Vietnam freight transport report q2 2010

... of any information hereto contained Vietnam Freight Transport Report Q2 2010 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q2 2010 CONTENTS Executive Summary ... leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page Vietnam Freight Transport Report Q2 2010 Business Environment Ratings The freight transport. .. International Ltd Page 36 Vietnam Freight Transport Report Q2 2010 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market

Q2 2010 www.businessmonitor.com VietnaM freight transport Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 1750-5364 Published by Business Monitor International Ltd. VIETNAM FREIGHT TRANSPORT REPORT Q2 2010 INCLUDES 5-YEAR FORECASTS TO 2014 Part of BMI’s Industry Survey & Forecasts Series Published by: Business Monitor International Publication date: March 2010 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 © 2010 Business Monitor International. All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Freight Transport Report Q2 2010 © Business Monitor International Ltd Page 2 Vietnam Freight Transport Report Q2 2010 CONTENTS Executive Summary .........................................................................................................................................5 SWOT Analysis.................................................................................................................................................6 Vietnam Road Haulage SWOT............................................................................................................................................................................... 6 Vietnam Political Swot........................................................................................................................................................................................... 6 Vietnam Economic Swot ....................................................................................................................................................................................... 7 Vietnam Business Environment Swot ..................................................................................................................................................................... 7 Business Environment Ratings ......................................................................................................................8 Table: Asia Pacific Freight Business Environment Ratings................................................................................................................................... 8 Freight Industry Ratings ........................................................................................................................................................................................ 9 Transport Intensity Index..................................................................................................................................................................................... 10 Vietnam Logistics Performance Index (LPI)........................................................................................................................................................ 10 Economic Risk Summary...................................................................................................................................................................................... 10 Political Risk Summary........................................................................................................................................................................................ 11 Business Environment Risk Summary .................................................................................................................................................................. 12 Legal Code/Corruption........................................................................................................................................................................................ 12 Red Tape.............................................................................................................................................................................................................. 12 Labour Force....................................................................................................................................................................................................... 13 Industry Trends And Developments ............................................................................................................14 Road .................................................................................................................................................................................................................... 14 Rail ...................................................................................................................................................................................................................... 15 Air........................................................................................................................................................................................................................ 16 Sea ....................................................................................................................................................................................................................... 17 Industry Forecast Scenario ...........................................................................................................................20 Global Oil Products Price Outlook...................................................................................................................................................................... 20 Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl)............................................................................................................................ 21 Table: Oil Product Price Forecasts (US$/bbl)..................................................................................................................................................... 22 Macroeconomic Outlook...................................................................................................................................................................................... 23 Table: Vietnam – Economic Activity, 2007-2014................................................................................................................................................. 25 Transport Outlook ............................................................................................................................................................................................... 25 Table: Freight Transport Data And Forecasts, 2006-2014.................................................................................................................................. 26 Table: Freight Carried, Domestic, 2006-2014 (mn tonnes-km) ........................................................................................................................... 27 Trade Environment.........................................................................................................................................28 Table: Total Value Of Imports By Category, 2006-2014 (US$mn) ...................................................................................................................... 29 Table: Value Of Exports By Category, 2006-2014 (US$mn)................................................................................................................................ 30 Table: Vietnam’s Top Export Destinations, 2002-2006 (US$mn)........................................................................................................................ 31 Table: Vietnam’s Export Trade, 2003-2006 (% growth y-o-y)............................................................................................................................. 32 Table: Vietnam’s Import Trade, 2003-2005 (% growth y-o-y)............................................................................................................................. 32 Table: Vietnam’s Top Import Sources, 2002-2006 (US$mn) ............................................................................................................................... 33 Market Overview.............................................................................................................................................34 Multi-Modal.............................................................................................................................................................................................................. 34 Competitive Landscape........................................................................................................................................................................................ 34 Road.......................................................................................................................................................................................................................... 37 © Business Monitor International Ltd Page 3 Vietnam Freight Transport Report Q2 2010 Infrastructure....................................................................................................................................................................................................... 37 Competitive Landscape........................................................................................................................................................................................ 37 Rail ........................................................................................................................................................................................................................... 41 Competitive Landscape........................................................................................................................................................................................ 41 Air............................................................................................................................................................................................................................. 44 Competitive Landscape........................................................................................................................................................................................ 44 Company Profile: Vietnam Airlines ..................................................................................................................................................................... 48 Water ........................................................................................................................................................................................................................ 50 Infrastructure....................................................................................................................................................................................................... 50 Maritime Competitive Landscape ........................................................................................................................................................................ 51 Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) ........................................................................................................................... 58 Table: Vietnam Petroleum Transport’s Key Financial Data, 2007-Q109............................................................................................................ 59 Company Profile: Doan Xa Port.......................................................................................................................................................................... 60 Table: Doan Xa Port’s Financial Performance, 2007 And 2008 ......................................................................................................................... 61 Pipelines ................................................................................................................................................................................................................... 62 Competitive Landscape........................................................................................................................................................................................ 62 Country Snapshot: Vietnam Demographic Data .........................................................................................63 Section 1: Population........................................................................................................................................................................................... 63 Table: Demographic Indicators, 2005-2030........................................................................................................................................................ 63 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 64 Section 2: Education And Healthcare.................................................................................................................................................................. 64 Table: Education, 2002-2005 .............................................................................................................................................................................. 64 Table: Vital Statistics, 2005-2030........................................................................................................................................................................ 64 Section 3: Labour Market And Spending Power .................................................................................................................................................. 65 Table: Employment Indicators, 1999-2004.......................................................................................................................................................... 65 Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................ 65 BMI Methodology ...........................................................................................................................................66 How We Generate Our Industry Forecasts .......................................................................................................................................................... 66 Transport Industry ............................................................................................................................................................................................... 66 Sources ..................................................................................................................................................................................................................... 67 © Business Monitor International Ltd Page 4 Vietnam Freight Transport Report Q2 2010 Executive Summary Vietnam’s Prime Minister Nguyen Tan Dung approved the Viet Nam Seaport Development Master Plan, which will require a total investment of VND360-440trn (US$19.5-23.8bn) by 2020. The plan aims to increase the transportation capacity of the country by 500-600mn tonnes of goods by 2015, 900-1,000mn tonnes by 2020 and 2,100mn tonnes by 2030. The primary focus of the plan from now to 2015 will be the international transit port Van Phong in Khanh Hoa Province, development of the Lach Huyen seaport complex in Hai Phong, and a seaport at the Nghi Son oil refinery. Although Vietnam has 266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the port to the rest of the country. The increased traffic levels in Vietnam’s urban areas and the country’s general fast-paced economic development have increased the volume of exports and imports to and from the country, thus creating a pressing need for better infrastructure between ports and inland. The new master plan will improve the port infrastructure in the country. Since our last report we have cut back our macroeconomic forecasts for Vietnam, acknowledging the danger of a ‘double dip’ growth slowdown. We now estimate GDP growth of 5.3% in 2009 (up from 5.1% earlier) but have reduced the projection for 2010 to 4.4% (was 5.9%) and have also trimmed 2011 to 5.5% (was 6.8%). Our forecast for 2010-2014 is for an annual average GDP growth rate of 5.9% per annum, representing a reduction on the 7.3% average rate achieved in the preceding five-year period. We maintain some adjustments to mode-specific freight carried forecasts. In road haulage, we have trimmed our forecast to take account of the global downturn and lower freight demand. We still see road-freight turnover running ahead of the general rate of economic expansion in Vietnam. Air freight is beginning to emerge from a difficult period. WTO membership has been supportive of greater freight transport turnover relative to GDP across all modes, but particularly so for shipping. On the downside, the 2009 contraction in trade had a particularly strong impact on shipping and Vietnam is expected to export less coal by sea as its domestic power needs rise. The net result of this is that we expect freight carried growth across all modes, measured in mntkm, to average 7.4% a year in 2010-2014. According to our latest estimates, transport and communications GDP rose by 6.5% in 2009, 1.2 percentage points (pps) faster than overall GDP, which we estimate to have increased 5.3%. For the 20102014 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole in value terms. It will achieve average annual growth of 6.9%, versus 5.9% for overall GDP. The value of transport and communications GDP will rise to US$7.0bn in nominal terms by 2014, of 4.5% of Vietnam’s GDP. By modes, we project that air freight to be the fastest growing, rising by 7.7% per annum, followed by road haulage at 7.6%, shipping (7.4%), pipelines (6.8%) and rail (6.5%). © Business Monitor International Ltd Page 5 Vietnam Freight Transport Report Q2 2010 SWOT Analysis Vietnam Road Haulage SWOT Strengths ƒ Vietnam’s strong domestic growth rate coupled with its geography; a long country stretching for thousands of kilometres on a north-south axis creates a need for longdistance freight haulage. Weaknesses ƒ The generally poor state of the road network. Despite new highway construction, only 13.5% of the road network is considered to be in good condition, only 26% has two or more lanes and only 29% is tarred. Construction of the second north-south highway may be a waste of resources given the pressing need for improvement of secondary roads. Opportunities ƒ The beginnings of local commercial vehicle production, which will help improve the stock of lorries used by road haulage companies. Threats ƒ The attractiveness of other modes of freight transport, particularly inland waterways and coastal shipping. If progress towards a better-integrated national road network is too slow, freight growth will divert away from the trucking industry. Vietnam Political Swot Strengths Weaknesses Opportunities Threats ƒ Communist Party government appears committed to market-oriented reforms, although specific policies will doubtless be discussed at the 2011 National Congress. ƒ 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 be more vocal in criticising government policies, opening up opportunities for more checks and balances within the one-party system. ƒ The slowdown in growth in 2009 and 2010 is likely to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule. ƒ Although domestic control will ensure little change to the political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable. ƒ Relations with China have deteriorated over the past year due to Beijing’s more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause widescale environmental damage. © Business Monitor International Ltd Page 6 Vietnam Freight Transport Report Q2 2010 Vietnam Economic Swot Strengths Weaknesses Opportunities Threats ƒ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.6% annually between 2000 and 2007. 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 still suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable as the global economy continues to suffer in 2010. 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 press 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 in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises, and liberalising the banking sector. 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 reassess their hitherto upbeat view of Vietnam. If the government focuses too much on stimulating growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis. ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilise the economy. Vietnam Business Environment Swot Strengths Weaknesses Opportunities Threats ƒ Large, skilled, low-cost workforce has made Vietnam attractive to foreign investors. ƒ Vietnam’s location –proximity to China and South East Asia and good sea links – makes it a good base for foreign firms to export to the rest of Asia, and beyond. 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 One of the world’s most corrupt countries. Its score in Transparency International’s 2009 Corruption Perceptions Index was 2.7. ƒ Increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan. This offers possibility of transfer of high-tech skills and knowhow. ƒ Pressing ahead with privatisation of state-owned enterprises and the liberalisation of the banking sector. This should offer foreign investors new entry points. 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 7 Vietnam Freight Transport Report Q2 2010 Business Environment Ratings The freight transport sector in the Asia Pacific region offers one of the most attractive business environments for the industry worldwide. There are various reasons for this. First, the region offers a powerful combination of future growth and economies of scale. It contains arguably the two most significant of the four BRIC (Brazil, Russia, India and China) economies, which, it is argued, are the powerhouses of future global growth. China and India combine vast geographical size, large populations, globally competitive labour costs and as yet untapped infrastructure potential. To this must be added the ‘third BRIC’, Russia, which, although outside the region, has critically important trade and transport links to Asia (such as crude oil exports to China). Second, at a ‘big picture’ level, most of the regional power centres are committed to reasonably pragmatic and relatively stable, market-based policies. Countries that in the past were either fervently communist (China, Vietnam) or capitalist (Malaysia, Taiwan) share a much wider non-ideological common ground focused on how to achieve a sustainable rise in living standards. This is not to say, of course, that the area is free of tensions and flash points (North Korea, China-Japan, India-Pakistan to name just a few). Table: Asia Pacific Freight Business Environment Ratings Limits of potential returns Risks to realisation of returns Freight transport market Country structure Limits Market risks Country risk Risks Overall rating Regional rank Singapore 52.5 79.6 66.1 80.0 90.1 86.0 72.1 1 Australia 50.0 83.4 66.7 75.0 81.7 79.0 70.4 2 India 62.5 71.0 66.7 60.0 60.8 60.5 64.9 3 South Korea 47.5 76.4 61.9 60.0 74.6 68.7 64.0 4 China 72.5 47.6 60.1 60.0 68.4 65.0 61.6 5 Japan 52.5 50.5 51.5 75.0 83.6 80.2 60.1 6 Malaysia 42.5 67.0 54.7 60.0 70.9 66.6 58.3 7 Vietnam 50.0 71.3 60.7 55.0 50.5 52.3 58.1 8 Thailand 42.5 72.5 57.5 55.0 58.6 57.1 57.4 9 Indonesia 50.0 71.4 60.7 50.0 46.8 48.1 56.9 10 Hong Kong 47.5 39.5 43.5 70.0 84.3 78.5 54.0 11 Pakistan 50.0 54.3 52.2 55.0 32.6 41.6 49.0 12 Philippines 40.0 55.6 47.8 50.0 49.7 49.8 48.4 13 Taiwan 27.5 38.0 32.8 65.0 72.5 69.5 43.8 14 Scores out of 100, with 100 highest. Source: BMI © Business Monitor International Ltd Page 8 Vietnam Freight Transport Report Q2 2010 Strong freight transport growth rates are combined with a very encouraging infrastructure investment picture across most of the region. By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to smaller/higher value loads continues. Rail freight will benefit from long-distance economies of scale, whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route. Shipping is being lifted by the surge in trans-Pacific commodity and manufacturers’ trade routes, while air freight is growing on the back of liberalisation and the budget airline boom. While the freight transport industry in the region suffers from patchy regulation and in some areas there are ongoing issues with corruption and cronyism, it is on the whole much more open and competitive than in the past. A strong positive factor is the dynamic and outward facing role played by foreign trade. Freight Industry Ratings Our overall freight transport rating for Vietnam stands at 58.1 (out of a theoretical maximum score of 100). This is composed of a score of 60.7 for potential returns (reflecting factors such as market size, growth and the competitive environment), which gets a 70% weighting, and a lower score of 52.3 for risks to those returns (reflecting factors such as market orientation, regulatory environment and other country-risk issues), which gets a 30% weighting. Vietnam’s freight transport traffic, measured in mntkm, rose by an annual average of 10.2% in 2005-2009 and, according to our projections, will decelerate to an annual average of 7.4% in 2010-2014. According to official information, there is a wide range of transport sector investment projects in the pipeline, across road, rail, air and sea. Work is underway to develop the Mekong basin area, and new seaports are planned. While there is no doubt that Vietnam’s transport infrastructure is expanding, our rating for this category is constrained by poor planning and limited project management experience. Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that the reform process started nearly two decades ago. The country gained access to the WTO in 2007. In the transport sector, state-owned enterprises (SOEs) continue to be dominant in many areas. There is not yet a clear legal framework for the protection of passenger and freight customer rights. Freight transport competition remains limited, with SOEs dominating key transport modes. There are few foreign entrants, although we expect more to arrive during the forecast period. To be able to operate in the country, significant negotiations and procedures are required. Although the government favours attracting more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive markets. © Business Monitor International Ltd Page 9 Vietnam Freight Transport Report Q2 2010 Transport Intensity Index This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2005 through to 2014. As such, it is a mix of actual performance (the five-year 2005-2009 period) and projected performance (2010-2014). In Vietnam’s case, actual average annual trade growth in 2005-2009 was a strong 18.8%, which in our projections will ease substantially to 11.1% per annum in 2010-2014. The annual average across the 10 years as a whole is 16.8%. Vietnam Logistics Performance Index (LPI) In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as ‘the first in-depth cross-country assessment of the logistics gap among countries’. The LPI was calculated on a five-point scale and based on survey responses from over 800 logistics professionals. Countries were given an aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the quality of customs, infrastructure and international shipments, logistics competence, tracking and tracing, domestic logistics costs and timeliness. In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9. For comparison with the major OECD economies, the Netherlands was ranked second in the world with an LPI of 4.2; followed by Germany (third with an LPI of 4.1), the UK (ninth, LPI of 4.0) and the US (14th, LPI of 3.8). In comparison with other Asian economies, Singapore was the world number one with an LPI score of 4.2, followed by Australia (17th, LPI of 3.8) and Taiwan (21st, LPI of 3.6). Then came South Korea (25th, LPI of 3.5), Malaysia (27th, LPI of 3.5), China (30th, LPI of 3.3), Thailand (31st, LPI of 3.3) and Indonesia (43rd, LPI of 3.0). Vietnam was therefore close to the bottom end of the regional LPI ranking, ahead of Papua New Guinea (95th, LPI of 2.4) and Laos (117th, LPI of 2.3). In terms of the different components of the index, Vietnam’s best performing areas, ranked in order, were domestic logistics costs, timeliness, international shipments, and tracking and tracing. Weaker areas in descending order were customs, logistics competence, and infrastructure. Economic Risk Summary Inflation To Continue Rising Consumer price inflation hit 6.5% y-o-y in December, boosted by a VND800/lite fuel price hike on November 20 and a 3% devaluation of the dong on November 25. The December reading was the highest since April, but we expect consumer price inflation to rise further in H110, potentially hitting double digits by mid-year. However, we expect inflation to decelerate in H210 as the authorities tighten fiscal and monetary policy, coming in at 7.0% by December 2010. A failure to tighten fiscal and monetary policy would pose upside risks to our forecast that inflation will average 9.0% in 2010. © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q2 2010 Long-Term Risk We believe Vietnam will need to tighten fiscal and monetary policy sharply in 2010 in order to bring the balance of payments back to a sustainable level. With external demand still weak, we are forecasting real GDP growth dropping to 4.4% in 2010 from an expected 5.1% in 2009. The co-existence of slowing economic growth and increasing inflation will inevitably raise debate about economic policy at the Communist Party of Vietnam’s (CPV) National Congress, scheduled for January 2011. We believe the political impetus is still behind continued economic reform, but that Vietnam will have to lower its economic growth targets and adjust its economic policy mix in order to avoid further macroeconomic turbulence. While successful in boosting domestic demand and bringing about a recovery in growth from 3.1% y-o-y in Q109 to 4.4% and 5.2% in Q209 and Q309, Vietnam’s sizeable fiscal and monetary stimulus package implemented over 2009 has also led to a widening trade deficit through a high degree of import leakage. With Vietnam’s foreign exchange reserves below the three months’ worth of imports, we expect Vietnam to depreciate the dong towards VND19,000/US$, raise interest rates by 500bps to 12.0% and tighten fiscal policy in 2010 in order to avoid a balance-of-payments crisis. Political Risk Summary Political Repression To Increase In 2010 Tranh Anh Kim, leader of the pro-democracy Bloc 8406 group, was jailed for 5½ years on December 28 for subversion and four other pro-democracy activists arrested with Kim in July 2009 are to be tried in court in early 2010. We expect the Vietnamese government to continue tightening the screw on political dissidents ahead of the Communist Party of Vietnam’s five-yearly National Congress in January 2011. While Vietnam scores 80 out of 100 in our short-term political risk rating, its 52.8 long-term political risk rating reflects our opinion that one-party rule is ultimately unsustainable. Long-Term Risk Vietnam’s relations with China have come to the forefront of an internal power struggle within the Communist Party of Vietnam, pitting economic reformers centred around Prime Minister Nguyen Tan Dung against more conservative Politburo members with links to China. With the two factions seeking to strengthen their positions ahead of the 2011 National Congress, we believe the reformists will maintain the upper hand. The sensitive power balance within the Politburo will limit the scope for a further rapprochement between Vietnam and US, with bilateral ties also strained by Hanoi’s suppression of Catholic activists. © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q2 2010 Business Environment Risk Summary Vietnam is making headway in improving its dilapidated infrastructure with construction on a number of ports, power plants and road projects commenced in 2009. Nonetheless, it will take a number of years, if not decades, until Vietnam’s infrastructure rating of 37.2 comes anywhere near the 68.0 China scores. On the economic reform front, the government’s privatisation process is gaining pace again with the listing of Vietcombank , VietInBank and Eximbank in 2009. We are also expecting improvements in the business environment from the Vietnam-Japan Economic Partnership agreement and a free trade agreement currently under negotiation with the European Union. Equity Sale Rules Loosened The minimum period for share holdings is to be decreased from three to two days after purchase in a measure aimed at boosting the liquidity of the domestic stock market, according to Vu Bang, chairman of the State Securities Commission. Poor transparency at listed corporates and the relative illiquidity of shares have held back foreign investment into the Vietnamese stock market, in spite of the strong growth potential for the economy. An improvement of corporate governance standards and increased liquidity should raise the profile of the Vietnamese stock market and thus widen the financing options for corporates. Legal Code/Corruption Legal Code Vietnam’s judicial system is based on communist legal theory and the French civil law system. Corruption Vietnam has a bad record on transparency. The state was ranked 120th (out of 180) in Transparency International’s Corruption Perceptions Index in 2009, with a score of 2.7. Red Tape Vietnam compares favourably with its regional peers in terms of bureaucracy, and about the same as developed states. According to World Bank data, 28 separate procedures are required to enforce a contract, which takes an average of 120 days. The East Asia and Pacific average is 24 and 193, respectively, while the process involves 18 procedures and 213 days in high-income OECD states. Conversely, World Bank data state that it takes 11 procedures and 56 days to start a business in Vietnam, compared with an average of nine and 61 in East Asia and Pacific and six and 25 in high-income OECD states. © Business Monitor International Ltd Page 12 Vietnam Freight Transport Report Q2 2010 Labour Force Size Reliable data on the labour force in Vietnam are difficult to find. However, it is estimated that the working age population in the country is 42.1mn, approximately 61% of the total. An estimated 10.2mn live in urban areas, with the remaining 31.9mn in rural areas. ‘Technically skilled workers’ form an estimated force of 8.84mn, accounting for 20.99% of the total. The south-east region has the highest rate of skilled workers (30.13%), followed by the Red River delta (27.99%) and Coastal South Central (20.85%). The lowest rate was reported in the north-west region. Education The adult male illiteracy rate was estimated at 4% for males and 9% for females in 2000, with the youth illiteracy rate 3% for both genders. Regulation The Vietnam labour force is comparatively heavily regulated, according to World Bank’s Employment Laws Index. Its score of 56 indicates that regulations are tighter than the East Asia and Pacific average, and a bit tighter than OECD high-income states. Disaggregating the data, the regulations for hiring workers are looser than those for firing workers, with scores of 43 and 48, respectively, the combination of which suggests a more regulated workforce than regional peers. Issues Fears of growing unemployment and rising social unrest in the cities is slowing down the reform of SOEs. The SOEs are an inefficient and loss-making legacy of a different era, and would have gone bankrupt a long time ago if the market had had its way. However, the fear of creating mass unemployment in the cities by laying off surplus labour has prevented meaningful reform. As a result, the SOEs continue to crowd out the more productive private sector, while adding to the government’s fiscal woes by forcing the state to absorb their losses. © Business Monitor International Ltd Page 13 Vietnam Freight Transport Report Q2 2010 Industry Trends And Developments Road In January Vietnam was seeking loans from the World Bank (WB) and the Japan International Cooperation Agency (JICA) to finance the construction of an expressway costing US$2.5bn, reported The Saigon Times Daily. The 130km-long expressway, will connect Danang City to Quang Ngai Province. Work will done by the state-owned Vietnam Expressway starting in 2010. JICA is expected to fund a 65km-long section from Danang City to Tam Ky in Quang Nam Province. The WB is expected to fund the remaining 66km-long stretch from Tam Ky to Quang Ngai Province. Vietnam has a total road network of 222,000km, although only 19% of it is paved, indicating the poor condition of road infrastructure in the country. Vietnam’s Ministry of Transport and Communications estimates that it will require close to US$60bn up to 2020 to fund road infrastructure projects. The Transport Ministry approved the term-end report for the Ben Luc-Long Thanh highway project, reported Intellasia. The project, involving investments of US$1.7bn, will be carried out by the stateowned Vietnam Expressway Investment and Development Company (VEC). The 58km-long highway will have four lanes totalling 27.5m in width. VEC, the main investor, is considering acquiring loans from the Asian Development Bank (ADB) and using its counterpart capital to finance the project. The Ministry of Transport and the People’s Committee of Lao Cai province in Vietnam began the bidding package for the A7 section of the Noi Bai-Lao Cai expressway project on December 20 2009, reported Intellasia.net. The first phase of the bidding package includes construction work on a road with total length of 26.7km. The winning bidder for the package was China-based Guangxi Road and Bridge Construction, with a contract price of VND1.6trn (US$86.6mn). Construction is expected to take 38 months. The roads and ports sectors are seeing the greatest level of activity in transport infrastructure in Vietnam, with the government funnelling public funds and loans from multilateral institutions for their development. The Hanoi-Hai Phong highway construction project in Vietnam was set to be financed with loans from Czech-based KB Bank, it was stated in December 2009. The prime minister of Vietnam has provided, inprinciple, approval to Vietnam Development Bank (VDB) for securing 10-year loans from KB Bank for the project. The highway project involves construction of a 105.5km-long expressway, six lanes and road surfacing. Along the highway, two sudden-stop lanes, six intersections, nine large bridges, 21 medium bridges and 22 overhead bridges will also be built. This follows another infrastructure financing agreement between Vietnam and the Czech Republic. In March 2008, Vietindebank, one of Vietnam’s major state-owned banks and the Czech Export Bank have entered into an agreement to jointly provide funding for projects in Vietnam, including large infrastructure projects. The funding for all the planned © Business Monitor International Ltd Page 14 Vietnam Freight Transport Report Q2 2010 projects will be worth US$956mn, of which US$720 will go towards the construction of a road in southern Vietnam and part of the remaining US$236mn will go into the development of a waste-treatment plant. The Vietnamese Transport Ministry started work on a 61.3km-long four-lane expressway that will connect Thai Nguyen, Bac Ninh and Hanoi, said the Vietnam News Agency. The expressway is expected to ease the traffic on National Highway 3 and facilitate the growth of trade between Hanoi and other northern parts of the country. The project also includes construction of six junctions, 29 bridges and other facilities. The Japan International Cooperation Agency (JICA) will provide a VND6.1trn (US$338.89mn) loan for the VND8.1trn (US$450mn) project, which is scheduled to be completed by 2013. The Vietnamese road authority has signed a build-operate-transfer (BOT) contract with local company Bien Hoa-Vung Tau Expressway Development (BVEC) for the expansion of National Highway 51. The national highway, linking the provinces of Dong Nai and Ba Ria-Vung Tau, will be expanded to 32.9m in width. The project also includes expansion of 10 bridges and construction of 12 new bridges. The project will require an investment of VND3.31trn (US$185.36mn), out of which 10% will be provided by investors, with the rest to be contributed by commercial loans. According to Thai News Service, as cited by Cargo News Asia in early November, truck drivers were travelling on alternative streets to avoid paying tolls on the Hanoi Highway in Ho Chi Minh City, Vietnam. They were choosing to drive down a small street running parallel to the Hanoi Highway. The news came after a two-day protest by drivers over charges at the toll station. The station was shifted to the Hanoi Highway in August 2009 to collect fees from heavy transport vehicles. The Ho Chi Minh City Cargo Transportation Association said the city Infrastructure Investment Joint Stock Company (CII) put the toll station in the wrong place and was unfairly collecting toll fees from trucks travelling between the Cat Lai Port, Hanoi Highway and Nguyen Huu Canh Street. The move by truck drivers to avoid paying the frees led to traffic congestion in the area. Rail A consortium formed from French construction company VINCI Construction Grands Projets and French manufacturer LOHR Industrie has signed an agreement for the construction of the first light railway line in Ho Chi Minh city in Vietnam. The project, with an estimated cost of EUR200mn (US$297.77), involves design and construction of 12km railway line that will have a total of 23 stations. Under the terms of the agreement, the consortium will hold discussions until June 30 2010 with an intention to enter into an Early Contractor Involvement (ECI) design-build contract for the project. © Business Monitor International Ltd Page 15 Vietnam Freight Transport Report Q2 2010 Air Vietnam Airlines (VNA) registered a 2.3% year-on-year (y-o-y) increase in cargo throughput to 131,220 tonnes in 2009. The airline reported a 13% y-o-y increase in domestic air freight traffic to 87,000 tonnes. VNA expects a turnover of VND32trn (US$1.78bn) in 2010, with a profit US$8.3mn - 30% higher than 2009’s turnover of US$1.36bn and 42% less than 2008’s profit of US$14mn. VNA plans to triple its existing aircraft fleet of 50 by 2020. VNA 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 airline operates 64 routes to 20 domestic and 24 international destinations. The carrier provides passenger air services to 25 destinations in 15 countries. Its cargo operations serve 20 destinations in Asia, the Middle East, Australia and Europe, with partner networks serving other destinations. Vietnam’s Quang Ninh province People’s Committee received the construction plan for the Van Don international airport. The plan was submitted by the US-based Rockingham Asset Management Group. The US$1.2bn project will be carried out on build-operate-transfer (BOT) basis, and the airport is expected to become operational in 2014. Its control will be transferred to Vietnamese authorities in 2048. The Vietnamese government has ambitious plans to modernise and expand the country’s airport infrastructure, though some, like the Long Thanh international airport, have been in the pipeline for years with little progress being made. However, the government’s willingness to get projects off the ground provides grounds for optimism. The Ministry of Transport announced in early May 2009 that it will upgrade and expand Vietnam’s main airports. Plans include new international airports in Phu Quoc, Long Thanh, Cam Ranh, Chu Lai, Danang and Hue. The Noi Bai airport in Hanoi will be expanded, as will the Cat Bi airport in Haiphong. Quang Nam province in Vietnam was in November seeking a new investor for its delayed Chu Lai international airport project. Spanish project management and consulting firm Garuda Group had signed a memorandum of understanding (MoU) in April 2009 for carrying out a feasibility study for the airport, which it was unable to complete. US-based Airis International Holdings (Airis) has expressed its interest in developing the airport. Airis has also recently submitted a new investment plan for the development of Chu Lai airport. According to a master plan released in 2008, the transport ministry intended to increase the handling capacity of the airport to 2.2mn passengers and 1.5mn tonnes of air cargo by 2015 and 4.1mn passengers and 5mn tonnes of cargo by 2025. South Korea’s Korean Air (KAL) opened a 747-400 freighter service to Hanoi, Vietnam in the last week of October 2009, aimed at capitalising on the country’s increasing importance in the Asian trade market. The airline was set to operate four times a week to Hanoi, which included two direct flights out of Seoul Incheon International Airport and two with connections through Singapore. Vietnam is witnessing huge industrial development and several international manufacturers are establishing operations in the country. KAL is the larger of South Korea’s two airlines. By 2006, its fleet had grown to 118 planes. The company © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q2 2010 operates passenger routes to 77 destinations in 28 countries. The group’s freight division, Korean Air Cargo, is the world’s third-largest cargo carrier and, as with its passenger division, is a member of SkyTeam Cargo. Sea The ASEAN Ports Association (APA), a collective of port authorities representing South East Asian states, has launched a project to develop the region’s ports in partnership with the German Technical Cooperation (GTZ), a development organisation. The news follows the implementation of an ambitious free-trade agreement (FTA) between the Association of Southeast Asian Nations (ASEAN) and China that is expected to place increased pressure on the countries’ trade infrastructure over the next few years. The plan, titled ‘Sustainable Port Development in the ASEAN Region’, will help finance developments at nine ports across five ASEAN states: Sihanoukville Autonomous Port and Phnom Penh Autonomous Port (Cambodia), Port of Tanjung Priok and Port of Tanjung Priok (Indonesia), Port of Iloilo and Port of Cagayan de Oro (the Philippines), Bangkok Port and Laem Chabang Port (Thailand), and Saigon Port (Vietnam). APA and GTZ’s participation will ensure that the development and the expansion of the ports is undertaken in a manner that is sustainable and will benefit the long-term economic growth of the countries in which they are based. BMI believes that planned development of South East Asia’s ports is a necessity if the region is to keep pace with its growing trade volumes. We expect growing bilateral trade with China, in particular, to place additional demand on the region’s port sector over the coming decade. China became the region’s largest export market in 2007, over taking the US. In January 2010, the ASEAN-5 (Malaysia, Singapore, the Philippines, Singapore and Indonesia) and Brunei signed an FTA with China, creating the world’s third-largest trade bloc. The agreement eliminates tariffs on 90% of goods traded between the countries and China. Four other states, Laos, Cambodia, Vietnam and Myanmar, are on course to join the trade bloc in 2015. BMI believes that, in principle, the agreement is good news for the region. It will further reduce countries’ reliance on developed markets, in particular the US, for export growth, and will offset what is likely to be a sluggish recovery in consumer demand in the West. However, from a logistical perspective, we caution that the move raises questions regarding ASEAN’s ability to cope with a projected increase in trade volumes. Using the World Economic Forum’s 2010 survey on the quality of port infrastructure across different states as a gauge of port sector development, we note that only three countries from the region – Singapore, Malaysia and Thailand – rank in the top 50 of the 133 nations represented in the survey. Moreover, four states rank in the bottom 50: Cambodia (89th), Indonesia (95th), Vietnam (99th) and the Philippines (112th). A lack of modern container ports in the region is perhaps the most significant point to note. Manufactured goods make up a significant proportion of the exports of most ASEAN states, and imports from China are also significantly composed of consumer goods. One potential problem we highlight is the dependence of some states on a single large facility for container shipments. For example, Indonesia, which has a population of some 230mn people, has just one container port, Tanjung Priok, © Business Monitor International Ltd Page 17 Vietnam Freight Transport Report Q2 2010 with a capacity of more than 1mn twenty-foot equivalent units (TEUs) a year. Since January 16 2010, the port authority has adapted to an influx of Chinese products by implementing a 24-hour container handling service at the port, reports Bisnis Indonesia. While such measures allow ports to manage increased cargo throughput in the short term, BMI believes that expansion and development of the port sector is needed to meet the demands of longer-term growth. Development agencies are able to assist in ensuring these expansions are sustainable and of benefit to both the region’s economy and its environment, however, in our view, the main source of financing must be individual governments and/or the private sector. Vietnam’s Prime Minister Nguyen Tan Dung approved the Vietnam Seaport Development Master Plan, which will require a total investment of VND360-440trn (US$19.5-23.8bn) by 2020. The plan aims to increase the transportation capacity of the country by 500-600mn tonnes of goods by 2015, 900-1,000mn tonnes by 2020 and 2,100mn tonnes by 2030. The primary focus of the plan from now to 2015 will be the international transit port Van Phong in Khanh Hoa Province, development of the Lach Huyen seaport complex in Hai Phong and a seaport at the Nghi Son oil refinery. Though Vietnam has 266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the port to the rest of the country. The increased traffic levels in Vietnam’s urban areas and the country’s general fast-paced economic development have increased the volume of exports and imports to and from the country, thus creating a pressing need for better infrastructure between ports and inland. The new master plan will improve the port infrastructure in the country. Netherlands-based engineering firm DHV was in December awarded a US$100mn contract for work on a 250km stretch of Vietnam’s Mekong River. The project will involve deepening and widening the river as well as constructing 18 bridges and a new lock to ease transport. The Mekong River stretches almost 5,000km from its source in China, running through Myanmar, Laos, Thailand, Cambodia and finally Vietnam before discharging into the South China Sea. As a result, the river could act as an important inland trade artery for the region. However, many of the bridges currently spanning the river are too low, preventing large-scale shipping on the waterway. After DHV completes restructuring the bridges and dredging, the Mekong will be able to handle shipping of up to 600 deadweight tonnes (dwt). The project is due to be complete in 2014, which will be none too soon. With Vietnam’s economy expected to grow by over 10% per year until 2014, the country’s GDP should reach US$154.4bn, almost five times its size in 2000. This is the result of Vietnam’s emerging status as a manufacturing hub, with Ho Chi Minh City, located close to the Mekong delta, at the epicentre of domestic production. Indeed, Vietnam’s maritime traffic is set to grow from 122,155mn tonnes-km to 163,785mn tonnes-km in 2014. Taiwan’s Formosa Plastics Group is currently constructing the port of Son Duong, which it hopes will become the largest deep-sea port in Southeast Asia. The port, which has an estimated cost of US$1.2bn, will accommodate vessels with a capacity of 200,000-400,000dwt. However, US$20-25bn needs to be invested in Vietnam’s port sector by 2020, according to the Vietnam Maritime Administration (Vinamarine), as cited by Lloyd’s List. The country’s port throughput continues to grow, supported by increasing foreign investment, but there are fears that ports will not be able to keep up with demand. Of the US$20-25bn it has been © Business Monitor International Ltd Page 18 Vietnam Freight Transport Report Q2 2010 suggested needs to be invested, only 12%-15% is expected to come from the Vietnamese government, with the rest to be raised from the private sector at home and overseas. This is pertinent, as the current Mekong River works are being funded by outside sources, the World Bank in this instance. In early November 2009, it was reported that Vietnam National Shipping Lines (Vinalines) had started work on the development of an international transhipment port complex in Van Phong Bay in the Khanh Hoa Province in Vietnam. The transhipment port complex will be developed in four phases. Vinalines has started the construction of the first two wharves as part of the first phase of construction, involving an investment of VND4trn (US$250mn). The wharves, with a total length of 650m are scheduled to be completed by 2013. The first phase will be carried out from 2010 to 2015. The rankings of the Global Competitiveness Report published by the World Economic Forum annually highlight the weakness of the port sector’s infrastructure in Vietnam. Though the country has 266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the port to the rest of the country. The upgrading of Van Phong transhipment port complex will help the country considerably improve the condition of its ports. © Business Monitor International Ltd Page 19 Vietnam Freight Transport Report Q2 2010 Industry Forecast Scenario Global Oil Products Price Outlook Chilling Out Nothing short of a weather miracle can empty brimming storage tanks and take some of the pressure off the beleaguered refining industry. Another prolonged period of snow and arctic temperatures is needed in January and February in order to ensure that the inventory position improves sufficiently. There is some scope for this, but there are likely to be continuing stock surpluses and narrow refining margins in 2010. Demand growth, particularly for jet and diesel, needs to be strong and sustained if the products markets are to have a good year. Otherwise, rising crude costs and weak product demand implies more misery for refinery operators. The December 2009 cold snap, combined with increasing seasonal demand and stock draws helped underpin product market sentiment at the end of 2009, boosting crack spreads and refining margins in the US and Europe. The winter of 2008/09 was unusually cold, and the current season needs to be colder still if the stock draw is to accelerate and margin strength be retained. Huge distillate volumes are still being stored offshore, while gasoline stocks have been on the rise. It could be that positive sentiment evaporates as soon as the last snow melts. After December’s heavy snow in the north east US, distillate inventories started to fall, down by 10mn bbl in the month. This boosted heating oil prices before the US distillate market lost some of its shortlived strength in the second week of January as the de-stocking trend reversed on the back of lower-thanexpected demand growth and forecasts for normal weather temperature in the short term in the main heating-fuel markets. Improving gasoline demand, along with a slowing of stock builds in December, supported gasoline prices. In early January gasoline stock builds once again accelerated, in part reflecting the difficult US driving conditions and consequent demand weakness. Any continuation of this situation will undermine gasoline market sentiment and encourage traders to liquidate long positions, putting downwards pressure on prices. European product market sentiment strengthened appreciably as the winter weather hit and arbitrage opportunities opened up for gasoline to the US and West Africa. The gasoline spread against Brent crude in Rotterdam rose to above US$7 per barrel (bbl) in early January from about US$6/bbl in the first week of December. Unfortunately, recent bullish developments in the European gasoline market may be countered by increased gasoline stock builds in the US. © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q2 2010 The European naphtha market may remain strong over the next months amid useful and persistent arbitrage opportunities to Asia and improving economic growth prospects. Even the European distillates market has been gaining momentum on the back of the region’s icy temperatures and fewer import cargoes. These developments led to stock draws and a narrowing of the contango in the gasoil market. This could result in some reduction of the ample offshore distillate stocks, standing in excess of 100mn bbl. Given the persistent overhang in distillate stocks in Europe, still well above the five-year average, prices are not expected to improve appreciably over the near term. The Energy Information Administration (EIA) estimates that OECD commercial oil inventories were 2.69bn bbl at the end of 2009, or about 58 days of forward cover, and about 80mn bbl more than the fiveyear average for that time of year. It predicts OECD oil inventories will remain at the upper end of the historical range in 2010. Revised Forecasts BMI estimates that the global wholesale price for premium unleaded gasoline was US$81.41/bbl in Q409. This compares with US$77.16 in Q309. Over the year the price ranged from a monthly low of US$49.33 in January 2009 to US$83.25/bbl in November. Gasoline prices in Q409 were up from US$56.37 in Q408. Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl) Gasoline Q409 Q110f Q210f Q310f Q410f Rotterdam Premium Unleaded 82.09 83.68 101.24 103.64 95.39 NY Harbour Unleaded 81.66 88.83 98.45 111.92 94.91 Singapore Premium Unleaded 80.48 91.37 97.50 101.84 93.58 Global average 81.41 87.96 99.06 105.80 94.63 Rotterdam 80.92 91.66 91.79 98.23 94.06 Mediterranean 81.27 93.68 92.52 98.28 94.45 Singapore 81.79 89.03 93.78 99.27 95.06 Global average 81.33 91.46 92.70 98.60 94.52 Rotterdam 83.40 93.74 95.72 100.51 96.94 NY Harbour 83.90 102.11 94.37 111.05 97.55 Singapore 82.75 92.82 94.36 99.72 96.20 Global average 83.35 96.22 94.82 103.76 96.90 Gasoil Jet/kerosene f = forecast. Source: BMI © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q2 2010 Table: Oil Product Price Forecasts (US$/bbl) Gasoline 2007 2008 2009 2010f 2011f 2012f 2013f 2014f Rotterdam Premium Unleaded 75.75 100.12 70.60 95.99 98.30 104.09 104.09 104.09 NY Harbour Unleaded 78.75 102.54 69.70 98.53 100.91 106.84 106.84 106.84 Singapore Premium Unleaded 74.98 102.64 70.21 96.07 98.39 104.18 104.18 104.18 Global average 76.49 101.77 70.17 96.86 99.20 105.04 105.04 105.04 Rotterdam 77.02 122.62 68.74 93.94 96.20 101.86 101.86 101.86 Mediterranean 77.69 121.75 69.13 94.73 97.02 102.73 102.73 102.73 Singapore 77.03 119.53 69.01 94.29 96.56 102.24 102.24 102.24 Global average 77.24 121.30 68.96 94.32 96.60 102.28 102.28 102.28 Rotterdam 81.13 126.61 70.81 96.73 99.06 104.89 104.89 104.89 NY Harbour 82.48 127.13 71.18 101.27 103.71 109.81 109.81 109.81 Singapore 79.17 121.11 69.99 95.77 98.08 103.85 103.85 103.85 Global average 80.93 124.95 70.66 97.92 100.29 106.18 106.18 106.18 Gasoil Jet/kerosene Sources: 2000-2006 historical data: EIA. 2007/2008 historical data: IEA. Forecasts: BMI. For Q110 we forecast an average global gasoline price of US$87.96/bbl, up 8% quarter-on-quarter (q-o-q) and 68% year-on-year (y-o-y), from US$52.22/bbl in Q109. For 2010 as a whole, BMI puts gasoline at an average US$96.86/bbl, with the price expecting to peak in July at more than US$116/bbl. Gasoline prices will rise 38.0% y-o-y in 2010. In Q409 gasoil averaged US$81.33/bbl, based on a composite global price. This was a y-o-y rise of almost 8%. Our revised forecast for Q110 is for global gasoil to average US$91.46, up 12.5% q-o-q. The weather will have helped gasoil prices relative to gasoline, in spite of the unusually large inventory position. For 2010 as a whole, we forecast an average price of US$94.32/bbl, probably peaking in January 2010 if cold weather persists. The full-year outturn will be a 36.8% increase y-o-y. Jet prices averaged US$83.35/bbl in Q409, using the composite for New York, Singapore and Rotterdam. The y-o-y increase was just under 6%, with jet lagging behind the gain in gasoil prices. The monthly low in 2009 was US$53.75 in February 2009, with the price reaching US$84.74/bbl in November 2009. In Q110 we assume an average global jet price of US$96.22, up 15.4% q-o-q and 69.5% y-o-y. For 2010 as a whole we forecast US$97.92/bbl, up from US$70.66/bbl in 2009. © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q2 2010 In 2009 naphtha was a surprisingly robust performer among the major refined products, gaining 92% between January and November. In Q409 naphtha averaged US$73.44, up from US$66.21/bbl in Q3 and US$54.70 in Q2. We put the 2010 average naphtha price at US$80.44/bbl, up 35.6% y-o-y. Looking further ahead, we see gasoline prices rising to US$99.20/bbl in 2011 and stabilising around US$105.04/bbl from 2012. Gasoil is expected to climb to US$96.60 in 2011, reaching a plateau of US$102.28/bbl from 2012. The price of jet is forecast to average US$100.29/bbl in 2011, before levelling out at US$106.18/bbl from 2012. Macroeconomic Outlook Double Dip Now Our Core Scenario With Vietnam’s balance of payments yet again approaching breaking point, we expect a sharp tightening of fiscal and monetary policy in 2010, which will see real GDP growth dip to 4.4% from an expected 5.3% in 2009. This will raise criticism of economic policy at the 11th National Congress in January 2011, but we expect the market reform agenda to be maintained. We have shifted our Vietnam growth outlook from expecting a gradual economic recovery in 2010 to a double-dip scenario with real GDP expansion dipping from an expected 5.3% in 2009 to 4.4% in 2010. This is based on our expectations that fiscal and monetary policy will have to be tightened sharply in early 2010 in order to rein in the widening trade deficit and halt inflationary pressures. Our outlook for Vietnam has much in common with that for China. However, while the policy aims of the respective governments are similar, we view the macroeconomic concerns in Vietnam as more alarming, at least in the short term, as Hanoi’s fiscal and monetary resources are considerably more limited. As a consequence, we find it likely that the inevitable shift towards tighter monetary and fiscal policy will come earlier in Vietnam than in China. Indeed, while Hanoi’s fiscal and monetary stimulus has helped economic growth recover from a low of 3.1% y-o-y in Q109 to 5.2% in Q309, it has also been a key factor, in our view, behind a considerable widening of the trade deficit over the same period to US$1.9bn in October. While the return to positive growth in G3 markets in H209 and 2010 should give some support to Vietnamese exports, we believe a continuation of the current accommodative policy would lead to a further widening of the trade deficit. With Vietnam’s foreign exchange reserves in Q409 estimated at below the three months of imports seen as a minimum, we believe drastic policy action will be needed to avoid a balance-of-payments crisis. This will include: A downward adjustment of the dong towards our VND19,000/US$ end-2009 forecast, from VND17,862/US$ on November 6, to stem the outflow of US dollars through the trade channel. © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q2 2010 A hiking of policy rates to uphold public confidence in the dong, stem capital outflows, and contain upward pressure on inflation through higher import prices. We are now expecting 500bps of hikes in 2010, bringing the Vietnam base rate from 7.0% in November 2009 to 12.0%. A reduction of the fiscal deficit from VND118trn (US$6.6bn), or 7.2% of GDP, to VND105trn (US$5.9bn), or 5.7% of GDP, in 2010 on the back of reductions in current and capital expenditure growth. Implications For Growth We expect the fiscal and monetary tightening to lead to a double dip in growth after the tentative rebound seen in the last three quarters of 2009. We are expecting real GDP growth to come in at 4.4% in 2010, as weak growth in G3 markets will weigh on exports and prevent a marked improvement in net exports in spite of the devaluation of the dong. This will mean that the slowdown in domestic demand will be harder felt. With inflation expected to average roughly 9.0% in 2010, we expect government consumption to decrease by 3.5% in real terms, which will shave 0.3 percentage points (pp) off headline growth. A more marked effect will be coming from a slowdown in private consumption growth as credit conditions are tightened. We expect private consumption growth (in real terms) to slow to 2.3% from an expected 4.9% in 2009 and 9.2% in 2008. This should see the contribution to growth from private consumption decrease to 1.6pp in 2010 from 3.3pp in 2009 and a massive 6.0pp in 2008. We are, on the other hand, expecting an increase in the contribution from gross fixed capital formation from 0.4pp to 1.1pp as FDI disbursements, down 12.1% y-o-y to US$8bn in January-October 2009, recover and state-and aid-financed projects gather pace. However, the precarious state of the property market, where activity and prices have been supported by the loan-subsidy programme, is a risk to this forecast. While only a minority of property purchases are financed through bank lending, higher interest rates should still have an impact on the market and on commercial and residential construction. Policy Rebalancing Needed At 2011 Party Congress We expect the slowdown in growth in 2009 and 2010 to make economic policy the main matter of debate during the Communist Party of Vietnam (CPV)’s 11th National Congress scheduled for January 2011. The macroeconomic rollercoaster ride experienced in recent years has raised criticism against Prime Minister Nguyen Tan Dung, the most important proponent of economic reform, from more conservative members in the Politburo. We believe the mainstay of the CPV is still behind Nguyen’s reform agenda, meaning that there will be no drastic shift in the socio-economic development strategy for 2011-2016. However, we expect measures to be taken to achieve greater macroeconomic stability, including a reduction of official growth targets, a shift in monetary policy towards inflation targeting and increased exchange rate flexibility. This is likely to come at a cost to economic growth in the short term, and we are consequently forecasting real GDP growth of 5.5% and 6.0% in 2011 and 2012, respectively, as the © Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q2 2010 global economic environment is expected to be less conducive than in the 2003-2007 boom years. A failure to take a decision on rebalancing economic policy would, on the other hand, mean a high risk of a continuation of macroeconomic volatility. Table: Vietnam – Economic Activity, 2007-2014 2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f Nominal GDP, VNDbn 1 1,144,015 1,478,695 1,628,770 1,825,075 2,053,255 2,288,455 2,562,686 2,855,653 Nominal GDP, US$bn 1 71.1 89.8 85.7 96.1 108.1 123.7 138.5 154.4 8.5 6.2 5.3 4.4 5.5 6.0 6.8 6.9 835 1035 974 1077 1195 1350 1492 1640 85.6 86.8 88.0 89.2 90.4 91.6 92.8 94.1 16.7 14.9 6.8 10.0 12.0 14.0 14.0 14.0 4.6 5.0 5.5 5.5 5.0 4.5 4.0 4.0 Real GDP growth, % 1 change y-o-y GDP per capita, US$ Population, mn 1 2 Industrial production 3 index, % y-o-y, average Unemployment, % of labour force, end of 3 period 1 2 3 e/f = BMI estimate/forecast. Source: IMF (General Statistics Office); IMF; General Statistics Office Transport Outlook Since our last report we have cut back our macroeconomic forecasts for Vietnam, acknowledging the danger of a ‘double dip’ growth slowdown. We now estimate GDP growth of 5.3% in 2009 (up from 5.1% earlier) but have reduced the projection for 2010 to 4.4% (was 5.9%) and have also trimmed 2011 to 5.5% (was 6.8%). Our forecast for 2010-2014 is for an annual average GDP growth rate of 5.9% per annum, representing a reduction on the 7.3% average rate achieved in the preceding five-year period. We maintain some adjustments to mode-specific freight carried forecasts. In road haulage, we have trimmed our forecast to take account of the global downturn and lower freight demand. We still see road-freight turnover running ahead of the general rate of economic expansion in Vietnam. Air freight is beginning to emerge from a difficult period. WTO membership has been supportive of greater freight transport turnover relative to GDP across all modes, but particularly so for shipping. On the downside, the 2009 contraction in trade had a particularly strong impact on shipping and Vietnam is expected to export less coal by sea as its domestic power needs rise. The net result of this is that we expect freight carried growth across all modes, measured in mntkm, to average 7.4% a year in 2010-2014. According to our latest estimates, transport and communications GDP rose by 6.5% in 2009, 1.2 percentage points (pps) faster than overall GDP, which we estimate to have increased 5.3%. For the 20102014 forecast period, we expect the transport and communications sector to continue outpacing the © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q2 2010 economy as a whole in value terms. It will achieve average annual growth of 6.9%, versus 5.9% for overall GDP. The value of transport and communications GDP will rise to US$7.0bn in nominal terms by 2014, of 4.5% of Vietnam’s GDP. By modes, we project that air freight to be the fastest growing, rising by 7.7% per annum, followed by road haulage at 7.6%, shipping (7.4%), pipelines (6.8%) and rail (6.5%). Table: Freight Transport Data And Forecasts, 2006-2014 2006 2007 2008 2009e 2010f 2011f 2012f 2013f 2014 8.2 8.5 6.2 5.3 4.4 5.5 6.0 6.8 6.9 217.5 236.0 250.6 263.9 275.5 290.7 308.1 329.1 351.8 5-year average annual GDP growth, % 7.8 8.0 7.8 7.3 6.5 6.0 5.5 5.6 5.9 Annual T&C growth, % 9.5 9.8 7.5 6.5 5.6 6.7 7.2 8.0 6.9 224.9 246.9 265.4 282.7 298.6 318.6 341.6 368.9 394.3 5-year average annual transport GDP growth, % 9.0 9.6 9.1 8.6 7.8 7.2 6.7 6.8 6.9 T&C sector, % of GDP 4.2 4.2 4.3 4.3 4.4 4.4 4.5 4.5 4.5 Annual import growth, % 22.1 38.3 28.2 -8.9 10.9 10.1 10.0 10.0 10.0 Imports index, 1995=100 568.0 785.3 1006.7 917.3 1017.3 1120.0 1232.0 1354.7 1490.7 5-year average annual import growth, % 24.1 27.2 27.3 20.2 18.1 15.7 10.1 6.4 10.2 Annual export growth, % 22.8 22.1 29.0 -9.7 12.9 12.1 12.0 12.0 12.0 Exports index, 1995=100 765.4 934.6 1205.8 1088.5 1228.8 1376.9 1542.3 1726.9 1934.6 21.7 23.9 25.6 17.3 15.4 13.3 11.2 7.8 12.2 2.5 3.0 3.8 3.8 4.2 4.8 5.6 6.3 7.0 1,074 1,099 1,123 1,148 1,173 1,198 1,224 1,250 1,278 82,400 107,500 138,200 125,400 140,200 155,600 172,600 191,400 212,400 – % change y-o-y 22.4 30.5 28.6 -9.3 11.8 11.0 10.9 10.9 11.0 – 5-year annual average % 22.2 27.6 26.5 18.8 16.8 14.5 10.6 7.1 11.1 Trade as % of nominal GDP 135.3 151.2 153.9 140.7 144.5 142.5 138.1 136.7 136.2 Annual GDP growth, % GDP index, 1995=100 Transport sector GDP index, 1995=100 5-year average annual export growth, % T&C sector value, US$bn nominal Transport employment, ‘000 Trade Total imports + exports, US$bn e/f = estimate/forecast; T&C = transport and communications. Source: BMI © Business Monitor International Ltd Page 26 Vietnam Freight Transport Report Q2 2010 Table: Freight Carried, Domestic, 2006-2014 (mn tonnes-km) 2006 2007 2008e 2009e 2010f 2011f 2012f 2013f 2014f 20,537 22,457 23,989 25,133 26,460 28,279 30,485 33,180 36,156 – % change y-o-y 16.2 9.3 6.8 4.8 5.3 6.9 7.8 8.8 9.0 – 5-year average % change 17.5 16.1 14.4 11.1 8.5 6.6 6.3 6.7 7.6 – % share of total 17.4 16.4 15.4 16.6 16.4 16.4 16.4 16.6 16.7 3,447 3,769 4,026 4,218 4,422 4,690 4,999 5,373 5,781 – % change y-o-y 16.9 9.3 6.8 4.8 4.8 6.1 6.6 7.5 7.6 – 5-year average % change 11.1 9.7 8.2 9.0 8.5 6.4 5.8 5.9 6.5 – % share of total 2.8 2.9 2.8 2.6 2.8 2.7 2.7 2.7 2.7 Inland waterways 4,081 4,463 4,767 5,020 5,263 5,581 5,949 6,394 6,880 – % change y-o-y 8.8 9.3 6.8 5.3 4.8 6.1 6.6 7.5 7.6 – 5-year average % change 7.5 8.5 8.4 7.8 7.0 6.5 5.9 6.1 6.5 – % share of total 3.6 3.5 3.3 3.1 3.3 3.3 3.2 3.2 3.2 Road Rail Maritime 89,297 105,617 122,207 116,547 124,800 133,711 143,207 154,437 166,637 – % change y-o-y 11.8 18.3 15.7 -4.6 7.1 7.1 7.1 7.8 7.9 – 5-year average % change 11.5 13.5 13.6 10.2 9.6 8.7 6.5 4.9 7.4 – % share of total 75.8 77.2 78.6 76.9 77.2 77.3 77.3 77.2 77.0 Air 269 304 324 338 352 377 408 447 490 – % change y-o-y 12.6 12.8 6.8 4.2 4.0 7.1 8.4 9.5 9.7 – 5-year average % change 11.4 12.3 9.1 7.6 8.1 7.0 6.1 6.7 7.7 – % share of total 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Pipeline 211 231 248 263 276 294 314 339 366 – % change y-o-y 9.0 9.8 7.1 6.1 5.1 6.3 6.9 7.8 7.9 – 5-year average % change 8.2 8.7 8.6 8.2 7.4 6.9 6.3 6.4 6.8 – % share total 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Total 117,842 136,841 155,561 151,519 161,573 172,932 185,363 200,171 216,310 – % change y-o-y 12.6 16.1 13.7 -2.6 6.6 7.0 7.2 8.0 8.1 – 5-year average % change 12.3 13.5 13.3 10.2 9.3 8.2 6.4 5.2 7.4 e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 27 Vietnam Freight Transport Report Q2 2010 Trade Environment Although high tariffs, customs bureaucracy and legal inadequacies have provided significant trade barriers, the opening up of Vietnam’s economy has been accompanied by concrete measures to meet the requirements of the WTO and other international trade organisations. This means tariffs are falling in many sectors and the customs regime is being overhauled. Trade Agreements Vietnam became a member of the WTO in 2007. It is also a member of the Association of South East Asian Nations (ASEAN) – with Brunei, Philippines, Indonesia, Laos, Myanmar, Malaysia, Singapore, Thailand and Cambodia – as well as the linked ASEAN Free Trade Area (AFTA). A bilateral trade agreement with the US came into effect in December 2001. Vietnam is also in, or preparing for, talks over free trade agreements (FTAs) with Japan, South Korea, Australia and New Zealand. The country is also party to FTA negotiations being conducted by ASEAN, such as talks with the EU and China. Tariffs And Non-Tariff Barriers Import tariffs are high, averaging around 18% in 2004. However, Vietnam is reducing tariffs to meet ASEAN and WTO goals, although some key sectors remain protected. Vietnam has agreed to comply with ASEAN’s Common Effective Preferential Tariff (CEPT) scheme on manufactured goods within the ASEAN region, which calls for rates to be brought down to the 0-5% range. The legislation providing the framework for the trade regime is 1998’s Law to Amend the Import and Export Tariffs Law. However, given the ASEAN and WTO requirements, the tariff structure is in a constant state of flux at present. After a May 2005 meeting with Vietnamese officials, the WTO praised the country for speeding up the passage of legislation. At the WTO meeting, Vietnam unveiled its latest round of commitments and changes. These are: a proposed revision of excise duties to end discrimination against imported motor vehicles; a similar proposal for excise duty on beer; the elimination of export subsidies that depend on export performance; a commitment to require supported products made in free zones to be subject to normal customs formalities when entering the rest of Vietnam; enquiry points on technical barriers and sanitary/phytosanitary measures to trade to be set up; and the reduction of restrictions on trading rights to some sensitive products such as oil, pharmaceuticals, sugar, tobacco, salt, fertilisers, rice and cultural products. © Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q2 2010 Table: Total Value Of Imports By Category, 2006-2014 (US$mn) 2006 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f 42,600 58,900 75,500 68,800 76,300 84,000 92,400 101,600 111,800 – % change y-o-y 22.1 38.3 28.2 -8.9 10.9 10.1 10.0 10.0 10.0 Food, live animals, 1,235 1,708 2,190 1,995 2,213 2,436 2,680 2,946 3,242 – % of total 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 Beverages and tobacco 43 59 76 69 76 84 92 102 112 – % of total 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 Crude materials, excl. fuels 767 1,060 1,359 1,238 1,373 1,512 1,663 1,829 2,012 – % of total 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 5,708 7,893 7,893 7,893 7,893 7,893 7,893 7,893 7,893 – % of total 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 Animal and vegetable oils, fats and wax 128 177 177 177 177 177 177 177 177 – % of total 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 5,666 7,834 7,834 7,834 7,834 7,834 7,834 7,834 7,834 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 9,329 12,899 12,899 12,899 12,899 12,899 12,899 12,899 12,899 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9 21.9 11,417 15,785 15,785 15,785 15,785 15,785 15,785 15,785 15,785 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 2,769 3,829 3,829 3,829 3,829 3,829 3,829 3,829 3,829 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 5,581 7,716 9,891 9,013 9,995 11,004 12,104 13,310 14,646 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 Total imports Mineral fuels, lubricants and related materials Chemicals and related products – % of total Basic manufactures – % of total Machines, transport equipment – % of total Misc. products – % of total Unclassified goods – % of total e/f = estimate/forecast. Source: UN Comtrade, BMI © Business Monitor International Ltd Page 29 Vietnam Freight Transport Report Q2 2010 Table: Value Of Exports By Category, 2006-2014 (US$mn) 2006 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f 39,800 48,600 62,700 56,600 63,900 71,600 80,200 89,800 100,600 – % change y-o-y 22.8 22.1 29.0 -9.7 12.9 12.1 12.0 12.0 12.0 Food, live animals, 9,472 11,567 11,567 11,567 11,567 11,567 11,567 11,567 11,567 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8 23.8 Beverages and tobacco 40 49 63 57 64 72 80 90 101 – % of total 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Crude materials, excl. fuels 915 1,118 1,118 1,118 1,118 1,118 1,118 1,118 1,118 – % of total 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 10,507 12,830 16,553 14,942 16,870 18,902 21,173 23,707 26,558 – % of total 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 26.4 Animal and vegetable oils, fats and wax 159 194 251 226 256 286 321 359 402 – % of total 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Chemicals and related products 279 340 439 396 447 501 561 629 704 – % of total 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 2,189 2,673 3,449 3,113 3,515 3,938 4,411 4,939 5,533 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 1,950 2,381 3,072 2,773 3,131 3,508 3,930 4,400 4,929 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 10,786 13,171 16,992 15,339 17,317 19,404 21,734 24,336 27,263 27.1 27.1 27.1 27.1 27.1 27.1 27.1 27.1 27.1 3,542 4,325 5,580 5,037 5,687 6,372 7,138 7,992 8,953 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 8.9 Total exports – % of total Mineral fuels, lubricants and related materials Basic manufactures – % of total Machines, transport equipment – % of total Misc. products – % of total Unclassified goods – % of total e/f = estimate/forecast. Source: UN Comtrade, BMI © Business Monitor International Ltd Page 30 Vietnam Freight Transport Report Q2 2010 Table: Vietnam’s Top Export Destinations, 2002-2006 (US$mn) 2002 2003 2004 2005 2006 United States 2,350 4,463 5,206 6,551 8,423 Japan 2,299 2,808 3,507 4,122 4,871 Australia 1,172 1,476 1,798 2,593 3,728 China 1,013 1,323 2,322 2,318 2,260 Germany 1,007 1,181 1,522 1,563 1,790 15,713 20,516 25,779 30,957 39,514 Top 5, % of total 49.9 54.8 55.7 55.4 53.3 Industrial states 9,968 13,840 16,939 20,246 25,396 140 162 274 392 166 4,254 5,147 7,379 8,883 9,664 Central and Eastern Europe 395 443 505 575 904 Middle East 498 629 411 513 353 64 94 86 134 122 63.4 67.5 65.7 65.4 64.3 0.9 0.8 1.1 1.3 0.4 27.1 25.1 28.6 28.7 24.5 Central and Eastern Europe 2.5 2.2 2.0 1.9 2.3 Middle East 3.2 3.1 1.6 1.7 0.9 Latin America and Caribbean 0.4 0.5 0.3 0.4 0.3 Total exports Africa Asia Latin America and Caribbean Regions, % of total Industrial states Africa Asia NB Total exports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q2 2010 Table: Vietnam’s Export Trade, 2003-2006 (% growth y-o-y) 2003 2004 2005 2006 United States 89.9 16.6 25.8 28.6 Japan 22.1 24.9 17.5 18.2 Australia 25.9 21.8 44.2 43.8 China 30.6 75.5 -0.2 -2.5 Germany 17.3 28.9 2.7 14.5 Total exports 30.6 25.7 20.1 27.6 Industrial states 38.8 22.4 19.5 25.4 Africa 15.7 69.1 43.1 -57.7 Asia 21.0 43.4 20.4 8.8 Central and Eastern Europe 12.2 14.0 13.9 57.2 Middle East 26.3 -34.7 24.8 -31.2 Latin America and Caribbean 46.9 -8.5 55.8 -9.0 NB Total exports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF Table: Vietnam’s Import Trade, 2003-2005 (% growth y-o-y) 2003 2004 2005 2006 China 47.8 30.3 36.1 32.4 Japan 22.8 21.3 12.8 15.3 South Korea 14.3 27.1 5.4 17.9 United States 128.4 -12.1 2.4 -7.7 Hong Kong 27.5 24.9 5.2 17.4 Total imports 28.6 29.4 14.3 26.3 Industrial states 37.6 16.2 1.4 32.7 Africa 13.5 145.8 26.2 -61.2 Asia 25.6 34.5 19.2 25.1 Central and Eastern Europe 16.6 37.8 1.7 -32.8 Middle East 82.0 27.7 34.2 17.0 Latin America and Caribbean -5.5 52.2 25.5 28.0 NB Total imports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q2 2010 Table: Vietnam’s Top Import Sources, 2002-2006 (US$mn) 2002 2003 2004 2005 2006 China 2,365 3,496 4,557 6,203 8,215 Japan 2,349 2,885 3,500 3,949 4,554 South Korea 2,464 2,817 3,581 3,775 4,450 United States 638 1,457 1,280 1,311 1,210 Hong Kong 845 1,077 1,345 1,415 1,661 19,976 25,686 33,241 37,980 47,954 43.4 45.7 42.9 43.8 41.9 5,369 7,386 8,584 8,707 11,556 52 59 145 183 71 13,219 16,606 22,342 26,629 33,316 Central and Eastern Europe 760 886 1,221 1,242 835 Middle East 200 364 465 624 730 Latin America and Caribbean 237 224 341 428 548 26.9 28.8 25.8 22.9 24.1 0.3 0.2 0.4 0.5 0.1 66.2 64.7 67.2 70.1 69.5 Central and Eastern Europe 3.8 3.4 3.7 3.3 1.7 Middle East 1.0 1.4 1.4 1.6 1.5 Latin America and Caribbean 1.2 0.9 1.0 1.1 1.1 Total imports Top five, % of total Industrial states Africa Asia Regions, % of total Industrial states Africa Asia NB Total imports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q2 2010 Market Overview Multi-Modal In June 2004, Vietnam concluded the eighth round of negotiations in its bid to join the WTO, and in January 2007 joined the organisation. Competitive Landscape Q209 According to reports in early June, foreign investors have once again raised concerns about Vietnam’s infrastructure. Rapid economic growth is placing a heavy burden on existing infrastructure and investments, tangled in red tape and regulatory obstacles, have not been able to keep pace. The latest concerns were raised during a conference in Ho Chi Minh City, organised by the International Finance Corporation and the Vietnamese Planning and Investment Agency. The country’s port infrastructure was once again in the spotlight, with foreign investors urging the government to invest not just in creating maritime hubs, but also in creating a better intermodal transport system to move cargo to and from the ports. Vietnam added to its growing status as a major international trading power after announcing it would cut import tariffs on a variety of goods in order to meet World Trade Organisation (WTO) regulations. According to the Journal of Commerce (JOC), the East Asian country will reduce tariffs on a number of imported items until the end of 2009. Q109 According to a report by Bloomberg news agency in March, the Asian Development Bank (ADB)’s country director for Vietnam, Ayumi Konishi, has stated that the country needed to focus more on infrastructure projects to ensure that its plan to build power plants, ports, roads and railways during the current tight economic period stayed on path. He stated that funds were available from governments, international agencies and the private sector. Vietnam’s Ministry of Planning and Investments released a list of 60 urban infrastructure projects to be implemented between 2009 and 2016. The total estimated investment required for the projects is US$12bn. The projects range from new water and sanitation infrastructure to new roads and traffic systems, and will take place in 15 provinces around the country. Construction of an urban railway project in Hanoi was due to start in early 2009. At the same time, Ho Chi Minh announced plans for a US$2bn injection into transport projects in the same year in order to stimulate the construction industry and in turn boost economic growth. © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q2 2010 Q408 According to a Reuters report in December 2008, Vietnam Infrastructure Development and Finance Investment had awarded a US$174.3mn contract to GS Engineering & Construction to build a highway in Vietnam. Vietnam’s road network is particularly under-developed, and causes serious city congestion and adds to road accident figures. It is vital for the country to improve its transport infrastructure in order to realise the country’s growth potential. Vietnam is looking to build 5,900km of highways over the next decade. Q308 Flash floods and landslides swept across parts of northern Vietnam in August, causing disruption to transport, destruction and loss of life. By August 18, 10 days after the flooding began, the People’s Army newspaper reported that 130 people were dead. Q208 The transport sector was indirectly involved in a controversy over press freedom and corruption in May. At issue was an outcry over the arrest of two reporters for their coverage of a corruption scandal that led to the resignation of the minister for transport in 2006. Nine people, including government officials, had been found guilty of betting millions of dollars on European football matches and trying to bribe people in a cover-up operation. Q407 At the beginning of December 2007, local media reported that Vietnam’s southern Ho Chi Minh City, regarded as the country’s economic hub, required some US$22bn in new investments to develop its transport infrastructure and ease its growing traffic jams. Q307 Government officials and foreign investors in Vietnam’s booming economy appear to have agreed that catch-up investment in transport infrastructure is emerging as a top priority. In early September 2007, Prime Minister Nguyen Tan Dung announced road, rail and energy projects for the country’s seven northern provinces bordering China. Power plants would be built, two railways would be built to Lao Cai and Lang Son, and major roads would also be built linking China’s southern regions of Yunnan and Guangxi to northern Vietnamese ports in Haiphong and Quang Ninh. More generally, with GDP growth averaging 8% per annum over the last decade and record foreign direct investment of US$10.2bn in 2006, pressure on transport systems has been growing across the country. A report by Neptune Orient Lines (NOL) and analysts Frost & Sullivan earlier in 2007 noted that container volumes handled by Vietnamese ports had grown by 19% per annum over the last decade. Q207 Vietnamese investment manager VinaCapital said at the beginning of May that it was looking to raise © Business Monitor International Ltd Page 35 Vietnam Freight Transport Report Q2 2010 US$200mn to invest in infrastructure in Vietnam by listing a new fund on London’s Alternative Investment Market (AIM). It said the fund, Vietnam Infrastructure, would be the first of its type, investing ‘much-needed capital’ in Vietnam’s energy, transport, water and telecommunications infrastructure. Vietnam, the WTO’s newest member, had identified the businesses in which the state would retain full control or a majority share, Prime Minister Nguyen Tan Dung said in March. The state would hold full control in military firms, companies that operate energy projects, flight-control operations, national railways, the media and money printing. Q107 Vietnam formally joined the WTO in January, completing a 30-year journey to integration with the economic mainstream. Membership, achieved against a background of very strong economic growth, stimulated debate among experts over the sustainability of the economic development model and its ability to build transport and general infrastructure. Prime Minister Nguyen Tan Dung approved plans to sell shares in 53 large SOEs, including Vietnam Airlines, between 2007 and 2010. © Business Monitor International Ltd Page 36 Vietnam Freight Transport Report Q2 2010 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market share of around 60% of domestic cargo. At present there are over 1,050 enterprises registered in the road transport business, which include 16 SOEs, 233 limited liability companies, 350 private companies and 450 joint stock companies. Very few foreign invested companies are present. Most road transport companies are of small or medium scale, and each company, on average, owns about 50 vehicles. SOEs in road transport face many difficulties due to the declining number of vehicles and poor performance. In addition, tens of thousands of individual household businesses exist that operate informally in the road freight sector, and are thus difficult to account for and monitor. At a special meeting of the Transport and Tourism Division of the UN’s Economic and Social Commission for Asia and the Pacific (UNESCAP), held in Shanghai in April 2004, an agreement was signed to press ahead with the long-discussed concept of an Asian Highway. Over the long term, this project will bring important benefits to Vietnam. A total of 26 countries had signed the agreement by mid-2004. The Asian Highway project involves a collaborative effort to complete a 140,000km road network criss-crossing the Asian continent and reaching into Europe. In April 2004, officials estimated that 83% of the network met agreed minimum highway standards and that a further US$16bn worth of investment was needed to bring the remaining 17% up to the minimum. Infrastructure Vietnam has a national road network of some 93,300km of roads. Of this, only 23,418km, or 25%, is paved. In addition, recent surveys indicate that approximately 40% of the network is in poor to very poor condition and will require substantial investment even to reach a maintainable condition. The quality of infrastructure varies greatly across areas of the country, with the majority of new capital investment having taken place in recent years in high growth centres and in corridors around the major urban centres. Rural areas – especially in the northern mountain, central and Mekong Delta areas – have substantially lagged behind with respect to new sector investments. Competitive Landscape Q409 In October 2009, the government said that the Vietnam Road Administration, part of the ministry of transport, would allocate VND1.4trn (US$78.4mn) worth of government bonds for upgrading National Highway 25. The highway links Phu Yen province to the highlands province of Gia Lai, both in the country’s central region. © Business Monitor International Ltd Page 37 Vietnam Freight Transport Report Q2 2010 Q209 Vietnam’s Ministry of Transport began work on a 121km-long expressway connecting Ninh Binh province to Nghi Son, in Thanh Hoa province, on June 16, reported VNBusinessNews. The construction of the expressway is part of a programme to upgrade the North-South national road. Total investment in the project is forecast to be VND32trn (US$1.9bn). The Hanoi city People’s Committee is to invest VND881.6bn (US$50.9mn) in a project to upgrade the 1A National Highway, from Ngoc Hoi to Cau Gie, in Thuong Tin dist and Phu Xuyen district, according to a report in IntellAsia in June. According to Vietnam’s VoV News, in early April the ADB and the French Development Agency (AFD) offered a financial grant of almost US$7mn to assist Vietnam in upgrading infrastructure facilities in three districts. The fund will be utilised to build 41km of rural road and for irrigation projects. South Korea’s Posco Engineering & Construction (Posco EC) and state-run VN Express signed a US$150mn contract for the construction of part of a highway in northern Vietnam. Under the deal, for 40 months Posco EC will construct a 27km section of the 224km highway connecting the cities of Lao Cai and Noi Bai. The ADB will offer a US$410mn loan to Vietnam to build a 51km expressway, which will link Ho Chi Minh City, Vietnam’s economic hub, with Dong Nai province in the country’s southern region. Q109 Deputy Prime Minister Nguyen Sinh Hung gave orders in March to launch package No.3 of the Nhat Tan Bridge project in Hanoi’s Dong Anh District, as reported by Saigon Times Daily. Project Management Unit 85, which lists the construction ministry as the investor, has stated that the package will be completed in 34 months. The package aims to build over 4,600m of the road, as well as two interchanges for the bridge project. According to Viet Nam News, the construction contract for the highly significant section of Vietnam’s VND24.6trn (US$1.53bn) Ha Noi-Hai Phong Expressway was signed on February 14. The 9.3km-long section is a part of the 105km expressway project that starts from the northern port city of Hai Phong, and will link Thanh Ha District in Hai Duong Province and An Lao District in Hai Phong City. Vietnam Expressway Investment and Development Company (VEC) said that it would invest in four new expressway projects in the country in 2009, IntellAsia reported in January. The state-owned company said that the four routes assigned for development in 2009 are Noi Bai-Mai Dich, Hanoi-Lanf Son, Ha Long-Mong Cai and Ben Luc-Long Thanh. © Business Monitor International Ltd Page 38 Vietnam Freight Transport Report Q2 2010 Q408 According to Tran Quang Phuong, director of the Ho Chi Minh City Department of Transport and Public Works, as cited by Viet Nam News in December, the city authorities were looking at ways of collecting toll money for the construction of a second bridge. The bridge over the Saigon River is estimated to cost US$110mn. Phu My Bridge (PMC) is investing funds for the project. Q308 Economic growth and rising living standards have been boosting the size of Vietnam’s vehicle fleet. According to the Vietnam Automobile Manufacturers Association, 16 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. Q208 According to local media reports in May, Vietnam was building what was likely to become its busiest expressway, investing an estimated US$1.5bn in a new link between Hanoi and the port city of Haiphong. The 105.5km expressway would have six interchanges, 30 bridges and 22 overpasses, and would be completed by 2011, the reports said. Over 3,000 people died in traffic accidents in the first quarter of 2008, according to local newspaper Viet Nam News. The paper said that in Q108 there were a total of 3,289 traffic accidents. The statistics were provided by the transport ministry, which said it was investing VND6,952bn (US$434.5mn) in order to reduce the number of deaths on the roads by 5-7% each year until 2010. Q108 A series of important road transport projects were announced in January. Among them was a proposal to build a 55km expressway linking Ho Chi Minh City and neighbouring Dong Nai province, with a total investment cost of VND18.88trn (US$1.2bn). A second venture was a 264km expressway stretching from the capital Hanoi to Lao Cai province, at a cost of VND19.984trn (US$1.25bn). Q307 In August, Bank for Investment and Development of Vietnam (BIDV) announced plans to issue US$500mn-worth of international bonds over the next two years to help fund a key highway project. The funds would be used to help cover the estimated US$1.8bn cost of building the 120km Saigon-Trung Luong-My Nhon-Can Tho highway. In mid-August, the ADB said it was lending US$300mn to help fund a highway linking the western Chinese province of Guangxi to Vietnam. An ADB financial analyst said that the aim was to develop an integrated road network in the area, benefiting around 2.3mn people. © Business Monitor International Ltd Page 39 Vietnam Freight Transport Report Q2 2010 Q207 Malaysian property developer SP Setia said on June 26 it had signed a JV agreement to build a township worth an estimated US$600mn in Vietnam’s Binh Duong province. State-run VEC would sell VND2.7trn (US$167.5mn)-worth of bonds in 2007 to finance an upgrade of a section of the north-south highway, state media reported on June 13. Vietnam’s Tan Tao Industrial Park Corp (Itaco) would raise US$59mn via issuing 20mn shares to invest in the construction of two residential areas, its chief executive said in mid-June. Itaco, the first industrial park developer listed in Vietnam, would use the proceeds to build Tan Duc and Tan Tao residential areas, establish a university and also boost the firm’s finances, CEO Thai Van Men said in a statement. A Vietnamese road toll collector had raised VND449.23bn (US$28mn) by selling 20.85% of its shares, the Hochiminh Stock Exchange said at the beginning of April. Becamex Industrial Investment and Development Corp sold all 7.03mn shares on offer to 107 investors, with foreign investors buying 40% of the total, a stockmarket statement said. © Business Monitor International Ltd Page 40 Vietnam Freight Transport Report Q2 2010 Rail Vietnam’s railway transport sector has only one operator, namely the Vietnam Railway Corporation (VRC), established by law in April 2003 as a state corporation operating railway transport and related services. The government has announced plans to separate the management of rail infrastructure from passenger and cargo services. Officials said a bill would be submitted to the National Assembly to allow different companies to operate rail services, paying fees for the use of the infrastructure. They did not envisage full deregulation of the system until 2010, however. Vietnam’s rail network totals 2,600km (excluding sidings). The network is mixed-gauge, comprising 2,169km of 1.000m gauge and 178km of 1.435m gauge. The network has 1,790 bridges totalling 45km and 11.5km of tunnels. The principal axis is Hanoi-Ho Chi Minh City (1,726km). Other lines emanating from Hanoi are to Hai Phong (102km), Lao Cai (296km) and Dong Dang (162km). Competitive Landscape Q409 In late October 2009, it was reported that the cost of building an 191km express rail link between Ho Chi Minh City and the Mekong Delta city of Can Tho had risen to an estimated US$9.63bn, up from an initial estimate of US$4bn. Q209 The Railroad Management Board Region 2 in Vietnam announced in June that the project for upgrading the railroad between Vinh-Nha Trang would be officially launched in Q309, according to IntellAsia. The upgrade on the railroad, with a total length of 700kms, is expected to cost VND4trn (US$231.8mn). Vietnam is expecting financial assistance from China, as well as other international sources to develop a 128.5km long railway line from Ho Chi Minh City to the Cambodian border. A China-based consulting group was scheduled to submit a feasibility study to the Vietnam Railway Department by the end of June 2009. A memorandum of understanding (MoU) has been signed between the Vietnam Railway Department and an associated company of China National Machinery Import & Export Corp (CMC) and China Railway Construction Corp Limited (CRCC) to survey and assess the urban railway line No 1 from Nam Thang Long to Lang Hoa Lac in Hanoi, Vietnam. The Vietnamese finance ministry will advance VND499bn (US$0.03bn) to Vietnam Railway Corp, as reported by IntellAsia. The fund will be used to accelerate work on some significant and urgent projects. © Business Monitor International Ltd Page 41 Vietnam Freight Transport Report Q2 2010 Q109 The Vietnam Japan Consulting (VJC) JV, the company responsible for conducting the feasibility studies for Vietnam’s high-speed railway, has come back with a multi-billion-dollar price tag for the project. This railway is at the core of Vietnam’s transport master plan to 2020 that seeks to enhance the transport modal balance and integrate into the ASEAN regional transport networks. State-owned VJC presented the findings of the feasibility report to senior government officials on February 6 2008. It said that the line is to be built alongside the current track (single line, mostly narrow gauge) that runs from Ho Chi Minh City all the way north to the Chinese border. The new north-south high-speed line will be a double-track railway of 1.435m gauge. Based on that route, the cost has been estimated at US$55.8bn. Q407 Planning on the proposed north-south railway continued during Q407. The project involves an investment of approximately US$33bn to build a railway connection capable of running trains at up to 350kmh. In late December 2007, the newspaper Vietnam News reported that the state-owned VRC had submitted a proposal to Deputy Prime Minister Hoang Trung Hai for a 1,630km route for the railway. Q307 In August, the government announced plans to start building a major north-south railway in 2009, at an estimated cost of US$33bn. Official media quoted Nguyen Huu Bang, chairperson of VRC, saying that it had been instructed by the authorities to carry out a feasibility study on the 1,700km railway project. He said that some US$23bn of the planned investment would be spent on infrastructure, with the remaining US$10bn for equipment and trains. South Korean consultants are reported to have recommended that the project use the French TGV (Train à Grande Vitesse – high-speed train) system. Talks were also being held with Japanese companies to study that country’s shinkansen ‘bullet train’ technology. Q207 Vietnam would invest up to VND8.4trn (US$525mn) to build two railways that will link the country to Laos and Cambodia, an industry official said in late June. Vietnam plans to invest nearly US$1bn in the next three years to transform its outdated railway system by building new tracks for high-speed trains. Vietnam’s rail system is slow and trains overcrowded. The Ho Chi Minh City municipal government has approved the construction of an underground or subway system at a cost of US$1.1bn, with 83% of the money to be provided by Japanese aid. Q107 A Vietnam north-south express train collided with a passenger bus, instantly killing 12 people on the bus and injuring scores of others, state media reported on February 9. © Business Monitor International Ltd Page 42 Vietnam Freight Transport Report Q2 2010 Vietnam will build a high-speed railway, with aid from Japan, at an estimated cost of US$33bn, a project that would cut travel time by two-thirds between Hanoi in the north and southern Ho Chi Minh City, the government said in early February. © Business Monitor International Ltd Page 43 Vietnam Freight Transport Report Q2 2010 Air There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines. Both of these airlines are state owned, and Vietnam Airlines is a key shareholder in Pacific Airlines. The government has announced plans to build the country’s largest airport at Long Thanh in the southern province of Dong Nai, at an estimated cost of US$8bn. According to officials at the Ministry of Transport and Communications, the airport would have the capacity to handle 80-100mn passengers per year, which would make it about 10 times the size of the International Tan Son Nhat Airport in Ho Chi Minh City. The authorities plan to spend US$522mn (VND8.2trn) to expand Noi Bai International airport in Hanoi. Plans include expansion of the airport’s area to 900 hectares (ha), the construction of a new runway and a second terminal, enlargement of the old runways and the enlargement of the cargo terminal. The expansion will enable the airport to receive larger aircraft such as the Boeing 777-300, Boeing 747 and Airbus A320. The aim is to increase airport capacity to serve 7mn passengers and 70,000 tonnes of cargo by 2010. According to Vietnam’s Civil Aviation Administration (VCAA), air traffic to and from the country rose by 12.3% in 2008, to reach 12mn passengers. Air freight volume was up by 17.1% to 265,000 tonnes. VCAA said that 28 Vietnamese aircraft currently serve 72 destinations in 57 countries, while local aviation operates 26 domestic routes. 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 Q409 Starting in late October, Korean Air Cargo said it had launched a regular B747-400F twice-weekly freighter service between Incheon and Hanoi, with a stop-over in Singapore. Vietnam’s first privately-owned airfreight company said in October that it would commence operations in the first quarter of 2010. Trai Thien AirCargo said it would specialise in cargo operations on domestic and international routes, with a focus on northeast and South East Asian markets. The Civil Aviation Administration of Vietnam said it was reducing take-off and landing fees charged to international airlines by 5%, effective until March 1 2010. Q209 The prime minister of Vietnam, Nguyễn Tấn Dũng, has given the go-ahead for the planned VND10.52trn (US$0.59bn) upgrade for Cam Ranh International Airport, reports IntellAsia. The upgrade will enable the © Business Monitor International Ltd Page 44 Vietnam Freight Transport Report Q2 2010 airport to handle 27 aircraft during peak hours, and to receive 5.5mn passengers and nearly 100,000 tonnes of commodities per year by 2020. In May it was reported that the Vietnamese government had given approval to a master-zoning plan, drawn up by the Ministry of Transport, which proposes the development of 10 international airports across the nation, according to Asia Pulse. Q109 According to an IntellAsia report in February, a project to build an airport in Gio Quang, Quang Tri province, has been cleared by the People’s Committee of the province. The expected capital required is VND375bn (US$.02bn). Q308 Vietnam Airlines said that it made a loss of US$5mn in H108, after high oil prices forced it to spend more than its revenue, Reuters reported. The Hanoi-based unlisted airline, Vietnam’s largest, posted revenue of VND12.1trn (US$733mn), 28% up from the same period in 2007, but expenses hit VND12.18trn, leading to the loss, it said. Jetstar Pacific, Vietnam’s second largest airline which is now 18% owned by Qantas of Australia, said in August that it would drop its flights to the central Vietnam beach resort city of Nha Trang due to high fuel costs, and would instead open routes between Ho Chi Minh City and Bangkok in Thailand, Siem Reap in Cambodia, and Singapore. State-owned Vietnam Airlines said in August that it was introducing surcharges ranging between VND50,000 and VND180,000 (US$3-11) on its domestic routes because of high fuel costs. The company had previously reported a loss of VND83bn (US$5.02mn). Vietjet Air, which aims to become the country’s first fully private sector-owned airline, said it would postpone its launch from December 2008 to mid-2009, because of the effect of high fuel prices. Viet Nam News said Vietjet had also announced it would postpone its planned lease of two Boeing 737-700s, with which it intended to start services. Q208 In May, the government approved the establishment of the country’s second private airline, a low-cost carrier named Air Speed-Up Corp (ASP). The company was reportedly launched with initial capital of VND200bn (US$12.5mn) and would aim to lease 10 aircraft by the end of the year, initially focusing on serving the north-south domestic route. © Business Monitor International Ltd Page 45 Vietnam Freight Transport Report Q2 2010 Deputy Prime Minister Hoang Trung Hai approved a VND13.74trn (US$857mn) expansion plan for the country’s second-largest airport near the capital Hanoi. Officials said the proposal was to build a third terminal at Noi Bai International Airport 45km north of Hanoi, boosting capacity from the current 10mn passengers a year to 25mn by 2020. Q108 In January, Vietnam Airlines said it would hire an international consultant to advise it on launching an IPO in which up to 20% of its shares would be sold to three foreign investors. Q407 In December, Vietjet Air, the country’s first privately owned airline, said it was planning to launch its first commercial service in December 2008 or in early 2009. The company received its air transport licence on December 20 2007, and said it would start off by leasing either Boeing 737s or Airbus A320s to offer domestic and international services. Q307 Air Asia, Malaysia’s successful budget airline, signed a letter of intent with Vietnam’s Vinashin Group in September 2007 to set up a new low cost airline. The initiative was a new departure for Vinashin, which up to that point had concentrated on its core businesses of shipbuilding, heavy industries and construction. In July, The government of Vietnam agreed to act as guarantor for the national flag carrier Vietnam Airlines (VNA) to buy two Airbus A321 aircraft, due for delivery in July and November. According to the official Vietnam News Brief Service, the purchase was being carried out with financial support from the financial ministry, and legal advice on export credit and trade credit guarantee and aircraft buying contracts from the justice ministry. The two aircraft were among ten which Vietnam Airlines agreed to purchase from Airbus in December 2004. Q207 Vietnam planned to add a new terminal at Danang International Airport, which has seen a boom in tourists and business travellers, an official said at the end of May. The new terminal would be able to handle 4mn passengers a year, up from 1mn, said Nguyen Van Nien, of the Central Airport Authority. Singapore’s Changi Airports International said in May that it had signed a deal with the Vietnamese government to develop Vietnam’s Phu Bai-Hue International Airport. The deal to develop the airport, which is in the central province of Thua Thien Hue, is part of the government’s plan to increase tourism, Changi Airports said in a statement. © Business Monitor International Ltd Page 46 Vietnam Freight Transport Report Q2 2010 Vietnam was expected to issue new regulations allowing foreigners to own up to 49% of local airlines, Dow Jones Newswire reported on May 3. Vietnam Airlines was looking to maintain annual double-digit growth by 2010, despite the increasingly fierce competition from domestic and foreign airlines, according to local press reports. Vietnam Airlines Chairman Nguyen Sy Hung said the airline was targeting annual growth of 12-14% to 2010. Australia’s Qantas Airways said on April 27 that it had agreed to buy 30% of Pacific Airlines from the Vietnamese government. National carrier Vietnam Airlines said first quarter revenue grew 13.3% from a year earlier thanks to 16.8% passenger growth. The state-controlled airline reported January to March revenues at VND4.87trn (US$302mn), up from VND4.3trn in the same period in 2006. Q107 Vietnam’s national carrier was planning to introduce direct flight service to the US as part of the terms reached under a 2003 air agreement, according to a media report. Vietnam Airlines said it intended to begin direct services to some US cities later in 2007, according to a report by the Chinese news agency Xinhua, citing Vietnamese state media. Vietnam Airlines said its revenue for 2006 rose 12.4% to VND17.5trn (US$1.09bn), thanks to an increase in passenger numbers. The unlisted company had a before-tax profit of VND304.5bn (US$19.05mn), meeting 92% of its target. © Business Monitor International Ltd Page 47 Vietnam Freight Transport Report Q2 2010 Company Profile: Vietnam Airlines Strengths ƒ The national carrier in a high-growth country set in a high-growth region, with rising living standards set to boost demand for air travel at a proportionately greater rate than GDP growth. Weaknesses ƒ To maintain market share in a dynamic but toughly competitive market, the company must gain professional skills and expertise, and a flow of new investment, at an accelerated rate. Any slippage is likely to have an immediate negative impact on margins. Opportunities ƒ Developing the regional passenger market in Asia is Vietnam Airlines’ main opportunity, with cargo business as a second revenue stream. Threats ƒ The main threat is regulatory – that the government will open up the industry at a faster pace, not giving the airline the necessary time to prepare for competition with private sector start-ups or established foreign carriers. Company Overview Vietnam Airlines was established as a state-owned airline in 1989 and merged with a number of service companies in 1996 to give it its present form. The government’s stated goal is to further integrate the company into the global market and establish itself as a regional player. Vietnam’s national carrier operates 64 routes to 20 domestic and 24 international destinations. Its fleet of 50 modern aircraft have carried more than 9mn passengers. In 2006, it was officially accepted as a full member of the International Air Transport Association. The Vietnamese carrier provides passenger air services to 25 destinations in 15 countries including many in South East Asia, Australia, Russia, France, Germany and the US. The company has a number of codeshare operations with foreign companies, in particular the February 2004 agreement with Air France to share 11 nonstop scheduled flights between Ho Chi Minh City and Paris. Vietnam Airlines’ cargo operations serve 20 destinations in Asia, the Middle East, Australia and Europe, with partner networks serving other destinations. The cargo division operates a JV with Singapore Airport Terminal Service – Tan Son Nhat Cargo Services – that has an annual cargo throughput of 100,000 tonnes. Financial The national flag carrier Vietnam Airlines expected to see a total revenue of VND32trn Performance (US$1.78bn) this year, up 30% against last year in the context of the global economic recovery, Asia Pulse news agency said. To realise the turnover, the carrier estimated that it would have to transport more than 11mn passengers in 2010. This years positive targets are based on its good performance last year which was in marked contrast to many airlines globally facing bankruptcy, losses and laying-off of staff. The carrier notched up VND24.5trn (US$1.36bn) in turnover last year with the company netting a profit of VND150bn (US$8.3mn). The results mainly stemmed from its focus on the domestic market. It opened a series of new routes last year, including Ha Noi-Can Tho, Ha Noi-Quy Nhon, HCM City-Dong Hoi, Ha Noi-Tuy Hoa, and Ha Noi-Pleiku. With such efforts, Vietnam Airlines transported about 9.3mn passengers last year, a 6.6% increase from last © Business Monitor International Ltd Page 48 Vietnam Freight Transport Report Q2 2010 year, with Vietnamese clients accounting for up to nearly 6.2mn, a y-o-y increase of 17.6%. It also handled around 131,220 tonnes of cargo, up 2.3% from last year. Of the total, 87,000 tonnes of cargo was transported on domestic routes, a rise of nearly 13%. The carrier also reported a seat occupancy rate of roughly 74% for both local and international flights. To raise net profits, Vietnam Airlines implemented a wide range of solutions to cut fees, thus saving more than VND400bn (US$22.2mn) last year, by economising fuel and rescheduling flights, it said. The airline took full advantage of the global economic crisis to negotiate with partners to buy and lease more new planes to improve its fleets and remodel infrastructure to capitalise on opportunities that have opened with the recovery of the local and international economy. Besides success in the domestic market, Vietnam Airlines saw certain achievements overseas. The airline also co-operated with the Cambodia Government to jointly operate National Cambodia Angkor Air from July 2009, as well opening the Ha Noi-Fukuoka route last October. It also took over from Japan Airlines the Ha Noi- Kansai route in January 2010 with five flights a week. Source: Asia Pulse (January 15 2010) Latest Activity On January 26 Vietnam Airlines opened its first European representative office in Paris to expand its reach on the continent and prepare for joining SkyTeam, the worlds second largest airline alliance, Asia Pulse news agency said. The office will take charge of managing, supervising and assisting branches, representative offices, agencies and agents in dealing with business issues in all of Europe, with the exception of Russia. Chief of the Representative Office Le Dung said that over the last year, revenues from flights to and from the European region accounted for nearly 20% of the airline’s total turnover. Duong Tri Thanh, Vietnam Airlines deputy general director, said the system of flight routes to Europe played a critical role in the company’s operations. Europe is a market with great potential, alongside Japan and the Republic of Korea, especially as the airline was set to join SkyTeam this June, he added. The company plans to add one additional weekly flight to its services to France and Germany. Present at the event were the Vietnamese ambassador to France, Le Kinh Tai, and chairman of Vietnam Airlines Nguyen Si Hung. Source: Asia Pulse (January 28 2010) Prior Activity At the end of October, according to Vietnam News Briefs (VNB) the national flag carrier Vietnam Airlines launched a direct air route from Hanoi to the Central Highlands province of Gia Lai’s Pleiku city. This was the airline’s 31st air route and 3rd route from Pleiku after flights to Ho Chi Minh City and Danang. The carrier was using Fokker aircraft to operate four weekly flights on the route every Tuesday, Thursday, Friday and Sunday, Tuoi Tre newspaper reported. The flight departs from Noi Bai airport at 7:00am and arrives at Pleiku airport at 8:30am. It leaves Pleiku at 9:15am and comes back Hanoi at 10:40am. During the first nine months of 2009, the carrier transported 90,208 tonnes of cargo, fulfilling 75.8% of its full-year target. In 2009, Vietnam Airlines expects to serve 9mn passengers, up 4% from a year previously. Source: Vietnam News Briefs (October 29 2009) © Business Monitor International Ltd Page 49 Vietnam Freight Transport Report Q2 2010 Water Vietnam’s fleet statistics indicate that by the end of 2002, the country had 819 vessels with a total capacity of 2.123mn DWT and ranked the 60th out of 150 countries around the world (but fourth in ASEAN after Singapore, Malaysia and Thailand). The average vessel size is 2,650DWT. Currently there are more than 400 ships with a capacity below 1,000DWT that operate on domestic routes. Vietnam’s fleet structure lacks specialised container vessels, bulk cargo ships, large oil and liquefied petroleum gas (LPG) tankers. Multi-function ships and bulk cargo ships account for 87% in number and 63% in tonnage, and container ships account for only 2.2% in number and 9% in tonnage. The largest local operator is the Vietnam National Shipping Lines (Vinalines). On the logistics side, another state-owned company, Vinatrans, established in 1975, provides air and sea freight services along with warehousing. In addition, there are several foreign companies operating in the sector such as the Singaporean firm Andhika. Established in Vietnam in 1996, it has a turnover of around US$8mn with 70 employees. Infrastructure Vietnam’s dense river and canal network provides the country with a highly developed inland waterway system. This is the second-largest sub-sector involved in domestic cargo transport, accounting for 25-30% of total transport volumes. This is particularly true of the Mekong River Delta, and in some provinces accounts for 60-70% of total transport. Currently, the inland waterway transport sub-sector is managed by two state corporations affiliated to the Ministry of Transport, one SOE affiliated to the Vietnam Inland Waterway Authority, and some enterprises managed by other ministries, operating in support of the power generation, cement and paper industries. In addition, there are about 230 co-operatives and hundreds of inland waterway transport enterprises in the country. By early 2002, the sub-sector had around 2.4mn tonnes of cargo carriage capacity and the volume of cargo transported was 42mn tonnes. In addition to the traditional routes that serve the key industries such as coal for power generation, fertiliser and cement, inland waterway transport also handles a large volume of other building materials and agricultural products. Vietnam’s seaport network comprises many small- and medium-sized entities, with inefficient distribution. Most big ports are located far inside rivers, like Hai Phong and Ho Chi Minh City, with limited depth at the entrance. Some ports are located in big cities, thus making it difficult to connect with other modes of transport for cargo transfer from and to ports, due to traffic congestion. Except for several © Business Monitor International Ltd Page 50 Vietnam Freight Transport Report Q2 2010 new ports or upgraded ports, most ports have been operating for many years, lack investment and are seriously degraded. The loading and unloading equipment in some ports is obsolete, leading to low productivity. The average productivity of a Vietnamese port is only 2,500 tonnes/m per wharf, or 40-50% of productivity of other ports in the region. Specialisation and modernisation are also limited, due to a lack of specialised equipment for container handling. As a result, dwell times at ports are lengthy. Consequently, a large proportion of Vietnam’s exported and imported goods transit through Hong Kong or Singapore. Maritime Competitive Landscape Q409 At the beginning of November, state media reported that work had begun on a US$3.6bn international container port in Khanh Hoa province in the centre of the country. The Van Phong port would be completed by 2020 with 42 wharves and the capacity to move 200mn tonnes of cargo a year. Container shipping line APL said in October it was launching a new Japan-Thailand-Vietnam (JTV) service to strength its regional short sea network and to better service local manufacturing and consumption markets. Starting from October 30, the service would link Japan, South China, Hong Kong, Thailand and Vietnam. The US$360mn Saigon Premier Container Terminal (SPCT) was officially opened in October with the Asta Rickmers, operated by French shipping company CMA CGM, the first container vessel to use the facility. SPCT, with the capacity to handles 1.5mn TEUS per annum, is a JV between the Vietnamese state-owned Tan Thuan Industrial Promotion Co, and Dubai Ports World (DPW). Taiwan’s Formosa Plastics Group is rapidly emerging as one of the largest, if not the largest, foreign investors in Vietnam. The group has disclosed that it will live up to its commitment to the government to build a deep-sea port in Son Duong, next to the Vung Ang Economic Zone, where it is investing US$19.2bn in petrochemical, steel and oil refinery projects. Q309 In late August, the vice-chair of the southern Vietnamese province of Ba Ria-Vung approved a plan for the construction of a major road artery that will link the ports and industrial zones in the area. Ports in the region include those of the Cai Mep district, one of the maritime hubs of Vietnam. This is a welcome development for Vietnam’s infrastructure, where investments have been funneling into ports, but surrounding infrastructure poses constraints to trade. © Business Monitor International Ltd Page 51 Vietnam Freight Transport Report Q2 2010 According to Thanh Nien Daily in the second half of July, state-owned Vietnam National Shipping Lines (Vinalines) is to build the first two wharves of the deep-water port at Van Phong Bay in the central province of Khanh Hoa. The company will begin building in October 2009 as a part of a project to develop the international transhipment port, primarily to serve Asian trade. Dubai-based port operator Dubai Ports World (DP World) was to launch the Saigon Premier Container Terminal (SPCT) on October 1 2009. The terminal is a joint venture between DP World and Tan Thuan Industrial Promotion Company (IPC) and is on the Soai Rap River near Ho Chi Minh City, Vietnam. SPCT will provide services to Ho Chi Minh City and the surrounding industrial zone area. Building for the second phase of the Cai Cui seaport project in Vietnam’s Can Tho city began after an inaugural ceremony by Prime Minister Nguyen Tan Dung on July 11 2009. The prime minister said that once fully operational, the port would cut transportation costs in the Mekong delta and would help reduce congestion at the Saigon port. The CKYH Alliance said it would begin a direct service between Vietnam and the US East Coast from mid-August 2009. The alliance will start by adding Ho Chi Minh City to its current AWE-4 (All Waters East Coast-4) service, managed by Kawasaki Kisen Kaisha (K-Line). Q209 South Korea’s Hanjin Shipping Company announced in June the launch of a new service, the SJX (Southeast and Japan Express), from June 21 2009. The new service would connect South East Asia and Japan with the US west coast, and included a direct call at the new deepwater port in Ho Chi Minh City, Vietnam. Vietnam commenced operations of its first deep-water port, SP-PSA Port, on May 29 2009, with the arrival of the container ship APL Alexandrite. The port is a JV between Saigon Port and PSA Singapore, with a capacity of 2.2mn TEU. The ship, with a 3,821TEU capacity, is a part of the first direct service between Vietnam and the US. Ho Chi Minh City-based Trai Thien Sea Transport Investment and Development acquired a licence to build a deepwater international trans-shipment port in Con Dao island, situated in Ba Ria Vung Tau province. According to the Saigon Times Daily, citing Bloomberg, Deputy Director Duong Van Hoa said that Vinacomin would build a US$250mn deepwater port at Khe Ga Cape, in Binh Thuan province. Khe Ga Seaport will be utilised to import coal, and export aluminium and minerals. © Business Monitor International Ltd Page 52 Vietnam Freight Transport Report Q2 2010 According to Saigon Times Daily, as cited by Hellenic Shipping News, Dubai Ports World (DP World)’s Saigon Premier Container Terminal is likely to be ready for operations in September 2009. The terminal is being built in two phases at a cost of US$305mn. It will have a capacity of 800,000 TEU annually, which will increase to 1.5mn TEUs after the completion of second phase. Q109 According to PortStrategy, the government of Vietnam in early March invited proposals from foreign investors for the development of a new trans-shipment port in Van Phong Bay. The biggest investor in the project is Vietnam National Shipping Lines, but further funding is required. A new maritime container route between Cai Lan in Quang Ninh province, northern Vietnam, China and Hong Kong was launched at the end of 2008. The route will help to foster trade between the northern border economic zones of Vietnam and its regional partners. Test runs for ships along the route began in November 2008, when the Mediterranean Shipping Company (MSC) vessel the 1,090TEU Wellington was the first to arrive in Cai Lan. In late December 2008, VietnamNet reported that the relocation of Ho Chi Minh City ports – Ba Son Shipyard, Saigon New Port, Saigon Port, Tan Thuan Dong Port and VegePort – from the inner city to the suburbs was likely to miss targets. The relocations were to be finished by 2010; however, the project has been delayed because of a shortage of funds. According to Thai News Service as cited by Cargo News Asia, Vietnam Ocean Shipping (VOSCO) has started the transportation of cargo containers via a new route that runs from Doan Xa Port in Hai Phong to Tan Thuan Port in Ho Chi Minh City. Three of the world’s top container liners have signed a contract with the Saigon Newport Company to establish a joint terminal operation company to build and run a dedicated box facility in Ba Ria-Vung Tau, in Cai Mep. Mitsui OSK Lines (MOL), Hanjin and Wan Hai will join some of the world’s top operators, including Hutchison Port Holdings (HPH), PSA and DP World, in the development of Vietnam’s port sector. According to FDI Vietnam, in January the Ministry of Transport was urged by the Vietnamese deputy prime minister, Hoang Trung Hai, to devise a plan to seek foreign investment for the construction of the Van Phong International Entreport. He also instructed the project developer – Vinalines – to select contractors for the project. Q408 In December 2008, Vinamarine announced proposals to build a 9km canal to connect Can Tho City in the Mekong Delta with the sea. The plans were to be submitted to the Vietnamese government in the near future and Vinamarine believes that the canal could be completed by 2010. The canal would provide a new route connecting Can Tho on the Hau River to the sea via the existing Quan Chanh Bo canal. © Business Monitor International Ltd Page 53 Vietnam Freight Transport Report Q2 2010 Q308 Cam Pha port in Quang Ninh in the north of Vietnam resumed coal export operations in mid-August after a shutdown caused by an accident. Cam Pha is the country’s main coal export terminal. Three of its four coal loaders collapsed on August 6, according to officials. The port was said to have resumed operations the following week at around 70% of capacity, with officials at Vinacomin, the state coal-mining group, saying it might take a month to get it back to normal operating levels. Q208 In June, US aluminium producer Alcoa signed an agreement with state-owned Vinacomin to set up a joint venture to develop a 600,000 tonnes a year alumina refinery and consider further development of the Gia Nghia bauxite mine. Kenneth Wisnoski, president of Alcoa’s Global Primary Products division, said rail and port infrastructure to ship the alumina to export markets would have to be built. In June, Vietnamese shipping companies were reported to be asking local exporters to pay freight charges in US dollars, to be protected from currency fluctuations. In June, news agencies reported that the Chinese city of Qinzhou in Guangxi Zhuang Autonomous Region had won permission from the central government in Beijing to set up a free port zone close to the border with Vietnam. Dry bulker demand to ship Vietnam’s coal exports is expected to fall y-o-y as the country’s growing energy needs force more coal to be diverted to the domestic market. According to government sources, coal exports in 2008 will total around 25mn tonnes, worth US$850mn, a fall on the 2007 totals of 32.6mn tonnes and US$1bn. Vietnam Tanker Co (Vitaco) said in April that it had agreed to buy an oil tanker for US$50.6mn from South Korea’s SLS Shipping. The ship, Petrolimex 11, had a capacity of 40,019 tonnes. The Vietnamese joint venture CMIT has signed a contract for the construction of a new container terminal in Ho Chi Minh City. This is the latest project to be finalised to overhaul Vietnam’s maritime sector. Port infrastructure investments have seen a rapid rise since the Vietnamese government began efforts to attract FDI to boost economic development, and several large scale projects involving international majors are in the pipeline. Q108 In January, the authorities said they would invest VND28trn (US$1.75bn) in the construction of a new seaport in Hai Phong City, Xinhua news agency reported. The state-owned Vinalines would build the 1,200ha Hai Phong International Gateway Port, which would have a capacity to handle 100mn tonnes of goods every year. © Business Monitor International Ltd Page 54 Vietnam Freight Transport Report Q2 2010 Q407 In December 2007, newspaper Vietnam Economic Times said that the country needed US$4-5bn to build and upgrade seaports in the period running up to 2015. Q307 Vietnamese freight forwarder Gemadept Corporation announced at the end of August 2007 that it would start building a US$410mn deepwater container port in 2008 to handle growing demand for cargo trans-shipments. Under government plans, Cai Mep container port was one of five set to be built in the southern province of Ba Ria-Vung Tau by 2010. In August, Swiss bank Credit Suisse signed a memorandum with Vinalines, the leading shipping company in Vietnam, to provide loans worth US$700mn, various news agencies reported. As part of the financial service memorandum, Credit Suisse will provide Vinalines with ratings advisory, fund raising and risk management services. The Swiss bank will also help in the development of a financing programme of up to US$1bn for Vinalines, which will be the first offshore loan for the Vietnamese firm. Russia has re-opened its Far East port in Vladivostok to rice imports, a move that would help cut shipping costs for Vietnamese exporters delivering to European buyers, trade officials said on July 6. Q207 Two ships collided in southern Vietnam and one sank, leaving one person dead and seven missing, state media reported on May 15. The vessel Gas Shanghai, registered in Marshall Islands, slammed into the Vietnamese Hoang Dat 36 near the mouth of the Saigon River, the online version of the Thanh Nien newspaper said. Vietnam’s state-run oil and gas monopoly PetroVietnam and the country’s largest shipping firm Vinalines had teamed up, establishing a joint stock company to develop a new port complex at an estimated cost of US$637mn in southern Vietnam, Thanh Nien Online reported at the end of May. Vinalines and China’s CMG group signed a deal to invest US$1bn in building and operating a container port, state media said on April 4. Construction would start later in 2007 and the port in the southern province of Ba Ria-Vung Tau, 90km south east of Ho Chi Minh City, would be able to handle 100,000DWT vessels, the official Vietnam News Agency said. Vietnam’s Vinashin Shipping Industry Corp was looking to raise VND3trn (US$186.9mn) by selling 10-year bonds, a source close to the deal was quoted as saying on March 19. © Business Monitor International Ltd Page 55 Vietnam Freight Transport Report Q2 2010 Hanjin Shipping, South Korea’s largest shipping line by sales, said on March 5 it would form a joint venture with a Vietnamese company to start a container terminal business in Vietnam. Hanjin Shipping and Saigon New Port Co, the operator of Cat Lai terminal in southern Vietnam, signed a memorandum of understanding in Seoul to engage in the terminal and logistics business in the South East Asian nation, Hanjin Shipping said in a statement. Vietnam should invest in new deepwater ports if it wants to achieve its economic potential, according to NOL, the London-based Financial Times newspaper reported on its website on February 26. Vinalines may team up with Japan’s Sumitomo and Belgium’s Port of Zeebrugge to secure funds for developing two huge port complexes in the country, the group’s leader said at the end of April. Vinalines Chairperson Duong Chi Dung said the prime minister had told the group to mobilise funds for developing Van Phong Port in the central coast province of Khanh Hoa and Lach Huyen Port in northern Haiphong City. Q107 State-owned Vinalines was preparing to sign deals to borrow up to US$550mn to raise funds to boost its shipping fleet, a company official said on February 22. State-owned Vinashin Business Group signed two contracts valued at US$2.4bn together to build ships and oil tankers for Vietnamese companies, a company official said on February 15. Unlisted Vinashin, the country’s largest shipbuilder, signed a contract to build three 105,000 tonne oil tankers for PetroVietnam, said Vinashin Executive Le Thanh Quang. The ports unit of Hong Kong conglomerate Hutchison Whampoa said in February that it had signed a joint venture agreement to build and operate a new container terminal in the Vietnamese province of Ba Ria Vung Tau – its first in the South East Asian nation. Hutchison Port Holdings (HPH), the world’s largest container-terminal operator in terms of throughput, said it would develop the port through a company it will jointly own with Ho Chi Minh-based property and construction firm Saigon Investment Construction & Commerce. Singapore container shipping firm NOL said on January 23 that it would upgrade its container terminal in Ho Chi Minh City to accommodate growth in containerised cargo in Vietnam. NOL, which is controlled by Singapore state investment holding Temasek, said in a statement that it would increase the berth length at the terminal by 192m, allowing the terminal to berth up to four container ships at a time. In February, two leading groups in the maritime sector, Vinalines and Vinashin, said they had clinched a memorandum of understanding to develop the national flag ship fleet until 2015 at a total cost of © Business Monitor International Ltd Page 56 Vietnam Freight Transport Report Q2 2010 US$2.3bn. Under the deal signed in Hanoi, Vinalines placed orders for 19 vessels from 2007 to 2010, and 45 others five years after that, with a total capacity of 2.8mn DWT. Maersk Line is predicting 200% growth for its container business in Vietnam in a five-year period and sees the potential for direct calls in the future. ‘Clearly there is a lot of interest in Vietnam and a real strong demand for all kinds of business there’, said Maersk South East Asia Chief Executive Morten Engelstoft in comments published at the beginning of March. © Business Monitor International Ltd Page 57 Vietnam Freight Transport Report Q2 2010 Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) Strengths ƒ At this stage in its economic development, Vietnam will require rapidly increasing import volumes of oil, gas and certain petrochemicals, as well as also extra export capacity. VIPCO is well positioned in a high-growth segment of the shipping market. Weaknesses ƒ The global economic downturn of 2009-2010, accompanied by lower oil prices and sharply lower shipping freight rates, poses a serious challenge to profitability. Opportunities ƒ Tanker rates have been less hard hit by the downturn than dry bulk, meaning that Vipco may be well advised to focus on improving market share within its existing segment, rather than diversifying. Threats ƒ Vipco has a privileged position as a subsidiary of the state oil company. Any change to this role for regulatory reasons could therefore be a threat, implying potential loss of secure contracts. Company Overview Vietnam Petroleum Transport Joint Stock Company (VIPCO) specialises in marine transportation. It mainly offers marine transportation services, freight forwarding, shipping brokerage, customs clearance and port operation. Other activities include merchandise of petroleum, liquefied gas and petrochemicals; trading supplies and equipment, manning and warehousing; and minor industrial construction. The company has five subsidiaries and one affiliate, and is itself a subsidiary of Vietnam National Petroleum Corporation. Financial Performance Vietnam Petroleum Transport JSC, or Vipco announced on December 4 that it had cut its pre-tax profit target for 2009 to VND55bn (US$2.97mn) from VND88.5bn set previously, Vietnam News Briefs said. The company did not give reasons for the decision. In the first 10 months of 2009, Vipco earned a pre-tax profit of VND101.84bn, 15% higher than its full-year target. The company agreed to speed up construction of its petrochemicalcontainer facility to ensure that it would be operational by March 2010. Source: Vietnam News Briefs (January 13 2010) Latest Activity Vietnam Petroleum Transport Joint Stock Company, or Vipco, would complete an export dock at its petrochemical container port complex project in the northern city of Haiphong on April 30, Vietnam News Briefs reported. The dock will be able to receive 1,000-DWT ships, the Thoi bao Kinh te online newspaper said. Vipco will also speed up building of a petroleum import dock, which will be capable of receiving 40,000-DWT ships, in the first quarter of 2010 as part of the project. The company has carried out site clearance for a container port in the city. Earlier, Vipco said it would invest VND2.8trn (US$151.52mn) in the 40-hectare complex. Source: Vietnam News Briefs (January 20 2010) © Business Monitor International Ltd Page 58 Vietnam Freight Transport Report Q2 2010 Prior Activity Vipco will invest VND2.8trn (US$157.3mn) in building a petrochemical and container port complex in the northern port city of Haiphong, local media reported, according to Vietnam News Briefs (VNB). The 40-hectare complex will consist of a petrochemical port 3 with loading capacity of 150,000m and a container port with loading capacity of 150,000 TEU. Vipco was seeking a foreign partner to build and develop the complex. Currently, an international seaport group and a leading industrial group in Japan are interested in the complex. The complex is undergoing site clearance. VIPCO expects to put it into service in 2011. Source: Vietnam News Briefs (October 6 2009) Table: Vietnam Petroleum Transport’s Key Financial Data, 2007-Q109 2007 2008 Q109 Net profit margin, % 6.16 5.90 12.75 Operating margin, % 6.30 6.03 12.75 19.48 18.51 na Return on average assets, % 4.88 4.91 7.43 Return on average equity, % 9.19 9.55 13.50 na na 486 EBITD margin, % No. of employees na = not available. Source: Company data, Google Finance © Business Monitor International Ltd Page 59 Vietnam Freight Transport Report Q2 2010 Company Profile: Doan Xa Port Strengths ƒ Given Vietnam’s strong growth record in recent years, and the country’s sharply increasing foreign trade, the port sector is expected to remain broadly profitable. Weaknesses ƒ Global trade can fluctuate and, as in the 2009-2010 recession, fall in absolute terms, exposing Doan Xa to cyclical downturns. Opportunities ƒ Haiphong’s strategic location means Doan Xa can benefit from growing trade with China (it is close to Hong Kong, Macau, Kunming and Guangzhou). It also can act as an eastern port for Myanamar and Laos. Threats ƒ The port handles frozen foodstuffs and so is at risk of a loss of business during health scares such as the H1N1 ‘swine flu’ scare of April/May 2009. Company Overview Doan Xa Port Joint Stock Company is a Vietnam-based port operation company in Hai Phong. It mainly manages operations at Doan Xa Port, and provides port services, including loading/discharging cargo, warehousing, inland transportation and shipping agency. The company also offers minor supporting services, such as customs declaration, wholesales of handling machinery, and construction and maintenance of marine infrastructure. The company is affiliate of Vietnam National Shipping Lines (Vinalines). Financial Performance Doan Xa Port (DXP) said its net profit in the first nine months of 2009 jumped 101% from a year earlier to VND41.57bn (US$2.327mn), Vietnam News Briefs said. Revenues rose 59.08% to VND113.38bn during the period, the company said on its website. In the third quarter, DXP made a net profit of VND16.43bn on revenues of VND41.65bn, down 3.4% and 5.4% from the second quarter respectively. The ninemonth EPS was VND7,975, up 65% from a year ago. Source: Vietnam News Briefs (October 22 2009) Latest Activity In June Doan Xa Port moved its stock exchange listing from the Ho Chi Minh City Stock Exchange (HoSE) to the Hanoi Securities Trading Centres (HaSTC) because it was unable to meeting the new minimum capital requirement for the southern bourse. It was one of 21 companies that decided to move their listings to the HaSTC. The move came because under a government decree, companies listed on the HoSE with a charter capital of less than VND80bn were required to either increase their capital or move to the Hanoi Bourse. Source: Vietnam News Briefs (June 2009) Prior Activity Thousands of frozen food containers imported for re-export were stuck at several ports in the northern city of Hai Phong, with unconfirmed reports saying importers were balking at accepting shipments based on swine flu fears, Thanh Nien reported © Business Monitor International Ltd Page 60 Vietnam Freight Transport Report Q2 2010 in early May. The containers, stocking frozen chicken legs, pig stomachs and beef were lying at the Dinh Vu Port in Hai Phong City. Air conditioners had to be run round the clock to prevent the food from spoiling. ‘We can’t receive any more cargo as we are already stocked with five times our storage capacity. The cost of power for storing the frozen food containers has gone sky-high,’ said Nguyen Ngoc Hong, director of the port. Hong added he was very worried that owners of those containers might abandon the goods if the cost exceeds the shipment’s value. Chua Ve Port, one of the city’s largest ports, shared Dinh Vu’s plight, with nearly 1,000 frozen food containers stuck at the port. ‘Customers keep asking to delay exporting while others seek permission to import,’ said Vu Nam Thang, director of the port’s cargo handling agency. Frozen food imported for the domestic market was also stuck at the city’s ports. ‘We have just received two frozen food containers imported for domestic markets, which had struggled to find a port to unload’, said Vu Tuan Duong, director of the Doan Xa Port. ‘But both have to be moved out of the port within two days as we are already overloaded’. Duong showed Thanh Nien text messages local food importers sent to his cell phone, asking to postpone their shipments’ delivery dates. Source: Thanh Nien (May 2009) Table: Doan Xa Port’s Financial Performance, 2007 And 2008 2007 2008 Q408 Net profit margin, % 30.79 30.79 35.14 Operating margin, % 33.67 33.67 37.67 EBITD margin, % 48.46 48.47 na Return on average assets, % 26.68 26.68 31.45 Return on average equity, % 41.00 41.00 46.31 na na 291 No. of employees na = not available. Source: Company data, Google Finance © Business Monitor International Ltd Page 61 Vietnam Freight Transport Report Q2 2010 Pipelines Competitive Landscape Q209 Vietnam oil and gas group PetroVietnam was preparing the construction of the US$1bn block B-O Mon gas pipeline in southern Can Tho City for Q409. The 406km gas pipeline comprises a 246km offshore pipeline and a 160km onshore pipeline. The pipeline will link more than five Mekong Delta localities, including Can Tho City, Hau Giang, Kien Giang, Bac Lieu and Ca Mau provinces Q207 Vietnam had started operation of its second gas pipeline, which would supply 2bn m3 of natural gas a year from an offshore field, a PetroVietnam official said on May 3. Vietnam is stirring up trouble by agreeing with BP and its partners to build a gas pipeline in the South China Sea, the Chinese foreign ministry said on April 10 of an area disputed by Hanoi and Beijing. The Spratly Islands, a string of rocky outcrops in the South China Sea suspected of containing large oil and gas deposits, are also claimed by Taiwan, Brunei, Malaysia and the Philippines. The US$2bn pipeline will bring gas from two new fields to Vietnam’s south coast, though details are still being worked out. © Business Monitor International Ltd Page 62 Vietnam Freight Transport Report Q2 2010 Country Snapshot: Vietnam Demographic Data Section 1: Population Population By Age, 2005 (mn) Population By Age , 2005 And 2030 (m n, total) 70-74 70-74 60-64 6 0-64 50-54 50-54 40-44 4 0-44 30-34 3 0-34 20-24 2 0-24 10-14 10-14 0-4 0-4 -6.0 -4.0 -2.0 0.0 Male 2.0 4.0 6.0 -10.0 -5.0 Female 0.0 2030 5.0 10.0 2005 Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 34.1 29.9 30.4 31.2 Dependent population, total, ‘000 28,318 26,225 30,950 34,499 Active population, % of total 65.8 70.0 69.5 68.7 Active population, total, ‘000 54,650 61,263 70,706 75,927 Youth population*, % of total 28.8 25.0 23.4 20.3 Youth population*, total, ‘000 23,972 21,887 23,807 22,508 Pensionable population, % of total 5.2 4.9 7.0 10.8 Pensionable population, total, ‘000 4,346 4,338 7,143 11,991 f = forecast; *Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 63 Vietnam Freight Transport Report Q2 2010 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 26.7 29.4 34.7 41.8 Rural population, % of total 73.3 70.6 65.3 58.2 Urban population, total, ‘000 22,509 26,395 35,230 46,123 Rural population, total, ‘000 61,729 63,323 66,426 64,306 Total population, ‘000 84,238 89,718 101,656 110,429 f = forecast. Source: UN Population Division Section 2: Education And Healthcare Table: Education, 2002-2005 2002-2003 2004-2005 Gross enrolment, primary 98 93 Gross enrolment, secondary 73 75 Gross enrolment, tertiary 10 16 Adult literacy, male, % na 93.9 Adult literacy, female, % na 86.9 Gross enrolment is the number of pupils enrolled in a given level of education regardless of age, expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010f 2020f 2030f Life expectancy at birth, males (years) 68.4 69.9 74.2 75.8 Life expectancy at birth, females (years) 72.4 73.9 78.4 80.0 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 64 Vietnam Freight Transport Report Q2 2010 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 2007 2008e 2009e 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 © Business Monitor International Ltd Page 65 Vietnam Freight Transport Report Q2 2010 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Transport Industry There are a number of principal criteria that drive our forecasts for each transport variable: GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMI’s own macroeconomic and demographic forecasts. © Business Monitor International Ltd Page 66 Vietnam Freight Transport Report Q2 2010 Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services do not employ transport. The volumes are forecast based on the following criteria: ƒ Trends manifested through historical data; ƒ The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a ‘second opinion’ on trade volumes. However, this check needs to be used with caution, as trade values and volumes do not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: ƒ Trends in historical modal split data; ƒ Evidence of government policy favouring one or more modes over others; ƒ Government and or private-sector investment plans in specific modes. Sources Sources used in Freight Transport reports include local transport ministries, officially-released company results and figures, established thinktanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 67 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... in this report Source: IMF © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q2 2010 Market Overview Multi-Modal In June 2004, Vietnam concluded the eighth round of negotiations in its bid to join the WTO, and in January 2007 joined the organisation Competitive Landscape Q20 9 According to reports in early June, foreign investors have once again raised concerns about Vietnam s... project © Business Monitor International Ltd Page 15 Vietnam Freight Transport Report Q2 2010 Air Vietnam Airlines (VNA) registered a 2.3% year-on-year (y-o-y) increase in cargo throughput to 131,220 tonnes in 2009 The airline reported a 13% y-o-y increase in domestic air freight traffic to 87,000 tonnes VNA expects a turnover of VND32trn (US$1.78bn) in 2010, with a profit US$8.3mn - 30% higher than 2009’s... GDP growth, % GDP index, 1995=100 Transport sector GDP index, 1995=100 5-year average annual export growth, % T&C sector value, US$bn nominal Transport employment, ‘000 Trade Total imports + exports, US$bn e/f = estimate/forecast; T&C = transport and communications Source: BMI © Business Monitor International Ltd Page 26 Vietnam Freight Transport Report Q2 2010 Table: Freight Carried, Domestic, 2006-2014... monetary policy, coming in at 7.0% by December 2010 A failure to tighten fiscal and monetary policy would pose upside risks to our forecast that inflation will average 9.0% in 2010 © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q2 2010 Long-Term Risk We believe Vietnam will need to tighten fiscal and monetary policy sharply in 2010 in order to bring the balance of payments.. .Vietnam Freight Transport Report Q2 2010 Transport Intensity Index This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2005 through to 2014 As such, it is a mix of actual performance (the five-year 2005-2009 period) and projected performance (2010- 2014) In Vietnam s case, actual average... 69.5% y-o-y For 2010 as a whole we forecast US$97.92/bbl, up from US$70.66/bbl in 2009 © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q2 2010 In 2009 naphtha was a surprisingly robust performer among the major refined products, gaining 92% between January and November In Q409 naphtha averaged US$73.44, up from US$66.21/bbl in Q3 and US$54.70 in Q2 We put the 2010 average... which we estimate to have increased 5.3% For the 20102 014 forecast period, we expect the transport and communications sector to continue outpacing the © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q2 2010 economy as a whole in value terms It will achieve average annual growth of 6.9%, versus 5.9% for overall GDP The value of transport and communications GDP will rise to... 13 Vietnam Freight Transport Report Q2 2010 Industry Trends And Developments Road In January Vietnam was seeking loans from the World Bank (WB) and the Japan International Cooperation Agency (JICA) to finance the construction of an expressway costing US$2.5bn, reported The Saigon Times Daily The 130km-long expressway, will connect Danang City to Quang Ngai Province Work will done by the state-owned Vietnam. .. financing agreement between Vietnam and the Czech Republic In March 2008, Vietindebank, one of Vietnam s major state-owned banks and the Czech Export Bank have entered into an agreement to jointly provide funding for projects in Vietnam, including large infrastructure projects The funding for all the planned © Business Monitor International Ltd Page 14 Vietnam Freight Transport Report Q2 2010 projects will... At the same time, Ho Chi Minh announced plans for a US$2bn injection into transport projects in the same year in order to stimulate the construction industry and in turn boost economic growth © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q2 2010 Q408 According to a Reuters report in December 2008, Vietnam Infrastructure Development and Finance Investment had awarded a