Vietnam freight transport report q3 2009

... of any information hereto contained Vietnam Freight Transport Report Q3 2009 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q3 2009 CONTENTS Executive Summary ... leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page Vietnam Freight Transport Report Q3 2009 Business Environment Ratings The freight transport. .. International Ltd Page 23 Vietnam Freight Transport Report Q3 2009 Transport Outlook Table: Transport And Communications Data And Forecasts, 2005-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f

Published by BUSINESS MONITOR INTERNATIONAL LTD Vietnam Freight Transport Report Q3 2009 ISSN: 1750-5364 Including 5-year industry forecasts Business Monitor International Mermaid House, 2 Puddle Dock London EC4V 3DS UK Tel: +44 (0)20 7248 0468 Fax: +44 (0)20 7248 0467 email: subs@businessmonitor.com web: http://www.businessmonitor.com © 2009 Business Monitor International. All rights reserved. All information, analysis, forecasts and data provided by Business Monitor International Ltd is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Business Monitor International, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Business Monitor International Ltd. All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable at the time of publishing. Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content. Vietnam Freight Transport Report Q3 2009 Including 5-year industry forecasts by BMI Part of BMI’s Industry Survey & Forecasts Series Published by: Business Monitor International Publication date: June 2009 Business Monitor International Mermaid House, 2 Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2009 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Vietnam Freight Transport Report Q3 2009 © Business Monitor International Ltd Page 2 Vietnam Freight Transport Report Q3 2009 CONTENTS Executive Summary .........................................................................................................................................5 SWOT Analysis.................................................................................................................................................6 Vietnam Road Haulage SWOT............................................................................................................................................................................... 6 Vietnam Political SWOT ........................................................................................................................................................................................ 6 Vietnam Economics SWOT .................................................................................................................................................................................... 7 Vietnam Business Environment SWOT................................................................................................................................................................... 7 Business Environment Ratings ......................................................................................................................8 Table: Asia Pacific Freight Business Environment Ratings................................................................................................................................... 8 Freight Industry Ranking....................................................................................................................................................................................... 9 Vietnam Logistics Performance Index (LPI).......................................................................................................................................................... 9 Economics – Long-Term Risk .............................................................................................................................................................................. 10 Politics – Long-Term Risk ................................................................................................................................................................................... 10 Freight Transport Growth ................................................................................................................................................................................... 10 Transport Infrastructure Growth ......................................................................................................................................................................... 10 Regulatory Environment ...................................................................................................................................................................................... 11 Competitive Environment..................................................................................................................................................................................... 11 Transport Intensity Index..................................................................................................................................................................................... 11 Political Risk Summary........................................................................................................................................................................................ 11 Economic Risk Summary...................................................................................................................................................................................... 12 Business Environment Risk Summary .................................................................................................................................................................. 12 Legal Code/Corruption........................................................................................................................................................................................ 12 Red Tape.............................................................................................................................................................................................................. 13 Labour Force....................................................................................................................................................................................................... 13 Industry Trends And Developments ............................................................................................................14 Road .................................................................................................................................................................................................................... 14 Rail ...................................................................................................................................................................................................................... 15 Air........................................................................................................................................................................................................................ 15 Sea ....................................................................................................................................................................................................................... 16 Pipelines .............................................................................................................................................................................................................. 17 Industry Forecast Scenario ...........................................................................................................................18 Quarterly Oil Products Price Outlook ................................................................................................................................................................. 18 Table: Oil Product Price Assumptions, Q408-Q409 (US$/bbl)............................................................................................................................ 20 Table: Oil Product Price Forecasts, 2006-2013 (US$/bbl).................................................................................................................................. 21 Macroeconomic Outlook...................................................................................................................................................................................... 21 Table: Vietnam – Economic Activity, 2006-2013................................................................................................................................................. 23 Transport Outlook ............................................................................................................................................................................................... 24 Table: Transport And Communications Data And Forecasts, 2005-2013 ........................................................................................................... 24 Table: Freight Carried, Domestic, 2005-2013..................................................................................................................................................... 26 Trade Environment.........................................................................................................................................27 Trade Agreements................................................................................................................................................................................................ 27 Tariffs/Non-Tariff Barriers .................................................................................................................................................................................. 27 Table: Value Of Imports By Category, 2005-2013 (US$mn)................................................................................................................................ 28 Table: Value Of Exports By Category, 2005-2013 (US$mn)................................................................................................................................ 29 © Business Monitor International Ltd Page 3 Vietnam Freight Transport Report Q3 2009 Table: Top Export Destinations, 2001-2006 (US$mn)......................................................................................................................................... 30 Table: Export Trade, 2002-2006 (% growth y-o-y).............................................................................................................................................. 31 Table: Import Trade, 2002-2005 (% growth y-o-y).............................................................................................................................................. 31 Table: Top Import Sources, 2001-2006 (US$mn) ................................................................................................................................................ 32 Market Overview.............................................................................................................................................33 Multi-Modal.............................................................................................................................................................................................................. 33 Competitive Landscape: Multi-Modal.................................................................................................................................................................. 33 Road.......................................................................................................................................................................................................................... 35 Infrastructure....................................................................................................................................................................................................... 35 Competitive Landscape: Road ............................................................................................................................................................................. 35 Rail ........................................................................................................................................................................................................................... 37 Infrastructure....................................................................................................................................................................................................... 37 Competitive Landscape: Rail ............................................................................................................................................................................... 37 Air........................................................................................................................................................................................................................ 38 Infrastructure....................................................................................................................................................................................................... 39 Competitive Landscape: Aviation ........................................................................................................................................................................ 39 Vietnam Airlines .................................................................................................................................................................................................. 41 Water ........................................................................................................................................................................................................................ 44 Infrastructure....................................................................................................................................................................................................... 44 Competitive Landscape: Maritime....................................................................................................................................................................... 45 Vietnam Petroleum Transport Jsc (VIPCO)......................................................................................................................................................... 48 Table: Vietnam Petroleum Transport Jsc (VIPCO) Financial Performance........................................................................................................ 49 Doan Xa Port....................................................................................................................................................................................................... 50 Table: Doan Xa Port Financial Performance...................................................................................................................................................... 51 Competitive Landscape: Pipelines ............................................................................................................................................................................ 52 Country Snapshot: Vietnam Demographic Data .........................................................................................53 Section 1: Population........................................................................................................................................................................................... 53 ................................................................................................................................................................................................................................. 53 Table: Demographic Indicators, 2005-2030........................................................................................................................................................ 53 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 54 Section 2: Education And Healthcare.................................................................................................................................................................. 54 Table: Education, 2002-2005 .............................................................................................................................................................................. 54 Table: Vital Statistics, 2005-2030........................................................................................................................................................................ 54 Section 3: Labour Market And Spending Power .................................................................................................................................................. 55 Table: Employment Indicators, 1999-2004.......................................................................................................................................................... 55 Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................ 55 BMI Forecast Modelling .................................................................................................................................56 How We Generate Our Industry Forecasts .......................................................................................................................................................... 56 Transport Industry ............................................................................................................................................................................................... 56 Sources ..................................................................................................................................................................................................................... 57 © Business Monitor International Ltd Page 4 Vietnam Freight Transport Report Q3 2009 Executive Summary According to the Saigon Times Daily, Deputy Director Duong Van Hoa said that Vietnam National CoalMineral Industries Group (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. The port will be able to handle ships up to 80,000 deadweight tonnes (DWT). The Ministry of Transport’s Vinamarine International Co-operation Department has stressed that the investments necessary in Vietnam’s port sector are considerable if the sector is to keep up with the wider economy. The key for Vietnam is to sustain investor interest in the sector. Thus far, there has been little evidence that investors have lost interest in Vietnam’s infrastructure sector. Taking this and other developments such as the downturn in the global economy into consideration, BMI’s newly released Vietnam Freight Transport Report concludes that shipping traffic will increase by an annual average of 6.7% in 2009-2013, measured in tonnes per km. A number of factors underpin this forecast. One is the still-realistic prospect of a long, export-led boom in Vietnam, with annual GDP growth likely to average 6.1% in 2009-2013, only a little slower than the 7.8% rate achieved in the preceding five-year period. Infrastructure plans are also ambitious, with many new ports under development. Our overall outlook for the nascent freight transport industry across the different modes is bullish despite the recession. Although the next two years will be tough, air freight will grow by an annual average of 7.6% over the next five years. In road haulage, we have trimmed our forecast to take account of the economic slowdown, but we still see turnover running ahead of the general rate of economic expansion in Vietnam. We see road freight growing by an annual average of 7.5% over the next five years, followed closely by pipeline throughput (7.0%), maritime freight (6.7%, as already mentioned) and rail (6.6%). Full World Trade Organization (WTO) membership, achieved in early 2007, can be seen as supportive of greater freight transport turnover relative to GDP across all modes, particularly so for shipping. We now expect total freight carried growth across all modes, measured in million tonne-km (mntkm), to average 6.8% per annum in 2009-2013. Under BMI’s freight transport rating system, Vietnam achieves a composite score of 54.3 out of a potential maximum of 100. Vietnam’s stronger points are freight growth, transport infrastructure growth and the transport intensity index, which measures the dynamism of the country’s foreign trade. BMI views Vietnam as being weaker in the other four categories: economic and political long-term risks, and the country’s regulatory and competitive environment (corruption is a particular problem). According to our latest estimates, the total value of transport and communications GDP will rise to US$6.6bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP. © Business Monitor International Ltd Page 5 Vietnam Freight Transport Report Q3 2009 SWOT Analysis Vietnam Road Haulage SWOT Strengths ƒ Vietnam’s strong domestic growth rate coupled with its geography; a long country stretching for thousands of kilometres on a north-south axis creates a need for longdistance freight haulage Weaknesses ƒ The generally poor state of the road network. Despite new highway construction, only 13.5% of the road network is considered to be in good condition, only 26% has two or more lanes and only 29% is tarred. Construction of the second north-south highway may be a waste of resources given the pressing need for improvement of secondary roads Opportunities ƒ The beginnings of local commercial vehicle production, which will help improve the stock of lorries used by road haulage companies Threats ƒ The attractiveness of other modes of freight transport, particularly inland waterways and coastal shipping. If progress towards a better-integrated national road network is too slow, freight growth will divert away from the trucking industry Vietnam Political SWOT Strengths ƒ The Communist Party government appears committed to the market-oriented reforms necessary to double 2000’s GDP per capita by 2010, as targeted. The one-party system is generally conducive to short-term political stability ƒ Relations with the US are generally improving and Washington sees Hanoi as a potential geopolitical ally in South East Asia Weaknesses ƒ Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership’s tight control over political dissent Opportunities ƒ The government recognises the threat that corruption poses to its legitimacy and has acted to clamp down on graft among party officials ƒ Vietnam has allowed legislators to become more vocal in criticising government policies. This is opening up opportunities for more checks and balances within the oneparty system Threats ƒ Vietnamese dissidents are seeking external help, especially from the US. This could complicate Vietnam-US relations, with Washington having criticised Hanoi over its restrictions on religious freedom ƒ Although strong domestic control will ensure little change to Vietnam’s political scene in the next few years, over the longer term, the one-party state will probably be unsustainable © Business Monitor International Ltd Page 6 Vietnam Freight Transport Report Q3 2009 Vietnam Economics SWOT Strengths ƒ Vietnam has been one of the fastest-growing economies in Asia in recent years, averaging growth of 8.0% a year ƒ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004 Weaknesses ƒ Vietnam suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable to external shocks. The fiscal picture is clouded by considerable ‘off-the-books’ spending ƒ The heavily managed and weak dong currency reduces incentives to improve the quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures Opportunities ƒ WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition ƒ The government will continue to move forward with market reforms, including privatisation of the state-owned enterprises sector and liberalising the banking sector ƒ Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s Threats ƒ Inflation and deficit concerns have caused some investors to re-assess their hitherto upbeat view of Vietnam. If the government fails to curb inflation, it risks prolonging macroeconomic instability, which could lead to a potential crisis ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilise the economy Vietnam Business Environment SWOT Strengths ƒ Vietnam has a large, skilled and low-cost workforce, that has made the country attractive to foreign investors ƒ Vietnam’s location – its proximity to China and South East Asia, and its good sea links – makes it a good base for foreign companies to export to the rest of Asia and beyond Weaknesses ƒ Vietnam’s infrastructure is still weak. Roads, railways and ports are inadequate to cope with the country’s economic growth and links with the outside world ƒ Vietnam remains one of the world’s most corrupt countries. Its score in Transparency International’s 2008 Corruption Perceptions Index was 2.7, lower than the regional average of 4.6 Opportunities ƒ Vietnam is attracting investment from key Asian economies, such as Japan, South Korea and Taiwan. This offers possibility of transfer of high-tech skills and know-how ƒ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector. This should offer foreign investors new entry points Threats ƒ Ongoing trade disputes with the US and the general threat of American protectionism, which will remain a concern ƒ Labour unrest remains a lingering threat. A failure by the authorities to boost skill levels could leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page 7 Vietnam Freight Transport Report Q3 2009 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 ranking Hong Kong 72.5 81.0 76.7 70.0 74.7 72.8 75.6 1 Japan 55.0 54.4 54.7 75.0 75.0 63.5 68.1 2 Australia 42.5 81.0 61.7 75.0 74.4 74.6 65.6 3 China 90.0 38.3 64.1 60.0 66.5 63.9 64.1 4 Singapore 60.0 74.3 67.1 80.0 39.4 55.6 63.7 5 India 67.5 61.0 64.2 60.0 55.8 57.5 62.2 6 Indonesia 50.0 71.3 60.7 50.0 65.4 59.2 60.2 7 South Korea 55.0 46.4 50.7 60.0 72.3 67.4 55.7 8 Vietnam 45.0 64.3 54.6 55.0 52.5 53.5 54.3 9 Thailand 40.0 54.9 47.5 55.0 58.1 56.8 50.3 10 Taiwan 47.5 35.6 41.6 65.0 74.2 70.5 50.2 11 Philippines 42.5 41.1 41.8 50.0 72.6 63.6 48.3 12 Malaysia 50.0 31.6 40.8 60.0 68.8 65.3 48.1 13 Pakistan 50.0 47.6 48.8 55.0 35.0 43.0 47.1 14 Scores out of 100, with 100 highest. Source: BMI © Business Monitor International Ltd Page 8 Vietnam Freight Transport Report Q3 2009 Strong freight transport growth rates are combined with a very encouraging infrastructure investment picture across most of the region. By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to smaller/higher value loads continues. Rail freight will benefit from long-distance economies of scale, whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route. Shipping is being lifted by the surge in trans-Pacific commodity and 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 Ranking Our overall freight transport rating for Vietnam stands at 54.3 (out of a theoretical maximum score of 100). This is composed of a score of 54.6 for potential returns (reflecting factors such as market size, growth and the competitive environment), which gets a 70% weighting, and a lower score of 53.5 for risks to those returns (reflecting factors such as market orientation, regulatory environment and other country-risk issues), which gets a 30% weighting. Vietnam Logistics Performance Index (LPI) In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as ‘the first in-depth cross-country assessment of the logistics gap among countries.’ The LPI was calculated on a five-point scale and based on survey responses from over 800 logistics professionals. Countries were given an aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the quality of customs, infrastructure and international shipments; logistics competence; tracking and tracing; domestic logistics costs; and timeliness. In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9. For comparison with the major OECD economies, the Netherlands was ranked 2nd in the world with an LPI of 4.2; followed by Germany (3rd with an LPI of 4.1), the UK (9th, LPI of 4.0) and the US (14th, LPI of 3.8). In comparison 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. © Business Monitor International Ltd Page 9 Vietnam Freight Transport Report Q3 2009 Economics – Long-Term Risk We foresee both economic and political risks rising in 2009 as global demand for Vietnam’s manufactured exports falls and factories lay off workers. The global recession will shake the foundations of the Vietnamese growth story, as it has been reliant on strong demand for manufactured products from G3 markets. With demand from developed markets slumping, Vietnam will be heavily reliant on remittances and FDI inflows to stimulate domestic demand and keep GDP growth in positive territory. We are expecting growth of 2.9% in 2009, rising to 5.0% in 2010 as an improving world economy and a weaker dong bolster exports. With Prime Minister Nguyen Tan Dung’s economic reform agenda intact, although currently on the back burner, we expect GDP growth to return to around 8% from 2011 onwards. Vietnam is in line to take a hard hit in 2009 as exports to G3 economies contract sharply. We have revised down our GDP growth forecast for 2009 from 5.0% to 2.9% as the construction and manufacturing sectors contract. With domestic demand far from sufficient to fill the gap and Hanoi lacking the wherewithal to implement any sizeable fiscal stimulus, we believe the government will opt for the easy way out by devaluing the dong to increase the price competitiveness of Vietnamese exporters. We are currently expecting an 8.0% devaluation of the currency in 2009 to VND19,000/US$ by year-end, which should help growth recover to 5.0% in 2010. Politics – Long-Term Risk While public discontent with the government is likely to rise as the economy slows rapidly, we see no major risk of mass protests or political turmoil. This is because the ‘Doi Moi’ economic reform agenda championed by the Communist Party of Vietnam since 1986 has brought considerable material gains for the wide majority of the population and diminished the support for pro-democracy activists. However, the government will not take any risks, and has imposed tighter curbs on journalists and stepped up its surveillance of online media. On the foreign policy front, we expect a continued rapprochement with the US under the new Obama administration, while intensified competition between Chinese and Vietnamese manufacturers may cause some tension with Beijing. Freight Transport Growth Vietnam’s freight transport traffic, measured in mntkm, rose by an annual average of 10.7% in 2004-2008 and, according to our projections, will decelerate to an annual average of 6.8% in 2009-2013. Transport Infrastructure Growth According to official information, there is a wide range of transport sector investment projects in the pipeline, across road, rail, air and sea. Work is under way to develop the Mekong basin area, and new © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q3 2009 seaports are planned. While there is no doubt that Vietnam’s transport infrastructure is expanding, our rating for this category is constrained by poor planning and limited project management experience. Regulatory Environment Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that the reform process started nearly two decades ago. The country 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. Competitive Environment Freight transport competition remains limited, with SOEs dominating key transport modes. There are few foreign entrants, although we expect more to arrive during the forecast period. To be able to operate in the country, significant negotiations and procedures are required. Although the government favours attracting more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive markets. Transport Intensity Index This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2004 through to 2013. As such, it is a mix of actual performance (the five-year 2004-2008 period) and projected performance (2009-2013). In Vietnam’s case, actual average annual trade growth in 2004-2008 was a very strong 31.3%, which in our projections will ease substantially to 10.1% per annum in 2009-2013. The annual average across the 10 years as a whole is 20.9%. Political Risk Summary State Moves To Restrict Blogging Sector Five months after a group of internet companies including Google, Microsoft and Yahoo agreed to uphold privacy and freedom of expression in repressive markets, they are being challenged by VietnameseAmerican activists for their failure to do so. As the number of Vietnamese internet users nears a quarter of the population (according to estimates by the International Telecommunications Union), the activists claim that the Vietnamese state is stepping up efforts to curb the expansion the blogging sector. Such claims are also supported by a cohort of twelve members of US congress, who wrote a letter to the CEOs of the companies in question demanding that they respect privacy rights. The dispute underscores the Vietnamese state’s strict control over the media, whose activities it fears can be unnecessarily destabilising. © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q3 2009 Economic Risk Summary PM Pressures Central Bank To Lower Rates In a report released on April 1, Prime Minister Nguyen Tan Dung requested that the State Bank of Vietnam (SBV) reconsider its key lending rates to bring them into line with inflation expectations (his own) of around 6%. Although inflation has come down to around 11.25% year-on-year (y-o-y) in March since peaking at over 28% in August 2008, we have repeatedly warned of lingering price pressures, and the inherent risks of the rapid monetary easing effected by the SBV in H208 could see inflation entrenched in the double digits, thereby creating even greater pressure for a devaluation of the dong. Business Environment Risk Summary The sharp deterioration in economic conditions both domestically and globally has prompted the Vietnamese government to shift its attention from economic reforms to devising measures to support growth in the short term in the face of slumping global demand. Only 73 out of a planned 262 SOEs were equitised in 2008 (i.e. transformed into shareholder-owned companies) and initial public offerings of SOEs like Bao Viet have been unsuccessful, largely due to the high pricing of shares. While continued delays in the equitisation process are expected, we are not predicting any shift in the government’s economic reform agenda, which will continue to support economic activity. Efforts Under Way To Improve Capital Markets According to an announcement made on March 31, the International Finance Corporation (IFC) signed a memorandum of understanding with the Hanoi Securities Trading Center (HASTC) to work jointly on improving dissemination of information and market transparency. Their efforts will be focused on the domestic bond market as well as UPCOM, a newly organised equity market for unlisted public companies. A statement by Nguyen Phuong Quynh Trang, an official from the IFC, emphasised that one of the main objectives of the project was to grant Vietnamese companies greater access to domestic sources of capital. Legal Code/Corruption Legal Code Vietnam’s judicial system is based on communist legal theory and the French civil law system. Corruption Vietnam has a bad record on transparency. The state was ranked 121st (out of 180) in Transparency International’s Corruption Perceptions Index in 2008, with a score of 2.7. © Business Monitor International Ltd Page 12 Vietnam Freight Transport Report Q3 2009 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 9 and 61 in East Asia and Pacific and 6 and 25 in high-income OECD states. Labour Force Size Reliable data on the labour force in Vietnam are difficult to find. However, it is estimated that the working age population in the country is 42.1mn, approximately 61% of the total. An estimated 10.2mn live in urban areas, with the remaining 31.9mn in rural areas. ‘Technically skilled workers’ form an estimated force of 8.84mn, accounting for 20.99% of the total. The south-east region has the highest rate of skilled workers (30.13%), followed by the Red River delta (27.99%) and Coastal South Central (20.85%). The lowest rate was reported in the north-west region. Education The adult male illiteracy rate was estimated at 4% for males and 9% for females in 2000, with the youth illiteracy rate 3% for both genders. Regulation The Vietnam labour force is comparatively heavily regulated, according to World Bank’s Employment Laws Index. Its score of 56 indicates that regulations are tighter than the East Asia and Pacific average, and a bit tighter than OECD high-income states. Disaggregating the data, the regulations for hiring workers are looser than those for firing workers, with scores of 43 and 48, respectively, the combination of which suggests a more regulated workforce than regional peers. Issues Fears of growing unemployment and rising social unrest in the cities is slowing down 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 Q3 2009 Industry Trends And Developments According to a report by Bloomberg news agency in March, the Asian Development Bank (ADB)’s country director for Vietnam, Ayumi Konishi, had 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 construction and infrastructure industry had a difficult year in 2008. The first half of the year saw record high raw material prices that hindered the timely development of projects, causing construction cost overruns and delays. According to BMI’s forecasts, the value of the construction – and by extension infrastructure – industry in Vietnam will keep rising quite strongly in the medium term, registering real growth of 12.3% between 2009 and 2013. This year will be as difficult for Vietnam as it will be for other countries, but in Vietnam’s case we view this as a mere slowdown (indeed, many countries would envy Vietnam’s 5% forecast industry value growth for 2009), as the county has significant projects in the pipeline for building and upgrading infrastructure that we believe will sustain the industry. Road 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. The projects are anticipated to commence in Q409. Vietnam’s road network is particularly underdeveloped and causes serious city congestion, as well as adding to road accident figures. It is vital for the country to improve its transport infrastructure in order to realise its growth potential. Vietnam’s Ministry of Transport and Communications disclosed estimates that it will require close to US$60bn up to 2020 to fund road infrastructure 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. Infrastructure investments have seen a rapid rise since the Vietnamese government began efforts to attract FDI to boost economic development. Vietnam is one of Asia’s fastest-growing emerging markets – largely due to the government’s policies of economic liberalisation - and therefore has attracted the attention of several international companies. The country’s poor infrastructure has always been a hindrance for investors, and the government is making efforts to overhaul its roads, railways, airports and ports to address the challenges. Vietnam is looking to build 5,900km of highways over the next decade. The World Bank estimates that it will cost US$9mn to build 1km of highway in Vietnam; the total funding required for the project is estimated at around US$53bn. © Business Monitor International Ltd Page 14 Vietnam Freight Transport Report Q3 2009 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. The project requires a total investment of US$932mn. The Japan International Co-operation Agency and the Vietnam Expressway will offer the remaining investment required for the project. By improving transport infrastructure, BMI believes that Vietnam can unlock its growth potential and become a key player in South East Asia. 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. The Nhat Tan Bridge project is expected to be the longest multi-span cable-stayed bridge in Vietnam. Once completed, Nhat Tan Bridge will help improve the flow of traffic in the capital city and northern provinces. It will also help to serve economic development in the city’s industrial zones of Bac Thang Long-Thanh Tri, Dong Anh-Co Loa and Gia Lam-Sai Dong-Yen Vien. Vietnam is trying to invest in construction of infrastructure to keep up with a growing economy. Rail 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. The railway corporation declared that it would begin construction work on five of its vital projects, valued at VND11.6trn (US$0.67bn), in 2009. The corporation plans to invest in the Hanoi-Lao Cai railway, the signal information system of Hanoi-Vinh railway Phase 2, Vinh-Nha Trang railway line, and Thong Nhat railway including 44 bridges. BMI View: In general, Vietnam’s transport infrastructure is set to receive investments in 2009. The country is shifting its economic track in 2009, moving away from fighting inflation to attempting to stimulate growth. Investments into the construction industry, in an attempt to stimulate growth and provide employment, have been adopted as a method to deal with the global economic crisis in many emerging and developed countries across the world. Air 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. The plan proposes both the expansion of the current airports and construction of new airports. Under the plan, Noi Bai International Airport will be upgraded to handle larger aircraft and more passengers. The government has given approval for expansion of Cam Ranh and © Business Monitor International Ltd Page 15 Vietnam Freight Transport Report Q3 2009 Chu Lai in the central region. Furthermore, Tan Son Nhat International Airport in Ho Chi Minh City will be upgraded and expanded for more passengers, cargo and aircraft. Phu Quoc International Airport is under construction and is expected to open in 2012. Long Thanh International Airport, the country’s largest airport, will be built in Dong Nai Province. Can Tho International Airport is constructing a terminal and is expected to start operation in 2010. Sea 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. The total cost for the port project is estimated at US$300mn. The new Con Dao port will be extended to 300 hectares to expand its capacity to handle heavy tonnage ships. The total load capacity will be 10mn tonnes every year. 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. The port will be able to handle ships up to 80,000DWT. The Ministry of Transport’s Vinamarine International Co-operation Department has stressed that the investments necessary in Vietnam’s port sector are considerable if the sector is to keep up with the wider economy. The key for Vietnam is to sustain the investor interest in the sector. Thus far, there has been little evidence that investors have lost interest. 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 twenty-foot equivalent units (TEUs) annually, which will increase to 1.5mn TEUs after the completion of second phase. UAE-based DP World has become one of the world’s largest port operating companies. Focusing on the container business, the company currently owns 45 terminals and 13 new developments in 29 countries. Its capacity stands at 54mn TEUs and is expected to increase to around 90mn TEUs by 2017, when new terminals are ready. 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. The project was scheduled to start in 2008, but was delayed by alternative plans, now scrapped, to construct a steel plant and a power plant in the same area. Cargonews Asia reports that the new International Trans-shipment Port of Van Phong will have between 36 and 42 berths and the capacity to handle vessels of between 9,000 and 12,000 TEUs. The Ministry of Transport’s Vinamarine International Co-operation Department has © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q3 2009 stressed that the country’s port sector requires significant investment if it is to keep pace with wider economic development. Pipelines 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. The pipeline project is expected to be operational in July 2011. It will transmit about 18.3mn cubic metres (mcm) of gas per day or, equivalently, 20bn cubic metres (bcm) of gas per year. Vietnam’s gas consumption should move in line with rising gas supply. Pipelines are being built with surplus capacity to accommodate new discoveries and rising consumption later in the decade. Overall natural gas demand is forecast to rise from an estimated 10bcm in 2008 to 21bcm by 2013, with the proportion used in power generation set to reach around 40% by 2013, rising from 34% in 2008. We are forecasting gas use in power generation climbing from an estimated 3.4bcm in 2008 to 8.4bcm in 2013, with gas-fired power generation climbing from 24.9twh to 52.5twh. © Business Monitor International Ltd Page 17 Vietnam Freight Transport Report Q3 2009 Industry Forecast Scenario Quarterly Oil Products Price Outlook Preparing For The Big Squeeze Weaker demand for diesel in road transport use, gas oil for manufacturing and industrial applications, and falling jet fuel consumption have acted in concert to pull the rug from under the middle distillates market. Gasoline prices and margins had, earlier in the first quarter, made some progress. Since then, refiners have again struggled. There is no clear pattern yet emerging for the oil products sector but, based on OPEC’s efforts to limit crude supply, the downstream segment may be in for a tough time if crude prices rally but product demand remains weak. This is a recipe for ongoing margin weakness and refiners are preparing themselves for the big squeeze. The start-up of new refineries in Asia and the Middle East will only exacerbate the situation by providing an ill-timed boost to global capacity that will lead to reduced plant utilisation rates if demand remains weak. Lower fuel prices may stimulate demand in certain markets but the trend towards higher fuels taxation and the overhaul of subsidies in some developing countries mean that a near-term rebound is far from certain. In spite of some evidence that US drivers are migrating back to less fuel-efficient vehicles, the major shifts in patterns of consumption resulting from vehicle ownership changes are unlikely to be reversed simply because pump prices are temporarily lower. The move in Europe away from gasoline and towards diesel is expected to continue for a while longer, in spite of steep price differentials. However, advances in small petrol engine technology may mean these more economical units bring to an end the love affair with diesel. Over the longer term, expansion of the oil refining system is still needed, particularly as market growth is likely to accelerate as the world pulls clear of recession/depression. However, refining margins are likely to be under pressure for many months. Coupled with weaker upstream economics and modest profits in fuels retailing, the downturn in refining profitability means that both international and national oil companies may re-examine investment plans. The downstream oils market needs to see continued high spending in new crude distillation capacity, improved plant upgrading capability and better storage and distribution logistics. There will inevitably be reduced capital expenditure if industry earnings and cash flow remain under pressure. This can only result in the market tightening once again as demand picks up – with a return to extreme price volatility and generally higher fuel prices. Moving Markets The continued weakness of refined product prices has played into the hands of those countries wishing to revise or abandon regulated systems. Many are seizing the opportunity and making sweeping changes that should bring prices more closely in line with the wider market. This will have an appreciable impact on © Business Monitor International Ltd Page 18 Vietnam Freight Transport Report Q3 2009 demand patterns over the medium to longer term, but the likely effects are difficult to assess at such an early stage. India’s fuel pricing policies are a case in point, where political issues are entwined with overall energy strategy. In early February 2009, the government decided to deregulate the price of gasoline, gasoil, liquefied petroleum gas (LPG) and kerosene, reflecting lower international oil prices. A month later, it decided to defer the move, with the May elections providing the explanation. Based on prevailing international prices, the liberalisation of the domestic products market would arguably result in another fall in retail prices, which are already down some 20% since December 2008. There is a risk, however, that more recent crude price strength may signal higher fuels prices to come. This could boost pump prices at an unfortunate time for some politicians. The government coalition, led currently by the Congress Party, which has been re-elected, will continue with the liberalisation policy. In March 2009 China surprised the market with a 3-5% increase in gasoline and diesel prices, its first in three months. This effectively reversed a cut made in January and sent out a clear signal that Beijing wants to move pump prices in tandem with global markets. The National Development and Reform Commission (NDRC) announced a 4.6% increase for gasoline and 3.2% for diesel, which was a reflection of steady gasoline demand backed by strong car sales against reduced diesel use. Diesel in China now costs almost the same as it does in Singapore, and gasoline has closed the gap to just 20% below the Singaporean price, according to a report from Reuters. In mid-2008, Chinese diesel prices were half the level in Singapore. Revised Forecasts In Q109 BMI estimates that the global wholesale price for premium unleaded gasoline was US$50.63 per barrel (bbl). This compares with US$56.37 in Q408 and during the two quarters the price has ranged from a monthly low of US$40.38 in December 2008 to the February 2009 US$53.29/bbl. Gasoline prices in Q109 were down from US$102.15/bbl in Q108 (-50.4%). For Q209, we now forecast an average global gasoline price of US$55.78/bbl, a rise of 10.2% over the previous quarter, but a year-on-year (y-o-y) decline of more than 56% from the impressive US$127.92/bbl seen a year earlier. For the whole of 2009, the BMI assumption for gasoline is an average US$56.89/bbl, with the price peaking at a forecast monthly average of US$64.75 in December 2009. The overall y-o-y fall in 2009 gasoline prices is put at 44.1%. In Q109 gasoil averaged US$56.83/bbl, based on a composite global price. This represents a y-o-y fall of 51.0%, illustrating a slight relative weakening of diesel versus gasoline. For Q209 our revised forecast is for global gasoil at an average US$66.81, representing a quarter-on-quarter (q-o-q) increase of 17.6% – but a 56.4% y-o-y decline. For 2009 as a whole, the BMI forecast is for an average price of US$69.35/bbl, assuming a monthly high of US$94.48/bbl in December. The full-year outturn is a 42.8% fall from the 2008 level. © Business Monitor International Ltd Page 19 Vietnam Freight Transport Report Q3 2009 Jet prices averaged US$58.93/bbl in Q109, using the composite for New York, Singapore and Rotterdam. The annual decrease was 50.4%, with jet matching the decline in gasoline prices. The monthly low during the previous six months was US$60.34 in December 2008, with the price reaching US$61.83/bbl in January 2009. Volatility has been low in the jet market when compared with gasoline and diesel. In Q209, we are assuming an average global jet price of US$68.22, a q-o-q rise of 15.8% and a y-o-y fall of 56.4%. For 2009, the monthly average price is forecast to range from US$53.75 in February to US$96.76/bbl in December, proving an annual level of US$71.78/bbl. This compares with US$124.95/bbl in 2008. In 2008 naphtha was the weakest performer among the major refined products, gaining 31% to US$87.40/bbl during 2008. In Q109, naphtha averaged an estimated US$42.91, compared with US$93.70/bbl in Q108 and US$38.37 in Q408. The 2009 average naphtha price is put by BMI at US$46.40/bbl, down 47% from the 2008 level. Table: Oil Product Price Assumptions, Q408-Q409 (US$/bbl) Gasoline Q408 Q109e Q209f Q309f Q409f Rotterdam Premium Unleaded 54.96 48.95 54.93 58.90 60.08 NY Harbour Unleaded 57.84 49.12 55.79 61.32 62.93 Singapore Premium Unleaded 56.32 53.81 56.62 58.95 61.22 Global average 56.37 50.63 55.78 59.72 61.41 Rotterdam 79.66 58.81 69.28 72.77 88.70 NY Harbour 81.95 60.82 68.51 72.99 91.37 Singapore 74.73 57.16 66.86 70.06 83.98 Global average 78.78 58.93 68.22 71.94 88.02 Rotterdam 77.89 57.08 66.93 70.30 86.76 Mediterranean 78.40 57.98 66.14 68.99 87.35 Singapore 70.25 55.44 67.35 68.46 79.41 Global average 75.52 56.83 66.81 69.25 84.51 Jet/kerosene Gasoil e/f = estimate/forecast. Source: BMI Looking further ahead, we see gasoline prices recovering to US$63.45/bbl in 2010, rising further to US$71.11/bbl in 2011 and stabilising at around US$76.58/bbl from 2012. Gasoil is expected to rebound to US$77.35 in 2010, reaching a plateau of US$93.35/bbl from 2012. The price of jet is forecast to average US$80.06/bbl in 2010 and US$89.72 in 2011, before levelling out at US$96.62/bbl from 2012. © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q3 2009 Table: Oil Product Price Forecasts, 2006-2013 (US$/bbl) Gasoline 2006 2007 2008 2009f 2010f 2011f 2012f 2013f Rotterdam Premium Unleaded 74.25 75.75 100.12 55.72 62.14 69.64 75.00 75.00 NY Harbour Unleaded 76.64 78.75 102.54 57.29 63.90 71.61 77.12 77.12 Singapore Premium Unleaded 73.18 74.98 102.64 57.65 64.30 72.06 77.60 77.60 Global average 74.69 76.49 101.77 56.89 63.45 71.11 76.58 76.58 Rotterdam 81.29 81.13 126.61 72.39 80.74 90.49 97.45 97.45 NY Harbour 82.01 82.48 127.13 73.42 81.89 91.77 98.83 98.83 Singapore 80.56 79.17 121.11 69.52 77.54 86.89 93.58 93.58 Global average 81.29 80.93 124.95 71.78 80.06 89.72 96.62 96.62 Rotterdam 77.52 77.02 122.62 70.27 78.37 87.83 94.59 94.59 Mediterranean 77.30 77.69 121.75 70.11 78.20 87.64 94.38 94.38 Singapore 76.74 77.03 119.53 67.67 75.47 84.58 91.09 91.09 Global average 77.18 77.24 121.30 69.35 77.35 86.69 93.35 93.35 Jet/kerosene Gasoil f = forecast. Source: 2000-2006 historical data: EIA; 2007/2008 historical data: IEA: Forecasts: BMI Macroeconomic Outlook BMI’s 2009 Growth Forecast Cut To 2.9% We have, in view of the rapidly deteriorating external outlook in Q109, downgraded our 2009 GDP growth forecast for Vietnam from 5.0% to 2.9%. We are simultaneously bringing down our 2010 forecast from 7.0% to 5.0% on the back of our expectations of a more prolonged downturn in global demand. Vietnam looks set to take a hit this year as much of the developed world drops into recession, shaking the foundations of Hanoi’s export-focused growth model. GDP growth slowed to 6.2% in 2008, the slowest pace since the 4.8% growth rate recorded in 1999, after growing at a 7.8% and above during the preceding four years. While we are confident Vietnam’s macroeconomic fundamentals will help it reach growth levels of around 8% again, we are expecting below-trend growth in the next few years. Indeed, we have lowered our GDP growth forecast for 2009 from 5.0% to 2.9% and our growth projection for 2010 from 7.0% to 5.0% as the global economic downturn looks set to be more prolonged than expected. Growth in 2008 was largely held up by the resilience of the export sector in the face of a domestic economy plagued by spiralling inflation and fiscal and monetary tightening. However, as for many other © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q3 2009 Asian countries, H208 proved to be a quarter of reckoning for Vietnamese exporters, with exports falling from US$6.6bn in July to US$3.8bn in December. While the sharp decline was largely due to the collapsing oil price, which saw crude oil exports drop from US$1.24bn in July to US$0.42bn in December, the final months of 2008 also saw a marked decline in the exports of electronics, garments and textile products, which now form the mainstay of Vietnam’s manufacturing sector. This decline turned into a slump in January, with the exports of textiles decreasing by 33.2% y-o-y to US$550mn, footwear exports falling 26.0% to US$350mn and overseas shipments dropping 34.4% to US$120mn. We are expecting a further decrease in exports on the back of the adverse demand picture in key export markets such as the US, Japan and the EU, which we are currently forecasting to contract by 2.3%, 3.1% and 2.5%, respectively, in 2009. Moreover, the already dire demand outlook will in Vietnam’s case be exacerbated by the expiration of preferential import tariffs on Vietnamese footwear exports to the EU under the General System of Preferences (GSP), while tariffs on Chinese garment products exported to the US will be removed. Anecdotal evidence suggests export orders in the important textile sector have slumped by 20-40% going into Q109, with customers demanding 20-30% price cuts. With export orders slumping and domestic demand weak, garment manufacturers are now cutting their workforces or closing shop entirely. We are currently expecting exports to decrease by 19.5% in 2009 to US$50.9bn, with falling prices for key commodities such as oil and coffee and the gradual initiation of the Dung Quat oil refinery, which will reduce the volume of crude oil exported, adding to the contraction of manufactured exports. Growth in the manufacturing sector fell to 6.43% y-o-y in Q408, a near halving compared with the 11.85% y-o-y expansion recorded in Q308. We are expecting worse to come in 2009, as the slump in external demand and intensified competition from Chinese competitors will bring a cull of less efficient producers in 2009. This process is already under way, judging from the sharp drop in industrial production in January 2009. The industrial output measure fell by 8.6% month-on-month (m-o-m) in January, bringing the y-o-y measure to -4.4% after having posted double-digit figures since February 2005. We were previously expecting a sharp slowdown in real growth in the manufacturing sector from 10.1% in 2008 to 1.9% in 2009. However, in light of the appalling trade and IP data for January, we have now revised down manufacturing growth to -5.0%, with the construction sector also expected to post negative growth (-2.0%) in spite of the government pushing for increased spending on infrastructure projects. With the manufacturing sector constituting roughly a quarter of GDP and the construction sector around 8-9%, the negative figures will put heavy pressure on the remaining sectors of the economy to maintain positive overall growth. We are expecting the agricultural sector to post real growth of 3.0% in 2009 as lower fuel and fertiliser prices reduce production costs, and both internal and external demand for rice is boosted as consumers substitute more expensive options such as meat and vegetables for the food staple. © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q3 2009 We also expect the service sector to post healthy growth. We are expecting the trade sector to grow by 4.7% in 2009 after a 6.3% expansion in 2008. Similarly, we expect real growth in the transport and communications sector to slow from an estimated 14.0% in 2008 to 8.5% in 2009. The outperformer will be the financial sector, where the rollout of the branch networks of foreign entrants ANZ, HSBC and Standard Chartered – and government measures to stimulate lending – will push growth higher. The bleak economic outlook is affecting domestic consumption, with many households reportedly cutting spending during the Tet lunar new year holidays in January 2009. Hikes in electricity and gas prices announced in Q109 will impair purchasing power further, offsetting the gains of lower food and fuel prices. We are expecting private consumption to decrease by 4% in real terms in 2009 after an estimated 6.8% increase in 2008. The expected 8.0% increase in government consumption will pick up some of the slack, but this will be insufficient to spare Vietnam from its sharpest slowdown in growth since the 2.5% expansion recorded in 1987 at the dawn of the ‘Doi Moi’ economic reform era initiated in 1986. We see a risk economic reform will be put on the back burner in 2009, as the government focuses on stimulating domestic spending to cushion the effect of falling external demand. The government agreed to a VND17trn (US$1bn) stimulus package on January 15, focused on supporting small- and medium-sized companies through subsidised bank loans, corporate tax breaks and preferential trade tariffs in an effort to avoid a wave of bankruptcies in the sector. Having said that, the launch of the Vietinbank IPO in December 2008 is testament to a continued reform resolve within the Communist Party of Vietnam. Table: Vietnam – Economic Activity, 2006-2013 2006 2007 2008 2009f 2010f 2011f 2012f 2013f 974,266 1,144,015 1,478,695 1,711,601 1,899,604 2,136,870 2,394,841 2,689,382 61.00 70.94 90.88 90.08 94.98 112.47 133.05 149.41 8.2 8.5 6.3 2.9 5.0 8.3 7.9 8.0 723 829 1,047 1,024 1,065 1,244 1,452 1,609 84.4 85.6 86.8 88.0 89.2 90.4 91.6 92.8 Industrial production index, % y-o-y, 3 average 17.7 16.3 14.4 6.0 10.0 12.0 14.0 14.0 Unemployment, % of labour force, end of 3 period 4.8 4.5 5.0 5.5 4.5 4.0 4.0 4.0 Nominal GDP, 1 VNDbn Nominal GDP, US$bn 1 Real GDP growth, % 1 change y-o-y GDP per capita, US$ Population, mn 1 2 1 2 3 f = BMI forecast. Source: IMF, General Statistics Office; IMF; General Statistics Office © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q3 2009 Transport Outlook Table: Transport And Communications Data And Forecasts, 2005-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 8.4 8.2 8.2 8.2 8.7 8.5 8.5 8.2 8.0 GDP index, 1995=100 201.0 217.5 235.4 254.7 276.8 300.3 325.9 352.6 342.1 5-year average annual GDP growth, % 7.5 7.8 8.0 8.2 8.3 8.4 8.4 8.4 6.4 Annual transport and communications sector growth, % 9.7 9.5 9.5 9.5 8.7 8.5 8.5 8.2 9.2 205.3 224.9 246.2 269.6 293.1 318.0 345.0 373.3 383.5 5-year average annual transport GDP growth, % 8.5 9.0 9.5 9.5 9.4 9.1 8.9 8.7 7.6 Transport and communications sector, % of GDP 4.1 4.2 4.2 4.3 4.3 4.3 4.3 4.3 4.5 Annual import growth, % 15.6 20.1 34.7 22.0 14.0 20.0 15.0 15.0 10.0 Imports index, 1995=100 441.3 530.0 713.6 870.6 992.5 1,190.9 1,369.6 1,575.1 1,147.3 5-year average annual import growth, % 19.1 22.4 25.0 23.8 21.3 22.1 21.1 17.2 2.5 Annual exports growth, % 22.5 22.4 22.1 20.0 18.0 22.0 20.0 20.0 12.0 Exports index, 1995=100 623.8 763.7 932.7 1,119.2 1,320 .8 1,611.2 1,933.5 2,320.2 1,525.6 5-year average annual export growth, % 17.9 21.6 23.8 23.7 21.0 20.9 20.4 20.0 5.5 Transport and communications sector value, US$bn nominal 2.2 2.5 3.0 3.5 4.2 4.8 5.5 6.4 6.7 1,069 1,093 1,117 1,142 1,166 1,192 1,218 1,245 1,250 Annual GDP growth, % Transport sector GDP index, 1995=100 Total transport sector employment, ‘000 e/f = estimate/forecast. Source: BMI Since our last report we have broadly held our macroeconomic forecasts for Vietnam. GDP growth in 2008 is now estimated at 6.2% and we are holding the outlook for 2009 to a slowed-down 2.9%. Our forecast for 2009-2013 is for an annual average GDP growth rate of 6.1% per annum, a substantial weakening on the 7.8% average rate achieved in the preceding five-year period. We maintain some adjustments to mode-specific freight carried forecasts. In road haulage, we have trimmed our forecast to © Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q3 2009 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 also faces a difficult two years. On the other hand, WTO membership has been as supportive of greater freight transport turnover relative to GDP across all modes, but particularly so for shipping. On the downside, Vietnam is expected to export less coal by sea as its domestic power needs rise. The net result of this is that we expect freight carried growth across all modes, measured in mntkm, to average 6.8% a year in 2009-2013. According to our latest estimates, transport and communications GDP rose by 7.5% in 2008, 1.2 percentage points (pps) faster than overall GDP, which we estimate to have increased by 6.2%. For the 2009-2013 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole. It will achieve average annual growth of 7.3%, versus 6.1% for overall GDP. The total value of transport and communications GDP will rise to US$6.6bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP. By modes, we project that air freight will be the fastest growing, rising by 7.6% per annum, followed by road haulage (7.5%), pipelines (7.0%), shipping (6.7%) and rail (6.6%). © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q3 2009 Table: Freight Carried, Domestic, 2005-2013 2005 2006 2007 2008 2009f 2010f 2011f 2012f 2013f Road (bn tonnes-km) 17,668 20,537 22,457 23,989 24,615 26,092 28,375 31,215 34,421 % change y-o-y 18.3% 16.2% 9.3% 6.8% 2.6% 6.0% 8.7% 10.0% 10.3% % change, 5-year average 17.3% 17.5% 16.1% 14.4% 10.7% 8.2% 6.7% 6.8% 7.5% % share total 16.9% 17.4% 17.3% 17.3% 17.4% 17.5% 17.6% 17.8% 17.9% Rail (mn tonnes-km) 2,949 3,447 3,769 4,026 4,131 4,358 4,694 5,091 5,534 % change y-o-y 7.4% 16.9% 9.3% 6.8% 2.6% 5.5% 7.7% 8.5% 8.7% % change, 5-year average 8.7% 11.1% 9.7% 8.2% 8.6% 8.2% 6.4% 6.2% 6.6% % share total 2.9% 2.8% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% Inland waterways (mn tonnes-km) 3,752 4,081 4,463 4,767 4,905 5,175 5,574 6,046 6,571 % change y-o-y 8.8% 8.8% 9.3% 6.8% 2.9% 5.5% 7.7% 8.5% 8.7% % change, 5-year average 6.4% 7.5% 8.5% 8.4% 7.3% 6.7% 6.5% 6.3% 6.7% % share total 3.7% 3.6% 3.5% 3.4% 3.4% 3.5% 3.5% 3.5% 3.5% Maritime (mn tonnes-km) 79,871 89,297 98,405 105,116 107,555 112,933 121,629 131,931 144,959 % change y-o-y 10.0% 11.8% 10.2% 6.8% 2.3% 5.0% 7.7% 8.5% 9.9% % change, 5-year average 11.9% 11.5% 11.9% 10.2% 8.2% 7.2% 6.4% 6.1% 6.7% % share total 76.3% 75.8% 75.9% 75.9% 75.9% 75.7% 75.6% 75.4% 75.4% 239 269 304 324 332 347 379 419 466 1.5% 12.6% 12.8% 6.8% 2.3% 4.5% 9.1% 10.8% 11.1% 16.7% 11.4% 12.3% 9.1% 7.2% 7.8% 7.1% 6.7% 7.6% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 193 211 231 248 256 271 293 319 348 % change y-o-y 8.8% 9.0% 9.8% 7.1% 3.3% 5.8% 8.1% 8.9% 9.1% % change, 5-year average 7.7% 8.2% 8.7% 8.6% 7.6% 7.0% 6.8% 6.6% 7.0% % share total 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 104,674 117,842 129,629 138,471 141,795 149,176 160,942 175,021 192,298 % change y-o-y 11.2% 12.6% 10.0% 6.8% 2.4% 5.2% 7.9% 8.7% 9.9% % change, 5-year average 12.3% 12.3% 12.3% 10.7% 8.6% 7.4% 6.5% 6.2% 6.8% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Air (mn tonnes-km) % change y-o-y % change, 5-year average % share total Pipeline (mn tonnes-km) Total (mn tonnes-km) % share total e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 26 Vietnam Freight Transport Report Q3 2009 Trade Environment Although high tariffs, customs bureaucracy and legal inadequacies have provided significant trade barriers, the opening up of Vietnam’s economy has been accompanied by concrete measures to meet the requirements of the WTO and other international trade organisations. This means tariffs are falling in many sectors and the customs regime is being overhauled. Trade Agreements Vietnam 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/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 27 Vietnam Freight Transport Report Q3 2009 Table: Value Of Imports By Category, 2005-2013 (US$mn) Value of imports by category % change % share Food and live animals % share Beverages and tobacco % share Crude materials, excl. fuels % share Mineral fuels, lubricants and related materials % share Animal and vegetable oils, fats and wax % share Chemicals and related products % share Basic manufactures % share Machines, transport equipment % share Miscellaneous products % share Unclassified goods % share 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 34,890 42,600 58,920 81,000 55,000 61,050 67,770 74,540 82,000 15.0% 22.1% 38.3% 37.5% -32.1% 11.0% 11.0% 10.0% 10.0% 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 1,012 1,235 1,709 2,349 1,595 1,770 1,965 2,162 2,378 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 35 43 59 81 55 61 68 75 82 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 628 767 1,061 1,458 990 1,099 1,220 1,342 1,476 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 4,675 5,708 7,895 7,895 7,895 7,895 7,895 7,895 7,895 13.4% 13.4% 13.4% 13.4% 13.4% 13.4% 13.4% 13.4% 13.4% 105 128 177 177 177 177 177 177 177 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 4,640 5,666 7,836 7,836 7,836 7,836 7,836 7,836 7,836 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 7,641 9,329 12,903 12,903 12,903 12,903 12,903 12,903 12,903 21.9% 21.9% 21.9% 21.9% 21.9% 21.9% 21.9% 21.9% 21.9% 9,351 11,417 15,791 15,791 15,791 15,791 15,791 15,791 15,791 26.8% 26.8% 26.8% 26.8% 26.8% 26.8% 26.8% 26.8% 26.8% 2,268 2,769 3,830 3,830 3,830 3,830 3,830 3,830 3,830 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 4,571 5,581 7,719 10,611 7,205 7,998 8,878 9,765 10,742 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q3 2009 Table: Value Of Exports By Category, 2005-2013 (US$mn) Total value of exports % change % share Food and live animals % share Beverages and tobacco % share Crude materials, excl. fuels % share Mineral fuels, lubricants and related materials % share Animal and vegetable oils, fats and wax % share Chemicals and related products % share Basic manufactures % share Machines, transport equipment % share Miscellaneous products % share Unclassified goods % share 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 32,450 39,830 48,560 63,250 50,900 55,990 61,590 68,980 77,260 22.5% 22.7% 21.9% 30.3% -19.5% 10.0% 10.0% 12.0% 12.0% 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 7,723 9,480 11,557 11,557 11,557 11,557 11,557 11,557 11,557 23.8% 23.8% 23.8% 23.8% 23.8% 23.8% 23.8% 23.8% 23.8% 32 40 49 63 51 56 62 69 77 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 746 916 1,117 1,117 1,117 1,117 1,117 1,117 1,117 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 8,567 10,515 12,820 16,698 13,438 14,781 16,260 18,211 20,397 26.4% 26.4% 26.4% 26.4% 26.4% 26.4% 26.4% 26.4% 26.4% 130 159 194 253 204 224 246 276 309 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 227 279 340 443 356 392 431 483 541 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 1,785 2,191 2,671 3,479 2,800 3,079 3,387 3,794 4,249 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 1,590 1,952 2,379 3,099 2,494 2,744 3,018 3,380 3,786 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 8,794 10,794 13,160 17,141 13,794 15,173 16,691 18,694 20,937 27.1% 27.1% 27.1% 27.1% 27.1% 27.1% 27.1% 27.1% 27.1% 2,888 3,545 4,322 5,629 4,530 4,983 5,482 6,139 6,876 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 29 Vietnam Freight Transport Report Q3 2009 Table: Top Export Destinations, 2001-2006 (US$mn) 2001 2002 2003 2004 2005 2006 United States 1,066 2,350 4,463 5,206 6,551 8,423 Japan 2,510 2,299 2,808 3,507 4,122 4,871 Australia 1,042 1,172 1,476 1,798 2,593 3,728 China 1,417 1,013 1,323 2,322 2,318 2,260 722 1,007 1,181 1,522 1,563 1,790 15,014 15,713 20,516 25,779 30,957 39,514 Top 5, % of total 45.0 49.9 54.8 55.7 55.4 53.3 Industrial states 7,862 9,968 13,840 16,939 20,246 23,395 145 140 162 274 392 166 5,582 4,254 5,147 7,379 8,883 9,664 Central and Eastern Europe 413 395 443 505 575 904 Middle East 531 498 629 411 513 353 Latin America and Caribbean 117 64 94 86 134 122 52.4 63.4 67.5 65.7 65.4 64.3 1.0 0.9 0.8 1.1 1.3 0.4 37.2 27.1 25.1 28.6 28.7 24.5 Central and Eastern Europe 2.8 2.5 2.2 2.0 1.9 2.3 Middle East 3.5 3.2 3.1 1.6 1.7 0.9 Latin America and Caribbean 0.8 0.4 0.5 0.3 0.4 0.3 Germany Total exports Africa Asia Regions, % of total Industrial states Africa Asia NB Total exports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 30 Vietnam Freight Transport Report Q3 2009 Table: Export Trade, 2002-2006 (% growth y-o-y) 2002 2003 2004 2005 2006 120.5 89.9 16.6 25.8 28.6 Japan -8.4 22.1 24.9 17.5 18.2 Australia 12.5 25.9 21.8 44.2 43.8 -28.5 30.6 75.5 -0.2 -2.5 39.5 17.3 28.9 2.7 14.5 4.7 30.6 25.7 20.1 27.6 Industrial states 26.8 38.8 22.4 19.5 25.4 Africa -3.4 15.7 69.1 43.1 -57.7 -23.8 21.0 43.4 20.4 8.8 Central and Eastern Europe -4.4 12.2 14.0 13.9 57.2 Middle East -6.2 26.3 -34.7 24.8 -31.2 -45.3 46.9 -8.5 55.8 -9.0 United States China Germany Total exports Asia Latin America and Caribbean NB Total exports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF Table: Import Trade, 2002-2005 (% growth y-o-y) 2002 2003 2004 2005 China 47.3 47.8 30.3 36.1 Japan 7.6 22.8 21.3 12.8 Korea 30.6 14.3 27.1 5.4 United States 55.2 128.4 -12.1 2.4 Hong Kong 57.1 27.5 24.9 5.2 Total imports 23.2 28.6 29.4 14.3 Industrial states 14.4 37.6 16.2 1.4 Africa 20.9 13.5 145.8 26.2 Asia 26.2 25.6 34.5 19.2 Central and Eastern Europe 31.9 16.6 37.8 1.7 Middle East 20.5 82.0 27.7 34.2 Latin America and Caribbean 80.9 -5.5 52.2 25.5 NB Total imports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q3 2009 Table: Top Import Sources, 2001-2006 (US$mn) 2001 2002 2003 2004 2005 2006 China 1,606 2,365 3,496 4,557 6,203 8,215 Japan 2,183 2,349 2,885 3,500 3,949 4,554 Korea 1,887 2,464 2,817 3,581 3,775 4,450 United States 411 638 1,457 1,280 1,311 1,210 Hong Kong 538 845 1,077 1,345 1,415 1,661 16,216 19,976 25,686 33,241 37,980 47,954 Top 5, % of total 40.9 43.4 45.7 42.9 43.8 41.9 Industrial states 4,694 5,369 7,386 8,584 8,707 11,556 43 52 59 145 183 71 10,478 13,219 16,606 22,342 26,629 33,316 Central and Eastern Europe 576 760 886 1,221 1,242 835 Middle East 166 200 364 465 624 730 Latin America and Caribbean 131 237 224 341 428 548 28.9 26.9 28.8 25.8 22.9 24.1 0.3 0.3 0.2 0.4 0.5 0.1 64.6 66.2 64.7 67.2 70.1 69.5 Central and Eastern Europe 3.6 3.8 3.4 3.7 3.3 1.7 Middle East 1.0 1.0 1.4 1.4 1.6 1.5 Latin America and Caribbean 0.8 1.2 0.9 1.0 1.1 1.1 Total imports Africa Asia Regions, % of total Industrial states Africa Asia NB Total imports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q3 2009 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: Multi-Modal Q1 2009 Q4 2008 ƒ 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. ƒ Construction of an urban railway project in Hanoi was due to start in early 2009. At the same time, Ho Chi Minh City announced plans for a US$2bn injection into transport projects in the same year in order to stimulate the construction industry and in turn boost economic growth. ƒ 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 underdeveloped, 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. Q3 2008 ƒ Flash floods and landslides swept across parts of northern Vietnam in August, causing disruption to transport, destruction and loss of life. By August 18, ten days after the flooding began, the People’s Army newspaper reported that 130 people were dead. Q2 2008 ƒ The transport sector was indirectly involved in a controversy over press freedom and corruption in May. At issue was an outcry over the arrest of two reporters for their coverage of a corruption scandal that led to the resignation of the minister for transport in 2006. Nine people, including government officials, had been found guilty of betting millions of dollars on European football matches and trying to bribe people in a cover-up operation. Q4 2007 ƒ At the beginning of December 2007, local media reported that Vietnam’s southern Ho Chi Minh City, regarded as the country’s economic hub, required some US$22bn in new investments to develop its transport infrastructure and ease its growing traffic jams. Q3 2007 ƒ Government officials and foreign investors in Vietnam’s booming economy appear to have agreed that catch-up investment in transport infrastructure is emerging as a top priority. In early September 2007, Prime Minister Nguyen Tan Dung announced road, rail and energy projects for the country’s seven northern provinces bordering China. Power plants would be built, two railways would be built to Lao Cai and Lang Son, and major roads would also be built linking China’s southern regions of Yunnan and Guangxi to northern Vietnamese ports in Haiphong and Quang Ninh. More generally, with GDP growth averaging 8% per annum over the last decade and record foreign direct investment of US$10.2bn last year, pressure on transport systems has been growing across the country. A report by Neptune Orient Lines (NOL) and analysts Frost & Sullivan earlier this year noted that container volumes handled by Vietnamese ports had grown by 19% per annum over the last decade. Q2 2007 ƒ Vietnamese investment manager VinaCapital said at the beginning of May that it was looking to raise US$200mn to invest in infrastructure in Vietnam by listing a new fund on London’s Alternative Investment Market (AIM). It said the fund, Vietnam Infrastructure, would be the first of its type, investing ‘much-needed capital’ in Vietnam’s energy, transport, water and telecommunications infrastructure. © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q3 2009 Competitive Landscape: Multi-Modal ƒ Vietnam, the WTO’s newest member, had identified the businesses in which the state would retain full control or a majority share, Prime Minister Nguyen Tan Dung said in March. The state would hold full control in military firms, companies that operate energy projects, flight-control operations, national railways, the media and money printing. Q1 2007 ƒ Vietnam formally joined the WTO in January, completing a 30-year journey to integration with the economic mainstream. Membership, achieved against a background of very strong economic growth, stimulated debate among experts over the sustainability of the economic development model and its ability to build transport and general infrastructure. ƒ Prime Minister Nguyen Tan Dung approved plans to sell shares in 53 large SOEs, including Vietnam Airlines, between 2007 and 2010. © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q3 2009 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market share of around 60% of domestic cargo. At present there are over 1,050 enterprises registered in the road transport business, which include 16 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: Road Q1 2009 Q4 2008 ƒ 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. ƒ 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. ƒ According to Tran Quang Phuong, director of the Ho Chi Minh City Department of © Business Monitor International Ltd Page 35 Vietnam Freight Transport Report Q3 2009 Q3 2008 Q2 2008 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. ƒ Economic growth and rising living standards have been boosting the size of Vietnam’s vehicle fleet. According to the Vietnam Automobile Manufacturers Association, sixteen locally based car markers sold a combined 77,067 units in the first seven months of 2008, a 120% increase on the comparable year-earlier period. ƒ According to local media reports in May, Vietnam was building what was likely to become its busiest expressway, investing an estimated US$1.5bn in a new link between Hanoi and the port city of Haiphong. The 105.5km expressway would have six interchanges, 30 bridges and 22 overpasses, and would be completed by 2011, the reports said. ƒ Over 3,000 people died in traffic accidents in the first quarter of 2008, according to local newspaper 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. Q1 2008 ƒ 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). Q3 2007 ƒ In August, Bank for Investment and Development of Vietnam (BIDV) announced plans to issue US$500mn worth of international bonds over the next two years to help fund a key highway project. The funds would be used to help cover the estimated US$1.8bn cost of building the 120km Saigon-Trung Luong-My Nhon-Can Tho highway. ƒ In mid-August, the 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. Q2 2007 ƒ Malaysian property developer SP Setia said on June 26 it had signed a joint venture agreement to build a township worth an estimated US$600mn in Vietnam’s Binh Duong province. ƒ State-run VEC would sell VND2.7trn (US$167.5mn) worth of bonds this year to finance an upgrade of a section of the north-south highway, state media reported on June 13. ƒ Vietnam’s Tan Tao Industrial Park Corp (Itaco) would raise US$59mn via issuing 20mn shares to invest in the construction of two residential areas, its chief executive said in midJune. Itaco, the first industrial park developer listed in Vietnam, would use the proceeds to build Tan Duc and Tan Tao residential areas, establish a university and also boost the firm’s finances, CEO Thai Van Men said in a statement. ƒ A Vietnamese road toll collector had raised VND449.23bn (US$28mn) by selling 20.85% of its shares, the 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 36 Vietnam Freight Transport Report Q3 2009 Rail Vietnam’s railway transport sector has only one operator, namely the Vietnam Railway Corporation (VRC), established by law in April 2003 as a state corporation operating railway transport and related services. The government has announced plans to separate the management of rail infrastructure from passenger and cargo services. Officials said a bill would be submitted to the National Assembly to allow different companies to operate rail services, paying fees for the use of the infrastructure. They did not envisage full deregulation of the system until 2010, however. Infrastructure Vietnam’s rail network totals 2,600km (excluding sidings). The network is mixed-gauge, comprising 2,169km of 1.000m gauge and 178km of 1.435m gauge. The network has 1,790 bridges totalling 45km and 11.5km of tunnels. The principal axis is Hanoi-Ho Chi Minh City (1,726km). Other lines emanating from Hanoi are to Hai Phong (102km), Lao Cai (296km) and Dong Dang (162km). Competitive Landscape: Rail Q1 2009 Q4 2007 ƒ The Vietnam Japan Consulting (VJC) joint venture, 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 of this year. It said that the line is to be built alongside the current track (single line, mostly narrow gauge) that runs from Ho Chi Minh City all the way north to the Chinese border. The new north-south highspeed line will be a double-track railway of 1.435m gauge. Based on that route, the cost has been estimated at US$55.8bn. ƒ Planning on the proposed north-south railway continued during Q407. The project involves an investment of approximately US$33bn to build a railway connection capable of running trains at up to 350kmh. In late December 2007, the newspaper Vietnam News reported that the state-owned VRC had submitted a proposal to Deputy Prime Minister Hoang Trung Hai for a 1,630km route for the railway. Q3 2007 ƒ In August, the government announced plans to start building a major north-south railway in 2009, at an estimated cost of US$33bn. Official media quoted Nguyen Huu Bang, 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. Q2 2007 ƒ Vietnam would invest up to VND8.4trn (US$525mn) to build two railways that will link the country to Laos and Cambodia, an industry official said in late June. ƒ Vietnam plans to invest nearly US$1bn in the next three years to transform its outdated railway system by building new tracks for high-speed trains. Vietnam’s rail system is slow and trains overcrowded. ƒ The Ho Chi Minh City municipal government has approved the construction of an underground or subway system at a cost of US$1.1bn, with 83% of the money to be © Business Monitor International Ltd Page 37 Vietnam Freight Transport Report Q3 2009 Competitive Landscape: Rail provided by Japanese aid. Q1 2007 ƒ A Vietnam north-south express train collided with a passenger bus, instantly killing 12 people on the bus and injuring scores of others, state media reported on February 9. ƒ Vietnam will build a high-speed railway, with aid from Japan, at an estimated cost of US$33bn, a project that would cut travel time by two-thirds between Hanoi in the north and southern Ho Chi Minh City, the government said in early February. 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$522mn (VND8.2trn) to expand Noi Bai International airport in Hanoi. Plans include expansion of the airport’s area to 900ha, the construction of a new runway and a second terminal, enlargement of the old runways and the enlargement of the cargo terminal. The expansion will enable the airport to receive larger aircraft such as the Boeing 777-300, Boeing 747 and Airbus A320. The aim is to increase airport capacity to serve 7mn passengers and 70,000 tonnes of cargo by 2010. According to Vietnam’s Civil Aviation Administration (VCAA), air traffic to and from the country rose by 12.3% last year to reach 12mn passengers. Air freight volume was up by 17.1% to 265,000 tonnes. VCAA said that 28 Vietnamese aircraft currently serve 72 destinations in 57 countries, while local aviation operates 26 domestic routes. © Business Monitor International Ltd Page 38 Vietnam Freight Transport Report Q3 2009 Infrastructure The three major airports handling freight are located at Ho Chi Minh City, Hanoi and Da Nang, each of which have international connecting flights. Minor airports such as Cat Bi at Haiphong are generally used for domestic flights to the three larger hubs. Competitive Landscape: Aviation Q1 2009 Q3 2008 ƒ According to an Intellasia report in February, a project to build an airport in Gio Quang, Quang Tri province, has been cleared by the People’s Committee of the province. The expected capital required is VND375bn (US$.02bn). ƒ Vietnam Airlines said that it made a loss of US$5mn in H108, after high oil prices forced it to spend more than its revenue, Reuters reported. The Hanoi-based unlisted airline, Vietnam’s largest, posted revenue of VND12.1trn (US$733mn), 28% up from the same period last year, but expenses hit VND12.18trn, leading to the loss, it said. ƒ Jetstar Pacific, Vietnam’s second-largest airline which is now 18% owned by Qantas of Australia, said in August that it would drop its flights to the central Vietnam beach resort city of Nha Trang due to high fuel costs, and would instead open routes between Ho Chi Minh City and Bangkok in Thailand, Siem Reap in Cambodia, and Singapore. ƒ State-owned Vietnam Airlines said in August that it was introducing surcharges ranging between VND50,000 and VND180,000 (US$3-11) on its domestic routes because of high fuel costs. The company had previously reported a loss of VND83bn (US$5.02mn). ƒ Vietjet Air, which aims to become the country’s first fully private sector-owned airline, said it would postpone its launch from December 2008 to mid-2009, because of the effect of high fuel prices. The 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. Q2 2008 ƒ 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. ƒ Deputy Prime Minister Hoang Trung Hai approved a VND13.74trn (US$857mn) expansion plan for the country’s second-largest airport near the capital Hanoi. Officials said the proposal was to build a third terminal at Noi Bai International Airport 45km north of Hanoi, boosting capacity from the current 10mn passengers a year to 25mn by 2020. Q1 2008 ƒ In January, Vietnam Airlines said it would hire an international consultant to advise it on launching an IPO in which up to 20% of its shares would be sold to three foreign investors. Q4 2007 ƒ In December, Vietjet Air, the country’s first privately owned airline, said it was planning to launch its first commercial service in December 2008 or in early 2009. The company received its air transport 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. Q3 2007 ƒ Air Asia, Malaysia’s successful budget airline, signed a letter of intent with Vietnam’s Vinashin Group in September 2007 to set up a new low cost airline. The initiative was a new departure for Vinashin, which up to that point had concentrated on its core businesses of shipbuilding, heavy industries and construction. ƒ In July, The government of Vietnam agreed to act as 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. © Business Monitor International Ltd Page 39 Vietnam Freight Transport Report Q3 2009 Competitive Landscape: Aviation Q2 2007 ƒ Vietnam planned to add a new terminal at Danang International Airport, which has seen a boom in tourists and business travellers, an official said at the end of May. The new terminal would be able to handle 4mn passengers a year, up from 1mn, said Nguyen Van Nien, of the Central Airport Authority. ƒ Singapore’s Changi Airports International said in May that it had signed a deal with the Vietnamese government to develop Vietnam’s Phu Bai-Hue International Airport. The deal to develop the airport, which is in the central province of Thua Thien Hue, is part of the government’s plan to increase tourism, Changi Airports said in a statement. ƒ Vietnam was expected to issue new regulations allowing foreigners to own up to 49% of local airlines, Dow Jones Newswire reported on May 3. ƒ Vietnam Airlines was looking to maintain annual double-digit growth by 2010, despite the increasingly fierce competition from domestic and foreign airlines, according to local press reports. Vietnam Airlines Chairman Nguyen Sy Hung said the airline was targeting annual growth of 12-14% to 2010. ƒ Australia’s Qantas Airways said on April 27 that it had agreed to buy 30% of Pacific Airlines from the Vietnamese government. ƒ National carrier Vietnam Airlines said first quarter revenue grew 13.3% from a year earlier thanks to 16.8% passenger growth. The state-controlled airline reported January to March revenues at VND4.87trn (US$302mn), up from VND4.3trn in the same period last year. Q1 2007 ƒ Vietnam’s national carrier was planning to introduce direct flight service to the US as part of the terms reached under a 2003 air agreement, according to a media report. Vietnam Airlines said it intended to begin direct services to some US cities later this year, according to a report by the Chinese news agency Xinhua, citing Vietnamese state media. ƒ Vietnam Airlines said its revenue for 2006 rose 12.4% to VND17.5trn (US$1.09bn), thanks to an increase in passenger numbers. The unlisted company had a before-tax profit of VND304.5bn (US$19.05mn), meeting 92% of its target. © Business Monitor International Ltd Page 40 Vietnam Freight Transport Report Q3 2009 Vietnam Airlines SWOT Analysis 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 Overview Vietnam Airlines was established as a state-owned airline in 1989 and merged Address with a number of service companies in 1996 to give it its present form. The ƒ xxxxxxx government’s stated goal is to further integrate the company into the global ƒ xxxxxxxxxxxxxx market and establish itself as a regional player. Vietnam’s national carrier ƒ xxxxxxxxxxxx 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 non-stop scheduled flights between Ho Chi Minh City and Paris. Vietnam Airlines’ cargo operations serve 20 destinations in Asia, the Middle East, Australia and Europe, with partner networks serving other destinations. The cargo division operates a joint venture with Singapore Airport Terminal Service – Tan Son Nhat Cargo Services – that has an annual cargo throughput of 100,000 tonnes. Financial Performance National carrier Vietnam Airlines announced pre-tax profits of VND24bn (US$1.35mn) in the first quarter of this year, Asia Pulse news agency said. Total revenue reached VND6.107trn (US$344.2mn), 23.7% of the airline’s target for the year, the carrier said. Unlisted Vietnam Airlines operated 18,087 flights in the first three months of the year, carrying 2.266mn passengers. The © Business Monitor International Ltd Page 41 Vietnam Freight Transport Report Q3 2009 number of flights was up 4% on last year, equivalent to 695 flights, but the number of passengers fell by 5%. The number of domestic passengers increased, rising 1% on last year, reaching more than 1.39mn. The number of international passengers carried was 886,970, down by nearly 9%. The seat occupancy rate for the period was 77%. The national carrier launched two new routes Hanoi-Can Tho and Hanoi-Quy Nhon in Q109. Vietnam Airlines carried about 28,600 tonnes of cargo during Q109, down 3% on the same period last year. The figure represented 23.8% of its yearly goal. The airline paid approximately VND49.2bn (US$2.7mn) to the state budget in the first quarter. The general director of Vietnam Airlines, Pham Ngoc Minh, said it was a difficult year because of the global financial slowdown, as well as stiff competition in the airline industry. The national flag carrier made more than VND26.6trn (US$1.56bn) in revenue last year, an increase of 31.3% y-o-y, with pre-tax profits reaching VND240bn (US$14.1mn). Vietnam Airlines Chairperson Nguyen Si Hung said that with government support with tax and fuel costs, the carrier could expect to meet its annual sales targets. He also said it would introduce e-ticketing this year. Latest Activity At the end of April, Vietnam Airlines rejected a proposal to split its subsidiary, Vietnam Air Petrol Company (Vinapco), from the parent company, it was reported in the local media. In a statement, Vietnam Airlines said the proposal would undermine the national flag carrier by breaking apart its technical and service systems, which are self-sufficient. The proposal would not be successful in fighting a monopoly in the country’s air fuel supply industry, it said. The airline said the anti-monopoly efforts should not focus on separating Vinapco from Vietnam Airlines, but should license more air fuel suppliers in the local market instead. Vietnam Airlines said the proposal was against the government’s support of the national flag carrier as the leader in the local civil aviation market. Its statement included quotes of meeting minutes on the airline’s long-term development plan chaired by the prime minister on March 25, saying it enjoyed favourable conditions, including terminals and parking lots, at domestic airports. Because of such conditions, it could arrange services on its own, the airline said. The proposal to split Vinapco from Vietnam Airlines, made by Jetstar Pacific Airlines, was announced by the Ministry of Industry and Trade’s Competition Management Department. The announcement followed an April 14 hearing before the National Competition Council on a dispute between Vinapco and Jetstar-Pacific Airlines over pumping fees. Jetstar Pacific’s CEO, Luong Hoai Nam, said no other airline in the region had its own fuel supply firm. The oneday hearing ruled that Vinapco, the sole air petrol supplier in the country, would be fined more than VND3bn (US$168,000) because it had violated two clauses of the Competition Law, including one on a business monopoly. On April 1 last year, due to a dispute over pumping fees, Vinapco unilaterally © Business Monitor International Ltd Page 42 Vietnam Freight Transport Report Q3 2009 suspended fuel supplies to Pacific Airlines, delaying four Pacific flights for two hours. Some 5,000 passengers on Pacific’s flights were affected by Vinapco’s fuel suspension. The ministry’s competition management department also proposed that any monopoly of air petrol services be closely controlled. Prior Activity Q109: In February 2009, national flag carrier Vietnam Airlines announced a plan to open direct flights into the lucrative US market in 2010, three years later than it had at first intended, Asia Pulse news agency reported. The airline’s deputy general director, Duong Tri Thanh, said the airline is preparing marketing and planes to reach the goal, which will depend on economic conditions. The US is a difficult market, and one in which aviation authorities impose many conditions on airlines flying direct to the country. Besides tight security and safety regulations, airlines are required to supply personal information on all passengers four hours before take-off. This is not required by most other countries, but most airlines are willing to accept the onerous conditions in exchange for access to the world’s largest aviation market. That is why Vietnam Airlines is trying to open direct flights to the country, even at a time of worldwide economic crisis. Direct flights to the US, coupled with membership of the WTO, are tipped to help bilateral trade and tourism and integration into the global economy. US-based United Airlines has direct flights to Ho Chi Minh City from San Francisco, Chicago and Los Angeles. The US last year provided US$1.4mn to upgrade Vietnam’s aviation safety and security procedures to meet US standards, the US Embassy in Hanoi said. VCAA Deputy Director Lai Xuan Thanh said more flights to the US were needed to match growing economic ties. Like other airlines around the world, Vietnam Airlines’ passenger and cargo figures are decreasing. In the first month of 2009, the number of international passengers travelling with the airline fell 5%, and the carrier has set a target of serving only around 9.4mn passengers this year compared with 9mn in 2008. © Business Monitor International Ltd Page 43 Vietnam Freight Transport Report Q3 2009 Water Vietnam’s fleet statistics indicate that by the end of 2002, the country had 819 vessels with a total capacity of 2.123mn 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 44 Vietnam Freight Transport Report Q3 2009 new ports or upgraded ports, most ports have been operating for many years, lack investment and are seriously degraded. The loading and unloading equipment in some ports is obsolete, leading to low productivity. The average productivity of a Vietnamese port is only 2,500 tonnes/m per wharf, or 40-50% of productivity of other ports in the region. Specialisation and modernisation are also limited, due to a lack of specialised equipment for container handling. As a result, dwell times at ports are lengthy. Consequently, a large proportion of Vietnam’s exported and imported goods transit through Hong Kong or Singapore. Competitive Landscape: Maritime Q1 2009 Q4 2008 Q3 2008 Q2 2008 ƒ 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. ƒ 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. ƒ 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. ƒ 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. ƒ 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. ƒ Cam Pha port in Quang Ninh in the north of Vietnam resumed coal export operations in mid-August after a shutdown caused by an accident. Cam Pha is the country’s main coal export terminal. Three of its four coal loaders collapsed on August 6, according to officials. The port was said to have resumed operations the following week at around 70% of capacity, with officials at Vinacomin, the state coal-mining group, saying it might take a month to get it back to normal operating levels. ƒ In June, US aluminium producer Alcoa signed an agreement with state-owned Vinacomin to set up a joint venture to develop a 600,000 tonnes a year alumina refinery and consider further development of the Gia Nghia bauxite mine. Kenneth Wisnoski, president of Alcoa’s Global Primary Products division, said rail and port infrastructure to ship the alumina to export markets would have to be built. In June, Vietnamese shipping companies were reported to be asking local exporters to pay freight charges in US dollars, to be protected from currency fluctuations. ƒ In June, news agencies reported that the Chinese city of Qinzhou in Guangxi Zhuang © Business Monitor International Ltd Page 45 Vietnam Freight Transport Report Q3 2009 Competitive Landscape: Maritime Autonomous Region had won permission from the central government in Beijing to set up a free port zone close to the border with Vietnam. ƒ Dry bulker demand to ship Vietnam’s coal exports is expected to fall year-on-year as the country’s growing energy needs force more coal to be diverted to the domestic market. According to government sources, coal exports this year will total around 25mn tonnes, worth US$850mn, a fall on the 2007 totals of 32.6mn tonnes and US$1bn. ƒ Vietnam Tanker Co (Vitaco) said in April that it had agreed to buy an oil tanker for US$50.6mn from South Korea’s SLS Shipping. The ship, Petrolimex 11, had a capacity of 40,019 tonnes. ƒ The Vietnamese joint venture CMIT has signed a contract for the construction of a new container terminal in Ho Chi Minh City. This is the latest project to be finalised to overhaul Vietnam’s maritime sector. Port infrastructure investments have seen a rapid rise since the Vietnamese government began efforts to attract FDI to boost economic development, and several large scale projects involving international majors are in the pipeline. Q1 2008 ƒ In January, the authorities said they would invest VND28trn (US$1.75bn) in the construction of a new seaport in Hai Phong City, Xinhua news agency reported. The stateowned Vinalines would build the 1,200ha Hai Phong International Gateway Port, which would have a capacity to handle 100mn tonnes of goods every year. Q4 2007 ƒ In December 2007, newspaper Vietnam Economic Times said that the country needed US$4-5bn to build and upgrade seaports in the period running up to 2015. Q3 2007 ƒ Vietnamese freight forwarder Gemadept Corporation announced at the end of August 2007 that it would start building a US$410mn 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 ƒ In August, Swiss bank Credit Suisse signed a memorandum with Vinalines, the leading shipping company in Vietnam, to provide loans worth US$700mn, various news agencies reported. As part of the financial service memorandum, Credit Suisse will provide Vinalines with ratings advisory, fund raising and risk management services. The Swiss bank will also help in the development of a financing programme of up to US$1bn for Vinalines, which will be the first offshore loan for the Vietnamese firm. ƒ Russia has re-opened its Far East port in Vladivostok to rice imports, a move that would help cut shipping costs for Vietnamese exporters delivering to European buyers, trade officials said on July 6. Q2 2007 ƒ Two ships collided in southern Vietnam and one sank, leaving one person dead and seven missing, state media reported on May 15. The vessel Gas Shanghai, registered in Marshall Islands, slammed into the Vietnamese Hoang Dat 36 near the mouth of the Saigon River, the online version of the Thanh Nien newspaper said. ƒ Vietnam’s state-run oil and gas monopoly PetroVietnam and the country’s largest shipping firm Vinalines had teamed up, establishing a joint stock company to develop a new port complex at an estimated cost of US$637mn in southern Vietnam, Thanh Nien Online reported at the end of May. ƒ 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. ƒ Vietnam’s Vinashin Shipping Industry Corp was looking to raise VND3trn (US$186.9mn) by selling 10-year bonds, a person familiar with the deal was quoted at saying on March 19. ƒ Hanjin Shipping, South Korea’s largest shipping line by sales, said on March 5 it would form a joint venture with a Vietnamese company to start a container terminal business in Vietnam. Hanjin Shipping and Saigon New Port Co, the operator of Cat Lai terminal in southern Vietnam, signed a memorandum of understanding in Seoul to engage in the © Business Monitor International Ltd Page 46 Vietnam Freight Transport Report Q3 2009 Competitive Landscape: Maritime terminal and logistics business in the South East Asian nation, Hanjin Shipping said in a statement. ƒ 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. ƒ Vinalines may team up with Japan’s Sumitomo and Belgium’s Port of Zeebrugge to secure funds for developing two huge port complexes in the country, the group’s leader said at the end of April. Vinalines 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. Q1 2007 ƒ State-owned Vinalines was preparing to sign deals to borrow up to US$550mn to raise funds to boost its shipping fleet, a company official said on February 22. ƒ State-owned Vinashin Business Group signed two contracts valued at US$2.4bn together to build ships and oil tankers for Vietnamese companies, a company official said on February 15. Unlisted Vinashin, the country’s largest shipbuilder, signed a contract to build three 105,000 tonne oil tankers for PetroVietnam, said Vinashin Executive Le Thanh Quang. ƒ The ports unit of Hong Kong conglomerate Hutchison Whampoa said in February that it had signed a joint venture agreement to build and operate a new container terminal in the Vietnamese province of Ba Ria Vung Tau – its first in the South East Asian nation. Hutchison Port Holdings (HPH), the world’s largest container-terminal operator in terms of throughput, said it would develop the port through a company it will jointly own with Ho Chi Minh-based property and construction firm Saigon Investment Construction & Commerce. ƒ Singapore container shipping firm 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. ƒ In February, two leading groups in the maritime sector, Vinalines and Vinashin, said they had clinched a memorandum of understanding to develop the national flag ship fleet until 2015 at a total cost of US$2.3bn. Under the deal signed in Hanoi, Vinalines placed orders for 19 vessels from 2007 to 2010, and 45 others five years after that, with a total capacity of 2.8mn DWT. ƒ Maersk Line is predicting 200% growth for its container business in Vietnam in a five-year period and sees the potential for direct calls in the future. ‘Clearly there is a lot of interest in Vietnam and a real strong demand for all kinds of business there,’ said Maersk South East Asia Chief Executive Morten Engelstoft in comments published at the beginning of March. © Business Monitor International Ltd Page 47 Vietnam Freight Transport Report Q3 2009 Vietnam Petroleum Transport Jsc (VIPCO) SWOT Analysis Strengths • 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 • 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 • 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 • 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 Overview Vietnam Petroleum Transport Joint Stock Company specialises in marine Address transportation. It mainly offers marine transportation services, freight ƒ xxxxxxx forwarding, shipping brokerage, customs clearance and port operation. Other ƒ xxxxxxxxxxxxxx activities include merchandise of petroleum, liquefied gas and petrochemicals; ƒ xxxxxxxxxxxx trading of supplies and equipments, manning and warehousing services; and minor industrial construction. The company has five subsidiaries and one affiliate, and is itself a subsidiary of Vietnam National Petroleum Corporation. Financial Performance Four Vietnamese banks have recently clinched deals to lend $25.2mn in total to VIPCO to buy a petroleum tanker valued at US$36mn, the Vietnam News Agency said on April 7. The banks included the Petrolimex Group Bank (PG Bank), Military Bank (MB), Global Petroleum Bank (GP Bank) and Dai Duong Bank, and will provide the loan within 10 years for VIPCO to buy the 46,732DWT tanker. The tanker, namely Petrolimex 16, was built in South Korea in 2003 by Hyundai Mipo Dockyard. Petrolimex 16 was due to be handed over to VIPCO in mid-April this year. Separately, the transport company announced it would raise this year’s profit by 21% by leasing out the two tankers and cutting tax payments. Latest Activity VIPCO signed an agreement with the South Korean SK Shipping Company to rent out one of its two new ships – Petrolimex 15 and Petrolimex 16 – state © Business Monitor International Ltd Page 48 Vietnam Freight Transport Report Q3 2009 media reported in April, citing VIPCO’s sources. The contract would take effect from the end of this year, the sources said without giving the value of the agreement. Table: Vietnam Petroleum Transport Jsc (VIPCO) Financial Performance Q109 Annual (2008) Annual (TTM) Net profit margin, % 12.75 5.90 6.16 Operating margin, % 12.75 6.03 6.30 na 18.51 19.48 Return on average assets, % 7.43 4.91 4.88 Return on average equity, % 13.50 9.55 9.19 EBITD margin, % Employees 486 na = not available. Source: Company data, Google Finance © Business Monitor International Ltd Page 49 Vietnam Freight Transport Report Q3 2009 Doan Xa Port SWOT Analysis Strengths • 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 • Global trade can fluctuate and, as in the 2009-2010 recession, fall in absolute terms, exposing Doan Xa to cyclical donwturns Opportunities • 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 • The port handles frozen foodstuffs and is therefore at risk of a loss of business during health scares, such as the H1N1 ‘swine flu’ scare of April/May 2009 Overview Doan Xa Port Joint Stock Company is a Vietnam-based port operation Address company in Hai Phong. It mainly manages operations at Doan Xa Port, and ƒ xxxxxxx provides port services, including loading/discharging cargo, warehousing, ƒ xxxxxxxxxxxxxx inland transportation and shipping agency. The company also offers minor ƒ xxxxxxxxxxxx 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 said in January that it netted a profit of VND29.99bn (US$1.77mn) last year, nearly doubling 2007’s figure on gross revenues of VND98.19bn, up 30% y-o-y. Doan Xa unloaded 3.3mn tonnes of cargo, fulfilling 143% of the year’s target, up 43% y-o-y. The firm said it incurred costs of an additional VND441mn due to Vietnam’s central bank devaluing the dong by 3%. Latest 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 on swine flu fears, Thanh Nien reported 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 © Business Monitor International Ltd Page 50 Vietnam Freight Transport Report Q3 2009 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 many text messages local food importers sent to his cell phone, asking to postpone their shipments’ delivery dates. Table: Doan Xa Port Financial Performance Q408 Annual (2008) Annual (TTM) Net profit margin, % 35.14 30.79 30.79 Operating margin, % 37.67 33.67 33.67 - 48.47 48.46 Return on average assets, % 31.45 26.68 26.68 Return on average equity, % 46.31 41.00 41.00 EBITD margin, % Employees 291 Source: Company data, Google Finance © Business Monitor International Ltd Page 51 Vietnam Freight Transport Report Q3 2009 Competitive Landscape: Pipelines Q2 2007 ƒ Vietnam had started operation of its second gas pipeline, which would supply 2bcm of natural gas a year from an offshore field, a PetroVietnam official said on May 3. ƒ Vietnam is stirring up trouble by agreeing with BP and its partners to build a gas pipeline in the South China Sea, the Chinese foreign ministry said on April 10 of an area disputed by Hanoi and Beijing. The Spratly Islands, a string of rocky outcrops in the South China Sea suspected of containing large oil and gas deposits, are also claimed by Taiwan, Brunei, Malaysia and the Philippines. The US$2bn pipeline will bring gas from two new fields to Vietnam’s south coast, though details are still being worked out. © Business Monitor International Ltd Page 52 Vietnam Freight Transport Report Q3 2009 Country Snapshot: Vietnam Demographic Data Section 1: Population Population By Age, 2005 (mn) Population By Age , 2005 And 2030 (m n, total) 70-74 70-74 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 53 Vietnam Freight Transport Report Q3 2009 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 26.7 29.4 34.7 41.8 Rural population, % of total 73.3 70.6 65.3 58.2 Urban population, total, ‘000 22,509 26,395 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 54 Vietnam Freight Transport Report Q3 2009 Section 3: Labour Market And Spending Power Table: Employment Indicators, 1999-2004 1999 2000 2001 2002 2003 2004 Employment, '000 38,120 38,368 39,000 40,162 41,176 42,316 – % change y-o-y 3.1 0.6 1.6 2.9 2.5 2.7 – male 19,029 19,292 19,744 20,356 20,959 21,649 – female 19,091 19,076 19,257 19,807 20,217 20,666 – female, % of total 50.0 49.7 49.3 49.3 49.1 48.8 Unemployment, '000 909 886 1,107 871 949 926 – male 439 468 458 398 402 410 – female 470 418 650 473 547 517 – unemployment rate, % 2.3 2.2 2.7 2.1 2.2 2.1 Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) 2000 2007e 2008e 2009f 2010f 2012f 110 265 301 368 386 427 Poorest 20%, expenditure per capita 49 119 136 166 174 192 Richest 20%, expenditure per capita 243 587 668 815 855 946 Richest 10%, expenditure per capita 316 763 868 1,060 1,112 1,230 Middle 60%, expenditure per capita 85 206 235 286 301 332 Consumer expenditure per capita 556 1,196 1,297 na na na Poorest 20%, expenditure per capita 250 538 583 na na na Richest 20%, expenditure per capita 1,231 2,649 2,872 na na na Richest 10%, expenditure per capita 1,600 3,444 3,734 na na na 433 931 1,009 na na na Consumer expenditure per capita Purchasing power parity Middle 60%, expenditure per capita e/f = BMI estimate/forecast; na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 55 Vietnam Freight Transport Report Q3 2009 BMI Forecast Modelling How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. 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 56 Vietnam Freight Transport Report Q3 2009 Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services do not employ transport. The volumes are forecast based on the following criteria: ƒ Trends manifested through historical data; ƒ The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a ‘second opinion’ on trade volumes. However, this check needs to be used with caution, as trade values and volumes do not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: ƒ Trends in historical modal split data; ƒ Evidence of government policy favouring one or more modes over others; ƒ Government and or private sector investment plans in specific modes. Sources Sources used in Freight Transport reports include local transport ministries, officially released company results and figures, established thinktanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 57 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... large SOEs, including Vietnam Airlines, between 2007 and 2010 © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q3 2009 Road Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market share of around 60% of domestic cargo At present there are over 1,050 enterprises registered in the road transport business,... value of transport and communications GDP will rise to US$6.6bn in nominal terms by 2013, representing 4.5% of Vietnam s GDP By modes, we project that air freight will be the fastest growing, rising by 7.6% per annum, followed by road haulage (7.5%), pipelines (7.0%), shipping (6.7%) and rail (6.6%) © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q3 2009 Table: Freight. .. discrepancy with data used elsewhere in this report Source: IMF © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q3 2009 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: Multi-Modal Q1 2009 Q4 2008 ƒ Vietnam s Ministry of Planning and Investments... International Ltd Page 23 Vietnam Freight Transport Report Q3 2009 Transport Outlook Table: Transport And Communications Data And Forecasts, 2005-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 8.4 8.2 8.2 8.2 8.7 8.5 8.5 8.2 8.0 GDP index, 1995=100 201.0 217.5 235.4 254.7 276.8 300.3 325.9 352.6 342.1 5-year average annual GDP growth, % 7.5 7.8 8.0 8.2 8.3 8.4 8.4 8.4 6.4 Annual transport and communications.. .Vietnam Freight Transport Report Q3 2009 Economics – Long-Term Risk We foresee both economic and political risks rising in 2009 as global demand for Vietnam s manufactured exports falls and factories lay off workers The global recession will shake the foundations of the Vietnamese growth story, as it has been reliant on strong demand... Report Q3 2009 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 also faces a difficult two years On the other hand, WTO membership has been as supportive of greater freight transport turnover relative to GDP across all modes, but particularly so for shipping On the downside, Vietnam. .. between Chinese and Vietnamese manufacturers may cause some tension with Beijing Freight Transport Growth Vietnam s freight transport traffic, measured in mntkm, rose by an annual average of 10.7% in 2004-2008 and, according to our projections, will decelerate to an annual average of 6.8% in 2009- 2013 Transport Infrastructure Growth According to official information, there is a wide range of transport sector... Mekong basin area, and new © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q3 2009 seaports are planned While there is no doubt that Vietnam s transport infrastructure is expanding, our rating for this category is constrained by poor planning and limited project management experience Regulatory Environment Vietnam is moving towards a full market economy, but is doing so at... to address the challenges Vietnam is looking to build 5,900km of highways over the next decade The World Bank estimates that it will cost US$9mn to build 1km of highway in Vietnam; the total funding required for the project is estimated at around US$53bn © Business Monitor International Ltd Page 14 Vietnam Freight Transport Report Q3 2009 The ADB will offer a US$410mn loan to Vietnam to build a 51km... plant in the same area Cargonews Asia reports that the new International Trans-shipment Port of Van Phong will have between 36 and 42 berths and the capacity to handle vessels of between 9,000 and 12,000 TEUs The Ministry of Transport s Vinamarine International Co-operation Department has © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q3 2009 stressed that the country’s port