Vietnam freight transport report q2 2014

Q2 2014
www.businessmonitor.com

VIETNAM
FREIGHT TRANSPORT REPORT
INCLUDES 5-YEAR FORECASTS TO 2018

ISSN 1750-5364
Published by:Business Monitor International


Vietnam Freight Transport Report
Q2 2014
INCLUDES 5-YEAR FORECASTS TO 2018

Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: January 2014

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Vietnam Freight Transport Report Q2 2014

CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Freight Transport ...................................................................................................................................... 9
Political ................................................................................................................................................. 12
Economic ............................................................................................................................................... 13
Business Environment .............................................................................................................................. 14

Industry Forecast .............................................................................................................. 15
Road Freight ......................................................................................................................................... 16
Table: Road Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Inland Waterways .................................................................................................................................. 18
Table: Inland Waterway Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Rail Freight .......................................................................................................................................... 20
Table: Vietnam Transport Network Length (km) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table: Rail Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Air Freight ............................................................................................................................................ 21
Table: Air Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Maritime Freight ................................................................................................................................... 23
Table: Maritime Freight, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Trade ................................................................................................................................................... 25
Table: Trade Overview, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Table: TOP IMPORT DESTINATIONS, 2005-2012, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Table: TOP EXPORT DESTINATIONS, 2005-2012, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Market Overview ............................................................................................................... 27
Industry Trends And Developments ................................................................................ 33
Multimodal ...........................................................................................................................................
Maritime ..............................................................................................................................................
Air ......................................................................................................................................................
Road ....................................................................................................................................................
Rail .....................................................................................................................................................

33
34
36
36
37

Company Profile ................................................................................................................ 39
Vietnam Airlines Cargo ............................................................................................................................ 39
Vietnam Petroleum Transport Company (VIPCO) .......................................................................................... 42
Vietnam National Shipping Lines (Vinalines) ................................................................................................ 44

Political Outlook ................................................................................................................ 48
Domestic Politics ..................................................................................................................................... 48
Table: Vietnam Political Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

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Vietnam Freight Transport Report Q2 2014
Long-Term Political Outlook ..................................................................................................................... 50

Oil Price Outlook ............................................................................................................... 54
Global Oil Products Price Outlook ............................................................................................................. 54
Table: 2013 Oil Product Price Forecast Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Methodology ......................................................................................................................................... 56
Crude Price Forecasts ............................................................................................................................ 57

Table: BMI's Oil Price Forecasts, Average Price (US$/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Oil Product Price Forecasts ..................................................................................................................... 57
Table: BMI's Refined Products Forecast, US$/bbl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Narrower US Market Crude-Product Spreads ..............................................................................................
Weak Demand Persists ............................................................................................................................
Supply: Global Capacity Supports Demand .................................................................................................
Quarterly Prices ....................................................................................................................................

59
60
61
65

Table: BMI Refined Oil Products Quarterly Forecast, US$/bbl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Naphtha: Long-Term Growth Faces Headwinds From Gas ............................................................................ 66
Gasoline And Gasoil/Diesel: Gasoline Weakness To Continue ........................................................................ 68
Jet Fuel: Downward Movement Capped By Recovery .................................................................................... 74
Table: Total Air Freight And Passenger Volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Bunker Fuels: Sulphur Control To Hit Rotterdam Hardest ............................................................................. 76
Risks To Outlook .................................................................................................................................... 78

Macroeconomic Forecasts ............................................................................................... 79
Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Demographic Forecast ..................................................................................................... 83
Demographic Outlook .............................................................................................................................. 83

Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Methodology ...................................................................................................................... 87
Industry Forecast Methodology ................................................................................................................ 87
Sector-Specific Methodology .................................................................................................................... 88
Sources ................................................................................................................................................ 89

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Vietnam Freight Transport Report Q2 2014

BMI Industry View
In line with BMI's view that the Vietnamese economy would accelerate forcefully into the final months of
the year (see 'Economy Picking Up Pace', October 4 2013), the latest data released by the General Statistics
Office (GSO) showed that the economy expanded by 6.0% year-on-year (y-o-y) in Q4 2013. This translates
into full-year growth of 5.4% for 2013, just slightly above our forecast of 5.3%. The latest GDP reading,
combined with the strong set of economic data we have seen in recent weeks (accelerating foreign direct
investment inflows, remittances, and merchandise trade exports), have reaffirmed our conviction that the
Vietnamese economy will begin 2014 on a strong note.

In welcome news for Vietnam's freight industry, officials from firms such as Nike, Levi's and Zara attended
a public briefing in November 2013 over the status of the trade discussions between Vietnam and the
EU. One of the matters discussed was the fashion industry's push to mitigate the global 'rules of origin'. The

rules of origin can result into a significant amount of money for the goods coming from Vietnam to the EU.
According to the apparel manufacturers, the modern trade policy must not punish firms for manufacturing
goods in more than one country.

However, Europe's domestic textile industry is against the relaxation of tariffs. 'There are still very high
tariffs and significant trade barriers in place which make it hard for importers and exporters to do business,
and the free trade agreement could potentially solve this issue,' said Tim McPhie, a European Branded
Clothing Alliance spokesperson (CNBC).

In 2014, the freight picture by mode is a little mixed but is steady across the board in terms of growth.
Leading the way over the next 12 months will be the road freight sector with healthy 6.05% tonnage yearon-year (y-o-y) growth anticipated. The maritime sector is also forecast for strong growth with the Port of
Da Nang set for slightly higher annual growth than the larger Port of Ho Chi Minh City (7.00% compared to
6.06%). Slightly lower y-o-y growth is pencilled in for both the rail and air freight sectors (3.12% and
3.00% respectively).

Headline Industry Data
■

2014 rail freight tonnage is set to increase by 3.12% to 6.73mn tonnes.

■

2014 air freight tonnage is forecast to rise by 3.00% to 189,210 tonnes.

■

Tonnage handled at the Port of Ho Chi Minh City in 2014 is forecast to grow 6.06%, whereas tonnage
handled at the Port of Da Nang is forecast to increase 7.00%.

■

2014 road freight tonnage is forecast to grow by 6.05% to 811.35mn tonnes.

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Vietnam Freight Transport Report Q2 2014

■

2014 total trade is forecast to rise by 6.55%.

Key Industry Trends
Evergreen-Hanjin's Intra-Asia Tie-Up Highlights Vietnam Growth Story - The newly established intra-Asia
service by Taiwan-based Evergreen Line and South Korea-based Hanjin Shipping, which calls at the port of
Ho Chi Minh, will boost both companies' intra-Asia operations. We have long highlighted intra-Asia trade
as a region of strong growth and we note the port of Ho Chi Minh to be a specific beneficiary of the new
route - with the launch of the service offering upside risk to our forecast for the port.
Zenith Expands Vietnam Warehousing Facility - International freight services provider Zenith Global
Logistics made steps to keep up with increasing demand for humidity-controlled warehousing space in the
Asia region by expanding its warehousing facility in Ho Chi Minh City, Vietnam, according to the Journal
of Commerce, reporting in November 2013. The facility, which will house goods and cargoes destined for
the US, covers 7,500 square metres.
Finnair Cargo Adds New Freighter Service - Finnair Cargo expanded its presence in the Asian region by
adding a twice-weekly MD-11 freighter service to the Vietnamese capital, Hanoi, it was announced in
November 2013. The decision underlines Finnair's strategy of improving its Brussels cargo hub
connectivity.

Key Risks To Outlook

The transport sector forms the bulk of infrastructure investment pipeline in Vietnam across our 10-year
forecast period, expected to account for 60-65% in 2022. In part, this is because the country still suffers
from a significant deficit in transportation infrastructure and we believe the Vietnamese government will
continue to develop this sector over the medium term. As such, we expect the transport infrastructure
industry value to grow by an average of 4.5% year-on-year (y-o-y) between 2014 and 2017.

Upside risk could present itself should the Vietnamese government pay heed to calls by the Deputy Minister
of Planning and Investment Nguyen Van Trung to create a favourable investment climate to boost investor
confidence. He emphasised the need to increase investment promotions to attract more advanced technology
and environmentally friendly projects to support the industries in its industrial zones (IZs) and economic
zones (EZs). Currently, the country has 289 IZs and 15 coastal EZs, which account for 35%, or more than
US$80bn, of the country's annual import-export turnover. In addition, these zones attract around 70% of the
total foreign investment flow into the country, and generate more than 2mn local jobs.

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Vietnam Freight Transport Report Q2 2014

SWOT
Freight Transport
SWOT Analysis

Strengths

■

Vietnam's strong domestic growth rate, coupled with its geography - it stretches for
thousands of kilometres on a north-south axis, creates a need for long-distance
freight haulage.

■

A recovery of activity levels at the nation's ports in 2010 is expected to continue over
the mid-term to 2018.

■

Vietnam's location on the South China Sea gives the country access to the main interAsian shipping routes, as well as access to the developing land transport links with
ASEAN countries, allowing the country scope to develop its trade logistics.

Weaknesses

■

The generally poor state of the road network. Despite new highway construction, only
13.5% of the network is considered to be in good condition. Just 26% of the network
has two or more lanes and only 29% is tarred.

■

Traditionally low investment in rail, with the potential for cost-effective bulk rail freight
being underutilised.

■

Decades of under-investment have left the country with a port infrastructure system
that is poor by international standards. Overcapacity is a growing problem.

■

Unresolved business environment issues and lack of significant improvement in
access to infrastructure financing means that we remain very conservative on the
growth potential of Vietnam's freight sector.

■

A slowdown affecting the US economy has a knock-on effect on Vietnam due to it
being the Asian country's largest export partner.

■

Vietnamese shipping company Vinashinlines has announced that 90% of its vessels,
including Diamond Way and Sea Eagle, have been sold. The firm added that a number

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Vietnam Freight Transport Report Q2 2014

SWOT Analysis - Continued

of the carriers had been purchased for prices above their original valuation, Hellenic
Shipping News reported in early October 2013.

Opportunities

■

The beginnings of local commercial vehicle production, which will help improve the
stock of lorries used by road haulage companies.

■

Chinese investment could bring about much-needed improvements in the rail sector.

■

Growing international interest in Vietnam as a growth market within the box shipping
sector.

■

The Vietnamese province of Dong Nai is to clear land near the proposed Long Thanh
International Airport in order to develop infrastructure facilities. Under a plan
submitted to the government, 21,000 hectares in three communes in Cam My District
and seven communes in Long Thanh are to be cleared for establishing new residential
and urban areas, industrial zones, research institutes and international service
centres.

■

The president of Russian Railways (RZD) has explained his belief that an investment
in the construction of a new rail line in southern Vietnam will come in at more than US
$2bn. Speaking to IA Prime, Vladimir Yakunin said that 'it is difficult to talk about it

now, because there is no project', but as it stands, an agreement of intent was signed
on March 11 2013 between RZD, Vietnamese Railways and the mineral deposit
company An Vien, also from Vietnam.

■

It was announced in June 2013 that the Laos government is to build a new railway
line between the country and its Asian neighbours, Vietnam and Thailand. The 220km
line will run from Laos's Western border with Thailand to the Lao Bao border gate in
Vietnam. Construction will commence in August 2013 with an expected completion
date of the second half of 2017.

■

The 900,000 twenty-foot equivalent units (TEUs) deepwater Lach Huyen
terminal project will entail a total investment of US$1.2bn and is likely to become
operational in 2015. The terminal, likely to ease port congestion in Haiphong, will be
able to accommodate vessels with a capacity ranging between 8,000TEUs and
9,000TEUs.

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Vietnam Freight Transport Report Q2 2014

SWOT Analysis - Continued
■

The Asian Development Bank (ADB) has announced that it will provide a US$410mn
loan for the Vietnamese government, reports KHL Group. The loan will enable the
government to develop a new arterial road between Ho Chi Minh City, the Mekong
Delta and the south of the country.

■

Vietnam-based Rang Dong Group has filed a petition to secure approval for
developing Phan Thiet airport, reported the Daily in August 2013, citing the
company's chairman Nguyen Van Dong.

■

Two berths at Vietnam's first state-built seaport, the Cai Mep-Thi Vai international
port in Ba RiaVung Tau province, are set to be leased for 30 years, according to
official sources.

Threats

■

Vietnam risks losing out to neighbouring countries if it is unable to develop its
infrastructure to keep up with the pace of demand.

■

Vietnam is vulnerable to any slowdown in Chinese investment and to political risk in
the sensitive South China Sea, subject to competing sovereignty claims.

■

A drop in international demand for exports would negatively affect Vietnam's freight
transport sector.

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Vietnam Freight Transport Report Q2 2014

Political
SWOT Analysis

Strengths

■

The Communist Party of Vietnam remains committed to market-oriented reforms and
we do not expect major shifts in policy direction over the next five years. The oneparty system is generally conducive to short-term political stability.

■

Relations with the US have witnessed a marked improvement, and Washington sees
Hanoi as a potential geopolitical ally in South East Asia.

Weaknesses

■

Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party.

■

There is increasing (albeit still limited) public dissatisfaction with the leadership's tight
control over political dissent.

Opportunities

■

The government recognises the threat corruption poses to its legitimacy, and has
acted to clamp down on graft among party officials.

■

Vietnam has allowed legislators to become more vocal in criticising government
policies. This is opening up opportunities for more checks and balances within the
one-party system.

Threats

■

Macroeconomic instabilities continue to weigh on public acceptance of the one-party
system, and street demonstrations to protest economic conditions could develop into
a full-on challenge of undemocractic rule.

■

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.

■

Relations with China have deteriorated over recent years due to Beijing's more
assertive stance over disputed islands in the South China Sea and domestic criticism
of a large Chinese investment into a bauxite mining project in the central highlands,
which could potentially cause wide-scale environmental damage.

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Vietnam Freight Transport Report Q2 2014

Economic
SWOT Analysis

Strengths

■

Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.1% annually between 2000 and 2012.

■

The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20.7% in 2012.

Weaknesses

■

Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy
vulnerable to global economic uncertainties. The fiscal deficit is dominated by
substantial spending on social subsidies that could be difficult to withdraw.

■

The heavily-managed and weak currency reduces incentives to improve quality of
exports, and also keeps import costs high, contributing to inflationary pressures.

Opportunities

■

WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam
greater access to both foreign markets and capital, while making Vietnamese
enterprises stronger through increased competition.

■

The government will in spite of the current macroeconomic woes, continue to move
forward with market reforms, including privatisation of state-owned enterprises, and
liberalising the banking sector.

■

Urbanisation will continue to be a long-term growth driver. The UN forecasts the
urban population rising from 29% of the population to more than 50% by the early
2040s.

Threats

■

Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic
instability, which could lead to a potential crisis.

■

Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold as they struggle to stabilise the economy.

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Vietnam Freight Transport Report Q2 2014

Business Environment
SWOT Analysis

Strengths

■

Vietnam has a large, skilled and low-cost workforce, which has made the country
attractive to foreign investors.

■

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

■

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.

■

Vietnam remains one of the world's most corrupt countries. According to
Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123
out of 176 countries.

Opportunities

■

Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
skills and know-how.

■

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

■

Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern.

■

Labour unrest remains a lingering threat. A failure by the authorities to boost skills
levels could leave Vietnam a second-rate economy for an indefinite period.

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Vietnam Freight Transport Report Q2 2014

Industry Forecast
Vietnam's latest real GDP reading, which showed that the economy expanded by 6.0% year-on-year (y-o-y)
in Q4 2013, confirms our belief that 2014 will prove to be a fruitful year for the Vietnamese economy. Not
only are we witnessing more evidence of a sustained pick-up in production activity and employment in the
manufacturing sector, but we also expect foreign direct investment (FDI) inflows to accelerate as the
economic recovery gathers pace over the coming quarters. We forecast real GDP growth to come in at
6.0% in 2014, versus Bloomberg consensus of 5.5%.

Our assessment of the Vietnamese economy at the provincial level suggests that there are attractive
opportunities for foreign companies to invest in rapidly-developing provinces that are situated in the South
East region (including Ba Ria-Vung Tau, Dong Nai, and Binh Duong). We expect rising labour costs and
intense competition in developed cities to push companies to look for better opportunities in these
provinces.

GDP To Enjoy Healthy Mid Term
Vietnam Real GDP growth, % change y-o-y
7.5

7

6.5

6

5.5

2018f

2017f

2016f

2015f

2014f

2013f

2012

2011

2010

5

e/f = BMI estimate/forecast. Source: Asian Development Bank, General Statistics Office

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Vietnam Freight Transport Report Q2 2014

To keep pace with growth, Vietnam will need to invest in its logistics sector, but BMI expects a lot of this
investment to come from outside logistic and freight transport companies which will be keen to enter and
expand into this high growth market. We believe that rapid urbanisation, driven by a healthy pipeline of
government-led infrastructure projects over the next five years, will continue to spur rural-urban migration
and foreign direct investment (FDI) into developed cities such as Ho Chi Minh and Hanoi. We have also

already witnessed this to some extent in Vietnam's port sector, with considerable investment being made by
container shipping lines and global port operators in the development of modern box terminals at Vietnam's
ports.

This investment in the country's maritime sector has ensured that Vietnam's manufacturing growth can be
achieved with greater links between the country and its main export partner the US. Direct container
shipping links between Vietnam and the US have been in operation since 2009, which have cut both time
and cost, as previously Vietnamese shipments had to be transhipped via Singapore.

Demand from the US for Vietnam's manufactured goods looks set to continue growing, with Vietnam's
exports set to benefit from the slow but steady recovery in the US economy.

Vietnam's export outlook will also continue to be bolstered by China's growth outlook. Although we project
China's economic growth to slow over the medium term, the country's real GDP growth outlook remains
robust.

Vietnam plays a key role in China's coal supply chain. Vietnam is China's fifth-largest coal supplier
providing the country with the thermal coal it requires for its power stations. Vietnam's role in this supply
chain looks set to continue, although BMI highlights that China is trying to decrease its power sectors'
reliance on coal. While we believe that the percentage supplied by coal fired power plants within China's
overall energy mix will slip over the medium term, it will nevertheless remain above 70%.

BMI believes that Vietnam's textile sector will also benefit from the development of China's middle class,
as the country starts to import more from abroad.

Road Freight
Road Dominates And Offers Best Links Into China

Despite its low standing in road infrastructure, with the Global Economic Forum ranking Vietnam's roads at
123 out of 142 globally, and placing it last in comparison with 13 of its Asia peers, the country's logistics

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needs are primarily met by road. In 2014 and beyond, we predict that road freight volumes in Vietnam will
account for the majority of freight carried in the country.

Road Reliant
Vietnam Freight Mode Breakdown By Market Share 2013e

Source: BMI

We forecast that growth in road freight volume will continue to impress, albeit not at the double-digit rate of
growth seen in 2012 and the years preceding it. In 2013, we estimate that annual growth was just under 6%,
which is set to rise to slightly over 6% in 2014 to reach 811.35mn tonnes. Over the medium term, we
forecast road freight volume growth will average 7.59% per annum reaching a projected 1.10bn tonnes by
the end of 2018.

There is, however, upside risk to this forecast as more foreign logistics companies, with considerable road
freight expertise expand in Vietnam. Both FedEx and DHL have expanded their role in Vietnam in recent
times. While some companies are breaking into Vietnam by developing their own operations in the country,
others are getting a head start by acquiring and joining up with domestic freight operators. This is the route
CEVA Logistics has taken entering into a joint venture with its long-term business partner Indo Trans
Logistics Group.

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Road freight plays a key role not only in Vietnam's domestic logistics sector, but also in the country's export
supply chain. Road is the main form of transport linking Vietnam's factories to the country's ports and also
plays a key role in linking Vietnam with its second-largest export partner China.

Vietnam's northern border links the country's with the south of China. Road links continue to be developed
between the two and with them trucking services. Kerry Asia Road Transport (Kart), for example, offers
a twice-weekly trucking link connecting Shenzhen and Hanoi.

Table: Road Freight, 2011-2018

Road freight, '000 tonnes

2011

2012

2013

2014f

2015f

2016f

2017f

2018f

654,127

722,156

765,070

811,346

878,497

949,784

1,024,494

1,102,945

11.43

10.40

5.94

6.05

8.28

8.11

7.87

7.66

40,130

43,902

46,791

50,090

54,346

58,863

63,597

68,568

10.92

9.40

6.58

7.05

8.50

8.31

8.04

7.82

- % change y-o-y
Road freight, mn tonnes/km
- % change y-o-y

e/f = BMI estimate/forecast. Source: General Statistics Office of Vietnam

Inland Waterways
Mekong Offers Trade Links With Neighbours

Vietnam's inland waterways play a considerable role in the country's freight transport sector, making it the
second-largest freight transport mode in the country. In 2013, we estimate that 180.81mn tonnes of freight
were carried by the nation's waterways, y-o-y growth of 7.31%. In 2014, annual growth will slip slightly to
a still healthy 6.67%, to reach 192.88mn tonnes, while over our forecast period, we anticipate average y-o-y
growth of 6.35%.

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Vietnam Freight Transport Report Q2 2014

Mekong Offers Trade Connections
Map of the Mekong River

Source: BMI

Vietnam's inland waterways stretch for 47,130km and the country's dense network of waterways ranks its
seventh in the world in terms of length. The country's inland waterways include the Mekong River, which
enables freight connections with Vietnam's neighbours. Although we highlight that the River's full potential
has not been reached and so development in the River is an area for potential investment.

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Vietnam Freight Transport Report Q2 2014

Table: Inland Waterway Freight, 2011-2018

Inland waterway freight, '000
tonnes
- % change y-o-y
Inland waterway freight, mn
tonnes/km
- % change y-o-y

2011

2012

2013

2014f

2015f

2016f

2017f

2018f

160,165

168,493

180,813

192,878

205,108

218,091

231,698

245,986

11.05

5.20

7.31

6.67

6.34

6.33

6.24

6.17

34,372

37,018

39,344

42,363

45,613

49,063

52,679

56,476

8.50

7.70

6.28

7.67

7.67

7.56

7.37

7.21

e/f = BMI estimate/forecast. Source: General Statistics Office of Vietnam

Rail Freight
Network Lacking And No Impetus To Develop It

Despite rail's potential as an overland trade link for Vietnam with its three neighbours, the mode's role in the
country's freight transport sector remains small. In 2013, we estimate that Vietnam's rail freight volumes
accounted for a negligible percentage of the total with the country's rail network transporting just 6.53mn
tonnes of freight.

In 2013, we estimate that the rail freight sector in Vietnam performed poorly once more, seeing yet another
contraction in y-o-y growth. Growth decreased by 6.82%, following on from 2012's contraction of just
under 4% and 2011's larger contraction of 7.33%. However, in welcome news for the sector, we forecast
growth to come in the positive in 2014 at 3.12% y-o-y to reach 6.73mn tonnes, albeit well below the heyday

of 2007 when tonnage was over 9.00mn tonnes.

There are two key factors that we believe have held back Vietnam's rail freight development and will
continue to do so.

Table: Vietnam Transport Network Length (km)

Vietnam Transport Network
Road
Railway
Inland Waterway

Length (km)
206,633
2.632
47,130

Source: CIA World Factbook (accessed January 21, 2014)

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The first is the quality of Vietnam's railway infrastructure. The Global Economic Formula gives Vietnam's
rail infrastructure a low ranking, placing it 71st globally out of 123 countries measured. This ranking places
it 12th out of its 13 Asian peers. A major problem for Vietnam's rail freight development is the relative
shortness of the country's rail network. Vietnam's railway lines extend for just 2,632km; this compares with

the country's 206,633km network of roads and 47,130km network of inland waterways.

The second drawback for freight rail development in Vietnam is its gauge incompatibility with China.
Vietnam's network is dominated by narrow gauge, which accounts for 80% of the total. While the country
has some standard gauge track, this system only accounts for 20% of the total.

This means that rail freight trade between Vietnam and China is slowed by gauge changes, making road
freight a more cost- and time-effective alternative; this stymies potential rail-freight projects between the
two nations.

BMI highlights that developments in Vietnam's rail network are taking place, but these have been focused
on expanding the country's passenger network (eg, a planned high-speed railway link between Vietnam and
Laos).

Table: Rail Freight, 2011-2018

2011

2012

2013

2014f

2015f

2016f

2017f

2018f

Rail freight, '000 tonnes

7,285

7,004

6,526

6,730

6,958

7,306

7,715

8,178

- % change y-o-y

-7.33

-3.87

-6.82

3.12

3.40

5.00

5.60

6.00

Rail freight, mn tonnes/km

4,162

4,025

3,804

3,903

4,020

4,161

4,344

4,577

5.08

-3.30

-5.48

2.60

3.00

3.50

4.40

5.36

- % change y-o-y

e/f = BMI estimate/forecast. Source: General Statistics Office of Vietnam

Air Freight
On Growth Trajectory As Vietnam Gets Better Connected

Vietnam's air freight sector may only account for a small percentage of the country's freight transport sector;
although this is not expected to change, there is a lot of growth potential in this sector. The government has
ambitious plans to modernise and expand the country's airport infrastructure, which consists of 44 airports.

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Since early 2012, Vietnam has announced that it was in the search for foreign investors to help construct
two international airports: the US$1.2bn Van Don International airport in the northern province of Quang
Ninh and the US$10bn Long Thanh International airport in the southern province of Dong Nai.

For 2014, we predict that the Vietnamese air freight sector will see annual growth of 3.00%, up from 2013's
2.80%, to reach 189,210 tonnes. Over the forecast period to 2018, we expect Vietnam's air freight levels to
grow on average per annum by 3.96% to reach 223,040 tonnes.

Taking Off
Vietnam's Air Freight Tonnage, '000 tonnes, 2010-2018
250

200

150

100

50

2018f

2017f

2016f

2015f

2014f

2013

2012

2011

2010

0

e/f = BMI estimate/forecast. Source: General Statistics Office of Vietnam

BMI expects the increase of air freight connections for Vietnam will come through the development of
intra-Asia air freight routes. In 2012, Air China Cargo and Malaysia's MASKargo added services to Ho Chi
Minh City. Vietnam is also becoming globally better connected by air. In 2012, Emirates added a link with
the country and Dubai, and in 2013, Finnair announced that it planned to launch new cargo routes to Hanoi.

While still at the development stage, Vietnam is seeking to play a greater role in the electronics supply
chain, a key source of demand for air freight transport options. One example has been the impact the local

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Vietnam Freight Transport Report Q2 2014

production of iPhones has had on China's air freight sector. Plans are in place for Vietnam-based facilities to
produce Nokia phones, iPods, PlayStations and Sony laptops, which will all drive up air freight demand.

Vietnam's pharmaceutical sector exports much of its output, but the country also imports a lot. Vietnam's
trade in pharmaceuticals is forecast to grow in the double digits in percentage terms over the medium term.
The global pharmaceutical sector is increasingly turning to the aviation sector to meet its freight needs, with
the sector offering savings in transport time, along with environment controlled options, which are vital for
the transport of some medicines and vaccinations.

Table: Air Freight, 2011-2018

Air freight, '000 tonnes

2011

2012

2013

2014f

2015f

2016f

2017f

2018f

200.30

178.70

183.70

189.21

195.64

203.27

212.42

223.04

5.37

-10.78

2.80

3.00

3.40

3.90

4.50

5.00

426.70

480.90

469.80

477.79

489.73

504.42

522.08

542.96

-0.02

12.70

-2.31

1.70

2.50

3.00

3.50

4.00

- % change y-o-y
Air freight, mn tonnes/km
- % change y-o-y

e/f = BMI estimate/forecast. Source: General Statistics Office of Vietnam

Maritime Freight
Vietnam Catching The Eye Of Shippers

Taiwan-based Evergreen Line and South Korea-based Hanjin Shipping announced a new intra-Asia service
at the end of 2013, which should provide upside risk for the sector going forward. The new intra-Asia
service, which calls at the port of Ho Chi Minh, will boost both companies' intra-Asia operations and we
have long highlighted intra-Asia trade as a region of strong growth and we note the port of Ho Chi Minh to
be a specific beneficiary of the new route - with the launch of the service offering upside risk to our forecast
for the port.

Vietnam's ports and shipping sectors play a role in the global dry, liquid and container sector. As
highlighted earlier Vietnam plays a considerable role in China's coal supply chain, with the dry bulk
commodity being shipped out of Vietnam and into China's main coal port of Qinhuangdao. Vietnam is an
oil-producing nation, but its consumption needs have come to outweigh its supply and so the country is
making use of the liquid bulk shipping sector to import oil.

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Vietnam Freight Transport Report Q2 2014

Getting Better Connected

UNCTADstat Liner Connectivity Index For Asia 2004 and 2013

Source: UNCTADstat

The development of Vietnam's liner connections has been highlighted by data from UNCTAD's liner
connectivity index. In 2004, Vietnam was ranked lowest out of its 14 Asian peers in terms of container line
connectivity, but by 2013, it had jumped up the rankings to ninth place out of its 14 Asian neighbours.

Vietnam's growing role in the global container shipping sector is also in evidence in the port of Ho Chi
Minh's box throughput. In 2014, we expect container volumes to have increased by 6.06% and over the
medium term by an annual average of 6.88%.
For more information on data and analysis of Vietnam's shipping sector, please see BMI's Vietnam
Shipping Report.

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Vietnam Freight Transport Report Q2 2014

Table: Maritime Freight, 2011-2018

2011

2012

2013

2014f

2015f

2016f

2017f

2018f

33,451

36,029

38,867

41,223

43,986

47,176

50,748

54,212

7.45

7.71

7.87

6.06

6.70

7.25

7.57

6.83

Port of Da Nang throughput, tonnes '000

3,868

4,423

4,812

5,149

5,484

5,784

6,111

6,461

- % change y-o-y

17.10

14.35

8.80

7.00

6.50

5.48

5.66

5.72

Port of Ho Chi Minh City (Saigon New)
throughput, tonnes '000
- % change y-o-y

e/f = BMI estimate/forecast. Source: Port authorities

Trade

Table: Trade Overview, 2011-2018

Real

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

Imports, real growth, % y-o-y

4.10

9.09

7.90

7.50

7.50

7.30

7.20

7.00

Exports, real growth, % y-o-y

10.78

15.71

6.00

5.60

5.80

6.20

6.60

6.80

7.44

12.40

6.95

6.55

6.65

6.75

6.90

6.90

112.40

118.98

136.68

157.93

180.76

204.81

232.79

263.93

24.17

5.86

14.87

15.55

14.45

13.31

13.66

13.38

106.84

124.43

140.42

159.39

179.54

201.34

227.57

257.53

- % change y-o-y

31.49

16.46

12.85

13.51

12.64

12.14

13.03

13.16

Total trade, US$bn

219.24

243.41

277.10

317.32

360.30

406.15

460.36

521.46

- % change y-o-y

27.63

11.03

13.84

14.51

13.54

12.73

13.35

13.27

Total trade, real growth, % y-o-y
Nominal
Imports, US$bn
- % change y-o-y
Exports, US$bn

e/f = BMI estimate/forecast. Source: General Statistics Office of Vietnam, BMI

Table: TOP IMPORT DESTINATIONS, 2005-2012, US$mn

China, Mainland, US$mn

China, Mainland, US$mn, % of total
Korea, Republic Of, US$mn
Korea, Republic Of, US$mn, % of
total

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2005

2006

2007

2008

2009

2010

2011

2012

5,900

7,391

12,710

15,974

16,441

20,019

24,594

37,647

16.0

16.5

20.3

19.8

23.5

24.0

23.5

27.2

3,594

3,908

5,340

7,255

6,976

9,761

13,176

17,541

9.8

8.7

8.5

9.0

10.0

11.7

12.6

12.7

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