Vietnam freight transport report q3 2009

Published by BUSINESS MONITOR INTERNATIONAL LTD

Vietnam
Freight Transport
Report Q3 2009

ISSN: 1750-5364

Including 5-year industry forecasts

Business Monitor International
Mermaid House, 2 Puddle Dock
London EC4V 3DS UK
Tel: +44 (0)20 7248 0468
Fax: +44 (0)20 7248 0467
email:
web:

© 2009 Business Monitor International. All rights reserved.
All information, analysis, forecasts and data provided by Business Monitor International Ltd is for the exclusive use of subscribing
persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Business
Monitor International, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express
consent of Business Monitor International Ltd.
All content, including forecasts, analysis and opinion, has been based on information and sources believed to be accurate and reliable
at the time of publishing. Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or
completeness of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors,
inaccuracies or omissions affecting any part of the content.


Vietnam Freight Transport
Report Q3 2009

Including 5-year industry forecasts by BMI

Part of BMI’s Industry Survey & Forecasts Series
Published by: Business Monitor International
Publication date: June 2009

Business Monitor International
Mermaid House,
2 Puddle Dock,
London, EC4V 3DS,
UK
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:

© 2009 Business Monitor International.
All rights reserved.
All information contained in this publication is
copyrighted in the name of Business Monitor
International, and as such no part of this publication
may be reproduced, repackaged, redistributed, resold in
whole or in any part, or used in any form or by any
means graphic, electronic or mechanical, including
photocopying, recording, taping, or by information
storage or retrieval, or by any other means, without the
express written consent of the publisher.

DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of

publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as
to the accuracy or completeness of any information hereto contained.


Vietnam Freight Transport Report Q3 2009

© Business Monitor International Ltd

Page 2


Vietnam Freight Transport Report Q3 2009

CONTENTS
Executive Summary .........................................................................................................................................5
SWOT Analysis.................................................................................................................................................6
Vietnam Road Haulage SWOT............................................................................................................................................................................... 6
Vietnam Political SWOT ........................................................................................................................................................................................ 6
Vietnam Economics SWOT .................................................................................................................................................................................... 7
Vietnam Business Environment SWOT................................................................................................................................................................... 7

Business Environment Ratings ......................................................................................................................8
Table: Asia Pacific Freight Business Environment Ratings................................................................................................................................... 8
Freight Industry Ranking....................................................................................................................................................................................... 9
Vietnam Logistics Performance Index (LPI).......................................................................................................................................................... 9
Economics – Long-Term Risk .............................................................................................................................................................................. 10
Politics – Long-Term Risk ................................................................................................................................................................................... 10
Freight Transport Growth ................................................................................................................................................................................... 10

Transport Infrastructure Growth ......................................................................................................................................................................... 10
Regulatory Environment ...................................................................................................................................................................................... 11
Competitive Environment..................................................................................................................................................................................... 11
Transport Intensity Index..................................................................................................................................................................................... 11
Political Risk Summary........................................................................................................................................................................................ 11
Economic Risk Summary...................................................................................................................................................................................... 12
Business Environment Risk Summary .................................................................................................................................................................. 12
Legal Code/Corruption........................................................................................................................................................................................ 12
Red Tape.............................................................................................................................................................................................................. 13
Labour Force....................................................................................................................................................................................................... 13

Industry Trends And Developments ............................................................................................................14
Road .................................................................................................................................................................................................................... 14
Rail ...................................................................................................................................................................................................................... 15
Air........................................................................................................................................................................................................................ 15
Sea ....................................................................................................................................................................................................................... 16
Pipelines .............................................................................................................................................................................................................. 17

Industry Forecast Scenario ...........................................................................................................................18
Quarterly Oil Products Price Outlook ................................................................................................................................................................. 18
Table: Oil Product Price Assumptions, Q408-Q409 (US$/bbl)............................................................................................................................ 20
Table: Oil Product Price Forecasts, 2006-2013 (US$/bbl).................................................................................................................................. 21
Macroeconomic Outlook...................................................................................................................................................................................... 21
Table: Vietnam – Economic Activity, 2006-2013................................................................................................................................................. 23
Transport Outlook ............................................................................................................................................................................................... 24
Table: Transport And Communications Data And Forecasts, 2005-2013 ........................................................................................................... 24
Table: Freight Carried, Domestic, 2005-2013..................................................................................................................................................... 26

Trade Environment.........................................................................................................................................27
Trade Agreements................................................................................................................................................................................................ 27

Tariffs/Non-Tariff Barriers .................................................................................................................................................................................. 27
Table: Value Of Imports By Category, 2005-2013 (US$mn)................................................................................................................................ 28
Table: Value Of Exports By Category, 2005-2013 (US$mn)................................................................................................................................ 29

© Business Monitor International Ltd

Page 3


Vietnam Freight Transport Report Q3 2009

Table: Top Export Destinations, 2001-2006 (US$mn)......................................................................................................................................... 30
Table: Export Trade, 2002-2006 (% growth y-o-y).............................................................................................................................................. 31
Table: Import Trade, 2002-2005 (% growth y-o-y).............................................................................................................................................. 31
Table: Top Import Sources, 2001-2006 (US$mn) ................................................................................................................................................ 32

Market Overview.............................................................................................................................................33
Multi-Modal.............................................................................................................................................................................................................. 33
Competitive Landscape: Multi-Modal.................................................................................................................................................................. 33
Road.......................................................................................................................................................................................................................... 35
Infrastructure....................................................................................................................................................................................................... 35
Competitive Landscape: Road ............................................................................................................................................................................. 35
Rail ........................................................................................................................................................................................................................... 37
Infrastructure....................................................................................................................................................................................................... 37
Competitive Landscape: Rail ............................................................................................................................................................................... 37
Air........................................................................................................................................................................................................................ 38
Infrastructure....................................................................................................................................................................................................... 39
Competitive Landscape: Aviation ........................................................................................................................................................................ 39
Vietnam Airlines .................................................................................................................................................................................................. 41
Water ........................................................................................................................................................................................................................ 44

Infrastructure....................................................................................................................................................................................................... 44
Competitive Landscape: Maritime....................................................................................................................................................................... 45
Vietnam Petroleum Transport Jsc (VIPCO)......................................................................................................................................................... 48
Table: Vietnam Petroleum Transport Jsc (VIPCO) Financial Performance........................................................................................................ 49
Doan Xa Port....................................................................................................................................................................................................... 50
Table: Doan Xa Port Financial Performance...................................................................................................................................................... 51
Competitive Landscape: Pipelines ............................................................................................................................................................................ 52

Country Snapshot: Vietnam Demographic Data .........................................................................................53
Section 1: Population........................................................................................................................................................................................... 53
................................................................................................................................................................................................................................. 53
Table: Demographic Indicators, 2005-2030........................................................................................................................................................ 53
Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 54
Section 2: Education And Healthcare.................................................................................................................................................................. 54
Table: Education, 2002-2005 .............................................................................................................................................................................. 54
Table: Vital Statistics, 2005-2030........................................................................................................................................................................ 54
Section 3: Labour Market And Spending Power .................................................................................................................................................. 55
Table: Employment Indicators, 1999-2004.......................................................................................................................................................... 55
Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................ 55

BMI Forecast Modelling .................................................................................................................................56
How We Generate Our Industry Forecasts .......................................................................................................................................................... 56
Transport Industry ............................................................................................................................................................................................... 56
Sources ..................................................................................................................................................................................................................... 57

© Business Monitor International Ltd

Page 4

Vietnam Freight Transport Report Q3 2009

Executive Summary
According to the Saigon Times Daily, Deputy Director Duong Van Hoa said that Vietnam National CoalMineral Industries Group (Vinacomin) would build a US$250mn deepwater port at Khe Ga Cape, in Binh
Thuan province. Khe Ga Seaport will be utilised to import coal, and export aluminium and minerals. The
port will be able to handle ships up to 80,000 deadweight tonnes (DWT). The Ministry of Transport’s
Vinamarine International Co-operation Department has stressed that the investments necessary in
Vietnam’s port sector are considerable if the sector is to keep up with the wider economy. The key for
Vietnam is to sustain investor interest in the sector. Thus far, there has been little evidence that investors
have lost interest in Vietnam’s infrastructure sector.
Taking this and other developments such as the downturn in the global economy into consideration,
BMI’s newly released Vietnam Freight Transport Report concludes that shipping traffic will increase by
an annual average of 6.7% in 2009-2013, measured in tonnes per km. A number of factors underpin this
forecast. One is the still-realistic prospect of a long, export-led boom in Vietnam, with annual GDP
growth likely to average 6.1% in 2009-2013, only a little slower than the 7.8% rate achieved in the
preceding five-year period. Infrastructure plans are also ambitious, with many new ports under
development.
Our overall outlook for the nascent freight transport industry across the different modes is bullish despite
the recession. Although the next two years will be tough, air freight will grow by an annual average of
7.6% over the next five years. In road haulage, we have trimmed our forecast to take account of the
economic slowdown, but we still see turnover running ahead of the general rate of economic expansion in
Vietnam. We see road freight growing by an annual average of 7.5% over the next five years, followed
closely by pipeline throughput (7.0%), maritime freight (6.7%, as already mentioned) and rail (6.6%).
Full World Trade Organization (WTO) membership, achieved in early 2007, can be seen as supportive of
greater freight transport turnover relative to GDP across all modes, particularly so for shipping. We now
expect total freight carried growth across all modes, measured in million tonne-km (mntkm), to average
6.8% per annum in 2009-2013.
Under BMI’s freight transport rating system, Vietnam achieves a composite score of 54.3 out of a
potential maximum of 100. Vietnam’s stronger points are freight growth, transport infrastructure growth
and the transport intensity index, which measures the dynamism of the country’s foreign trade. BMI

views Vietnam as being weaker in the other four categories: economic and political long-term risks, and
the country’s regulatory and competitive environment (corruption is a particular problem).
According to our latest estimates, the total value of transport and communications GDP will rise to
US$6.6bn in nominal terms by 2013, representing 4.5% of Vietnam’s GDP.

© Business Monitor International Ltd

Page 5


Vietnam Freight Transport Report Q3 2009

SWOT Analysis
Vietnam Road Haulage SWOT

Strengths

ƒ Vietnam’s strong domestic growth rate coupled with its geography; a long country
stretching for thousands of kilometres on a north-south axis creates a need for longdistance freight haulage

Weaknesses

ƒ The generally poor state of the road network. Despite new highway construction, only
13.5% of the road network is considered to be in good condition, only 26% has two or
more lanes and only 29% is tarred. Construction of the second north-south highway
may be a waste of resources given the pressing need for improvement of secondary
roads

Opportunities

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

Threats

ƒ The attractiveness of other modes of freight transport, particularly inland waterways
and coastal shipping. If progress towards a better-integrated national road network is
too slow, freight growth will divert away from the trucking industry

Vietnam Political SWOT

Strengths

ƒ The Communist Party government appears committed to the market-oriented reforms
necessary to double 2000’s GDP per capita by 2010, as targeted. The one-party
system is generally conducive to short-term political stability
ƒ Relations with the US are generally improving and Washington sees Hanoi as a
potential geopolitical ally in South East Asia

Weaknesses

ƒ Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party
ƒ There is increasing (albeit still limited) public dissatisfaction with the leadership’s tight
control over political dissent

Opportunities

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

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

Threats

ƒ Vietnamese dissidents are seeking external help, especially from the US. This could
complicate Vietnam-US relations, with Washington having criticised Hanoi over its
restrictions on religious freedom
ƒ Although strong domestic control will ensure little change to Vietnam’s political scene
in the next few years, over the longer term, the one-party state will probably be
unsustainable

© Business Monitor International Ltd

Page 6


Vietnam Freight Transport Report Q3 2009

Vietnam Economics SWOT

Strengths

ƒ Vietnam has been one of the fastest-growing economies in Asia in recent years,
averaging growth of 8.0% a year
ƒ The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20% in 2004

Weaknesses

ƒ Vietnam suffers from substantial trade, current account and fiscal deficits, leaving the
economy vulnerable to external shocks. The fiscal picture is clouded by considerable
‘off-the-books’ spending
ƒ The heavily managed and weak dong currency reduces incentives to improve the
quality of exports, and also serves to keep import costs high, thus contributing to
inflationary pressures

Opportunities

ƒ WTO membership has given Vietnam access to both foreign markets and capital,
while making Vietnamese enterprises stronger through increased competition
ƒ The government will continue to move forward with market reforms, including
privatisation of the state-owned enterprises sector and liberalising the banking sector
ƒ Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban
population to rise from 29% of the population to more than 50% by the early 2040s

Threats

ƒ Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government fails to curb inflation, it risks prolonging
macroeconomic instability, which could lead to a potential crisis
ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold, as they struggle to stabilise the economy

Vietnam Business Environment SWOT

Strengths

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

ƒ Vietnam’s location – its proximity to China and South East Asia, and its good sea links
– makes it a good base for foreign companies to export to the rest of Asia and beyond

Weaknesses

ƒ Vietnam’s infrastructure is still weak. Roads, railways and ports are inadequate to cope
with the country’s economic growth and links with the outside world
ƒ Vietnam remains one of the world’s most corrupt countries. Its score in Transparency
International’s 2008 Corruption Perceptions Index was 2.7, lower than the regional
average of 4.6

Opportunities

ƒ Vietnam is attracting investment from key Asian economies, such as Japan, South
Korea and Taiwan. This offers possibility of transfer of high-tech skills and know-how
ƒ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This should offer foreign investors new entry points

Threats

ƒ Ongoing trade disputes with the US and the general threat of American protectionism,
which will remain a concern
ƒ Labour unrest remains a lingering threat. A failure by the authorities to boost skill
levels could leave Vietnam a second-rate economy for an indefinite period

© Business Monitor International Ltd

Page 7

Vietnam Freight Transport Report Q3 2009

Business Environment Ratings
The freight transport sector in the Asia Pacific region offers one of the most attractive business
environments for the industry worldwide. There are various reasons for this. First, the region offers a
powerful combination of future growth and economies of scale. It contains arguably the two most
significant of the four BRIC (Brazil, Russia, India and China) economies, which, it is argued, are the
powerhouses of future global growth. China and India combine vast geographical size, large populations,
globally competitive labour costs and as yet untapped infrastructure potential. To this must be added the
‘third BRIC’, Russia, which, although outside the region, has critically important trade and transport links
to Asia (such as crude oil exports to China). Second, at a ‘big picture’ level, most of the regional power
centres are committed to reasonably pragmatic and relatively stable, market-based policies. Countries that
in the past were either fervently communist (China, Vietnam) or capitalist (Malaysia, Taiwan) share a
much wider non-ideological common ground focused on how to achieve a sustainable rise in living
standards. This is not to say, of course, that the area is free of tensions and flash points (North Korea,
China-Japan, India-Pakistan to name just a few).

Table: Asia Pacific Freight Business Environment Ratings

Limits of potential returns

Risks to realisation of returns

Freight transport
market

Country
structure

Limits

Market
risks

Country
risk

Risks

Overall
rating

Regional
ranking

Hong Kong

72.5

81.0

76.7

70.0

74.7

72.8

75.6

1

Japan

55.0

54.4

54.7

75.0

75.0

63.5

68.1

2

Australia

42.5

81.0

61.7

75.0

74.4

74.6

65.6

3

China

90.0

38.3

64.1

60.0

66.5

63.9

64.1

4

Singapore

60.0

74.3

67.1

80.0

39.4

55.6

63.7

5

India

67.5

61.0

64.2

60.0

55.8

57.5

62.2

6

Indonesia

50.0

71.3

60.7

50.0

65.4

59.2

60.2

7

South Korea

55.0

46.4

50.7

60.0

72.3

67.4

55.7

8

Vietnam

45.0

64.3

54.6

55.0

52.5

53.5

54.3

9

Thailand

40.0

54.9

47.5

55.0

58.1

56.8

50.3

10

Taiwan

47.5

35.6

41.6

65.0

74.2

70.5

50.2

11

Philippines

42.5

41.1

41.8

50.0

72.6

63.6

48.3

12

Malaysia

50.0

31.6

40.8

60.0

68.8

65.3

48.1

13

Pakistan

50.0

47.6

48.8

55.0

35.0

43.0

47.1

14

Scores out of 100, with 100 highest. Source: BMI

© Business Monitor International Ltd

Page 8


Vietnam Freight Transport Report Q3 2009

Strong freight transport growth rates are combined with a very encouraging infrastructure investment
picture across most of the region.
By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to
smaller/higher value loads continues. Rail freight will benefit from long-distance economies of scale,
whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route.
Shipping is being lifted by the surge in trans-Pacific commodity and manufacturers’ trade routes, while
air freight is growing on the back of liberalisation and the budget airline boom. While the freight transport
industry in the region suffers from patchy regulation and in some areas there are ongoing issues with
corruption and cronyism, it is on the whole much more open and competitive than in the past. A strong
positive factor is the dynamic and outward facing role played by foreign trade.

Freight Industry Ranking
Our overall freight transport rating for Vietnam stands at 54.3 (out of a theoretical maximum score of
100). This is composed of a score of 54.6 for potential returns (reflecting factors such as market size,
growth and the competitive environment), which gets a 70% weighting, and a lower score of 53.5 for
risks to those returns (reflecting factors such as market orientation, regulatory environment and other
country-risk issues), which gets a 30% weighting.

Vietnam Logistics Performance Index (LPI)
In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as ‘the first in-depth
cross-country assessment of the logistics gap among countries.’ The LPI was calculated on a five-point
scale and based on survey responses from over 800 logistics professionals. Countries were given an
aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the
quality of customs, infrastructure and international shipments; logistics competence; tracking and tracing;

domestic logistics costs; and timeliness.
In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9. For comparison with
the major OECD economies, the Netherlands was ranked 2nd in the world with an LPI of 4.2; followed
by Germany (3rd with an LPI of 4.1), the UK (9th, LPI of 4.0) and the US (14th, LPI of 3.8). In
comparison with other Asian economies, Singapore was the world number one with an LPI score of 4.2,
followed by Australia (17th, LPI of 3.8) and Taiwan (21st, LPI of 3.6). Then came South Korea (25th,
LPI of 3.5), Malaysia (27th, LPI of 3.5), China (30th, LPI of 3.3), Thailand (31st, LPI of 3.3) and
Indonesia (43rd, LPI of 3.0). Vietnam was therefore close to the bottom end of the regional LPI ranking,
ahead of Papua New Guinea (95th, LPI of 2.4) and Laos (117th, LPI of 2.3). In terms of the different
components of the index, Vietnam’s best performing areas, ranked in order, were domestic logistics costs,
timeliness, international shipments, and tracking and tracing. Weaker areas in descending order were
customs, logistics competence, and infrastructure.

© Business Monitor International Ltd

Page 9


Vietnam Freight Transport Report Q3 2009

Economics – Long-Term Risk
We foresee both economic and political risks rising in 2009 as global demand for Vietnam’s
manufactured exports falls and factories lay off workers. The global recession will shake the foundations
of the Vietnamese growth story, as it has been reliant on strong demand for manufactured products from
G3 markets. With demand from developed markets slumping, Vietnam will be heavily reliant on
remittances and FDI inflows to stimulate domestic demand and keep GDP growth in positive territory.
We are expecting growth of 2.9% in 2009, rising to 5.0% in 2010 as an improving world economy and a
weaker dong bolster exports. With Prime Minister Nguyen Tan Dung’s economic reform agenda intact,
although currently on the back burner, we expect GDP growth to return to around 8% from 2011
onwards.

Vietnam is in line to take a hard hit in 2009 as exports to G3 economies contract sharply. We have revised
down our GDP growth forecast for 2009 from 5.0% to 2.9% as the construction and manufacturing
sectors contract. With domestic demand far from sufficient to fill the gap and Hanoi lacking the
wherewithal to implement any sizeable fiscal stimulus, we believe the government will opt for the easy
way out by devaluing the dong to increase the price competitiveness of Vietnamese exporters. We are
currently expecting an 8.0% devaluation of the currency in 2009 to VND19,000/US$ by year-end, which
should help growth recover to 5.0% in 2010.

Politics – Long-Term Risk
While public discontent with the government is likely to rise as the economy slows rapidly, we see no
major risk of mass protests or political turmoil. This is because the ‘Doi Moi’ economic reform agenda
championed by the Communist Party of Vietnam since 1986 has brought considerable material gains for
the wide majority of the population and diminished the support for pro-democracy activists. However, the
government will not take any risks, and has imposed tighter curbs on journalists and stepped up its
surveillance of online media. On the foreign policy front, we expect a continued rapprochement with the
US under the new Obama administration, while intensified competition between Chinese and Vietnamese
manufacturers may cause some tension with Beijing.

Freight Transport Growth
Vietnam’s freight transport traffic, measured in mntkm, rose by an annual average of 10.7% in 2004-2008
and, according to our projections, will decelerate to an annual average of 6.8% in 2009-2013.

Transport Infrastructure Growth
According to official information, there is a wide range of transport sector investment projects in the
pipeline, across road, rail, air and sea. Work is under way to develop the Mekong basin area, and new

© Business Monitor International Ltd

Page 10

Vietnam Freight Transport Report Q3 2009

seaports are planned. While there is no doubt that Vietnam’s transport infrastructure is expanding, our
rating for this category is constrained by poor planning and limited project management experience.

Regulatory Environment
Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that
the reform process started nearly two decades ago. The country gained access to the WTO in 2007. In the
transport sector, state-owned enterprises (SOEs) continue to be dominant in many areas. There is not yet a
clear legal framework for the protection of passenger and freight customer rights.

Competitive Environment
Freight transport competition remains limited, with SOEs dominating key transport modes. There are few
foreign entrants, although we expect more to arrive during the forecast period. To be able to operate in the
country, significant negotiations and procedures are required. Although the government favours attracting
more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive
markets.

Transport Intensity Index
This index is derived by calculating the average annual growth rate for total trade (imports plus exports)
over a 10-year period running from 2004 through to 2013. As such, it is a mix of actual performance (the
five-year 2004-2008 period) and projected performance (2009-2013). In Vietnam’s case, actual average
annual trade growth in 2004-2008 was a very strong 31.3%, which in our projections will ease
substantially to 10.1% per annum in 2009-2013. The annual average across the 10 years as a whole is
20.9%.

Political Risk Summary
State Moves To Restrict Blogging Sector
Five months after a group of internet companies including Google, Microsoft and Yahoo agreed to uphold

privacy and freedom of expression in repressive markets, they are being challenged by VietnameseAmerican activists for their failure to do so. As the number of Vietnamese internet users nears a quarter of
the population (according to estimates by the International Telecommunications Union), the activists
claim that the Vietnamese state is stepping up efforts to curb the expansion the blogging sector. Such
claims are also supported by a cohort of twelve members of US congress, who wrote a letter to the CEOs
of the companies in question demanding that they respect privacy rights. The dispute underscores the
Vietnamese state’s strict control over the media, whose activities it fears can be unnecessarily
destabilising.

© Business Monitor International Ltd

Page 11


Vietnam Freight Transport Report Q3 2009

Economic Risk Summary
PM Pressures Central Bank To Lower Rates
In a report released on April 1, Prime Minister Nguyen Tan Dung requested that the State Bank of
Vietnam (SBV) reconsider its key lending rates to bring them into line with inflation expectations (his
own) of around 6%. Although inflation has come down to around 11.25% year-on-year (y-o-y) in March
since peaking at over 28% in August 2008, we have repeatedly warned of lingering price pressures, and
the inherent risks of the rapid monetary easing effected by the SBV in H208 could see inflation
entrenched in the double digits, thereby creating even greater pressure for a devaluation of the dong.

Business Environment Risk Summary
The sharp deterioration in economic conditions both domestically and globally has prompted the
Vietnamese government to shift its attention from economic reforms to devising measures to support
growth in the short term in the face of slumping global demand. Only 73 out of a planned 262 SOEs were
equitised in 2008 (i.e. transformed into shareholder-owned companies) and initial public offerings of
SOEs like Bao Viet have been unsuccessful, largely due to the high pricing of shares. While continued

delays in the equitisation process are expected, we are not predicting any shift in the government’s
economic reform agenda, which will continue to support economic activity.
Efforts Under Way To Improve Capital Markets
According to an announcement made on March 31, the International Finance Corporation (IFC) signed a
memorandum of understanding with the Hanoi Securities Trading Center (HASTC) to work jointly on
improving dissemination of information and market transparency. Their efforts will be focused on the
domestic bond market as well as UPCOM, a newly organised equity market for unlisted public
companies. A statement by Nguyen Phuong Quynh Trang, an official from the IFC, emphasised that one
of the main objectives of the project was to grant Vietnamese companies greater access to domestic
sources of capital.

Legal Code/Corruption
Legal Code
Vietnam’s judicial system is based on communist legal theory and the French civil law system.
Corruption
Vietnam has a bad record on transparency. The state was ranked 121st (out of 180) in Transparency
International’s Corruption Perceptions Index in 2008, with a score of 2.7.

© Business Monitor International Ltd

Page 12


Vietnam Freight Transport Report Q3 2009

Red Tape
Vietnam compares favourably with its regional peers in terms of bureaucracy, and about the same as
developed states. According to World Bank data, 28 separate procedures are required to enforce a
contract, which takes an average of 120 days. The East Asia and Pacific average is 24 and 193,
respectively, while the process involves 18 procedures and 213 days in high-income OECD states.

Conversely, World Bank data state that it takes 11 procedures and 56 days to start a business in Vietnam,
compared with an average of 9 and 61 in East Asia and Pacific and 6 and 25 in high-income OECD states.

Labour Force
Size
Reliable data on the labour force in Vietnam are difficult to find. However, it is estimated that the
working age population in the country is 42.1mn, approximately 61% of the total. An estimated 10.2mn
live in urban areas, with the remaining 31.9mn in rural areas. ‘Technically skilled workers’ form an
estimated force of 8.84mn, accounting for 20.99% of the total. The south-east region has the highest rate
of skilled workers (30.13%), followed by the Red River delta (27.99%) and Coastal South Central
(20.85%). The lowest rate was reported in the north-west region.
Education
The adult male illiteracy rate was estimated at 4% for males and 9% for females in 2000, with the youth
illiteracy rate 3% for both genders.
Regulation
The Vietnam labour force is comparatively heavily regulated, according to World Bank’s Employment
Laws Index. Its score of 56 indicates that regulations are tighter than the East Asia and Pacific average,
and a bit tighter than OECD high-income states. Disaggregating the data, the regulations for hiring
workers are looser than those for firing workers, with scores of 43 and 48, respectively, the combination
of which suggests a more regulated workforce than regional peers.
Issues
Fears of growing unemployment and rising social unrest in the cities is slowing down the reform of
SOEs. The SOEs are an inefficient and loss-making legacy of a different era, and would have gone
bankrupt a long time ago if the market had had its way. However, the fear of creating mass
unemployment in the cities by laying off surplus labour has prevented meaningful reform. As a result, the
SOEs continue to crowd out the more productive private sector, while adding to the government’s fiscal
woes by forcing the state to absorb their losses.

© Business Monitor International Ltd

Page 13


Vietnam Freight Transport Report Q3 2009

Industry Trends And Developments
According to a report by Bloomberg news agency in March, the Asian Development Bank (ADB)’s
country director for Vietnam, Ayumi Konishi, had stated that the country needed to focus more on
infrastructure projects to ensure that its plan to build power plants, ports, roads and railways during the
current tight economic period stayed on path. He stated that funds were available from governments,
international agencies and the private sector. Vietnam’s construction and infrastructure industry had a
difficult year in 2008. The first half of the year saw record high raw material prices that hindered the
timely development of projects, causing construction cost overruns and delays. According to BMI’s
forecasts, the value of the construction – and by extension infrastructure – industry in Vietnam will keep
rising quite strongly in the medium term, registering real growth of 12.3% between 2009 and 2013. This
year will be as difficult for Vietnam as it will be for other countries, but in Vietnam’s case we view this as
a mere slowdown (indeed, many countries would envy Vietnam’s 5% forecast industry value growth for
2009), as the county has significant projects in the pipeline for building and upgrading infrastructure that
we believe will sustain the industry.

Road
According to Vietnam’s VoV News, in early April the ADB and the French Development Agency (AFD)
offered a financial grant of almost US$7mn to assist Vietnam in upgrading infrastructure facilities in three
districts. The fund will be utilised to build 41km of rural road and for irrigation projects. The projects are
anticipated to commence in Q409. Vietnam’s road network is particularly underdeveloped and causes
serious city congestion, as well as adding to road accident figures. It is vital for the country to improve its
transport infrastructure in order to realise its growth potential. Vietnam’s Ministry of Transport and
Communications disclosed estimates that it will require close to US$60bn up to 2020 to fund road
infrastructure projects.
South Korea’s Posco Engineering & Construction (Posco EC) and state-run VN Express signed a

US$150mn contract for the construction of part of a highway in northern Vietnam. Under the deal, for 40
months Posco EC will construct a 27km section of the 224km highway connecting the cities of Lao Cai
and Noi Bai. Infrastructure investments have seen a rapid rise since the Vietnamese government began
efforts to attract FDI to boost economic development. Vietnam is one of Asia’s fastest-growing emerging
markets – largely due to the government’s policies of economic liberalisation - and therefore has attracted
the attention of several international companies. The country’s poor infrastructure has always been a
hindrance for investors, and the government is making efforts to overhaul its roads, railways, airports and
ports to address the challenges. Vietnam is looking to build 5,900km of highways over the next decade.
The World Bank estimates that it will cost US$9mn to build 1km of highway in Vietnam; the total
funding required for the project is estimated at around US$53bn.

© Business Monitor International Ltd

Page 14


Vietnam Freight Transport Report Q3 2009

The ADB will offer a US$410mn loan to Vietnam to build a 51km expressway, which will link Ho Chi
Minh City, Vietnam’s economic hub, with Dong Nai province in the country’s southern region. The
project requires a total investment of US$932mn. The Japan International Co-operation Agency and the
Vietnam Expressway will offer the remaining investment required for the project. By improving transport
infrastructure, BMI believes that Vietnam can unlock its growth potential and become a key player in
South East Asia.
Deputy Prime Minister Nguyen Sinh Hung gave orders in March to launch package No.3 of the Nhat Tan
Bridge project in Hanoi’s Dong Anh District, as reported by Saigon Times Daily. Project Management
Unit 85, which lists the construction ministry as the investor, has stated that the package will be
completed in 34 months. The package aims to build over 4,600m of the road, as well as two interchanges
for the bridge project. The Nhat Tan Bridge project is expected to be the longest multi-span cable-stayed
bridge in Vietnam. Once completed, Nhat Tan Bridge will help improve the flow of traffic in the capital

city and northern provinces. It will also help to serve economic development in the city’s industrial zones
of Bac Thang Long-Thanh Tri, Dong Anh-Co Loa and Gia Lam-Sai Dong-Yen Vien. Vietnam is trying to
invest in construction of infrastructure to keep up with a growing economy.

Rail
The Vietnamese finance ministry will advance VND499bn (US$0.03bn) to Vietnam Railway Corp, as
reported by Intellasia. The fund will be used to accelerate work on some significant and urgent projects.
The railway corporation declared that it would begin construction work on five of its vital projects, valued
at VND11.6trn (US$0.67bn), in 2009. The corporation plans to invest in the Hanoi-Lao Cai railway, the
signal information system of Hanoi-Vinh railway Phase 2, Vinh-Nha Trang railway line, and Thong Nhat
railway including 44 bridges.
BMI View: In general, Vietnam’s transport infrastructure is set to receive investments in 2009. The
country is shifting its economic track in 2009, moving away from fighting inflation to attempting to
stimulate growth. Investments into the construction industry, in an attempt to stimulate growth and
provide employment, have been adopted as a method to deal with the global economic crisis in many
emerging and developed countries across the world.

Air
In May it was reported that the Vietnamese government had given approval to a master zoning plan,
drawn up by the Ministry of Transport, which proposes the development of 10 international airports
across the nation, according to Asia Pulse. The plan proposes both the expansion of the current airports
and construction of new airports. Under the plan, Noi Bai International Airport will be upgraded to handle
larger aircraft and more passengers. The government has given approval for expansion of Cam Ranh and

© Business Monitor International Ltd

Page 15


Vietnam Freight Transport Report Q3 2009

Chu Lai in the central region. Furthermore, Tan Son Nhat International Airport in Ho Chi Minh City will
be upgraded and expanded for more passengers, cargo and aircraft. Phu Quoc International Airport is
under construction and is expected to open in 2012. Long Thanh International Airport, the country’s
largest airport, will be built in Dong Nai Province. Can Tho International Airport is constructing a
terminal and is expected to start operation in 2010.

Sea
Ho Chi Minh City-based Trai Thien Sea Transport Investment and Development acquired a licence to
build a deepwater international trans-shipment port in Con Dao island, situated in Ba Ria Vung Tau
province. The total cost for the port project is estimated at US$300mn. The new Con Dao port will be
extended to 300 hectares to expand its capacity to handle heavy tonnage ships. The total load capacity
will be 10mn tonnes every year.
According to the Saigon Times Daily, citing Bloomberg, Deputy Director Duong Van Hoa said that
Vinacomin would build a US$250mn deepwater port at Khe Ga Cape, in Binh Thuan province. Khe Ga
Seaport will be utilised to import coal, and export aluminium and minerals. The port will be able to
handle ships up to 80,000DWT. The Ministry of Transport’s Vinamarine International Co-operation
Department has stressed that the investments necessary in Vietnam’s port sector are considerable if the
sector is to keep up with the wider economy. The key for Vietnam is to sustain the investor interest in the
sector. Thus far, there has been little evidence that investors have lost interest.
According to Saigon Times Daily, as cited by Hellenic Shipping News, Dubai Ports World (DP World)’s
Saigon Premier Container Terminal is likely to be ready for operations in September 2009. The terminal
is being built in two phases at a cost of US$305mn. It will have a capacity of 800,000 twenty-foot
equivalent units (TEUs) annually, which will increase to 1.5mn TEUs after the completion of second
phase. UAE-based DP World has become one of the world’s largest port operating companies. Focusing
on the container business, the company currently owns 45 terminals and 13 new developments in 29
countries. Its capacity stands at 54mn TEUs and is expected to increase to around 90mn TEUs by 2017,
when new terminals are ready.
According to PortStrategy, the government of Vietnam in early March invited proposals from foreign
investors for the development of a new trans-shipment port in Van Phong Bay. The biggest investor in the

project is Vietnam National Shipping Lines, but further funding is required. The project was scheduled
to start in 2008, but was delayed by alternative plans, now scrapped, to construct a steel plant and a power
plant in the same area. Cargonews Asia reports that the new International Trans-shipment Port of Van
Phong will have between 36 and 42 berths and the capacity to handle vessels of between 9,000 and
12,000 TEUs. The Ministry of Transport’s Vinamarine International Co-operation Department has

© Business Monitor International Ltd

Page 16


Vietnam Freight Transport Report Q3 2009

stressed that the country’s port sector requires significant investment if it is to keep pace with wider
economic development.

Pipelines
Vietnam oil and gas group PetroVietnam was preparing the construction of the US$1bn block B-O Mon
gas pipeline in southern Can Tho City for Q409. The 406km gas pipeline comprises a 246km offshore
pipeline and a 160km onshore pipeline. The pipeline will link more than five Mekong Delta localities,
including Can Tho City, Hau Giang, Kien Giang, Bac Lieu and Ca Mau provinces. The pipeline project is
expected to be operational in July 2011. It will transmit about 18.3mn cubic metres (mcm) of gas per day
or, equivalently, 20bn cubic metres (bcm) of gas per year. Vietnam’s gas consumption should move in
line with rising gas supply. Pipelines are being built with surplus capacity to accommodate new
discoveries and rising consumption later in the decade. Overall natural gas demand is forecast to rise from
an estimated 10bcm in 2008 to 21bcm by 2013, with the proportion used in power generation set to reach
around 40% by 2013, rising from 34% in 2008. We are forecasting gas use in power generation climbing
from an estimated 3.4bcm in 2008 to 8.4bcm in 2013, with gas-fired power generation climbing from
24.9twh to 52.5twh.

© Business Monitor International Ltd

Page 17


Vietnam Freight Transport Report Q3 2009

Industry Forecast Scenario
Quarterly Oil Products Price Outlook
Preparing For The Big Squeeze
Weaker demand for diesel in road transport use, gas oil for manufacturing and industrial applications, and
falling jet fuel consumption have acted in concert to pull the rug from under the middle distillates market.
Gasoline prices and margins had, earlier in the first quarter, made some progress. Since then, refiners
have again struggled. There is no clear pattern yet emerging for the oil products sector but, based on
OPEC’s efforts to limit crude supply, the downstream segment may be in for a tough time if crude prices
rally but product demand remains weak. This is a recipe for ongoing margin weakness and refiners are
preparing themselves for the big squeeze. The start-up of new refineries in Asia and the Middle East will
only exacerbate the situation by providing an ill-timed boost to global capacity that will lead to reduced
plant utilisation rates if demand remains weak.
Lower fuel prices may stimulate demand in certain markets but the trend towards higher fuels taxation
and the overhaul of subsidies in some developing countries mean that a near-term rebound is far from
certain. In spite of some evidence that US drivers are migrating back to less fuel-efficient vehicles, the
major shifts in patterns of consumption resulting from vehicle ownership changes are unlikely to be
reversed simply because pump prices are temporarily lower. The move in Europe away from gasoline and
towards diesel is expected to continue for a while longer, in spite of steep price differentials. However,
advances in small petrol engine technology may mean these more economical units bring to an end the
love affair with diesel.
Over the longer term, expansion of the oil refining system is still needed, particularly as market growth is
likely to accelerate as the world pulls clear of recession/depression. However, refining margins are likely
to be under pressure for many months. Coupled with weaker upstream economics and modest profits in

fuels retailing, the downturn in refining profitability means that both international and national oil
companies may re-examine investment plans. The downstream oils market needs to see continued high
spending in new crude distillation capacity, improved plant upgrading capability and better storage and
distribution logistics. There will inevitably be reduced capital expenditure if industry earnings and cash
flow remain under pressure. This can only result in the market tightening once again as demand picks up
– with a return to extreme price volatility and generally higher fuel prices.
Moving Markets
The continued weakness of refined product prices has played into the hands of those countries wishing to
revise or abandon regulated systems. Many are seizing the opportunity and making sweeping changes that
should bring prices more closely in line with the wider market. This will have an appreciable impact on

© Business Monitor International Ltd

Page 18


Vietnam Freight Transport Report Q3 2009

demand patterns over the medium to longer term, but the likely effects are difficult to assess at such an
early stage. India’s fuel pricing policies are a case in point, where political issues are entwined with
overall energy strategy. In early February 2009, the government decided to deregulate the price of
gasoline, gasoil, liquefied petroleum gas (LPG) and kerosene, reflecting lower international oil prices. A
month later, it decided to defer the move, with the May elections providing the explanation. Based on
prevailing international prices, the liberalisation of the domestic products market would arguably result in
another fall in retail prices, which are already down some 20% since December 2008. There is a risk,
however, that more recent crude price strength may signal higher fuels prices to come. This could boost
pump prices at an unfortunate time for some politicians. The government coalition, led currently by the
Congress Party, which has been re-elected, will continue with the liberalisation policy.
In March 2009 China surprised the market with a 3-5% increase in gasoline and diesel prices, its first in
three months. This effectively reversed a cut made in January and sent out a clear signal that Beijing

wants to move pump prices in tandem with global markets. The National Development and Reform
Commission (NDRC) announced a 4.6% increase for gasoline and 3.2% for diesel, which was a reflection
of steady gasoline demand backed by strong car sales against reduced diesel use. Diesel in China now
costs almost the same as it does in Singapore, and gasoline has closed the gap to just 20% below the
Singaporean price, according to a report from Reuters. In mid-2008, Chinese diesel prices were half the
level in Singapore.
Revised Forecasts
In Q109 BMI estimates that the global wholesale price for premium unleaded gasoline was US$50.63 per
barrel (bbl). This compares with US$56.37 in Q408 and during the two quarters the price has ranged from
a monthly low of US$40.38 in December 2008 to the February 2009 US$53.29/bbl. Gasoline prices in
Q109 were down from US$102.15/bbl in Q108 (-50.4%). For Q209, we now forecast an average global
gasoline price of US$55.78/bbl, a rise of 10.2% over the previous quarter, but a year-on-year (y-o-y)
decline of more than 56% from the impressive US$127.92/bbl seen a year earlier. For the whole of 2009,
the BMI assumption for gasoline is an average US$56.89/bbl, with the price peaking at a forecast
monthly average of US$64.75 in December 2009. The overall y-o-y fall in 2009 gasoline prices is put at
44.1%.
In Q109 gasoil averaged US$56.83/bbl, based on a composite global price. This represents a y-o-y fall of
51.0%, illustrating a slight relative weakening of diesel versus gasoline. For Q209 our revised forecast is
for global gasoil at an average US$66.81, representing a quarter-on-quarter (q-o-q) increase of 17.6% –
but a 56.4% y-o-y decline. For 2009 as a whole, the BMI forecast is for an average price of
US$69.35/bbl, assuming a monthly high of US$94.48/bbl in December. The full-year outturn is a 42.8%
fall from the 2008 level.

© Business Monitor International Ltd

Page 19


Vietnam Freight Transport Report Q3 2009

Jet prices averaged US$58.93/bbl in Q109, using the composite for New York, Singapore and Rotterdam.
The annual decrease was 50.4%, with jet matching the decline in gasoline prices. The monthly low during
the previous six months was US$60.34 in December 2008, with the price reaching US$61.83/bbl in
January 2009. Volatility has been low in the jet market when compared with gasoline and diesel. In Q209,
we are assuming an average global jet price of US$68.22, a q-o-q rise of 15.8% and a y-o-y fall of 56.4%.
For 2009, the monthly average price is forecast to range from US$53.75 in February to US$96.76/bbl in
December, proving an annual level of US$71.78/bbl. This compares with US$124.95/bbl in 2008.
In 2008 naphtha was the weakest performer among the major refined products, gaining 31% to
US$87.40/bbl during 2008. In Q109, naphtha averaged an estimated US$42.91, compared with
US$93.70/bbl in Q108 and US$38.37 in Q408. The 2009 average naphtha price is put by BMI at
US$46.40/bbl, down 47% from the 2008 level.

Table: Oil Product Price Assumptions, Q408-Q409 (US$/bbl)

Gasoline

Q408

Q109e

Q209f

Q309f

Q409f

Rotterdam Premium Unleaded

54.96

48.95

54.93

58.90

60.08

NY Harbour Unleaded

57.84

49.12

55.79

61.32

62.93

Singapore Premium Unleaded

56.32

53.81

56.62

58.95

61.22

Global average

56.37

50.63

55.78

59.72

61.41

Rotterdam

79.66

58.81

69.28

72.77

88.70

NY Harbour

81.95

60.82

68.51

72.99

91.37

Singapore

74.73

57.16

66.86

70.06

83.98

Global average

78.78

58.93

68.22

71.94

88.02

Rotterdam

77.89

57.08

66.93

70.30

86.76

Mediterranean

78.40

57.98

66.14

68.99

87.35

Singapore

70.25

55.44

67.35

68.46

79.41

Global average

75.52

56.83

66.81

69.25

84.51

Jet/kerosene

Gasoil

e/f = estimate/forecast. Source: BMI

Looking further ahead, we see gasoline prices recovering to US$63.45/bbl in 2010, rising further to
US$71.11/bbl in 2011 and stabilising at around US$76.58/bbl from 2012. Gasoil is expected to rebound
to US$77.35 in 2010, reaching a plateau of US$93.35/bbl from 2012. The price of jet is forecast to
average US$80.06/bbl in 2010 and US$89.72 in 2011, before levelling out at US$96.62/bbl from 2012.

© Business Monitor International Ltd

Page 20


Vietnam Freight Transport Report Q3 2009

Table: Oil Product Price Forecasts, 2006-2013 (US$/bbl)

Gasoline

2006

2007

2008

2009f

2010f

2011f

2012f

2013f

Rotterdam Premium Unleaded

74.25

75.75

100.12

55.72

62.14

69.64

75.00

75.00

NY Harbour Unleaded

76.64

78.75

102.54

57.29

63.90

71.61

77.12

77.12

Singapore Premium Unleaded

73.18

74.98

102.64

57.65

64.30

72.06

77.60

77.60

Global average

74.69

76.49

101.77

56.89

63.45

71.11

76.58

76.58

Rotterdam

81.29

81.13

126.61

72.39

80.74

90.49

97.45

97.45

NY Harbour

82.01

82.48

127.13

73.42

81.89

91.77

98.83

98.83

Singapore

80.56

79.17

121.11

69.52

77.54

86.89

93.58

93.58

Global average

81.29

80.93

124.95

71.78

80.06

89.72

96.62

96.62

Rotterdam

77.52

77.02

122.62

70.27

78.37

87.83

94.59

94.59

Mediterranean

77.30

77.69

121.75

70.11

78.20

87.64

94.38

94.38

Singapore

76.74

77.03

119.53

67.67

75.47

84.58

91.09

91.09

Global average

77.18

77.24

121.30

69.35

77.35

86.69

93.35

93.35

Jet/kerosene

Gasoil

f = forecast. Source: 2000-2006 historical data: EIA; 2007/2008 historical data: IEA: Forecasts: BMI

Macroeconomic Outlook
BMI’s 2009 Growth Forecast Cut To 2.9%
We have, in view of the rapidly deteriorating external outlook in Q109, downgraded our 2009 GDP
growth forecast for Vietnam from 5.0% to 2.9%. We are simultaneously bringing down our 2010 forecast
from 7.0% to 5.0% on the back of our expectations of a more prolonged downturn in global demand.
Vietnam looks set to take a hit this year as much of the developed world drops into recession, shaking the
foundations of Hanoi’s export-focused growth model. GDP growth slowed to 6.2% in 2008, the slowest
pace since the 4.8% growth rate recorded in 1999, after growing at a 7.8% and above during the
preceding four years. While we are confident Vietnam’s macroeconomic fundamentals will help it reach
growth levels of around 8% again, we are expecting below-trend growth in the next few years. Indeed, we
have lowered our GDP growth forecast for 2009 from 5.0% to 2.9% and our growth projection for 2010
from 7.0% to 5.0% as the global economic downturn looks set to be more prolonged than expected.
Growth in 2008 was largely held up by the resilience of the export sector in the face of a domestic
economy plagued by spiralling inflation and fiscal and monetary tightening. However, as for many other

© Business Monitor International Ltd

Page 21

Vietnam Freight Transport Report Q3 2009

Asian countries, H208 proved to be a quarter of reckoning for Vietnamese exporters, with exports falling
from US$6.6bn in July to US$3.8bn in December. While the sharp decline was largely due to the
collapsing oil price, which saw crude oil exports drop from US$1.24bn in July to US$0.42bn in
December, the final months of 2008 also saw a marked decline in the exports of electronics, garments and
textile products, which now form the mainstay of Vietnam’s manufacturing sector.
This decline turned into a slump in January, with the exports of textiles decreasing by 33.2% y-o-y to
US$550mn, footwear exports falling 26.0% to US$350mn and overseas shipments dropping 34.4% to
US$120mn. We are expecting a further decrease in exports on the back of the adverse demand picture in
key export markets such as the US, Japan and the EU, which we are currently forecasting to contract by
2.3%, 3.1% and 2.5%, respectively, in 2009. Moreover, the already dire demand outlook will in
Vietnam’s case be exacerbated by the expiration of preferential import tariffs on Vietnamese footwear
exports to the EU under the General System of Preferences (GSP), while tariffs on Chinese garment
products exported to the US will be removed. Anecdotal evidence suggests export orders in the important
textile sector have slumped by 20-40% going into Q109, with customers demanding 20-30% price cuts.
With export orders slumping and domestic demand weak, garment manufacturers are now cutting their
workforces or closing shop entirely. We are currently expecting exports to decrease by 19.5% in 2009 to
US$50.9bn, with falling prices for key commodities such as oil and coffee and the gradual initiation of
the Dung Quat oil refinery, which will reduce the volume of crude oil exported, adding to the contraction
of manufactured exports. Growth in the manufacturing sector fell to 6.43% y-o-y in Q408, a near halving
compared with the 11.85% y-o-y expansion recorded in Q308.
We are expecting worse to come in 2009, as the slump in external demand and intensified competition
from Chinese competitors will bring a cull of less efficient producers in 2009. This process is already
under way, judging from the sharp drop in industrial production in January 2009. The industrial output
measure fell by 8.6% month-on-month (m-o-m) in January, bringing the y-o-y measure to -4.4% after
having posted double-digit figures since February 2005. We were previously expecting a sharp slowdown
in real growth in the manufacturing sector from 10.1% in 2008 to 1.9% in 2009. However, in light of the
appalling trade and IP data for January, we have now revised down manufacturing growth to -5.0%, with
the construction sector also expected to post negative growth (-2.0%) in spite of the government pushing

for increased spending on infrastructure projects.
With the manufacturing sector constituting roughly a quarter of GDP and the construction sector around
8-9%, the negative figures will put heavy pressure on the remaining sectors of the economy to maintain
positive overall growth. We are expecting the agricultural sector to post real growth of 3.0% in 2009 as
lower fuel and fertiliser prices reduce production costs, and both internal and external demand for rice is
boosted as consumers substitute more expensive options such as meat and vegetables for the food staple.

© Business Monitor International Ltd

Page 22


Vietnam Freight Transport Report Q3 2009

We also expect the service sector to post healthy growth. We are expecting the trade sector to grow by
4.7% in 2009 after a 6.3% expansion in 2008. Similarly, we expect real growth in the transport and
communications sector to slow from an estimated 14.0% in 2008 to 8.5% in 2009. The outperformer will
be the financial sector, where the rollout of the branch networks of foreign entrants ANZ, HSBC and
Standard Chartered – and government measures to stimulate lending – will push growth higher.
The bleak economic outlook is affecting domestic consumption, with many households reportedly cutting
spending during the Tet lunar new year holidays in January 2009. Hikes in electricity and gas prices
announced in Q109 will impair purchasing power further, offsetting the gains of lower food and fuel
prices. We are expecting private consumption to decrease by 4% in real terms in 2009 after an estimated
6.8% increase in 2008. The expected 8.0% increase in government consumption will pick up some of the
slack, but this will be insufficient to spare Vietnam from its sharpest slowdown in growth since the 2.5%
expansion recorded in 1987 at the dawn of the ‘Doi Moi’ economic reform era initiated in 1986.
We see a risk economic reform will be put on the back burner in 2009, as the government focuses on
stimulating domestic spending to cushion the effect of falling external demand. The government agreed to
a VND17trn (US$1bn) stimulus package on January 15, focused on supporting small- and medium-sized
companies through subsidised bank loans, corporate tax breaks and preferential trade tariffs in an effort to

avoid a wave of bankruptcies in the sector. Having said that, the launch of the Vietinbank IPO in
December 2008 is testament to a continued reform resolve within the Communist Party of Vietnam.

Table: Vietnam – Economic Activity, 2006-2013

2006

2007

2008

2009f

2010f

2011f

2012f

2013f

974,266

1,144,015

1,478,695

1,711,601

1,899,604

2,136,870

2,394,841

2,689,382

61.00

70.94

90.88

90.08

94.98

112.47

133.05

149.41

8.2

8.5

6.3

2.9

5.0

8.3

7.9

8.0

723

829

1,047

1,024

1,065

1,244

1,452

1,609

84.4

85.6

86.8

88.0

89.2

90.4

91.6

92.8

Industrial production
index, % y-o-y,
3
average

17.7

16.3

14.4

6.0

10.0

12.0

14.0

14.0

Unemployment, % of
labour force, end of
3
period

4.8

4.5

5.0

5.5

4.5

4.0

4.0

4.0

Nominal GDP,
1
VNDbn
Nominal GDP, US$bn

1

Real GDP growth, %
1
change y-o-y
GDP per capita, US$
Population, mn

1

2

1

2

3

f = BMI forecast. Source: IMF, General Statistics Office; IMF; General Statistics Office

© Business Monitor International Ltd

Page 23


Vietnam Freight Transport Report Q3 2009

Transport Outlook
Table: Transport And Communications Data And Forecasts, 2005-2013

2005

2006e

2007e

2008e

2009f

2010f

2011f

2012f

2013f

8.4

8.2

8.2

8.2

8.7

8.5

8.5

8.2

8.0

GDP index, 1995=100

201.0

217.5

235.4

254.7

276.8

300.3

325.9

352.6

342.1

5-year average annual
GDP growth, %

7.5

7.8

8.0

8.2

8.3

8.4

8.4

8.4

6.4

Annual transport and
communications sector
growth, %

9.7

9.5

9.5

9.5

8.7

8.5

8.5

8.2

9.2

205.3

224.9

246.2

269.6

293.1

318.0

345.0

373.3

383.5

5-year average annual
transport GDP growth, %

8.5

9.0

9.5

9.5

9.4

9.1

8.9

8.7

7.6

Transport and
communications sector, %
of GDP

4.1

4.2

4.2

4.3

4.3

4.3

4.3

4.3

4.5

Annual import growth, %

15.6

20.1

34.7

22.0

14.0

20.0

15.0

15.0

10.0

Imports index, 1995=100

441.3

530.0

713.6

870.6

992.5

1,190.9

1,369.6

1,575.1

1,147.3

5-year average annual
import growth, %

19.1

22.4

25.0

23.8

21.3

22.1

21.1

17.2

2.5

Annual exports growth, %

22.5

22.4

22.1

20.0

18.0

22.0

20.0

20.0

12.0

Exports index, 1995=100

623.8

763.7

932.7

1,119.2

1,320
.8

1,611.2

1,933.5

2,320.2

1,525.6

5-year average annual
export growth, %

17.9

21.6

23.8

23.7

21.0

20.9

20.4

20.0

5.5

Transport and
communications sector
value, US$bn nominal

2.2

2.5

3.0

3.5

4.2

4.8

5.5

6.4

6.7

1,069

1,093

1,117

1,142

1,166

1,192

1,218

1,245

1,250

Annual GDP growth, %

Transport sector GDP
index, 1995=100

Total transport sector
employment, ‘000

e/f = estimate/forecast. Source: BMI

Since our last report we have broadly held our macroeconomic forecasts for Vietnam. GDP growth in
2008 is now estimated at 6.2% and we are holding the outlook for 2009 to a slowed-down 2.9%. Our
forecast for 2009-2013 is for an annual average GDP growth rate of 6.1% per annum, a substantial
weakening on the 7.8% average rate achieved in the preceding five-year period. We maintain some
adjustments to mode-specific freight carried forecasts. In road haulage, we have trimmed our forecast to

© Business Monitor International Ltd

Page 24