the recent US$8.10/bbl. A year ago the future crack spread for heating oil was almost US$20.00/bbl. An El Niño weather system in the Pacific Ocean may push down temperatures in the US north east in Q110, predicted independent weather forecaster Commodity Weather Group in a late September 2009 report. Without an unusually cold US winter, distillate stocks are more than ample and could provide a constant drain on market strength. Having said that, US heating oil futures reached a seven-week high in early October on speculation that colder weather predicted for the rest of the month would boost demand for home-heating fuel. © Business Monitor International Ltd Page 17 Vietnam Freight Transport Report Q1 2010 In early October the Energy Department predicted that US demand for distillate fuels could fall more than 8% in 2009, with a decline to just 3.62mn barrels per day (b/d), the biggest setback since 1980. There was enough heating oil and diesel in the US as of early October to last more than 50 days, with stocks up by one-quarter in the first nine months of 2009, or by almost 34mn bbl to around 172mn bbl. It will require a drop of more than 52mn bbl, or 30%, by the end of March to bring supplies down to the five- year average. Gasoil stockpiles in Europe’s Amsterdam-Rotterdam-Antwerp (ARA) area are also plentiful, amounting to almost 22mn bbl as of October 8, according to Netherlands-based consultant PJK International. The preceding four weeks had seen a welcome 4.6% decline from the previous record level. However, diesel and fuel oil demand remains extremely weak. The volume of refined products in floating storage, largely distillates, off north west Europe and the Mediterranean had grown to about 50mn bbl as of the end of September, up from the end-August level of around 40mn bbl, the International Energy Agency (IEA) said in its October Oil Market Report (OMR). In spite of better economic conditions, the trends towards higher fuels taxation and the overhaul of subsidies in some developing countries mean that a sustainable recovery in demand is far from certain. In spite of evidence that US drivers may be migrating back to less fuel-efficient vehicles, the major shifts in patterns of consumption resulting from vehicle ownership changes are unlikely to be reversed simply because pump prices are temporarily lower. The move in Europe away from gasoline and towards diesel is expected to continue for a while longer, in spite of steep price differentials. However, advances in small petrol engine technology may mean these more economical units bring to an end the love affair with diesel. Over the longer term, expansion of the oil refining system is still needed, particularly as market growth is likely to accelerate as the world pulls clear of recession/depression. However, refining margins look set to remain under pressure. Coupled with weaker upstream economics and modest profits in fuels retailing, the downturn in refining profitability means that both international and national oil companies may reexamine investment plans. The downstream oils market needs to see continued high level spending in new crude distillation capacity, improved plant upgrading capability and better storage/distribution logistics. There will inevitably be reduced capital expenditure if industry earnings and cash flow remain under pressure. This can only result in the market tightening once again as demand picks up – with a return to extreme price volatility and generally higher fuel prices. Revised Forecasts During Q309, BMI estimates that the global wholesale price for premium unleaded gasoline will have been US$76.56/bbl. This compares with US$69.89 in the second quarter of 2009. During the three © Business Monitor International Ltd Page 18 Vietnam Freight Transport Report Q1 2010 quarters to September the price has ranged from a monthly low of US$49.33 in January 2009 to the June 2009 level of US$79.87/bbl. Gasoline prices in Q309 are down 40.2% from US$127.92 Q308. For Q409 we now forecast an average global gasoline price of US$71.19/bbl, a decline of 7.0% from the previous quarter, but a y-o-y decline of almost 41% from the US$120.63/bbl seen a year earlier. For the whole of 2009, the BMI assumption for gasoline is an average US$67.46/bbl, with the price having peaked in June. The overall y-o-y fall in 2009 gasoline prices will be 33.7%. Table: Oil Product Price Assumptions, Q108-Q409 (US$/bbl) Gasoline Q108 Q109 Q209 Q309e Q409f Rotterdam Premium Unleaded 54.96 50.67 71.46 79.12 69.60 NY Harbour Unleaded 57.84 51.18 69.51 74.83 72.95 Singapore Premium Unleaded 56.32 54.80 68.70 75.72 71.01 Global average 56.37 52.22 69.89 76.56 71.19 Rotterdam 79.66 56.45 67.52 75.98 79.51 NY Harbour 81.95 58.44 66.57 74.64 75.34 Singapore 74.73 55.45 66.54 74.08 70.93 Global average 78.78 56.78 66.87 74.90 75.26 Rotterdam 77.89 55.19 64.72 74.61 90.14 Mediterranean 78.40 55.85 65.22 74.79 90.75 Singapore 70.25 53.19 66.15 74.15 82.33 Global average 75.52 54.74 65.37 74.52 87.74 Jet/kerosene Gasoil e/f = estimate/forecast. Source: BMI Jet prices averaged US$74.90/bbl in Q309, using the composite for New York, Singapore and Rotterdam. The annual decrease was 48.6%, with jet exceeding the decline in gasoil prices. The monthly low during the previous six months was US$53.75 in February 2009, with the price reaching US$77.19/bbl in June 2009. For Q409 we assume an average global jet price of US$75.26, a quarter-on-quarter (q-o-q) rise of 0.5% and a y-o-y fall of 4.5%. For 2009 the annual level is forecast to be US$68.45/bbl. This compares with US$124.95/bbl in 2008. In Q309 gasoil averaged US$74.52/bbl, based on a composite global price. This is a y-o-y fall of 46.9% over Q308, illustrating a recession-induced relative weakening of diesel versus gasoline. Our revised Q409 forecast is for global gasoil at an average US$87.74, a q-o-q increase of 17.7%. The seasonal effect © Business Monitor International Ltd Page 19 Vietnam Freight Transport Report Q1 2010 and likely rise in year-end crude prices are set to have limited impact on gasoil prices as a result of the unusually large inventory position. For 2009 as a whole, the BMI forecast is for an average price of US$70.59/bbl, assuming a monthly high of US$94.09/bbl in December. The full-year outturn is a 41.8% fall from the 2008 level. Table: Oil Product Prices, 2007-2014 (US$/bbl) Gasoline 2007 2008 2009f 2010f 2011f 2012f 2013f 2014f Rotterdam Premium Unleaded 75.75 100.12 67.71 96.11 98.43 104.22 104.22 104.22 NY Harbour Unleaded 78.75 102.54 67.12 97.51 99.87 105.74 105.74 105.74 Singapore Premium Unleaded 74.98 102.64 67.56 93.81 96.08 101.73 101.73 101.73 Global average 76.49 101.77 67.46 95.81 98.12 103.90 103.90 103.90 Rotterdam 81.13 126.61 69.87 99.16 101.56 107.53 107.53 107.53 NY Harbour 82.48 127.13 68.75 99.88 102.29 108.31 108.31 108.31 Singapore 79.17 121.11 66.75 92.69 94.93 100.51 100.51 100.51 Global average 80.93 124.95 68.45 97.24 99.59 105.45 105.45 105.45 Rotterdam 77.02 122.62 71.16 101.01 103.44 109.53 109.53 109.53 Mediterranean 77.69 121.75 71.65 104.10 106.62 112.89 112.89 112.89 Singapore 77.03 119.53 68.95 95.75 98.06 103.83 103.83 103.83 Global average 77.24 121.30 70.59 100.29 102.71 108.75 108.75 108.75 Jet/kerosene Gasoil f = BMI forecast. Source: 2000-2006 historical data: EIA; 2007-2008 historical data: IEA In 2008 naphtha was the weakest performer of the major refined products, gaining 31% to US$87.40/bbl during the year. In Q309 naphtha averaged an estimated US$64.80, compared with US$110.80/bbl in Q308 and US$54.70 in Q209. BMI puts the average naphtha price in 2009 at US$52.66/bbl, down 39.7% from the previous year’s level. Looking further ahead, we see gasoline prices recovering to US$95.81/bbl in 2010, rising further to US$98.12 in 2011 and stabilising around US$103.90/bbl from 2012. The price of jet is forecast to average US$97.24/bbl in 2010 and US$99.59 in 2011, before levelling out at US$105.45/bbl from 2012. Gasoil is expected to rebound to US$100.29 in 2010, reaching a plateau of US$108.75/bbl from 2012. © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q1 2010 Macroeconomic Outlook Double Dip Now Our Core Scenario With Vietnam's balance of payments yet again approaching breaking point, we expect a sharp tightening of fiscal and monetary policy in 2010, which will see real GDP growth dip to 4.4% from an expected 5.1% in 2009. This will raise criticism of economic policy at the 11th National Congress in January 2011, but we expect the market reform agenda to be maintained. We have shifted our Vietnam growth outlook from expecting a gradual economic recovery in 2010 to a double-dip scenario with real GDP expansion dipping from an expected 5.1% in 2009 to 4.4% in 2010. This is based on our expectations that fiscal and monetary policy will have to be tightened sharply in early 2010 in order to rein in the widening trade deficit and halt inflationary pressures. Our outlook for Vietnam has much in common with that for China. However, while the policy aims of the respective governments are similar, we view the macroeconomic concerns in Vietnam as more alarming, at least in the short term, as Hanoi’s fiscal and monetary resources are considerably more limited. As a consequence, we find it likely that the inevitable shift towards tighter monetary and fiscal policy will come earlier in Vietnam than in China. Indeed, while Hanoi’s fiscal and monetary stimulus has helped economic growth recover from a low of 3.1% y-o-y in Q109 to 5.2% in Q309, it has also been a key factor, in our view, behind a considerable widening of the trade deficit over the same period to US$1.9bn in October 2009. While the return to positive growth in G3 markets in H209 and 2010 should give some support to Vietnamese exports, we believe a continuation of the current accommodative policy would lead to a further widening of the trade deficit. With Vietnam’s foreign exchange reserves in Q409 estimated to be below the three months of imports seen as a minimum, we believe drastic policy action will be needed to avoid a balance-of-payments crisis. This will include: ƒ A downward adjustment of the dong towards our VND19,000/US$ end-2009 forecast, from VND17,862/US$, to stem the outflow of US dollars through the trade channel. ƒ A hiking of policy rates to uphold public confidence in the dong, stem capital outflows, and contain upward pressure on inflation through higher import prices. We are expect 500 base point (bps) of hikes in 2010, bringing the Vietnam base rate from 7.00% in November 2009 to 12.00%. ƒ A reduction of the fiscal deficit from VND118trn (US$6.6bn), or 7.2% of GDP, to VND105trn (US$5.9bn), or 5.7% of GDP, in 2010 on the back of reductions in current and capital expenditure growth. © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q1 2010 Implications For Growth We expect the fiscal and monetary tightening to lead to a double dip in growth after the tentative rebound seen in the last three quarters of 2009. We are expecting real GDP growth to come in at 4.4% in 2010, as weak growth in G3 markets will weigh on exports and prevent a marked improvement in net exports in spite of the devaluation of the dong. This will mean that the slowdown in domestic demand will be harder felt. With inflation expected to average roughly 9.0% in 2010, we expect government consumption to decrease by 3.5% in real terms, which will shave 0.3 percentage points (pp) off headline growth. A more marked effect will be coming from a slowdown in private consumption growth as credit conditions are tightened. We expect private consumption growth (in real terms) to slow to 2.3% from an expected 4.9% in 2009 and 9.2% in 2008. This should see the contribution to growth from private consumption decrease to 1.6pp in 2010 from 3.3pp in 2009 and a massive 6.0pp in 2008. On the other hand, we expect an increase in the contribution from gross fixed capital formation from 0.4pp to 1.1pp as foreign direct investment (FDI) disbursements, down 12.1% y-o-y to US$8bn in January-October 2009, recover and state-and aid-financed projects gather pace. However, the precarious state of the property market, where activity and prices have been supported by the loan-subsidy programme, is a risk to this forecast. While only a minority of property purchases are financed through bank lending, higher interest rates should still have an impact on the market and on commercial and residential construction. Policy Rebalancing Needed At 2011 Party Congress We expect the slowdown in growth in 2009 and 2010 to make economic policy the main matter of debate during the Communist Party of Vietnam (CPV)’s 11th National Congress, scheduled for January 2011. The macroeconomic rollercoaster ride experienced in recent years has raised criticism against Prime Minister Nguyen Tan Dung, the most important proponent of economic reform, from more conservative members in the Politburo. We believe the mainstay of the CPV is still behind Nguyen’s reform agenda, meaning that there will be no drastic shift in the socio-economic development strategy for 2011-2016. However, we expect measures to be taken to achieve greater macroeconomic stability, including a reduction of official growth targets, a shift in monetary policy towards inflation targeting and increased exchange rate flexibility. This is likely to come at a cost to economic growth in the short term, and we are consequently forecasting real GDP growth of 5.5% and 6.0% in 2011 and 2012, respectively, as the global economic environment is expected to be less conducive than in the 2003-2007 boom years. A failure to take a decision on rebalancing economic policy would, on the other hand, mean a high risk of a continuation of macroeconomic volatility. © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q1 2010 Table: Vietnam – Economic Activity, 2006-2014 2006 2007 2008 2009f 2010f 2011f 2012f 2013f 2014f Nominal GDP, 1 VNDbn 974,266 1,144,015 1,478,695 1,628,770 1,825,075 2,053,255 2,288,455 2,562,686 2,855,653 Nominal GDP, 1 US$bn 60.9 71.1 89.8 85.7 96.1 108.1 123.7 138.5 154.4 Real GDP growth, 1 % change y-o-y 8.2 8.5 6.2 5.1 4.4 5.5 6.0 6.8 6.9 GDP per capita, 1 US$ 724 835 1,035 974 1,077 1,195 1,350 1,492 1,640 84.4 85.6 86.8 88.0 89.2 90.4 91.6 92.8 94.1 Industrial production index, % y-o-y, 3 average 16.8 16.7 14.9 6.8 10.0 12.0 14.0 14.0 14.0 Unemployment, % of labour force, 3 end of period 4.8 4.6 5.0 5.5 5.5 5.0 4.5 4.0 4.0 Population, mn 2 1 2 3 f = BMI forecast. Source: IMF (General Statistics Office); IMF; General Statistics Office Transport Outlook Since our last report we have raised our macroeconomic forecasts for Vietnam. After GDP growth in 2008 of 6.2% we have now boosted the estimate for 2009 to 5.1% growth (was 2.0%). Our forecast for 2010-2014 is for an annual average GDP growth rate of 7.3% per annum, on a par with the also 7.8% average rate achieved in the preceding five-year period. We maintain some adjustments to mode-specific freight carried forecasts. In road haulage, we have trimmed our forecast to take account of the global downturn and lower freight demand. We still see road-freight turnover running ahead of the general rate of economic expansion in Vietnam. Air freight is beginning to emerge from a difficult period. WTO membership has been supportive of greater freight transport turnover relative to GDP across all modes, but particularly so for shipping. On the downside, the 2009 contraction in trade had a particularly strong impact on shipping and Vietnam is expected to export less coal by sea as its domestic power needs rise. The net result of this is that we expect freight carried growth across all modes, measured in mntkm, to average 7.6% a year in 2010-2014. According to our latest estimates, transport and communications GDP will have risen by 6.3% in 2009, 1.2 percentage points (pps) faster than overall GDP, which we estimate to have increased 5.1%. For the 2010-2014 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole in value terms. It will achieve average annual growth of 8.3%, versus 7.3% for overall GDP. The value of transport and communications GDP will rise to US$7.6bn in nominal terms by © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q1 2010 2014, of 4.5% of Vietnam’s GDP. By modes, we project that air freight to be the fastest growing, rising by 9.5% per annum, followed by rod haulage at 9.3%, pipelines (8.4%), rail (8.0%), and shipping (7.2%). Table: Freight Transport Data And Forecasts, 2006-2014 2006 2007 2008 2009f 2010f 2011f 2012f 2013f 2014 8.2 8.5 6.2 5.1 5.9 6.8 7.7 8.0 8.0 217.5 236.0 250.6 263.4 279.0 297.9 320.9 346.6 374.3 5-year average annual GDP growth, % 7.8 8.0 7.8 7.3 6.8 6.5 6.3 6.7 7.3 Annual transport and communications sector growth, % 9.5 9.8 7.5 6.3 7.1 8.0 8.9 9.2 8.0 224.9 246.9 265.4 282.2 302.3 326.6 355.7 388.5 419.5 5-year average annual transport GDP growth, % 9.0 9.6 9.1 8.6 8.1 7.8 7.6 7.9 8.3 Transport and communications sector, % of GDP 4.2 4.2 4.3 4.3 4.4 4.4 4.5 4.5 4.5 Annual import growth, % 22.1 38.3 28.1 -10.8 11.1 10.5 10.0 10.0 10.0 Imports index, 1995=100 565.0 781.4 1000.9 893.1 992.3 1096.6 1206.1 1326.8 1459.4 5-year average annual import growth, % 24.9 22.7 27.4 18.5 17.8 15.4 9.8 6.2 10.3 Annual export growth, % 22.7 21.9 29.1 -10.7 9.8 11.0 12.0 12.0 12.0 Exports index, 1995=100 766.0 933.8 1205.6 1076.9 1182.5 1312.5 1470.0 1646.3 1844.0 21.7 23.8 25.5 17.1 14.6 12.2 10.2 6.8 11.4 2.5 3.0 3.8 3.9 4.5 5.0 6.0 6.8 7.6 1,074 1,099 1,123 1,148 1,173 1,198 1,224 1,250 1,278 82,430 107,480 138,160 123,340 136,310 150,930 167,380 185,650 205,930 – % change y-o-y 22.4 30.4 28.5 -10.7 10.5 10.7 10.9 10.9 10.9 – 5-year annual average % 22.3 27.7 26.5 17.8 16.2 13.9 10.0 6.5 10.8 Total trade as % of nominal GDP 135.3 151.1 153.8 134.4 132.9 132.6 124.5 122.9 121.8 Annual GDP growth, % GDP index, 1995=100 Transport sector GDP index, 1995=100 5-year average annual export growth, % Transport and communications sector value, US$bn nominal Employment Total transport sector employment, '000 Trade Total trade (imports + exports), US$bn f = forecast. Source: BMI © Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q1 2010 Table: Freight Carried, Domestic, 2006-2014 (mn tonnes-km) 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f 2014f 20,537 22,457 23,989 25,090 26,866 29,150 32,068 35,403 39,085 – % change y-o-y 16.2 9.3 6.8 4.6 7.1 8.5 10.0 10.4 10.4 – 5-year average % change 17.5 16.1 14.4 11.1 8.8 7.3 7.4 8.1 9.3 – % share of total 17.4 16.4 15.4 16.7 16.8 17.0 17.3 17.7 18.0 3,447 3,769 4,026 4,211 4,484 4,819 5,228 5,688 6,188 – % change y-o-y 16.9 9.3 6.8 4.6 6.5 7.5 8.5 8.8 8.8 – 5-year average % change 11.1 9.7 8.2 9.0 8.8 6.9 6.8 7.2 8.0 – % share of total 2.8 2.9 2.8 2.6 2.8 2.8 2.8 2.8 2.8 Inland waterways 4,081 4,463 4,767 5,010 5,335 5,734 6,220 6,767 7,363 – % change y-o-y 8.8 9.3 6.8 5.1 6.5 7.5 8.5 8.8 8.8 – 5-year average % change 7.5 8.5 8.4 7.8 7.3 7.0 6.9 7.3 8.0 – % share of total 3.6 3.5 3.3 3.1 3.3 3.3 3.3 3.4 3.4 Road Rail Maritime 89,297 105,579 122,155 115,603 122,897 131,465 140,778 151,842 163,785 – % change y-o-y 11.8 18.2 15.7 -5.4 6.3 7.0 7.1 7.9 7.9 – 5-year average % change 11.5 13.5 13.6 10.1 9.3 8.4 6.1 4.6 7.2 – % share of total 75.8 77.2 78.6 76.8 76.7 76.5 76.1 75.7 75.4 Air 269 304 324 338 356 387 429 477 530 – % change y-o-y 12.6 12.8 6.8 4.1 5.3 8.8 10.8 11.2 11.2 – 5-year average % change 11.4 12.3 9.1 7.5 8.3 7.6 7.2 8.0 9.5 – % share of total 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Pipeline 211 231 248 262 280 302 329 359 392 – % change y-o-y 9.0 9.8 7.1 5.9 6.8 7.8 8.9 9.2 9.2 – 5-year average % change 8.2 8.7 8.6 8.1 7.7 7.5 7.3 7.7 8.4 – % share total 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Total 117,842 136,803 155,509 150,514 160,218 171,858 185,052 200,536 217,343 – % change y-o-y 12.6 16.1 13.7 -3.2 6.4 7.3 7.7 8.4 8.4 – 5-year average % change 12.3 13.5 13.3 10.1 9.1 8.1 6.4 5.3 7.6 e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q1 2010 Trade Environment Although high tariffs, customs bureaucracy and legal inadequacies have provided significant trade barriers, the opening up of Vietnam’s economy has been accompanied by concrete measures to meet the requirements of the WTO and other international trade organisations. This means tariffs are falling in many sectors and the customs regime is being overhauled. Trade Agreements Vietnam became a member of the WTO in 2007. It is also a member of the Association of South East Asian Nations (ASEAN) – with Brunei, Philippines, Indonesia, Laos, Myanmar, Malaysia, Singapore, Thailand and Cambodia – as well as the linked ASEAN Free Trade Area (AFTA). A bilateral trade agreement with the US came into effect in December 2001. Vietnam is also in, or preparing for, talks over free trade agreements (FTAs) with Japan, South Korea, Australia and New Zealand. The country is also party to FTA negotiations being conducted by ASEAN, such as talks with the EU and China. Tariffs And Non-Tariff Barriers Import tariffs are high, averaging around 18% in 2004. However, Vietnam is reducing tariffs to meet ASEAN and WTO goals, although some key sectors remain protected. Vietnam has agreed to comply with ASEAN’s Common Effective Preferential Tariff (CEPT) scheme on manufactured goods within the ASEAN region, which calls for rates to be brought down to the 0-5% range. The legislation providing the framework for the trade regime is 1998’s Law to Amend the Import and Export Tariffs Law. However, given the ASEAN and WTO requirements, the tariff structure is in a constant state of flux at present. After a May 2005 meeting with Vietnamese officials, the WTO praised the country for speeding up the passage of legislation. At the WTO meeting, Vietnam unveiled its latest round of commitments and changes. These are: a proposed revision of excise duties to end discrimination against imported motor vehicles; a similar proposal for excise duty on beer; the elimination of export subsidies that depend on export performance; a commitment to require supported products made in free zones to be subject to normal customs formalities when entering the rest of Vietnam; enquiry points on technical barriers and sanitary/phytosanitary measures to trade to be set up; and the reduction of restrictions on trading rights to some sensitive products such as oil, pharmaceuticals, sugar, tobacco, salt, fertilisers, rice and cultural products. © Business Monitor International Ltd Page 26 Vietnam Freight Transport Report Q1 2010 Table: Total Value Of Imports By Category, 2006-2014 (US$mn) 2006 2007 2008 2009f 2010f 2011f 2012f 2013f 2014f 42,600 58,920 75,470 67,340 74,820 82,680 90,940 100,040 110,040 – % change y-o-y 22.1 38.3 28.1 -10.8 11.1 10.5 10.0 10.0 10.0 Food, live animals, 1,235 1,709 2,189 1,953 2,170 2,398 2,637 2,901 3,191 – % of total 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 Beverages and tobacco 43 59 75 67 75 83 91 100 110 – % of total 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 Crude materials, excl. fuels 767 1,061 1,358 1,212 1,347 1,488 1,637 1,801 1,981 – % of total 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 5,708 7,895 7,895 7,895 7,895 7,895 7,895 7,895 7,895 – % of total 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 Animal and vegetable oils, fats and wax 128 177 177 177 177 177 177 177 177 – % of total 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 5,666 7,836 7,836 7,836 7,836 7,836 7,836 7,836 7,836 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 9,329 12,903 12,903 12,903 12,903 12,903 12,903 12,903 12,903 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9 11,417 15,791 15,791 15,791 15,791 15,791 15,791 15,791 15,791 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 2,769 3,830 3,830 3,830 3,830 3,830 3,830 3,830 3,830 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 5,581 7,719 9,887 8,822 9,801 10,831 11,913 13,105 14,415 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 Total imports Mineral fuels, lubricants and related materials Chemicals and related products – % of total Basic manufactures – % of total Machines, transport equipment – % of total Misc. products – % of total Unclassified goods – % of total f = forecast. Source: UN Comtrade, BMI © Business Monitor International Ltd Page 27 Vietnam Freight Transport Report Q1 2010 Table: Value Of Exports By Category, 2006-2014 (US$mn) 2006 2007 2008 2009f 2010f 2011f 2012f 2013f 2014f 39,830 48,560 62,690 56,000 61,490 68,250 76,440 85,610 95,890 – % change y-o-y 22.7 21.9 29.1 -10.7 9.8 11.0 12.0 12.0 12.0 Food, live animals, 9,480 11,557 11,557 11,557 11,557 11,557 11,557 11,557 11,557 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8 Beverages and tobacco 40 49 63 56 61 68 76 86 96 – % of total 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Crude materials, excl. fuels 916 1,117 1,117 1,117 1,117 1,117 1,117 1,117 1,117 – % of total 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 10,515 12,820 16,550 14,784 16,233 18,018 20,180 22,601 25,315 – % of total 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 Animal and vegetable oils, fats and wax 159 194 251 224 246 273 306 342 384 – % of total 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Chemicals and related products 279 340 439 392 430 478 535 599 671 – % of total 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 2,191 2,671 3,448 3,080 3,382 3,754 4,204 4,709 5,274 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 1,952 2,379 3,072 2,744 3,013 3,344 3,746 4,195 4,699 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 10,794 13,160 16,989 15,176 16,664 18,496 20,715 23,200 25,986 27.1 27.1 27.1 27.1 27.1 27.1 27.1 27.1 27.1 3,545 4,322 5,579 4,984 5,473 6,074 6,803 7,619 8,534 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 Total exports – % of total Mineral fuels, lubricants and related materials Basic manufactures – % of total Machines, transport equipment – % of total Misc. products – % of total Unclassified goods – % of total f = forecast. Source: UN Comtrade, BMI © Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q1 2010 Table: Vietnam’s Top Export Destinations, 2002-2006 (US$mn) 2002 2003 2004 2005 2006 United States 2,350 4,463 5206 6,551 8,423 Japan 2,299 2,808 3507 4,122 4,871 Australia 1,172 1,476 1798 2,593 3,728 China 1,013 1,323 2322 2,318 2,260 Germany 1,007 1,181 1522 1,563 1,790 15,713 20,516 25779 30,957 39,514 Top 5, % of total 49.9 54.8 55.7 55.4 53.3 Industrial states 9,968 13,840 16939 20,246 25,396 140 162 274 392 166 4,254 5,147 7379 8,883 9,664 Central and Eastern Europe 395 443 505 575 904 Middle East 498 629 411 513 353 64 94 86 134 122 63.4 67.5 65.7 65.4 64.3 0.9 0.8 1.1 1.3 0.4 27.1 25.1 28.6 28.7 24.5 Central and Eastern Europe 2.5 2.2 2.0 1.9 2.3 Middle East 3.2 3.1 1.6 1.7 0.9 Latin America and Caribbean 0.4 0.5 0.3 0.4 0.3 Total exports Africa Asia Latin America and Caribbean Regions, % of total Industrial states Africa Asia NB Total exports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 29 Vietnam Freight Transport Report Q1 2010 Table: Vietnam’s Export Trade, 2003-2006 (% growth y-o-y) 2003 2004 2005 2006 United States 89.9 16.6 25.8 28.6 Japan 22.1 24.9 17.5 18.2 Australia 25.9 21.8 44.2 43.8 China 30.6 75.5 -0.2 -2.5 Germany 17.3 28.9 2.7 14.5 Total exports 30.6 25.7 20.1 27.6 Industrial states 38.8 22.4 19.5 25.4 Africa 15.7 69.1 43.1 -57.7 Asia 21.0 43.4 20.4 8.8 Central and Eastern Europe 12.2 14.0 13.9 57.2 Middle East 26.3 -34.7 24.8 -31.2 Latin America and Caribbean 46.9 -8.5 55.8 -9.0 NB Total exports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF Table: Vietnam’s Import Trade, 2003-2005 (% growth y-o-y) 2003 2004 2005 2006 China 47.8 30.3 36.1 32.4 Japan 22.8 21.3 12.8 15.3 South Korea 14.3 27.1 5.4 17.9 United States 128.4 -12.1 2.4 -7.7 Hong Kong 27.5 24.9 5.2 17.4 Total imports 28.6 29.4 14.3 26.3 Industrial states 37.6 16.2 1.4 32.7 Africa 13.5 145.8 26.2 -61.2 Asia 25.6 34.5 19.2 25.1 Central and Eastern Europe 16.6 37.8 1.7 -32.8 Middle East 82.0 27.7 34.2 17.0 Latin America and Caribbean -5.5 52.2 25.5 28.0 NB Total imports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 30 Vietnam Freight Transport Report Q1 2010 Table: Vietnam’s Top Import Sources, 2002-2006 (US$mn) 2002 2003 2004 2005 2006 China 2,365 3,496 4,557 6,203 8,215 Japan 2,349 2,885 3,500 3,949 4,554 South Korea 2,464 2,817 3,581 3,775 4,450 United States 638 1,457 1,280 1,311 1,210 Hong Kong 845 1,077 1,345 1,415 1,661 19,976 25,686 33,241 37,980 47,954 43.4 45.7 42.9 43.8 41.9 5,369 7,386 8,584 8,707 11,556 52 59 145 183 71 13,219 16,606 22,342 26,629 33,316 Central and Eastern Europe 760 886 1,221 1,242 835 Middle East 200 364 465 624 730 Latin America and Caribbean 237 224 341 428 548 26.9 28.8 25.8 22.9 24.1 0.3 0.2 0.4 0.5 0.1 66.2 64.7 67.2 70.1 69.5 Central and Eastern Europe 3.8 3.4 3.7 3.3 1.7 Middle East 1.0 1.4 1.4 1.6 1.5 Latin America and Caribbean 1.2 0.9 1.0 1.1 1.1 Total imports Top five, % of total Industrial states Africa Asia Regions, % of total Industrial states Africa Asia NB Total imports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q1 2010 Market Overview Multi-Modal In June 2004, Vietnam concluded the eighth round of negotiations in its bid to join the WTO, and in January 2007 joined the organisation. Competitive Landscape Q209 According to reports in early June, foreign investors have once again raised concerns about Vietnam's infrastructure. Rapid economic growth is placing a heavy burden on existing infrastructure, and investments, tangled in red tape and regulatory obstacles, have not been able to keep pace. The latest concerns were raised during a conference in Ho Chi Minh City, organised by the International Finance Corporation and the Vietnamese Planning and Investment Agency. The country's port infrastructure was once again in the spotlight, with foreign investors urging the government to invest not just in creating maritime hubs, but also in creating a better intermodal transport system to move cargo to and from the ports. Vietnam added to its growing status as a major international trading power after announcing it would cut import tariffs on a variety of goods in order to meet World Trade Organisation (WTO) regulations. According to the Journal of Commerce (JOC), the East Asian country will reduce tariffs on a number of imported items until the end of 2009. Q109 According to a report by Bloomberg news agency in March, the Asian Development Bank (ADB)’s country director for Vietnam, Ayumi Konishi, has stated that the country needed to focus more on infrastructure projects to ensure that its plan to build power plants, ports, roads and railways during the current tight economic period stayed on path. He stated that funds were available from governments, international agencies and the private sector. Vietnam’s Ministry of Planning and Investments released a list of 60 urban infrastructure projects to be implemented between 2009 and 2016. The total estimated investment required for the projects is US$12bn. The projects range from new water and sanitation infrastructure to new roads and traffic systems, and will take place in 15 provinces around the country. Construction of an urban railway project in Hanoi was due to start in early 2009. At the same time, Ho Chi Minh announced plans for a US$2bn injection into transport projects in the same year in order to stimulate the construction industry and in turn boost economic growth. © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q1 2010 Q408 According to a Reuters report in December 2008, Vietnam Infrastructure Development and Finance Investment had awarded a US$174.3mn contract to GS Engineering & Construction to build a highway in Vietnam. Vietnam’s road network is particularly under-developed, and causes serious city congestion and adds to road accident figures. It is vital for the country to improve its transport infrastructure in order to realise the country’s growth potential. Vietnam is looking to build 5,900km of highways over the next decade. Q308 Flash floods and landslides swept across parts of northern Vietnam in August, causing disruption to transport, destruction and loss of life. By August 18, 10 days after the flooding began, the People’s Army newspaper reported that 130 people were dead. Q208 The transport sector was indirectly involved in a controversy over press freedom and corruption in May. At issue was an outcry over the arrest of two reporters for their coverage of a corruption scandal that led to the resignation of the minister for transport in 2006. Nine people, including government officials, had been found guilty of betting millions of dollars on European football matches and trying to bribe people in a cover-up operation. Q407 At the beginning of December 2007, local media reported that Vietnam’s southern Ho Chi Minh City, regarded as the country’s economic hub, required some US$22bn in new investments to develop its transport infrastructure and ease its growing traffic jams. Q307 Government officials and foreign investors in Vietnam’s booming economy appear to have agreed that catch-up investment in transport infrastructure is emerging as a top priority. In early September 2007, Prime Minister Nguyen Tan Dung announced road, rail and energy projects for the country’s seven northern provinces bordering China. Power plants would be built, two railways would be built to Lao Cai and Lang Son, and major roads would also be built linking China’s southern regions of Yunnan and Guangxi to northern Vietnamese ports in Haiphong and Quang Ninh. More generally, with GDP growth averaging 8% per annum over the last decade and record foreign direct investment of US$10.2bn in 2006, pressure on transport systems has been growing across the country. A report by Neptune Orient Lines (NOL) and analysts Frost & Sullivan earlier in 2007 noted that container volumes handled by Vietnamese ports had grown by 19% per annum over the last decade. Q207 Vietnamese investment manager VinaCapital said at the beginning of May that it was looking to raise © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q1 2010 US$200mn to invest in infrastructure in Vietnam by listing a new fund on London’s Alternative Investment Market (AIM). It said the fund, Vietnam Infrastructure, would be the first of its type, investing ‘much-needed capital’ in Vietnam’s energy, transport, water and telecommunications infrastructure. Vietnam, the WTO’s newest member, had identified the businesses in which the state would retain full control or a majority share, Prime Minister Nguyen Tan Dung said in March. The state would hold full control in military firms, companies that operate energy projects, flight-control operations, national railways, the media and money printing. Q107 Vietnam formally joined the WTO in January, completing a 30-year journey to integration with the economic mainstream. Membership, achieved against a background of very strong economic growth, stimulated debate among experts over the sustainability of the economic development model and its ability to build transport and general infrastructure. Prime Minister Nguyen Tan Dung approved plans to sell shares in 53 large SOEs, including Vietnam Airlines, between 2007 and 2010. © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q1 2010 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market share of around 60% of domestic cargo. At present there are over 1,050 enterprises registered in the road transport business, which include 16 SOEs, 233 limited liability companies, 350 private companies and 450 joint stock companies. Very few foreign invested companies are present. Most road transport companies are of small or medium scale, and each company, on average, owns about 50 vehicles. SOEs in road transport face many difficulties due to the declining number of vehicles and poor performance. In addition, tens of thousands of individual household businesses exist that operate informally in the road freight sector, and are thus difficult to account for and monitor. At a special meeting of the Transport and Tourism Division of the UN’s Economic and Social Commission for Asia and the Pacific (UNESCAP), held in Shanghai in April 2004, an agreement was signed to press ahead with the long-discussed concept of an Asian Highway. Over the long term, this project will bring important benefits to Vietnam. A total of 26 countries had signed the agreement by mid-2004. The Asian Highway project involves a collaborative effort to complete a 140,000km road network criss-crossing the Asian continent and reaching into Europe. In April 2004, officials estimated that 83% of the network met agreed minimum highway standards and that a further US$16bn worth of investment was needed to bring the remaining 17% up to the minimum. Infrastructure Vietnam has a national road network of some 93,300km of roads. Of this, only 23,418km, or 25%, is paved. In addition, recent surveys indicate that approximately 40% of the network is in poor to very poor condition and will require substantial investment even to reach a maintainable condition. The quality of infrastructure varies greatly across areas of the country, with the majority of new capital investment having taken place in recent years in high growth centres and in corridors around the major urban centres. Rural areas – especially in the northern mountain, central and Mekong Delta areas – have substantially lagged behind with respect to new sector investments. Competitive Landscape Q209 Vietnam's Ministry of Transport began work on a 121km-long expressway connecting Ninh Binh province to Nghi Son, in Thanh Hoa province, on June 16, reported VNBusinessNews. The construction of the expressway is part of a programme to upgrade the North-South national road. Total investment in the project is forecast to be VND32trn (US$1.9bn). © Business Monitor International Ltd Page 35 Vietnam Freight Transport Report Q1 2010 The Hanoi city People's Committee is to invest VND881.6bn (US$50.9mn) in a project to upgrade the 1A National Highway, from Ngoc Hoi to Cau Gie, in Thuong Tin dist and Phu Xuyen district, according to a report in IntellAsia in June. According to Vietnam’s VoV News, in early April the ADB and the French Development Agency (AFD) offered a financial grant of almost US$7mn to assist Vietnam in upgrading infrastructure facilities in three districts. The fund will be utilised to build 41km of rural road and for irrigation projects. South Korea’s Posco Engineering & Construction (Posco EC) and state-run VN Express signed a US$150mn contract for the construction of part of a highway in northern Vietnam. Under the deal, for 40 months Posco EC will construct a 27km section of the 224km highway connecting the cities of Lao Cai and Noi Bai. The ADB will offer a US$410mn loan to Vietnam to build a 51km expressway, which will link Ho Chi Minh City, Vietnam’s economic hub, with Dong Nai province in the country’s southern region. Q109 Deputy Prime Minister Nguyen Sinh Hung gave orders in March to launch package No.3 of the Nhat Tan Bridge project in Hanoi’s Dong Anh District, as reported by Saigon Times Daily. Project Management Unit 85, which lists the construction ministry as the investor, has stated that the package will be completed in 34 months. The package aims to build over 4,600m of the road, as well as two interchanges for the bridge project. According to Viet Nam News, the construction contract for the highly significant section of Vietnam’s VND24.6trn (US$1.53bn) Ha Noi-Hai Phong Expressway was signed on February 14. The 9.3km-long section is a part of the 105km expressway project that starts from the northern port city of Hai Phong, and will link Thanh Ha District in Hai Duong Province and An Lao District in Hai Phong City. Vietnam Expressway Investment and Development Company (VEC) said that it would invest in four new expressway projects in the country in 2009, IntellAsia reported in January. The state-owned company said that the four routes assigned for development in 2009 are Noi Bai-Mai Dich, Hanoi-Lanf Son, Ha Long-Mong Cai and Ben Luc- Long Thanh. Q408 According to Tran Quang Phuong, director of the Ho Chi Minh City Department of Transport and Public Works, as cited by Viet Nam News in December, the city authorities were looking at ways of collecting toll money for the construction of a second bridge. The bridge over the Saigon River is estimated to cost US$110mn. Phu My Bridge (PMC) is investing funds for the project. © Business Monitor International Ltd Page 36 Vietnam Freight Transport Report Q1 2010 Q308 Economic growth and rising living standards have been boosting the size of Vietnam’s vehicle fleet. According to the Vietnam Automobile Manufacturers Association, sixteen locally based car markers sold a combined 77,067 units in the first seven months of 2008, a 120% increase on the comparable yearearlier period. Q208 According to local media reports in May, Vietnam was building what was likely to become its busiest expressway, investing an estimated US$1.5bn in a new link between Hanoi and the port city of Haiphong. The 105.5km expressway would have six interchanges, 30 bridges and 22 overpasses, and would be completed by 2011, the reports said. Over 3,000 people died in traffic accidents in the first quarter of 2008, according to local newspaper Viet Nam News. The paper said that in Q108 there were a total of 3,289 traffic accidents. The statistics were provided by the transport ministry, which said it was investing VND6,952bn (US$434.5mn) in order to reduce the number of deaths on the roads by 5-7% each year until 2010. Q108 A series of important road transport projects were announced in January. Among them was a proposal to build a 55km expressway linking Ho Chi Minh City and neighbouring Dong Nai province, with a total investment cost of VND18.88trn (US$1.2bn). A second venture was a 264km expressway stretching from the capital Hanoi to Lao Cai province, at a cost of VND19.984trn (US$1.25bn). Q307 In August, Bank for Investment and Development of Vietnam (BIDV) announced plans to issue US$500mn worth of international bonds over the next two years to help fund a key highway project. The funds would be used to help cover the estimated US$1.8bn cost of building the 120km Saigon-Trung Luong-My Nhon-Can Tho highway. In mid-August, the ADB said it was lending US$300mn to help fund a highway linking the western Chinese province of Guangxi to Vietnam. An ADB financial analyst said that the aim was to develop an integrated road network in the area, benefiting around 2.3mn people. Q207 Malaysian property developer SP Setia said on June 26 it had signed a JV agreement to build a township worth an estimated US$600mn in Vietnam’s Binh Duong province. © Business Monitor International Ltd Page 37 Vietnam Freight Transport Report Q1 2010 State-run VEC would sell VND2.7trn (US$167.5mn) worth of bonds in 2007 to finance an upgrade of a section of the north-south highway, state media reported on June 13. Vietnam’s Tan Tao Industrial Park Corp (Itaco) would raise US$59mn via issuing 20mn shares to invest in the construction of two residential areas, its chief executive said in mid-June. Itaco, the first industrial park developer listed in Vietnam, would use the proceeds to build Tan Duc and Tan Tao residential areas, establish a university and also boost the firm’s finances, CEO Thai Van Men said in a statement. A Vietnamese road toll collector had raised VND449.23bn (US$28mn) by selling 20.85% of its shares, the Hochiminh Stock Exchange said at the beginning of April. Becamex Industrial Investment and Development Corp sold all 7.03mn shares on offer to 107 investors, with foreign investors buying 40% of the total, a stockmarket statement said. © Business Monitor International Ltd Page 38 Vietnam Freight Transport Report Q1 2010 Rail Vietnam’s railway transport sector has only one operator, namely the Vietnam Railway Corporation (VRC), established by law in April 2003 as a state corporation operating railway transport and related services. The government has announced plans to separate the management of rail infrastructure from passenger and cargo services. Officials said a bill would be submitted to the National Assembly to allow different companies to operate rail services, paying fees for the use of the infrastructure. They did not envisage full deregulation of the system until 2010, however. Infrastructure Vietnam’s rail network totals 2,600km (excluding sidings). The network is mixed-gauge, comprising 2,169km of 1.000m gauge and 178km of 1.435m gauge. The network has 1,790 bridges totalling 45km and 11.5km of tunnels. The principal axis is Hanoi-Ho Chi Minh City (1,726km). Other lines emanating from Hanoi are to Hai Phong (102km), Lao Cai (296km) and Dong Dang (162km). Competitive Landscape Q209 The Railroad Management Board Region 2 in Vietnam announced in June that the project for upgrading the railroad between Vinh-Nha Trang would be officially launched in Q309, according to IntellAsia. The upgrade on the railroad, with a total length of 700kms, is expected to cost VND4trn (US$231.8mn). Vietnam is expecting financial assistance from China as well as other international sources to develop a 128.5km long railway line from Ho Chi Minh City to the Cambodian border. A China-based consulting group was scheduled to submit a feasibility study to the Vietnam Railway Department by the end of June 2009. A memorandum of understanding (MoU) has been signed between the Vietnam Railway Department and an associated company of China National Machinery Import & Export Corp (CMC) and China Railway Construction Corp Limited (CRCC) to survey and assess the urban railway line No 1 from Nam Thang Long to Lang Hoa Lac in Hanoi, Vietnam. The Vietnamese finance ministry will advance VND499bn (US$0.03bn) to Vietnam Railway Corp, as reported by IntellAsia. The fund will be used to accelerate work on some significant and urgent projects. Q109 The Vietnam Japan Consulting (VJC) JV, the company responsible for conducting the feasibility studies for Vietnam’s high-speed railway, has come back with a multi-billion-dollar price tag for the © Business Monitor International Ltd Page 39 Vietnam Freight Transport Report Q1 2010 project. This railway is at the core of Vietnam’s transport master plan to 2020 that seeks to enhance the transport modal balance and integrate into the ASEAN regional transport networks. State-owned VJC presented the findings of the feasibility report to senior government officials on February 6 2008. It said that the line is to be built alongside the current track (single line, mostly narrow gauge) that runs from Ho Chi Minh City all the way north to the Chinese border. The new north-south high-speed line will be a double-track railway of 1.435m gauge. Based on that route, the cost has been estimated at US$55.8bn. Q407 Planning on the proposed north-south railway continued during Q407. The project involves an investment of approximately US$33bn to build a railway connection capable of running trains at up to 350kmh. In late December 2007, the newspaper Vietnam News reported that the state-owned VRC had submitted a proposal to Deputy Prime Minister Hoang Trung Hai for a 1,630km route for the railway. Q307 In August, the government announced plans to start building a major north-south railway in 2009, at an estimated cost of US$33bn. Official media quoted Nguyen Huu Bang, chairperson of VRC, saying that it had been instructed by the authorities to carry out a feasibility study on the 1,700km railway project. He said that some US$23bn of the planned investment would be spent on infrastructure, with the remaining US$10bn for equipment and trains. South Korean consultants are reported to have recommended that the project use the French TGV (Train à Grande Vitesse – high-speed train) system. Talks were also being held with Japanese companies to study that country’s shinkansen ‘bullet train’ technology. Q207 Vietnam would invest up to VND8.4trn (US$525mn) to build two railways that will link the country to Laos and Cambodia, an industry official said in late June. Vietnam plans to invest nearly US$1bn in the next three years to transform its outdated railway system by building new tracks for high-speed trains. Vietnam’s rail system is slow and trains overcrowded. The Ho Chi Minh City municipal government has approved the construction of an underground or subway system at a cost of US$1.1bn, with 83% of the money to be provided by Japanese aid. Q107 A Vietnam north-south express train collided with a passenger bus, instantly killing 12 people on the bus and injuring scores of others, state media reported on February 9. © Business Monitor International Ltd Page 40 Vietnam Freight Transport Report Q1 2010 Vietnam will build a high-speed railway, with aid from Japan, at an estimated cost of US$33bn, a project that would cut travel time by two-thirds between Hanoi in the north and southern Ho Chi Minh City, the government said in early February. © Business Monitor International Ltd Page 41 Vietnam Freight Transport Report Q1 2010 Air There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines. Both of these airlines are state owned, and Vietnam Airlines is a key shareholder in Pacific Airlines. The government has announced plans to build the country’s largest airport at Long Thanh in the southern province of Dong Nai, at an estimated cost of US$8bn. According to officials at the Ministry of Transport and Communications, the airport would have the capacity to handle 80-100mn passengers per year, which would make it about 10 times the size of the International Tan Son Nhat Airport in Ho Chi Minh City. The authorities plan to spend US$522mn (VND8.2trn) to expand Noi Bai International airport in Hanoi. Plans include expansion of the airport’s area to 900 hectares (ha), the construction of a new runway and a second terminal, enlargement of the old runways and the enlargement of the cargo terminal. The expansion will enable the airport to receive larger aircraft such as the Boeing 777-300, Boeing 747 and Airbus A320. The aim is to increase airport capacity to serve 7mn passengers and 70,000 tonnes of cargo by 2010. According to Vietnam’s Civil Aviation Administration (VCAA), air traffic to and from the country rose by 12.3% in 2008, to reach 12mn passengers. Air freight volume was up by 17.1% to 265,000 tonnes. VCAA said that 28 Vietnamese aircraft currently serve 72 destinations in 57 countries, while local aviation operates 26 domestic routes. Infrastructure The three major airports handling freight are located at Ho Chi Minh City, Hanoi and Da Nang, each of which have international connecting flights. Minor airports such as Cat Bi at Haiphong are generally used for domestic flights to the three larger hubs. Competitive Landscape Q209 The prime minister of Vietnam, Nguyễn Tấn Dũng, has given the go-ahead for the planned VND10.52trn (US$0.59bn) upgrade for Cam Ranh International Airport, reports IntellAsia. The upgrade will enable the airport to handle 27 aircraft during peak hours, and to receive 5.5mn passengers and nearly 100,000 tonnes of commodities per year by 2020. In May it was reported that the Vietnamese government had given approval to a master-zoning plan, drawn up by the Ministry of Transport, which proposes the development of 10 international airports across the nation, according to Asia Pulse. Q109 According to an IntellAsia report in February, a project to build an airport in Gio Quang, Quang Tri © Business Monitor International Ltd Page 42 Vietnam Freight Transport Report Q1 2010 province, has been cleared by the People’s Committee of the province. The expected capital required is VND375bn (US$.02bn). Q308 Vietnam Airlines said that it made a loss of US$5mn in H108, after high oil prices forced it to spend more than its revenue, Reuters reported. The Hanoi-based unlisted airline, Vietnam’s largest, posted revenue of VND12.1trn (US$733mn), 28% up from the same period in 2007, but expenses hit VND12.18trn, leading to the loss, it said. Jetstar Pacific, Vietnam’s second largest airline which is now 18% owned by Qantas of Australia, said in August that it would drop its flights to the central Vietnam beach resort city of Nha Trang due to high fuel costs, and would instead open routes between Ho Chi Minh City and Bangkok in Thailand, Siem Reap in Cambodia, and Singapore. State-owned Vietnam Airlines said in August that it was introducing surcharges ranging between VND50,000 and VND180,000 (US$3-11) on its domestic routes because of high fuel costs. The company had previously reported a loss of VND83bn (US$5.02mn). Vietjet Air, which aims to become the country’s first fully private sector-owned airline, said it would postpone its launch from December 2008 to mid-2009, because of the effect of high fuel prices. Viet Nam News said Vietjet had also announced it would postpone its planned lease of two Boeing 737-700s, with which it intended to start services. Q208 In May, the government approved the establishment of the country’s second private airline, a low-cost carrier named Air Speed-Up Corp (ASP). The company was reportedly launched with initial capital of VND200bn (US$12.5mn) and would aim to lease 10 aircraft by the end of the year, initially focusing on serving the north-south domestic route. Deputy Prime Minister Hoang Trung Hai approved a VND13.74trn (US$857mn) expansion plan for the country’s second-largest airport near the capital Hanoi. Officials said the proposal was to build a third terminal at Noi Bai International Airport 45km north of Hanoi, boosting capacity from the current 10mn passengers a year to 25mn by 2020. Q108 In January, Vietnam Airlines said it would hire an international consultant to advise it on launching an IPO in which up to 20% of its shares would be sold to three foreign investors. © Business Monitor International Ltd Page 43 Vietnam Freight Transport Report Q1 2010 Q407 In December, Vietjet Air, the country’s first privately owned airline, said it was planning to launch its first commercial service in December 2008 or in early 2009. The company received its air transport licence on December 20 2007, and said it would start off by leasing either Boeing 737s or Airbus A320s to offer domestic and international services. Q307 Air Asia, Malaysia’s successful budget airline, signed a letter of intent with Vietnam’s Vinashin Group in September 2007 to set up a new low cost airline. The initiative was a new departure for Vinashin, which up to that point had concentrated on its core businesses of shipbuilding, heavy industries and construction. In July, The government of Vietnam agreed to act as guarantor for the national flag carrier Vietnam Airlines (VNA) to buy two Airbus A321 aircraft, due for delivery in July and November. According to the official Vietnam News Brief Service, the purchase was being carried out with financial support from the financial ministry, and legal advice on export credit and trade credit guarantee and aircraft buying contracts from the justice ministry. The two aircraft were among ten which Vietnam Airlines agreed to purchase from Airbus in December 2004. Q207 Vietnam planned to add a new terminal at Danang International Airport, which has seen a boom in tourists and business travellers, an official said at the end of May. The new terminal would be able to handle 4mn passengers a year, up from 1mn, said Nguyen Van Nien, of the Central Airport Authority. Singapore’s Changi Airports International said in May that it had signed a deal with the Vietnamese government to develop Vietnam’s Phu Bai-Hue International Airport. The deal to develop the airport, which is in the central province of Thua Thien Hue, is part of the government’s plan to increase tourism, Changi Airports said in a statement. Vietnam was expected to issue new regulations allowing foreigners to own up to 49% of local airlines, Dow Jones Newswire reported on May 3. Vietnam Airlines was looking to maintain annual double-digit growth by 2010, despite the increasingly fierce competition from domestic and foreign airlines, according to local press reports. Vietnam Airlines Chairman Nguyen Sy Hung said the airline was targeting annual growth of 12-14% to 2010. Australia’s Qantas Airways said on April 27 that it had agreed to buy 30% of Pacific Airlines from the Vietnamese government. © Business Monitor International Ltd Page 44 Vietnam Freight Transport Report Q1 2010 National carrier Vietnam Airlines said first quarter revenue grew 13.3% from a year earlier thanks to 16.8% passenger growth. The state-controlled airline reported January to March revenues at VND4.87trn (US$302mn), up from VND4.3trn in the same period in 2006. Q107 Vietnam’s national carrier was planning to introduce direct flight service to the US as part of the terms reached under a 2003 air agreement, according to a media report. Vietnam Airlines said it intended to begin direct services to some US cities later in 2007, according to a report by the Chinese news agency Xinhua, citing Vietnamese state media. Vietnam Airlines said its revenue for 2006 rose 12.4% to VND17.5trn (US$1.09bn), thanks to an increase in passenger numbers. The unlisted company had a before-tax profit of VND304.5bn (US$19.05mn), meeting 92% of its target. © Business Monitor International Ltd Page 45 Vietnam Freight Transport Report Q1 2010 Company Profile: Vietnam Airlines Company Overview Vietnam Airlines was established as a state-owned airline in 1989 and merged with a number of service companies in 1996 to give it its present form. The government’s stated goal is to further integrate the company into the global market and establish itself as a regional player. Vietnam’s national carrier operates 64 routes to 20 domestic and 24 international destinations. Its fleet of 50 modern aircraft have carried more than 9mn passengers. In 2006, it was officially accepted as a full member of the International Air Transport Association. The Vietnamese carrier provides passenger air services to 25 destinations in 15 countries including many in South East Asia, Australia, Russia, France, Germany and the US. The company has a number of codeshare operations with foreign companies, in particular the February 2004 agreement with Air France to share 11 nonstop scheduled flights between Ho Chi Minh City and Paris. Vietnam Airlines’ cargo operations serve 20 destinations in Asia, the Middle East, Australia and Europe, with partner networks serving other destinations. The cargo division operates a joint venture with Singapore Airport Terminal Service – Tan Son Nhat Cargo Services – that has an annual cargo throughput of 100,000 tonnes. Strengths ƒ The national carrier in a high-growth country set in a high-growth region, with rising living standards set to boost demand for air travel at a proportionately greater rate than GDP growth Weaknesses ƒ To maintain market share in a dynamic but toughly competitive market, the company must gain professional skills and expertise, and a flow of new investment, at an accelerated rate. Any slippage is likely to have an immediate negative impact on margins Opportunities ƒ Developing the regional passenger market in Asia is Vietnam Airlines’ main opportunity, with cargo business as a second revenue stream Threats ƒ The main threat is regulatory – that the government will open up the industry at a faster pace, not giving the airline the necessary time to prepare for competition with private sector start-ups or established foreign carriers Financial Performance The Saigon Times reported in October that Vietnam Airlines made a pre-tax profit of VND65.4bn (US$3.67mn) on revenues of VND17.286trn in the first nine months of 2009, giving no comparative figures. Between January and September, the airline carried 6.8mn passengers, including 2.3mn international passengers, up 2.9% from a year earlier. During the nine-month period, the carrier also transported 90,208 tons of cargoes, fulfilling 75.8% of the full-year target, the Saigon Times newspaper reported. Vietnam Airlines expects to make pre-tax profit of VND50bn (US$2.8mn) in 2009, down 79% from a year ago, it had said earlier. The Giao Thong Van Tai newspaper reported that the airline was aiming to serve 9mn passengers in 2009, up 4% y-o-y, Deputy Chief of the firm's Public Relations Office Le Hoang Dung said. Dung forecast that the airline would carry 2.9mn passengers in the fourth quarter of 2009. To deal with the adverse impact of © Business Monitor International Ltd Page 46 Vietnam Freight Transport Report Q1 2010 the global economic downturn, Vietnam Airlines has been trying to save fuel and changed its flight schedule as well as ticket prices. Source: Saigon Times (October 23 2009) Latest Activity At the end of October, according to Vietnam News Briefs (VNB) the national flag carrier Vietnam Airlines launched a direct air route from Hanoi to the Central Highlands province of Gia Lai's Pleiku city. This was the airline's 31st air route and 3rd route from Pleiku after flights to Ho Chi Minh City and Danang. The carrier was using Fokker aircraft to operate four weekly flights on the route every Tuesday, Thursday, Friday and Sunday, Tuoi Tre newspaper reported. The flight departs from Noi Bai airport at 7:00 am and arrives at Pleiku airport at 8:30 am. It leaves Pleiku at 9:15 am and comes back Hanoi at 10:40 am. During the first nine months of 2009 the carrier transported 90,208 tons of cargo, fulfilling 75.8% of its full-year target. In 2009 Vietnam Airlines expects to serve 9mn passengers, up 4% from a year previously. Source: Vietnam News Briefs (October 29 2009) Prior Activity At the end of July, Vietnam Airlines said it had reached an agreement with the Cambodian Aviation Administration to set up an airline JV. The new company would be called Cambodia Angkor Air (CAA) and Vietnam Airlines would hold a 49% stake in it. CAA would start out using two aircraft, an ATR 72-500 and an Airbus A321-200, mainly for domestic flights and some flights to neighbouring countries. The first routes were to be Phnom Penh to Seam Reap, and from both Phnom Penh and Seam Reap to Ho Chi Minh City. Source: Vietnam News Briefs (July 28 2009) © Business Monitor International Ltd Page 47 Vietnam Freight Transport Report Q1 2010 Water Vietnam’s fleet statistics indicate that by the end of 2002, the country had 819 vessels with a total capacity of 2.123mn DWT and ranked the 60th out of 150 countries around the world (but fourth in ASEAN after Singapore, Malaysia and Thailand). The average vessel size is 2,650DWT. Currently there are more than 400 ships with a capacity below 1,000DWT that operate on domestic routes. Vietnam’s fleet structure lacks specialised container vessels, bulk cargo ships, large oil and liquefied petroleum gas (LPG) tankers. Multi-function ships and bulk cargo ships account for 87% in number and 63% in tonnage, and container ships account for only 2.2% in number and 9% in tonnage. The largest local operator is the Vietnam National Shipping Lines (Vinalines). On the logistics side, another state-owned company, Vinatrans, established in 1975, provides air and sea freight services along with warehousing. In addition, there are several foreign companies operating in the sector such as the Singaporean firm Andhika. Established in Vietnam in 1996, it has a turnover of around US$8mn with 70 employees. Infrastructure Vietnam’s dense river and canal network provides the country with a highly developed inland waterway system. This is the second-largest sub-sector involved in domestic cargo transport, accounting for 25-30% of total transport volumes. This is particularly true of the Mekong River Delta, and in some provinces accounts for 60-70% of total transport. Currently, the inland waterway transport sub-sector is managed by two state corporations affiliated to the Ministry of Transport, one SOE affiliated to the Vietnam Inland Waterway Authority, and some enterprises managed by other ministries, operating in support of the power generation, cement and paper industries. In addition, there are about 230 co-operatives and hundreds of inland waterway transport enterprises in the country. By early 2002, the sub-sector had around 2.4mn tonnes of cargo carriage capacity and the volume of cargo transported was 42mn tonnes. In addition to the traditional routes that serve the key industries such as coal for power generation, fertiliser and cement, inland waterway transport also handles a large volume of other building materials and agricultural products. Vietnam’s seaport network comprises many small- and medium-sized entities, with inefficient distribution. Most big ports are located far inside rivers, like Hai Phong and Ho Chi Minh City, with limited depth at the entrance. Some ports are located in big cities, thus making it difficult to connect with other modes of transport for cargo transfer from and to ports, due to traffic congestion. Except for several © Business Monitor International Ltd Page 48 Vietnam Freight Transport Report Q1 2010 new ports or upgraded ports, most ports have been operating for many years, lack investment and are seriously degraded. The loading and unloading equipment in some ports is obsolete, leading to low productivity. The average productivity of a Vietnamese port is only 2,500 tonnes/m per wharf, or 40-50% of productivity of other ports in the region. Specialisation and modernisation are also limited, due to a lack of specialised equipment for container handling. As a result, dwell times at ports are lengthy. Consequently, a large proportion of Vietnam’s exported and imported goods transit through Hong Kong or Singapore. Maritime Competitive Landscape Q309 According to Thanh Nien Daily in the second half of July, state-owned Vietnam National Shipping Lines (Vinalines) is to build the first two wharves of the deep-water port at Van Phong Bay in the central province of Khanh Hoa. The company will begin building in October 2009 as a part of a project to develop the international transhipment port, primarily to serve Asian trade. Dubai-based port operator Dubai Ports World (DP World) was to launch the Saigon Premier Container Terminal (SPCT) on October 1 2009. The terminal is a joint venture between DP World and Tan Thuan Industrial Promotion Company (IPC) and is on the Soai Rap River near Ho Chi Minh City, Vietnam. SPCT will provide services to Ho Chi Minh City and the surrounding industrial zone area. Building for the second phase of the Cai Cui seaport project in Vietnam's Can Tho city began after an inaugural ceremony by Prime Minister Nguyen Tan Dung on July 11 2009. The prime minister said that once fully operational, the port would cut transportation costs in the Mekong delta and would help reduce congestion at the Saigon port. The CKYH Alliance said it would begin a direct service between Vietnam and the US East Coast from mid-August 2009. The alliance will start by adding Ho Chi Minh City to its current AWE-4 (All Waters East Coast-4) service, managed by Kawasaki Kisen Kaisha (K-Line). Q209 South Korea's Hanjin Shipping Company announced in June the launch of a new service, the SJX (Southeast and Japan Express), from June 21 2009. The new service would connect South East Asia and Japan with the US west coast, and included a direct call at the new deepwater port in Ho Chi Minh City, Vietnam. Vietnam commenced operations of its first deep-water port, SP-PSA Port, on May 29 2009, with the arrival of the container ship APL Alexandrite. The port is a JV between Saigon Port and PSA Singapore, © Business Monitor International Ltd Page 49 Vietnam Freight Transport Report Q1 2010 with a capacity of 2.2mn TEU. The ship, with a 3,821TEU capacity, is a part of the first direct service between Vietnam and the US. Ho Chi Minh City-based Trai Thien Sea Transport Investment and Development acquired a licence to build a deepwater international trans-shipment port in Con Dao island, situated in Ba Ria Vung Tau province. According to the Saigon Times Daily, citing Bloomberg, Deputy Director Duong Van Hoa said that Vinacomin would build a US$250mn deepwater port at Khe Ga Cape, in Binh Thuan province. Khe Ga Seaport will be utilised to import coal, and export aluminium and minerals. According to Saigon Times Daily, as cited by Hellenic Shipping News, Dubai Ports World (DP World)’s Saigon Premier Container Terminal is likely to be ready for operations in September 2009. The terminal is being built in two phases at a cost of US$305mn. It will have a capacity of 800,000 TEU annually, which will increase to 1.5mn TEUs after the completion of second phase. Q109 According to PortStrategy, the government of Vietnam in early March invited proposals from foreign investors for the development of a new trans-shipment port in Van Phong Bay. The biggest investor in the project is Vietnam National Shipping Lines, but further funding is required. A new maritime container route between Cai Lan in Quang Ninh province, northern Vietnam, China and Hong Kong was launched at the end of 2008. The route will help to foster trade between the northern border economic zones of Vietnam and its regional partners. Test runs for ships along the route began in November 2008, when the Mediterranean Shipping Company (MSC) vessel the 1,090TEU Wellington was the first to arrive in Cai Lan. In late December 2008, VietnamNet reported that the relocation of Ho Chi Minh City ports – Ba Son Shipyard, Saigon New Port, Saigon Port, Tan Thuan Dong Port and VegePort – from the inner city to the suburbs was likely to miss targets. The relocations were to be finished by 2010; however, the project has been delayed because of a shortage of funds. According to Thai News Service as cited by Cargo News Asia, Vietnam Ocean Shipping (VOSCO) has started the transportation of cargo containers via a new route that runs from Doan Xa Port in Hai Phong to Tan Thuan Port in Ho Chi Minh City. Three of the world’s top container liners have signed a contract with the Saigon Newport Company to establish a joint terminal operation company to build and run a dedicated box facility in Ba Ria-Vung Tau, in Cai Mep. Mitsui OSK Lines (MOL), Hanjin and Wan Hai will join some of the world’s top operators, including Hutchison Port Holdings (HPH), PSA and DP World, in the development of Vietnam’s port sector. © Business Monitor International Ltd Page 50 Vietnam Freight Transport Report Q1 2010 According to FDI Vietnam, in January the Ministry of Transport was urged by the Vietnamese deputy prime minister, Hoang Trung Hai, to devise a plan to seek foreign investment for the construction of the Van Phong International Entreport. He also instructed the project developer – Vinalines – to select contractors for the project. Q408 In December 2008, Vinamarine announced proposals to build a 9km canal to connect Can Tho City in the Mekong Delta with the sea. The plans were to be submitted to the Vietnamese government in the near future and Vinamarine believes that the canal could be completed by 2010. The canal would provide a new route connecting Can Tho on the Hau River to the sea via the existing Quan Chanh Bo canal. Q308 Cam Pha port in Quang Ninh in the north of Vietnam resumed coal export operations in mid-August after a shutdown caused by an accident. Cam Pha is the country’s main coal export terminal. Three of its four coal loaders collapsed on August 6, according to officials. The port was said to have resumed operations the following week at around 70% of capacity, with officials at Vinacomin, the state coal-mining group, saying it might take a month to get it back to normal operating levels. Q208 In June, US aluminium producer Alcoa signed an agreement with state-owned Vinacomin to set up a joint venture to develop a 600,000 tonnes a year alumina refinery and consider further development of the Gia Nghia bauxite mine. Kenneth Wisnoski, president of Alcoa’s Global Primary Products division, said rail and port infrastructure to ship the alumina to export markets would have to be built. In June, Vietnamese shipping companies were reported to be asking local exporters to pay freight charges in US dollars, to be protected from currency fluctuations. In June, news agencies reported that the Chinese city of Qinzhou in Guangxi Zhuang Autonomous Region had won permission from the central government in Beijing to set up a free port zone close to the border with Vietnam. Dry bulker demand to ship Vietnam’s coal exports is expected to fall year-on-year as the country’s growing energy needs force more coal to be diverted to the domestic market. According to government sources, coal exports in 2008 will total around 25mn tonnes, worth US$850mn, a fall on the 2007 totals of 32.6mn tonnes and US$1bn. Vietnam Tanker Co (Vitaco) said in April that it had agreed to buy an oil tanker for US$50.6mn from South Korea’s SLS Shipping. The ship, Petrolimex 11, had a capacity of 40,019 tonnes. © Business Monitor International Ltd Page 51 Vietnam Freight Transport Report Q1 2010 The Vietnamese joint venture CMIT has signed a contract for the construction of a new container terminal in Ho Chi Minh City. This is the latest project to be finalised to overhaul Vietnam’s maritime sector. Port infrastructure investments have seen a rapid rise since the Vietnamese government began efforts to attract FDI to boost economic development, and several large scale projects involving international majors are in the pipeline. Q108 In January, the authorities said they would invest VND28trn (US$1.75bn) in the construction of a new seaport in Hai Phong City, Xinhua news agency reported. The state-owned Vinalines would build the 1,200ha Hai Phong International Gateway Port, which would have a capacity to handle 100mn tonnes of goods every year. Q407 In December 2007, newspaper Vietnam Economic Times said that the country needed US$4-5bn to build and upgrade seaports in the period running up to 2015. Q307 Vietnamese freight forwarder Gemadept Corporation announced at the end of August 2007 that it would start building a US$410mn deepwater container port in 2008 to handle growing demand for cargo trans-shipments. Under government plans, Cai Mep container port was one of five set to be built in the southern province of Ba Ria-Vung Tau by 2010. In August, Swiss bank Credit Suisse signed a memorandum with Vinalines, the leading shipping company in Vietnam, to provide loans worth US$700mn, various news agencies reported. As part of the financial service memorandum, Credit Suisse will provide Vinalines with ratings advisory, fund raising and risk management services. The Swiss bank will also help in the development of a financing programme of up to US$1bn for Vinalines, which will be the first offshore loan for the Vietnamese firm. Russia has re-opened its Far East port in Vladivostok to rice imports, a move that would help cut shipping costs for Vietnamese exporters delivering to European buyers, trade officials said on July 6. Q207 Two ships collided in southern Vietnam and one sank, leaving one person dead and seven missing, state media reported on May 15. The vessel Gas Shanghai, registered in Marshall Islands, slammed into the Vietnamese Hoang Dat 36 near the mouth of the Saigon River, the online version of the Thanh Nien newspaper said. © Business Monitor International Ltd Page 52 Vietnam Freight Transport Report Q1 2010 Vietnam’s state-run oil and gas monopoly PetroVietnam and the country’s largest shipping firm Vinalines had teamed up, establishing a joint stock company to develop a new port complex at an estimated cost of US$637mn in southern Vietnam, Thanh Nien Online reported at the end of May. Vinalines and China’s CMG group signed a deal to invest US$1bn in building and operating a container port, state media said on April 4. Construction would start later in 2007 and the port in the southern province of Ba Ria-Vung Tau, 90km south east of Ho Chi Minh City, would be able to handle 100,000DWT vessels, the official Vietnam News Agency said. Vietnam’s Vinashin Shipping Industry Corp was looking to raise VND3trn (US$186.9mn) by selling 10-year bonds, a person familiar with the deal was quoted at saying on March 19. Hanjin Shipping, South Korea’s largest shipping line by sales, said on March 5 it would form a joint venture with a Vietnamese company to start a container terminal business in Vietnam. Hanjin Shipping and Saigon New Port Co, the operator of Cat Lai terminal in southern Vietnam, signed a memorandum of understanding in Seoul to engage in the terminal and logistics business in the South East Asian nation, Hanjin Shipping said in a statement. Vietnam should invest in new deepwater ports if it wants to achieve its economic potential, according to NOL, the London-based Financial Times newspaper reported on its website on February 26. Vinalines may team up with Japan’s Sumitomo and Belgium’s Port of Zeebrugge to secure funds for developing two huge port complexes in the country, the group’s leader said at the end of April. Vinalines Chairperson Duong Chi Dung said the prime minister had told the group to mobilise funds for developing Van Phong Port in the central coast province of Khanh Hoa and Lach Huyen Port in northern Haiphong City. Q107 State-owned Vinalines was preparing to sign deals to borrow up to US$550mn to raise funds to boost its shipping fleet, a company official said on February 22. State-owned Vinashin Business Group signed two contracts valued at US$2.4bn together to build ships and oil tankers for Vietnamese companies, a company official said on February 15. Unlisted Vinashin, the country’s largest shipbuilder, signed a contract to build three 105,000 tonne oil tankers for PetroVietnam, said Vinashin Executive Le Thanh Quang. The ports unit of Hong Kong conglomerate Hutchison Whampoa said in February that it had signed a joint venture agreement to build and operate a new container terminal in the Vietnamese province of Ba © Business Monitor International Ltd Page 53 Vietnam Freight Transport Report Q1 2010 Ria Vung Tau – its first in the South East Asian nation. Hutchison Port Holdings (HPH), the world’s largest container-terminal operator in terms of throughput, said it would develop the port through a company it will jointly own with Ho Chi Minh-based property and construction firm Saigon Investment Construction & Commerce. Singapore container shipping firm NOL said on January 23 that it would upgrade its container terminal in Ho Chi Minh City to accommodate growth in containerised cargo in Vietnam. NOL, which is controlled by Singapore state investment holding Temasek, said in a statement that it would increase the berth length at the terminal by 192m, allowing the terminal to berth up to four container ships at a time. In February, two leading groups in the maritime sector, Vinalines and Vinashin, said they had clinched a memorandum of understanding to develop the national flag ship fleet until 2015 at a total cost of US$2.3bn. Under the deal signed in Hanoi, Vinalines placed orders for 19 vessels from 2007 to 2010, and 45 others five years after that, with a total capacity of 2.8mn DWT. Maersk Line is predicting 200% growth for its container business in Vietnam in a five-year period and sees the potential for direct calls in the future. ‘Clearly there is a lot of interest in Vietnam and a real strong demand for all kinds of business there’, said Maersk South East Asia Chief Executive Morten Engelstoft in comments published at the beginning of March. © Business Monitor International Ltd Page 54 Vietnam Freight Transport Report Q1 2010 Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) Company Overview Vietnam Petroleum Transport Joint Stock Company (VIPCO) specialises in marine transportation. It mainly offers marine transportation services, freight forwarding, shipping brokerage, customs clearance and port operation. Other activities include merchandise of petroleum, liquefied gas and petrochemicals; trading supplies and equipment, manning and warehousing; and minor industrial construction. The company has five subsidiaries and one affiliate, and is itself a subsidiary of Vietnam National Petroleum Corporation. Strengths ƒ At this stage in its economic development, Vietnam will require rapidly increasing import volumes of oil, gas and certain petrochemicals, as well as also extra export capacity. VIPCO is well positioned in a high-growth segment of the shipping market Weaknesses ƒ The global economic downturn of 2009-2010, accompanied by lower oil prices and sharply lower shipping freight rates, poses a serious challenge to profitability Opportunities ƒ Tanker rates have been less hard hit by the downturn than dry bulk, meaning that Vipco may be well advised to focus on improving market share within its existing segment, rather than diversifying Threats ƒ Vipco has a privileged position as a subsidiary of the state oil company. Any change to this role for regulatory reasons could therefore be a threat, implying potential loss of secure contracts Financial Performance Vietnam Petroleum Transport JSC (VIPCO - VIP) estimated it made a pre-tax profit of VND91bn ($5mn) in the first nine months of 2009, 20.4% higher than the figure of the whole of 2008 and up 8.2% on the full- year target, Vietnam News Briefs (VNB) reported. Revenue was VND892.292bn during the period, meeting 86.6% of the year's plan, according to a stock filing posted on the Ho Chi Minh Stock Exchange website. For 2009, VIP was aiming for net profit of VND72.21bn on revenue of VND1.03trn and a dividend equivalent to VND1,000 per share. Source: Vietnam News Briefs (October 9 2009) Latest Activity Vipco will invest VND2.8trn (US$157.3mn) in building a petrochemical and container port complex in the northern port city of Haiphong, local media reported, according to Vietnam News Briefs (VNB). The 40-hectare complex will consist of a petrochemical port with 3 loading capacity of 150,000m and a container port with loading capacity of 150,000 TEU. Vipco was seeking a foreign partner to build and develop the complex. Currently, an international seaport group and a leading industrial group in Japan are interested in the complex. The complex is undergoing site clearance. VIPCO expects to put it into service in 2011. Source: Vietnam News Briefs (October 6 2009) © Business Monitor International Ltd Page 55 Vietnam Freight Transport Report Q1 2010 Prior Activity VIPCO signed an agreement with the South Korean SK Shipping Company to rent out one of its two new ships – Petrolimex 15 and Petrolimex 16 – state media reported in April, citing VIPCO’s sources. The contract would take effect from the end of 2009, the sources said without giving the value of the agreement. Source: Vietnam News Briefs (April 23 2009) Table: Vietnam Petroleum Transport’s Key Financial Data 2007 2008 Q109 Net profit margin, % 6.16 5.90 12.75 Operating margin, % 6.30 6.03 12.75 19.48 18.51 na Return on average assets, % 4.88 4.91 7.43 Return on average equity, % 9.19 9.55 13.50 na na 486 EBITD margin, % No. of employees na = not available. Source: Company data, Google Finance © Business Monitor International Ltd Page 56 Vietnam Freight Transport Report Q1 2010 Company Profile: Doan Xa Port Company Overview Doan Xa Port Joint Stock Company is a Vietnam-based port operation company in Hai Phong. It mainly manages operations at Doan Xa Port, and provides port services, including loading/discharging cargo, warehousing, inland transportation and shipping agency. The company also offers minor supporting services, such as customs declaration, wholesales of handling machinery, and construction and maintenance of marine infrastructure. The company is affiliate of Vietnam National Shipping Lines (Vinalines). Strengths ƒ Given Vietnam’s strong growth record in recent years, and the country’s sharply increasing foreign trade, the port sector is expected to remain broadly profitable Weaknesses ƒ Global trade can fluctuate and, as in the 2009-2010 recession, fall in absolute terms, exposing Doan Xa to cyclical downturns Opportunities ƒ Haiphong’s strategic location means Doan Xa can benefit from growing trade with China (it is close to Hong Kong, Macau, Kunming and Guangzhou). It also can act as an eastern port for Myanamar and Laos Threats ƒ The port handles frozen foodstuffs and so is at risk of a loss of business during health scares such as the H1N1 ‘swine flu’ scare of April/May 2009 Financial Performance Doan Xa Port said in late July that it made a net profit of VND25.1bn (US$1.4mn), up by 146.1% y-o-y. Revenues rose by 69.3% to VND71.7bn. Six-month earnings per share (EPS) stood at VND4,835. Q209 pre-tax profit was VND17.05bn, up by 116.5% yoy, on revenue of VND44bn, up by 56.5% yoy. The Haiphong-based company said it was forecasting a 2009 pre-tax profit of VND16bn, which would be achieved on revenue of VND80bn. Source: Vietnam News Briefs (July 24 2009) Latest Activity In June Doan Xa Port moved its stock exchange listing from the Ho Chi Minh City Stock Exchange (HoSE) to the Hanoi Securities Trading Centres (HaSTC) because it was unable to meeting the new minimum capital requirement for the southern bourse. It was one of 21 companies that decided to move their listings to the HaSTC. The move came because under a government decree, companies listed on the HoSE with a charter capital of less than VND80bn were required to either increase their capital or move to the Hanoi Bourse. Source: Vietnam News Briefs (June 2009) Prior Activity Thousands of frozen food containers imported for re-export were stuck at several ports in the northern city of Hai Phong, with unconfirmed reports saying importers were balking at accepting shipments based on swine flu fears, Thanh Nien reported © Business Monitor International Ltd Page 57 Vietnam Freight Transport Report Q1 2010 in early May. The containers, stocking frozen chicken legs, pig stomachs and beef were lying at the Dinh Vu Port in Hai Phong City. Air conditioners had to be run round the clock to prevent the food from spoiling. ‘We can’t receive any more cargo as we are already stocked with five times our storage capacity. The cost of power for storing the frozen food containers has gone sky-high’, said Nguyen Ngoc Hong, director of the port. Hong added he was very worried that owners of those containers might abandon the goods if the cost exceeds the shipment’s value. Chua Ve Port, one of the city’s largest ports, shared Dinh Vu’s plight, with nearly 1,000 frozen food containers stuck at the port. ‘Customers keep asking to delay exporting while others seek permission to import’, said Vu Nam Thang, director of the port’s cargo handling agency. Frozen food imported for the domestic market was also stuck at the city’s ports. ‘We have just received two frozen food containers imported for domestic markets, which had struggled to find a port to unload’, said Vu Tuan Duong, director of the Doan Xa Port. ‘But both have to be moved out of the port within two days as we are already overloaded’. Duong showed Thanh Nien text messages local food importers sent to his cell phone, asking to postpone their shipments’ delivery dates. Source: Thanh Nien (May 2009) Table: Doan Xa Port’s Financial Performance 2007 2008 Q408 Net profit margin, % 30.79 30.79 35.14 Operating margin, % 33.67 33.67 37.67 EBITD margin, % 48.46 48.47 na Return on average assets, % 26.68 26.68 31.45 Return on average equity, % 41.00 41.00 46.31 na na 291 No. of employees na = not available. Source: Company data, Google Finance © Business Monitor International Ltd Page 58 Vietnam Freight Transport Report Q1 2010 Pipelines Competitive Landscape Q209 Vietnam oil and gas group PetroVietnam was preparing the construction of the US$1bn block B-O Mon gas pipeline in southern Can Tho City for Q409. The 406km gas pipeline comprises a 246km offshore pipeline and a 160km onshore pipeline. The pipeline will link more than five Mekong Delta localities, including Can Tho City, Hau Giang, Kien Giang, Bac Lieu and Ca Mau provinces Q207 Vietnam had started operation of its second gas pipeline, which would supply 2bn m3 of natural gas a year from an offshore field, a PetroVietnam official said on May 3. Vietnam is stirring up trouble by agreeing with BP and its partners to build a gas pipeline in the South China Sea, the Chinese foreign ministry said on April 10 of an area disputed by Hanoi and Beijing. The Spratly Islands, a string of rocky outcrops in the South China Sea suspected of containing large oil and gas deposits, are also claimed by Taiwan, Brunei, Malaysia and the Philippines. The US$2bn pipeline will bring gas from two new fields to Vietnam’s south coast, though details are still being worked out. © Business Monitor International Ltd Page 59 Vietnam Freight Transport Report Q1 2010 Country Snapshot: Vietnam Demographic Data Section 1: Population Population By Age, 2005 (mn) Population By Age , 2005 And 2030 (m n, total) 70-74 70-74 60-64 6 0-64 50-54 50-54 40-44 4 0-44 30-34 3 0-34 20-24 2 0-24 10-14 10-14 0-4 0-4 -6.0 -4.0 -2.0 0.0 Male 2.0 4.0 6.0 -10.0 -5.0 Female 0.0 2030 5.0 10.0 2005 Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 34.1 29.9 30.4 31.2 Dependent population, total, ‘000 28,318 26,225 30,950 34,499 Active population, % of total 65.8 70.0 69.5 68.7 Active population, total, ‘000 54,650 61,263 70,706 75,927 Youth population*, % of total 28.8 25.0 23.4 20.3 Youth population*, total, ‘000 23,972 21,887 23,807 22,508 Pensionable population, % of total 5.2 4.9 7.0 10.8 Pensionable population, total, ‘000 4,346 4,338 7,143 11,991 f = forecast; * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 60 Vietnam Freight Transport Report Q1 2010 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 26.7 29.4 34.7 41.8 Rural population, % of total 73.3 70.6 65.3 58.2 Urban population, total, ‘000 22,509 26,395 35,230 46,123 Rural population, total, ‘000 61,729 63,323 66,426 64,306 Total population, '000 84,238 89,718 101,656 110,429 f = forecast. Source: UN Population Division Section 2: Education And Healthcare Table: Education, 2002-2005 2002-2003 2004-2005 Gross enrolment, primary 98 93 Gross enrolment, secondary 73 75 Gross enrolment, tertiary 10 16 Adult literacy, male, % na 93.9 Adult literacy, female, % na 86.9 Gross enrolment is the number of pupils enrolled in a given level of education regardless of age, expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010f 2020f 2030f Life expectancy at birth, males (years) 68.4 69.9 74.2 75.8 Life expectancy at birth, females (years) 72.4 73.9 78.4 80.0 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 61 Vietnam Freight Transport Report Q1 2010 Section 3: Labour Market And Spending Power Table: Employment Indicators, 1999-2004 more recent?] 1999 2000 2001 2002 2003 2004 Employment, '000 38,120 38,368 39,000 40,162 41,176 42,316 – % change y-o-y 3.1 0.6 1.6 2.9 2.5 2.7 – male 19,029 19,292 19,744 20,356 20,959 21,649 – female 19,091 19,076 19,257 19,807 20,217 20,666 – female, % of total 50.0 49.7 49.3 49.3 49.1 48.8 Unemployment, '000 909 886 1,107 871 949 926 – male 439 468 458 398 402 410 – female 470 418 650 473 547 517 – unemployment rate, % 2.3 2.2 2.7 2.1 2.2 2.1 Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) 2000 2007 2008e 2009f 2010f 2012f 110 265 301 368 386 427 Poorest 20%, expenditure per capita 49 119 136 166 174 192 Richest 20%, expenditure per capita 243 587 668 815 855 946 Richest 10%, expenditure per capita 316 763 868 1,060 1,112 1,230 Middle 60%, expenditure per capita 85 206 235 286 301 332 Consumer expenditure per capita 556 1,196 1,297 na na na Poorest 20%, expenditure per capita 250 538 583 na na na Richest 20%, expenditure per capita 1,231 2,649 2,872 na na na Richest 10%, expenditure per capita 1,600 3,444 3,734 na na na 433 931 1,009 na na na Consumer expenditure per capita Purchasing power parity Middle 60%, expenditure per capita e/f = BMI estimate/forecast; na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 62 Vietnam Freight Transport Report Q1 2010 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Transport Industry There are a number of principal criteria that drive our forecasts for each transport variable: GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMI’s own macroeconomic and demographic forecasts. © Business Monitor International Ltd Page 63 Vietnam Freight Transport Report Q1 2010 Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services do not employ transport. The volumes are forecast based on the following criteria: ƒ Trends manifested through historical data; ƒ The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a ‘second opinion’ on trade volumes. However, this check needs to be used with caution, as trade values and volumes do not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: ƒ Trends in historical modal split data; ƒ Evidence of government policy favouring one or more modes over others; ƒ Government and or private-sector investment plans in specific modes. Sources Sources used in Freight Transport reports include local transport ministries, officially-released company results and figures, established thinktanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 64 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... large SOEs, including Vietnam Airlines, between 2007 and 2010 © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q1 2010 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market share of around 60% of domestic cargo At present there are over 1,050 enterprises registered in the road transport business,... in this report Source: IMF © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q1 2010 Market Overview Multi-Modal In June 2004, Vietnam concluded the eighth round of negotiations in its bid to join the WTO, and in January 2007 joined the organisation Competitive Landscape Q209 According to reports in early June, foreign investors have once again raised concerns about Vietnam' s... growth, % GDP index, 1995=100 Transport sector GDP index, 1995=100 5-year average annual export growth, % Transport and communications sector value, US$bn nominal Employment Total transport sector employment, '000 Trade Total trade (imports + exports), US$bn f = forecast Source: BMI © Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q1 2010 Table: Freight Carried, Domestic,... 5.1% For the 2010- 2014 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole in value terms It will achieve average annual growth of 8.3%, versus 7.3% for overall GDP The value of transport and communications GDP will rise to US$7.6bn in nominal terms by © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q1 2010 2014,.. .Vietnam Freight Transport Report Q1 2010 Transport Intensity Index This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2005 through to 2014 As such, it is a mix of actual performance (the five-year 2005-2009 period) and projected performance (2010- 2014) In Vietnam s case, actual average... in 2010, rising further to US$98.12 in 2011 and stabilising around US$103.90/bbl from 2012 The price of jet is forecast to average US$97.24/bbl in 2010 and US$99.59 in 2011, before levelling out at US$105.45/bbl from 2012 Gasoil is expected to rebound to US$100.29 in 2010, reaching a plateau of US$108.75/bbl from 2012 © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q1 2010. .. At the same time, Ho Chi Minh announced plans for a US$2bn injection into transport projects in the same year in order to stimulate the construction industry and in turn boost economic growth © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q1 2010 Q408 According to a Reuters report in December 2008, Vietnam Infrastructure Development and Finance Investment had awarded a... 19% per annum over the last decade Q207 Vietnamese investment manager VinaCapital said at the beginning of May that it was looking to raise © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q1 2010 US$200mn to invest in infrastructure in Vietnam by listing a new fund on London’s Alternative Investment Market (AIM) It said the fund, Vietnam Infrastructure, would be the first... point (bps) of hikes in 2010, bringing the Vietnam base rate from 7.00% in November 2009 to 12.00% ƒ A reduction of the fiscal deficit from VND118trn (US$6.6bn), or 7.2% of GDP, to VND105trn (US$5.9bn), or 5.7% of GDP, in 2010 on the back of reductions in current and capital expenditure growth © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q1 2010 Implications For Growth... data state that it takes 11 procedures and 56 days to start a business in Vietnam, compared with an average of nine and 61 in East Asia and Pacific and six and 25 in high-income OECD states © Business Monitor International Ltd Page 12 Vietnam Freight Transport Report Q1 2010 Labour Force Size Reliable data on the labour force in Vietnam are difficult to find However, it is estimated that the working