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... of any information hereto contained Vietnam Freight Transport Report Q1 2011 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q1 2011 CONTENTS Executive Summary ... Monitor International Ltd Page Vietnam Freight Transport Report Q1 2011 SWOT Analysis Vietnam Freight Transport SWOT Strengths Weaknesses Opportunities Threats Vietnam' s strong domestic growth... Source: General Statistics Office of Vietnam © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q1 2011 Air Freight Vietnam' s airfreight industry is recovering modestly
Q1 2011 www.businessmonitor.com VietnaM freight transport Report INCLUDES 5-YEAR FORECASTS TO 2015 ISSN 1750-5364 Published by Business Monitor International Ltd. VIETNAM FREIGHT TRANSPORT REPORT Q1 2011 INCLUDES 5-YEAR FORECASTS TO 2015 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy Deadline: December 2010 Business Monitor International Mermaid House, 2 Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2010 Business Monitor International. All rights reserved. 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Vietnam Freight Transport Report Q1 2011 © Business Monitor International Ltd Page 2 Vietnam Freight Transport Report Q1 2011 CONTENTS Executive Summary ......................................................................................................................................... 5 SWOT Analysis ................................................................................................................................................. 7 Vietnam Freight Transport SWOT ......................................................................................................................................................................... 7 Vietnam Political SWOT ........................................................................................................................................................................................ 8 Vietnam Economic SWOT ...................................................................................................................................................................................... 9 Vietnam Business Environment SWOT................................................................................................................................................................. 10 Business Environment Rating ...................................................................................................................... 11 Table: Asia Pacific Freight Business Environment Ratings ................................................................................................................................. 11 Freight Industry Ratings ...................................................................................................................................................................................... 12 Transport Intensity Index ..................................................................................................................................................................................... 13 Vietnam Logistics Performance Index (LPI) ........................................................................................................................................................ 13 Industry Trends and Developments ............................................................................................................. 14 Multimodal/Logistics ........................................................................................................................................................................................... 14 Road .................................................................................................................................................................................................................... 14 Rail ...................................................................................................................................................................................................................... 14 Air ........................................................................................................................................................................................................................ 15 Maritime .............................................................................................................................................................................................................. 16 Market Overview ............................................................................................................................................. 20 Industry Forecast Scenario ........................................................................................................................... 22 Macroeconomic Forecast .................................................................................................................................................................................... 22 Road Freight ........................................................................................................................................................................................................ 22 Table: Road Freight............................................................................................................................................................................................. 22 Air Freight ........................................................................................................................................................................................................... 23 Table: Air Freight ................................................................................................................................................................................................ 23 Maritime Freight ................................................................................................................................................................................................. 24 Table: Maritime Freight ...................................................................................................................................................................................... 24 Rail Freight ......................................................................................................................................................................................................... 25 Table: Rail Freight .............................................................................................................................................................................................. 25 Table: Inland Waterway Freight .......................................................................................................................................................................... 25 Trade Overview ................................................................................................................................................................................................... 26 Table: Trade Overview ........................................................................................................................................................................................ 27 Table: Key Trade Indicators ................................................................................................................................................................................ 28 Table: Main Import Partners (US$mn) ................................................................................................................................................................ 29 Table: Main Export Partners (US$mn) ................................................................................................................................................................ 29 Macroeconomic Outlook...................................................................................................................................................................................... 30 Table: Vietnam – Economic Activity .................................................................................................................................................................... 32 Company Profile ............................................................................................................................................. 33 Vietnam Airlines .................................................................................................................................................................................................. 33 Doan Xa Port ....................................................................................................................................................................................................... 35 Vietnam Petroleum Transport Jsc (VIPCO)......................................................................................................................................................... 37 Country Snapshot: Vietnam Demographic Data ......................................................................................... 39 © Business Monitor International Ltd Page 3 Vietnam Freight Transport Report Q1 2011 Section 1: Population........................................................................................................................................................................................... 39 Table: Demographic Indicators, 2005-2030 ........................................................................................................................................................ 39 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 40 Section 2: Education And Healthcare .................................................................................................................................................................. 40 Table: Education, 2002-2005 .............................................................................................................................................................................. 40 Table: Vital Statistics, 2005-2030 ........................................................................................................................................................................ 40 Section 3: Labour Market And Spending Power .................................................................................................................................................. 41 Table: Employment Indicators, 1999-2004 .......................................................................................................................................................... 41 Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 41 BMI Methodology ........................................................................................................................................... 42 How We Generate Our Industry Forecasts .......................................................................................................................................................... 42 Transport Industry ............................................................................................................................................................................................... 42 Sources ................................................................................................................................................................................................................ 43 © Business Monitor International Ltd Page 4 Vietnam Freight Transport Report Q1 2011 Executive Summary At the end of August 2010, Vietnam was said to be considering establishing a joint venture (JV) to upgrade Phu Bai International airport in Thua Thien-Hue province. The government has urged the Ministry of Transport to submit a JV plan involving foreign investment to upgrade the airport. The country's Prime Minister Nguyen Tan Dung has approved a master plan to invest VND12.5trn (US$642mn) in the modernisation of the airport by 2020. The project will increase the airport's annual passenger capacity to 5mn by 2020 from the current capacity of 500,000 passengers, which will be further increased to 9mn passengers by 2030. The airport's annual cargo capacity will also be increased to 100,000 tonnes by 2020 and 200,000 tonnes by 2030. The Vietnamese government has ambitious plans to modernise and expand the country's airport infrastructure, though some plans - like the Long Thanh international airport - have been in the pipeline for years with little progress being made. However, the government's willingness to get projects off the ground provides grounds for optimism. Moving into 2011, we believe Vietnamese macro-economic growth is being driven primarily by domestic consumption and infrastructure investment. On the negative side, exports are being constrained by what we see as a double-dip global economic slowdown led by important trading partners such as the US and China. A widening trade deficit will be a drag on growth. The interplay of these factors has led BMI to maintain our GDP estimate for 2010 at 6.7% growth, a rate we see slowing to 5.6% in 2011. Although these growth rates are slower than the high single-digit percentages experienced before 2009, they are still relatively supportive of the freight transport sector. Over the next five years, we are predicting that growth will come out at a fairly vigorous annual average of 6.3%. Risks to this projection remain. Overheating is one of them, with the possibility of inflation rising too sharply. On the political front, the National Congress of the Communist Party due to be held in early 2011 is still a factor persuading the government to keep consumption levels expanding. Road building and road usage are both expanding strongly. Indeed, it can be argued that a large part of the country's economic growth is road-based. In 2011, we see a relatively moderate growth rate of 6.9% to 30.19bntkm. Vietnam's airfreight industry is recovering modestly against the background of a troubled global aviation sector, with repercussions from the European volcanic ash crisis in Q210 also playing a part. In Vietnam itself the industry is beginning to experience intense competition. In terms of air cargo volume, BMI sees growth of 5.3% to 147,910 tonnes in 2011, compared to growth of 2.1% in 2010. BMI is projecting strong growth in 2011 volume handled at the Port of Ho Chi Minh City (also known as SNP, Saigon New Port), up by 7.5% to 21.84mn tonnes, after the 6.2% rate estimated in 2010. Going © Business Monitor International Ltd Page 5 Vietnam Freight Transport Report Q1 2011 forward, we believe growth will be vigorous. SNP is also expected to see 4.4% container handling growth to 2.627mn TEUs in 2011, following growth of 3.5% experienced in 2010. At Da Nang Port (DNP) we see 2011's volume gaining by 2.8% to 2.68mn tonnes. DNP will see box growth of 7.1% to 58,919 TEUs Rail freight carried increased by an estimated 6.7% in 2010, and is set to experience a bit of a slowdown in 2011, with growth of 4.7% to 4.251bntkms. This suggests that Vietnam will not be making the most of the potential of rail, one of the most fuel-efficient forms of bulk transport. In real terms, Vietnam's total trade (imports + exports) recovered by 5.4% in 2010, a rate which we see accelerating slightly to 6.2% in 2011 despite the effects of the 'double dip' global economic slowdown. Over the five years to 2014, we calculate that total foreign trade will expand at an annual average rate of 6.5%, just ahead of the growth of the economy as a whole (+6.3%). Over this period, exports will grow at an average per annum rate of 7.3%, ahead of imports at 5.9%. In nominal terms, exports will gain 15.4% to US$73.37bn in 2011, while imports will grow 14.9% to US$87.0bn. We expect Vietnam to continue to run a balance of trade deficit throughout our five-year forecast period running to 2014. In the immediate short term, the deficit will widen as the growing economy sucks in more imports, despite the effects of two devaluations of the Vietnamese dong (in November 2009 and February 2010). Vietnam's principal export commodities are crude oil and manufactured goods. The country's main imports are machinery and equipment. Vietnam's main export partners are the US, Japan, Australia, China and Germany. The country's main sources for imports are China, Singapore, Japan, South Korea and Thailand. Vietnam's geographic position on the South China Sea allows the country access to the main transpacific and intra-Asian shipping routes, enabling the country to meet its trading needs. © Business Monitor International Ltd Page 6 Vietnam Freight Transport Report Q1 2011 SWOT Analysis Vietnam Freight Transport SWOT Strengths Weaknesses Opportunities Threats Vietnam's strong domestic growth rate coupled with its geography: a long country stretching for thousands of kilometres on a north-south axis creates a need for longdistance freight haulage. Recovery at the nation's ports in 2010 is expected to continue over the mid-term. 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. The generally poor state of the road network. Despite new highway construction, only 13.5% of the road network is considered to be in good condition, only 26% has two or more lanes and only 29% is tarred. Traditionally low investment in rail; although attempts are being made to rectify this, the potential of rail for cost-effective bulk freight is being underutilised. Decades of under-investment have left the country with a port infrastructure system ranked 99th our of 133 countries by the World Economic Forum Competitiveness Report. The beginnings of local commercial vehicle production, which will help improve the stock of lorries used by road haulage companies. Growing international interest in Vietnam as a growth market within the box shipping sector. The opening of a deepwater container terminal in May 2009 set up better direct shipping links to the US. Potential 'stop-go' in economic gowth as the government may be forced to tighten monetary and fiscal policy in response to overheating. State-owned freight companies may be unprepared to compete effectively as the doors are gradually opened for international companies to enter the Vietnamese market. © Business Monitor International Ltd Page 7 Vietnam Freight Transport Report Q1 2011 Vietnam Political SWOT Strengths Weaknesses Opportunities Threats The Communist Party government appears committed to market-oriented reforms, although specific economic policies will undoubtedly be discussed at the 2011 National Congress. The one-party system is generally conducive to short-term political stability. Relations with the US are generally improving, and Washington sees Hanoi as a potential geopolitical ally in South East Asia. 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. The government recognises the threat that 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. The slowdown in growth in 2009 and 2010 is 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 the past year 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 widescale environmental damage. © Business Monitor International Ltd Page 8 Vietnam Freight Transport Report Q1 2011 Vietnam Economic SWOT Strengths Weaknesses Opportunities Threats Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.6% annually between 2000 and 2009. The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004. Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable as the global economy continues to suffer in 2010. The fiscal picture is clouded by considerable 'off-the-books' spending. The heavily-managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures. 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 to rise from 29% of the population to more than 50% by the early 2040s. 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. © Business Monitor International Ltd Page 9 Vietnam Freight Transport Report Q1 2011 Vietnam Business Environment SWOT Strengths Weaknesses Opportunities Threats Vietnam has a large, skilled and low-cost workforce, that 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. 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. Its score in Transparency International's 2009 Corruption Perceptions Index was 2.7, placing it in 22nd place in the Asia-Pacific region. Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan. This offers the possibility of the transfer of hightech skills and knowhow. 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. 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 Ltd Page 10 Vietnam Freight Transport Report Q1 2011 Business Environment Rating Table: Asia Pacific Freight Business Environment Ratings Limits of potential returns Risks to realisation of returns Freight transport market Country structure Limits Market risks Country risk Risks Overall rating Regional rank Singapore 52.5 79.6 66.1 80.0 90.1 86.0 72.1 1 Australia 50.0 83.4 66.7 75.0 81.7 79.0 70.4 2 India 62.5 71.0 66.7 60.0 60.8 60.5 64.9 3 South Korea 47.5 76.4 61.9 60.0 74.6 68.7 64.0 4 China 72.5 47.6 60.1 60.0 68.4 65.0 61.6 5 Japan 52.5 50.5 51.5 75.0 83.6 80.2 60.1 6 Malaysia 42.5 67.0 54.7 60.0 70.9 66.6 58.3 7 Vietnam 50.0 71.3 60.7 55.0 50.5 52.3 58.1 8 Thailand 42.5 72.5 57.5 55.0 58.6 57.1 57.4 9 Indonesia 50.0 71.4 60.7 50.0 46.8 48.1 56.9 10 Hong Kong 47.5 39.5 43.5 70.0 84.3 78.5 54.0 11 Pakistan 50.0 54.3 52.2 55.0 32.6 41.6 49.0 12 Philippines 40.0 55.6 47.8 50.0 49.7 49.8 48.4 13 Taiwan 27.5 38.0 32.8 65.0 72.5 69.5 43.8 14 Scores out of 100, with 100 highest. Source: BMI The freight transport sector in the Asia Pacific region offers one of the most attractive business environments for the industry worldwide. There are various reasons for this. First, the region offers a powerful combination of future growth and economies of scale. It contains arguably the two most significant of the four BRIC (Brazil, Russia, India and China) economies, which, it is argued, are the powerhouses of future global growth. China and India combine vast geographical size, large populations, globally competitive labour costs and as yet untapped infrastructure potential. To this must be added the 'third BRIC', Russia, which, although outside the region, has critically important trade and transport links to Asia (such as crude oil exports to China). Second, at a 'big picture' level, most of the regional power centres are committed to reasonably pragmatic and relatively stable, market-based policies. Countries that in the past were either fervently communist (China, Vietnam) or capitalist (Malaysia, Taiwan) share a much wider non-ideological common ground focused on how to achieve a sustainable rise in living © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q1 2011 standards. This is not to say, of course, that the area is free of tensions and flash points (North Korea, China-Japan, India-Pakistan to name just a few). Strong freight transport growth rates are combined with a very encouraging infrastructure investment picture across most of the region. By mode, road haulage will grow as road infrastructure and vehicle density is extended and as the shift to smaller/higher value loads continues. Rail freight will benefit from long-distance economies of scale, whether from the opening up of the Australian hinterland or big projects such as the new Silk Road route. Shipping is being lifted by the surge in trans-Pacific commodity and manufacturers' trade routes, while air freight is growing on the back of liberalisation and the budget airline boom. While the freight transport industry in the region suffers from patchy regulation and in some areas there are ongoing issues with corruption and cronyism, it is on the whole much more open and competitive than in the past. A strong positive factor is the dynamic and outward facing role played by foreign trade. Freight Industry Ratings Our overall freight transport rating for Vietnam stands at 58.1 (out of a theoretical maximum score of 100). This is composed of a score of 60.7 for potential returns (reflecting factors such as market size, growth and the competitive environment), which gets a 70% weighting, and a lower score of 52.3 for risks to those returns (reflecting factors such as market orientation, regulatory environment and other country-risk issues), which gets a 30% weighting. Vietnam's freight transport traffic, measured in mntkm, rose by an annual average of 10.2% in 2005-2009 and, according to our projections, will decelerate to an annual average of 7.4% in 2010-2014. According to official information, there is a wide range of transport sector investment projects in the pipeline, across road, rail, air and sea. Work is underway to develop the Mekong basin area, and new seaports are planned. While there is no doubt that Vietnam's transport infrastructure is expanding, our rating for this category is constrained by poor planning and limited project management experience. Vietnam is moving towards a full market economy, but is doing so at a relatively slow pace, given that the reform process started nearly two decades ago. The country gained access to the WTO in 2007. In the transport sector, state-owned enterprises (SOEs) continue to be dominant in many areas. There is not yet a clear legal framework for the protection of passenger and freight customer rights. Freight transport competition remains limited, with SOEs dominating key transport modes. There are few foreign entrants, although we expect more to arrive during the forecast period. To be able to operate in the country, significant negotiations and procedures are required. Although the government favours attracting © Business Monitor International Ltd Page 12 Vietnam Freight Transport Report Q1 2011 more foreign direct investment (FDI), the local environment is not yet fully supportive of competitive markets. Transport Intensity Index This index is derived by calculating the average annual growth rate for total trade (imports plus exports) over a 10-year period running from 2005 through to 2014. As such, it is a mix of actual performance (the five-year 2005-2009 period) and projected performance (2010-2014). In Vietnam's case, actual average annual trade growth in 2005-2009 was a strong 18.8%, which in our projections will ease substantially to 11.1% per annum in 2010-2014. The annual average across the 10 years as a whole is 16.8%. Vietnam Logistics Performance Index (LPI) In 2007, the World Bank launched its Logistics Performance Index (LPI), intended as 'the first in-depth cross-country assessment of the logistics gap among countries'. The LPI was calculated on a five-point scale and based on survey responses from over 800 logistics professionals. Countries were given an aggregate LPI score, which was in turn made up of seven sub-categories, covering criteria such as the quality of customs, infrastructure and international shipments, logistics competence, tracking and tracing, domestic logistics costs and timeliness. In the 2007 survey, Vietnam was ranked 53rd in the world with an LPI score of 2.9. For comparison with the major OECD economies, the Netherlands was ranked second in the world with an LPI of 4.2; followed by Germany (third with an LPI of 4.1), the UK (ninth, LPI of 4.0) and the US (14th, LPI of 3.8). In comparison with other Asian economies, Singapore was the world number one with an LPI score of 4.2, followed by Australia (17th, LPI of 3.8) and Taiwan (21st, LPI of 3.6). Then came South Korea (25th, LPI of 3.5), Malaysia (27th, LPI of 3.5), China (30th, LPI of 3.3), Thailand (31st, LPI of 3.3) and Indonesia (43rd, LPI of 3.0). Vietnam was therefore close to the bottom end of the regional LPI ranking, ahead of Papua New Guinea (95th, LPI of 2.4) and Laos (117th, LPI of 2.3). In terms of the different components of the index, Vietnam's best performing areas, ranked in order, were domestic logistics costs, timeliness, international shipments, and tracking and tracing. Weaker areas in descending order were customs, logistics competence, and infrastructure. © Business Monitor International Ltd Page 13 Vietnam Freight Transport Report Q1 2011 Industry Trends and Developments Multimodal/Logistics Damco, the logistics division of Denmark-based shipping group AP Moller Maersk, is to establish a new logistics centre in Vietnam at a cost of more than US$4mn. The company will construct the 26,000m2 logistics facility at Binh Duong, 25km from Ho Chi Minh City, as part of its expansion plans in a key growth market. According to Damco Asia-Pacific CEO Tony Hotine, the company has positioned the new facility strategically to cater for the rising customer needs for quality and flexible integrated logistics solutions. BMI believes increased trade integration in South-East Asia will create opportunities for freight transport operators in the region. Damco has been building its presence in the South-East Asian market and in 2009 opened a new transportation hub in Thailand's Samrong district. Growing interest in the region has been supported by increased trade integration. Road Vietnam's Ministry of Transport in October approved an investment of VND28trn (US$1.44bn) for the Da Nang-based Quang Ngai expressway project. The 26m-wide, 139.5km-long expressway connects Hoa Vang, Da Nang City with Tu Nghia District, Quang Ngai province. The road is expected to be built according to road standard level A and has been designed to include four lanes for speeds of 120 km/h. The section from Da Nang to Tam Ky (Quang Nam) would be financed by Japan International Cooperation Agency (Jica). The Tam Ky city to Quang Ngai part, would be financed by the World Bank and counterpart funds. In March 2010, Vietnam's Prime Minister Nguyen Tan Dung approved VND350trn (US$18.09bn) for the construction and development of the road system in the country. The funds were approved under the development scheme of 2020 and long-term plan until 2030. Vietnam has a total road network of 222,000km - the 20th largest globally - although only 19% of it is paved, indicating the poor condition of road infrastructure in the country. Vietnam's Ministry of Transport and Communications has estimated that it will require close to US$60bn in the period up to 2020, to fund road infrastructure projects. Rail In October 2010, it was reported that Vietnam had started to build Hanoi's first metro line which will be 12.5km long. It will link Nhon in Tu Liem suburban district and the Hanoi railway station in the inner district of Hoan Kiem. The US$1bn Nhon-Hanoi railway line will have 12 stations, four will be underground. The line is to run with a maximum speed of 80km/h. It is scheduled to come online by 2015 and would carry 300,000 passengers daily. EUR283mn (US$384mn) in funding has been secured from © Business Monitor International Ltd Page 14 Vietnam Freight Transport Report Q1 2011 the French government, while the remaining funds will come from Europe Investment Development Bank and the city's state budget. BMI notes that urban railways have proliferated in Vietnam as urbanisation rates increase, with most major cities in South East Asia now either having their first metros in operation, or planning to build them. Urbanisation trends in the country coupled with steady population growth is exerting increased pressure on urban infrastructure and this will only continue to grow in the next few years. Crucially, urban railways are much more commercially viable than the more 'risky' regional rail projects, where poor national infrastructure and uncertain demand can potentially limit returns and foreign investor interest. In September, is was reported that Spanish group GEV and Ho Chi Minh City (HCMC)'s Urban Railway Management Board had signed a cooperative agreement to implement a metro railway line within HCMC. BMI believes this project will be the first of many incursions by Spanish firms into Vietnam's transportation infrastructure. The HCMC metro project will cost US$1.85bn and will involve the construction of the No. 5 metro railway line running from Bay Hien crossroad to Saigon Bridge. It will be carried out under an Engineering, Procurement and Construction (EPC) contract. The first phase of the project will cost EUR500mn (US$649mn) and will be funded by the Spanish government through the use of Official Development Assistance (ODA). As for the second phase, the Asian Development Bank and Spain are currently considering the level of investment for the project. The first phase of the metro project is expected to commence at the end of April 2011. In 2009, foreign direct investment (FDI) in Vietnam from Spanish sources was only US$9.7mn, while as a matter of comparison FDI from Korea and the United States were significantly larger at US$1,597.7mn and US$5,948.2mn respectively. However, this lack of investment seems set to change. In December 2009, both countries signed a memorandum of understanding (MOU) to cooperate in areas such as science, technology and social affairs. The MOU also stated details for the capital provision for the No. 5 metro line and a list of Vietnamese projects that could require Spanish financing. With the strengthening of economic ties between the two countries, there is certainly considerable scope for greater Spanish involvement in Vietnam's booming infrastructure industry. However, BMI does point out that Vietnam's business environment still suffers from high levels of corruption and heavy delays in project development, and these two areas represent significant downside risk to Vietnam's growth potential. Air At the end of August Vietnam was said to be considering establishing a joint venture (JV) to upgrade Phu Bai International airport in Thua Thien-Hue province. The government has urged the Ministry of Transport to submit a JV plan involving foreign investment to upgrade the airport. The country's Prime Minister Nguyen Tan Dung has approved a master plan to invest VND12.5trn (US$642mn) in the © Business Monitor International Ltd Page 15 Vietnam Freight Transport Report Q1 2011 modernisation of the airport by 2020. The plan includes construction of parking plots for 20 aircraft by 2020 and expansion of the current runway before the construction of a second runway after 2030. The project will increase the airport's annual passenger capacity to 5mn by 2020 from the current capacity of 500,000 passengers, which will be further increased to 9mn passengers by 2030. The airport's annual cargo capacity will also be increased to 100,000 tonnes by 2020 and 200,000 tonnes by 2030. The Vietnamese government has ambitious plans to modernise and expand the country's airport infrastructure, though some plans - like the Long Thanh international airport - have been in the pipeline for years with little progress being made. However, the government's willingness to get projects off the ground provides grounds for optimism. The Association of Asia Pacific Airlines (AAPA) in Late July reported that carriers based in the Asia Pacific region recorded a 30.4% year-on-year (y-o-y) surge in freight tonne km (FTK) in June 2010, according to Air Cargo News. This signifies solid recovery in the economy. In the same period, the carriers also registered a 34.8% y-o-y growth in international air cargo demand. In June 2010, the airlines' average international cargo load factor jumped by 4.5 percentage points to 70.8%, while its freight capacity grew 22% y-o-y. BMI believes the air freight sector is on course for a solid recovery in 2010; however, the industry must continue to navigate a number of potential challenges. With demand in the US and other Western markets expected to experience a sluggish recovery, we believe the main source of growth for AAPA lines in 2010 will come from local markets, in particular growing consumer bases such as China. Maritime Ha Long Shipbuilding Company, an affiliate of the Vietnam Shipbuilding Industry Group, successfully launched another car carrier, Violet Ace, on October 2 2010. The carrier has a capacity to transport 4,900 cars per voyage. The ship was designed by Naval Progetti Design Institute (Italy), approved by Classification Society DNV (Norway), which also supervised the construction. The modern car carrier is 185.6 metres (m) long, 32.26m wide and 36.10m high and has a speed of 19.8 nautical miles per hour. Violet Ace features 13 decks -11 garage decks, one crew deck and one cabin deck - apart from a volley ball yard, a sports house, a mini swimming pool and a heliport. It is the second ship constructed by Ha Long Shipping Company under a contract with Israel-based Ray Shipping Company. In September, it was reported that a new terminal development in the north of Vietnam had become the latest example of an international company investing in the country's shipping sector. As the Vietnamese market continues to grow, BMI expects more and more companies to make these new container terminals ports of call on their East-West services. Vietnam National Shipping Lines (Vinalines) received the goahead from Vietnamese Deputy Prime Minister Hoang Trung Hai to set up a joint venture (JV) to build two wharves at the northern port of Haiphong. The JV has been agreed with Japanese companies MOL, NYK and Itochu Corporation, and it is projected that the wharves will cost US$350mn. The new © Business Monitor International Ltd Page 16 Vietnam Freight Transport Report Q1 2011 development at the port will enable it to accommodate vessels capable of carrying up to 8,000 20-foot equivalent units (TEUs). Once the development is completed in 2015, it is expected that the port will handle 855,000TEUs annually, and will account for around half of all containers handled in north-Vietnamese ports. BMI notes that this is further evidence of Vietnam's growth as a destination for container ships. Up until recently it was not a port of call for ships traversing the major Asia-Europe trade lane, and was instead served by feeder vessels from regional transhipment hubs. However, in September both South Korean company Hanjin Shipping and Israeli line Zim Integrated Shipping Services added the South-East Asian country to their major services. Hanjin Shipping has also made Vietnam a port of call on its transpacific services. Haiphong is not the only port in Vietnam where a major terminal is being developed. In addition to adding Vietnam to its Asia-Europe and transpacific services, Hanjin Shipping is also investing, along with MOL and Wan Hai Lines, in the Tan Cai Mep International Terminal in the south of the country, which is due to come online in 2011. BMI can understand container lines' interest in the country. Vietnam's trade with the US and Europe has been steadily increasing over the decade. According to data from the IMF's Direction of Trade Statistics, Vietnamese exports to Europe reached US$1.8bn in 2008, a y-o-y increase of 51%, while imports from Europe grew by 78% to US$1.6bn. We believe that the market has huge potential, and that those lines investing early, whether by developing container terminals or by adding Vietnamese ports to the rotations of their major East-West services, will be rewarded by huge growth. Vietnam's state-owned shipping and port operator Vietnam National Shipping Lines (Vinalines) was in mid-September said to be planning to divest its 21.8% stake in Vietnam Container Shipping within the following three months, reported Vietnam News Brief Service, as cited by Turkish Maritime. This move by Vinalines is part of its strategy to re-restructure its capital sources. Vinalines has concluded the sale of unsecured corporate bonds worth US$51.32mn in the domestic market. The company registered a 146% y-o-y surge in pre-tax profit to US$35.31mn in H110. Vinalines is Vietnam's largest commercial shipping line, comprising, in terms of capacity, about 45% of the country's total fleet. Vietnam's shipping sector has suffered from a lack of investment and is underdeveloped in relation to those of several other Asian nations. According to data provided by UNCTAD, the capacity of Vietnam's fleet was 3.14mn DWT in 2007, making it the 11th largest national fleet in the Asia Pacific region and less than half the size of that registered under the Philippines, which has a comparable population. Vietnam National Shipping Lines (Vinalines)'s plans for expansion were fast-forwarded in Q3 2010 with the shipping company taking on 36 vessels from debt-laden Vietnamese shipbuilder Vinashin. Although BMI notes that Vinalines was already planning to expand its fleet, it is unlikely that it planned to do so in this manner, and it now faces the challenge of getting substandard vessels up to scratch, an extra expensive for the company. Vinaline's Chairman Duong Chi Dung, has stated that up to two-thirds of the © Business Monitor International Ltd Page 17 Vietnam Freight Transport Report Q1 2011 acquired vessels cannot be used currently as they fail to meet technical requirements. He estimates that the company will need to spend US$26mn to repair the vessels and purchase insurance cover. Dung has stated that he expects some financial aid from the government for the project. The 36 ships are part of an asset offloading from Vinashin, which is in debt to the tune of US$4.5bn. The shipbuilding company is expected to be rescued by the government, but has been forced to shed the vessels it owns, with Petro Vietnam being the other company to acquire vessels from the troubled shipbuilder. Vinalines stated earlier in 2010 that it planned to expand, and was seeking state funding for 40 new-build vessels. In 2006, the Vietnamese government approved a US$1.8bn expansion programme to expand the company's fleet to 136 ships - 2.6mn deadweight tonnes (DWT) - by 2010. In March 2010 the shipping line pledged a new round of expansion, seeking to increase its fleet to 6-7mn DWT by 2015. BMI questions whether this fleet expansion will go ahead since the line has now acquired 36 vessels, particularly as the government is expected to be tapped to provide funds for the ships' refurbishment and so may not be willing to also finance Vinalines' new-build plan. BMI suspects that the 36 ships, along with their need for investment to get the up to scratch, are something of an unwanted gift for the company. On the positive side, the company has been able to expand its fleet a lot quicker than if it had waited for new builds to come online. However, considering the current state of the shipping sector, with container shipping recovering sluggishly following a massive decline in 2009 and dry bulk shipping struggling as Chinese demand dries up, Vinalines may not have chosen to expand immediately. The lead time on new-build vessels of 18 months would have allowed its fleet to come online at a time when overcapacity is not such a threat. Further to this, BMI believes that by ordering new builds, Vinalines would have had control over the expansion of its fleet and the specifications of the vessels it was ordering. By acquiring a job-lot of Vinashin vessels, Vinalines has ceded this control. The US and Vietnam in early July 2010 signed a memorandum of understanding (MoU) that will see containers destined for the US scanned for nuclear materials before they disembark. BMI believes that this is evidence of the continued American drive to tackle what it feels is its Achilles' heel, with the belief that the country's port sector could be a route for a potential terrorist attack. We think that Vietnam had little choice but to sign the MoU, given the increasing importance of US trade to the country. The agreement was signed by the US and Vietnam on July 2 and paves the way for the US Department of Energy's National Nuclear Security Administration (NNSA) to work with Vietnamese ministries to install radiation-detection equipment in Vietnamese ports. The agency will provide, install, maintain and train Vietnamese staff in the operation of container scanners. Kenneth Baker, NNSA's principal assistant deputy administrator for NNSA's Office of Defense Nuclear Nonproliferation stated in the agency's press release: 'Our partnership with Vietnam will greatly © Business Monitor International Ltd Page 18 Vietnam Freight Transport Report Q1 2011 strengthen our capability to prevent nuclear and radiological smuggling through the maritime system in a key, strategic region of the world. We appreciate Vietnam's efforts and commitment to keeping these dangerous materials out of the hands of terrorists, smugglers and proliferators.' The MoU between the two countries is part of a wider US programme that ultimately aims to scan 100% of US-bound containers at foreign ports on the basis that they constitute a potential threat to national security. Increasingly wary of asymmetric attacks on its own soil since 9/11, this is part of a raft of legislation passed in recent years that aims to prevent another such attack. In July 2007, the US government passed a bill requiring foreign ports to have scanning procedures for US-bound cargo in place within the next five years. BMI has noted that these plans have met with some dissent, however, and have been labelled by Christopher Koch, president and CEO of the World Shipping Council, in an address to the US Senate Committee on Commerce, Science and Transportation as 'unworkable'. We believe that these extra security measures have the potential to cause significant delays and congestion in ports. Given how import an export partner the US has become for Vietnam, it is unlikely that the South-East Asian nation could have done anything but sign the agreement. The two countries signed a bilateral trade agreement in 2001, and since 2002 the value of Vietnamese exports to the US has grown by more than five times. Vietnamese exports to the US are now worth 50% more than the country's second-placed export partner, Japan. © Business Monitor International Ltd Page 19 Vietnam Freight Transport Report Q1 2011 Market Overview In January 2007, Vietnam officially joined the WTO, an event seen as an important milestone in the country's closer integration into the global economy. WTO membership has helped boost Vietnam's international trade and develop its freight transport capabilities. Road transport is the most advanced in terms of freight sector privatisation and is the dominant mode for freight, with a market share of around 60% of domestic cargo. There are over 1,050 enterprises registered in the road transport business, which include 16 state-owned enterprises (SOEs), 233 limited liability companies, 350 private companies and 450 joint stock companies. Very few foreign-invested companies are present. Most road transport companies are of small or medium size, and each company, on average, owns about 50 vehicles. In addition, tens of thousands of individual household businesses exist that operate informally in the road freight sector, and are thus difficult to account for and monitor. Vietnam has a national road network of 222,179km. Of this, only 42,167km, or 19%, is paved. In addition, recent surveys indicate that approximately 40% of the network is in poor to very poor condition and will require substantial investment even to reach a maintainable condition. The quality of Vietnam's road infrastructure was judged by the World Economic Forum (WEF) to be poor and was ranked 102 out 133 nations surveyed in the WEF 2010 Global Competitiveness Report. Vietnam's railway transport sector has only one operator, the Vietnam Railway Corporation (VRC), established in April 2003 as a state corporation operating railway transport and related services. The government has announced plans to separate the management of rail infrastructure from passenger and cargo services. Vietnam's rail network totals 2,600km (excluding sidings). The network is mixed-gauge, comprising 2,169km of 1.000m gauge and 178km of 1.435m gauge. The network has 1,790 bridges totalling 45km and 11.5km of tunnels. The principal axis is Hanoi-Ho Chi Minh City (1,726km). Other lines emanating from Hanoi are to Hai Phong (102km), Lao Cai (296km) and Dong Dang (162km). Railway infrastructure in Vietnam was ranked 58 out of 114 by the WEF. There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines. Both are majority state owned, although Australia's Qantas is now a minority shareholder in Pacific Airlines. The government has announced plans to build the country's largest airport at Long Thanh in the southern province of Dong Nai, at an estimated cost of US$8bn. The authorities also plan to expand Noi Bai International airport in Hanoi. The three major airports handling freight are located at Ho Chi Minh City, Hanoi and Da Nang, each of which have international connecting flights. Minor airports such as Cat Bi at © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q1 2011 Haiphong are generally used for domestic flights to the three larger hubs. In 2010, Vietnam's air transport infrastructure was ranked 84/ 133 nations by the WEF. UNCTAD shipping fleet statistics indicate that by the end of 2007, Vietnam had 387 commercial vessels with a total capacity of 3.14mn DWT and ranked 28th out of 162 countries around the world (but fourth in ASEAN after Singapore, Malaysia and Thailand). The average vessel size is 2,650DWT. Vietnam's fleet structure lacks specialised container vessels, bulk cargo ships, large oil and liquefied petroleum gas (LPG) tankers. Multi-function ships and bulk cargo ships account for 87% in number and 63% in tonnage, and container ships account for only 2.2% in number and 9% in tonnage. The largest local operator is the Vietnam National Shipping Lines (Vinalines). Vietnam's dense river and canal network provides the country with a highly developed inland waterway system. This is the second-largest sub-sector involved in domestic cargo transport, accounting for 25-30% of total transport volumes. Currently, the inland waterway transport sub-sector is managed by two state corporations affiliated to the Ministry of Transport, one SOE affiliated to the Vietnam Inland Waterway Authority, and some enterprises managed by other ministries, operating in support of the power generation, cement and paper industries. In addition, there are about 230 co-operatives and hundreds of inland waterway transport enterprises in the country. Vietnam's seaport network comprises many small- and medium-sized entities, with inefficient distribution. Most big ports are located far inside rivers, like Hai Phong and Ho Chi Minh City, with limited depth at the entrance. Some ports are located in big cities, thus making it difficult to connect with other modes of transport for cargo transfer from and to ports, due to traffic congestion. Except for several new ports or upgraded ports, most ports have been operating for many years and lack investment and are seriously degraded. The loading and unloading equipment in some ports is obsolete, leading to low productivity. The average productivity of a Vietnamese port is only 2,500 tonnes/m per wharf, or 40-50% of productivity of other ports in the region. Though a series of new port investments are expected to see conditions gradually improve during the next few years, for the time being the quality of Vietnam's port infrastructure is judged to be poor and was ranked 99 out of 133 nations by the WEF. © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q1 2011 Industry Forecast Scenario Macroeconomic Forecast Going into 2011 we believe Vietnamese macro-economic growth will be primarily driven by domestic consumption and infrastructure investment. On the negative side, exports are being constrained by what we see as a 'double-dip' global economic slowdown led by important trading partners such as the US and China. A widening trade deficit will be a drag on growth. The interplay of these factors has led BMI to maintain our GDP estimate for 2010 at 6.7% growth, a rate we see slowing to 5.6% in 2011. Although these growth rates are slower than the high single digit percentages experienced before 2009, they are still relatively supportive of the freight transport sector. Over the next five years we are predicting that growth will come out at a fairly vigorous annual average of 6.3%. Risks to this projection remain. Overheating is one of them, with the possibility of inflation rising too sharply. On the political front, the National Congress of the Communist Party due to be held in early 2011 is still a factor persuading the government to keep consumption levels expanding. Road Freight Road building and road usage are both expanding strongly. Indeed, it can be argued that a large part of the country's economic growth is road-based. In 2011 we see a relatively moderate growth rate of 6.9% to 30.19mntkm. Thereafter, however, road freight growth will gather pace, averaging 7.4% per annum in the four years to 2014. This rate will exceed the average for GDP growth (6.3%), a pattern consistent with this stage of Vietnam's industrialisation process. Table: Road Freight 2007 Road Freight Tonnes (000) Road Freight Tonnes % Change y-o-y Road Freight Tonnes/Km (mn) Road Freight Tonnes/Km % Change y-o-y 2008 2009e 2010f 2011f 2012f 2013f 2014f 403,361.80 455,898.40 494,649.80 461,256.12 491,103.26 525,345.72 563,695.58 604,656.75 19.12 13.02 8.50 -6.75 6.47 6.97 7.30 7.27 24,646.90 27,968.00 30,261.40 28,242.09 30,186.26 32,416.72 34,914.74 37,582.85 20.01 13.47 8.20 -6.67 6.88 7.39 7.71 7.64 Source: General Statistics Office of Vietnam © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q1 2011 Air Freight Vietnam's airfreight industry is recovering modestly against the background of a troubled global aviation sector, with negative repercussions from the European volcanic ash crisis in Q210 also playing a part. In Vietnam itself the industry is beginning to experience intense competition. In terms of air cargo volume, BMI sees growth of 5.3% to 147,910 tonnes in 2011, compared with growth of 2.1% in 2010. In the medium term, the 2010-2014 forecast period, tonnage growth will average 5.1%, just below the country's general rate of economic expansion. In terms of freight carried (volume x distance) we expect to see growth of 4.9% in 2011 to 327.73mntkms, after contraction of 1.3% in 2010. Table: Air Freight Air Freight Tonnes (000) Air Freight Tonnes % Change y-o-y Air Freight Tonnes/Km (mn) Air Freight Tonnes/Km % Change y-o-y 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f 129.60 131.40 137.60 140.54 147.91 156.38 165.85 175.98 7.28 1.39 4.72 2.13 5.25 5.72 6.06 6.10 279.90 295.60 316.60 312.48 327.73 345.23 364.83 385.76 3.90 5.61 7.10 -1.30 4.88 5.34 5.68 5.74 Source: General Statistics Office of Vietnam © Business Monitor International Ltd Page 23 Vietnam Freight Transport Report Q1 2011 Maritime Freight BMI is projecting strong growth in 2011 volume handled at the Port of Ho Chi Minh City (also known as SNP, Saigon New Port), up by 7.5% to 21.84mn tonnes, after the 6.2% rate estimated in 2010. We believe growth will be vigorous. SNP is also expected to see 4.4% container handling growth to 2.627mn TEUs in 2011, following growth of 3.5% experienced in 2010. At Da Nang Port (DNP) we see 2011's volume gaining by 2.8% to 2.68mn tonnes. DNP will see box growth of 7.1% to 58,919 TEUs Table: Maritime Freight 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f 25,600.00 20,180.00 19,140.00 20,329.57 21,843.71 23,581.42 25,564.47 27,691.79 Port of Ho Chi Minh City (Saigon New) throughput, tonnes, % y-o-y 28.00 -21.17 -5.15 6.22 7.45 7.96 8.41 8.32 Port of Da Nang throughput, tonnes '000 2,736.94 2,742.26 2,556.42 2,615.48 2,687.72 2,770.63 2,865.24 2,966.73 Port of Da Nang throughput, tonnes, % y-o-y 15.43 0.19 -6.78 2.31 2.76 3.08 3.41 3.54 Port of Ho Chi Minh City (Saigon New) throughput, tonnes '000 Source: Port authorities © Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q1 2011 Rail Freight Rail freight carried increased by an estimated 6.7% in 2010, and is set to experience a bit of a slowdown in 2011, with growth of 4.7% to 4.251mntkms. Average annual growth over the next five years will be 5.5%, below overall economic growth. This suggests that Vietnam will not be making the most of the potential of rail, one of the most fuel-efficient forms of bulk transport. In volume terms freight carried by rail will recover by 4.8% in 2011 to 8.307mn tonnes. Table: Rail Freight 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f 9,050.00 8,481.10 8,068.10 7,924.43 8,307.32 8,746.60 9,238.56 9,764.03 -1.13 -6.29 -4.87 -1.78 4.83 5.29 5.62 5.69 Rail Freight Tonnes/Km (mn) 3,882.50 4,170.90 3,805.10 4,059.71 4,251.33 4,471.17 4,717.38 4,980.35 Rail Freight Tonnes/Km % Change y-o-y 12.65 7.43 -8.77 6.69 4.72 5.17 5.51 5.57 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f Inland Waterway Freight Tonnes (000) 135,283 133,028 135,688 132,191 138,946 146,696 155,376 164,646 Inland Waterway Freight Tonnes % Change y-o-y 10.00 -1.67 2.00 -2.58 5.11 5.58 5.92 5.97 Inland Waterway Freight Tonnes/Km (mn) 22,235.6 24,869.0 25,365.2 23,172.4 24,221.4 25,427.8 26,771.2 28,212.0 Inland Waterway Freight Tonnes/Km % Change y-o-y 18.00 11.84 2.00 -8.65 4.53 4.98 5.28 5.38 Rail Freight Tonnes (000) Rail Freight Tonnes % Change y-o-y Source: General Statistics Office of Vietnam Table: Inland Waterway Freight Source: General Statistics Office of Vietnam © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q1 2011 Trade Overview In real terms Vietnam's total trade (imports + exports) recovered by 5.4% in 2010, a rate which we see accelerating slightly to 6.2% in 2011 despite the effects of the 'double-dip' global economic slowdown. Over the five years to 2014 we calculate that total foreign trade will expand at an annual average rate of 6.5%, just ahead of the growth of the economy as a whole (+6.3%). Over this period exports will grow at an average per annum rate of 7.3%, ahead of imports at 5.9%. In nominal terms in 2011 exports will gain 15.4% to US$73.37bn, while imports will grow 14.9% to US$87.0bn. We expect Vietnam to continue to run a balance of trade deficit throughout our five-year forecast period running to 2014. On the immediate short term the deficit will widen as the growing economy sucks in more imports, despite the effects of two devaluations of the Vietnamese dong (in November 2009 and February 2010). Vietnam's principal export commodities are crude oil and manufactured goods. The country's main imports are machinery and equipment. Vietnam's main export partners are the US, Japan, Australia, China and Germany. The country's main sources for imports are China, Singapore, Japan, South Korea and Thailand. Vietnam's geographic position on the South China Sea allows the country access to the main transpacific and intra-Asian shipping routes, enabling the country to meet its trading needs. Vietnam's principal export commodities are crude oil and manufactured goods. The country's main imports are machinery and equipment. Vietnam's main export partners are the US, Japan, Australia, China and Germany. The country's main sources for imports are China, Singapore, Japan, South Korea and Thailand. Vietnam's geographic position on the South China Sea allows the country access to the main transpacific and intra-Asian shipping routes, enabling the country to meet its trading needs. © Business Monitor International Ltd Page 26 Vietnam Freight Transport Report Q1 2011 Table: Trade Overview 2007 2008 2009e 2010f 2011f 2012f 2013f 2014f Imports, real growth, % yo-y 28.32 11.92 -14.00 4.00 6.00 6.50 6.50 6.50 Exports, real growth, % y-o-y 15.58 10.85 -15.00 7.00 6.50 7.00 8.00 8.00 Total Trade, real growth, % y-o-y 22.11 11.42 -14.46 5.37 6.23 6.73 7.20 7.20 Imports, US$bn 65.99 85.20 72.43 75.72 87.00 98.68 114.29 131.84 - % change y-o-y 38.52 29.13 -14.99 4.54 14.90 13.42 15.82 15.35 Exports, US$bn 54.71 70.33 59.09 63.56 73.37 83.61 98.20 114.87 - % change y-o-y 21.97 28.55 -15.98 7.55 15.44 13.96 17.45 16.98 120.69 155.53 131.53 139.28 160.37 182.29 212.49 246.71 30.49 28.87 -15.43 5.89 15.15 13.67 16.57 16.10 Total trade, US$bn - % change y-o-y e/f = BMI estimate/forecast. Source: General Statistics Office of Vietnam, BMI © Business Monitor International Ltd Page 27 Vietnam Freight Transport Report Q1 2011 Table: Key Trade Indicators Agricultural raw materials 2007 2008 2009f 2010f 2011f 2012f 2013f 2014f Exports, US$mn 1,856.85 2,416.63 1,913.49 2,065.37 2,399.34 2,747.79 3,244.41 3,811.82 - % change y-o-y 14.63 30.15 -20.82 7.94 16.17 14.52 18.07 17.49 1,941.22 2,415.93 1,695.45 1,767.74 2,015.90 2,272.78 2,616.23 3,002.25 13.16 24.45 -29.82 4.26 14.04 12.74 15.11 14.75 Exports, US$mn 374.58 553.33 402.83 434.16 503.07 574.96 677.42 794.50 - % change y-o-y 36.82 47.72 -27.20 7.78 15.87 14.29 17.82 17.28 2,654.19 2,824.71 2,254.74 2,369.21 2,762.20 3,169.01 3,712.90 4,324.21 41.81 6.42 -20.18 5.08 16.59 14.73 17.16 16.46 Exports, US$mn 519.10 411.02 327.22 351.77 405.73 462.04 542.29 633.98 - % change y-o-y 63.96 -20.82 -20.39 7.50 15.34 13.88 17.37 16.91 5,808.50 4,946.04 3,928.34 4,085.69 4,625.85 5,184.99 5,932.57 6,772.79 69.05 -14.85 -20.58 4.01 13.22 12.09 14.42 14.16 Exports, US$mn 26,416.4 32,534.8 26,502.0 28,345.5 32,399.1 36,628.4 42,656.2 49,543.2 - % change y-o-y 29.75 23.16 -18.54 6.96 14.30 13.05 16.46 16.15 43,862.3 54,527.3 46,933.6 49,021.0 56,187.0 63,604.9 73,522.6 84,669.3 47.33 24.31 -13.93 4.45 14.62 13.20 15.59 15.16 Exports, US$mn 10,061.0 14,833.7 8,229.79 11,476.5 13,186.8 14,971.2 17,514.5 20,420.2 - % change y-o-y 3.62 47.44 -44.52 39.45 14.90 13.53 16.99 16.59 8,744.21 13,811.1 6,882.10 9,596.77 10,863.4 12,301.0 13,934.3 15,769.98 30.53 57.95 -50.17 39.45 13.20 13.23 13.28 13.17 Imports, US$mn - % change y-o-y Ores and metals Imports, US$mn - % change y-o-y Iron and steel Imports, US$mn - % change y-o-y Manufactured goods Imports, US$mn - % change y-o-y Fuel Imports, US$mn - % change y-o-y Source: BMI © Business Monitor International Ltd Page 28 Vietnam Freight Transport Report Q1 2011 Table: Main Import Partners (US$mn) 2002 2003 2004 2005 2006 2007 2008 Mainland China 2158.84 3138.55 4595.10 5899.70 7391.30 12502.00 17592.90 Singapore 2533.49 2875.82 3618.40 4482.30 6273.90 7608.60 9617.87 Japan 2504.65 2982.06 3552.60 4074.10 4702.10 6177.70 8614.94 South Korea 2279.60 2625.44 3359.40 3594.10 3908.40 5334.00 6089.65 955.24 1282.19 1858.60 2374.10 3034.40 3737.20 5458.74 2002 2003 2004 2005 2006 2007 2008 United States 2,453.15 3,939.56 5,024.80 5,924.00 7,845.10 10,089.10 12,594.10 Japan 2,436.96 2,908.60 3,542.10 4,340.30 5,240.10 6,069.80 8,264.30 Australia 1,328.33 1,420.86 1,884.70 2,722.80 3,744.70 3,556.90 4,466.29 Mainland China 1,518.33 1,883.12 2,899.10 3,228.10 3,242.80 3,356.70 4,174.25 729.03 854.71 1,064.70 1,085.50 1,445.30 1,855.10 2,714.70 Thailand Source: IMF's Direction of Trade Statistics Table: Main Export Partners (US$mn) Germany Source: IMF's Direction of Trade Statistics © Business Monitor International Ltd Page 29 Vietnam Freight Transport Report Q1 2011 Macroeconomic Outlook Real GDP Growth Set To Exceed Government's Target BMI View: Vietnam's real GDP growth came in at a better-than-expected 7.4% y-o-y in Q310, supported by robust growth in the construction and manufacturing sectors. The latest figures remain in line with our view that private consumption and infrastructure investments would continue to drive economic growth. However, given that Q310 figures were above expectations, we are revising our real GDP forecast upwards to 6.7% for 2010. Our real GDP forecast for 2011 remains at 5.6% in anticipation of a slowdown in external demand. Following strong real GDP growth of 6.2% in H110, Vietnam's Q310 real GDP growth figure, came in at a better-than-expected 7.4% year-on-year (y-o-y) in Q310. Figures released by the General Statistics Office (GSO) showed that the construction and manufacturing sectors were the key drivers of growth in Q310. In light of the strong figures for Q310, we are revising our real GDP growth forecasts for 2010 upwards from 6.3% to 6.7%. Indeed, following the release of Q310 figures, the government said in an interview with local media that real GDP growth could potentially exceed its current real GDP growth forecast of 6.5% for 2010. The government has announced that it will maintain its aggressive growth target of 7.0-7.5% for 2011. However, we believe that global economic headwinds coming into play in 2011 will have a negative impact on investor sentiment and Vietnamese exports. Construction And Manufacturing Lead The Way Looking at the key sectors of the economy, growth in industry and services continue to accelerate while agriculture remains on downward trend. We noted in a previous report that infrastructure investment would provide support for the construction sector and be a key driver of economic growth for Vietnam in 2010 and 2011. Indeed, the latest figures show that the construction sector grew at a robust pace of 11.4% y-o-y in Q310. Given that Vietnam will require further infrastructure investments to support its economic growth, we believe that the construction sector will continue to outperform in 2011. We are also witnessing an increasing focus by the government towards developing the agricultural sector and promoting foreign investment in the high-tech agricultural sector. However, we do not expect the agricultural sector to contribute significantly to real GDP growth in the short-to-medium term. The manufacturing sector also outperformed, registering a 9.4% y-o-y growth in Q310. Although Vietnam's manufacturing sector is largely structured towards exports, we see domestic demand as a potential source of growth for the industry as incomes continue to rise going forward. Given that the manufacturing sector currently makes up 63.0% of industrial production, we would expect to see a similar pick up in industrial production growth. Indeed, Vietnam's industrial production registered a seventh month of consecutive year-on-year growth since March, growing by 12.4% y-o-y in September (see chart). Our long-held view that domestic demand will remain resilient in 2011, suggests that industrial production will remain robust going forward. © Business Monitor International Ltd Page 30 Vietnam Freight Transport Report Q1 2011 Retail Sales Point To Robust Private Consumption As the accompanying chart shows, despite a 10.8% month-on-month (m-o-m) drop in tourist arrivals from 430,000 visitors in August to 383,500 visitors in September, tourist arrivals remain significantly above historical levels. In light of strong growth figures coming out of Asia in recent months, we believe that visitors from Asian countries will continue to provide support for Vietnam's tourism sector. Despite the drop in tourist arrivals in September, retail sales figures remain robust, registering a 2.4% m-o-m increase. We note that retail sales have traditionally been an accurate indicator of private consumption. Thus, resilient retail sales figures in September suggest to us that private consumption remains robust. We believe resilient private consumption will remain a key factor driving domestic demand going forward. Trade Balance To Remain In Deficit Despite registering an 11.0% m-o-m decline in September, goods exports actually grew by 5.7% quarteron-quarter (q-o-q) in Q310. Imports, meanwhile, grew by a smaller 3.2% in Q310, resulting in a narrowing of the trade deficit from US$2.8bn in Q210 to US$2.4bn in Q310. Although the momentum for goods export growth remains strong, we expect imports to outpace exports in the coming quarters on the back of robust domestic demand. Indeed, a steady increase in infrastructure investments over the coming quarters should lead to an increase in raw material and machinery imports. As such, we are maintaining our forecasts for Vietnam's trade balance to remain in deficit at 7.4% of GDP in 2010 and 7.6% of GDP in 2011. In line with our view that we will see a slowdown in global economic growth in 2011, we are maintaining our below-consensus forecast for real GDP growth to come in at 5.6% next year. We note that this is significantly below the Vietnamese government's real GDP growth target of 7.0 - 7.5% for 2011. From our standpoint, we believe that the government's imbalanced economic policies, which narrowly focus on economic growth while ignoring the risks of inflation will lead to an overheating economy. As such, we expect consumer price inflation (CPI) to accelerate from the current rate of 8.8% to 11.5% in 2011. This suggests that the central bank could be forced to hike interest rates aggressively to cool the economy. Coupled with global economic headwinds that will lead to a slowdown in external demand, we see Vietnam's real GDP growth being capped at 5.6% in 2011. © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q1 2011 Table: Vietnam – Economic Activity 2007 Nominal GDP, 2 VNDbn 2008 2009e 2010f 2011f 2012f 2013f 2014f 2015 1143715.1 1477717.1 1645481.0 1908952.6 2246180.4 2535644.7 2869066.5 3231621.0 3623413.0 Nominal GDP, 2 US$bn 71.2 89.9 92.5 99.4 113.7 128.4 149.0 172.3 198.5 Real GDP growth, % 2 change y-o-y 8.5 6.2 5.3 6.7 5.6 6.1 7.0 7.0 7.0 GDP per capita, 2 US$ 836 1,043 1,060 1,125 1,274 1,424 1,637 1,874 2,139 85.2 86.2 87.3 88.4 89.3 90.2 91.1 92.0 92.8 16.8 13.6 6.7 15.0 10.0 15.0 16.0 17.0 16.0 4.6 5.0 5.5 5.5 5.0 4.5 4.0 4.0 4.0 Population, mn 3 Industrial production index, 1,2 % y-o-y, ave Unemployment, % of labour 2 force, eop e f 1 2 3 Notes: BMI estimates. BMI forecasts. at 1994 prices; Sources: General Statistics Office. World Bank/BMI © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q1 2011 Company Profile Vietnam Airlines Strengths The company’s focus on two sectors gives it a comparative advantage in its main markets. Weaknesses To maintain market share in a dynamic but toughly competitive market, the company must gain professional skills and expertise, and a flow of new investment, at an accelerated rate. Any slippage is likely to have an immediate negative impact on margins. Opportunities Developing the regional passenger market in Asia is Vietnam Airlines' main opportunity, with cargo business as a second revenue stream. Threats The main threat is regulatory: that the government will open up the industry at a faster pace, not giving the airline the necessary time to prepare for competition with private sector start-ups or established foreign carriers. Company Overview Vietnam Airlines was established as a state-owned airline in 1989 and merged with a number of service companies in 1996 to give it its present form. The government's stated goal is to further integrate the company into the global market and establish itself as a regional player. Vietnam's national carrier operates 64 routes to 20 domestic and 24 international destinations. Its fleet of 50 modern aircraft have carried more than 9mn passengers. In 2006, it was officially accepted as a full member of the International Air Transport Association. The Vietnamese carrier provides passenger air services to 25 destinations in 15 countries including many in South East Asia, Australia, Russia, France, Germany and the US. The company has a number of codeshare operations with foreign companies, in particular the February 2004 agreement with Air France to share 11 non-stop scheduled flights between Ho Chi Minh City and Paris. Vietnam Airlines' cargo operations serve 20 destinations in Asia, the Middle East, Australia and Europe, with partner networks serving other destinations. The cargo division operates a JV with Singapore Airport Terminal Service - Tan Son Nhat Cargo Services - that has an annual cargo throughput of 100,000 tonnes. Financial At the beginning of August Quan Doi Nhan newspaper said that Vietnam Airlines was setting as Performance its target a cumulative VND8.7trn (US$457.9mn) pre-tax profit, on revenues of VND273bn (US$14.3bn) in the 2011-2015 period. The newspaper said the airline was projecting an annual 15% increase in revenue; passengers carried would rise by around 13% per annum. Latest Activity According to a report by Asia Pulse news agency in early September, rapid growth in the domestic air travel market was presenting Vietnam Airlines and its competitors with new opportunities. The agency said that Vietnam's airports had welcomed 26.16mn passengers and 446,000 tonnes of cargo in 2009, a four-fold increase on levels in the year 2000. Passengers carried in the first seven months of 2010 were up 33% y-o-y, with revenues from domestic air travel up by 20% y-o-y. The main competitors on domestic routes were Vietnam Airlines and © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q1 2011 JetStar Pacific. Vietnam Airlines had a roughly 80% share of the domestic air travel market, flying 300 routes a day, mostly between Hanoi, Ho Chi Minh City, Da Nang, and Phu Quoc Island. Asia Pulse cited Vietnam Airlines' deputy director general, Trinh Hong Quang, who said that due to a shortage of aircraft the company was failing to fully meet demand for travel. More competition was expected, with Air Mekong expected to begin operations in October. A new licence had also been granted to Blue Sky Air. This took the number of licensed local passenger and cargo carriers up to nine. Prior Activity In July Vietnam Airlines revealed it had selected International Aero Engines (IAE) for an order for V2500 engines which will be used to power the carrier's fleet of 36 Airbus A321 aircraft. The aircraft, which are on order, are expected to be delivered to the company from 2011. Pratt and Whitney and Rolls-Royce, which are major stakeholders in IAE, were expected to earn about US$235 and US$240 respectively from the order. © Business Monitor International Ltd Page 34 Vietnam Freight Transport Report Q1 2011 Doan Xa Port Strengths Given Vietnam's strong growth record in recent years and the country's sharply increasing foreign trade, the port sector is expected to remain broadly profitable. Weaknesses To maintain market share in a dynamic but toughly competitive market, the company must gain professional skills and expertise, and a flow of new investment, at an accelerated rate. Any slippage is likely to have an immediate negative impact on margins. Opportunities Haiphong's strategic location means Doan Xa can benefit from growing trade with China (it is close to Hong Kong, Macau, Kunming and Guangzhou). It also can act as an eastern port for Myanamar and Laos. Threats The port handles frozen foodstuffs and so is at risk of a loss of business during health scares such as the H1N1 'swine flu' scare of April/May 2009. Company Overview Doan Xa Port Joint Stock Company (DXP) is a Vietnam-based port operation company in Hai Phong. It mainly manages operations at Doan Xa Port, and provides port services, including loading/discharging cargo, warehousing, inland transportation and shipping agency. The company also offers minor supporting services, such as customs declaration, the wholesaling of handling machinery, and construction and maintenance of marine infrastructure. The company is an affiliate of Vietnam National Shipping Lines (Vinalines). Financial In September, DXP was reported to have made a VND50bn (US$2.56mn) pre-tax profit in the first Performance eight months of 2010, an increase of 18% y-o-y. Revenues rose by 19% to VND123.2bn, according to DXP. For 2010 as a whole the company had earlier said it was targeting a pre-tax profit of VMD45bn on revenues of VND120bn. In fact, both these targets were surpassed at the eight-month point. Latest Activity DXP is one of several Vietnamese port operators that stand to benefit from a new infrastructure credit initiative agreed in June. The contract, which targets high priority infrastructure projects in Vietnam, is worth US$500mn. The cooperation framework set out between the two banks is a clear acknowledgement of the investment opportunities that exist in Vietnam, both for US infrastructure firms and for other infrastructure-dependent businesses. The expressed aim of the contract is to support Vietnam's socio-economic development, as well as to enhance cooperation between the two countries in trade and investment. The credit provided would be used to invest in infrastructure development projects with an emphasis on improving transportation and communication networks for projects undertaken by US companies. One of the most active US players operating in Vietnam is power generator AES, a company which, however, has exhibited higher appetite for risk in its ventrures, hence was among the first to venture in Vietnam's market. With the US guarantees in place creating a safety net, we anticipate other US companies to follow. © Business Monitor International Ltd Page 35 Vietnam Freight Transport Report Q1 2011 Prior Activity In March, Vinalines revealed plans to continue its recent fleet expansion programme with the acquisition of 40 new-build vessels. The purchase is likely to depend on the government supporting the programme through the provision of state funding. According to Seatrade Asia, Vinalines is targeting expenditure of US$2bn on new ships, which will be built at Vietnamese yards. The expansion aims to increase the company's fleet from 2.7mn deadweight tonnes (DWT) to 6-7mn DWT by 2015. Vinalines is Vietnam's largest commercial shipping line, comprising in terms of capacity about 45% of the country's total fleet. In 2006, the government approved a US$1.8bn expansion programme to expand the company's fleet to 136 ships or 2.6mn tonnes of capacity by 2010 by building and purchasing new vessels. The success of the company's latest expansion programme, however, will depend on its ability to source additional government funding, which, given the country's current economic situation, may prove difficult. While the state has stated its intention to promote the growth of its trade sector, it faces growing pressure to tame public spending in the wake of a rising budget deficit. Strong growth in consumer spending has stoked imports, and the country's trade deficit is estimated by BMI to have reached 13.3% of GDP in 2009. In our view, the government is currently prioritising the development of its infrastructure sector above its shipping fleet, which in terms of size ranks some way below other Asian states. According to an estimate by law firm Dwayne Morris, government expenditure on infrastructure will comprise 11% © Business Monitor International Ltd Page 36 Vietnam Freight Transport Report Q1 2011 Vietnam Petroleum Transport Jsc (VIPCO) Strengths At this stage in its economic development, Vietnam will require rapidly increasing import volumes of oil, gas and certain petrochemicals, as well as extra export capacity. VIPCO is well positioned in a high-growth segment of the shipping market. Weaknesses The global economic downturn of 2009, accompanied by lower oil prices and sharply lower shipping freight rates, posed a serious challenge to profitability. Opportunities Tanker rates are expected to perform better dry bulk over the coming months, meaning that Vipco may be well advised to focus on improving market share within its existing segment, rather than diversifying. Threats Vipco has a privileged position as a subsidiary of the state oil company. Any change to this role for regulatory reasons could therefore be a threat, implying potential loss of secure contracts. Company Overview Vietnam Petroleum Transport Joint Stock Company (Vipco) specialises in marine transportation. It mainly offers marine transportation services, freight forwarding, shipping brokerage, customs clearance and port operation. Other activities include merchandise of petroleum, liquefied gas and petrochemicals; trading supplies and equipment, manning and warehousing; and minor industrial construction. The company has five subsidiaries and one affiliate, and is itself a subsidiary of Vietnam National Petroleum Corporation (PetroVietnam). Financial Vipco made a net profit of VND17.4bn (US$915,700) in the first half of 2010, a 72.3% y-o-y fall, Performance according to a report by Vietnam News Briefs published in mid-August. The fall in profitability came despite a 27.9% increase in revenues to VND693.77bn during the period. For the year as a whole the company has been targeting a pre-tax profit of VND74.2bn on revenues of VND1,475bn. Latest Activity PG Bank and Indovina Bank were in September said by the Dau tu newspaper to have agreed to provide a US$19.6mn loan and guarantee to Vipco to enable the tanker company to build two asphalt-transporting ships with a total capacity of 2,800dwt. The overall cost of the new ships was estimated at US$26.19mn, and theya re being added to Vipco's fleet as part of a plan to meet increasing demand for asphalt transportation by local companies. Prior Activity In July, Vipco parent company PetroVietnam took delivery of Dung Quat shipyard as part of a restructuring programme being undertaken by Vietnam Shipbuilding Industry Group (Vinashin). Vinashin, a state-owned builder and owner of ships with reported debts of US$4.3bn, is undergoing a forced restructuring following a government inquiry into the company's affairs. As part of the restructuring process, the company will be forced to offload a number of assets to PetroVietnam and national shipping line Vinalines. The blame for the company's financial problems has been pinned on Vinashin's secretary, Pham Than Binh, who is among several employees expected to be disciplined for 'irresponsible' use of state capital. During 2005-2006, Binh and other leading employees reportedly failed to heed the © Business Monitor International Ltd Page 37 Vietnam Freight Transport Report Q1 2011 advice of observers who warned that Vietnam was investing too much in its shipbuilding industry. A lack of adequate supervision has also been cited as one of the reasons behind Vinashin's mismanagement, with the company reportedly having been under no obligation to report its activities to the Ministry of Transport or the government. © Business Monitor International Ltd Page 38 Vietnam Freight Transport Report Q1 2011 Country Snapshot: Vietnam Demographic Data Section 1: Population Population By Age, 2005 (mn) Population By Age, 2005 And 2030 (mn, total) 70-74 70-74 60-64 60-64 50-54 50-54 40-44 40-44 30-34 30-34 20-24 20-24 10-14 10-14 0-4 0-4 -6.0 -4.0 -2.0 0.0 Male 2.0 4.0 6.0 -10.0 -5.0 0.0 2030 Female 5.0 10.0 2005 Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 34.1 29.9 30.4 31.2 Dependent population, total, ‘000 28,318 26,225 30,950 34,499 Active population, % of total 65.8 70.0 69.5 68.7 Active population, total, ‘000 54,650 61,263 70,706 75,927 Youth population*, % of total 28.8 25.0 23.4 20.3 Youth population*, total, ‘000 23,972 21,887 23,807 22,508 Pensionable population, % of total 5.2 4.9 7.0 10.8 Pensionable population, total, ‘000 4,346 4,338 7,143 11,991 f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 39 Vietnam Freight Transport Report Q1 2011 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 26.7 29.4 34.7 41.8 Rural population, % of total 73.3 70.6 65.3 58.2 Urban population, total, ‘000 22,509 26,395 35230 46,123 Rural population, total, ‘000 61,729 63,323 66426 64,306 Total population, '000 84,238 89,718 101,656 110,429 f = forecast. Source: UN Population Division Section 2: Education And Healthcare Table: Education, 2002-2005 2002/03 2004/05 Gross enrolment, primary 98 93 Gross enrolment, secondary 73 75 Gross enrolment, tertiary 10 16 Adult literacy, male, % na 93.9 Adult literacy, female, % na 86.9 Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010f 2020f 2030f Life expectancy at birth, males (years) 68.4 69.9 74.2 75.8 Life expectancy at birth, females (years) 72.4 73.9 78.4 80.0 Life expectancy estimated at 2005. f = forecast. Source: UNESCO © Business Monitor International Ltd Page 40 Vietnam Freight Transport Report Q1 2011 Section 3: Labour Market And Spending Power Table: Employment Indicators, 1999-2004 1999 2000 2001 2002 2003 2004 Employment, '000 38,120 38,368 39,000 40,162 41,176 42,316 – % change y-o-y 3.1 0.6 1.6 2.9 2.5 2.7 – male 19,029 19,292 19,744 20,356 20,959 21,649 – female 19,091 19,076 19,257 19,807 20,217 20,666 — female, % of total 50.0 49.7 49.3 49.3 49.1 48.8 Unemployment, '000 909 886 1,107 871 949 926 – male 439 468 458 398 402 410 – female 470 418 650 473 547 517 – unemployment rate, % 2.3 2.2 2.7 2.1 2.2 2.1 Source: ILO Table: Consumer Expenditure, 2000-2012 (US$) 2000 2007e 2008f 2009f 2010f 2012f 110 265 301 368 386 427 Poorest 20%, expenditure per capita 49 119 136 166 174 192 Richest 20%, expenditure per capita 243 587 668 815 855 946 Richest 10%, expenditure per capita 316 763 868 1,060 1,112 1,230 Middle 60%, expenditure per capita 85 206 235 286 301 332 Consumer expenditure per capita 556 1,196 1,297 na na na Poorest 20%, expenditure per capita 250 538 583 na na na Richest 20%, expenditure per capita 1,231 2,649 2,872 na na na Richest 10%, expenditure per capita 1,600 3,444 3,734 na na na 433 931 1,009 na na na Consumer expenditure per capita Purchasing power parity Middle 60%, expenditure per capita e/f = BMI estimate/forecast. na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 41 Vietnam Freight Transport Report Q1 2011 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, ie seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Transport Industry There are a number of principal criteria that drive our forecasts for each transport variable: GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMI’s own macroeconomic and demographic forecasts. © Business Monitor International Ltd Page 42 Vietnam Freight Transport Report Q1 2011 Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services do not employ transport. The volumes are forecast based on the following criteria: Trends manifested through historical data; The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a ‘second opinion’ on trade volumes. However, this check needs to be used with caution, as trade values and volumes do not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: Trends in historical modal split data; Evidence of government policy favouring one or more modes over others; Government and or private sector investment plans in specific modes. Sources Sources used in Freight Transport reports include local transport ministries, officially released company results and figures, established think tanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Ltd Page 43 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... y-o-y 18.00 11.84 2.00 -8.65 4.53 4.98 5.28 5.38 Rail Freight Tonnes (000) Rail Freight Tonnes % Change y-o-y Source: General Statistics Office of Vietnam Table: Inland Waterway Freight Source: General Statistics Office of Vietnam © Business Monitor International Ltd Page 25 Vietnam Freight Transport Report Q1 2011 Trade Overview In real terms Vietnam' s total trade (imports + exports) recovered by... 7.64 Source: General Statistics Office of Vietnam © Business Monitor International Ltd Page 22 Vietnam Freight Transport Report Q1 2011 Air Freight Vietnam' s airfreight industry is recovering modestly against the background of a troubled global aviation sector, with negative repercussions from the European volcanic ash crisis in Q210 also playing a part In Vietnam itself the industry is beginning to... Business Monitor International Ltd Page 24 Vietnam Freight Transport Report Q1 2011 Rail Freight Rail freight carried increased by an estimated 6.7% in 2010, and is set to experience a bit of a slowdown in 2011, with growth of 4.7% to 4.251mntkms Average annual growth over the next five years will be 5.5%, below overall economic growth This suggests that Vietnam will not be making the most of the potential... rate of 8.8% to 11.5% in 2011 This suggests that the central bank could be forced to hike interest rates aggressively to cool the economy Coupled with global economic headwinds that will lead to a slowdown in external demand, we see Vietnam' s real GDP growth being capped at 5.6% in 2011 © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q1 2011 Table: Vietnam – Economic Activity... improve during the next few years, for the time being the quality of Vietnam' s port infrastructure is judged to be poor and was ranked 99 out of 133 nations by the WEF © Business Monitor International Ltd Page 21 Vietnam Freight Transport Report Q1 2011 Industry Forecast Scenario Macroeconomic Forecast Going into 2011 we believe Vietnamese macro-economic growth will be primarily driven by domestic.. .Vietnam Freight Transport Report Q1 2011 Vietnam Business Environment SWOT Strengths Weaknesses Opportunities Threats Vietnam has a large, skilled and low-cost workforce, that has made the country attractive to foreign investors Vietnam' s location - its proximity to China and South East Asia, and its good sea links... leave Vietnam a second-rate economy for an indefinite period © Business Monitor International Ltd Page 10 Vietnam Freight Transport Report Q1 2011 Business Environment Rating Table: Asia Pacific Freight Business Environment Ratings Limits of potential returns Risks to realisation of returns Freight transport market Country structure Limits Market risks Country risk Risks Overall rating Regional rank Singapore... times Vietnamese exports to the US are now worth 50% more than the country's second-placed export partner, Japan © Business Monitor International Ltd Page 19 Vietnam Freight Transport Report Q1 2011 Market Overview In January 2007, Vietnam officially joined the WTO, an event seen as an important milestone in the country's closer integration into the global economy WTO membership has helped boost Vietnam' s... Hanoi The three major airports handling freight are located at Ho Chi Minh City, Hanoi and Da Nang, each of which have international connecting flights Minor airports such as Cat Bi at © Business Monitor International Ltd Page 20 Vietnam Freight Transport Report Q1 2011 Haiphong are generally used for domestic flights to the three larger hubs In 2010, Vietnam' s air transport infrastructure was ranked 84/... The main competitors on domestic routes were Vietnam Airlines and © Business Monitor International Ltd Page 33 Vietnam Freight Transport Report Q1 2011 JetStar Pacific Vietnam Airlines had a roughly 80% share of the domestic air travel market, flying 300 routes a day, mostly between Hanoi, Ho Chi Minh City, Da Nang, and Phu Quoc Island Asia Pulse cited Vietnam Airlines' deputy director general, Trinh