Vietnam freight transport report q2 2009

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Published by BUSINESS MONITOR INTERNATIONAL LTD Vietnam Freight Transport Report Q2 2009 ISSN: 1750-5364 Including 5-year industry forecasts 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. All information, analysis, forecasts and data provided by Business Monitor International Ltd is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Business Monitor International, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Business Monitor International Ltd. All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content. Vietnam Freight Transport Report Q2 2009 Including 5-year industry forecasts by BMI Part of BMI’s Industry Survey & Forecasts Series Published by: Business Monitor International Publication date: March 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. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. 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 Q2 2009 © Business Monitor International Ltd Page 2 Vietnam Freight Transport Report Q2 2009 CONTENTS Executive Summary .........................................................................................................................................5 Vietnam Road Haulage SWOT............................................................................................................................................................................... 6 Vietnam Political SWOT ........................................................................................................................................................................................ 7 Vietnam Economics SWOT .................................................................................................................................................................................... 7 Vietnam Business Environment SWOT................................................................................................................................................................... 8 Business Environment Ratings ......................................................................................................................9 Table: Asia Pacific Freight Business Environment Ratings................................................................................................................................... 9 Freight Industry Ranking..................................................................................................................................................................................... 10 Vietnam Logistics Performance Index (LPI)........................................................................................................................................................ 10 Economics – Long-Term Risk .............................................................................................................................................................................. 11 Politics – Long-Term Risk ................................................................................................................................................................................... 11 Freight Transport Growth ................................................................................................................................................................................... 11 Transport Infrastructure Growth ......................................................................................................................................................................... 12 Regulatory Environment ...................................................................................................................................................................................... 12 Competitive Environment..................................................................................................................................................................................... 12 Transport Intensity Index..................................................................................................................................................................................... 12 Political Risk Summary........................................................................................................................................................................................ 12 Economic Risk Summary...................................................................................................................................................................................... 13 Business Environment Risk Summary .................................................................................................................................................................. 13 Legal Code/Corruption........................................................................................................................................................................................ 13 Red Tape.............................................................................................................................................................................................................. 14 Labour Force....................................................................................................................................................................................................... 14 Industry Trends And Developments ............................................................................................................16 Road .................................................................................................................................................................................................................... 17 Rail ...................................................................................................................................................................................................................... 18 Air........................................................................................................................................................................................................................ 19 Sea ....................................................................................................................................................................................................................... 19 Industry Forecast Scenario ...........................................................................................................................22 Quarterly Oil Products Price Outlook ................................................................................................................................................................. 22 Table: Oil Product Price, 2006-2013 (US$/bbl) .................................................................................................................................................. 25 Macroeconomic Outlook...................................................................................................................................................................................... 25 Table: Vietnam – Economic Activity, 2006-2013................................................................................................................................................. 27 Transport Outlook ............................................................................................................................................................................................... 28 Table: Transport And Communications Data And Forecasts, 2005-2013 ........................................................................................................... 29 Table: Freight Carried, Domestic, 2005-2013..................................................................................................................................................... 30 Trade Environment.........................................................................................................................................31 Trade Agreements................................................................................................................................................................................................ 31 Tariffs/Non-Tariff Barriers .................................................................................................................................................................................. 31 Table: Value Of Imports By Category, 2005-2013 (US$mn)................................................................................................................................ 32 Table: Value Of Exports By Category, 2005-2013 (US$mn)................................................................................................................................ 33 Table: Top Export Destinations, 2001-2006 (US$mn)......................................................................................................................................... 34 Table: Export Trade, 2002-2006 (% growth y-o-y).............................................................................................................................................. 35 Table: Import Trade, 2002-2005 (% growth y-o-y).............................................................................................................................................. 35 Table: Top Import Sources, 2001-2006 (US$mn) ................................................................................................................................................ 36 © Business Monitor International Ltd Page 3 Vietnam Freight Transport Report Q2 2009 Market Overview.............................................................................................................................................37 Multi-Modal.............................................................................................................................................................................................................. 37 Competitive Landscape: Multi-Modal.................................................................................................................................................................. 37 Vinatrans ............................................................................................................................................................................................................. 38 Road.......................................................................................................................................................................................................................... 39 Infrastructure....................................................................................................................................................................................................... 39 Competitive Landscape: Road ............................................................................................................................................................................. 40 Rail ........................................................................................................................................................................................................................... 41 Infrastructure....................................................................................................................................................................................................... 41 Competitive Landscape: Rail ............................................................................................................................................................................... 41 Air............................................................................................................................................................................................................................. 42 Infrastructure....................................................................................................................................................................................................... 42 Competitive Landscape: Aviation ........................................................................................................................................................................ 42 Vietnam Airlines .................................................................................................................................................................................................. 44 Water ........................................................................................................................................................................................................................ 46 Infrastructure....................................................................................................................................................................................................... 46 Competitive Landscape: Maritime....................................................................................................................................................................... 47 Vietnam National Shipping Lines (Vinalines) ...................................................................................................................................................... 50 Maersk Sealand ................................................................................................................................................................................................... 52 Competitive Landscape: Pipelines ............................................................................................................................................................................ 54 Country Snapshot: Vietnam Demographic Data .........................................................................................55 Section 1: Population........................................................................................................................................................................................... 55 Table: Demographic Indicators, 2005-2030........................................................................................................................................................ 55 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 56 Section 2: Education And Healthcare.................................................................................................................................................................. 56 Table: Education, 2002-2005 .............................................................................................................................................................................. 56 Table: Vital Statistics, 2005-2030........................................................................................................................................................................ 56 Section 3: Labour Market And Spending Power .................................................................................................................................................. 57 Table: Employment Indicators, 1999-2004.......................................................................................................................................................... 57 Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................ 57 BMI Forecast Modelling .................................................................................................................................58 How We Generate Our Industry Forecasts .......................................................................................................................................................... 58 Transport Industry ............................................................................................................................................................................................... 58 Sources ..................................................................................................................................................................................................................... 59 © Business Monitor International Ltd Page 4 Vietnam Freight Transport Report Q2 2009 Executive Summary 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 1,090 twenty-foot equivalent units (TEUs) Wellington, was the first to arrive in Cai Lan. MSC had so far sent six vessels to the port, which is the only port in northern Vietnam that has the capacity to serve vessels weighing up to 50,000 dead weight tonnes. The inauguration of the new route also involved the opening of a new channel at Cai Lan Port. The Vietnam Maritime Administration, the Quang Ninh Port Company and the Waterway Project Construction Corporation launched the waterway, which is 10m deep and 130m wide. The province of Quang Ninh is part of a bilateral strategy between the governments of China and Vietnam to develop an economic corridor through the provinces of Yunnan, Lao Cai, Hanoi, Hai Phong, and Quang Ninh. Quang Ninh shares a 132-mile border with China and has a coastline of 250m. The province boasts five existing economic zones - Cai Lan, Viet Hung, Hai Yen, Dong Mai, and Hai Ha and is investing in two further zones - Phuong Nam and Dam Nha Mac. Five further zones are currently in the planning stages. It is expected that the majority of the goods transported on the new VietnamChina-Hong Kong route will be produced in Quang Ninh's industrial zones for export to China and Hong Kong. Trade between Vietnam and China has been steadily increasing in the past five-10 years. Data from IMF's Direction of Trade Statistics shows that the value of Chinese imports from Vietnam rose from US$929.1mn in 2000 to US$3214.42mn in 2007. The countries' commitment to trade co-operation was boosted in October 2008, when Vietnamese Prime Minister Nguyen Tan Dung held talks with Chinese government and state leaders. According to Quangninh Industrials News, the leaders agreed to promote 'two corridors and one economic belt' and to give priority to the development of economic zones. Despite strong shipping prospects on the medium term, Vietnam’s industry will like the rest of the world be hit by the current economic slowdown. Taking this and other developments into consideration, along with our projections for the growth of demand, BMI’s newly released Vietnam Freight Transport Report concludes that shipping traffic will increase by an annual average of 7.0% in 2009-2013, measured in tonnes per km. A number of factors underpin this forecast. One is the still-realistic prospect of a long, export-led boom in Vietnam, with annual GDP growth likely to average 6.4% in 2009-2013, only a little slower than the 7.8% rate achieved in the preceding five-year period. Infrastructure plans are also ambitious with many new ports under development. Our overall outlook for the nascent freight transport industry across the different modes is bullish. Despite a tough couple of years ahead, airfreight will grow by an annual average of 8.0% over the next five years. In road haulage, we have trimmed our forecast to take account of the economic slowdown. But we still © Business Monitor International Ltd Page 5 Vietnam Freight Transport Report Q2 2009 see road-freight turnover running ahead of the general rate of economic expansion in Vietnam. We see it growing by an annual average of 7.9% over the next five years, followed closely by pipeline throughput (7.0%), rail (6.9%) and maritime freight (6.4% as already mentioned). Full World Trade Organisation (WTO) membership, achieved in early 2007, can be seen as supportive of greater freight transport turnover relative to GDP across all modes, particularly so for shipping. We now expect total freight carried growth across all modes, measured in million tonne-km (mntkm), to average 7.2% per annum in 2009-2013. Under BMI’s freight transport rating system, Vietnam achieves a composite score of 58.3 out of a potential maximum of 100. Vietnam’s stronger points are freight growth, transport infrastructure growth and the transport intensity index, which measures the dynamism of the country’s foreign trade. BMI views Vietnam as being weaker in the other four categories: economic and political long-term risks and the country’s regulatory and competitive environment (corruption is a particular problem). According to our latest estimates, the total value of transport and communications GDP will rise to US6.7bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP. 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 long-distance 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 © Business Monitor International Ltd Page 6 Vietnam Freight Transport Report Q2 2009 Vietnam Political SWOT Strengths Weaknesses Opportunities Threats ƒ The Communist Party government appears committed to 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 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 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 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 Vietnam Economics SWOT Strengths Weaknesses Opportunities Threats 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 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 quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures 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 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 © Business Monitor International Ltd Page 7 Vietnam Freight Transport Report Q2 2009 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 ƒ 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 2007 Corruption Perceptions Index was 2.6, lower than the regional average of 4.6 ƒ Opportunities ƒ Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea, and Taiwan. This offers the possibility of the transfer of high-tech skills and know-how 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 ƒ 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 skills levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page 8 Vietnam Freight Transport Report Q2 2009 Business Environment Ratings Freight-transport markets in Asia Pacific offer 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 nonideological 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, IndiaPakistan, to name just a few). Table: Asia Pacific Freight Business Environment Ratings Limits of potential returns Risks to realisation of returns Freight transport market Country structure Limits Market risks Country risk Risks Overall rating Regional ranking Hong Kong 72.5 80.9 76.7 70.0 78.6 75.2 76.2 1 Australia 52.5 80.9 66.7 75.0 77.4 76.5 69.6 2 Singapore 60.0 76.3 68.1 80.0 64.1 70.5 68.8 3 China 90.0 47.6 68.8 60.0 46.4 51.9 63.7 4 India 70.0 61.0 65.5 60.0 54.7 56.8 62.9 5 Japan 55.0 57.2 56.1 75.0 58.6 65.2 58.8 6 Vietnam 60.0 61.3 60.7 55.0 51.6 53.0 58.3 7 Indonesia 50.0 71.4 60.7 50.0 45.6 47.3 56.7 8 South Korea 55.0 46.4 50.7 60.0 72.3 67.4 55.7 9 Thailand 52.5 59.2 55.9 55.0 45.9 49.5 54.0 10 Malaysia 50.0 40.3 45.2 60.0 71.8 67.1 51.7 11 Taiwan 47.5 34.7 41.1 65.0 74.6 70.8 50.0 12 Pakistan 50.0 47.6 48.8 55.0 35.0 43.0 47.1 13 Philippines 42.5 39.0 40.7 50.0 35.9 41.6 41.0 14 Scores out of 100, with 100 highest. Source: BMI © Business Monitor International Ltd Page 9 Vietnam Freight Transport Report Q2 2009 Strong freight-transport growth rates are combined with a very encouraging infrastructure investment picture across most of the region. By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to smaller/higher value loads continues. Rail freight will benefit from long-distance economies of scale, whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route. Shipping is being lifted by the surge in trans-Pacific commodity and manufactures trade routes, while air freight is growing on the back of liberalisation and the budget airline boom. While the freight-transport industry in the region suffers from patchy regulation and in some areas there are ongoing issues with corruption and cronyism, it is on the whole much more open and competitive than in the past. A strong positive factor is the dynamic and outward facing role played by foreign trade Freight Industry Ranking Our overall freight transport rating for Vietnam stands at 58.3 (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 53.0 for risks to those returns (reflecting factors such as market orientation, regulatory environment, and other country-risk issues), which gets a 30% weighting. 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 number 53 in the world with an LPI score of 2.9. For comparison with the major OECD economies, the Netherlands was ranked 2nd in the world with an LPI of 4.2; followed by Germany (3rd with an LPI of 4.1), the UK (9th, LPI of 4.0), and the US, (14th, LPI of 3.8). In comparison to 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. © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q2 2009 Economics – Long-Term Risk BMI foresees both economic and political risks rising in 2009 as global demand for Vietnam's manufactured exports fall and factories lay off workers. The global recession will shake the foundations of the Vietnamese growth story as it has been reliant on strong demand for manufactured products from G3 markets. With demand from developed markets slumping, Vietnam will be heavily reliant on remittances and FDI inflows to stimulate domestic demand and keep GDP growth in positive territory. We are expecting growth of 2.9% in 2009, rising to 5.0% in 2010 as an improving world economy and a weaker dong bolster exports. With Prime Minister Nguyen Tan Dung's economic reform agenda intact, although currently on the back burner, we expect GDP growth to return to around 8% in 2011 and onwards. Vietnam is in line to take a hard hit in 2009 as exports to G3 economies contract sharply. We have revised down our GDP growth forecast for 2009 from 5.0% to 2.9% as the construction and manufacturing sectors contract. With domestic demand far from sufficient to fill the gap and Hanoi lacking the wherewithal to implement any sizeable fiscal stimulus, we believe the government will opt for the easy way out by devaluing the dong to increase the price competitiveness of Vietnamese exporters. We are currently expecting a 8.0% devaluation of the currency in 2009 to VND19,000/US$ by year-end, which should help growth recover to 5.0% in 2010. Politics – Long-Term Risk While public discontent with the government is likely to rise as the economy slows rapidly, we see no major risk of mass protests or political turmoil. This is because the 'doi moi' economic reform agenda championed by the Communist Party of Vietnam since 1986 has brought considerable material gains for the wide majority of the population and diminished the support for pro-democracy activists. However, the government will not take any risks and has imposed tighter curbs on journalists and stepped up its surveillance of online media. On the foreign policy front, we expect a continued rapprochement with the US under the new Obama administration while intensified competition between Chinese and Vietnamese manufacturers may cause some tension with Beijing. Freight Transport Growth Vietnam’s freight transport traffic, measured in million tonne-km (mntkm), rose by an annual average of 10.7% in 2004-2008 and, according to our projections, will decelerate to an annual average of 7.2% in 2008-2012. © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q2 2009 Transport Infrastructure Growth 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 underway to develop the Mekong basin area. 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. Regulatory Environment 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 will gain 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. Competitive Environment 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. Transport Intensity Index This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2004 through to 2013. As such, it is a mix of actual performance (for the first five years) and projected performance (for the five years 2009-2013). In Vietnam’s case, actual average annual trade growth in 2004-2008 was a very strong 31.3%, which in our projections will ease substantially to 10.7% per annum in 2009-2013. The annual average across the 10 years as a whole is 20.9%. Political Risk Summary President Welcomes Russian Delegation Vietnam's president Nguyen Minh Triet received a delegation of Russian dignitaries in Hanoi on February 4 of this year, stating his hopes that a cordial relationship between the two countries would bring tangible benefits in a wide range of sectors. Professor Vladimir Zaznobin from St Petersburg University led a team of Russian scientists and entrepreneurs on a visit to Vietnam to gain a better understanding of the legal system and consider investment and development opportunities. President Triet visited Russia in October 2008 to sign a series of economic agreements with his Russian counterpart, Dmitry Medvedev, who © Business Monitor International Ltd Page 12 Vietnam Freight Transport Report Q2 2009 predicted that annual bilateral trade with Vietnam would increase from US$1.0bn in 2007 to US$3.0bn in the coming years. Economic Risk Summary Dung Quat Coming Online The Binh Son petrochemical company began its first 10-day pilot programme on February 5 of this year to process crude oil into petroleum and other product at the Dung Quat Oil Refinery. It has been estimated that the refinery will operate at 50% capacity at the end of February. Once fully onstream next year, Dung Quat will refine 6.5mn tpa of oil (130,000b/d), producing an estimated 3mn tonnes of diesel, 1.8mn tonnes of gasoline, 400,000 tonnes of jet fuel, among other products such as LPG and propylene. This will mean that refined products imports will fall from 328,000b/d in 2008 to 237,000b/d in 2009, according to BMI's Oil and Gas team. Business Environment Risk Summary The sharp deterioration in economic conditions both domestically and globally has prompted the Vietnamese government to shift its attention from economic reforms to devising measures to support growth in the short term in the face of slumping global demand. Only 73 out of a planned 262 stateowned enterprises (SOEs) were equitised, i.e. transformed into shareholder-owned companies, in 2008, and initial public offerings of SOEs like Bao Viet have been unsuccessful, largely due to the high pricing of shares. While continued delays in the equitisation process are expected, we are not expecting any shift in the government's economic reform agenda, which will continue to support economic activity. Oil Taxes Raised The Vietnamese government announced on January 21 2009 that oil production taxes will go up by 2% with immediate effect. This raises the overall level to 10% for projects producing 20,000-50,000 barrels per day (b/d) and 6-8% for smaller fields. The slowdown of the country's manufacturing industry and the falling price of oil exports could force the government to resort to further industry taxation and may have a downside impact on our Business Environment Ratings. Considering that the industrial and petroleum sector accounts for 45% of the country's foreign investment, any loss of investor interest in Vietnam's oil industry could have serious long-term consequences. Legal Code/Corruption Legal Code Vietnam’s judicial system is based on communist legal theory and the French civil law system. © Business Monitor International Ltd Page 13 Vietnam Freight Transport Report Q2 2009 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 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 9 and 61 in East Asia and Pacific and 6 and 25 in high-income OECD states. Labour Force Size Reliable data on the labour force in Vietnam are difficult to find. However, it is estimated that the working age population in the country is 42.1mn, approximately 61% of the total. An estimated 10.2mn live in urban areas, with the remaining 31.9mn in rural areas. ‘Technically-skilled workers’ form an estimated force of 8.84mn, accounting for 20.99% of the total. The south-east region has the highest rate of skilled workers (30.13%), followed by the Red River delta (27.99%) and Coastal South Central (20.85%). The lowest rate was reported in the north-west region. Education The adult male illiteracy rate was estimated at 4% for males and 9% for females in 2000, with the youth illiteracy rate 3% for both genders. Regulation The Vietnam labour force is comparatively heavily regulated, according to World Bank’s Employment Laws index. Its score of 56 indicates that regulations are tighter than the East Asia and Pacific average and a bit tighter than OECD high-income states. Disaggregating the data, the regulations for hiring workers are looser than those for firing workers, with scores of 43 and 48 respectively, the combination of which suggests a more regulated workforce than regional peers. Issues Fears of growing unemployment and rising social unrest in the cities is slowing down 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 © Business Monitor International Ltd Page 14 Vietnam Freight Transport Report Q2 2009 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 15 Vietnam Freight Transport Report Q2 2009 Industry Trends And Developments 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. Around 18 of the proposed projects on the list will be funded by official development assistance from Europe, Japan, and the Asian Development Bank, while the ministry said that the rest would come from the private sector, through public-private partnerships (PPPs). Vietnam's poor infrastructure is putting a brake on the country's growth, as businesses in general are highly dependent on good infrastructure (especially power and road networks) to operate efficiently. Indeed, Vietnam's planning and investment deputy minister, Cao Viet Sinh, said, in August 2008, that infrastructural weaknesses were slowing the absorption rate of foreign direct investments (FDI) in the country. However, the country has been making efforts to attract investment and the government has made infrastructure a priority investment area. Urbanisation pressures and the population figures, however, indicate that the pressure on urban infrastructure will increase in the coming years. According to BMI forecasts, between 2009 and 2016, Vietnam's population will increase by 10%. According to our latest, revised, forecasts, the value of the construction - and by extension infrastructure - industry in Vietnam will keep rising quite strongly in the medium term, registering real growth of 12.3% between 2009 and 2013. This year will be as difficult for Vietnam as it will be for other countries, but in Vietnam's case we view this as a mere slowdown (indeed, many countries would envy Vietnam's 5% forecast industry value growth for 2009), as the county has a long future of building and upgrading infrastructure that we believe will sustain the industry. The slight increase in growth in 2009 compared to 2008 has to do less with any fundamental change in the industry. Rather, as rampant inflation subsides with macroeconomic growth during 2009, inflation-adjusted growth (real) gains some points. Construction of an urban railway project in Hanoi was due to start in early 2009. At the same time, Ho Chi Minh (HCM) City 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. The Cat Linh-Ha Dong urban rail project in Hanoi is one of a number of key urban rail routes that will be built between 2009 and 2020. According to Vietnam News, the project will cost an estimated US$552mn, with a loan from the Chinese government funding the majority of this amount. The 13.5km route will have a capacity of 28,500 passengers per hour in each direction. Bids for the seven contracts for the construction of the line are currently being assessed. The largest of these contracts is for design, equipping and installation, which is estimated to be worth US$394mn. However, the commencement of the project is subject to agreements over land clearance. The rail line will involve the displacement of 400 households with an estimated compensation of US$35mn. In general, Vietnam's transport infrastructure is set for investments in 2009. HCM City has announced plans to invest US$2bn in 37 transport projects for the city. This includes a © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q2 2009 new line for the subway, a large car park and the extension of highways. According to Prime Minister Nguyen Tan Dung, as reported in IntellAsia, the investment will be funded through international assistance. HCM City is also planning an urban rail system, on which work is due to start in 2009. The US$1.1bn project will link the city centre to District 9 via a 19.7km metro rail system. The project is being majority funded by the Japan Bank for International Co-operation. The country is changing economic tack for 2009, moving away from fighting inflation to attempting to stimulate growth. Investments in the construction industry, in an attempt to stimulate growth and provide employment, have been adopted as a method to deal with the global economic crisis in many emerging and developed countries across the world. 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. The World Bank estimates that it will cost US$9mn to build 1km of highway in Vietnam, so the total funding required for the project is estimated at around US$53bn. Road 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 of this year. 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. The need for development of transport infrastructure is evident from the highlights of a workshop under the auspices of the World Bank, which took place in November 2008, outlining the most pressing issues facing Vietnam's road sector. According to the findings of a relevant study by the Bank, the vehicle fleet and by extension, road activity in Vietnam, is set to increase threefold by 2020, placing greater strains on the road infrastructure. By improving transport infrastructure, BMI believes that Vietnam can unlock its growth potential and become a key player in South East Asia. 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. The four projects will be added to the seven existing projects of which the company is overseeing the funding and implementation, with three currently under construction. VEC was created as part of the government's two-tier approach to develop the country's road sector. According to a study by the Asian Development Bank (ADB), the two pillars of the development strategy are (i) developing expressways to link the major urban with the rural areas of the © Business Monitor International Ltd Page 17 Vietnam Freight Transport Report Q2 2009 country and beyond and (ii) to reform the institutional infrastructure overseeing the implementation and management of the road sector, prompting the creation of VEC. VEC has the ability to issue bonds underwritten by the government to fund projects. As defined by the ADB the VEC's mandate includes 'developing a detailed master plan for the country's expressway network; preparing projects for investment; mobilizing financing from the Government, private sector, and development partner sources; overseeing construction and operating expressway sections as they are completed and put into service.' A workshop under the auspices of the World Bank took place in November 2008, which highlighted the most pressing issues facing Vietnam's road sector. According to the findings of a relevant study by the bank, the vehicle fleet and by extension road activity in Vietnam is set to increase threefold to 2020, placing greater strains on the road infrastructure. The most pressing issue in the view of the World Bank is a clear definition of what each agency's roles and responsibilities are within the wider expressway master plan developed by the Ministry of Transport. According to Tran Quang Phuong, Director of the HCM 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 Sai Gon River is estimated to cost US$110mn. Phu My Bridge Co. (PMC) is investing funds for the project. According to VNS, Sai Gon Bridge No.2 was planned to be a toll bridge and the funds from the toll were supposed to be used to repay capital invested by PMC. However, the finance ministry stipulated that no toll booth for the bridge could be located on Ha Noi Highway as there is already another in operation nearby. The city authorities will therefore devise an alternative plan to repay the capital. The prime minister of Vietnam agreed, in December 2008, for an additional US$230mn in funds from the World Bank (WB) to go towards the WB 4 project. WB 4 is a road construction and upgrading project for the maintenance of 2,000km of roads during the period 2005-2008. The improvement of the capacity of road management agencies and the upgrading of about 6,000km of roads. Vietnam's road network is particularly under-developed and causes serious city congestion and adds to road accident figures. The number of vehicles in the country has grown by 150% since 1995 and is expected to grow by an extra 300% over the next decade, as the economy grows. Rail The Vietnam Japan Consulting joint venture (VJC), the company responsible for conducting the feasibility studies for Vietnam's high-speed railway, has come back with a multibillion-dollar price tag for the 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 of this year. 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 © Business Monitor International Ltd Page 18 Vietnam Freight Transport Report Q2 2009 will be a double track railway of 1435mm gauge. Based on that route, the cost has been estimated at US$55.8bn. The high speed line will run for 1,555km. According to passenger forecasts, it will be able to meet demand of 48,000 passengers daily by 2020, with the figure expected to rise to 85,000 by 2050. The estimated year for completion of the project is 2035. The Saigon Times cites estimated that, from the VJC that of the total required funding, US$35bn would come directly from the state budget and governmentguaranteed loans for the construction of the infrastructure, while the remainder would come from the VJC and other developers and would represent costs relating to the acquisition of land and setting up of facilities. The final plan will be submitted to the annual National Assembly meeting in December 2009. The government has ambitious plans for the overhaul of Vietnam's railway system. The high-speed railway is at the core of the development plan and the aim is mainly to reduce the travel time between the two main urban centres from the current twenty nine to six hours. Further, new infrastructure developments are planned mindful of them being able to integrate with international railway systems, a prime example being the ASEAN region's planned railway through Singapore to Thailand, Cambodia, and Vietnam to China. Air According to an Intellasia report in February, a project to build an airport in Gio Quang, Quang Tri province has been cleared by the People's Committee of the province. The expected capital required is VND375bn (US$.02bn). The airport will start operations by 2015. The development adds weight to BMI's prediction of strong growth in the country's airfreight sector over the next five years. BMI believes that the new airport will support Vietnam's airfreight sector growth. Sea 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, Vietnam. 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. The agreement was signed on February 4 this year in Ho Chi Minh City. The project comprises the construction and operation of the new facility, the Tan Cang-Cai Mep Container Terminal, which will have the capacity to handle 1.15mn twenty-foot equivalent units (TEUs) a year. The terminal will have a total berth length of 590m, a total area of 40ha and a maximum depth of 14.5m. The facility is due to open in the first quarter of 2011. In a press release, MOL stated, 'we plan to offer the most advanced, highest quality service.' Meanwhile, a Hanjin release said that the new terminal will enable it to 'upgrade customer service with reduced costs and improved schedules'. The new terminal is situated at a major port development site two hours south of Ho Chi Minh City. American Shipper reports that up to eight new terminals are under development at Vung Tau along an 'S-shaped channel', most of which are expected to open in 2011. The complex is being developed to alleviate congestion in © Business Monitor International Ltd Page 19 Vietnam Freight Transport Report Q2 2009 the river ports near Ho Chi Minh City, which handle more than 70% of Vietnam's total maritime container volume. The current terminals cannot provide access for vessels carrying more than 1,000TEUs, and so larger facilities are being built on the coast at Vung Tau to cater for vessels of up to 7,000TEUs. Vietnam's cargo handling capacity is therefore set to soar. With the need for transhipment stops eliminated, BMI believes that the country is likely to attract much new maritime freight and may divert shippers from traditional hubs at Singapore and the Philippines. MOL, Hanjin and Wan Hai appear to agree with this view, with Hanjin stating that: 'considering the potentials of the Vietnamese market…we are confident that [the terminal] will serve as a major hub port in South West Asia.' The investment is particularly important for the growth of these three carriers, each major player in the intraAsian container market. According to FDI Vietnam, the Ministry of Transport was urged by the Vietnamese Deputy Prime Minister Hoang Trung Hai in January to devise a plan to seek foreign investment for the construction of the Van Phong International Entreport. He also instructed the project developer - Vietnam Shipping Lines Group, Vinalines - to select contractors for the project. The news is in line with Vietnam's transport ministry's announcement of an injection of US$3.5bn into its port sector. The investment will be used throughout the country, and is aimed at tackling congestion and under-capacity by adding annual capacity of 250mn tonnes by 2010. With the new developments, which are backed by major ports and shipping players, expected to come online in the next two-three years, BMI is predicting an upturn in Vietnam's ports fortunes. 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 1,090 twenty-foot equivalent units (TEUs) Wellington, was the first to arrive in Cai Lan. MSC has so far sent six vessels to the port, which is the only port in northern Vietnam that has the capacity to serve vessels weighing up to 50,000 dead weight tonnes. The inauguration of the new route also involved the opening of a new channel at Cai Lan Port. The Vietnam Maritime Administration, the Quang Ninh Port Company and the Waterway Project Construction Corporation launched the waterway, which is 10m deep and 130m wide. The province of Quang Ninh is part of a bilateral strategy between the governments of China and Vietnam to develop an economic corridor through the provinces of Yunnan, Lao Cai, Hanoi , Hai Phong and Quang Ninh. Quang Ninh shares a 132-mile border with China and has a coastline of 250m. The province boasts five existing economic zones - Cai Lan, Viet Hung, Hai Yen, Dong Mai, and Hai Ha and is investing in two further zones - Phuong Nam and Dam Nha Mac. Five further zones are currently in the planning stages. It is expected that the majority of the goods transported on the new VietnamChina-Hong Kong route will be produced in Quang Ninh's industrial zones for export to China and Hong Kong. Trade between Vietnam and China has been steadily increasing in the past five-10 years. Data from IMF's Direction of Trade Statistics shows that the value of Chinese imports from Vietnam rose from © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q2 2009 US$929.1mn in 2000 to US$3214.42mn in 2007. The countries' commitment to trade co-operation was boosted in October 2008, when Vietnamese Prime Minister Nguyen Tan Dung held talks with Chinese government and state leaders. According to Quangninh Industrials News, the leaders agreed to promote 'two corridors and one economic belt' and to give priority to the development of economic zones. 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. The relocations should enable handling of more and larger vessels. Vietnam's transport ministry has announced that it will inject US$3.5bn into its ports sector. According to Thai News Service as cited by Cargo News Asia, Vietnam Ocean Shipping Joint Stock Company (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. VOSCO has registered earnings of US$153.6mn between January and November 2008, up by 15% as compared to its projected earnings for the period. BMI believes that by introducing the new route, the company will capitalise on trade volumes in the region and increase competition between domestic players. In December of last year, the Vietnam Maritime Administration (Vinamarine) announced proposals to build a 9 km 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. Vinamarine proposes dredging the Quan Chanh Bo Canal and constructing a new canal in Vinh Long Province. This would enable vessels to pass from the Hau River through the Quan Chanh Bo canal to the new canal, which would empty into the East Sea. The new waterway system would permit the navigation of classes of vessels up to 20,000 dead-weight tonnes (DWTs) and would transport around 22mn tonnes of cargo and 500,000 twenty-foot equivalent units (TEUs) a year. The proposal provides a solution to the shortcomings of the current waterway route, which involves the navigation of the Dinh An river for vessels en route from the Mekong delta provinces to the sea. The river is affected by rising silt levels for the best part of the year, and can thus only serve vessels up to 5,000 DWTs. As a result, most export cargo is currently transported over land by road to ports in Ho Chi Minh City. This is expensive, with a TEU destined for Singapore costing approximately US$200. Vietnam's waterway system is one of the largest in relation to its land area in the world. According to data from the World Bank, Vietnam has around 41,000km of natural waterways, but only a small percentage of these - 8,000km - are used commercially. However, waterways are an important means of transport for heavy goods including coal, rice, sand, stone and gravel. This is true of the export products of the Mekong delta provinces, which are chiefly agricultural goods, of which rice makes up a large majority. BMI expects the continued development of Vietnam's waterways, alongside parallel projects to improve its ports. © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q2 2009 Industry Forecast Scenario Quarterly Oil Products Price Outlook Clear Air Turbulence The International Air Transport Association (IATA) announced results for November 2008 showing a 4.6% drop in international passenger traffic and a 13.5% drop in international cargo. The November passenger decline of 4.6% was a considerable worsening from the 1.3% demand contraction in October and the 2.9% fall in September. Asia Pacific carriers saw a 9.7% decline in November, following a 6.1% contraction in October. While Chinese domestic traffic rebounded after the Olympics, travel to and from international markets continues to decline, reflecting the weakness in both global trade and consumer confidence. North American carriers saw international traffic decline by 4.8% – the second-biggest drop among the regions. Until August, the region’s carriers had been shifting capacity to international markets. With the near collapse of the investment banking sector and consequent reductions in business travel, North Atlantic travel slumped. Carriers have started to cut international capacity with a 0.8% drop in November (following 0.4% growth in October). European carriers saw international traffic drop by 3.4% as all the region’s major markets slumped. Smaller emerging markets fared better. African carriers saw traffic decline by 1.6%. This is a considerable improvement from the 12.9% drop in October, resulting from stronger intra-African traffic. Middle Eastern carriers saw traffic increase by 5.6%. This is up from 3.5% growth in October. Latin American carriers saw a slight decline in growth to 3.3%, compared with 4.5% growth in October. Asia Pacific carriers (representing 44.6% of global freight) saw freight traffic fall by 16.9% in November – the largest decline of any region. As freight accounts for a larger percentage of revenues for the Asia Pacific carriers, Q408 profits for the region’s carriers will be disproportionately (and negatively) affected by the downturn in the global air freight market. Double-digit freight declines were also experienced by Latin American carriers (-15.7%), North American airlines (-14.4%) and European operators (-11.0%). Freight traffic for Middle Eastern airlines turned negative (-1.6%), following 1.0% growth in October. African carriers, while being in the only region to report freight growth (2.2%), saw a decline from the 3.0% growth achieved in October. The 2008 increase in fuel costs was US$69bn, according to IATA, having revised its estimate significantly lower as end-year fuel prices tumbled. © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q2 2009 In December 2008, IATA announced its forecast for 2009, which suggests an industry loss of US$2.5bn. All regions, except the US, are expected to report larger losses in 2009 than in 2008. Industry revenues are expected to decline to US$501bn. This a fall of US$35bn from the US$536bn forecast for 2008. The drop is the first since the two consecutive years of decline in 2001 and 2002. Passenger traffic is expected to decline by 3% following growth of 2% in 2008. This is the first decline in passenger traffic since the 2.7% decline in 2001. Cargo traffic is expected to decrease by 5%, following a drop of 1.5% in 2008. IATA also updated its forecast for 2008 to a loss of US$5.0bn. The reduction in industry losses from 2008 to 2009 is primarily due to a shift in the results of North American carriers. Carriers in this region were hardest hit by high fuel prices, with very limited hedging, and are expected to post the largest industry losses for 2008 at US$3.9bn. An early 10% domestic capacity reduction in response to the fuel crisis has given the region’s carriers a better chance of combating the recession-led fall in demand. The lack of hedging is now allowing the region’s carriers to take full advantage of rapidly declining spot fuel prices. As a result, North American carriers are expected to post a small profit of US$300mn in 2009. All other regions will show losses. Combating the recession-led fall in demand The lack of hedging is now allowing the region’s carriers to take full advantage of rapidly declining spot fuel prices. As a result, North American carriers are expected to post a small profit of US$300mn in 2009. All other regions will show losses. According to IATA, Asia Pacific carriers will see losses more than double from the US$500mn in 2008 to US$1.1bn in 2009. With 45% of the global cargo market, the region’s carriers will be affected disproportionately by the expected 5% drop in global cargo markets during the year. Chinese growth will slow as a result of the drop-off in exports. India’s carriers, which are already struggling with high taxes and insufficient infrastructure, can expect a drop in demand following the fatal terrorist attacks in Mumbai in November 2008. Losses for European carriers will increase tenfold to US$1bn. Hedging has locked in high fuel prices for many of the region’s carriers in US dollar terms, and the weakened Euro is exaggerating the impact. Middle Eastern airlines will see losses double to US$200mn. The challenge for the region will be to match capacity to demand as fleets expand and traffic slows – particularly for long-haul connections. Latin American carriers will see losses double to US$200mn. Strong commodity demand that has driven the region’s growth has been severely curtailed in the current economic crisis. The downturn in the US economy is hitting the region hard. African airlines will see losses of US$300mn continue. The region’s carriers face strong competition and defending market share will be the main challenge. © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q2 2009 Diesel In Demand In early December, the EU reached an agreement on new legislation governing the amount of permitted carbon dioxide emissions from vehicles. It aims at reducing European emissions to 130 grams per kilometre by 2012, from 158g/km in 2007, and sets sliding penalties for those manufacturers that fail to meet their target. The 2012 targets will be applied to only 65% of new vehicle production, with the share rising gradually over the following three years (75% in 2013, 80% in 2014 and 100% in 2015). The European vehicle fleet is therefore poised to become more efficient, so growth in transportation fuels demand should slow still further over the medium to long term, even as the regional economies recover. These efficiency gains will be met largely by diesel engines, thus continuing the switch away from gasoline. Europe will import 40% of its diesel by 2020 as environmental concerns support ‘insatiable’ demand for the fuel, an industry group has warned. The region will use 389mn tpa of diesel by 2020, almost five times expected gasoline consumption of 80mn tpa, Panos Cavoulacos, executive president of the European Petroleum Industry Association said at a September 2008 conference in Brussels. The sale of diesel cars that emit less carbon dioxide than gasoline-powered models is behind the increase in demand for the fuel. Europe currently imports about 25mn tpa of diesel, 15% of its consumption, he said. Revised Forecasts For 2008, BMI estimates that the global wholesale price for premium unleaded gasoline will have been a fraction under US$102/bbl, having reached a monthly peak of US$138/bbl in June and having then slipped to an estimated monthly average of US$39.50/bbl in December. The 2008 outturn represents an increase of almost 21% over the previous year. New York saw the highest prices, averaging US$102.70/bbl, while the Rotterdam price was US$100.10/bbl. In 2009, we see monthly average global wholesale gasoline prices ranging from US$38.90/bbl in January to a high of US$64.90/bbl reached in August and in December, providing a full year average of US$56.20/bbl – just over 55% of the 2008 outturn. Gasoil in 2008 averaged a little over US$121/bbl, based on a composite global price. This represents a yo-y gain of 42% over the previous year, illustrating the much greater strength of diesel relative to gasoline. In 2009, the BMI forecast is for an average price of US$67/bbl, assuming a monthly low of US$46.40/bbl in January and a high of US$77.30/bbl in December. The full-year outturn represents a 45% downturn from the 2008 level. Jet prices averaged US$125.10/bbl in 2009, using the composite for New York, Singapore and Rotterdam. The annual increase was just over 40%, with jet rivalling gasoil for the greatest percentage gain. The monthly high of US$167.80/bbl was reached in July, falling to an estimated monthly low of © Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q2 2009 US$61.50/bbl in December. For 2009, the monthly average price is forecast to range from US$47.90/bbl in January to US$79.80/bbl in August, proving an annual level of US$69.20/bbl. Naphtha was the weakest performer among the major refined products, gaining 17% to US$87.60/bbl during 2008. Prices reached their monthly peak in July, at US$118.90/bbl, but had fallen to an estimated US$30.40/bbl in December. The 2009 average naphtha price is put by BMI at US$48.40/bbl, reaching a monthly peak of US$55.90/bbl in August and December. Table: Oil Product Price, 2006-2013 (US$/bbl) Unleaded gasoline 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f Rotterdam 72.4 83.5 100.1 55.3 61.7 69.1 74.5 74.5 New York 76.6 86.2 102.7 56.7 63.3 70.9 76.4 76.4 Singapore 73.5 82.9 102.4 56.6 63.1 70.7 76.2 76.2 Global average 74.2 84.2 101.7 56.2 62.7 70.3 75.7 75.7 Rotterdam 77.6 85.2 122.7 67.8 75.6 84.8 91.3 91.3 Singapore 76.7 85.1 119.7 66.2 73.8 82.7 89.1 89.1 Global average 77.1 85.2 121.2 67.0 74.7 83.7 90.2 90.2 Rotterdam 81.5 89.6 126.8 70.1 78.2 87.6 94.4 94.4 New York 82.0 90.8 127.3 70.4 78.5 87.9 94.7 94.7 Singapore 80.5 86.9 121.3 67.1 74.8 83.8 90.3 90.3 Global average 81.3 89.1 125.1 69.2 77.2 86.5 93.1 93.1 Gasoil/diesel Jet/kerosene e/f = BMI estimate/forecast. Source: 2000-2006 Historical data: EIA; 2007/2008 Historical data: IEA; Forecasts: BMI Macroeconomic Outlook BMI's 2009 Growth Forecast Cut To 2.9% We have, in view of the rapidly deteriorating external outlook in Q109, decided to downgrade our 2009 GDP growth forecast for Vietnam from 5.0% to 2.9%. We are bringing down our 2010 forecast from 7.0% to 5.0% on the back of our expectation of a more prolonged downturn in global demand. Vietnam looks set to take a hard hit this year as much of the developed world drops into recession, shaking the very foundations of Hanoi's export-focused growth model. GDP growth slowed to 6.2% in 2008, the slowest pace since the 4.8% growth rate recorded in 1999, after having grown at a pace of 7.8% and above during the preceding four years. While we are confident that Vietnam's macroeconomic © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q2 2009 fundamentals will help it reach growth levels of around 8% again, we are expecting below-trend growth in the next few years. Indeed, we have decided to lower our GDP growth forecast for 2009 from 5.0% to 2.9% and also lowered our growth projection for 2010 from 7.0% to 5.0% as the global economic downturn looks set to be more prolonged than initially expected. Growth in 2008 was largely held up by the resilience of the export sector in the face of a domestic economy plagued by spiralling inflation and fiscal and monetary tightening. However, like many other Asian countries H208 proved to be a quarter of reckoning for Vietnamese exporters as exports fell from US$6.6bn in July to US$3.8bn in December. While the sharp decline was largely due to the collapsing oil price, which saw crude oil exports drop from US$1.24bn in July to US$0.42bn in December, the final months of 2008 also saw a marked decline in the exports of electronics, garments and textile products, which now form the mainstay of Vietnam's manufacturing sector. This decline turned into a slump in January with the exports of textiles decreasing by 33.2% y-o-y to US$550mn, footwear exports falling 26.0% to US$350mn and overseas shipments dropping 34.4% to US$120mn. We are expecting a further decrease in exports on the back of the adverse demand picture in key export markets such as the US, Japan and the EU, which we are currently forecasting to contract by 2.3%, 3.1% and 2.5% respectively in 2009. Moreover, the already dire demand outlook will in Vietnam's case be exacerbated by the expiration of preferential import tariffs on Vietnamese footwear exports to the EU under the General System of Preferences (GSP), while tariffs on Chinese garment products exported to the US will be removed. Anecdotal evidence suggest that export orders in the important textile sector have slumped by 20-40% going into Q109 with remaining customers demanding 20-30% price cuts. With export orders slumping and domestic demand weak, garment manufacturers are now cutting their workforces or closing shop entirely. We are currently expecting exports to decrease by 19.5% in 2009 to US$50.9bn, with falling prices for key commodities such as oil and coffee and the gradual initiation of the Dung Quat oil refinery, which will reduce the volume of crude oil exported, adding to the contraction of manufactured exports. Growth in the manufacturing sector fell to 6.43% y-o-y in Q408, a near halving compared to the 11.85% y-o-y expansion recorded in Q308. We are expecting worse to come in 2009 as the slump in external demand and intensified competition from Chinese competitors with bring a cull of less efficient producers in 2009. This process is already under way, judging from the sharp drop in industrial production in January 2009. The industrial output measure fell by 8.6% m-o-m in January, bringing the y-o-y measure to -4.4% after having posted doubledigit figures since February 2005. We were previously expecting a sharp slowdown in real growth in the manufacturing sector from 10.1% in 2008 to 1.9% in 2009. However, in light of the appalling trade and IP data for January, we have now revised down manufacturing growth to -5.0%, with the construction sector expected to decline (-2.0%) despite the government pushing for higher spending on infrastructure. © Business Monitor International Ltd Page 26 Vietnam Freight Transport Report Q2 2009 With the manufacturing sector constituting roughly a quarter of GDP and the construction sector around 8-9%, the negative figures will put heavy pressure on remaining sectors of the economy to maintain positive overall growth. We are expecting the agricultural sector to post real growth of 3.0% in 2009 as lower fuel and fertiliser prices reduce production costs and both internal and external demand for rice is boosted as consumers substitute more expensive options such as meat and vegetables for the food staple. We also expect the service sector to post healthy growth. We are expecting the trade sector to grow by 4.7% in 2009 after a 6.3% expansion in 2008. Similarly, we expect real growth in the transport and communication sector to slow from an estimated 14.0% in 2008 to 8.5% in 2009. The outperformer will be the financial sector, where the rollout of the branch networks of foreign entrants ANZ, HSBC and Standard Chartered and government measures to stimulate lending will push growth higher. Table: Vietnam – Economic Activity, 2006-2013 2006 2007 2008 2009f 2010f 2011f 2012f 2013f Nominal GDP, 1 VNDbn 974,266 1,144,015 1,478,695 1,711,601 1,899,604 2,136,870 2,394,841 2,689,382 Nominal GDP, 1 US$bn 61.00 70.94 90.88 90.08 94.98 112.47 133.05 149.41 8.2 8.5 6.3 2.9 5.0 8.3 7.9 8.0 723 829 1,047 1,024 1,065 1,244 1,452 1,609 84.4 85.6 86.8 88.0 89.2 90.4 91.6 92.8 Industrial production index, % y-o-y, 3 average 17.7 16.3 14.4 6.0 10.0 12.0 14.0 14.0 Unemployment, % of labour force, end of 3 period 4.8 4.5 5.0 5.5 4.5 4.0 4.0 4.0 Real GDP growth, % 1 change y-o-y GDP per capita, US$ 1 Population, mn 2 1 2 3 f = BMI forecast. Source: IMF, General Statistics Office; IMF; General Statistics Office The bleak economic outlook is already affecting domestic consumption with many Vietnamese households reportedly cutting spending during the Tet lunar new year holidays in January 2009. Hikes in electricity and gas prices announced in Q109 will impair purchasing power further, offsetting the gains of lower food and fuel prices. We are expecting private consumption to decrease by 4% in real terms in 2009 after an estimated 6.8% increase in 2008. The expected 8.0% increase in government consumption will pick up some of the slack, but this will be insufficient to spare Vietnam from its sharpest slowdown since the 2.5% expansion recorded in 1987at the dawn of the 'Doi Moi' economic reform era in 1986. © Business Monitor International Ltd Page 27 Vietnam Freight Transport Report Q2 2009 We see a risk that economic reform will be put on the back-burner in 2009 as the government focuses on stimulating domestic spending to cushion the effect of falling external demand. The government agreed to a VND17trn (US$1bn) stimulus package on January 15 focused on supporting small-and medium-sized companies through subsidised bank loans, corporate tax breaks and preferential trade tariffs in an effort to avoid a wave of bankruptcies in the sector. Having said that, the launch of the Vietinbank IPO in December 2008 is testament of a continued reform resolve within the Communist Party of Vietnam. Transport Outlook Since our last report we have again trimmed our macroeconomic forecasts for Vietnam. GDP growth in 2008 was estimated at 6.3% and we have also reduced the outlook for 2009 to 2.9%. Our forecast for 2009-2013 is for an annual average GDP growth rate of 6,4% per annum, a substantial weakening on the 7.8% average rate achieved in the preceding five-year period. We maintain some adjustments to modespecific 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. Airfreight also faces a difficult two years and growth over the next five will average. On the other hand, WTO membership has been as supportive of greater freight transport turnover relative to GDP across all modes, but particularly so for shipping. On the downside, 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 7.2% a year in 2009-2013. According to our latest estimates, transport and communications GDP rose by 7.6% in 2008, 1.3 percentage points (pp) faster than overall GDP, which we estimate to have increased by 6.3%. For the 2009-2013 forecast period we expect the transport and communications sector to continue outpacing the economy as a whole. It will achieve average annual growth of 7.6%, versus 6.4% for overall GDP. The total value of transport and communications GDP will rise to US$6.7bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP. By modes, we project that airfreight will be the fastest-growing, rising by 8.0% per annum, followed by road haulage (7.9%), pipelines (7.4%), shipping (7.0%), and rail (6.9%). © Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q2 2009 Table: Transport And Communications Data And Forecasts, 2005-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013 8.4 8.2 8.2 8.2 8.7 8.5 8.5 8.2 8.0% 201.0 217.5 235.4 254.7 276.8 300.3 325.9 352.6 342.1 5-year average annual GDP growth, % 7.5 7.8 8.0 8.2 8.3 8.4 8.4 8.4 6.4% Annual transport and communications sector growth, % 9.7 9.5 9.5 9.5 8.7 8.5 8.5 8.2 9.2% 205.3 224.9 246.2 269.6 293.1 318.0 345.0 373.3 383.5 5-year average annual transport GDP growth, % 8.5 9.0 9.5 9.5 9.4 9.1 8.9 8.7 7.6% Transport and communications sector, % of GDP 4.1 4.2 4.2 4.3 4.3 4.3 4.3 4.3 4.5% Annual import growth, % 15.6 20.1 34.7 22.0 14.0 20.0 15.0 15.0 10.0% Imports index, 1995=100 441.3 530.0 713.6 870.6 992.5 1,190.9 1,369.6 1,575.1 1147.3 5-year average annual import growth, % 19.1 22.4 25.0 23.8 21.3 22.1 21.1 17.2 2.5% Annual exports growth, % 22.5 22.4 22.1 20.0 18.0 22.0 20.0 20.0 12.0% Exports index, 1995=100 623.8 763.7 932.7 1,119.2 1,320.8 1,611.2 1,933.5 2,320.2 1525.6 5-year average annual export growth, % 17.9 21.6 23.8 23.7 21.0 20.9 20.4 20.0 5.5% Transport and communications sector value, US$bn nominal 2.2 2.5 3.0 3.5 4.2 4.8 5.5 6.4 $6.7 1,069 1,093 1,117 1,142 1,166 1,192 1,218 1,245 1250 Annual GDP growth, % GDP index, 1995=100 Transport sector GDP index, 1995=100 Total transport sector employment, ‘000 e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 29 Vietnam Freight Transport Report Q2 2009 Table: Freight Carried, Domestic, 2005-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 5,675 6,164 6,770 7,492 8,339 9,261 10,284 11,380 35,095 % change y-o-y 8.8 8.6 9.8 10.7 11.3 11.1 11.1 10.7 10.4 % change 5-year average 8.2 7.7 8.4 9.1 9.8 10.3 10.8 10.9 7.9 38.5 38.4 38.5 38.7 39.0 39.2 39.5 39.7 17.9 1,448 1,573 1,715 1,870 2,049 2,240 2,450 2,671 5,630 % change y-o-y 8.4 8.6 9.0 9.0 9.6 9.3 9.3 9.0 8.8 % change 5-year average 2.8 6.7 7.4 8.0 8.9 9.1 9.3 9.3 6.9 % share total 9.9 9.8 9.8 9.8 9.7 9.6 9.5 9.4 2.9% 3,752 4,081 4,449 4,851 5,315 5,812 6,355 6,928 6,685 % change y-o-y 8.8 8.8 9.0 9.0 9.6 9.3 9.3 9.0 8.8% % change 5-year average 6.4 7.5 8.4 8.8 9.0 9.1 9.3 9.3 7.0 25.5 25.4 25.4 25.3 25.1 24.8 24.6 24.4 3.5 3,536 3,855 4,234 4,668 5,176 5,726 6,334 6,984 147,501 % change y-o-y 9.7 9.0 9.8 10.3 10.9 10.6 10.6 10.3 10.0 % change 5-year average 8.2 8.6 9.2 9.8 9.9 10.1 10.4 10.5 7.0 % share total 24.0 24.0 24.1 24.1 24.2 24.3 24.3 24.4 75.4 Air (tonnes-km, mn) 151 167 188 209 235 262 294 327 475 % change y-o-y 8.4 10.7 12.3 11.5 12.2 11.9 11.9 11.5 11.2 % change 5-year average 5.1 7.2 11.3 12.2 11.0 11.7 12.0 11.8 8.0 % share total 1.0 1.0 1.0 1.1 1.1 1.1 1.1 1.1 0.2 Pipeline (tonnes-km, mn) 193 211 231 252 278 305 335 366 354 % change y-o-y 8.8 9.0 9.4 9.4 10.0 9.8 9.8 9.4 9.2 % change 5-year average 7.7 8.2 8.6 9.0 9.3 9.5 9.7 9.7 7.4 % share total 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.2 14,756 16,051 17,587 19,342 21,391 23,606 26,051 28,656 195,741 % change y-o-y 9.0 8.8 9.6 10.0 10.6 10.4 10.4 10.0 10.0 % change 5-year average 7.1 7.8 8.5 9.1 9.6 9.9 10.2 10.3 7.2 Road (tonnes-km, bn) % share total Rail (tonnes-km, bn) Inland waterways (tonneskm, mn) % share total Maritime (tonnes-km, mn) Total (tonnes-km, mn) e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 30 Vietnam Freight Transport Report Q2 2009 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’s application for membership of the WTO has been approved and it will become a member in 2007. It is 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/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. A 2003 initial target date for Vietnam was later extended to 2006, a date to which the government has said it is committed. 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 and supplying more information on its intentions on joining the WTO. Vietnam joined the WTO in January 2007. 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 © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q2 2009 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. Table: Value Of Imports By Category, 2005-2013 (US$mn) Total value of imports % change Food, live animals % share Beverages and tobacco % share Crude materials, excl. fuels % share Mineral fuels, lubricants and related materials % share Animal and vegetable oils, fats and wax % share Chemicals and related products % share Basic manufactures % share Machines, transport equipment % share Miscellaneous products % share Unclassified goods % share 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 36,980 44,410 59,800 72,960 83,170 99,800 114,770 131,990 86,510 15.6 20.1 34.7 22.0 14.0 20.0 15.0 15.0 10.0 1,072 1,288 1,734 2,116 2,412 2,894 3,328 3,828 2,509 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 37 44 60 73 83 100 115 132 87 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10% 666 799 1,076 1,313 1,497 1,796 2,066 2,376 1,557 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 4,955 5,951 8,013 8,013 8,013 8,013 8,013 8,013 7,895 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 111 133 179 179 179 179 179 179 177 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3% 4,918 5,907 7,953 7,953 7,953 7,953 7,953 7,953 7,836 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 8,099 9,726 13,096 13,096 13,096 13,096 13,096 13,096 12,903 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9% 9,911 11,902 16,026 16,026 16,026 16,026 16,026 16,026 15,791 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 2,404 2,887 3,887 3,887 3,887 3,887 3,887 3,887 3,830 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 4,844 5,818 7,834 9,558 10,895 13,074 15,035 17,291 11,333 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q2 2009 Table: Value Of Exports By Category, 2005-2013 (US$mn) Total value of exports % change Food, live animals % share Beverages and tobacco % share Crude materials, excl. fuels % share Mineral fuels, lubricants and telated materials % share Animal and vegetable oils, fats and eax % share Chemicals and related products % share Basic manufactures % share Machines, transport equipment % share Miscellaneous products % share Unclassified goods % share 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 32,440 39,710 48,500 58,200 68,680 83,780 100,540 120,650 79,330 22.5 22.4 22.1 20.0 18.0 22.0 20.0 20.0 12.0 7,721 9,451 11,543 11,543 11,543 11,543 11,543 11,543 11,557 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8 32 40 49 58 69 84 101 121 79 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 746 913 1,116 1,116 1,116 1,116 1,116 1,116 1,117 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 8,564 10,483 12,804 15,365 18,132 22,118 26,543 31,852 20,943 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 130 159 194 233 275 335 402 483 317 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 227 278 340 407 481 586 704 845 555 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 1,784 2,184 2,668 3,201 3,777 4,608 5,530 6,636 4,363 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 1,590 1,946 2,377 2,852 3,365 4,105 4,926 5,912 3,887 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 8,791 10,761 13,144 15,772 18,612 22,704 27,246 32,696 21,498 27.1 27.1 27.1 27.1 27.1 27.1 27.1 27.1 27.1 2,887 3,534 4,317 5,180 6,113 7,456 8,948 10,738 7,060 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q2 2009 Table: Top Export Destinations, 2001-2006 (US$mn) 2001 2002 2003 2004 2005 2006 United States 1,066 2,350 4,463 5,206 6,551 8,423 Japan 2,510 2,299 2,808 3,507 4,122 4,871 Australia 1,042 1,172 1,476 1,798 2,593 3,728 China 1,417 1,013 1,323 2,322 2,318 2,260 722 1,007 1,181 1,522 1,563 1,790 15,014 15,713 20,516 25,779 30,957 39,514 Top 5, % of total 45.0 49.9 54.8 55.7 55.4 53.3 Industrial states 7,862 9,968 13,840 16,939 20,246 23,395 145 140 162 274 392 166 5,582 4,254 5,147 7,379 8,883 9,664 Central and Eastern Europe 413 395 443 505 575 904 Middle East 531 498 629 411 513 353 Latin America and Caribbean 117 64 94 86 134 122 52.4 63.4 67.5 65.7 65.4 64.3 1.0 0.9 0.8 1.1 1.3 0.4 37.2 27.1 25.1 28.6 28.7 24.5 Central and Eastern Europe 2.8 2.5 2.2 2.0 1.9 2.3 Middle East 3.5 3.2 3.1 1.6 1.7 0.9 Latin America and Caribbean 0.8 0.4 0.5 0.3 0.4 0.3 Germany Total exports Africa Asia Regions, % of total Industrial states Africa Asia NB Total exports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q2 2009 Table: Export Trade, 2002-2006 (% growth y-o-y) 2002 2003 2004 2005 2006 120.5 89.9 16.6 25.8 28.6 Japan -8.4 22.1 24.9 17.5 18.2 Australia 12.5 25.9 21.8 44.2 43.8 -28.5 30.6 75.5 -0.2 -2.5 39.5 17.3 28.9 2.7 14.5 4.7 30.6 25.7 20.1 27.6 Industrial states 26.8 38.8 22.4 19.5 25.4 Africa -3.4 15.7 69.1 43.1 -57.7 -23.8 21.0 43.4 20.4 8.8 Central and Eastern Europe -4.4 12.2 14.0 13.9 57.2 Middle East -6.2 26.3 -34.7 24.8 -31.2 -45.3 46.9 -8.5 55.8 -9.0 United States China Germany Total exports Asia Latin America and Caribbean NB Total exports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF Table: Import Trade, 2002-2005 (% growth y-o-y) 2002 2003 2004 2005 China 47.3 47.8 30.3 36.1 Japan 7.6 22.8 21.3 12.8 Korea 30.6 14.3 27.1 5.4 United States 55.2 128.4 -12.1 2.4 Hong Kong 57.1 27.5 24.9 5.2 Total imports 23.2 28.6 29.4 14.3 Industrial states 14.4 37.6 16.2 1.4 Africa 20.9 13.5 145.8 26.2 Asia 26.2 25.6 34.5 19.2 Central and Eastern Europe 31.9 16.6 37.8 1.7 Middle East 20.5 82.0 27.7 34.2 Latin America and Caribbean 80.9 -5.5 52.2 25.5 NB Total imports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 35 Vietnam Freight Transport Report Q2 2009 Table: Top Import Sources, 2001-2006 (US$mn) 2001 2002 2003 2004 2005 2006 China 1,606 2,365 3,496 4,557 6,203 8,215 Japan 2,183 2,349 2,885 3,500 3,949 4,554 Korea 1,887 2,464 2,817 3,581 3,775 4,450 United States 411 638 1,457 1,280 1,311 1,210 Hong Kong 538 845 1,077 1,345 1,415 1,661 16,216 19,976 25,686 33,241 37,980 47,954 Top 5, % of total 40.9 43.4 45.7 42.9 43.8 41.9 Industrial states 4,694 5,369 7,386 8,584 8,707 11,556 43 52 59 145 183 71 10,478 13,219 16,606 22,342 26,629 33,316 Central and Eastern Europe 576 760 886 1,221 1,242 835 Middle East 166 200 364 465 624 730 Latin America and Caribbean 131 237 224 341 428 548 28.9 26.9 28.8 25.8 22.9 24.1 0.3 0.3 0.2 0.4 0.5 0.1 64.6 66.2 64.7 67.2 70.1 69.5 Central and Eastern Europe 3.6 3.8 3.4 3.7 3.3 1.7 Middle East 1.0 1.0 1.4 1.4 1.6 1.5 Latin America and Caribbean 0.8 1.2 0.9 1.0 1.1 1.1 Total imports Africa Asia Regions, % of total Industrial states Africa Asia NB Total imports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 36 Vietnam Freight Transport Report Q2 2009 Market Overview Multi-Modal In June 2004, Vietnam concluded the eighth round of negotiations in its bid to join the WTO. Membership of the WTO, which will occur in 2007, will boost the country’s international trade and give additional impetus to the transport sector. Competitive Landscape: Multi-Modal Q3 2008 ƒ Flash floods and landslides swept across parts of north Vietnam in August, causing disruption to transport, destruction, and loss of life. By August 18, ten days after the flooding began, the Peoples’ Army newspaper reported that 130 people were dead Q2 2008 ƒ 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 Q4 2007 ƒ 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 Q3 2007 ƒ 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 foreign direct investment of a record US$10.2bn last year, pressure on transport systems has been growing across the country. A report by Neptune Orient Lines (NOL) and Frost & Sullivan earlier this year noted that container volumes handled by Vietnamese ports had grown by 19% per annum over the last decade Q2 2007 ƒ Vietnamese investment manager VinaCapital said at the beginning of May that it was looking to raise 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 Ltd, would be the first of its type, investing ‘much needed capital’ in Vietnam's energy, transport, and water and telecommunications infrastructure ƒ 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 ƒ 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 ty transport and general infrastructure ƒ Prime Minister Nguyen Tan Dung approved plans to sell shares in 53 large SOEs (stateowned enterprises), including Vietnam Airlines, between 2007 and 2010 Q1 2007 © Business Monitor International Ltd Page 37 Vietnam Freight Transport Report Q2 2009 Vinatrans Background Contacts Vinatrans is a state-owned Vietnamese freight forwarding company, providing Address ƒ Vinatrans 406 Nguyen Tat Thanh Street District 4, Ho Chi Minh City Vietnam company is 100% owned by the Vietnamese Ministry of Trade and acts as an ƒ Tel: +84 8 940 4663 agent for several foreign organisations including BAX Global, Hapag-Lloyd ƒ Fax: +84 8 940 4330 Container, Zim Israel Navigation Company and Panalpina, for which the ƒ Web: www.vinatrans.com door-to-door logistics worldwide and a number of related services. These include airfreight and sea freight forwarding (including customs clearance, cargo surveying, insurance, air consolidation for inbound and export cargoes, and exhibition or project handling), shipping (including chartering, husbandry, crewing, and brokerage services) and warehousing/cold storage provision. The company undertakes household removal. The firm’s warehousing and storage 2 facilities in Vietnam include a 2,500m Container Freight Station (CFS) for sea 2 and air cargo, a joint venture cold storage facility of 2,800m run by Vinatrans Key Personnel ƒ Vice-President: Khun Sutep Tranantasin ƒ Assistant General Manager: Mark Ho 2 and Konoike Transport Company of Japan, 40,000m of covered warehousing 2 and 50,000m of open storage. Vinalines is one of the few companies to have been awarded ISO 9002 certification in Vietnam. Key Statistics ƒ Year established: 1975 © Business Monitor International Ltd Page 38 Vietnam Freight Transport Report Q2 2009 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 state-owned enterprises, 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 and medium scale, and about 50 vehicles are owned by each company, on average. 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. © Business Monitor International Ltd Page 39 Vietnam Freight Transport Report Q2 2009 Competitive Landscape: Road Q3 2008 ƒ 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 year-earlier period Q2 2008 ƒ 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 ƒ Over 3,000 people died in traffic accidents in the first quarter of 2008, according to local newspaper Vietnam 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 Q1 2008 ƒ A series of important road transport projects were announced in January. Among them was a proposal to build a 55-km 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) Q3 2007 ƒ 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 ƒ In mid-August, the Asian Development Bank (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 and integrated road network in the area, benefiting around 2.3mn people ƒ Malaysian property developer SP Setia said on June 26 it had signed a joint venture agreement to build a township worth an estimated US$600mn in Vietnam's Binh Duong province ƒ State-run Vietnam Expressway Corporation (VEC) would sell VND2.7trn (US$167.5mn) worth of bonds this year to finance an upgrade of a section of the north-south highway, state media reported on June 13 ƒ 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 midJune. 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 ƒ A Vietnamese road toll collector had raised VND449.23bn (US$28mn) by selling 20.85% of its shares, the Ho Chi Minh City Stock Market 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 Stock Market statement said Q2 2007 © Business Monitor International Ltd Page 40 Vietnam Freight Transport Report Q2 2009 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. In H203, the corporation transported 3.591bn tonnes of freight and 5.682bn passengers, with total operating revenue of VND820.542bn for the first two quarters of 2003. 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 1,000mm gauge and 178km of 1,435mm 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: Rail Q4 2007 ƒ 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 Vietnam Railway Corporation had submitted a proposal to Deputy Prime Minister Hoang Trung Hai for a 1,630km route for the railway Q3 2007 ƒ 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, chairman of the state-owned Vietnam Railway Corporation (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 a grand vitesse – high speed train) system. Talks were nevertheless also being held with Japanese companies to study that country’s shinkasen or bullet train technology Q2 2007 ƒ 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 ƒ 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 ƒ 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 ƒ 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 ƒ 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 Q1 2007 © Business Monitor International Ltd Page 41 Vietnam Freight Transport Report Q2 2009 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. 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 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% last year to reach 12mn passengers. Airfreight 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: Aviation Q3 2008 Q2 2008 ƒ 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 last year, but expenses hit VND12.18trn, leading to the loss, it said. ƒ 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. ƒ State-owned Vietnam Airlines said in August that it was introducing surcharges ranging between VND50,000 and VND180,000 (US$3-US$11) on its domestic routes because of high fuel costs. The company had previously reported a loss of VND83bn (US$5.02mn). ƒ 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. The Vietnam News said Vietjet had also announced it would postpone its planned lease of two Boeing 737-700s, with which it intended to start iservices ƒ In May, the government approved the establishment of the country’s second private airline, a low-cost carrier named Air Speed-Up Corp, or ASP. The company was reportedly © Business Monitor International Ltd Page 42 Vietnam Freight Transport Report Q2 2009 Competitive Landscape: Aviation 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 ƒ 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 Q1 2008 ƒ 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 Q4 2007 ƒ 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 license on December 20 2007 and said it would start off by leasing either Boeing 737s or Airbus A320s to offer domestic and international services Q3 2007 ƒ 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 that up to that point had concentrated on its core businesses of shipbuilding, heavy industries, and construction ƒ In July, The government of Vietnam agreed to act as guarantee for the national flag carrier Vietnam Airlines (VNA) to buy two Airbus A321 aircraft, due for delivery in this July and November. According to the official Vietnam News Brief Service, the purchase was being carried out with the financial support from the Financial Ministry and legal advices 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 ƒ 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 ƒ 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 ƒ Vietnam was expected to issue new regulations allowing foreigners to own up to 49% of local airlines, Dow Jones Newswire reported on May 3 ƒ 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 ƒ Australia’s Qantas Airways said on April 27 that it had agreed to buy 30% of Pacific Airlines from the Vietnamese government ƒ 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 last year ƒ 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 service to some US cities later this year, according to a report by the Chinese news agency Xinhua, citing Vietnamese state media. ƒ 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 Q2 2007 Q1 2007 © Business Monitor International Ltd Page 43 Vietnam Freight Transport Report Q2 2009 Vietnam Airlines Background 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. The company’s fleet currently consists of 34 owned or leased aircraft: four Boeing 777s, seven Boeing 767s, 10 Airbus A320s, three Airbus A321s, eight ATR 72s, and two Fokker 70s. Plans were announced in January 2004 to further develop and modernise the fleet, doubling it in size to around 70 planes by 2010. The company received two new Boeing 777-ERs in 2003, with an additional two due to be put into service in 2005 and later this year. Contracts signed with Airbus will result in Contacts Address ƒ Vietnam Airlines 25 Trang Thi Street Hanoi Vietnam ƒ Tel: +84 4 934 9660 ƒ Fax: +84 4 934 9666 ƒ Web: www.vietnamair.com.vn Key Personnel ƒ the delivery of five Airbus A321s, three of which are due to be delivered in July, one in October and another in May 2005. On May 25, Vietnam Airlines and Airbus signed a Letter of Intent, with the Vietnamese carrier agreeing to purchase 10 additional A321s between 2006 and 2010. In addition, Airbus will support Vietnam Airlines’ efforts to lease wide-body A330-200 aircraft. The ƒ ƒ Chairman: Nguyen Sy Hung President & CEO: Nguyen Xuan Hien Director of Marketing & Planning: Luong Hoai Nam Vietnamese carrier provides passenger air services to 25 destinations in 15 countries including many in South East Asia, Australia, Russia, France, Germany, and the USA. The company has a number of codeshare operations with foreign companies, in particular the February 2004 agreement with Air France to share 11 non-stop scheduled flights between Ho Chi Minh City and Paris. Vietnam Airlines will operate six flights per week using Boeing 777s. 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 – which has an annual cargo throughput of 100,000 tonnes. Recent Developments In February 2009 national flag carrier Vietnam Airlines announced a plan to open direct flights into the lucrative US market in 2010, three years later than it Key Statistics ƒ Annual sales volume: VND11.74trn (2003) ƒ No. of employees: 11,000 ƒ Year established: 1956 had at first intended, Asia Pulse news agency reported. The airline Deputy General Director Duong Tri Thanh said the airline is preparing marketing and planes to reach the goal, which will depend on economic conditions. The US is a difficult market in which aviation authorities impose many conditions on airlines flying direct to the country. Besides tight security and safety regulations, airlines are required to supply personal information on all passengers four hours before take-off. This is not required by most other countries but the US remains the number-one aviation market and most airlines in the world want to enter it. That is why Vietnam Airlines is trying to open direct flights to the country, even at a time of worldwide economic crisis. Direct flights to the US, coupled with membership of the World Trade © Business Monitor International Ltd Page 44 Vietnam Freight Transport Report Q2 2009 Organisation, are tipped to help bilateral trade and tourism and integration into the global economy. US-based United Airlines has direct flights to Ho Chi Minh City from San Francisco, Chicago, and Los Angeles. The US last year provided US$1.4 million to upgrade Vietnam's aviation safety and security procedures to meet US standards, the US Embassy in Hanoi said. Vietnam Civil Aviation Administration deputy director Lai Xuan Thanh said more flights to the US were needed to match growing economic ties. Like other airlines around the world, Vietnam Airlines' passenger and cargo figures are decreasing. In the first month of 2009, the number of international passengers travelling with the airline fell 5 per cent, and the carrier has set a target of serving only around 9.4 million passengers this year compared to 9 million last year. © Business Monitor International Ltd Page 45 Vietnam Freight Transport Report Q2 2009 Water Vietnam’s fleet statistics indicate that by the end of 2002, the country had 819 vessels with a total capacity of 2.123mn deadweight tonnes (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 transport 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 © Business Monitor International Ltd Page 46 Vietnam Freight Transport Report Q2 2009 other modes of transport for cargo transfer from and to ports, due to traffic congestion. Except for several 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. Competitive Landscape: Maritime Q3 2008 ƒ 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 full operating levels Q2 2008 ƒ 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 ƒ 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 ƒ 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 this year will total around 25mn tonnes, worth US$850mn, a fall on the 2007 totals of 32.6mn tonnes and US$1bn ƒ 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 ƒ 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 Q1 2008 ƒ 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 stateowned Vietnam National Shipping Lines (Vinalines) would build the 1,200-hectare Hai Phong International Gateway Port, which would have a capacity to handle 100mn tones of goods every year Q4 2007 ƒ 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 Q3 2007 ƒ Vietnamese freight forwarder Gemadept Corporation announced at the end of August 2007 that it would start building a US$410mn deep water container port in 2008 to handle growing demand for cargo transhipments. Under government plans, Cai Mep container © Business Monitor International Ltd Page 47 Vietnam Freight Transport Report Q2 2009 Competitive Landscape: Maritime port was one of five set to be built in the southern province of Ba Ria – Vung Tau by 2010 Q2 2007 Q1 2007 ƒ 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 ƒ 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 ƒ 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 (Young People) newspaper said ƒ 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 ƒ Vietnam National Shipping Corporation (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 late this year and the port in the southern province of Ba RiaVung Tau, 90 km south east of Ho Chi Minh City, would be able to handle 100,000-DWT vessels, the official Vietnam News Agency said ƒ 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 ƒ 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 ƒ Vietnam should invest in new deep-water ports if it wants to achieve its economic potential, according to Neptune Orient Lines, the London-based Financial Times newspaper reported on its website on February 26 ƒ 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 chairman Duong Chi Dung said the Prime Minister had told the group to mobilize funds for developing Van Phong Port in the central coast province of Khanh Hoa and Lach Huyen Port in northern Haiphong City ƒ 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 ƒ 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 ƒ 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 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 © Business Monitor International Ltd Page 48 Vietnam Freight Transport Report Q2 2009 Competitive Landscape: Maritime 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 ƒ Singapore container shipping firm Neptune Orient Lines 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 ƒ 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 ƒ 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 49 Vietnam Freight Transport Report Q2 2009 Vietnam National Shipping Lines (Vinalines) Background Vinalines is Vietnam’s largest state-owned group of companies. Its numerous Contacts Address ƒ Vietnam National Shipping Lines (Vinalines) 201 Kham Thien Street Hanoi Vietnam France’s CGM, 51%), Vijaco (Vietnam/Japan), Phili Orient (Vietnam/Singapore, ƒ Tel: +84 4 851 7750 50%), Transvina (Vietnam/Japan, 75%), Cosfi (Vietnam/Singapore, 51%) and ƒ Fax: +84 4 511 3039 Ahlers-Inlaco (Vietnam/Austria, 51%). Vinalines also has port operations in ƒ Web: www.vinalines.com.vn subsidiaries are active in maritime transportation and brokerage, ship repairs, import-export, container services, terminal operation, freight forwarding, warehousing, and crew manning. The company also has 50% or majority stakes in a number of international joint ventures, including Gemartrans (with Ninh, Hai Phong, Nghe An, Da Nang, Quy Nhon, Nha Trang, Sai Gon, and Can Tho. The company has undergone a series of fleet expansion, modernisation and development projects over the past years. Vinalines’ fleet of 94 vessels have an average age of 19, with some ships as old as 40 (as of March 2004). Key Personnel ƒ Vietnamese state shipyards under the Vinashin umbrella have won contracts General Director: Ha Duc Bang worth VND4.5trn (US$289mn) between 2002-2004 to supply Vinalines with 32 ships, totalling 336,000DWT. The contracts were based on a joint co-operation plan for shipbuilding between the two companies for the 2001-2005 period, which was approved by the Vietnamese government in 2000. These expansion projects were designed to allow Vinalines to carry 80% of domestic cargo and 30% of international cargo entering or leaving Vietnam’s ports by 2010. At present the numbers are around 16% and 15%, respectively. Recent Developments Vietnam National Shipping Lines Corp (Vinalines) was choosing to invest in key projects, despite effects from the economic crisis domestically and globally, Thai News Service reported in early February. Mai Van Phuc, CEO of Key Statistics ƒ Annual sales volume: VND4.8trn (2002) ƒ Year established: 1996 Vinalines said, "this is the right and reasonable moment to have investment activities. Because at this moment, the prices of materials and equipment have gone down." Some enterprises are waiting for interest rates of bank loans to fall before taking out loans, but Vinalines could not wait given its 4-5-year projects and long-term development strategy, Phuc said, adding that the corporation must start the investments now; otherwise projects could not be completed as planned. The corporation will get a VND15 trillion (US$862.1 million) loan from the Bank for Investment and Development of Vietnam (BIDV) to meet the demand for capital. Vinalines had temporarily delayed implementation of some projects due to effects of the global economic crisis. The corporation will determine which of the delayed projects really need to be completed, and then put the capital towards those. In general, the loan would be put towards the building of ships and upgrading seaport and logistics services planned for 2010, Phuc said. The corporation is a State-owned enterprise, which is on the path to becoming an economic group. Once it becomes an economic group, it could potentially expand into other sectors. © Business Monitor International Ltd Page 50 Vietnam Freight Transport Report Q2 2009 Despite the fact that it is on this path, the current planned expansion for Vinalines is still going to be based on its key sea-shipping and sea transport industries. Vietnam had not yet any shipyards for repairing large ships, forcing repairs to be done abroad, Phuc said, adding that Vinalines' key task in the future would be to build a factory for repairing ships with a capacity of more than 10,000 tonnes each. The corporation would also need to upgrade its current shipyards to become more competitive, he said. Under Vinalines' general development strategy, it will have factories for ship repairing in northern, central and southern regions. Besides that, Vinalines would still require the Government to give it capital from the state's stimulus package to carry out national key projects, Phuc said. They would include projects to upgrade seaports and key transport points for transporting cargo. Vinalines estimates that its revenue earnings will reach VND20.9 trillion ($1.2 billion) this year, 41 per cent higher than the previous year and 10 per cent higher than its plan for 2008. © Business Monitor International Ltd Page 51 Vietnam Freight Transport Report Q2 2009 Maersk Sealand Background Maersk Sealand (Vietnam) is a subsidiary of the AP Moller-Maersk Group of Contacts Address ƒ Maersk Sealand Vietnam (Head office) 26 Phung Khac Khoan Street Ho Chi Minh City Vietnam and commodities; and shipping between Vietnamese ports. The company’s ƒ Tel: +84 8 824 3252 logistics solutions include sea and airfreight, warehousing, and supply chain ƒ Fax: +84 8 823 1395 management. The company’s routes in to and out of Vietnam include a weekly ƒ Web: www.maersk.com companies. Following the rapid development of trade in Vietnam, the company has established representations in all major cities, including Da Nang, Hanoi, Hai Phong, Ho Chi Minh City, Nha Trang, Quy Nhon, Vung Tau, and Can Tho. Maersk Sealand’s core business activity is the provision of shipping and logistics solutions; providing import and export services for a range of goods feeder sailing to major hub ports in Asia such as Tanjung Pelepas (Malaysia), Singapore, and Kaohsiung (Taiwan). Kaohsiung acts as the connecting point providing access to the company’s worldwide network. AP Moller established Key Personnel ƒ Country Manager: Peter Svarrer ƒ Assistant General Manager: Jesper Maajen ƒ Marketing Manager: Huyen Nguyen Minh APM-Saigon Shipping Company (APM-Saigon) as a joint venture with Saigon Shipping Company of Vietnam in 1991 and currently owns 75% of its shares. The company is a feeder operator that undertakes Intra-Asia container transportation and integrated shipping services. The joint venture has a staff of 180 and operates 20 vessels, forming what it claims is the country’s most comprehensive domestic shipping network. Recent Developments Vietnam has potential to become the most exciting market in Southeast Asia, Key Statistics ƒ No. of employees: 35 ƒ Year established: 1991 said the managing director of Maersk Logistics for Asia Pacific, as reported by The Saigon Times Daily. “Vietnam has a number of very good factors that make it an attractive market,” Tony Hotine told the Daily after participating in Vietnam Ports and Logistics Conference in HCMC in December 2008. Hotine pointed out Vietnam’s wider access to the world’s trade as one of the factors because it provided the country with a “great platform” for more growth of exports. This export element was also a good driver for the country’s domestic growth in the future, he said. “Certainly, we see more companies looking at Vietnam with a serious option for an increase in their outsourcing”, said Hotine, who made a presentation entitled “Vietnam: Raising the bar - overcoming competitive challenges” at the conference. Good long-term economic fundamentals are among the factors that Hotine named as strong support for the better future of Vietnam’s logistics industry. He clarified that Vietnam had achieved high gross domestic product growth over the past decade. “Even in spite of the economic downturn, the GDP growth forecast is 6% this year, which still makes Vietnam one of the best performing countries in the ASEAN region” Hotine said. He believed the country would continue significant growth. Hotine said Maersk Logistics was facing many challenges and the company had prepared itself to make sure that it was agile enough to respond to any changes. However, he said, Maersk Logistics believed that the challenging © Business Monitor International Ltd Page 52 Vietnam Freight Transport Report Q2 2009 time also offered opportunities. The opportunity lay in helping potential customers improve the efficiency of their supply chain and mitigate risks posed by the global financial crisis. Despite challenges around the world, Hotine confirmed Maersk Logistics would invest more in infrastructure and human resource development to drive the company’s business. “Definitely, we will continue investing in Vietnam. We believe that Vietnam will be a very successful market for us in the medium and long terms,” he said but declined to reveal how much more the company would inject into this market. Maersk Logistics established its presence in logistics services in HCMC in 1995. Three years ago, Maersk Vietnam began operation as a 100% foreign-owned transportation and logistics company, the first such in the industry in Vietnam. Earlier in 2008, the terminal-operating arm of A.P. Moller-Maersk, APM Terminals, entered a joint venture with Pharung Shipyard Co. under Vinashin Group to develop and operate a second container terminal in Vietnam. The joint venture is expected to commission the 3,067-foot berth container terminal in the Dinh Vu Industrial Zone in northern Vietnam in late 2010. This facility will join the Cai Mep International Terminal in southern Vietnam as part of APM’s global network. Scheduled for opening in the fourth quarter of 2010, the 1.1million-TEU Cai Mep terminal is a joint venture between APM Terminals with Saigon Port and Vinalines. © Business Monitor International Ltd Page 53 Vietnam Freight Transport Report Q2 2009 Competitive Landscape: Pipelines Q2 2007 ƒ Vietnam had started operation at its second gas pipeline, which would supply 2bn cubic meters of natural gas a year from an offshore field, a PetroVietnam official said on May 3 ƒ 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 54 Vietnam Freight Transport Report Q2 2009 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 6 0-64 6 0-64 50-54 50-54 4 0-44 4 0-44 3 0-34 3 0-34 2 0-24 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 0.0 2030 Female 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 55 Vietnam Freight Transport Report Q2 2009 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 35230 46,123 Rural population, total, ‘000 61,729 63,323 66426 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 2002/03 2004/05 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 56 Vietnam Freight Transport Report Q2 2009 Section 3: Labour Market And Spending Power Table: Employment Indicators, 1999-2004 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 2007e 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 57 Vietnam Freight Transport Report Q2 2009 BMI Forecast Modelling 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. Our approach varies from industry to industry. 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 58 Vietnam Freight Transport Report Q2 2009 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 think tanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 59 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Chinese and Vietnamese manufacturers may cause some tension with Beijing Freight Transport Growth Vietnam s freight transport traffic, measured in million tonne-km (mntkm), rose by an annual average of 10.7% in 2004-2008 and, according to our projections, will decelerate to an annual average of 7.2% in 2008-2012 © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q2 2009 Transport. .. 14 Vietnam Freight Transport Report Q2 2009 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 15 Vietnam Freight Transport Report Q2 2009 Industry Trends And Developments Vietnam' s... US$35mn In general, Vietnam' s transport infrastructure is set for investments in 2009 HCM City has announced plans to invest US$2bn in 37 transport projects for the city This includes a © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q2 2009 new line for the subway, a large car park and the extension of highways According to Prime Minister Nguyen Tan Dung, as reported in IntellAsia,... 5.5% Transport and communications sector value, US$bn nominal 2.2 2.5 3.0 3.5 4.2 4.8 5.5 6.4 $6.7 1,069 1,093 1,117 1,142 1,166 1,192 1,218 1,245 1250 Annual GDP growth, % GDP index, 1995=100 Transport sector GDP index, 1995=100 Total transport sector employment, ‘000 e/f = estimate/forecast Source: BMI © Business Monitor International Ltd Page 29 Vietnam Freight Transport Report Q2 2009 Table: Freight. .. and infrastructure © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q2 2009 Economics – Long-Term Risk BMI foresees both economic and political risks rising in 2009 as global demand for Vietnam' s manufactured exports fall and factories lay off workers The global recession will shake the foundations of the Vietnamese growth story as it has been reliant on strong demand for.. .Vietnam Freight Transport Report Q2 2009 Strong freight- transport growth rates are combined with a very encouraging infrastructure investment picture across most of the region By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to smaller/higher value loads continues Rail freight will benefit from long-distance... significantly lower as end-year fuel prices tumbled © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q2 2009 In December 2008, IATA announced its forecast for 2009, which suggests an industry loss of US$2.5bn All regions, except the US, are expected to report larger losses in 2009 than in 2008 Industry revenues are expected to decline to US$501bn This a fall of US$35bn from... Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q2 2009 Table: Transport And Communications Data And Forecasts, 2005-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013 8.4 8.2 8.2 8.2 8.7 8.5 8.5 8.2 8.0% 201.0 217.5 235.4 254.7 276.8 300.3 325.9 352.6 342.1 5-year average annual GDP growth, % 7.5 7.8 8.0 8.2 8.3 8.4 8.4 8.4 6.4% Annual transport and communications sector... country's foreign investment, any loss of investor interest in Vietnam' s oil industry could have serious long-term consequences Legal Code/Corruption Legal Code Vietnam s judicial system is based on communist legal theory and the French civil law system © Business Monitor International Ltd Page 13 Vietnam Freight Transport Report Q2 2009 Corruption Vietnam has a bad record on transparency The state was ranked... the preceding four years While we are confident that Vietnam' s macroeconomic © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q2 2009 fundamentals will help it reach growth levels of around 8% again, we are expecting below-trend growth in the next few years Indeed, we have decided to lower our GDP growth forecast for 2009 from 5.0% to 2.9% and also lowered our growth projection