Vietnam freight transport report q3 2013

Q3 2013
www.businessmonitor.com

VIETNAM
FREIGHT TRANSPORT REPORT
INCLUDES 10-YEAR FORECASTS TO 2022

ISSN 1750-5364
Published by:Business Monitor International


Vietnam Freight Transport Report
Q3 2013
INCLUDES 10-YEAR FORECASTS TO 2022

Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: April 2013

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Vietnam Freight Transport Report Q3 2013

CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................. 10
Freight Transport .................................................................................................................................... 10
Political ................................................................................................................................................. 12
Economic ............................................................................................................................................... 13
Business Environment .............................................................................................................................. 14

Industry Forecast .............................................................................................................. 15
Road Freight ......................................................................................................................................... 18
Table: Road Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Inland Waterways .................................................................................................................................. 20
Table: Inland Waterway Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rail Freight .......................................................................................................................................... 22
Table: Vietnam Transport Network Length (km) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table: Rail Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Air Freight ............................................................................................................................................ 23
Table: Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Maritime Freight ................................................................................................................................... 25
Table: Maritime Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Trade ................................................................................................................................................... 27
Table: Trade Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Table: Key Trade Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Table: TOP IMPORT DESTINATIONS, 2004-2011, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: TOP EXPORT DESTINATIONS, 2004-2011, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Market Overview ............................................................................................................... 30
Industry Trends And Developments ................................................................................ 37
Maritime ..............................................................................................................................................
Multimodal ...........................................................................................................................................
Rail .....................................................................................................................................................
Air ......................................................................................................................................................

37
39
40
40

Company Profile ................................................................................................................ 41
Vietnam Airlines Cargo ............................................................................................................................ 41
Vietnam Petroleum Transport Company (VIPCO) .......................................................................................... 43
Vietnam National Shipping Lines (Vinalines) ................................................................................................ 45

Regional Overview ............................................................................................................ 48
Political Outlook ..................................................................................................................................... 48
Domestic Politics .................................................................................................................................. 48

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Vietnam Freight Transport Report Q3 2013
Table: Vietnam Political Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Long-Term Political Outlook .................................................................................................................... 50

Global Industry Overview .................................................................................................. 54
Global Oil Product Price Outlook ............................................................................................................... 54
Methodology ......................................................................................................................................... 54
Crude Price Forecasts ............................................................................................................................ 55
Table: BMI's Oil Price Forecasts, Average Price (US$/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Early Rally Turns Into Run-Off ................................................................................................................. 55
Table: BMI's Refined Products Forecasts, US$/bbl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Supply: Refining Capacity Expansion Sets Tone ...........................................................................................
Naphtha: Global Economic Outlook Weighs On Prices .................................................................................
Gasoline And Gasoil/Diesel: The Green Effect .............................................................................................
Jet Fuel: Freight Continues Slump ............................................................................................................

60
64
65
66

Table: Total Air Freight & Passenger Volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Bunker Fuels: Efficiency Takes Hit On Demand ........................................................................................... 67

Macroeconomic Forecasts ............................................................................................... 69
Economic Analysis ................................................................................................................................... 69
Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Demographic Forecast ..................................................................................................... 73
Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Methodology ...................................................................................................................... 77
Transport Industry ................................................................................................................................. 78

Sources ................................................................................................................................................ 78

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Vietnam Freight Transport Report Q3 2013

BMI Industry View
Vietnam's real GDP growth accelerated from 5.1% year-on-year (y-o-y) in Q312 to 5.4% in Q412,
reinforcing our view that the economy is poised for a robust recovery in H113. Also, Vietnam's trade
surplus expanded in February 2013, amid a sharp decline in imports. Exports surpassed imports by US
$900mn in February, after a revised US$776mn in January, according to preliminary figures released by the
General Statistics Office. Imports fell to US$6.6bn in February from a revised US$10.7bn in January, while
exports slipped to US$7.5bn from a revised US$11.5bn over the same period.

Over the past two years, Vietnam's infrastructure sector has largely been off the radar among foreign
investors, meaning that the country's freight industry has perhaps had cause to feel a little neglected. This is
despite numerous project opportunities cropping up. Latest estimates from the Vietnam Ministry of
Planning indicate that Vietnam needs around US$160bn being made available for infrastructure
development between 2013 and 2020.

The lack of a comprehensive PPP framework, decade-low economic activity and slowdown in project
financing from European banks due to the European sovereign-debt crisis have exposed deep fault-lines in
the country's business environment for infrastructure. These frailties include excessive investment in certain
infrastructure segments (ie, roads, cement), slow land clearances, poor planning, high levels of corruption
and a weak regulatory environment.

Although these business environment issues are far from resolved, we believe that improving economic
conditions and a willingness by the Vietnamese government to resolve some of the underlying drivers for
these frailties are improving the investment climate for infrastructure and, by extension, the Vietnamese
freight industry.

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Vietnam Freight Transport Report Q3 2013

Headline Industry Data
■

2013 rail freight tonnage is set to increase by 4.12% to 7.29mn tonnes.

■

2013 air freight tonnage is forecast to rise by 13.64% to 203,080 tonnes.

■

Tonnage handled at the Port of Ho Chi Minh City in 2013 is forecast to grow 7.56%, whereas tonnage
handled at the Port of Da Nang is forecast to increase 4.26%.

■

2013 road freight tonnage is forecast to grow by 11.7% to 820.5mn tonnes.

■

2013 total trade is forecast to rise by 5.60%.

Key Industry Trends

Global Economic Pick Up To Support Ho Chi Minh Port Growth - Annual tonnage throughput growth at
the Port of Ho Chi Minh is set to come in at a healthy 7.56% in 2013, to reach 38.75mn tonnes, down
slightly on the previous year's estimated y-o-y increase of 7.71%. Container throughput is predicted to
perform even better, forecast as it is to reach growth of 8.22% in 2013, almost twice as fast as our estimated
2012 expansion rate of 4.35%. This will see container throughput reaching 3.22mn TEUs. This faster rate of
growth is in keeping with our macroeconomic outlook on Vietnam, where we forecast that real GDP growth
will accelerate from 5.0% in 2012 to 7.0% in 2013.

Logwin Reports Growth In Eastern China-Vietnam Trade Lane - Germany-based freight
company Logwin has seen growth on its Eastern China to Vietnam trade lane across a range of industries,
including IT hardware and garments, in 2012, reported JOC at the end of February 2013. The company's
managing director for the Far East region Tomas Sonntag said the growth has turned the Eastern China to
Vietnam route into 'one of the larger trade lanes in intra-Asia for Logwin'.

Vietnamese Rail Line Will Cost US$2bn - The president of Russian Railways (RZD), Vladimir Yakunin,
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.

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Vietnam Freight Transport Report Q3 2013

Key Risks To Outlook

A proposal for Japan-based Nexco Central Company to become an investor of the upgraded Phap VanCau Gie highway project in Vietnam has been submitted by the Ministry of Transport, it was reported in
April 2013. Nexco will become an investor in the project under a build-operate-transfer (BOT) contract.
The decision to select Nexco instead of Vietnam's Hai Chau Group took six months, the ministry stated. If
the proposal is accepted by the government, then the Phap Van- Cau Gie project will become the first
foreign-invested highway project in the country. The proposal calls for upgrading the current 30km stretch
into an expressway with four lanes. The project will attract a total investment capital of VND1.5trn (US
$71.4mn), with the construction is expected to be concluded within one year.

Meanwhile, work on the north-south high-speed railway project in Vietnam should be delayed with the
focus shifted to upgrading the current north-south track, according to a proposal by state-owned Transport
Engineering Design Inc (TEDI). Additionally, the speed of the north-south high-speed train should be
slowed down to 150-200km an hour from more than 200km an hour, TEDI added. The time frame for the
development of the trans-Asia railway should be reconsidered along with the rail lines connected to
seaports, industrial zones and tourist sites, TEDI mentioned. These were the major adjustments
recommended by TEDI as a consultant to the Ministry of Transport for Vietnam railway transport
development strategy for 2020, with a vision to 2050.

In terms of political risk over the medium term, Vietnam's biggest political question over the coming decade
is whether one-party rule under the Communist Party of Vietnam (CPV) will face growing calls for
democratisation, as was the case in other major South East Asian countries. While our core scenario
envisages the CPV transforming itself into a technocratic administration, it faces major economic
challenges which if mismanaged could lead to widespread unrest. On the foreign policy front, we expect an
increasingly powerful China to drive Vietnam further into the camp of Asian nations with close relations
with the US.

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Vietnam Freight Transport Report Q3 2013

SWOT
Freight Transport

Vietnam Freight Transport Industry SWOT

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 2017.

■

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.

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.

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Vietnam Freight Transport Report Q3 2013

Vietnam Freight Transport Industry SWOT - Continued
■

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.

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 Q3 2013

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 in 2012 are likely to weigh on public acceptance of the
one-party system, and street demonstrations to protest economic conditions could
develop into a full-on challenge of undemocractic rule.

■

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 Q3 2013

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 14.0% in 2010.

Weaknesses

■

Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving
the economy vulnerable to global economic uncertainties in 2012. 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 has given Vietnam 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 Q3 2013

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.

© Business Monitor International

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Vietnam Freight Transport Report Q3 2013

Industry Forecast
Vietnam's freight transport sector will benefit from the uptick in domestic growth and the growth outlook of
its two main trade partners, the USA and China, which will drive export growth. Vietnam's logistics sector
has been developing to keep up with the country's increasing role as Asia's factory, especially in the
manufacturing of clothing and shoes. Vietnam's connections to its key export partners has been improving
over the past three years, with the country now boasting direct container line services to the US and Europe.

Vietnam's economic growth is picking up. While the country's economy continued to expand at a reasonable
rate of 5% in 2012, this year marked the second year in which Vietnam's real GDP slowed. In 2013, BMI
forecasts the country's economic expansion to get back on its growth trajectory with Vietnam's real GDP
projected to grow by 6.27%.

Economic Growth Getting Back On Course
Vietnam Real GDP growth, % change y-o-y

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

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Vietnam Freight Transport Report Q3 2013

The country's medium-term growth will place even more pressure on the country's logistics sector with
Vietnam's economy forecast to expand quicker over the next four years, with an average growth of 7%
predicted between 2013-2017 compared with an average annual growth of 5.9% between 2008-2012.

To keep pace with this growth Vietnam will continue to 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 have 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 trade 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. We project US economic
growth to expand by 2.1% in 2013. Over the medium term (2013-2017) we forecast the US economy to
expand by an average 2.4% per annum.

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Vietnam Freight Transport Report Q3 2013

China And The US To Drive Export Growth
LHC: Vietnam's Main Export Partners By % 2011. RHC: China and US Real GDP growth, % change yo-y

*2012 data is a BMI estimate. f = BMI forecast. Source: CIA World Factbook, National Bureau of Statistics, BEA

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, estimated at 7.5% in 2013 and 6.4% over the medium term.

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%.

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Vietnam Freight Transport Report Q3 2013

Playing A Major Role In China's Coal Supply Chain
China Coal Imports By Partner 2012 (tonnes)

Source: China Custom

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
needs are primarily met by road.

In 2013, we predict that road freight volumes in Vietnam will account for 89% freight carried in the
country.

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Vietnam Freight Transport Report Q3 2013

Road Reliant
Vietnam Freight Mode Breakdown By Market Share 2013

Source: BMI

We forecast that growth in road freight volume will strengthen in 2013 in line with the pickup in Vietnam's
economic recovery and the stronger export outlook for the country. We project road freight volumes to
increase by 11.7%, up from an estimated 10.6% in 2012, to reach 820.5mn tonnes in 2013.

Over the medium term, we forecast road freight volume growth will average 11.7% per annum reaching a
projected 1.3bn tonnes in 2017.

There is, however, upside risk to this forecast as more foreign logistics companies, with considerable road
freight expertise expand in Vietnam. Recently, both FedEx and DHL have been expanding their role in
Vietnam. 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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Vietnam Freight Transport Report Q3 2013

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

2010

2011

2012

2013f

2014f

2015f

2016f

2017f

Road freight, '000
tonnes

587,014

663,913

734,578

820,523

918,165

1,027,427

1,145,581

1,275,032

- % change y-o-y

14.29

13.1

10.64

11.7

11.9

11.9

11.5

11.3

Road freight, mn
tonnes/km

36,179

40,231

38,563

41,279

44,079

47,029

50,118

53,310

- % change y-o-y

14.54

11.2

-4.15

7.04

6.78

6.69

6.57

6.37

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

Inland Waterways
Play A Major Role; 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 463.4mn tonnes of freight
will be carried by the nation's waterways, a year-on-year (y-o-y) growth of 5.3%. In terms of total freight
transport projections for Vietnam in 2013, we calculate that inland waterways will account for 10.1%.

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Vietnam Freight Transport Report Q3 2013

Mekong Offers Trade Connections
Map of the Mekong River

Source: BMI

The country's inland waterways stretch for 17,702km, of which 5,000km is navigable for vessels with a
draught of up to 1.8m. Vietnam'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.

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Vietnam Freight Transport Report Q3 2013

Table: Inland Waterway Freight

2010

2011

2012

2013f

2014f

2015f

2016f

2017f

Inland waterway
freight, '000 tonnes 144,227.00 157,207.40 155,161.90 163,414.44 171,920.31 180,883.46 190,267.77 199,964.10
- % change y-o-y

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

4.73

9.00

-1.30

5.32

5.21

5.21

5.19

5.10

31,679.00

36,620.90

36,792.60

38,731.92

40,730.78

42,837.09

45,042.37

47,320.98

1.37

15.60

0.47

5.27

5.16

5.17

5.15

5.06

*2012 data is an estimate. f = BMI 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 forecast Vietnam's rail freight volumes to
account for just 0.8% of the total with the country's rail network transporting just 7.3mn tonnes of freight.

Although like the other freight modes, we expect volumes to increase in line with Vietnam's economic
growth outlook, rail freight volumes (while forecast to grow by 18% over the next five years) will only be

handling 8.3mn tonnes in 2017; this is still way below that which we forecast for the nation's other main
freight modes, road and inland waterways.

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)
180,549 km
17,702 km
2,632 km

Source: CIA World Factbook

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Vietnam Freight Transport Report Q3 2013

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 180,549km network of roads and 17,702km 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

2010
Rail freight, '000 tonnes
- % change y-o-y

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

2014f

2015f

2016f

2017f

7,861.50 7,234.10 7,003.50 7,292.04 7,519.58

7,759.34

8,010.37

8,269.75

3.12

3.19

3.24

3.24

3,960.90 4,098.50 4,024.60 4,217.78 4,457.13

4,709.35

4,973.43

5,246.28

5.66

5.61

5.49

-4.68

2.49

2011

-7.98

3.47

2012

-3.19

-1.80

2013f

4.12

4.80

5.67

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. As intra-Asia air
freight routes develop, Vietnam is becoming better connected with air freight routes internationally. The

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Vietnam Freight Transport Report Q3 2013

key sectors that are demanding air freight as a transport option, include consumer electronics and
pharmaceuticals.

In line with Vietnam's economic growth and the projected pick up in international air freight, BMI forecasts
the country's air freight volume growth to strengthen in 2013. We forecast Vietnam's air freight volumes to
increase by 13.6% to reach 203,080 tonnes in 2013 a full recovery on the 10.3% decline recorded in 2012.
Over the medium term (2013-2017), we forecast Vietnam's air freight levels to grow on average per annum
by 7.4% and by 42.3% over the full period to reach 254,360 tonnes.

There are upside risks to these forecasts stemming from the continued interest of international air freight
operators in Vietnam. Throughout 2012, Vietnam's Ho Chi Minh City airport became better connected with
more air freight routes and BMI expects this trend to continue in 2013 and beyond.

Taking Off
Vietnam Air Freight, '000 tonnes

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.

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Vietnam Freight Transport Report Q3 2013

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
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

Air freight, '000 tonnes
- % change y-o-y

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

2010

2011

2012

2013f

2014f

2015f

2016f

2017f

190.10

199.20

178.70

203.08

215.20

227.82

240.87

254.36

36.17

4.79

-10.29

13.64

5.97

5.87

5.73

5.60

426.80

449.00

480.90

509.05

538.06

568.63

600.64

633.71

34.81

5.20

7.10

5.85

5.70

5.68

5.63

5.51

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

Maritime Freight
Box Role To Continue Expanding

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.

It is in the container shipping sector that Vietnam has seen the most development, a trend which is expected
to continue. As Vietnam has become the factory of Asia, with an emphasis on the development of clothing

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