Vietnam freight transport report q2 2015

... Business Monitor International Ltd Page Vietnam Freight Transport Report Q2 2015 SWOT Freight Transport Vietnam Freight Transport Industry SWOT Analysis Strengths ■ Vietnam' s strong domestic growth... affect Vietnam' s freight transport sector © Business Monitor International Ltd Page 11 Vietnam Freight Transport Report Q2 2015 Political SWOT Analysis Strengths ■ The Communist Party of Vietnam. .. International Ltd Page 22 Vietnam Freight Transport Report Q2 2015 Table: Inland Waterway Freight (Vietnam 2012-2019) 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f Inland Waterway Freight Tonnes (000)

Q2 2015 www.bmiresearch.com

VIETNAM

FREIGHT TRANSPORT REPORT

INCLUDES 5-YEAR FORECASTS TO 2019

INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: February 2015

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DISCLAIMER

INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: February 2015

© 2015 Business Monitor International Ltd

All rights reserved

All information contained in this publication is

copyrighted in the name of Business Monitor International Ltd, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

in any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 10

Freight Transport 10

Political 12

Economic 13

Operational Risk 15

Industry Forecast 17

Road Freight 20

Table: Road Freight (Vietnam 2012-2019) 21

Inland Waterways 21

Table: Inland Waterway Freight (Vietnam 2012-2019) 23

Rail Freight 23

Table: Vietnam Transport Network 24

Table: Rail Freight (Vietnam 2012-2019) 25

Air Freight 25

Table: Air Freight (Vietnam 2012-2019) 27

Maritime Freight 27

Table: Maritime Freight (Vietnam 2012-2019) 28

Trade 29

Table: Trade Overview (Vietnam 2012-2019) 29

Table: Key Trade Indicators (Vietnam 2012-2019) 29

Table: Top Import Destinations, 2006-2013 31

Table: Top Export Destinations, 2006-2013 32

Market Overview 33

Company Profile 41

Vietnam Airlines Cargo 41

Political Outlook 44

Domestic Politics 44

Table: Vietnam Political Overview 44

Long-Term Political Outlook 45

Oil Price Outlook 49

Global - Crude Oil, Refined Fuels And Natural Gas Prices, 10-year Forecasts 49

Table: Energy Price Forecasts (Global 2013-2018) 49

Table: Energy Price Forecasts (Global 2019-2024) 50

Macroeconomic Forecasts 52

Expecting Sustained Growth Momentum In 2015 52

Table: Economic Activity (Vietnam 2009-2018) 56

Demographic Forecast 57

Table: Population Headline Indicators (Vietnam 1990-2025) 58

Table: Key Population Ratios (Vietnam 1990-2025) 58

Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 59

Table: Population By Age Group (Vietnam 1990-2025) 59

Table: Population By Age Group % (Vietnam 1990-2025) 60

Methodology 62

Industry Forecast Methodology 62

Sector-Specific Methodology 63

Sources 64

BMI Industry View

The Vietnamese economy is set to perform strongly in 2015, due to continued strong foreign direct

investment (FDI), healthy export growth and ongoing efforts by the government to improve macroeconomicfundamentals In turn, the country's freight industry is set to benefit as a result

In line with our bullish economic outlook for Vietnam, the country's real GDP growth accelerated to animpressive 7.0% in Q4 2014 from the revised 6.1% in the previous quarter This in turn brought real GDPexpansion for the year to 6.0%, surpassing the Bloomberg consensus estimate of 5.7% and marking

Vietnam as one of the brightest growth spots in Asia With that in mind, it is perhaps unsurprising that theVietnamese freight industry is set to record healthy growth over the short and medium term

Our forecasts are relatively unchanged from last quarter, and will see Vietnam's freight modes remainhealthy across the board Road freight will be the outperformer in terms of year-on-year (y-o-y) at 6.00%,while the rail and air freight modes are set to see the same level of growth in 2015 (3.40%) The Vietnameseports sector will also once again see strong annual growth in terms of tonnage handled

Headline Industry Data

■ 2015 rail freight tonnage is set to increase by 3.40% to 6.96mn tonnes

■ 2015 air freight tonnage is forecast to rise by 3.40% to 195,640 tonnes

■ Tonnage handled at the port of Ho Chi Minh City in 2015 is forecast to grow 7.61%, whereas tonnagehandled at the port of Da Nang is forecast to increase 6.50%

■ 2015 road freight tonnage is forecast to grow by 6.00% to 860.08mn tonnes

■ 2015 total trade is forecast to rise by 6.65%

Key Industry Trends

Major Growth Market For Air Cargo Operators: We believe that the air cargo market in Vietnam will

expand rapidly in the medium-term (2015-2019) as the country's manufacturing sector diversifies into

electronics and higher value goods production Korean electronics giant Samsung is expanding its

manufacturing interests in Vietnam and plans to utilise air freight as the main transport mode to exportfinished products This strategy is highlighted by the company's plan to operate its own air cargo terminal tohandle goods at Hanoi's Noi Bai International Airport, set to open in late 2015

Vietjet Air Cargo To Invest In Freighters: Vietjet Air Cargo, an affiliate company of Vietnam-based

Vietjet Air, intends to invest in B737 freighters and A330-200Fs to expand its global network and become

a major cargo carrier in the Asia region The company aims to expand its fleet size to 20 A320s by the end

of 2014 The new aircrafts will be wet-leased in the first year and dry-leased in the second year, according

to Vietjet Air Cargo CEO Do Xuan Quang The company is also looking at airline partnership opportunitiesfor long haul routes, reported The Loadstar

Impressive Box Growth To Continue In 2015: The port of Ho Chi Minh City is well placed to continue its

impressive container throughput growth picture in 2015, albeit at a slightly slower rate than 2014 Over thenext 12 months, box throughput will lead the way compared to tonnage throughput at the port (8.00%compared to 7.61%) This follows 2014's container throughput gains of 10.00% and tonnage throughputincrease of 7.74% We are likely to see box throughput reach 4.99mn twenty-foot equivalent units (TEUs)

by the end of 2015, while tonnage throughput handled will reach 44.99mn tonnes in the same timeframe

Key Risks To Outlook

The new international terminal at Hanoi Airport should offer significant upside risk in the future, once thefacility is up and running Operations are set to commence at the new USD645mn passenger terminal

at Hanoi Airport, Vietnam The first services using the terminal will take place on December 31 2014.Around 99% of the terminal construction has now been completed and the contractor has met the progressand quality targets set for the project The new facility will operate as an international air terminal, with 96check-in counters, 17 boarding gates, 10 self-service kiosks and 283 flight information display systems Thefacility is 996m long and has 139,000sq m total gross floor area The airport has plans to construct anadditional two terminals as it attempts to boost capacity to 50mn passengers a year, while the freight sphereshould also benefit

In other good news for the Vietnamese freight industry, Vietnam and South Korea have concluded

negotiations for a bilateral free trade agreement (FTA) during a meeting between Vietnamese Prime

Minister Nguyen Tan Dung and South Korean President Park Geun-hye on the sidelines of the Korea Commemorative Summit The FTA seeks to triple bilateral trade turnover to USD70bn by 2020 TheFTA covers 17 areas, including products, services and investment and intellectual property; however, itexcludes rice, a sensitive product for Korean farmers, as reported by the Korea Times The two Asiannations have held nine rounds of FTA talks since August 2012, reported Thanh Nien News

ASEAN-However, downside risks do hover over the shipping sector going forward Shipping companies operating inSouth East Asia are exposed to elevated security risks following the deadly escalation in pirate activity in

the region The deteriorating security situation in South East Asian waters heightens risks for shippingcompanies, their employees, insurance firms, and global trade A Vietnam flagged tanker, the M/T VPAsphalt 2, was attacked by pirates, southeast of Pulau Aur, Malaysia in the South China Sea, on December

7 2014 The Vietnam-bound tanker was carrying 16 Vietnamese crew members and 2,300 tonnes of

bitumen when it was seized by seven armed pirates as the ship made its way from Singapore The piratesproceeded to tie up crew members, with one of the crew being shot, before stealing personal possessionsand escaping The crewman died later that day from his injuries

Freight Transport

Vietnam Freight Transport Industry SWOT Analysis

Strengths ■ Vietnam's strong domestic growth rate, coupled with its geography - it stretches for

thousands of kilometres on a north-south axis - creates a need for long-distancefreight haulage

■ A recovery of activity levels at the nation's ports in 2010 is expected to continue overthe mid-term to 2018

■ Vietnam's location on the South China Sea gives the country access to the main Asian shipping routes, as well as access to the developing land transport links withASEAN countries, allowing the country scope to develop its trade logistics

inter-Weaknesses ■ The generally poor state of the road network Despite new highway construction, only

13.5% of the network is considered to be in good condition Just 26% of the networkhas two or more lanes and only 29% is tarred

■ Traditionally low investment in rail, with the potential for cost-effective bulk rail freightbeing underutilised

■ Decades of under-investment have left the country with a port infrastructure systemthat is poor by international standards

■ Overcapacity is a growing problem

■ Unresolved business environment issues and lack of significant improvement inaccess to infrastructure financing means that we remain very conservative on thegrowth potential of Vietnam's freight sector

■ A slowdown affecting the US economy has a knock-on effect on Vietnam due to itbeing the Asian country's largest export partner

Opportunities ■ The beginnings of local commercial vehicle production, which will help improve the

stock of lorries used by road haulage companies

Vietnam Freight Transport Industry SWOT Analysis - Continued

■ Chinese investment could bring about much-needed improvements in the rail sector

■ Growing international interest in Vietnam as a growth market within the box shippingsector

■ The World Bank stated at the start of 2014 that improved infrastructure could improvethe country's economy substantially

■ Vietnamese Transport Minister Dinh La Thang wishes to see the government helpboost inland waterway facilities and has been formulating policies likely to attractinvestments in the sector

Threats ■ Vietnam risks losing out to neighbouring countries if it is unable to develop its

infrastructure to keep up with the pace of demand

■ Vietnam is vulnerable to any slowdown in Chinese investment and to political risk inthe sensitive South China Sea, subject to competing sovereignty claims

■ A drop in international demand for exports would negatively affect Vietnam's freighttransport sector

SWOT Analysis

Strengths ■ The Communist Party of Vietnam remains committed to market-oriented reforms and

we do not expect major shifts in policy direction over the next five years The party system is generally conducive to short-term political stability

one-■ Relations with the US have witnessed a marked improvement, and Washington seesHanoi as a potential geopolitical ally in South East Asia

Weaknesses ■ Corruption among government officials poses a major threat to the legitimacy of the

ruling Communist Party

■ There is increasing (albeit still limited) public dissatisfaction with the leadership's tightcontrol over political dissent

Opportunities ■ The government recognises the threat corruption poses to its legitimacy, and has

acted to clamp down on graft among party officials

■ Vietnam has allowed legislators to become more vocal in criticising governmentpolicies This is opening up opportunities for more checks and balances within theone-party system

Threats ■ 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 beunsustainable

■ Relations with China have deteriorated over recent years due to Beijing's moreassertive stance over disputed islands in the South China Sea and domestic criticism

of a large Chinese investment into a bauxite mining project in the central highlands,which could potentially cause wide-scale environmental damage

SWOT Analysis

Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with

GDP growth averaging 6.6% annually between 2000 and 2013

■ The economic boom has lifted many Vietnamese out of poverty, with the officialpoverty rate in the country falling from 58% in 1993 to 17.2% in 2012

■ Vietnam has been strengthening its trade and aid ties in a bid to increase exports anddiversify its export sector

Weaknesses ■ Vietnam still suffers from fiscal deficits, leaving the economy vulnerable to global

economic uncertainties The fiscal deficit is dominated by substantial spending onsocial subsidies that could be difficult to withdraw

■ The heavily-managed and weak currency reduces incentives to improve quality ofexports, and also keeps import costs high, contributing to inflationary pressures

Opportunities ■ WTO membership and the upcoming ASEAN economic integration in 2015 should

give Vietnam greater access to both foreign markets and capital, while makingVietnamese enterprises stronger through increased foreign competition

■ The government has continued to move forward with market reforms, includingprivatisation of state-owned enterprises, addressing the high level of bad loans in thebanking sector as well as liberalising the banking sector

■ Urbanisation will continue to be a long-term growth driver The UN forecasts theurban population rising from 32% of the population in 2013 to more than 50% by theearly 2040s

Threats ■ Although inflation has subsided in 2014, complacency by the State Bank of Vietnam

on this front could result in a decline in investment

■ The potential for an escalation of political tensions with China over sovereign claims

to parts of the South China Sea could have a negative impact on the economy

SWOT Analysis - Continued

■ Market reforms could progress at a much slower pace as the government remainscautious about ceding ownership to foreign investors

Operational Risk

SWOT Analysis

Strengths ■ Vietnam has a high number of university graduates with skilled degrees and a high

literacy rate for its income level

• In addition to a number of regional and international flight options, Vietnam has anextensive inland waterway system

■ Strong contract enforcement capabilities increase security

• Vietnam's rate of violent crime is generally low, and foreigners are unlikely to betargeted

Weaknesses ■ High labour costs increase overall operating costs, and difficulty in hiring foreigners

creates shortages of skilled labour

• Underdeveloped rail capacity overburdens the road network

• One of the worst tax administration systems in Asia

• The police force is under-equipped and under-resourced in many areas

Opportunities ■ Fairly high expenditures in secondary education by regional standards will help close

gaps in access to education

• Vietnam is easily accessible from the main shipping routes, and growth in the number

of port facilities will provide adequate capacity

• Declining trade barriers are making it easier to enter the market

• Increased foreign participation in the banking sector will increase the availability offunds for loans

Threats ■ Unequal access to secondary education will result in a lower-quality workforce in

poorer regions

• Vietnam's reliance on imported oil poses risks in the form of energy and fuelshortages

SWOT Analysis - Continued

• Corruption and inefficiency in the legal system

• Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider politicaland social unrest

Industry Forecast

BMI View: We anticipate the Vietnamese freight industry will enjoy a healthy rate of tonnage growth in

2015 From an expenditure approach, the strong showing in 2014 is due largely to high foreign investor interest towards the country and the robust performance in the export sector, which are both buoying the freight mix in the country Latest data published by the General Statistics Office showed that total foreign registered capital rose 9.6% to USD15.6bn in 2014, with the manufacturing sector receiving the bulk of it (71.6%).

While there is the potential for volatility in emerging and frontier markets as the US looks to tighten itsmonetary policy over the coming quarters, we nevertheless expect a continuation of strong FDI inflows toVietnam This is corroborated by our view that Vietnam can continue to attract foreign investors,

particularly manufacturing firms, as it offers them attractively low wages, strong demographics that willensure a continual supply of workers as well as generous tax incentives

Meanwhile, exports grew by 8.7% to approximately USD149.1bn over the course of 2014 Given thecountry's export orientation to the US, which received about 19% of total Vietnamese outbound shipments

in 2014, a recovering US economy will bode well for the export sector going forward

There is slight downside risk on the horizon however, due to tense relations at the time of writing betweenVietnam and key trade partner China, which could have a slight detrimental impact on Vietnam's freightsector We believe slowing growth in the country's manufacturing sector has likely been due to China'sdeployment of an oil rig in disputed waters off Vietnam's coast in May, which sparked an outbreak of anti-China violent protests in Vietnam

Several Chinese factories were damaged, while others were forced to shut down during the riot, affectingmanufacturing orders as a result With the Vietnamese government acting fast to stop a further escalation ofviolence, coupled with China's removal of its oil rig in July, renewed political stability in Vietnam willallow its resilient manufacturing sector to continue performing well This will bode well for the gradualpick-up in growth momentum in the Vietnamese economy

GDP To Enjoy Healthy Medium TermReal GDP growth, % change y-o-y (2001-2019)

Vietnam - Real GDP growth, % y-o-y

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f

5 6 7 8

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

To keep pace with growth, Vietnam will need to invest in its logistics sector, but BMI expects a lot of this

investment to come from outside logistic and freight transport companies, which will be keen to enter andexpand into this high-growth market We believe that rapid urbanisation, driven by a healthy pipeline ofgovernment-led infrastructure projects over the next five years, will continue to spur rural-urban migrationand foreign direct investment (FDI) into developed cities such as Ho Chi Minh and Hanoi We have alsoalready witnessed this to some extent in Vietnam's port sector, with considerable investment being made bycontainer shipping lines and global port operators in the development of modern box terminals at Vietnam'sports

This investment in the country's maritime sector has ensured that Vietnam's manufacturing growth can beachieved with greater links between the country and its main export partner the US Direct containershipping links between Vietnam and the US have been in operation since 2009, which have cut both timeand cost, as previously Vietnamese shipments had to be transhipped via Singapore

Demand from the US for Vietnam's manufactured goods looks set to continue growing, with Vietnam'sexports set to benefit from the slow but steady recovery in the US economy

Vietnam's export outlook will also continue to be bolstered by China's growth outlook Although we projectChina's economic growth to slow over the medium term, the country's real GDP growth outlook doesremain robust.

Vietnam plays a key role in China's coal supply chain Vietnam is China's fifth-largest coal supplier

providing the country with the thermal coal it requires for its power stations Vietnam's role in this supply

chain looks set to continue, although BMI highlights that China is trying to decrease its power sectors'

reliance on coal While we believe that the percentage supplied by coal fired power plants within China'soverall energy mix will slip over the medium term, it will nevertheless remain above 70%

BMI believes that Vietnam's textile sector will also benefit from the development of China's middle class,

as the country starts to import more from abroad

Meanwhile, the proposed Trans-Pacific Partnership (TPP), which is a regional free-trade agreement beingnegotiated by 12 countries in the Asia Pacific region: Australia, Brunei, Canada, Chile, Japan, Malaysia,Mexico, New Zealand, Peru, Singapore, the US and Vietnam Speaking to Tuoi Tre (Youth) newspaper inJanuary 2015, Ginny Foote, president and chief executive of Bay Global Strategies specializing in economicmanagement consultation, said: 'I really hope that the TPP will be signed in six months But it is difficult topredict because there are 12 member countries participating in the TPP, and each country has a differentpolitical background and different difficulties The important thing now is that we should be ready for it.'

Bad news for investment prospects in the freight sphere arrive due to foreign investors having to wait for atleast 10 months for the government to ease restrictions on overseas shareholders, following the shelving of a

2013 proposal to raise ownership limits According to Vu Bang, chairman of the State Securities

Commission (SSC), policy makers must amend a plan by the Ministry of Finance that suggested increasingthe foreign ownership limits on voting shares in a few industries from 49% to 60% The SSC will work withthe respective ministries to modify the plan and deal with inconsistencies with the current laws, according tothe SSC's chairman Bang stated that a rise in foreign limits will be eventually implemented; however, herefused to give details of the new proposal Prime Minister Nguyen Tan Dung will need to grant approval tothe plan (Bloomberg)

Road Freight

Road Dominates And Offers Best Links Into China

Despite its low standing in road infrastructure, with the Global Economic Forum's Competitiveness Report2014/15 ranking Vietnam's roads a very poor 127 out of 142 globally, and placing it last in comparison with

13 of its Asia peers, the country's logistics needs are, nonetheless, primarily met by road In 2015 andbeyond, we predict that road freight volumes in Vietnam will account for the majority of freight carried inthe country

In 2015, we have maintained last quarter's forecast that year-on-year (y-o-y) tonnage throughput growthwill come in at 6.00%, which is a healthy rate, but down slightly on 2014's estimated annual growth of6.06% That said, the heady heights of 2012's double-digit growth will not be achieved over the mediumterm This scenario would see tonnage handled reach 860.1mn tonnes by the end of 2015 Over our forecastperiod to 2019, we predict average annual growth to come in at 6.94%

There is, however, upside risk to this forecast as more foreign logistics companies, with considerable road

freight expertise, expand in Vietnam Both FedEx and DHL have expanded their role in Vietnam in recent

times While some companies are breaking into Vietnam by developing their own operations in the country,others are getting a head start by acquiring and joining up with domestic freight operators This is the route

CEVA Logistics has taken entering into a joint venture with its long-term business partner Indo Trans Logistics Group.

Road freight plays a key role not only in Vietnam's domestic logistics sector, but also in the country's exportsupply chain Road is the main form of transport linking Vietnam's factories to the country's ports and alsoplays a key role in linking Vietnam with its second-largest export partner China

Vietnam's northern border links the country with the south of China Road links continue to be developed

between the two and with them trucking services Kerry Asia Road Transport (Kart), for example, offers

a twice-weekly trucking link connecting Shenzhen and Hanoi

Table: Road Freight (Vietnam 2012-2019)

Mekong Offers Trade Links With Neighbours

Vietnam's inland waterways play a considerable role in the country's freight transport sector, making it thesecond-largest freight transport mode in the country In 2015, we once more anticipate a healthy growthpicture with gains of 6.34% expected (maintaining last quarter's forecast), which will be slightly down on2014's estimated y-o-y growth of 6.68% to reach 192.89mn tonnes Over our forecast period, we anticipateaverage annual growth of 6.25%

Mekong Offers Trade Connections

Map Of The Mekong River

Source: BMI

Vietnam's inland waterways stretch for 47,130km and the country's dense network of waterways ranks itsseventh in the world in terms of length The country's inland waterways include the Mekong River, whichenables freight connections with Vietnam's neighbours Although we highlight that the River's full potentialhas not been reached and so development in the River is an area for potential investment

Table: Inland Waterway Freight (Vietnam 2012-2019)

Rail Network Still Lacking

Despite rail's potential as an overland trade link for Vietnam with its three neighbours, the mode's role in thecountry's freight transport sector remains small In 2014, we estimate that Vietnam's rail freight volumesaccounted for a negligible percentage of the total with the country's rail network transporting just 6.73mntonnes of freight

However, the Vietnam Railway Administration is attempting to persuade the country's Transport Ministry

to appraise and approve a USD10bn plan to upgrade the North-South railway in the country, it was reported

at the end of November 2014 The move would be long overdue and provide major upside risk to ourforecasts

In 2015 we forecast the rail freight sector to increase by 3.40%, a figure we expect to rise again to 3.70% in

2016 Positive growth has been lacking from this sector over recent years, but is set to return at least overour forecast period, with an average annual growth of 4.00% pencilled in between 2015 and 2019

There are two key factors that we believe have held back Vietnam's rail freight development and willcontinue to do so.

Table: Vietnam Transport Network

Length (km)

Inland Waterway 47,130

Source: CIA World Factbook (accessed January 21 2014)

The first is the quality of Vietnam's railway infrastructure The World Economic Forum's Global

Competitiveness Report 2014/15 gives Vietnam's rail infrastructure a very low ranking, placing it 99thglobally out of 123 countries measured A major problem for Vietnam's rail freight development is therelative shortness of the country's rail network Vietnam's railway lines extend for just 2,632km; thiscompares with the country's 206,633km network of roads and 47,130km network of inland waterways

The second drawback for freight rail development in Vietnam is its gauge incompatibility with China.Vietnam's network is dominated by narrow gauge, which accounts for 80% of the total While the countryhas some standard gauge track, this system only accounts for 20% of the total

This means that rail freight trade between Vietnam and China is slowed by gauge changes, making roadfreight a more cost- and time-effective alternative; this stymies potential rail-freight projects between thetwo nations

BMI highlights that developments in Vietnam's rail network are taking place, but these have been focused

on expanding the country's passenger network (e.g., a planned high-speed railway link between Vietnamand Laos)

We do see upside risk presenting itself by the news reported in December 2014 by International RailwayJournal that China had 'marked the completion of a key international rail project in its southern Yunnanprovince on December 1 with the opening of a 142km line from Mengzi to Hekou on the border withVietnam'

Table: Rail Freight (Vietnam 2012-2019)

Rail freight tonnes ('000) 7,003.50 6,525.90 6,729.53 6,958.33 7,215.79 7,504.42 7,834.61 8,187.17 Rail freight tonnes, % y-o-y -3.87 -6.82 3.12 3.40 3.70 4.00 4.40 4.50 Rail freight tonnes-km (mn ton

km) 4,024.60 3,804.10 3,903.01 4,020.10 4,148.74 4,289.80 4,444.23 4,613.11Rail freight tonnes-km, % y-o-y -3.30 -5.48 2.60 3.00 3.20 3.40 3.60 3.80

e/f = BMI estimate/forecast Source: General Statistics Office of Vietnam

Air Freight

On Growth Trajectory As Vietnam Gets Better Connected

Vietnam's air freight sector may currently only account for a small percentage of the country's freighttransport industry, but growth is set to be fairly robust over the medium term The government has

ambitious plans to modernise and expand the country's airport infrastructure over the long term Commentsmade in August 2014 by the International Air Transport Association that the country must expand itsnetwork are still applicable

Since early 2012, Vietnam has announced that it was in the search for foreign investors to help constructtwo international airports: the USD1.2bn Van Don International airport in the northern province of QuangNinh and the USD10bn Long Thanh International airport in the southern province of Dong Nai

For 2015, we continue to forecast that the Vietnamese air freight sector will grow by 3.40% y-o-y, up from2014's 3.00%, to reach 195,640 tonnes Over the forecast period, we predict Vietnam's air freight levels togrow on average per annum by a healthy 4.46% to reach 235,310 tonnes

Taking OffAir Freight, Tonnes 000, % Change y-o-y (2010-2019)

Air Freight Tonnes (000) (LHS) Air freight tonnes % y-o-y (RHS)

2010 2011 2012 2013

2014e 2015f 2016f 2017f 2018f 2019f0

100 200 300

-20 0 20 40

e/f = BMI estimate/forecast Source: National Statistics Agency, BMI

BMI expects the increase of air freight connections for Vietnam will come through the development of intra-Asia air freight routes In 2012, Air China Cargo and Malaysia's MASKargo added services to Ho Chi Minh City Vietnam is also becoming globally better connected by air In 2012, Emirates added a link with the country and Dubai, and in 2013, Finnair announced that it planned to launch new cargo routes to

Hanoi

While still at the development stage, Vietnam is seeking to play a greater role in the electronics supplychain, a key source of demand for air freight transport options One example has been the impact the localproduction of iPhones has had on China's air freight sector Plans are in place for Vietnam-based facilities to

produce Microsoft phones, iPods, PlayStations and Sony laptops, which will all drive up air freight

demand

Vietnam's pharmaceutical sector exports much of its output, but the country also imports a lot Vietnam'strade in pharmaceuticals is forecast to grow in the double digits in percentage terms over the medium term.The global pharmaceutical sector is increasingly turning to the aviation sector to meet its freight needs, with

the sector offering savings in transport time, along with environment controlled options, which are vital forthe transport of some medicines and vaccinations

Table: Air Freight (Vietnam 2012-2019)

2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Air Freight Tonnes (000) 178.70 183.70 189.21 195.64 203.27 212.42 223.04 235.31 Air freight tonnes % y-o-y -10.78 2.80 3.00 3.40 3.90 4.50 5.00 5.50 Air freight tonnes-km (mn ton km) 480.90 469.80 477.79 489.73 504.42 522.08 542.96 567.39 Air freight tonnes-km % y-o-y 12.70 -2.31 1.70 2.50 3.00 3.50 4.00 4.50

e/f = BMI estimate/forecast Source: General Statistics Office of Vietnam

Maritime Freight

Vietnam's maritime freight sector is performing very well at the moment and this positivity is set to stretchinto the medium term too at the country's two largest ports - Ho Chi Minh City and Da Nang; annual growthwill be 7.61% at the former and 6.50% at the latter in 2015

Vietnam Catching The Eye Of Shippers

Taiwan-based Evergreen Line and South Korea-based Hanjin Shipping announced a new intra-Asia service

at the end of 2013, which should continue to provide upside risk for the sector going forward The newintra-Asia service, which calls at the port of Ho Chi Minh, will boost both companies' intra-Asia operationsand we have long highlighted intra-Asia trade as a region of strong growth and we note the port of Ho ChiMinh to be a specific beneficiary of the new route - with the launch of the service offering upside risk to ourforecast for the port

Vietnam's ports and shipping sectors play a role in the global dry, liquid and container sector As

highlighted earlier Vietnam plays a considerable role in China's coal supply chain, with the dry bulkcommodity being shipped out of Vietnam and into China's main coal port of Qinhuangdao Vietnam is anoil-producing nation, but its consumption needs have come to outweigh its supply and so the country ismaking use of the liquid bulk shipping sector to import oil

Getting Better ConnectedUNCTADstat Liner Connectivity Index For Asia, 2004 & 2013

Source: UNCTADstat

The development of Vietnam's liner connections has been highlighted by data from UNCTAD's linerconnectivity index In 2004, Vietnam was ranked lowest out of its 14 Asian peers in terms of container lineconnectivity, but by 2013, it had jumped up the rankings to ninth place out of its 14 Asian neighbours

For more information on data and analysis of Vietnam's shipping sector, please see BMI's Vietnam

Shipping Report

Table: Maritime Freight (Vietnam 2012-2019)

Port of Ho Chi Minh City (Saigon

New) throughput, tonnes '000* 36,029.4 38,866.7 41,876.1 45,063.9 48,511.0 52,266.6 56,275.3 60,677.1Port of Ho Chi Minh City (Saigon

New) throughput, tonnes, %

y-o-y* 7.7 7.9 7.7 7.6 7.6 7.7 7.7 7.8Port of Da Nang throughput,

tonnes '000 4,423.0 5,010.2 5,360.9 5,709.4 6,043.2 6,406.9 6,795.1 7,221.3Port of Da Nang throughput,

tonnes, % y-o-y 14.3 13.3 7.0 6.5 5.8 6.0 6.1 6.3

*2011-2013 is a BMI estimate e/f = BMI estimate/forecast Source: Port authorities

e/f = BMI estimate/forecast Source: General Statistics Office of Vietnam, BMI

Table: Key Trade Indicators (Vietnam 2012-2019)

metals, exports,

% y-o-y 21.28 11.78 9.26 9.84 13.19 15.70 13.55 14.13Ores and

metals, imports,

USDmn 4,262.93 5,364.30 5,955.16 6,652.78 7,479.18 8,814.75 9,918.20 11,383.33

Key Trade Indicators (Vietnam 2012-2019) - Continued

Ores and

metals, imports,

% y-o-y -6.13 25.84 11.01 11.71 12.42 17.86 12.52 14.77Iron and steel,

exports,

USDmn 2,203.39 2,609.31 2,867.48 3,167.17 3,663.54 4,220.37 4,863.03 5,537.86Iron and steel,

exports, %

y-o-y -1.40 18.42 9.89 10.45 15.67 15.20 15.23 13.88Iron and steel,

imports,

USDmn 8,471.23 10,158.45 11,226.52 12,487.58 13,503.73 16,240.15 17,794.17 20,691.77Iron and steel,

imports, %

y-o-y 17.23 19.92 10.51 11.23 8.14 20.26 9.57 16.28Manufactured

goods, exports,

USDmn 71,085.40 77,803.42 84,910.60 93,160.58 106,750.14 122,130.26 140,027.65 158,458.16Manufactured

goods, exports,

% y-o-y 14.31 9.45 9.13 9.72 14.59 14.41 14.65 13.16Manufactured

goods, imports,

USDmn 80,785.92 89,399.19 98,638.23 109,546.75 124,514.01 144,018.93 163,221.96 185,023.47Manufactured

goods, imports,

% y-o-y 9.20 10.66 10.33 11.06 13.66 15.66 13.33 13.36Fuels, exports,

USDmn 16,530.36 17,377.78 18,743.60 20,329.04 21,924.90 25,573.58 28,123.26 32,173.72Fuels, exports,

% y-o-y 50.17 5.13 7.86 8.46 7.85 16.64 9.97 14.40Fuels, imports,

USDmn 15,190.13 16,042.55 17,723.62 19,708.46 22,365.62 25,959.22 29,437.56 33,408.46Fuels, imports,

% y-o-y 21.22 5.61 10.48 11.20 13.48 16.07 13.40 13.49

e/f = BMI estimate/forecast Source: UNCTAD, BMI

Table: Top Import Destinations, 2006-2013

China, Mainland, USDmn 7,391 12,710 15,974 16,441 20,019 24,594 28,786 53,458 China, Mainland, USDmn, % of

total 16.5 20.3 19.8 23.5 24.0 23.5 25.8 31.9 Korea, Republic Of, USDmn 3,908 5,340 7,255 6,976 9,761 13,176 15,536 23,196 Korea, Republic Of, USDmn, % of

total 8.7 8.5 9.0 10.0 11.7 12.6 13.9 13.8 Singapore, USDmn 6,274 7,614 9,378 4,248 4,101 6,391 6,690 11,978 Singapore, USDmn, % of total 14.0 12.1 11.6 6.1 4.9 6.1 6.0 7.1 Japan, USDmn 4,702 6,189 8,240 7,468 9,016 10,400 11,603 11,575 Japan, USDmn, % of total 10.5 9.9 10.2 10.7 10.8 10.0 10.4 6.9 China,P.R.:Hong Kong, USDmn 1,441 1,951 2,633 826 860 970 970 8,315 China,P.R.:Hong Kong, USDmn, %

of total 3.2 3.1 3.3 1.2 1.0 0.9 0.9 5.0 TOTAL 44,891 62,765 80,714 69,949 83,365 104,510 111,640 167,791 TOTAL, top 5 countries, USDm 23,717 33,804 43,480 35,960 43,758 55,530 63,584 108,521

% from top 5 trade partners 52.8 53.9 53.9 51.4 52.5 53.1 57.0 64.7

Source: IMF N.B Total exports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report