Vietnam bouncing back

(VLR) Together with an ever improving infrastructure to accommodate logistical demands, the forecast for growth in all sectors this year certainly puts Vietnam at the forefront of the rest of Southeast Asiaʼs emerging economies according to.

Together with an ever improving infrastructure to accommodate logistical demands, the forecast for growth in all sectors this year certainly puts Vietnam at the forefront of the rest of Southeast Asiaʼs emerging economies according to.

After experiencing some economic bumps and hurdles in the last couple of years, Vietnam appears to be bouncing back and is once again one of the up-andcoming Rising Stars in the Asia region. PricewaterhouseCoopers forecasts that Vietnam may be the fastest of Southeast Asia’s emerging economies by 2025, with a potential annual growth rate of about ten percent in real dollar terms.

With Vietnam’s total-trade forecast to increase by almost eight percent this year, Business Monitor International (BMI) are confident that Vietnam remains on track for a robust economic recovery in 2013 and are forecasting real GDP growth this year of seven percent. Indeed, during the first half of 2013, import-export values increased 16.8 percent year-on-year, to over US$125 billion, in turn driving a 5.5 percent increase in customs revenues.

Within the freight transport sector BMI predict healthy growth with headline 2013 projections:

• Ho Chi Minh City Port total tonnage to increase by 7.56 percent

• Rail Freight volumes increase 3.12 percent to 8.7 million tons

• Air Freight volumes increase 6.06 percent to 220,620 tons

• Road Freight volumes increase 6.85 percent to 713 million tons

INFRASTRUCTURE CHALLENGES

As is typical in emerging and developing economies, infrastructure remains a huge challenge, with inadequate transportation networks resulting in substantial inefficiencies throughout both international and domestic supply chain ecosystems.

It is estimated there are US$171 billion dollars’ worth of infrastructure projects planned or currently under way in Vietnam’s transport sector. The government actively encourages public-private partnership (PPP) models in order to attract private sector investment in infrastructure projects. Twenty four specific PPP projects have been identified and it’s expected this approach will generate investment of US$70-80 billion within 10 years.

CAPITAL HANOI

In the North, the critical high-speed expressway between Hanoi – Vietnam’s capital – and the coastal port city of Haiphong was originally due to be complete this year, but is still only one third completed. Delays are reportedly attributable to problems with ground and land clearance. The latest commitment from the contractors is that the 105 kilometre highway will be operational by 2015.

Also in the north, cross-border rail infrastructure is under development that will ramp up North Vietnam’s connections into China. In Yunnan province, the new 141km rail line from Yuxi to Mengzi, which is primarily going to focus on rail freight, was completed in late 2012 and in the near future will link China to Vietnam. The line extension now under construction will link Mengzi to the Vietnamese border town of Lao Cai, thus providing rail connections from Kunming in China through to Vietnam.

HO CHI MINH – CENTRE OF COMMERCE

Whilst the capital Hanoi is the centre of government and politics, Ho Chi Minh City (HCMC) – formerly Saigon – remains the primary commercial hub of Vietnam’s economy. As the epicentre of trade and commerce, an estimated 80 percent of all goods move through the city, thereby making HCMC the most critical logistics hub in the whole of Vietnam. The vast majority of logistics providers – both domestic and foreign – have therefore established a presence in HCMC.

PORTS, SHIPPING AND INLAND WATERWAYS

Domestic inland waterway transportation leverages Vietnam’s dense river and canal network which provides a highly developed inland waterway system of 17,700 km.

With Vietnam’s lengthy coastline of some 3,200 km, coastal shipping is another transport sub-sector with growth potential. Long-haul north-south freight move- South Vietnam’s container port developments are fragmented thus resulting in over capacity and underutilisation. ments could be moved from the severely congested ground-based road and rail networks onto mid-size container vessels calling at the major ports along the coast.

As discussed at the recent ASEAN Ports and Shipping conference in July, the fragmented approach to the development of multiple container terminal facilities at the Cai Mep-Thi Vai port complex – situated on the southeast coast some 50km from Ho Chi Minh City – has resulted in huge over-capacity, to the extent that operations at several of the new terminals have been suspended, due to a shortage of cargo and absence of ships.

Compounding the unfortunate scenario is the continuing operation of the Saigon city river ports in downtown HCMC, thereby supporting the existing inefficient operations within the busy city, with the related congestion and pollution, and further entrenching the incumbents’ reluctance to move cargo operations to the new Cai Mep facilities.

ROAD FREIGHT ACCOUNTS FOR MAJORITY OF DOMESTIC CARGO

Over two thirds of all Vietnam’s domestic cargo is moved by road. However, out of the total 200,000 km road network, most roads are two lane and only 20 percent of the total roads are paved.

At 2,300 km long, Highway 1 is Vietnam’s long distance national artery, stretching all the way from the northern border Lang Son Province to the southernmost Ca Mau Province. The modernisation of Highway 1 involves numerous improvement projects, with many underway and some already completed. Almost 500 km of the Thanh Hoa – Can Tho section has been expanded, and the remaining sections have been divided into 35 separate projects – which include 16 build-operate- transfer projects that will stretch for 540 km.

IMPROVEMENT IN ROAD MAINTENANCE

Maintenance of Vietnam’s 256,600 km of roads, including 17,200 km of national highways and 23,530 km of provincial highways, has proved to be an on-going challenge, largely because of inadequate funding.

However, the new Road Maintenance Fund, established in January 2013, is designed to increase the funding available to improve the quality of the roads and restore public confidence – previously the government could only afford to maintain up to 1,000km of national highways and 10,000 km of bridges and urban roads each year.

During the first six months, US$127 million has been collected, with over US$100 million already utilised in maintenance works on the nation’s highways. All vehicles are required to pay an annual road maintenance fee, which is US$600 for trucks and commercial vehicles over 27 tonnes.

RAILWAY SECTOR

With Vietnam’s geography being long and narrow, long distance freight should naturally gravitate to rail, preferably containerised – proven around the world as being more efficient and environmentally friendly; however with the outdated infra- structure and all seven lines being single track, only seven percent of all freight is carried by rail.

The main North-South railway line that connects Hanoi and Ho Chi Minh – 1,725 km of single track – is in the long process of being upgraded; however, with no alternative lines or dual-track systems, then congestion at any one location can bring the whole line to a halt.

AVIATION SECTOR GROWING

Airline developments in the last year reflect the optimism about continuing growth in Vietnam’s air cargo sector, with the freight subsidiary of Air China joining a host of cargo operators interested in serving the Vietnam market.

HCMC Airport Developments – by year 2020, HCMC’s Tan Son Nhat International Airport will be overloaded, handling a projected 25 million passengers, stretching the maximum capacity of the airport. The new Long Thanh International Airport is located some 35 km from HCMC, in the neighbouring province of Dong Nai. Due to be complete by 2020, Phase One will feature two runways and be capable of handling 25 million passengers. This first phase of the project requires investment of US$7.8 billion, with 47 percent of funding coming from private sources. Phase Two will increase capacity to 50 million passengers by 2030, with phase three accommodating 100 million passengers on four runways.

DOMESTIC LOGISTICS SECTOR

Logistics costs in Vietnam represent around 25 percent of GDP – higher than China or India – reflecting much inefficiency in the domestic market. Transportation costs represent 30-40 percent of the total logistics expenditure of over US$25 billion. The proportion of logistics that is outsourced is estimated at less than 25 percent – representing large growth opportunities for the 3PL sector.

It is a fragmented market with over 1,200 logistics service provider companies operating in Vietnam, with the vast majority (800-900) of logistics businesses being located in the commercial capital of HCMC.

Specifically within the express-delivery services sector, American giant UPS announced its acquisition of the 49 percent interest of VN Post Express in their express delivery joint venture. Other multi-national 3PL’s making moves in the domestic market include Ceva who, together with longtime partner Indo Trans Logistics (ITL) Group formed a new joint venture named Ceva Logistics (Vietnam) Co Ltd.

HCMC’S NOTORIOUS TRAFFIC JAMS

Ho Chi Minh City is notorious for its traffic jams and motorbikes. The city has over 1,400 intersections but only 590 of them have traffic lights. About 400 of the intersections are controlled by the urban traffic management unit, and 159 are managed by the HCMC Police.

A major traffic control centre project is underway, costing an estimated VND 3.9 trillion, which seeks to develop a new traffic control centre for HCMC. It will be equipped with information technology to better integrate control of traffic lights, closed-circuit television cameras and electronic boards to help manage traffic flows. So in future years, we can look forward to less downtown congestion in Ho Chi Minh City!

THE FUTURE

With the resurgence of expanding economic prosperity in Vietnam again driving increases in cargo volumes, both domestic and international, the infrastructure limitations will prove to frustrate opportunities to optimise logistics networks.

In the international context, Vietnam’s location on the South China Sea provides access to the main intra-Asia and inter-Asian shipping routes, which are forecast for above average growth in the coming years. Adopting a more holistic and integrated approach to deep-sea port development, and the related multimodal hinterland connectivity, will enable Vietnam to better capitalise on its strategic position and vast potential – amidst the rapid regional growth of supply chain ecosystems in the Asia Era.

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