Vietnam freight transport report q3 2010

... of any information hereto contained Vietnam Freight Transport Report Q3 2010 © Business Monitor International Ltd Page Vietnam Freight Transport Report Q3 2010 CONTENTS Executive Summary ... of 6-7% per annum © Business Monitor International Ltd Page Vietnam Freight Transport Report Q3 2010 SWOT Analysis Vietnam Freight Transport Industry SWOT Strengths Weaknesses Opportunities Threats... Monitor International Ltd Page 22 Vietnam Freight Transport Report Q3 2010 Industry Forecast Vietnam' s strong macroeconomic performance has helped the freight transport industry, but the ride

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FREIGHT TRANSPORT REPORT Q3 2010

INCLUDES 5-YEAR FORECASTS TO 2014

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: April 2010

CONTENTS

Executive Summary 5

SWOT Analysis 7

Vietnam Freight Transport Industry SWOT 7

Vietnam Political SWOT 8

Vietnam Economic SWOT 8

Vietnam Business Environment SWOT 9

Market Overview 10

Industry Trends And Developments 12

Multimodal/Logistics 12

Road 12

Air 15

Maritime 15

Global Oil Products Price Outlook 19

Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl) 21

Table: Oil Product Price Data And Forecasts, 2007-2014 (US$/bbl) 22

Industry Forecast 23

Road Freight 23

Air Freight 23

Maritime Freight 23

Rail Freight 24

Trade Overview 24

Table: Air Freight, 2007-2014 24

Table: Maritime Freight, 2007-2014 (throughput, ‘000 tonnes 25

Table: Rail Freight, 2007-2014 25

Table: Road Freight, 2007-2014 25

Table: Inland Waterway Freight, 2007-2014 26

Table: Trade Overview, 2007-2014 26

Table: Key Trade Indicators, 2007-2014 27

Table: Main Import Partners, 2002-2008 (US$mn) 28

Table: Main Export Partners, 2002-2008 (US$mn) 28

Company Profiles 29

Doan Xa Port 29

Table: Doan Xa Port's Financial Performance, 2007 And 2008 30

Vietnam Airlines 31

Vietnam Petroleum Transport Jsc (VIPCO) 33

Table: Vietnam Petroleum Transport's Key Financial Data, 2007-Q109 34

BMI Methodology 35

How We Generate Our Industry Forecasts 35

Transport Industry 35

Sources 36

Executive Summary

In early March, 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 for 2020 and the long-term plan until 2030 The plans include the development of the North-South road with a total length of 3,262km, construction of seven roads in the north with a total length of 1,099km, and the development of seven routes with a total length of 984km in south area 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 disclosed estimates that it will require close to US$60bn in the period up to

2020 to fund road infrastructure projects

Vietnam's strong macroeconomic performance has helped the freight transport industry, but the ride could

get a little bumpy In BMI's view, the country began emerging from the recession a little too fast in 2009,

leading to a growing risk of overheating, rising inflation, and a widening trade deficit As a result we see something of a 'double dip' scenario with fiscal and monetary tightening on the cards The macro

downside is the danger of policy 'stop-go' and political risk in advance of the 11th National Congress of the Communist Party, due to be held in January 2011

Road building is proceeding at a rapid pace and the number of vehicles in circulation is also expanding sharply as living standards rise and cities expand across Vietnam Indeed, it can be argued that a large part of the country's economic growth is road-based After a number of years of double-digit growth, freight carried by road slumped by 8.6% in 2009 to 25.62bntkm In 2010, we see a moderate recovery of 4.8% to 26.84bntkm

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 also playing a part In Vietnam itself, the industry is experiencing intense competition, underlined by the launch of a joint venture

(JV) backed by Malaysia-based AirAsia In terms of air cargo volume, BMI sees growth of 3.7% to

125,320 tonnes this year, compared to a contraction of 6.8% in 2009

After suffering two years of falling cargo levels in 2008 and 2009, Saigon New Port (SNP) - the country's largest - is on a recovery phase Volume slumped 21.2% in 2008 and fell by a further 5.2% to 19.14mn

tonnes last year As the global trade recovery makes itself felt, BMI is forecasting 6.2% growth this year

to 20.33mn tonnes Port of Da Nang (PDN), a smaller facility in central Vietnam, better suited to going vessels, has on the whole experienced less volatility Unlike SNP to the south, it suffered only one year of falling cargo levels Volume handled turned negative only in 2009, falling by a smaller 6.8% This

ocean-year we see throughput at PDN rising by 2.3% to 2.62mn tonnes and thereafter the port should see its volumes growing by 2-3% per annum

Rail freight carried fell by an estimated 6.1% in 2009 and in a similar fashion to other transport modes, is set to experience a partial recovery this year, with growth of 3.2% to 3.907bntkm Average annual growth over the next five years will be 4.8%, 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 recent years, Vietnam has enjoyed strong export led growth but as the internal market gathers pace we expect overall trade growth to ease down In real terms, exports and imports combined were growing at over 20% per annum earlier this decade, but in the global downturn of 2009 they contracted by 14.5% This year, we expect total trade to recover with 5.4% growth, followed by 6.2% expansion in 2011 For the rest of our forecast period to 2014, however, trade growth will remain in the relatively slower range of 6-7% per annum

SWOT Analysis

Vietnam Freight Transport Industry SWOT

kilometres on a north-south axis creates a need for long-distance freight haulage)

ƒ Rapid recovery from 2009 downturn in port throughput volumes in 2010

ƒ Location on the South China Sea gives Vietnam access to main inter-Asian shipping routes, as well as access to the developing land transport links with ASEAN countries, allowing the country scope to develop its trade logistics

of road network is considered in good condition, only 26% has two or more lanes and only 29% is tarred

ƒ 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

ƒ Decades of under-investment have left Vietnam with a port infrastructure system at

99th out of 133 countries in the World Economic Forum Competitiveness Report

used by road haulage companies

ƒ Growing international interest in Vietnam as a growth market in box shipping sector

ƒ Opening of deepwater container terminal in May 2009 improved direct shipping links

to the US

monetary and fiscal policy in response to overheating

ƒ State-owned freight firms may be unprepared to compete effectively as the doors are gradually opened for international companies to enter the Vietnamese market

Vietnam Political SWOT

economic policies will undoubtedly be discussed at the 2011 National Congress The one-party system is generally conducive to short-term stability

ƒ Relations with US are generally improving, and Washington sees Hanoi as a potential ally in South East Asia

ƒ Rising (if limited) public dissatisfaction with leadership's tight control of dissent

clamp down on graft among party officials

ƒ Has allowed legislators to become more vocal in criticising government policies This

is opening up opportunities for more checks and balances in the one-party system

the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule

ƒ Although strong domestic control will ensure little change to political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable

ƒ Relations with China have deteriorated 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 widespread environmental damage

Vietnam Economic SWOT

averaging 7.6% annually between 2000 and 2007

ƒ Economic boom has lifted many Vietnamese out of poverty, with the official poverty rate falling from 58% in 1993 to 20% in 2004

economy vulnerable as the global economy continues to suffer in 2010 Fiscal picture

is clouded by considerable 'off-the-books' spending

ƒ Heavily managed and weak dong reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures

making Vietnamese enterprises stronger through increased competition

ƒ In spite of current macroeconomic woes, government will continue market reforms, including privatisation of state-owned enterprises and liberalisation of banking sector

ƒ 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

pressure, it could prolong macroeconomic instability, possibly leading to crisis

ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilise the economy

Vietnam Business Environment SWOT

ƒ Location (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

ƒ 120th out of 180 countries in Transparency International’s 2009 Corruption Perceptions Index

Korea and Taiwan This offers possibility of transfer of high-tech skills and knowhow

ƒ Privatisation of state companies and liberalisation of banking sector should offer foreign investors new entry points

ƒ Labour unrest is a lingering threat A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period

Market Overview

In January 2007, Vietnam officially joined the World Trade Organisation (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 some 93,300km Of this, only 23,418km, or 25%, 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

Vietnam's railway transport sector has only one operator, namely the Vietnam Railway Corporation

(VRC), established by law 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)

There are two principal airlines operating in Vietnam: Vietnam Airlines and Pacific Airlines Both of these airlines 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 Haiphong are generally used for domestic flights to the three larger hubs

Vietnam's shipping fleet statistics indicate that by the end of 2002, the country had 819 vessels with a total capacity of 2.123mn DWT and ranked 60th out of 150 countries around the world (but fourth in ASEAN after Singapore, Malaysia and Thailand) The average vessel size is 2,650DWT Currently, there are more than 400 ships with a capacity below 1,000DWT that operate on domestic routes

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, 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

Industry Trends And Developments

Multimodal/Logistics

Kerry Logistics launched the first phase of its new logistics centre in Danang in central Vietnam, it was

reported in April The facility is scheduled to be fully completed in H210 and will cover an area of nearly 9,000m2 The new facility will complement the company's existing 62,500m2 facility in Ho Chi Minh City and a 10,300m2 facility in Hanoi This will enable the company to provide complete coverage in north, central and south Vietnam Kerry Logistics primarily offers integrated logistics, international freight forwarding and supply chain solutions with headquarters in Hong Kong It operates a total area of more than 1.7mn m2 and provides services in 24 countries The company maintains a fleet of nearly 5,600 vehicles and a staff of more than 10,000

In early March, France-based tyre manufacturer Michelin appointed Denmark-based logistics group Damco to provide logistics and customs clearance services in Vietnam The contract is applicable for

three years and will enable Damco to manage Michelin's exports from Thailand into Vietnam, as well as inland transportation, cross-docking and distribution to customers in Vietnam Damco will also supervise Michelin's warehouse operations in Hanoi and Ho Chi Minh City The contract will facilitate Michelin to distribute directly to nearly 100 dealers throughout the country Industry observers believe the contract will improve trade prospects for Damco and contribute to the company's trade and financial position

Road

South Korean steel producer POSCO Engineering and Construction (POSCO E&C) was in late March

seeking approval from Vietnam's transport ministry for its expressway investment project, reported Dau

Tu The project involves construction of a 97km-long six-lane expressway from Nghi Son Dist in Thanh Hoa province to Hong Linh Dist in Ha Tinh province The company will work with local partners of

state-owned Vietnam Expressway Investment and Development Company (VEC) to secure funds of

about VND25.29trn (US$1.33bn) for the public private partnership (PPP) project Vietnam's road

network is in poor condition Vietnam's Ministry of Transport and Communications has disclosed

estimates that it will require close to US$60bn in the period up to 2020, to fund road infrastructure

projects

South Korean company Keangnam Enterprises won two contracts related to A4 and A5 sections of the

Noi Bai-Lao Cai Highway project in Vietnam, it was reported in March The company secured the contracts from VEC The A4 package, worth VND1.64trn (US$87.79mn), includes the construction of a 30km-long four-lane expressway in the provinces of Phu Tho and Yen Bai The VND1.98trn

(US$106mn) A5 package is for the construction of 41.5km-long four-lane expressway in Yen Bai

province Both are expected to be finished within 36 months

In early March, 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 for 2020 and the long term plan until 2030 The plans include the development of the North-South road with a total length of 3,262km, construction of seven roads in the north with a total length of 1,099km, construction of three routes with a total length of 264km in central and highland areas, and the development of seven routes with a total length of 984km in south area 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 disclosed estimates that it will require close to US$60bn in the period up to 2020 to fund road

infrastructure projects

The transportation department of Hanoi in Vietnam proposed the construction of six overhead roads between 2010 and 2015 The road projects are expected to cost more than VND32trn (US$1.65bn) The overhead roads would cover: Lac Long Quan - Yen Phu road; Nga Tu So - Nga Tu Vong - Minh Khai - Vinh Tuy bridge road; Noi Bai - Mai Dich - Phap Van; Hanoi Rail Station - Xa Dan - Pham Ngoc Thach - Ton That Tung - Kim Giang-road 70; Tran Duy Hung - Lieu Giai - West Lake; and, Giang Vo - Lang Ha

- Thanh Xuan

Vietnam was due to start construction of a 220km long coastal road in March 2010 The road, which will run through Kien Giang and Ca Mau provinces, is expected to cost US$440mn The governments of

South Korea and Australia and the Asian Development Bank (ADB) will co-operate on the road project

The road will be a part of the 1,000km-long link known as the Thailand-Cambodia-Vietnam Southern Coastal Road Corridor The ADB believes that the new road, which will traverse poor regions in the three countries, will enhance social and economic development of those regions The increased traffic levels in Vietnam's urban areas and the country's general fast-paced economic development have increased the volume of exports and imports to and from the country, thus creating a pressing need for better

infrastructure between ports and inland 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

It was announced in February, Japan's government would increase its participation in co-financing

infrastructure projects in Vietnam, as part of a wider venture to spearhead the involvement of Japanese companies in the development of infrastructure in the region The Japanese government earmarked JPY75bn (US$822mn) for three infrastructure projects in Vietnam, according to a report by the Japanese daily newspaper Nikkei The three projects would be developed by Japanese companies The three

projects are: the construction of a water system in Hanoi by NGK Insulators and Metawater, a

subsidiary of Fuji Electric Holdings; installation of communications systems on the trunk highway between Hanoi and HCM City by Central Nippon Expressway; and, construction of a biomass power plant near HCM City by J-Power

According to the report in Nikkei, the Japanese government will offer export credit guarantees to the Japanese companies to insure against payment irregularities by the host governments/entities The

Japanese government has spearheaded the expansion of Japanese companies abroad, especially in Asia, through establishing relations with governments Being the second largest donor of official development assistance after the United States, Japanese loans have played a significant role in financing infrastructure projects in Asia The influence that the Japanese government has established in the Asia Pacific region has enabled the overseas expansion of Japanese companies Vietnam is a case in point Japanese

companies and development bodies (JICA mainly) have been highly active in Vietnam The flagship project that Japan has managed to become involved with is the planning of the high speed railway in Vietnam With the surge in investments in Vietnam's infrastructure sector, Japanese companies certainly have much to look forward to in the country

According to BMI forecasts, infrastructure will account for the largest share of total construction industry

value, its share rising from an estimated 45% in 2009 to 51.5% in 2014 Furthermore, according to our forecasts, infrastructure industry value will register robust growth in the coming years The infrastructure industry value was an estimated VND46trn (US$2.4bn) in 2009 and this is forecast to rise to VND134trn (US$7.8bn) by 2014 - an average annual real growth of almost 15% However, it should be noted that there have been sour moments in the relations between Japan and Vietnam during their JV in

infrastructure Taisei Corporation and Kajima Corporation were banned from participating in road and

bridge construction projects in Vietnam for one year (until June 2010) because of involvement with the Can Tho Bridge, which collapsed in September 2007, killing 52 people

Bloomberg quotes Tran Quoc Viet, the director of quality control at the Ministry of Transport, who said that 'this is punishment for the Japanese companies' According to Bloomberg, the bridge collapsed owing

to 'unforeseen weaknesses of the two concrete supports on either side that collapsed causing the bridge to fall' Taisei and Kajima spokespeople have confirmed that they received notice of temporary suspension

on June 20 2009 Vietnam was in January seeking loans from the World Bank (WB) and the Japan International Cooperation Agency (JICA) to finance the construction of an expressway costing US$2.5bn, reported The Saigon Times Daily The 130km-long expressway, will connect Danang City to Quang Ngai Province Work would be carried out by the state-owned Vietnam Expressway starting in 2010 JICA is expected to fund a 65km-long section from Danang City to Tam Ky in Quang Nam Province The WB is expected to fund the remaining 66km-long stretch from Tam Ky to Quang Ngai Province

Vietnam's Transport Ministry approved the term-end report for the Ben Luc-Long Thanh highway

project, reported Intellasia The project, involving investments of US$1.7bn, will be carried out by the state-owned Vietnam Expressway Investment and Development Company (VEC) The 58km-long

highway will have four lanes totalling 27.5m in width VEC, the main investor, is considering acquiring loans from the Asian Development Bank (ADB) and using its counterpart capital to finance the project

Air

Vietnam Airlines (VNA) registered a 2.3% year-on-year (y-o-y) increase in cargo throughput to 131,220

tonnes in 2009 The airline reported a 13% y-o-y increase in domestic airfreight traffic to 87,000 tonnes VNA expects a turnover of VND32trn (US$1.78bn) in 2010, with a profit US$8.3mn - 30% higher than 2009's turnover of US$1.36bn and 42% less than 2008's profit of US$14mn VNA plans to triple its existing aircraft fleet of 50 by 2020 VNA 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 airline operates 64 routes to

20 domestic and 24 international destinations The carrier provides passenger air services to 25

destinations in 15 countries Its cargo operations serve 20 destinations in Asia, the Middle East, Australia and Europe, with partner networks serving other destinations

Maritime

Vietnam suspended a contract with China State Construction Engineering Corporation (CSCEC) due

to its presence on the World Bank's list of ineligible firms Vietnam has benefitted substantially from World Bank support over recent years and made the move to protect funding from the institution CSCEC was awarded an US$60.6mn contract to dredge and upgrade the Bhieu Loc-Thi Nghe Canal in 2006 - a project funded by the World Bank However, this contract was subsequently suspended according to the director of the Ho Chi Minh City environment project management unit, Phan Hoang Dieu, quoted in a report by the German Press Agency, DPA CSCEC was put on the World Bank's list of debarred firms, which contains companies which are not eligible to bid for World Bank-funded projects The project ran into trouble in November 2009 Following delays in the project, CSCEC was given an extension to the original deadline However, when the deadline expired in February 2010, the World Bank stated that it would not approve new funding for the project if CSCEC was the contractor

Consequently, although CSCEC carried out around 70% of the project, it has now been taken off the project The contract was due to be retendered via an international bidding process, with the canal now due to be finished in 2011 CSCEC was one of seven firms which incurred sanctions by the World Bank

in January 2009, following a collusion scandal in the Philippines The seven firms, from both China and the Philippines, were debarred after the World Bank's Integrity Vice Presidency uncovered evidence of a cartel made up of both local and international firms According to a press release from the World Bank, the sanctioned companies 'participated in a collusive scheme designed to establish bid prices at artificial, non-competitive levels and to deprive the borrower of the benefits of free and open competition' The cartel bid for contracts for phase one of the Philippines National Roads Improvement and Management Program (NRIMP 1) CSCEC was subsequently debarred for five years, expiring January 12 2015 The move will protect Vietnam's ability to receive funds from the World Bank The institution has been a major support to Vietnam's infrastructure sector, helping to finance investments where funding may otherwise not have been available In the last five years (2005-2009), the World Bank has granted loans

worth US$4,760mn to Vietnam for projects and US$915mn has already been allocated for 2010

Infrastructure has received around US$2bn of funding between 2005 and 2009, including energy and mining

Vietnam National Shipping Lines (Vinalines) said in March that it was planning 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 was 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 growth of Vietnam's maritime sector coincides with the

expansion of the country's trade network; Vietnam joined the World Trade Association in 2007 and since then total trade has shown strong growth, expanding by 22.1% and 11.4% y-o-y in 2007 and 2008

respectively before declining by 14.5% in 2009 With a recovery in imports and exports expected in 2010

(forecast at 4% and 5% respectively by BMI), demands on the country's freight transport sector are

expected to increase over the next few years

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 indicated 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% of GDP a year over the next few years 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 Besides much-needed development of the country's

shipping fleet, BMI believes the expansion would also greatly benefit the country's nascent shipbuilding

sector The industry, in our view, is well placed for growth given its greater competitiveness against markets such as Japan and South Korea and a potential US$2bn order would be a significant coup for the shipyards

The Vietnam Coal and Mineral Group (Vinacomin), Vietnam National Oil and Gas Group

(PetroVietnam) and Electricity of Vietnam (EVN) were likely to put forward a joint proposal to the

Vietnamese government to set up a coal import steering committee, it was reported at the beginning of March The move is aimed at avoiding coal scarcity in the country which is expected to affect power generation in the near future The groups said the usage of coal for power generation purposes is rapidly increasing in the country Tran Xuan Hoa, Vinacomin's general director, said that coal demand in

Vietnam is estimated to increase to 11.4mn tonnes in 2010 and 63.2mn tonnes in 2015 and further to 196mn tonnes in 2020 He added that the country needs to import nearly 100mn tonnes of coal by 2020 in order to meet such huge demand

In early 2010, Dubai Ports World (DP World) officially opened a new container terminal at the

Vietnamese Port of Saigon BMI expects Vietnam's ports sector to experience strong growth as

international shipping lines warm to the opportunities presented by the country's growing export sector Phase one of DP World's Saigon Premier Container Terminal (SPCT) was completed in October 2009 The terminal has two berths and 15,000 20-foot equivalent units (TEUs) of storage capacity The initial berthing depth at the terminal is 9.5m, allowing it to accommodate ships with a capacity of 4,000TEUs Additional dredging is expected to increase the depth at SPCT to 12m by 2015 The terminal is reported

to have cost US$360mn to build, with investment provided by DP World and local operator Tan Thuan Promotion Company (IPC)

As demand for container shipping increases, Vietnam's port sector continues to attract foreign investors Throughput at the country's container ports increased by 500% between 1998 and 2008, which alerted the government to the need for further investment in the sector to keep up with future demand The Vietnam Maritime Administration (Vinamarine), cited by Lloyd's List, has outlined the need for US$20-25bn to be invested by 2020 Much of this is expected to come from the private sector, and, in particular,

international operators SPCT follows the inauguration of the country's first deepwater container port at the Cai Mep terminal complex at Ho Chi Minh City's Saigon New Port, which opened in May 2009 The deepwater facilities have led to the opening of the first direct shipping routes between Vietnam and the

US west coast

International shipping lines have been drawn by the opportunities presented by Vietnam's growing manufacturing sector, while increased trade links between South East Asian states may also see

Vietnamese ports become regional transhipment hubs BMI expects international investment in Vietnam's

maritime sector to continue to grow over the next few years We believe significant outside investment will be necessary if the sector is to raise the US$25bn needed to increase capacity to the levels required to

meet the demands of the country's growing exports sector BMI's country risk analysts forecast Vietnam's

exports to grow by 5% y-o-y in 2010, after which they are expected to grow by an average of 7.35% a year between 2011 and 2014

Vietnam's Prime Minister Nguyen Tan Dung approved the Viet Nam Seaport Development Master Plan

in January 2010, which will require a total investment of VND360-440trn (US$19.5-23.8bn) by 2020

The plan aims to increase the transportation capacity of the country by 500-600mn tonnes goods by 2015, 900-1,000mn tonnes by 2020 and 2,100mn tonnes by 2030 The primary focus of the plan will be the international transit port Van Phong in Khanh Hoa Province, development of the Lach Huyen seaport complex in Hai Phong, and a seaport at the Nghi Son oil refinery from now to 2015 Though Vietnam has

266 ports, the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the port to the rest of the country The increased traffic levels in Vietnam's urban areas and the country's general fast-paced economic development have increased the volume of exports and imports to and from the country, thus creating a pressing need for better infrastructure between ports and inland The new master plan will improve the port infrastructure in the country