Vietnam freight transport report q4 2013

Q4 2013
www.businessmonitor.com

VIETNAM
FREIGHT TRANSPORT REPORT
INCLUDES 5-YEAR FORECASTS TO 2017

ISSN 1750-5364
Published by:Business Monitor International


Vietnam Freight Transport Report
Q4 2013
INCLUDES 5-YEAR FORECASTS TO 2017

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

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Vietnam Freight Transport Report Q4 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: Rail Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Inland Waterways .................................................................................................................................. 19
Table: Inland Waterway Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Rail Freight .......................................................................................................................................... 21
Table: Vietnam Transport Network Length (km) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Table: Rail Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

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

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

Trade ................................................................................................................................................... 27
Table: Trade Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Table: Key Trade Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: Top Import Destinations, 2004-2011, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table: Top Export Destinations, 2004-2011, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Market Overview ............................................................................................................... 31
Industry Trends And Developments ................................................................................ 39
Maritime ..............................................................................................................................................
Multimodal ...........................................................................................................................................
Rail .....................................................................................................................................................
Road ....................................................................................................................................................

39
40
41
42

Company Profile ................................................................................................................ 43
Vietnam Airlines Cargo ............................................................................................................................ 43
Vietnam Petroleum Transport Company (VIPCO) .......................................................................................... 45
Vietnam National Shipping Lines (Vinalines) ................................................................................................ 47

Political Outlook ................................................................................................................ 51
Domestic Politics ..................................................................................................................................... 51
Table: Vietnam Political Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

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Vietnam Freight Transport Report Q4 2013
Long-Term Political Outlook ..................................................................................................................... 53

Oil Price Outlook ............................................................................................................... 57
Global Oil Products Price Outlook ............................................................................................................. 57
Methodology ......................................................................................................................................... 57
Crude Price Forecasts ............................................................................................................................ 57
Table: BMI's Oil Price Forecasts, Average Price (US$/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Product Prices Move Back Up But No Spikes Expected ................................................................................. 58

Narrower US Market Crude-Product Spreads .............................................................................................. 59
Weak Demand Persists ............................................................................................................................ 60
Table: BMI's Refined Products Forecasts, US$/bbl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Supply: Supported By Global Refining Capacity ...........................................................................................
Naphtha: Gas Renaissance Hits Demand ....................................................................................................
Gasoline And Gasoil/Diesel: Subsidies & Fuel Efficiency Cap Upward Movement .............................................
Jet Fuel: Slump Restricts Upward Movement ...............................................................................................

64
67
69
71

Table: Total Air Freight And Passenger Volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Bunker Fuels: No Rest To Downward Movement In Sight .............................................................................. 73

Macroeconomic Forecasts ............................................................................................... 76
Economic Analysis ................................................................................................................................... 76
PMI Data Suggests Economic Recovery Remains On Track ............................................................................ 76
Downward Revision To Reflect Weak Q113, But Growth Trajectory Intact ........................................................ 78
Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Demographic Forecast ..................................................................................................... 81
Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Methodology ...................................................................................................................... 85
Transport Industry ................................................................................................................................. 85
Sources ................................................................................................................................................ 86

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Vietnam Freight Transport Report Q4 2013

BMI Industry View
Vietnam recorded a relatively weak real GDP growth figure of 5.0% year-on-year (y-o-y) in Q2 2013, up
only slightly from 4.9% in Q1 2013. The latest GDP print also suggests to us that further efforts by the
Vietnamese government to speed up the restructuring of debt-laden banks and restart lending to small and
medium-sized enterprises (SMEs) may be necessary to support economic growth over the coming quarters.
Moreover, given that we have recently begun to see signs of a slowdown in economic activity across the
region, 2013 looks increasingly precarious for the Vietnamese economy. With this in mind, certain elements
of the freight mix have seen their y-o-y growth forecasts downgraded slightly this quarter.

Foreign direct investment (FDI) will continue to play a crucial role in driving Vietnam's economic growth
over the coming quarters, and we view the recent uptick in FDI inflows into the country as a positive sign
that the economic rebound is gathering pace. The shipping sector will be no different in this regard.

Total foreign direct investment in industrial parks (IPs) and economic zones (EZs) in Vietnam reached an
estimated US$110bn by the end of June 2013, according to the country's Ministry of Planning and
Investment. IPs alone attracted around 4,665 FDI projects totalling US$70bn, while coastal and border EZs
have attracted US$40bn and US$700mn in foreign investment, respectively. Vietnam remains one of the
favourite investment destinations for multinational companies despite the country's turbulent economic

environment and uncertainties over the country's short-term growth outlook. This continues to provide
encouragement for Vietnam's freight mix going forward.

Exports from Asian steelmakers have begun to be cut due to cross-border trade disputes, Reuters reported in
July 2013. In developments that could dent the Vietnamese freight industry, a group of US steel pipe
makers asked the US International Trade Commission in a bid to halt alleged unfairly traded steel products
from outside of the US, including Vietnam, India and South Korea. Speaking to Reuters, Dinh Huy Tam,
general secretary of Vietnam Steel Association, said: 'If they lose the case, for sure Vietnamese companies
will face more difficulties in exporting steel overseas, especially to the United States.'

Meanwhile, Ryuichi Yamashita, director at Japan's Ministry of Economy, Trade and Industry, voiced his
concerns: 'Should other countries accelerate steel exports to areas where there is strong demand, it may
spark off a trade war and I am afraid that Japan will get caught up because we are an exporter.'

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Vietnam Freight Transport Report Q4 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 13.13% to 202,170 tonnes.

■

Tonnage handled at the Port of Ho Chi Minh City in 2013 is forecast to grow 6.72%, whereas tonnage
handled at the Port of Da Nang is forecast to increase 3.85%.

■

2013 road freight tonnage is forecast to grow by 11.70% to 820.5mn tonnes.

■

2013 total trade is forecast to rise by 5.05%.

Key Industry Trends

DHL Intends To Invest EUR10mn - Germany's DHL Supply Chain is set to make an investment of
EUR10mn (US$13mn) for expansion work in Vietnam over the next few years. The logistics specialist aims
to construct new facilities, including a second build-to-suit distribution centre in Bac Ninh, which is due to
be completed in Q3 2013. The company will also make investments in additional information technology,
including a warehouse management system and a transportation management system.

Vietnam Invites Applications For Expressway - A request was issued in July 2013 by the Vietnamese
Ministry of Transport inviting applications for qualification for a second investor for the US$757mn Dau
Giay-Phan Thiet Expressway Project. The successful bidders would design, finance, construct, operate and
maintain a four-lane expressway and allied structures from Dau Giay in the Dong Nai province to Phan
Thiet in the Binh Thuan province through a Special Purpose Vehicle.

Australian Firms Eyes Megaport Project - A proposal has been submitted by Australian company N&M
Commodities relating to the construction of an AUD3.5bn megaport on Hon Khoai Island. If given the go
ahead, the deepwater port project will stretch over 320 hectares and the 12 berths will be capable of

handling vessels up to 250,000dwts.

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Vietnam Freight Transport Report Q4 2013

Key Risks To Outlook

Vietnamese Ministry of Transport issued a request inviting applications for qualification for a second
investor for the US$757mn Dau Giay-Phan Thiet Expressway Project in July 2013, which could provide a
welcome boon to the country's road freight sector in the future. Under the project, the successful bidders
would design, finance, construct, operate and maintain a four-lane expressway and allied structures from
Dau Giay in the Dong Nai province to Phan Thiet in the Binh Thuan province through a Special Purpose
Vehicle. The Special Purpose Vehicle would be formed between Bitexco, which has been appointed as the
first investor for the project, and the second investor. The first investor will have a share of 60% in the
project and the other investor 40%. However, the first investor may dilute its share in favour of the second
investor during the construction.

In terms of the rail freight sector, it has been announced that the Laos government is to build a new railway
line between the country and its Asian neighbours, Vietnam and Thailand, reported the Asia Times in June
2013. The 220km line will run from Laos's Western border with Thailand to the Lao Bao border gate in
Vietnam. Construction will commence in August 2013 with an expected completion date of the second half
of 2017.

Further positivity is provided by the news that Vietnam was scheduled to start the construction of the
deepwater Lach Huyen terminal in Haiphong in April 2013. The statement was made by Vietnam's Prime
Minister Nguyen Tam Dung in the week ended April 27 2013. Vinalines, Mitusi OSK Lines, Nippon Yusen

Kaisha and Itochu jointly own the project, which is the first public-private project in Vietnam. The 900,000
twenty-foot equivalent units (TEUs) project will entail a total investment of US$1.2bn and is likely to
become operational in 2015. The terminal, likely to ease port congestion in Haiphong, will be able to
accommodate vessels with a capacity ranging between 8,000TEUs and 9,000TEUs.

Bilateral relations are also being strengthened between Vietnam and Thailand through the establishment of
new strategic partnerships focusing on regional and international cooperation on political and economic
issues. The agreement was announced amid talks held in Bangkok on June 25 2013 between visiting
General Secretary of the Communist Party of Vietnam, Nguyen Phu Trong and Thai Prime Minister
Yingluck Shinawatra. The two countries also pledged to promote bilateral trade. Thailand is the ninth
largest investor in Vietnam with 313 investment projects worth US$6.4bn, according to figures published
by the Foreign Investment Agency (FIA).

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Vietnam Freight Transport Report Q4 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 Q4 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.

■

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 president of Russian Railways (RZD) has explained his belief that an investment
in the construction of a new rail line in southern Vietnam will come in at more than US
$2bn. Speaking to IA Prime, Vladimir Yakunin said that 'it is difficult to talk about it
now, because there is no project', but as it stands, an agreement of intent was signed
on March 11 2013 between RZD, Vietnamese Railways and the mineral deposit
company An Vien, also from Vietnam.

■

The US$1.2bn, 900,000TEU deepwater Lach Huyen Terminal in Haiphong (a joint
venture between Vietnam's Vinalines and Japan's Mitusi OSK Lines, Nippon Yusen
Kaisha and Itochu) became the first public-private project in Vietnam in April 2013.

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 Q4 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 Q4 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 Q4 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.

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Vietnam Freight Transport Report Q4 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 5.3% forecast for 2013, following a year of slowing growth in 2012, when Vietnam's GDP expanded
by just 5%.

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

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

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 6.4%
predicted between 2013-2017 compared with an average annual growth of 5.9% between 2008-2012.

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Vietnam Freight Transport Report Q4 2013

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 export partner the US. Direct container
shipping links between Vietnam and the US have been in operation since 2009, which have cut both time
and cost, as previously Vietnamese shipments had to be transhipped via Singapore.

Demand from the US for Vietnam's manufactured goods looks set to continue growing, with Vietnam's
exports set to benefit from the slow, but steady recovery in the US economy. We project US economic
growth to expand by 1.9% in 2013. Over the medium term (2013-2017) we forecast the US economy to

expand by an average 2.4% per annum.

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 and
BEA

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Vietnam Freight Transport Report Q4 2013

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%.

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.

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Vietnam Freight Transport Report Q4 2013

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 81.9% freight carried in the
country.

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.

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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.

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: Rail Freight

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

- % change y-o-y

2011

2012

2013f

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
-4.68

-7.98

-3.19

4.12

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
2.49

3.47

-1.80

4.80

5.67

5.66

5.61

5.49

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 163.4mn tonnes of freight

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Vietnam Freight Transport Report Q4 2013

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 16.3%.

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. Although we highlight that the River's full potential has not been reached and so
development in the River is an area for potential investment.

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Vietnam Freight Transport Report Q4 2013

Table: Inland Waterway Freight

2010
Inland
waterway
freight, '000
tonnes

2011

2012

2013f

2014f

2015f

2016f

2017f

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

4.73

9.00

-1.30

5.32

5.21

5.21

5.19

5.10

Inland
waterway
freight, mn
tonnes/km*

31,679.00

36,620.90

36,792.60

38,731.92

40,730.78

42,837.09

45,042.37

47,320.98

- % change
y-o-y

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 1.8% 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.

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Vietnam Freight Transport Report Q4 2013

Table: Vietnam Transport Network Length (km)

Vietnam Transport Network

Length (km)

Road

180,549 km

Railway

17,702 km

Inland Waterway

2,632 km

Source: CIA World Factbook

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

2011

2012

2013f

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
-4.68

-7.98

-3.19

4.12

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
2.49

3.47

-1.80

4.80

5.67

5.66

5.61

5.49

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

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Vietnam Freight Transport Report Q4 2013

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
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 5.8% to reach 189,030 tonnes in 2013 a start of a recovery following the 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 6.4% and by 36% over the full period to reach 243,200 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.

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Vietnam Freight Transport Report Q4 2013

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.

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

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Vietnam Freight Transport Report Q4 2013

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

189.03

199.81

212.50

227.00

243.20

36.17

4.79

-10.29

5.78

5.71

6.35

6.82

7.14

426.80

449.00

480.90

499.51

527.98

557.98

589.38

621.84

34.81

5.20

7.10

3.87

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
and shoe exports, the country's ports and shipping links have had to keep up. As mentioned, considerable
investment was ploughed into Vietnam's container terminal sector over the past five years, with
international players participating. This investment is now starting to yield results, with Vietnam now
directly connected to the key demand market of the US (in 2009) and Europe (in 2010).

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