Vietnam freight transport report q4 2009

... of any information hereto contained Vietnam Freight Transport Report Q4 2009 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q4 2009 CONTENTS Executive Summary ... average 5.0% per annum in 2009- 2013 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q4 2009 Under BMI’s freight transport rating system, Vietnam achieves a composite... Ltd Page 29 Vietnam Freight Transport Report Q4 2009 Vietnam Air freight also faces a difficult two years On the other hand, WTO membership has been as supportive of greater freight transport turnover

Published by BUSINESS MONITOR INTERNATIONAL LTD Vietnam Freight Transport Report Q4 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 Q4 2009 Including 5-year industry forecasts by BMI Part of BMI’s Industry Survey & Forecasts Series Published by: Business Monitor International Publication date: August 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 Q4 2009 © Business Monitor International Ltd Page 2 Vietnam Freight Transport Report Q4 2009 CONTENTS Executive Summary .........................................................................................................................................5 SWOT Analysis.................................................................................................................................................7 Vietnam Road Haulage SWOT............................................................................................................................................................................... 7 Vietnam Political SWOT ........................................................................................................................................................................................ 7 Vietnam Economics SWOT .................................................................................................................................................................................... 8 Vietnam Business Environment SWOT................................................................................................................................................................... 8 Business Environment Ratings ......................................................................................................................9 Table: Asia Pacific Freight Business Environment Ratings................................................................................................................................... 9 Freight Industry Ranking..................................................................................................................................................................................... 10 Transport Intensity Index..................................................................................................................................................................................... 11 Vietnam Logistics Performance Index (LPI)........................................................................................................................................................ 11 Economic Risk Summary...................................................................................................................................................................................... 11 Political Risk Summary........................................................................................................................................................................................ 12 Business Environment Risk Summary .................................................................................................................................................................. 13 Legal Code/Corruption........................................................................................................................................................................................ 13 Red Tape.............................................................................................................................................................................................................. 13 Labour Force....................................................................................................................................................................................................... 14 Industry Trends And Developments ............................................................................................................15 Road .................................................................................................................................................................................................................... 16 Rail ...................................................................................................................................................................................................................... 16 Air........................................................................................................................................................................................................................ 17 Sea ....................................................................................................................................................................................................................... 17 Industry Forecast Scenario ...........................................................................................................................20 Global Oil Products Market Review .................................................................................................................................................................... 20 Table Global Oil Prices, 2003-2013 (US$ per barrel)......................................................................................................................................... 24 Macroeconomic Outlook...................................................................................................................................................................................... 25 Table: Vietnam – Economic Activity, 2006-2013................................................................................................................................................. 28 Transport Outlook ............................................................................................................................................................................................... 29 Table: Transport And Communications Data And Forecasts, 2006-2013 ........................................................................................................... 29 Table: Freight Carried, Domestic, 2006-2013..................................................................................................................................................... 31 Trade Environment.........................................................................................................................................32 Trade Agreements................................................................................................................................................................................................ 32 Tariffs/Non-Tariff Barriers .................................................................................................................................................................................. 32 Table: Value Of Imports By Category, 2006-2013 (US$mn)................................................................................................................................ 33 Table: Value Of Exports By Category, 2005-2013 (US$mn)................................................................................................................................ 34 Table: Top Export Destinations, 2002-2006 (US$mn)......................................................................................................................................... 35 Table: Export Trade, 2003-2006 (% Growth y-o-y)............................................................................................................................................. 36 Table: Import Trade, 2003-2005 (% growth y-o-y).............................................................................................................................................. 36 Table: Top Import Sources, 2002-2006 (US$mn) ................................................................................................................................................ 37 Market Overview.............................................................................................................................................38 Multi-Modal.............................................................................................................................................................................................................. 38 Competitive Landscape: Multi-Modal.................................................................................................................................................................. 38 © Business Monitor International Ltd Page 3 Vietnam Freight Transport Report Q4 2009 Road.......................................................................................................................................................................................................................... 41 Infrastructure....................................................................................................................................................................................................... 41 Competitive Landscape: Road ............................................................................................................................................................................. 41 Rail ........................................................................................................................................................................................................................... 45 Infrastructure....................................................................................................................................................................................................... 45 Competitive Landscape: Rail ............................................................................................................................................................................... 45 Air............................................................................................................................................................................................................................. 47 Infrastructure....................................................................................................................................................................................................... 47 Competitive Landscape: Aviation ........................................................................................................................................................................ 47 Company Profile: Vietnam Airlines ..................................................................................................................................................................... 51 Water ........................................................................................................................................................................................................................ 53 Infrastructure....................................................................................................................................................................................................... 53 Competitive Landscape: Maritime....................................................................................................................................................................... 54 Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) ........................................................................................................................... 59 Table: Vietnam Petroleum Transport’s Key Financial Data................................................................................................................................ 60 Company Profile: Doan Xa Port.......................................................................................................................................................................... 61 Table: Doan Xa Port’s Financial Performance ................................................................................................................................................... 62 Pipelines ................................................................................................................................................................................................................... 63 Competitive Landscape........................................................................................................................................................................................ 63 Country Snapshot: Vietnam Demographic Data .........................................................................................64 Section 1: Population........................................................................................................................................................................................... 64 Table: Demographic Indicators, 2005-2030........................................................................................................................................................ 64 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 65 Section 2: Education And Healthcare.................................................................................................................................................................. 65 Table: Education, 2002-2005 .............................................................................................................................................................................. 65 Table: Vital Statistics, 2005-2030........................................................................................................................................................................ 65 Section 3: Labour Market And Spending Power .................................................................................................................................................. 66 Table: Employment Indicators, 1999-2004.......................................................................................................................................................... 66 Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................ 66 BMI Forecast Modelling .................................................................................................................................67 How We Generate Our Industry Forecasts .......................................................................................................................................................... 67 Transport Industry ............................................................................................................................................................................................... 67 Sources ..................................................................................................................................................................................................................... 68 © Business Monitor International Ltd Page 4 Vietnam Freight Transport Report Q4 2009 Executive Summary According to reports in early June, foreign investors have once again raised concerns about Vietnam's infrastructure. Rapid economic growth is placing a heavy burden on existing infrastructure, and investments, tangled in red tape and regulatory obstacles, have not been able to keep pace. The latest concerns were raised during a conference in Ho Chi Minh City, organised by the International Finance Corporation and the Vietnamese Planning and Investment Agency. The country's port infrastructure was once again in the spotlight, with foreign investors urging the government to invest not just in creating maritime hubs, but also in creating a better intermodal transport system to move cargo to and from the ports. The chairman of the American Chamber of Commerce said that delays in construction of supporting infrastructure for ports was also a key issue that hindered operations and raised costs, IntellAsia reported. One example of the latter point is the delay in the development of roads around ports in Ba Ria-Vung Tau province in South Vietnam. This has in turn caused delays in the construction and commencement of operations of the country's new ports. Vietnam still has a cost advantage against China when it comes to manufacturing wages, but much FDI flow is still diverted to southern China because it is much easier to get input goods to factories and finished goods out owing to China's superior infrastructure. 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 4.2% in 2009-2013, measured in tonnes per km. A number of factors underpin this forecast. One is sharpness of the contraction in international trade this year: Vietnam’s trade will fall by 13.9%. Pulling in the opposite direction however is the still-realistic prospect of a long, export-led boom in Vietnam. Annual GDP growth is likely to average 6.5% in 2009-2013, only a little slower than the 7.8% rate achieved in the preceding five-year period. 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 7.9% 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 7.9% over the next five years, followed closely by pipeline throughput (7.5%), rail (7.0%), and maritime freight (4.2%, as already mentioned). 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 5.0% per annum in 2009-2013. © Business Monitor International Ltd Page 5 Vietnam Freight Transport Report Q4 2009 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$6.7bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP. © Business Monitor International Ltd Page 6 Vietnam Freight Transport Report Q4 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 7 Vietnam Freight Transport Report Q4 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 8 Vietnam Freight Transport Report Q4 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 60.0 81.0 70.5 70.0 74.7 72.8 71.2 1 Australia 42.5 90.1 66.3 75.0 82.2 79.3 70.2 2 India 67.5 61.0 64.2 60.0 55.8 57.5 62.2 3 China 80.0 38.3 59.1 60.0 66.5 63.9 60.6 4 Singapore 50.0 74.3 62.1 80.0 39.4 55.6 60.2 5 Indonesia 40.0 71.3 55.7 50.0 65.4 59.2 56.7 6 Japan 47.5 54.4 51.0 75.0 63.5 68.1 56.1 7 Vietnam 45.0 64.3 54.6 55.0 52.5 53.5 54.3 8 Thailand 40.0 59.2 49.6 55.0 58.1 56.8 51.8 9 South Korea 45.0 46.4 45.3 60.0 62.5 61.5 50.2 10 Taiwan 47.5 35.6 41.6 65.0 74.2 70.5 50.2 11 Philippines 40.0 41.1 40.5 50.0 72.6 63.6 47.4 12 Pakistan 50.0 47.6 48.8 55.0 35.0 43.0 47.1 13 Malaysia 40.0 31.6 35.8 60.0 68.8 65.3 44.6 14 Scores out of 100, with 100 highest. Source: BMI © Business Monitor International Ltd Page 9 Vietnam Freight Transport Report Q4 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’s freight transport traffic, measured in mntkm, rose by an annual average of 13.8% in 2004-2008 and, according to our projections, will decelerate to an annual average of 5.0% in 2009-2013. According to official information, there is a wide range of transport sector investment projects in the pipeline, across road, rail, air and sea. Work is under way to develop the Mekong basin area, and new seaports are planned. While there is no doubt that Vietnam’s transport infrastructure is expanding, our rating for this category is constrained by poor planning and limited project management experience. Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that the reform process started nearly two decades ago. The country gained access to the WTO in 2007. In the transport sector, state-owned enterprises (SOEs) continue to be dominant in many areas. There is not yet a clear legal framework for the protection of passenger and freight customer rights. Freight transport competition remains limited, with SOEs dominating key transport modes. There are few foreign entrants, although we expect more to arrive during the forecast period. To be able to operate in the country, significant negotiations and procedures are required. Although the government favours attracting more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive markets. © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q4 2009 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 27.6%, which in our projections will ease substantially to 5.8% per annum in 2009-2013. The annual average across the 10 years as a whole is 16.7%. Vietnam Logistics Performance Index (LPI) In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as ‘the first in-depth cross-country assessment of the logistics gap among countries.’ The LPI was calculated on a five-point scale and based on survey responses from over 800 logistics professionals. Countries were given an aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the quality of customs, infrastructure and international shipments, logistics competence, tracking and tracing, domestic logistics costs, and timeliness. In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9. For comparison with the major OECD economies, the Netherlands was ranked second in the world with an LPI of 4.2; followed by Germany (third with an LPI of 4.1), the UK (ninth, LPI of 4.0) and the US (14th, LPI of 3.8). In comparison with other Asian economies, Singapore was the world number one with an LPI score of 4.2, followed by Australia (17th, LPI of 3.8) and Taiwan (21st, LPI of 3.6). Then came South Korea (25th, LPI of 3.5), Malaysia (27th, LPI of 3.5), China (30th, LPI of 3.3), Thailand (31st, LPI of 3.3) and Indonesia (43rd, LPI of 3.0). Vietnam was therefore close to the bottom end of the regional LPI ranking, ahead of Papua New Guinea (95th, LPI of 2.4) and Laos (117th, LPI of 2.3). In terms of the different components of the index, Vietnam’s best performing areas, ranked in order, were domestic logistics costs, timeliness, international shipments, and tracking and tracing. Weaker areas in descending order were customs, logistics competence, and infrastructure. Economic Risk Summary Bad Debt Ratio Rising The State Bank of Vietnam (SBV) stated on July 20 that the banking sector had registered an increase in bad debt to 2.52% of total loans at the end of June, compared with 2.17% at the end of 2008. However, we believe the true rate of non-performing loans, using international standards could be considerably higher. Moreover, we believe the bad debt ratio is also disguised by the rapid increase in credit growth since the government extended its interest-rate subsidy programme in April. The SBV has reported a © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q4 2009 cumulative loan growth of 17% in H109, putting the government's 25% credit growth target for 2009 as a whole in danger. Long-Term Risk The 3.1% y-o-y expansion in Q109 was the lowest on record, but more recent macroeconomic data suggest that the government and central bank's stimulus measures are now gaining traction. We thus acknowledge upside risks to our 2.9% growth forecast for 2009, but refrain from an upward revision due to the still precarious state of the global economy. On the political front, the economic downturn has not yet seen any material repercussions, but we have nevertheless decided to lower our short-term political risk ratings on the back of high inflation and rising unemployment undermining public acceptance of oneparty rule. Meanwhile, regional tensions have risen due to China's more assertive claims for sovereignty in the South China Sea. We maintain our below-consensus 2.9% GDP growth forecast for 2009, but are now acknowledging upside risks to this forecast. This is due to strong fiscal and monetary stimulus bolstering domestic demand, and a weaker dong softening the contraction in external demand. With global economic conditions expected to improve slightly in 2010, we maintain our 5.0% growth forecast for next year. We also maintain our expectation that the government will stepwise depreciate the dong towards VND19,000/US$ by the end of the year. However, this carries risks to macroeconomic stability as public confidence in the dong has been impaired by expectation of higher inflation and speculation about a devaluation. Political Risk Summary Religious Rights an Obstacle We believe that Hanoi's stern position on limiting religious freedom will continue to weigh on USVietnamese relations after 14 people were detained following a clash with police preventing them from rebuilding a church in the city of Dong Hoi in central Vietnam on July 22. The incident follows an appeal by 37 US senators for Hanoi to free Nguyen Van Ly, a catholic priest and political dissident, given an eight-year prison sentence in March 2007 for spreading propaganda against one-party rule. While not creating any serious dissonance, we believe the government's repression of Catholics may prevent closer cooperation to check China's growing naval influence in the South China Sea. Long-Term Risk The crackdown on trade union activists, bloggers and other political dissidents has left little doubt that the Communist Party of Vietnam has no intention of moving towards increasing political freedom. Nonetheless, the widening cracks in the government's monopoly on information remain a long-term threat to one-party rule. This has been particularly evident in Hanoi's efforts to silence domestic criticism of China, which has risen due to a controversial Chinese investment in bauxite mining in the central © Business Monitor International Ltd Page 12 Vietnam Freight Transport Report Q4 2009 highlands. However, while Chinese investment into the extractive sector is likely to remain a contentious issue in the short term, we believe that economic integration carries the key to improved Sino-Vietnamese relations over the longer term. Business Environment Risk Summary The sharp deterioration in economic conditions both domestically and globally has prompted the Vietnamese government to shift its attention from economic reforms to devising measures to support growth in the short term in the face of slumping global demand. Only 73 out of a planned 262 stateowned enterprises (SOEs) were equitised, i.e. transformed into shareholder-owned companies, in 2008, and initial public offerings of SOEs like Bao Viet have been unsuccessful, largely due to the high pricing of shares. While continued delays in the equitisation process are expected, we are not expecting any shift in the government's economic reform agenda, which will continue to support economic activity. Airport Upgrade Approved Prime Minister Nguyen Tan Dung has approved a plan to upgrade Cam Ranh domestic airport, near Nha Trang in central Vietnam, to an international airport with an investment of US$600mn. The airport's capacity will be enhanced to handle 5.5mn passengers and 100,000 tonnes of cargo annually. The government also plans to further increase annual capacity to 8mn passengers and 200,000 tonnes of cargo by 2030. The upgraded airport will include an area of more than 650 hectares and will be used for both civil and military purposes. Legal Code/Corruption Legal Code Vietnam’s judicial system is based on communist legal theory and the French civil law system. Corruption Vietnam has a bad record on transparency. The state was ranked 121st (out of 180) in Transparency International’s Corruption Perceptions Index in 2008, with a score of 2.7. Red Tape Vietnam compares favourably with its regional peers in terms of bureaucracy, and about the same as developed states. According to World Bank data, 28 separate procedures are required to enforce a contract, which takes an average of 120 days. The East Asia and Pacific average is 24 and 193, respectively, while the process involves 18 procedures and 213 days in high-income OECD states. © Business Monitor International Ltd Page 13 Vietnam Freight Transport Report Q4 2009 Conversely, World Bank data state that it takes 11 procedures and 56 days to start a business in Vietnam, compared with an average of nine and 61 in East Asia and Pacific and six and 25 in high-income OECD states. 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 14 Vietnam Freight Transport Report Q4 2009 Industry Trends And Developments According to reports in early June, foreign investors have once again raised concerns about Vietnam's infrastructure. Rapid economic growth is placing a heavy burden on existing infrastructure, and investments, tangled in red tape and regulatory obstacles, have not been able to keep pace. The latest concerns were raised during a conference in Ho Chi Minh City, organised by the International Finance Corporation and the Vietnamese Planning and Investment Agency. The country's port infrastructure was once again in the spotlight, with foreign investors urging the government to invest not just in creating maritime hubs, but also in creating a better intermodal transport system to move cargo to and from the ports. The chairman of the American Chamber of Commerce said that delays in construction of supporting infrastructure for ports was also a key issue that hindered operations and raised costs, IntellAsia reported. One example of the latter point is the delay in the development of roads around ports in Ba Ria-Vung Tau province in South Vietnam. This has in turn caused delays in the construction and commencement of operations of the country's new ports. Vietnam still has a cost advantage against China when it comes to manufacturing wages, but much FDI flow is still diverted to southern China because it is much easier to get input goods to factories and finished goods out due to China's superior infrastructure. In another conference organised by the Asian Development Bank in February 2009 called 'Strengthening Public Private Partnerships For Infrastructure Investments In Vietnam', a core theme among the participants was the absence of an enabling institutional and regulatory/legal environment, which hinders the proliferation of PPPs. Law firm Duane Morris identified four main reasons behind the limited participation of the private sector in infrastructure in Vietnam. First, the weak governance structures of the state-owned companies that dominate the construction and utilities sectors; second, difficulty in accessing domestic capital; third, projects can experience delays due to the weak regulatory environment, which can prove to be costly; and finally the support of the government is often uncertain. In BMI's global Business Environment Ratings, Vietnam's score in terms of Infrastructure is 37.2 out of 100, below the regional average of 41.6. Vietnam added to its growing status as a major international trading power after announcing it would cut import tariffs on a variety of goods in order to meet World Trade Organisation (WTO) regulations. According to the Journal of Commerce (JOC), the East Asian country will reduce tariffs on a number of imported items until the end of 2009. The Vietnamese government is reported to already have agreed to reduce import duties on more than 10,000 goods by approximately 4% from 2009-2013 as part of the conditions of the country becoming a WTO member in 2007. BMI views the agreement as a further sign of Vietnam's growing status as a major trading power. Furthermore, the decision to relax import restrictions may be based on the government's acknowledgement of the country's growing exports sector, which BMI predicts will outpace the growth in imports in real terms from 2010. Since joining the WTO, BMI notes that Vietnam has made significant strides in improving its trade links, particularly its links with Western import markets. The most significant single development has been the construction of the © Business Monitor International Ltd Page 15 Vietnam Freight Transport Report Q4 2009 country's first deepwater container port at the Cai Mep terminal complex at Ho Chi Minh City's Saigon New Port which was officially inaugurated in May 2009. The facility has opened up direct container shipping links with the United States with major container lines APL and Mitsui O.S.K. Lines Ltd (MOL) becoming the first carriers to offer direct services between Vietnam and the US. APL President Eng Aik Meng said the new service represented 'a new era for trade with Vietnam and marks its increased importance as a manufacturing and export centre'. BMI notes that while Vietnam's port infrastructure is still relatively underdeveloped when compared with other major Asian export nations, continuing developments within the nation's port sector are expected to ease congestion in coming years following the implementation of a US$4.5bn government port investment programme. We believe that, following APL's endorsement, other major liners will look to increase direct services between Vietnam and western consumer markets. This is expected to offer a considerable boost to the country's export sector, providing an outlet for the Vietnam's growing manufacturing industry. Road Vietnam's Ministry of Transport began work on a 121km-long expressway connecting Ninh Binh province to Nghi Son, in Thanh Hoa province, on June 16, reported VNBusinessNews. The construction of the expressway is part of a programme to upgrade the North-South national road. Total investment in the project is forecast to be VND32trn (US$1.9bn). Vietnam has a total road network of 222,000km – the 20th largest globally – although only 19% of it is paved, indicating the poor condition of road infrastructure in the country. It should be noted that in the past 10 years, large-scale projects have been implemented and more are under way or in the pipeline; therefore, the ratio of paved to unpaved is arguably looking better. Vietnam's Ministry of Transport and Communications disclosed estimates that it will require close to US$60bn to 2020 to fund road infrastructure projects. The Hanoi city People's Committee is to invest VND881.6bn (US$50.9mn) in a project to upgrade the 1A National Highway, from Ngoc Hoi to Cau Gie, in Thuong Tin dist and Phu Xuyen district, according to a report in IntellAsia in June. Hanoi Department of Transportation has been given the responsibility to carry out the project as part of its mandate to develop the transportation network, and upgrade the route capacity. The roads and ports sectors are seeing the greatest level of activity in transport infrastructure, with the government funnelling public funds and loans from multilateral institutions for their development. The increased traffic levels in Vietnam's urban areas and the country's general fast-paced economic development have increased the volume of exports and imports to and from the country, thus creating a pressing need for better infrastructure between ports and inland. Rail The Railroad Management Board Region 2 in Vietnam announced in June that the project for upgrading the railroad between Vinh-Nha Trang would be officially launched in Q309, according to IntellAsia. The © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q4 2009 upgrade on the railroad, with a total length of 700kms, is expected to cost VND4trn (US$231.8mn). The increased traffic levels in Vietnam's urban areas and the country's general fast-paced economic development have increased the volume of exports and imports to and from the country, thus creating a pressing need for better infrastructure between ports and inland. Vietnam is expecting financial assistance from China as well as other international sources to develop a 128.5km long railway line from Ho Chi Minh City to the Cambodian border. A China-based consulting group was scheduled to submit a feasibility study to the Vietnam Railway Department by the end of June 2009. Construction was set to begin in 2010. Linking the railways of the South East Asia is part of the ASEAN rail link and the Trans-Asian rail projects. An efficient transport network is vital to any emerging economy, and will assist countries such as Cambodia and Vietnam in continuing the impressive economic growth rates that they have posted in recent years. A memorandum of understanding (MoU) has been signed between the Vietnam Railway Department and an associated company of China National Machinery Import & Export Corp (CMC) and China Railway Construction Corp Limited (CRCC) to survey and assess the urban railway line No 1 from Nam Thang Long to Lang Hoa Lac in Hanoi, Vietnam. Under the terms of the MoU, the CMC-CRCC associated company will provide a report on the viability of the project and China's commitment to the Vietnam Railway Department. Vietnam'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 problem. Vietnam's transport infrastructure has received attention and investments throughout the country. Major cross-country and domestic projects have been announced and they are either in planning stages or under construction, but most are expected to come on stream before 2015. Air The prime minister of Vietnam, Nguyễn Tấn Dũng, has given the go-ahead for the planned VND10.52trn (US$0.59bn) upgrade for Cam Ranh International Airport, reports IntellAsia. The upgrade will enable the airport to handle 27 aircraft during peak hours, and to receive 5.5mn passengers and nearly 100,000 tonnes of commodities per year by 2020. Vietnam's airports have been one of the focuses of the country's upgrade plans for its transport infrastructure. In May, the Vietnamese Government gave approval to a master zoning plan, drawn up by the Ministry of Transport, which proposes the development of 10 international airports across the nation, reports Asia Pulse. The plan proposes both the expansion of the current airports and construction of new airports. Sea According to Thanh Nien Daily in the second half of July, state-owned Vietnam National Shipping Lines (Vinalines) is to build the first two wharves of the deep-water port at Van Phong Bay in the central © Business Monitor International Ltd Page 17 Vietnam Freight Transport Report Q4 2009 province of Khanh Hoa. The company will begin building in October 2009 as a part of a project to develop the international transshipment port, primarily to serve Asian trade. The two berths will have the capacity to handle vessels of up to 9,000 twenty-foot equivalent units (TEUs). Vinalines will further develop the other berths with the capacity to handle ships between 12,000 and 15,000 TEUs. Cargonews Asia reports that the new International Transshipment Port of Van Phong will have between 36 and 42 berths. The Ministry of Transport's Vinamarine International Co-operation Department stressed the country's port sector requires significant investment if it is to keep pace with wider economic development. Dubai-based port operator Dubai Ports World (DP World) was to launch the Saigon Premier Container Terminal (SPCT) on October 1 2009. The terminal is a joint venture between DP World and Tan Thuan Industrial Promotion Company (IPC) and is on the Soai Rap River near Ho Chi Minh City, Vietnam. SPCT will provide services to Ho Chi Minh City and the surrounding industrial zone area. SPCT will have a capacity of 800,000TEUs annually, increasing to 1.5mn TEUs after the completion of the second phase. DP World has become one of the world's largest port operating companies. Focusing on the container business, the company 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 the new terminals are ready. Building for the second phase of the Cai Cui seaport project in Vietnam's Can Tho city began after an inaugural ceremony by Prime Minister Nguyen Tan Dung on July 11 2009. The prime minister said that once fully operational, the port would cut transportation costs in the Mekong delta and would help reduce congestion at the Saigon port. The second phase, worth VND600bn (US$34mn), includes 500m of wharves, modern handling facilities and a logistic area. BMI notes that while Vietnam's port infrastructure is still relatively underdeveloped compared with other major Asian export nations, continuing developments within the nation's port sector are expected to ease congestion in years to come. PricewaterhouseCoopers (PWC) executive director for south east Asian infrastructure is quoted in the Saigon Times saying, 'Vietnam will need to increase the levels of infrastructure investment at twice the growth rate of GDP to increase its overall national competitiveness'. The CKYH Alliance said it would begin a direct service between Vietnam and the US East Coast from mid-August 2009. The alliance will start by adding Ho Chi Minh City to its current AWE-4 (All Waters East Coast-4) service, managed by Kawasaki Kisen Kaisha (K-Line). It is considered to be the first direct service from Ho Chi Minh City to Norfolk and New York. Alliance members include Coscon, KLine, Yang Ming and Hanjin Shipping Company. Industry observers believe the service will reduce transit time and provide easier access to and from Vietnam. This will possibly result in improving profit levels. We predict Vietnam's export sector will become one of the strongest in the region, despite a projected decline in 2009. © Business Monitor International Ltd Page 18 Vietnam Freight Transport Report Q4 2009 South Korea's Hanjin Shipping Company has announced in June the launch of a new service, the SJX (Southeast and Japan Express), from June 21 2009. The new service would connect South East Asia and Japan with the US west coast, and included a direct call at the new deepwater port in Ho Chi Minh City, Vietnam. The service will use six vessels, each with a capacity of 4,000TEUs. Industry observers believe the new service will prove a more economical option for customers, as it will reduce the cargo transit time. Moreover, the service will also increase the company's coverage of key ports in Asia and the US. We forecast that Vietnam's export sector will become one of the strongest in the region, despite a projected decline in 2009. Vietnam commenced operations of its first deep-water port, SP-PSA Port, on May 29 2009, with the arrival of the container ship APL Alexandrite. The port is a joint venture between Saigon Port and PSA Singapore, with a capacity of 2.2mn twenty-foot equivalent units (TEUs). The ship, with a 3,821TEU capacity, is a part of the first direct service between Vietnam and the US. We predict Vietnam's export sector to become one of the strongest in the region, despite a projected decline in 2009. As Western consumer demand recovers from 2010, we forecast Vietnam's exports to grow by an average of 7.1% year-on-year (y-o-y) over our 2010-2013 forecast period. BMI predicts that Vietnam's exports and imports will reach US$79.3bn and US$86.5bn respectively by 2013, with an average annual trade growth of 3.8% over our 2009-2013 forecast period. © Business Monitor International Ltd Page 19 Vietnam Freight Transport Report Q4 2009 Industry Forecast Scenario Global Oil Products Market Review Spinning The Wheels As a barometer for current and future products demand, the world’s autos industry continues to be a cause of great concern, in spite of government initiatives that have stabilised the situation. The industry is now just spinning its wheels while waiting for the recession to end and consumer activity to recover. European car sales rose in June for the first time in 14 months as government-backed incentives boosted demand at Volkswagen (VW) and Fiat in particular. New-car registrations increased by 2.4% to 1.46mn vehicles, the first monthly gain since April 2008, according to the Brussels-based European Automobile Manufacturers’ Association (EAMA). Sales for the first six months of 2009 fell by 11% to 7.43mn cars. State scrappage incentives, topped by Germany's EUR2,500 bonus for car buyers who trade in old vehicles, have favoured sales of smaller models. So-called ‘premium’ carmakers are not benefiting on the same scale. European deliveries by VW rose by 9.5% to 312,302 cars. Meanwhile, Turin-based Fiat recorded a 12% gain, selling 125,640 vehicles in the region. Germany led the June expansion, with a 41% sales surge, reflecting the generous terms of its incentives. The French market grew by 7%, while Italy advanced by 12%. Central and Eastern European demand continued to contract, declining by 25% in June and 27% for the first half of the year as a whole. Registrations for Mercedes-Benz slipped by 1.4% to 61,530 vehicles. BMW’s European sales fell 13% to 60,454 cars. VW’s Audi unit bucked the trend among premium brands, achieving a 5.8% gain to 62,639 cars and sports utility vehicles (SUVs). However, a July 2009 report in the Wall Street Journal suggested that European car sales may slump in 2010 after scrappage programmes come to an end. Analysts quoted suggest that EU car plants will have an excess capacity of 7.2mn vehicles in 2010. The French government plans a gradual phase-out of its EUR1,000 car sales incentive, which had been due to expire at the end of 2009, a report in Les Echos stated, citing industry minister Christian Estrosi. While the scrappage bonus cannot be ‘maintained indefinitely’, the government is working on a phased withdrawal, Estrosi was quoted as saying. Renault’s CEO Carlos Ghosn said in July that the expiry of state-backed incentives in France and elsewhere threatened to offset any improvement in demand and prevent a European sales recovery in 2010. © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q4 2009 In the US, it has been predicted that autos sales probably will rise to an annual rate of more than 10mn in H209 as fleet operators finally replace their ageing vehicles. Purchases in the first half of the year were abnormally low by historical standards. Fleet purchases, along with the federal government’s scrappage programme, may push the annual rate to more than 9.9mn, the highest in any month so far this year. Sales of cars and light trucks in 2008 totalled 13.2mn. General Motors and Chrysler, which have both left bankruptcy, need a 10mn annual sales rate to break even, according to the US government. Fleet sales can account for as many as 3mn vehicles annually. However, rental-car companies such as Hertz have been keeping vehicles longer. Dean Maki, chief US economist at Barclays Capital, is among those predicting that automakers will crank up production to meet demand spurred by the scrappage programme. A rebound in the industry’s output would help pull the economy out of the recession, he said. Nissan expects Japanese sales to improve in July, helped by government incentives. Under a government programme beginning on June 19, consumers can apply for a JPY250,000 subsidy if they scrap a car that is more than 13 years old to buy a new one and for JPY100,000 for a new car purchase without scrapping an old one. Chinese car sales have begun to pick up, after the earlier slump. VW, which is the biggest overseas carmaker in the country, boosted first-half sales in China by 23% after a government stimulus package helped spur demand. Sales to consumers jumped to 652,222 units. The overall passenger car market (excluding minivans), grew 22% from a year earlier. China is on course to pass the US as the world’s largest auto market in 2009, after the government halved retail taxes on small cars and gave out subsidies in rural areas to help revive flagging demand. Demand In The Doldrums The downturn continued through the second quarter. In May, OECD oil products consumption fell by an estimated 7.4% year-on-year (y-o-y). Europe, Asian OECD states and North America registered losses for the 13th consecutive month. The Pacific region suffered particularly badly, with a decline in demand of more than 11%, in spite of greater gasoline usage. North America's 8.1% fall was spread across all product groups. Europe fared better by comparison, with a 4.3% reduction in May demand. According to the International Energy Agency (IEA)’s July 2009 report, preliminary weekly data for the US showed an 8.1% y-o-y fall in June demand. All product categories bar residual fuel oil saw losses, scaring the bulls and undermining belief in the country's economic recovery. The weakness in diesel demand (-13.4% y-o-y) is particularly worrying, as it is a barometer of underlying economic activity. © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q4 2009 According to the American Petroleum Institute (API), US demand for crude oil and petroleum products declined by 5.4% y-o-y during June. Total petroleum product deliveries, excluding exports, averaged 18.61mn barrels per day (b/d), down 1.07mn b/d from a year ago, the API said in its monthly oil report. Demand fell by 6% to 18.75mn b/d in the first half of 2009, the lowest level for the six-month period in more than 10 years. The downturn is having the greatest impact on distillate demand, with industrial and transportation use of diesel hit particularly hard. The situation for jet is no better, and gasoil consumption is sufficiently weak to see inventories in OECD Europe above the five-year average. In fact, Europe is storing up trouble with a glut of middle distillates. Much of an estimated 50mn bbl of products in floating storage is reportedly sitting offshore Europe. This bodes ill for prices over the next few months. False Dawn For Gasoline Bullish market observers will have been alarmed by the apparent absence of the seasonal upturn in US gasoline demand. Given that gasoline prices soared in June thanks to hopes of a good driving season, the market must now be very concerned about the likely trend for the rest of the summer. For a second year in a row, the US driving season either petered out early, or never got going at all. Gasoline demand actually fell by an estimated 1.5% y-o-y in June, early July data are not encouraging and the US-based American Automobile Association (AAA) expects a drop in vehicle miles travelled (VMT). Gasoline prices took off in June, stirring hopes that it would be a strong US driving season. By 22 June, the average US regular gasoline price had reached US$2.69 per gallon. At the beginning of the quarter the average price was US$2.04/gallon, so there had been an increase of almost one-third to the June peak. In mid-July, the price had fallen for the third week in a row, dropping to US$2.53/gallon. A year earlier it was US$4.12, but drivers did not respond by tackling long journeys. Prices decreased throughout the country, with the biggest drop seen in the Midwest. During Q209 BMI estimates that the global wholesale price for premium unleaded gasoline was US$69.89/bbl. Gasoline prices in Q209 were down from US$127.92 in the equivalent period of 2008 (45.4%). Fore the third quarter of the year we forecast an average global gasoline price of US$63.70/bbl. For the whole of 2009, the BMI assumption is an average US$62.12/bbl. The overall y-o-y fall in 2009 gasoline prices is 40.0%. Jet Jitters In July the International Air Transport Association (IATA) reversed its rather optimistic prediction from the previous month that declines in the demand for air travel may have bottomed. It said that the May 2009 decline in the number of people flying was the biggest monthly fall for the year so far. Confidence has slipped among IATA members, and many carriers do not expect conditions to improve until the end of the year at the earliest. In its quarterly business confidence survey, the IATA reported that passenger © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q4 2009 travel numbers in May fell 9.2% during the month. All airlines surveyed were suffering through pricing declines, with half saying they expect yields to fall further this year. The cutting of fuel surcharges, the impact of swine flu and the downgrading to economy class have all contributed to airline misery, but the primary concern has been a glut of excess capacity. Capacity cuts have come at about half the rate of the declining traffic trend, putting pressure on prices, IATA said. The number of passengers flying on premium tickets fell by 23.6% y-o-y in May 2009, according to the IATA. That follows a 22% decline in April. Meanwhile, the number of passengers flying economy fell 7.6%, after growing 0.3% in April. Premium traffic in the North Atlantic was down by 16.5% in May y-o-y. Travel across the North and mid-Pacific was down by 30.7%, and travel in Europe was down 30.6%. Q2 losses at the eight biggest US airlines may be US$1.2bn, said Michael Linenberg, a Bank of America analyst in New York. Jet fuel prices climbed by 32% in the quarter, although the US$1.59/gallon average was down 58% y-o-y. According to the API, US jet fuel demand in June plunged by 19.4% y-o-y to 1.31mn b/d. Jet prices averaged US$66.87/bbl in Q209, using the composite for New York, Singapore and Rotterdam. The annual decrease was 57.3%, and the monthly low during the first half was US$53.75 in February 2009, with the price reaching US$77.19/bbl in June 2009. For Q309 we are assuming an average global jet price of US$67.65. For 2009, the annual level is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. Diesel Drifts In the US, mid-July diesel prices were almost 47% below the all-time high seen a year earlier, averaging US$2.54/gallon against US$4.76 in July 2008. Prices had fallen for the third successive week, with declines seen in every region but the biggest drop taking place on the West Coast. US diesel’s low point was in mid-March 2009, at US$2.02/gallon. The year’s high of US$2.62 was reached during the week of June 22, a rise of almost 30% from the low point. June US deliveries of distillates, which include heating oil and diesel, declined by 279,000b/d (-7.4%) to 3.48mn b/d, according to API data. Overall oil product demand in Europe during May fell by 4.3% y-o-y, with diesel down 3.6%, according to IEA data. In France, diesel demand contracted sharply and registered a 4.7% fall in May. The European gasoil market was expected to come under increased pressure in July on the back of huge export flows from the US and Russia. Gasoil in Q209 averaged US$65.37/bbl, based on a composite global price. Our revised Q309 forecast is for global gasoil at an average US$ 68.45/bbl, a 51.2% y-o-y decline. For 2009 as a whole, the BMI forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q4 2009 Table Global Oil Prices, 2003-2013 (US$ per barrel) 2003 2004 2005 2006 2007 2008 2009f 2010f 2011f 2012f 2013f OPEC basket 28.10 36.05 50.64 61.08 69.08 94.08 55.00 60.00 65.00 70.00 70.00 WTI 31.06 41.49 56.59 66.02 72.26 99.56 57.51 62.74 67.97 73.20 73.20 Brent 28.83 38.27 54.52 65.14 72.52 96.99 56.29 61.42 66.53 71.65 71.65 Urals 27.04 34.50 50.87 61.35 69.51 94.49 55.55 60.61 65.66 70.71 70.71 Dubai 26.76 33.69 49.54 61.52 68.37 93.56 55.60 60.66 65.72 70.77 70.77 f = forecast. Source: BMI © Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q4 2009 Macroeconomic Outlook Economic Outlook Growth Bottoming Out, But Risks To Recovery Remain We maintain our below-consensus 2.9% GDP growth forecast for 2009, but are now acknowledging upside risks to this forecast. This is due to strong fiscal and monetary stimulus bolstering domestic demand, and a weaker dong softening the contraction in external demand. With global conditions expected to improve in 2010, we maintain our 5.0% growth forecast for next year. We revised down our 2009 growth forecast for Vietnam from 5.0% to 2.9% in January as regional and global macroeconomic data hit home the severity of global demand destruction, which will undoubtedly have an effect on the export-dependent Vietnamese economy. We now note that both the Vietnamese government and the IMF have followed our lead. The Vietnamese government lowered its 2009 growth target from the 6.5% set in December to 5.0% in May, while the IMF reduced its 2009 growth forecast for Vietnam from 4.75% to 3.3% in early May, to reflect a deterioration in the global macroeconomic environment. However, we are now acknowledging upside risks to our 2009 forecast as domestic and global economic data indicate that the 3.1% y-o-y growth posted by Vietnam in Q109 may have been the bottom of the ongoing downturn. However, there are a number of potential obstacles for a sustained economic recovery, and we thus remain averse to claiming that Vietnam is out of the woods quite yet. The 3.1% y-o-y outturn in Q109 was the slowest on record, with manufacturing growth dropping to 0.45% y-o-y from 6.3% in the preceding quarter, a sharp contrast from the double-digit growth rates registered between Q106 and Q308. The state-run National Centre for Socio-Economic Information and Forecast stated in a report released in early May that growth would pick up to 3.5-3.8% in Q209, and we find this estimate reasonable given the solid performance of exports and the boost given to economic activity from the expansion of the government's loan subsidisation programme. Indeed, the government's decision to include medium-and-long-term loans in the programme saw overall lending jump by 4.86% m-o-m in April from growth rates of 0.52%, 0.23% and 1.92% in January, February and March, respectively. In addition, industrial production grew by 4.2% m-o-m in April after having contracted by 8.6% in February. This pushed cumulative industrial production output for January-April up by 3.3% compared to the equivalent year-ago period. We expect industrial production growth to rise to 8.0% by the end of 2009, bringing the average for the year to 6.0%. Moreover, retail sales increased by an impressive 21.5% y-o-y in January-April as Vietnamese consumers remained considerably more optimistic than their © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q4 2009 counterparts in other Asian economies. The semi-annual Nielsen global consumer confidence index for H109, published in April, showed that Vietnamese consumers were the most optimistic in the world when it came to believing that the domestic economy would exit the current downturn by the end of 2009. Private consumption should also be boosted by a planned US$1.6bn of tax breaks for companies and individuals in a US$8-9bn stimulus package being debated in the National Assembly as we went to print. While the National Assembly has increased its scope to criticise suggested government policies, effective political power still lies with the Politburo. Hence, we see no risk that the government's stimulus package will fail to gain parliamentary approval. Further Dong Devaluation Likely The Vietnamese export sector has done relatively well so far this year, with exports declining by 0.1% yo-y in January-April, which can be compared to double-digit declines in other regional economies. Having said this, subtracting the US$2.5bn export rush in gold bullion in Q109 the y-o-y export growth figure for the period drops to -13.7%, which we believe is a more representative figure. We are currently expecting exports to drop by 19.5% to US$50.9 for 2009 as a whole. While this is considerably better than our forecasts for other Asian economies, Vietnam's high reliance on external demand – exports amounted to 74.8% of GDP in 2008 – means that the country's export contraction will be harder felt. Further dong devaluation may thus prove to be an easy way for the authorities to soften the blow of contracting external demand. Indeed, we adjusted our end-09 dong target from VND18,000/US$ to VND19,000/US$ in January and were partly vindicated in doing so when the State Bank of Vietnam (SBV) widened the trading band around the dong from 3% to 5% on March 24, which was effectively a devaluation of 2%. After a brief period of stabilisation, downside pressure on the dong has quickly re-emerged. This was mainly due to the SBV's expansive monetary policy and declining dollar inflows from exports, foreign direct investment and remittances. With the US dollar trading at a premium of VND200-500 to the ceiling price of the SBV's trading band on the black market in mid-May, we expect it to be only a matter of time until conditions on the ground will yet again force the central bank's hand. The extent of the devaluation is to a large extent a guessing game. We find an adjustment of 2-3% to VND18,200-300/US$ most likely at the initial stage to bring the official exchange rate in line with supply and demand conditions, but do not preclude a larger adjustment to quell expectations of a further devaluation. A dong devaluation would naturally add to the inflationary pressures already evident in the economy from the interest rate subsidy programme. Nonetheless, the present trend is still one of disinflation with consumer price inflation dropping to 9.2% y-o-y in April 2009, the first single-digit figure since October 2007. We expect inflation to bottom out in the low single digits in Q309 and start rising again towards the end of the year (our end-09 inflation forecast stands at 7.7%). However, we are already seeing signs that © Business Monitor International Ltd Page 26 Vietnam Freight Transport Report Q4 2009 inflation expectations are rising, with fears of a new inflationary bubble weakening public confidence in the dong, which could bring a further dollarisation of the economy. This would in turn decrease the traction of monetary policy and most likely result in further macroeconomic instability. An orderly depreciation of the dong towards VND19,000/US$ would, on the other hand, aid the export sector and an economic recovery, especially as the pressure is now on other Asian currencies to appreciate against the dollar as risk appetite has returned, further improving Vietnam's price competitiveness. Also adding to a more positive external demand picture is the effect on domestic demand expected from the strong fiscal stimulus package currently being implemented by the government to counter the slowdown. However, while the government's efforts to counter the slowdown through increasing public infrastructure projects are commendable, we believe that the slow disbursement of the funds will to a great extent spill over into 2010. With this in mind, we are forecasting a fiscal deficit of 8.2% of GDP in 2009 to be followed by a 7.8% shortfall in 2010. This has raised the need to increase government borrowing to finance the burgeoning fiscal deficit. However, the state treasury has held a number of unsuccessful bond auction in H109 as it has been averse to pay the higher yields demanded by the market. As a consequence, the treasury had in mid-May only been able to raise US$236mn out of the government's fund-raising target of US$3.11bn. Yet, with government revenue falling by 20% y-o-y in Q109, the treasury will inevitably have to accept higher yields in future bond auctions. However, we do not see this as a greater threat to public finances as total public debt is still less than 50% of GDP, according to IMF estimates. Indeed, we raised our sovereign risk rating for Vietnam from D- to D in May, but this was solely due to an improvement in the ability-topay component from 22 to 26 (out of 45) on the back of greater macroeconomic stability, with the willingness-to-pay component actually falling from 30 to 28 (out of 55). Risks To Outlook We have decided to maintain our below consensus GDP forecast of 2.9% in spite of the emergence of tentative green shoots of economic revival in recent macroeconomic data. There are a few factors that keep us from revising up our growth forecast. Firstly, we suspect that part of the increased lending through the loan subsidisation programme has been invested in the stock and real estate markets, and may thus not actually bolster real economic activity. Secondly, the sharp credit growth rate in April has made the SBV apprehensive of a possible resurgence in inflation with the 0.35% m-o-m increase in April being the highest monthly inflation rate recorded since August last year (with the exception of the 1.17% Tetinduced price increase in January). We see a risk that stimulative fiscal and monetary policy will lead to inflationary conditions down the road, and possibly a repeat of the severe macroeconomic imbalances of 2008, when inflation rocketed to 28.4% y-o-y in August and the ballooning trade deficit threatened a balance-of-payments crisis. Also taking in mind the weak public confidence in the dong, we see a possibility that the SBV and the © Business Monitor International Ltd Page 27 Vietnam Freight Transport Report Q4 2009 government may thus opt to scale down their stimulus efforts for the benefit of macroeconomic stability and longer-term growth. Thirdly, external demand will be key for an economic recovery. With this in mind we highlight that our growth forecasts of -3.1%,-3.6% and -6.1% for key export destinations such as the US, Europe and Japan, respectively, are still considerably below consensus. Indeed, we do not expect these economies to post a marked recovery until well into 2010. With global growth forecast to improve to 1.7% in 2010, after a 2.3% contraction in 2009, we maintain our 5.0% GDP growth forecast for Vietnam next year, with GDP forecast to expand by 7.0% in 2011. Table: Vietnam – Economic Activity, 2006-2013 2006 2007 2008 2009f 2010f 2011f 2012f 2013f Nominal GDP, VNDbn 1 974,266 1,144,016 1,478,695 1,711,360 1,899,304 2,111,893 2,362,410 2,652,283 Nominal GDP, US$bn 1 61.00 70.94 84.59 90.07 94.97 111.15 131.25 147.35 8.2 8.5 6.2 2.9 5.0 7.0 7.7 7.9 723 829 975 1,024 1,065 1,229 1,432 1587 84.4 85.6 86.8 88.0 89.2 90.4 91.6 92.8 17.7 16.3 14.6 6.0 10.0 12.0 14.0 14.0 4.8 4.6 5.0 5.5 5.5 5.0 4.5 4.0 Real GDP growth, % 1 change y-o-y GDP per capita, US$ Population, mn 1 2 Industrial production 3 index, % y-o-y, average Unemployment, % of labour force, end of 3 period 1 2 3 f = BMI forecast. Source: IMF (General Statistics Office); IMF; General Statistics Office © Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q4 2009 Transport Outlook Table: Transport And Communications Data And Forecasts, 2006-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f Annual GDP growth, % 8.2% 8.5% 6.2% 4.5% 5.5% 6.8% 7.7% 8.0% 8.2% GDP index, 1995=100 217.5 236.0 250.6 261.9 276.3 295.1 317.8 343.3 217.5 5-year average annual GDP growth, % 7.8% 8.0% 7.8% 7.2% 6.6% 6.3% 6.1% 6.5% 7.8% Annual transport and communications sector growth, % 9.5% 9.8% 7.5% 5.7% 6.7% 8.0% 8.9% 9.2% 9.5% Transport sector GDP index, 1995=100 224.9 246.9 265.4 280.6 299.4 323.5 352.3 384.8 224.9 5-year average annual transport GDP growth, % 9.0% 9.6% 9.1% 8.5% 7.8% 7.6% 7.4% 7.7% 9.0% Transport and communications sector, % of GDP 4.2% 4.2% 4.3% 4.3% 4.4% 4.4% 4.5% 4.5% 4.2% Annual import growth, % 22.1% 38.3% 37.5% -20.6% 11.0% 11.0% 10.0% 10.0% 22.1% Imports index, 1995=100 565.0 781.4 1074.3 852.8 946.6 1,050.7 1,155.8 1,271.4 1,565.0 5-year average annual import growth, % 24.9% 22.7% 29.3% 18.5% 17.7% 15.4% 9.8% 4.3% 24.9% Annual exports growth, % 22.7% 21.9% 30.3% -5.3% 10.0% 10.0% 12.0% 12.0% 22.7% Exports index, 1995=100 766.0 933.8 1216.3 1151.9 1267.1 1393.8 1561.2 1748.5 766.0 5-year average annual export growth, % 21.7% 23.8% 25.8% 18.4% 15.9% 13.4% 11.4% 7.7% 21.7% Transport and communications sector value, US$bn nominal 2.5 3.0 3.6 3.9 4.4 5.0 5.9 6.7 2.5 1,074 1,099 1,123 1,148 1,173 1,198 1,224 1,250 1,074 Total transport sector employment, ‘000 e/f = estimate/forecast. Source: BMI Since our last report we have adjusted our macroeconomic forecasts for Vietnam. After GDP growth in 2008 of 6.2% we raised the outlook for 2009 to 4.5% growth, up from 2.9% earlier. (These numbers are our latest projections and may update those in the preceding section) Our forecast for 2009-2013 is for an annual average GDP growth rate of 6.5% per annum, a 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 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 © Business Monitor International Ltd Page 29 Vietnam Freight Transport Report Q4 2009 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, this year’s contraction in trade has had a particularly strong impact on shipping and Vietnam is expected to export less coal by sea as its domestic power needs rise. The net result of this is that we expect freight carried growth across all modes, measured in mntkm, to average 5.0% 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 7.7%, versus 6.5% for overall GDP. The total value of transport and communications GDP will rise to US$6.7bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP. By modes, we project that air freight and road haulage will be the fastest growing, each rising by 7.9% per annum, followed by pipelines (7.5%), rail (7.0%), and shipping (4.2%). © Business Monitor International Ltd Page 30 Vietnam Freight Transport Report Q4 2009 Table: Freight Carried, Domestic, 2006-2013 2006 2007 2008 2009f 2010f 2011f 2012f 2013f Road (bn tonnes-km) 20,537 22,457 23,989 24,960 26,608 28,870 31,759 35,062 % change y-o-y 16.2% 9.3% 6.8% 4.1% 6.6% 8.5% 10.0% 10.4% % change, 5-year average 17.5% 16.1% 14.4% 10.9% 8.6% 7.1% 7.2% 7.9% % share total 17.4% 16.4% 15.1% 16.5% 16.5% 16.7% 17.1% 17.4% 3,447 3,769 4,026 4,189 4,442 4,775 5,179 5,635 % change y-o-y 16.9% 9.3% 6.8% 4.1% 6.1% 7.5% 8.5% 8.8% % change, 5-year average 11.1% 9.7% 8.2% 8.9% 8.6% 6.8% 6.6% 7.0% % share total 2.8% 2.9% 2.8% 2.5% 2.8% 2.8% 2.8% 2.8% Inland waterways (mn tonneskm) 4,081 4,463 4,767 4,982 5,283 5,678 6,159 6,701 % change y-o-y 8.8% 9.3% 6.8% 4.5% 6.1% 7.5% 8.5% 8.8% % change, 5-year average 7.5% 8.5% 8.4% 7.7% 7.1% 6.8% 6.7% 7.1% % share total 3.6% 3.5% 3.3% 3.0% 3.3% 3.3% 3.3% 3.3% Maritime (mn tonnes-km) 89,297 105,579 125,445 116,727 124,091 132,577 142,024 153,232 % change y-o-y 11.8% 18.2% 18.8% -6.9% 6.3% 6.8% 7.1% 7.9% % change, 5-year average 11.5% 13.5% 14.2% 10.4% 9.6% 8.6% 6.4% 4.2% % share total 75.8% 77.2% 79.0% 77.1% 77.0% 76.8% 76.4% 76.1% 269 304 324 336 353 384 425 473 % change y-o-y 12.6% 12.8% 6.8% 3.6% 5.0% 8.8% 10.8% 11.2% % change, 5-year average 11.4% 12.3% 9.1% 7.4% 8.1% 7.4% 7.0% 7.9% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 211 231 248 261 277 299 325 355 % change y-o-y 9.0% 9.8% 7.1% 5.2% 6.3% 7.8% 8.9% 9.2% % change, 5-year average 8.2% 8.7% 8.6% 8.0% 7.5% 7.2% 7.1% 7.5% % share total 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 117,842 136,803 158,799 151,455 161,054 172,582 185,872 201,458 % change y-o-y 12.6% 16.1% 16.1% -4.6% 6.3% 7.2% 7.7% 8.4% % change, 5-year average 12.3% 13.5% 13.8% 10.3% 9.3% 8.2% 6.5% 5.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Rail (mn tonnes-km) Air (mn tonnes-km) % share total Pipeline (mn tonnes-km) Total (mn tonnes-km) % share total e/f = estimate/forecast. Source: BMI © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q4 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 32 Vietnam Freight Transport Report Q4 2009 Table: Value Of Imports By Category, 2006-2013 (US$mn) 2006 2007 2008 2009f 2010f 2011f 2012f 2013f Total imports 42,600 58,920 81,000 64,300 71,370 79,220 87,150 95,860 % change 22.1% 38.3% 37.5% -20.6% 11.0% 11.0% 10.0% 10.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 1,235 1,709 2,349 1,865 2,070 2,297 2,527 2,780 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 43 59 81 64 71 79 87 96 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 767 1,061 1,458 1,157 1,285 1,426 1,569 1,725 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 5,708 7,895 7,895 7,895 7,895 7,895 7,895 7,895 13.4% 13.4% 13.4% 13.4% 13.4% 13.4% 13.4% 13.4% 128 177 177 177 177 177 177 177 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 5,666 7,836 7,836 7,836 7,836 7,836 7,836 7,836 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 9,329 12,903 12,903 12,903 12,903 12,903 12,903 12,903 21.9% 21.9% 21.9% 21.9% 21.9% 21.9% 21.9% 21.9% 11,417 15,791 15,791 15,791 15,791 15,791 15,791 15,791 26.8% 26.8% 26.8% 26.8% 26.8% 26.8% 26.8% 26.8% 2,769 3,830 3,830 3,830 3,830 3,830 3,830 3,830 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 5,581 7,719 10,611 8,423 9,349 10,378 11,417 12,558 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% 13.1% % 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 f = forecast. Source: BMI © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q4 2009 Table: Value Of Exports By Category, 2005-2013 (US$mn) 2006 2007 2008 2009f 2010f 2011f 2012f 2013f Total exports 39,830 48,560 63,250 59,900 65,890 72,480 81,180 90,920 % change 22.7% 21.9% 30.3% -5.3% 10.0% 10.0% 12.0% 12.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 9,480 11,557 11,557 11,557 11,557 11,557 11,557 11,557 23.8% 23.8% 23.8% 23.8% 23.8% 23.8% 23.8% 23.8% 40 49 63 60 66 72 81 91 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 916 1,117 1,117 1,117 1,117 1,117 1,117 1,117 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 10,515 12,820 16,698 15,814 17,395 19,135 21,432 24,003 26.4% 26.4% 26.4% 26.4% 26.4% 26.4% 26.4% 26.4% 159 194 253 240 264 290 325 364 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 279 340 443 419 461 507 568 636 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 2,191 2,671 3,479 3,295 3,624 3,986 4,465 5,001 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 1,952 2,379 3,099 2,935 3,229 3,552 3,978 4,455 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 10,794 13,160 17,141 16,233 17,856 19,642 22,000 24,639 27.1% 27.1% 27.1% 27.1% 27.1% 27.1% 27.1% 27.1% 3,545 4,322 5,629 5,331 5,864 6,451 7,225 8,092 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% % share Food and live animals % share Beverages and tobacco % share Crude materials, excl. fuels % share Mineral fuels, lubricants and related materials % share Animal and vegetable oils, fats and wax % share Chemicals and related products % share Basic manufactures % share Machines, transport equipment % share Miscellaneous products % share Unclassified goods % share f = forecast. Source: BMI © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q4 2009 Table: Top Export Destinations, 2002-2006 (US$mn) 2002 2003 2004 2005 2006 United States 2,350 4,463 5206 6,551 8,423 Japan 2,299 2,808 3507 4,122 4,871 Australia 1,172 1,476 1798 2,593 3,728 China 1,013 1,323 2322 2,318 2,260 Germany 1,007 1,181 1522 1,563 1,790 15,713 20,516 25779 30,957 39,514 Top 5, % of total 49.9 54.8 55.7 55.4 53.3 Industrial states 9,968 13,840 16939 20,246 25,396 140 162 274 392 166 4,254 5,147 7379 8,883 9,664 Central and Eastern Europe 395 443 505 575 904 Middle East 498 629 411 513 353 64 94 86 134 122 63.4 67.5 65.7 65.4 64.3 0.9 0.8 1.1 1.3 0.4 27.1 25.1 28.6 28.7 24.5 Central and Eastern Europe 2.5 2.2 2.0 1.9 2.3 Middle East 3.2 3.1 1.6 1.7 0.9 Latin America and Caribbean 0.4 0.5 0.3 0.4 0.3 Total exports Africa Asia Latin America and Caribbean Regions, % of total Industrial states Africa Asia NB Total exports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 35 Vietnam Freight Transport Report Q4 2009 Table: Export Trade, 2003-2006 (% Growth y-o-y) 2003 2004 2005 2006 United States 89.9 16.6 25.8 28.6 Japan 22.1 24.9 17.5 18.2 Australia 25.9 21.8 44.2 43.8 China 30.6 75.5 -0.2 -2.5 Germany 17.3 28.9 2.7 14.5 Total exports 30.6 25.7 20.1 27.6 Industrial states 38.8 22.4 19.5 25.4 Africa 15.7 69.1 43.1 -57.7 Asia 21.0 43.4 20.4 8.8 Central and Eastern Europe 12.2 14.0 13.9 57.2 Middle East 26.3 -34.7 24.8 -31.2 Latin America and Caribbean 46.9 -8.5 55.8 -9.0 NB Total exports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF Table: Import Trade, 2003-2005 (% growth y-o-y) 2003 2004 2005 2006 China 47.8 30.3 36.1 32.4 Japan 22.8 21.3 12.8 15.3 Korea 14.3 27.1 5.4 17.9 128.4 -12.1 2.4 -7.7 Hong Kong 27.5 24.9 5.2 17.4 Total imports 28.6 29.4 14.3 26.3 Industrial states 37.6 16.2 1.4 32.7 Africa 13.5 145.8 26.2 -61.2 Asia 25.6 34.5 19.2 25.1 Central and Eastern Europe 16.6 37.8 1.7 -32.8 Middle East 82.0 27.7 34.2 17.0 Latin America and Caribbean -5.5 52.2 25.5 28.0 United States NB Total imports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 36 Vietnam Freight Transport Report Q4 2009 Table: Top Import Sources, 2002-2006 (US$mn) 2002 2003 2004 2005 2006 China 2,365 3,496 4,557 6,203 8,215 Japan 2,349 2,885 3,500 3,949 4,554 Korea 2,464 2,817 3,581 3,775 4,450 United States 638 1,457 1,280 1,311 1,210 Hong Kong 845 1,077 1,345 1,415 1,661 19,976 25,686 33,241 37,980 47,954 43.4 45.7 42.9 43.8 41.9 5,369 7,386 8,584 8,707 11,556 52 59 145 183 71 13,219 16,606 22,342 26,629 33,316 Central and Eastern Europe 760 886 1,221 1,242 835 Middle East 200 364 465 624 730 Latin America and Caribbean 237 224 341 428 548 26.9 28.8 25.8 22.9 24.1 0.3 0.2 0.4 0.5 0.1 66.2 64.7 67.2 70.1 69.5 Central and Eastern Europe 3.8 3.4 3.7 3.3 1.7 Middle East 1.0 1.4 1.4 1.6 1.5 Latin America and Caribbean 1.2 0.9 1.0 1.1 1.1 Total imports Top five, % of total Industrial states Africa Asia Regions, % of total Industrial states Africa Asia NB Total imports is from the IMF’s Direction of Trade Statistics. Consequently there may be some discrepancy with data used elsewhere in this report. Source: IMF © Business Monitor International Ltd Page 37 Vietnam Freight Transport Report Q4 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 Q109 According to a report by Bloomberg news agency in March, the Asian Development Bank (ADB)’s country director for Vietnam, Ayumi Konishi, has stated that the country needed to focus more on infrastructure projects to ensure that its plan to build power plants, ports, roads and railways during the current tight economic period stayed on path. He stated that funds were available from governments, international agencies and the private sector. Vietnam’s Ministry of Planning and Investments released a list of 60 urban infrastructure projects to be implemented between 2009 and 2016. The total estimated investment required for the projects is US$12bn. The projects range from new water and sanitation infrastructure to new roads and traffic systems, and will take place in 15 provinces around the country. Construction of an urban railway project in Hanoi was due to start in early 2009. At the same time, Ho Chi Minh 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. Q408 According to a Reuters report in December 2008, Vietnam Infrastructure Development and Finance Investment had awarded a US$174.3mn contract to GS Engineering & Construction to build a highway in Vietnam. Vietnam’s road network is particularly under-developed, and causes serious city congestion and adds to road accident figures. It is vital for the country to improve its transport infrastructure in order to realise the country’s growth potential. Vietnam is looking to build 5,900km of highways over the next decade. Q308 Flash floods and landslides swept across parts of northern Vietnam in August, causing disruption to transport, destruction and loss of life. By August 18, 10 days after the flooding began, the People’s Army newspaper reported that 130 people were dead. © Business Monitor International Ltd Page 38 Vietnam Freight Transport Report Q4 2009 Q208 The transport sector was indirectly involved in a controversy over press freedom and corruption in May. At issue was an outcry over the arrest of two reporters for their coverage of a corruption scandal that led to the resignation of the minister for transport in 2006. Nine people, including government officials, had been found guilty of betting millions of dollars on European football matches and trying to bribe people in a cover-up operation. Q407 At the beginning of December 2007, local media reported that Vietnam’s southern Ho Chi Minh City, regarded as the country’s economic hub, required some US$22bn in new investments to develop its transport infrastructure and ease its growing traffic jams. Q307 Government officials and foreign investors in Vietnam’s booming economy appear to have agreed that catch-up investment in transport infrastructure is emerging as a top priority. In early September 2007, Prime Minister Nguyen Tan Dung announced road, rail and energy projects for the country’s seven northern provinces bordering China. Power plants would be built, two railways would be built to Lao Cai and Lang Son, and major roads would also be built linking China’s southern regions of Yunnan and Guangxi to northern Vietnamese ports in Haiphong and Quang Ninh. More generally, with GDP growth averaging 8% per annum over the last decade and record foreign direct investment of US$10.2bn 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. Q207 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. Vietnam, the WTO’s newest member, had identified the businesses in which the state would retain full control or a majority share, Prime Minister Nguyen Tan Dung said in March. The state would hold full control in military firms, companies that operate energy projects, flight-control operations, national railways, the media and money printing. Q107 Vietnam formally joined the WTO in January, completing a 30-year journey to integration with the economic mainstream. Membership, achieved against a background of very strong economic growth, © Business Monitor International Ltd Page 39 Vietnam Freight Transport Report Q4 2009 stimulated debate among experts over the sustainability of the economic development model and its ability to build transport and general infrastructure. Prime Minister Nguyen Tan Dung approved plans to sell shares in 53 large SOEs, including Vietnam Airlines, between 2007 and 2010. © Business Monitor International Ltd Page 40 Vietnam Freight Transport Report Q4 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 Q209 According to Vietnam’s VoV News, in early April the ADB and the French Development Agency (AFD) offered a financial grant of almost US$7mn to assist Vietnam in upgrading infrastructure facilities in three districts. The fund will be utilised to build 41km of rural road and for irrigation projects. South Korea’s Posco Engineering & Construction (Posco EC) and state-run VN Express signed a US$150mn contract for the construction of part of a highway in northern Vietnam. Under the deal, for 40 © Business Monitor International Ltd Page 41 Vietnam Freight Transport Report Q4 2009 months Posco EC will construct a 27km section of the 224km highway connecting the cities of Lao Cai and Noi Bai. The ADB will offer a US$410mn loan to Vietnam to build a 51km expressway, which will link Ho Chi Minh City, Vietnam’s economic hub, with Dong Nai province in the country’s southern region. Q109 Deputy Prime Minister Nguyen Sinh Hung gave orders in March to launch package No.3 of the Nhat Tan Bridge project in Hanoi’s Dong Anh District, as reported by Saigon Times Daily. Project Management Unit 85, which lists the construction ministry as the investor, has stated that the package will be completed in 34 months. The package aims to build over 4,600m of the road, as well as two interchanges for the bridge project. According to Viet Nam News, the construction contract for the highly significant section of Vietnam’s VND24.6trn (US$1.53bn) Ha Noi-Hai Phong Expressway was signed on February 14. The 9.3km-long section is a part of the 105km expressway project that starts from the northern port city of Hai Phong, and will link Thanh Ha District in Hai Duong Province and An Lao District in Hai Phong City. Vietnam Expressway Investment and Development Company (VEC) said that it would invest in four new expressway projects in the country in 2009, IntellAsia reported in January. The state-owned company said that the four routes assigned for development in 2009 are Noi Bai-Mai Dich, Hanoi-Lanf Son, Ha LongMong Cai and Ben Luc- Long Thanh. Q408 According to Tran Quang Phuong, director of the Ho Chi Minh City Department of Transport and Public Works, as cited by Viet Nam News in December, the city authorities were looking at ways of collecting toll money for the construction of a second bridge. The bridge over the Saigon River is estimated to cost US$110mn. Phu My Bridge (PMC) is investing funds for the project. Q308 Economic growth and rising living standards have been boosting the size of Vietnam’s vehicle fleet. According to the Vietnam Automobile Manufacturers Association, sixteen locally based car markers sold a combined 77,067 units in the first seven months of 2008, a 120% increase on the comparable yearearlier period. Q208 According to local media reports in May, Vietnam was building what was likely to become its busiest expressway, investing an estimated US$1.5bn in a new link between Hanoi and the port city of Haiphong. © Business Monitor International Ltd Page 42 Vietnam Freight Transport Report Q4 2009 The 105.5km expressway would have six interchanges, 30 bridges and 22 overpasses, and would be completed by 2011, the reports said. Over 3,000 people died in traffic accidents in the first quarter of 2008, according to local newspaper Viet Nam News. The paper said that in Q108 there were a total of 3,289 traffic accidents. The statistics were provided by the transport ministry, which said it was investing VND6,952bn (US$434.5mn) in order to reduce the number of deaths on the roads by 5-7% each year until 2010. Q108 A series of important road transport projects were announced in January. Among them was a proposal to build a 55km expressway linking Ho Chi Minh City and neighbouring Dong Nai province, with a total investment cost of VND18.88trn (US$1.2bn). A second venture was a 264km expressway stretching from the capital Hanoi to Lao Cai province, at a cost of VND19.984trn (US$1.25bn). Q307 In August, Bank for Investment and Development of Vietnam (BIDV) announced plans to issue US$500mn worth of international bonds over the next two years to help fund a key highway project. The funds would be used to help cover the estimated US$1.8bn cost of building the 120km Saigon-Trung Luong-My Nhon-Can Tho highway. In mid-August, the ADB said it was lending US$300mn to help fund a highway linking the western Chinese province of Guangxi to Vietnam. An ADB financial analyst said that the aim was to develop an integrated road network in the area, benefiting around 2.3mn people. Q207 Malaysian property developer SP Setia said on June 26 it had signed a joint venture agreement to build a township worth an estimated US$600mn in Vietnam’s Binh Duong province. State-run VEC would sell VND2.7trn (US$167.5mn) worth of bonds this year to finance an upgrade of a section of the north-south highway, state media reported on June 13. Vietnam’s Tan Tao Industrial Park Corp (Itaco) would raise US$59mn via issuing 20mn shares to invest in the construction of two residential areas, its chief executive said in mid-June. Itaco, the first industrial park developer listed in Vietnam, would use the proceeds to build Tan Duc and Tan Tao residential areas, establish a university and also boost the firm’s finances, CEO Thai Van Men said in a statement. © Business Monitor International Ltd Page 43 Vietnam Freight Transport Report Q4 2009 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 44 Vietnam Freight Transport Report Q4 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 Q209 The Vietnamese finance ministry will advance VND499bn (US$0.03bn) to Vietnam Railway Corp, as reported by IntellAsia. The fund will be used to accelerate work on some significant and urgent projects. Q109 The Vietnam Japan Consulting (VJC) 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. Stateowned 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. Q407 Planning on the proposed north-south railway continued during Q407. The project involves an investment of approximately US$33bn to build a railway connection capable of running trains at up to 350kmh. In late December 2007, the newspaper Vietnam News reported that the state-owned VRC had submitted a proposal to Deputy Prime Minister Hoang Trung Hai for a 1,630km route for the railway. © Business Monitor International Ltd Page 45 Vietnam Freight Transport Report Q4 2009 Q307 In August, the government announced plans to start building a major north-south railway in 2009, at an estimated cost of US$33bn. Official media quoted Nguyen Huu Bang, chairperson of VRC, saying that it had been instructed by the authorities to carry out a feasibility study on the 1,700km railway project. He said that some US$23bn of the planned investment would be spent on infrastructure, with the remaining US$10bn for equipment and trains. South Korean consultants are reported to have recommended that the project use the French TGV (Train à Grande Vitesse – high-speed train) system. Talks were also being held with Japanese companies to study that country’s shinkansen ‘bullet train’ technology. Q207 Vietnam would invest up to VND8.4trn (US$525mn) to build two railways that will link the country to Laos and Cambodia, an industry official said in late June. Vietnam plans to invest nearly US$1bn in the next three years to transform its outdated railway system by building new tracks for high-speed trains. Vietnam’s rail system is slow and trains overcrowded. The Ho Chi Minh City municipal government has approved the construction of an underground or subway system at a cost of US$1.1bn, with 83% of the money to be provided by Japanese aid. Q107 A Vietnam north-south express train collided with a passenger bus, instantly killing 12 people on the bus and injuring scores of others, state media reported on February 9. Vietnam will build a high-speed railway, with aid from Japan, at an estimated cost of US$33bn, a project that would cut travel time by two-thirds between Hanoi in the north and southern Ho Chi Minh City, the government said in early February. © Business Monitor International Ltd Page 46 Vietnam Freight Transport Report Q4 2009 Air There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines. Both of these airlines are state owned, and Vietnam Airlines is a key shareholder in Pacific 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$522mn (VND8.2trn) to expand Noi Bai International airport in Hanoi. Plans include expansion of the airport’s area to 900ha, the construction of a new runway and a second terminal, enlargement of the old runways and the enlargement of the cargo terminal. The expansion will enable the airport to receive larger aircraft such as the Boeing 777-300, Boeing 747 and Airbus A320. The aim is to increase airport capacity to serve 7mn passengers and 70,000 tonnes of cargo by 2010. According to Vietnam’s Civil Aviation Administration (VCAA), air traffic to and from the country rose by 12.3% last year to reach 12mn passengers. Air freight volume was up by 17.1% to 265,000 tonnes. VCAA said that 28 Vietnamese aircraft currently serve 72 destinations in 57 countries, while local aviation operates 26 domestic routes. Infrastructure The three major airports handling freight are located at Ho Chi Minh City, Hanoi and Da Nang, each of which have international connecting flights. Minor airports such as Cat Bi at Haiphong are generally used for domestic flights to the three larger hubs. Competitive Landscape: Aviation Q209 In May it was reported that the Vietnamese government had given approval to a master-zoning plan, drawn up by the Ministry of Transport, which proposes the development of 10 international airports across the nation, according to Asia Pulse. Q109 According to an IntellAsia report in February, a project to build an airport in Gio Quang, Quang Tri province, has been cleared by the People’s Committee of the province. The expected capital required is VND375bn (US$.02bn). Q308 Vietnam Airlines said that it made a loss of US$5mn in H108, after high oil prices forced it to spend more © Business Monitor International Ltd Page 47 Vietnam Freight Transport Report Q4 2009 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. Jetstar Pacific, Vietnam’s second largest airline which is now 18% owned by Qantas of Australia, said in August that it would drop its flights to the central Vietnam beach resort city of Nha Trang due to high fuel costs, and would instead open routes between Ho Chi Minh City and Bangkok in Thailand, Siem Reap in Cambodia, and Singapore. State-owned Vietnam Airlines said in August that it was introducing surcharges ranging between VND50,000 and VND180,000 (US$3-11) on its domestic routes because of high fuel costs. The company had previously reported a loss of VND83bn (US$5.02mn). Vietjet Air, which aims to become the country’s first fully private sector-owned airline, said it would postpone its launch from December 2008 to mid-2009, because of the effect of high fuel prices. Viet Nam News said Vietjet had also announced it would postpone its planned lease of two Boeing 737-700s, with which it intended to start services. Q208 In May, the government approved the establishment of the country’s second private airline, a low-cost carrier named Air Speed-Up Corp (ASP). The company was reportedly launched with initial capital of VND200bn (US$12.5mn) and would aim to lease 10 aircraft by the end of the year, initially focusing on serving the north-south domestic route. Deputy Prime Minister Hoang Trung Hai approved a VND13.74trn (US$857mn) expansion plan for the country’s second-largest airport near the capital Hanoi. Officials said the proposal was to build a third terminal at Noi Bai International Airport 45km north of Hanoi, boosting capacity from the current 10mn passengers a year to 25mn by 2020. Q108 In January, Vietnam Airlines said it would hire an international consultant to advise it on launching an IPO in which up to 20% of its shares would be sold to three foreign investors. Q407 In December, Vietjet Air, the country’s first privately owned airline, said it was planning to launch its first commercial service in December 2008 or in early 2009. The company received its air transport licence on December 20 2007, and said it would start off by leasing either Boeing 737s or Airbus A320s to offer domestic and international services. © Business Monitor International Ltd Page 48 Vietnam Freight Transport Report Q4 2009 Q307 Air Asia, Malaysia’s successful budget airline, signed a letter of intent with Vietnam’s Vinashin Group in September 2007 to set up a new low cost airline. The initiative was a new departure for Vinashin, which up to that point had concentrated on its core businesses of shipbuilding, heavy industries and construction. In July, The government of Vietnam agreed to act as guarantor for the national flag carrier Vietnam Airlines (VNA) to buy two Airbus A321 aircraft, due for delivery in July and November. According to the official Vietnam News Brief Service, the purchase was being carried out with financial support from the financial ministry, and legal advice on export credit and trade credit guarantee and aircraft buying contracts from the justice ministry. The two aircraft were among ten which Vietnam Airlines agreed to purchase from Airbus in December 2004. Q207 Vietnam planned to add a new terminal at Danang International Airport, which has seen a boom in tourists and business travellers, an official said at the end of May. The new terminal would be able to handle 4mn passengers a year, up from 1mn, said Nguyen Van Nien, of the Central Airport Authority. Singapore’s Changi Airports International said in May that it had signed a deal with the Vietnamese government to develop Vietnam’s Phu Bai-Hue International Airport. The deal to develop the airport, which is in the central province of Thua Thien Hue, is part of the government’s plan to increase tourism, Changi Airports said in a statement. Vietnam was expected to issue new regulations allowing foreigners to own up to 49% of local airlines, Dow Jones Newswire reported on May 3. Vietnam Airlines was looking to maintain annual double-digit growth by 2010, despite the increasingly fierce competition from domestic and foreign airlines, according to local press reports. Vietnam Airlines Chairman Nguyen Sy Hung said the airline was targeting annual growth of 12-14% to 2010. Australia’s Qantas Airways said on April 27 that it had agreed to buy 30% of Pacific Airlines from the Vietnamese government. 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. © Business Monitor International Ltd Page 49 Vietnam Freight Transport Report Q4 2009 Q107 Vietnam’s national carrier was planning to introduce direct flight service to the US as part of the terms reached under a 2003 air agreement, according to a media report. Vietnam Airlines said it intended to begin direct services to some US cities later this year, according to a report by the Chinese news agency Xinhua, citing Vietnamese state media. Vietnam Airlines said its revenue for 2006 rose 12.4% to VND17.5trn (US$1.09bn), thanks to an increase in passenger numbers. The unlisted company had a before-tax profit of VND304.5bn (US$19.05mn), meeting 92% of its target. © Business Monitor International Ltd Page 50 Vietnam Freight Transport Report Q4 2009 Company Profile: Vietnam Airlines Company Overview Vietnam Airlines was established as a state-owned airline in 1989 and merged with a number of service companies in 1996 to give it its present form. The government’s stated goal is to further integrate the company into the global market and establish itself as a regional player. Vietnam’s national carrier operates 64 routes to 20 domestic and 24 international destinations. Its fleet of 50 modern aircraft have carried more than 9mn passengers. In 2006, it was officially accepted as a full member of the International Air Transport Association. The Vietnamese carrier provides passenger air services to 25 destinations in 15 countries including many in South East Asia, Australia, Russia, France, Germany and the US. The company has a number of codeshare operations with foreign companies, in particular the February 2004 agreement with Air France to share 11 nonstop scheduled flights between Ho Chi Minh City and Paris. Vietnam Airlines’ cargo operations serve 20 destinations in Asia, the Middle East, Australia and Europe, with partner networks serving other destinations. The cargo division operates a joint venture with Singapore Airport Terminal Service – Tan Son Nhat Cargo Services – that has an annual cargo throughput of 100,000 tonnes. Strengths ƒ The national carrier in a high-growth country set in a high-growth region, with rising living standards set to boost demand for air travel at a proportionately greater rate than GDP growth Weaknesses ƒ To maintain market share in a dynamic but toughly competitive market, the company must gain professional skills and expertise, and a flow of new investment, at an accelerated rate. Any slippage is likely to have an immediate negative impact on margins Opportunities ƒ Developing the regional passenger market in Asia is Vietnam Airlines’ main opportunity, with cargo business as a second revenue stream Threats ƒ The main threat is regulatory – that the government will open up the industry at a faster pace, not giving the airline the necessary time to prepare for competition with private sector start-ups or established foreign carriers Financial Performance Profitability was on a downward trend in H109, the company said in mid-July. Pre-tax profits in the first half of the year were VND28bn (US$1.57mn). Of that total. Q109 pre-tax profits were VND24bn (US$1.35mn), while in Q209 they narrowed dramatically to VND4bn (US$0.22mn). The company said it had been strongly affected by the international recession and the effects of the H1N1 ‘swine flu’ pandemic. In the first half of the year Vietnam Airlines had carried over 4.4mn passengers. Domestic flight revenue grew by 15% year-on-year (y-o-y), while international revenue dropped 11.8% y-o-y. ‘The drop in international passengers is caused by the decreasing volume of foreign visitors coming to the country. In the first half, this volume decreased by 20%. Of those, the number of visitors using airlines was down by 11.6%’ the company said in a statement. Source: Asia Pulse (July 15 2009) © Business Monitor International Ltd Page 51 Vietnam Freight Transport Report Q4 2009 Latest Activity At the end of July, Vietnam Airlines said it had reached an agreement with the Cambodian Aviation Administration to set up an airline joint venture. The new company would be called Cambodia Angkor Air (CAA) and Vietnam Airlines would hold a 49% stake in it. CAA would start out using two aircraft, an ATR 72-500 and an Airbus A321200, mainly for domestic flights and some flights to neighbouring countries. The first routes were to be Phnom Penh to Seam Reap, and from both Phnom Penh and Seam Reap to Ho Chi Minh City. Source: Vietnam News Briefs (July 28 2009) Prior 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 one-day 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 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. © Business Monitor International Ltd Page 52 Vietnam Freight Transport Report Q4 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 53 Vietnam Freight Transport Report Q4 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 Q209 Ho Chi Minh City-based Trai Thien Sea Transport Investment and Development acquired a licence to build a deepwater international trans-shipment port in Con Dao island, situated in Ba Ria Vung Tau province. According to the Saigon Times Daily, citing Bloomberg, Deputy Director Duong Van Hoa said that Vinacomin would build a US$250mn deepwater port at Khe Ga Cape, in Binh Thuan province. Khe Ga Seaport will be utilised to import coal, and export aluminium and minerals. According to Saigon Times Daily, as cited by Hellenic Shipping News, Dubai Ports World (DP World)’s Saigon Premier Container Terminal is likely to be ready for operations in September 2009. The terminal is being built in two phases at a cost of US$305mn. It will have a capacity of 800,000 twenty-foot equivalent units (TEUs) annually, which will increase to 1.5mn TEUs after the completion of second phase. Q109 According to PortStrategy, the government of Vietnam in early March invited proposals from foreign investors for the development of a new trans-shipment port in Van Phong Bay. The biggest investor in the project is Vietnam National Shipping Lines, but further funding is required. A new maritime container route between Cai Lan in Quang Ninh province, northern Vietnam, China and Hong Kong was launched at the end of 2008. The route will help to foster trade between the northern border economic zones of Vietnam and its regional partners. Test runs for ships along the route began in November 2008, when the Mediterranean Shipping Company (MSC) vessel the 1,090TEU Wellington was the first to arrive in Cai Lan. In late December 2008, VietnamNet reported that the relocation of Ho Chi Minh City ports – Ba Son Shipyard, Saigon New Port, Saigon Port, Tan Thuan Dong Port and VegePort – from the inner city to the © Business Monitor International Ltd Page 54 Vietnam Freight Transport Report Q4 2009 suburbs was likely to miss targets. The relocations were to be finished by 2010; however, the project has been delayed because of a shortage of funds. According to Thai News Service as cited by Cargo News Asia, Vietnam Ocean Shipping (VOSCO) has started the transportation of cargo containers via a new route that runs from Doan Xa Port in Hai Phong to Tan Thuan Port in Ho Chi Minh City. Three of the world’s top container liners have signed a contract with the Saigon Newport Company to establish a joint terminal operation company to build and run a dedicated box facility in Ba Ria-Vung Tau, in Cai Mep. Mitsui OSK Lines (MOL), Hanjin and Wan Hai will join some of the world’s top operators, including Hutchison Port Holdings (HPH), PSA and DP World, in the development of Vietnam’s port sector. According to FDI Vietnam, in January the Ministry of Transport was urged by the Vietnamese deputy prime minister, Hoang Trung Hai, to devise a plan to seek foreign investment for the construction of the Van Phong International Entreport. He also instructed the project developer – Vinalines – to select contractors for the project. Q408 In December 2008, Vinamarine announced proposals to build a 9km canal to connect Can Tho City in the Mekong Delta with the sea. The plans were to be submitted to the Vietnamese government in the near future and Vinamarine believes that the canal could be completed by 2010. The canal would provide a new route connecting Can Tho on the Hau River to the sea via the existing Quan Chanh Bo canal. Q308 Cam Pha port in Quang Ninh in the north of Vietnam resumed coal export operations in mid-August after a shutdown caused by an accident. Cam Pha is the country’s main coal export terminal. Three of its four coal loaders collapsed on August 6, according to officials. The port was said to have resumed operations the following week at around 70% of capacity, with officials at Vinacomin, the state coal-mining group, saying it might take a month to get it back to normal operating levels. Q208 In June, US aluminium producer Alcoa signed an agreement with state-owned Vinacomin to set up a joint venture to develop a 600,000 tonnes a year alumina refinery and consider further development of the Gia Nghia bauxite mine. Kenneth Wisnoski, president of Alcoa’s Global Primary Products division, said rail and port infrastructure to ship the alumina to export markets would have to be built. In June, Vietnamese shipping companies were reported to be asking local exporters to pay freight charges in US dollars, to be protected from currency fluctuations. © Business Monitor International Ltd Page 55 Vietnam Freight Transport Report Q4 2009 In June, news agencies reported that the Chinese city of Qinzhou in Guangxi Zhuang Autonomous Region had won permission from the central government in Beijing to set up a free port zone close to the border with Vietnam. Dry bulker demand to ship Vietnam’s coal exports is expected to fall year-on-year as the country’s growing energy needs force more coal to be diverted to the domestic market. According to government sources, coal exports this year will total around 25mn tonnes, worth US$850mn, a fall on the 2007 totals of 32.6mn tonnes and US$1bn. Vietnam Tanker Co (Vitaco) said in April that it had agreed to buy an oil tanker for US$50.6mn from South Korea’s SLS Shipping. The ship, Petrolimex 11, had a capacity of 40,019 tonnes. The Vietnamese joint venture CMIT has signed a contract for the construction of a new container terminal in Ho Chi Minh City. This is the latest project to be finalised to overhaul Vietnam’s maritime sector. Port infrastructure investments have seen a rapid rise since the Vietnamese government began efforts to attract FDI to boost economic development, and several large scale projects involving international majors are in the pipeline. Q108 In January, the authorities said they would invest VND28trn (US$1.75bn) in the construction of a new seaport in Hai Phong City, Xinhua news agency reported. The state-owned Vinalines would build the 1,200ha Hai Phong International Gateway Port, which would have a capacity to handle 100mn tonnes of goods every year. Q407 In December 2007, newspaper Vietnam Economic Times said that the country needed US$4-5bn to build and upgrade seaports in the period running up to 2015. Q307 Vietnamese freight forwarder Gemadept Corporation announced at the end of August 2007 that it would start building a US$410mn deepwater container port in 2008 to handle growing demand for cargo trans-shipments. Under government plans, Cai Mep container port was one of five set to be built in the southern province of Ba Ria-Vung Tau by 2010 In August, Swiss bank Credit Suisse signed a memorandum with Vinalines, the leading shipping company in Vietnam, to provide loans worth US$700mn, various news agencies reported. As part of the financial service memorandum, Credit Suisse will provide Vinalines with ratings advisory, fund raising © Business Monitor International Ltd Page 56 Vietnam Freight Transport Report Q4 2009 and risk management services. The Swiss bank will also help in the development of a financing programme of up to US$1bn for Vinalines, which will be the first offshore loan for the Vietnamese firm. Russia has re-opened its Far East port in Vladivostok to rice imports, a move that would help cut shipping costs for Vietnamese exporters delivering to European buyers, trade officials said on July 6. Q207 Two ships collided in southern Vietnam and one sank, leaving one person dead and seven missing, state media reported on May 15. The vessel Gas Shanghai, registered in Marshall Islands, slammed into the Vietnamese Hoang Dat 36 near the mouth of the Saigon River, the online version of the Thanh Nien newspaper said. Vietnam’s state-run oil and gas monopoly PetroVietnam and the country’s largest shipping firm Vinalines had teamed up, establishing a joint stock company to develop a new port complex at an estimated cost of US$637mn in southern Vietnam, Thanh Nien Online reported at the end of May. Vinalines and China’s CMG group signed a deal to invest US$1bn in building and operating a container port, state media said on April 4. Construction would start later in 2007 and the port in the southern province of Ba Ria-Vung Tau, 90km south-east of Ho Chi Minh City, would be able to handle 100,000DWT vessels, the official Vietnam News Agency said. Vietnam’s Vinashin Shipping Industry Corp was looking to raise VND3trn (US$186.9mn) by selling 10year bonds, a person familiar with the deal was quoted at saying on March 19. Hanjin Shipping, South Korea’s largest shipping line by sales, said on March 5 it would form a joint venture with a Vietnamese company to start a container terminal business in Vietnam. Hanjin Shipping and Saigon New Port Co, the operator of Cat Lai terminal in southern Vietnam, signed a memorandum of understanding in Seoul to engage in the terminal and logistics business in the South East Asian nation, Hanjin Shipping said in a statement. Vietnam should invest in new deepwater ports if it wants to achieve its economic potential, according to NOL, the London-based Financial Times newspaper reported on its website on February 26. Vinalines may team up with Japan’s Sumitomo and Belgium’s Port of Zeebrugge to secure funds for developing two huge port complexes in the country, the group’s leader said at the end of April. Vinalines Chairperson Duong Chi Dung said the prime minister had told the group to mobilise funds for developing Van Phong Port in the central coast province of Khanh Hoa and Lach Huyen Port in northern Haiphong City. © Business Monitor International Ltd Page 57 Vietnam Freight Transport Report Q4 2009 Q107 State-owned Vinalines was preparing to sign deals to borrow up to US$550mn to raise funds to boost its shipping fleet, a company official said on February 22. State-owned Vinashin Business Group signed two contracts valued at US$2.4bn together to build ships and oil tankers for Vietnamese companies, a company official said on February 15. Unlisted Vinashin, the country’s largest shipbuilder, signed a contract to build three 105,000 tonne oil tankers for PetroVietnam, said Vinashin Executive Le Thanh Quang. The ports unit of Hong Kong conglomerate Hutchison Whampoa said in February that it had signed a joint venture agreement to build and operate a new container terminal in the Vietnamese province of Ba Ria Vung Tau – its first in the South East Asian nation. Hutchison Port Holdings (HPH), the world’s largest container-terminal operator in terms of throughput, said it would develop the port through a company it will jointly own with Ho Chi Minh-based property and construction firm Saigon Investment Construction & Commerce. Singapore container shipping firm NOL said on January 23 that it would upgrade its container terminal in Ho Chi Minh City to accommodate growth in containerised cargo in Vietnam. NOL, which is controlled by Singapore state investment holding Temasek, said in a statement that it would increase the berth length at the terminal by 192m, allowing the terminal to berth up to four container ships at a time. In February, two leading groups in the maritime sector, Vinalines and Vinashin, said they had clinched a memorandum of understanding to develop the national flag ship fleet until 2015 at a total cost of US$2.3bn. Under the deal signed in Hanoi, Vinalines placed orders for 19 vessels from 2007 to 2010, and 45 others five years after that, with a total capacity of 2.8mn DWT. Maersk Line is predicting 200% growth for its container business in Vietnam in a five-year period and sees the potential for direct calls in the future. ‘Clearly there is a lot of interest in Vietnam and a real strong demand for all kinds of business there,’ said Maersk South East Asia Chief Executive Morten Engelstoft in comments published at the beginning of March. © Business Monitor International Ltd Page 58 Vietnam Freight Transport Report Q4 2009 Company Profile: Vietnam Petroleum Transport Jsc (VIPCO) Company Overview Vietnam Petroleum Transport Joint Stock Company (VIPCO) specialises in marine transportation. It mainly offers marine transportation services, freight forwarding, shipping brokerage, customs clearance and port operation. Other activities include merchandise of petroleum, liquefied gas and petrochemicals; trading supplies and equipment, manning and warehousing; and minor industrial construction. The company has five subsidiaries and one affiliate, and is itself a subsidiary of Vietnam National Petroleum Corporation. Strengths ƒ At this stage in its economic development, Vietnam will require rapidly increasing import volumes of oil, gas and certain petrochemicals, as well as also extra export capacity. VIPCO is well positioned in a high-growth segment of the shipping market Weaknesses ƒ The global economic downturn of 2009-2010, accompanied by lower oil prices and sharply lower shipping freight rates, poses a serious challenge to profitability Opportunities ƒ Tanker rates have been less hard hit by the downturn than dry bulk, meaning that Vipco may be well advised to focus on improving market share within its existing segment, rather than diversifying Threats ƒ Vipco has a privileged position as a subsidiary of the state oil company. Any change to this role for regulatory reasons could therefore be a threat, implying potential loss of secure contracts Financial Performance VIPCO said it had registered pre-tax profit of VND61bn (US$3.42bn) in H109, an increase of 19.4% year-on-year, according to a statement on is website. Revenue in the first half fell by 22.3% to VND507.7bn. The oil tanker company said its target for 2009 was to make a net profit of VND75.2bn on revenues f VND1.034trn. Source: Vietnam News Briefs (July 2, 2009) Prior Activity VIPCO signed an agreement with the South Korean SK Shipping Company to rent out one of its two new ships – Petrolimex 15 and Petrolimex 16 – state media reported in April, citing VIPCO’s sources. The contract would take effect from the end of this year, the sources said without giving the value of the agreement. Source: Vietnam News Briefs (April 23 2009) © Business Monitor International Ltd Page 59 Vietnam Freight Transport Report Q4 2009 Table: Vietnam Petroleum Transport’s Key Financial Data 2007 2008 Q109 Net profit margin, % 6.16 5.90 12.75 Operating margin, % 6.30 6.03 12.75 19.48 18.51 na Return on average assets, % 4.88 4.91 7.43 Return on average equity, % 9.19 9.55 13.50 na na 486 EBITD margin, % No. of employees na = not available. Source: Company data, Google Finance © Business Monitor International Ltd Page 60 Vietnam Freight Transport Report Q4 2009 Company Profile: Doan Xa Port Company Overview Doan Xa Port Joint Stock Company is a Vietnam-based port operation company in Hai Phong. It mainly manages operations at Doan Xa Port, and provides port services, including loading/discharging cargo, warehousing, inland transportation and shipping agency. The company also offers minor supporting services, such as customs declaration, wholesales of handling machinery, and construction and maintenance of marine infrastructure. The company is affiliate of Vietnam National Shipping Lines (Vinalines). Strengths ƒ Given Vietnam’s strong growth record in recent years, and the country’s sharply increasing foreign trade, the port sector is expected to remain broadly profitable Weaknesses ƒ Global trade can fluctuate and, as in the 2009-2010 recession, fall in absolute terms, exposing Doan Xa to cyclical downturns Opportunities ƒ Haiphong’s strategic location means Doan Xa can benefit from growing trade with China (it is close to Hong Kong, Macau, Kunming and Guangzhou). It also can act as an eastern port for Myanamar and Laos Threats ƒ The port handles frozen foodstuffs and so is at risk of a loss of business during health scares such as the H1N1 ‘swine flu’ scare of April/May 2009 Financial Performance Doan Xa Port said in late July that it made a net profit of VND25.1bn (US$1.4mn), up by 146.1% year-on-year. Revenues rose by 69.3% to VND71.7bn. Six-month earnings per share (EPS) stood at VND4,835. Q209 pre-tax profit was VND17.05bn, up by 116.5% yoy, on revenue of VND44bn, up by 56.5% yoy. The Haiphong-based company said it was forecasting a 2009 pre-tax profit of VND16bn, which would be achieved on revenue of VND80bn. Source: Vietnam News Briefs (July 24 2009) Latest Activity In June Doan Xa Port moved its stock exchange listing from the Ho Chi Minh City Stock Exchange (HoSE) to the Hanoi Securities Trading Centres (HaSTC) because it was unable to meeting the new minimum capital requirement for the southern bourse. It was one of 21 companies that decided to move their listings to the HaSTC. The move came because under a government decree, companies listed on the HoSE with a charter capital of less than VND80bn were required to either increase their capital or move to the Hanoi Bourse. Source: Vietnam News Briefs (June 2009) © Business Monitor International Ltd Page 61 Vietnam Freight Transport Report Q4 2009 Prior Activity Thousands of frozen food containers imported for re-export were stuck at several ports in the northern city of Hai Phong, with unconfirmed reports saying importers were balking at accepting shipments based on swine flu fears, Thanh Nien reported in early May. The containers, stocking frozen chicken legs, pig stomachs and beef were lying at the Dinh Vu Port in Hai Phong City. Air conditioners had to be run round the clock to prevent the food from spoiling. ‘We can’t receive any more cargo as we are already stocked with five times our storage capacity. The cost of power for storing the frozen food containers has gone sky-high,’ said Nguyen Ngoc Hong, director of the port. Hong added he was very worried that owners of those containers might abandon the goods if the cost exceeds the shipment’s value. Chua Ve Port, one of the city’s largest ports, shared Dinh Vu’s plight, with nearly 1,000 frozen food containers stuck at the port. ‘Customers keep asking to delay exporting while others seek permission to import,’ said Vu Nam Thang, director of the port’s cargo handling agency. Frozen food imported for the domestic market was also stuck at the city’s ports. ‘We have just received two frozen food containers imported for domestic markets, which had struggled to find a port to unload,’ said Vu Tuan Duong, director of the Doan Xa Port. ‘But both have to be moved out of the port within two days as we are already overloaded.’ Duong showed Thanh Nien text messages local food importers sent to his cell phone, asking to postpone their shipments’ delivery dates. Source: Thanh Nien (May 2009) Table: Doan Xa Port’s Financial Performance 2007 2008 Q408 Net profit margin, % 30.79 30.79 35.14 Operating margin, % 33.67 33.67 37.67 EBITD margin, % 48.46 48.47 na Return on average assets, % 26.68 26.68 31.45 Return on average equity, % 41.00 41.00 46.31 na na 291 No. of employees na = not available. Source: Company data, Google Finance © Business Monitor International Ltd Page 62 Vietnam Freight Transport Report Q4 2009 Pipelines Competitive Landscape Q209 Vietnam oil and gas group PetroVietnam was preparing the construction of the US$1bn block B-O Mon gas pipeline in southern Can Tho City for Q409. The 406km gas pipeline comprises a 246km offshore pipeline and a 160km onshore pipeline. The pipeline will link more than five Mekong Delta localities, including Can Tho City, Hau Giang, Kien Giang, Bac Lieu and Ca Mau provinces Q207 Vietnam had started operation of its second gas pipeline, which would supply 2bn cu m of natural gas a year from an offshore field, a PetroVietnam official said on May 3. Vietnam is stirring up trouble by agreeing with BP and its partners to build a gas pipeline in the South China Sea, the Chinese foreign ministry said on April 10 of an area disputed by Hanoi and Beijing. The Spratly Islands, a string of rocky outcrops in the South China Sea suspected of containing large oil and gas deposits, are also claimed by Taiwan, Brunei, Malaysia and the Philippines. The US$2bn pipeline will bring gas from two new fields to Vietnam’s south coast, though details are still being worked out. © Business Monitor International Ltd Page 63 Vietnam Freight Transport Report Q4 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 64 Vietnam Freight Transport Report Q4 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 65 Vietnam Freight Transport Report Q4 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 66 Vietnam Freight Transport Report Q4 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 67 Vietnam Freight Transport Report Q4 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 68 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... International Ltd Page 29 Vietnam Freight Transport Report Q4 2009 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, this year’s contraction in trade has had a particularly strong impact on shipping and Vietnam is expected to... value of transport and communications GDP will rise to US$6.7bn in nominal terms by 2013, representing 4.5% of Vietnam s GDP By modes, we project that air freight and road haulage will be the fastest growing, each rising by 7.9% per annum, followed by pipelines (7.5%), rail (7.0%), and shipping (4.2%) © Business Monitor International Ltd Page 30 Vietnam Freight Transport Report Q4 2009 Table: Freight. .. service will reduce transit time and provide easier access to and from Vietnam This will possibly result in improving profit levels We predict Vietnam' s export sector will become one of the strongest in the region, despite a projected decline in 2009 © Business Monitor International Ltd Page 18 Vietnam Freight Transport Report Q4 2009 South Korea's Hanjin Shipping Company has announced in June the launch... forecast Source: IMF (General Statistics Office); IMF; General Statistics Office © Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q4 2009 Transport Outlook Table: Transport And Communications Data And Forecasts, 2006-2013 2005 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f Annual GDP growth, % 8.2% 8.5% 6.2% 4.5% 5.5% 6.8% 7.7% 8.0% 8.2% GDP index, 1995=100 217.5 236.0.. .Vietnam Freight Transport Report Q4 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... Monitor International Ltd Page 10 Vietnam Freight Transport Report Q4 2009 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... increase in credit growth since the government extended its interest-rate subsidy programme in April The SBV has reported a © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q4 2009 cumulative loan growth of 17% in H109, putting the government's 25% credit growth target for 2009 as a whole in danger Long-Term Risk The 3.1% y-o-y expansion in Q109 was the lowest on record, but more... at an average US$ 68.45/bbl, a 51.2% y-o-y decline For 2009 as a whole, the BMI forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q4 2009 Table Global Oil Prices, 2003-2013 (US$ per barrel) 2003 2004 2005 2006 2007 2008 2009f 2010f 2011f 2012f 2013f OPEC basket 28.10 36.05... expect industrial production growth to rise to 8.0% by the end of 2009, bringing the average for the year to 6.0% Moreover, retail sales increased by an impressive 21.5% y-o-y in January-April as Vietnamese consumers remained considerably more optimistic than their © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q4 2009 counterparts in other Asian economies The semi-annual Nielsen... states © Business Monitor International Ltd Page 13 Vietnam Freight Transport Report Q4 2009 Conversely, World Bank data state that it takes 11 procedures and 56 days to start a business in Vietnam, compared with an average of nine and 61 in East Asia and Pacific and six and 25 in high-income OECD states Labour Force Size Reliable data on the labour force in Vietnam are difficult to find However, it is estimated