Vietnam freight transport report q4 2014

... International Page 23 Vietnam Freight Transport Report Q4 2014 Table: Rail Freight, 2011-2018 2011 Rail freight tonnes ('000) Rail freight tonnes, % y-o-y Rail freight tonnes-km (mn ton km) Rail freight tonnes-km,... affect Vietnam' s freight transport sector © Business Monitor International Page 12 Vietnam Freight Transport Report Q4 2014 Political SWOT Analysis Strengths ■ The Communist Party of Vietnam. .. Vietnam Freight Transport Report Q4 2014 Road Continues To Dominate Freight Mix Vietnam Freight Transport Mode Breakdown (% Of Total), 2013 Source: General Statistics Office Of Vietnam Vietnam's dense

Q4 2014 www.businessmonitor.com

VIETNAM

FREIGHT TRANSPORT REPORT

INCLUDES 5-YEAR FORECASTS TO 2018

Q4 2014

INCLUDES 5-YEAR FORECASTS TO 2018

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: July 2014

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BMI Industry View 7

SWOT 10

Freight Transport 10

Political 13

Economic 14

Business Environment 15

Industry Forecast 16

Road Freight 18

Table: Road Freight, 2011-2018 20

Inland Waterways 20

Table: Inland Waterway Freight, 2011-2018 22

Rail Freight 22

Table: Vietnam Transport Network 23

Table: Rail Freight, 2011-2018 24

Air Freight 24

Table: Air Freight (Vietnam 2011-2018) 26

Maritime Freight 26

Table: Maritime Freight (Vietnam 2011-2018) 27

Trade 28

Table: Trade Overview (Vietnam 2011-2018) 28

Table: Key Trade Indicators, 2011-2018 28

Table: Top Import Destinations, 2004-2012 29

Table: Top Export Destinations, 2004-2012 30

Market Overview 32

Industry Trends And Developments 39

Multimodal 39

Maritime 39

Road 41

Air 41

Company Profile 42

Vietnam Airlines Cargo 42

Vietnam Petroleum Transport Company (VIPCO) 45

Vietnam National Shipping Lines (Vinalines) 47

Political Outlook 51

Domestic Politics 51

Table: Vietnam Political Overview 56

Long-Term Political Outlook 56

Oil Price Outlook 61

Bunker Fuel: No End To Downtrend 61

Table: BMI Bunker Fuel Price Forecast, 2014-2018 (USD/bbl) 61

Slower Fall, But Fall Nonetheless 63

Longer Term Trends Continue To Press HSFO 67

Risks To Outlook 68

Jet Fuel: Relative Short-Term Stability With Long-Term Risks 69

Table: BMI Jet Fuel Price Forecast, 2014-2018 69

Longer Term Dynamics: Consolidation Poses Risk 74

Risks To Outlook 75

Diesel/Gasoil: Short-Term Overhang To Dissipate 76

Table: BMI Diesel/Gasoil Price Forecast, 2014-2018 (USD/bbl) 76

Supply Keeps Market Down 76

Higher Crude Prices, Tighter Market To Provide Support 78

Long-Term Outlook: Diesel To Find Demand Support 79

Risks To Outlook 82

Macroeconomic Forecasts 83

Table: Foreign Direct Investment By Country Of Origin (Top Five) 87

Table: Vietnam - Economic Activity 88

Demographic Forecast 89

Table: Vietnam's Population By Age Group, 1990-2020 ('000) 90

Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 91

Table: Vietnam's Key Population Ratios, 1990-2020 92

Table: Vietnam's Rural And Urban Population, 1990-2020 92

Methodology 93

Industry Forecast Methodology 93

Sector-Specific Methodology 94

Sources 95

BMI Industry View

We have downgraded Vietnam's growth forecast from 5.9% to 5.7% in 2014 on the back of

weaker-than-expected H1 2014 growth numbers, combined with the risk of a an economic backlash from China (see

'Political Tensions Pose Downside Risks To Growth', June 10) That said, we have maintained our forecast

for growth to come in at 6.4% in 2015, and we continue to believe that the economy will be driven bygrowth supportive government policies, as well as a strong outlook for foreign investment and exports This

is welcome news to the country's freight industry

Real GDP growth came in at 5.3% year-on-year (y-o-y) in Q214, according to the General Statistics Office(GSO), bringing growth for the first half of the year to 5.2% y-o-y This marks an acceleration whencompared to the 4.9% registered in the first half of 2013, and chimes with our view that the economy willcontinue to accelerate into 2014 and 2015 Growth was predominantly driven by strength the services sector

as well as the industry and construction sectors, which contributed 2.6 and 2.1 percentage points

respectively to growth

Although we see strong growth ahead, we have revised down our growth forecast for 2014 from 5.9% to5.7% on the back of a slightly weaker than expected first half of the year, combined with the potential for an

economic backlash from the ongoing political dispute with China (see 'Political Tensions Pose Downside

Risks To Growth', June 10) That said, we have kept our 2015 real GDP growth forecast unchanged at 6.4%.

We are sticking to the majority of our forecasts from last quarter, with the sole exception of the Port of HoChi Minh City, which we have slightly upgraded Therefore, growth across the Vietnamese freight mix isset to be fairly healthy this year with road freight set to be the outperformer in annual gains terms at 6.01%.Meanwhile, rail and air freight will see y-o-y increases of 3.12% and 3.00% respectively

Headline Industry Data

■ 2014 rail freight tonnage is set to increase by 3.12% to 6.73mn tonnes

■ 2014 air freight tonnage is forecast to rise by 3.00% to 189,210 tonnes

■ Tonnage handled at the Port of Ho Chi Minh City in 2014 is forecast to grow 6.17.57%, whereas tonnagehandled at the Port of Da Nang is forecast to increase 7.00%

■ 2014 road freight tonnage is forecast to grow by 6.01% to 811.04mn tonnes

■ 2014 total trade is forecast to rise by 6.55%

Key Industry Trends

MASkargo Expands Presence In Hanoi - The cargo division of Malaysia Airlines (MASkargo) has

introduced its new airbus A330-200 freight flight to Hanoi, Vietnam, according to a company statementissued on April 17 2014 The flight will head for Hanoi's Noi Bai International Airport on every Wednesdayand Friday from the Kuala Lumpur International Airport The move is line with the company's efforts toincrease its presence in the Vietnamese market

Government Approves Hanoi Road Project - The Vietnamese government has approved plans to build the

Ring Road No 5 route around Hanoi, it was announced in May 2014 The 330km-long project is expected tocost about USD4bn The proposed project will pass through 36 districts and the provinces of Ha Nam, HoaBinh, Hai Duong, Thai Binh, Thai Nguyen, Bac Giang and Vinh Phuc The road is expected to be

completed by 2020

Government To Implement 14 Infrastructure Projects In Ho Chi Minh City - The Vietnamese government

will implement 14 infrastructure projects in Ho Chi Minh City, Vietnam, with the USD9.44bn-worth ofinfrastructure projects including the repair and improvement of the Luong Dinh Cua Street and the

construction of the new Ha Noi Expressway-Eastern Ring Road link road The projects will be implementedunder the public-private partnership, build-transfer and build-operate-transfer models

Key Risks To Outlook

Despite the rise in political risk, the Vietnamese economy continues to motor on, and we forecast growth of5.9% for 2014, although any escalation in political risk would pose downside risks Exports were up by16.9% y-o-y in the first four months of the year, while imports rose by a slower 13.7% y-o-y over the sameperiod, resulting in a trade surplus of USD683mn Industrial production expanded by 6.0% y-o-y in April,and by 5.4% y-o-y in the January-April period, driven by growth in textiles (22.4%), televisions (32.9%),and automobiles (16.7%)

Although we do not envisage a swift resolution to the current dispute between Vietnam and China, we donot believe that it will escalate into military conflict either That said, we caution that continued politicalunrest domestically, and a deteriorating environment for Chinese immigrant workers, could result in adecline in foreign investment, which would weigh on the country's economic outlook

We have been arguing that China's growing military presence in the region would continue to dominate

Vietnam's foreign policy agenda (see 'China To Dominate Foreign Policy Agenda', February 2014), with

the deployment in early May of the drilling rig HD-981 by China in Vietnam's waters a case in point.Although we do not believe that the ongoing political dispute will escalate into military action and willinstead be resolved diplomatically, we highlight that it could result in a further deterioration of Vietnam'srelations with China

Moreover, it also sends a clear signal that China will continue to consolidate its economic, political andmilitary influence in the region Given these dynamics, we have downgraded Vietnam's Short-Term

Political Risk Ratings from 79.0 to 76.9, with declines in the public unrest and security sub-components

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

■ Vietnamese shipping company Vinashinlines has announced that 90% of its vessels,

including Diamond Way and Sea Eagle, have been sold The firm added that a number

Vietnam Freight Transport Industry SWOT Analysis - Continued

of the carriers had been purchased for prices above their original valuation, HellenicShipping News reported in early October 2013

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

stock of lorries used by road haulage companies

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

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

■ The Vietnamese province of Dong Nai is to clear land near the proposed Long ThanhInternational Airport in order to develop infrastructure facilities Under a plan

submitted to the government, 21,000 hectares in three communes in Cam My Districtand seven communes in Long Thanh are to be cleared for establishing new residentialand urban areas, industrial zones, research institutes and international service

centres

■ The president of Russian Railways (RZD) has explained his belief that an investment

in the construction of a new rail line in southern Vietnam will come in at more than US

$2bn Speaking to IA Prime, Vladimir Yakunin said that 'it is difficult to talk about itnow, because there is no project', but as it stands, an agreement of intent was signed

on March 11 2013 between RZD, Vietnamese Railways and the mineral depositcompany An Vien, also from Vietnam

■ It was announced in June 2013 that the Laos government is to build a new railwayline between the country and its Asian neighbours, Vietnam and Thailand The 220kmline will run from Laos's Western border with Thailand to the Lao Bao border gate inVietnam Construction will commence in August 2013 with an expected completiondate of the second half of 2017

■ The 900,000 twenty-foot equivalent units (TEUs) deepwater Lach Huyen

terminal project will entail a total investment of US$1.2bn and is likely to become

operational in 2015 The terminal, likely to ease port congestion in Haiphong, will beable to accommodate vessels with a capacity ranging between 8,000TEUs and9,000TEUs

Vietnam Freight Transport Industry SWOT Analysis - Continued

■ The Asian Development Bank (ADB) has announced that it will provide a US$410mnloan for the Vietnamese government, reports KHL Group The loan will enable thegovernment to develop a new arterial road between Ho Chi Minh City, the MekongDelta and the south of the country

■ Vietnam-based Rang Dong Group has filed a petition to secure approval for

developing Phan Thiet airport, reported the Daily in August 2013, citing thecompany's chairman Nguyen Van Dong

■ Two berths at Vietnam's first state-built seaport, the Cai Mep-Thi Vai internationalport in Ba RiaVung Tau province, are set to be leased for 30 years, according toofficial sources

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

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 ■ Macroeconomic instabilities continue 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 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 7.1% annually between 2000 and 2012

■ The economic boom has lifted many Vietnamese out of poverty, with the officialpoverty rate in the country falling from 58% in 1993 to 20.7% in 2012

Weaknesses ■ Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy

vulnerable to global economic uncertainties The fiscal deficit is dominated bysubstantial spending on social 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 AEC in 2015 should give Vietnam

greater access to both foreign markets and capital, while making Vietnameseenterprises stronger through increased competition

■ The government will in spite of the current macroeconomic woes, continue to moveforward with market reforms, including privatisation of state-owned enterprises, andliberalising the banking sector

■ Urbanisation will continue to be a long-term growth driver The UN forecasts theurban population rising from 29% of the population to more than 50% by the early2040s

Threats ■ Inflation and deficit concerns have caused some investors to re-assess their hitherto

upbeat view of Vietnam If the government focuses too much on stimulating growthand fails to root out inflationary pressure, it risks prolonging macroeconomicinstability, which could lead to a potential crisis

■ Prolonged macroeconomic instability could prompt the authorities to put reforms onhold as they struggle to stabilise the economy

Business Environment

SWOT Analysis

Strengths ■ Vietnam has a large, skilled and low-cost workforce, which has made the country

attractive to foreign investors

■ Vietnam's location - its proximity to China and South East Asia, and its good sea links

- makes it a good base for foreign companies to export to the rest of Asia, andbeyond

Weaknesses ■ Vietnam's infrastructure is still weak Roads, railways and ports are inadequate to

cope with the country's economic growth and links with the outside world

■ Vietnam remains one of the world's most corrupt countries According toTransparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123out of 176 countries

Opportunities ■ Vietnam is increasingly attracting investment from key Asian economies, such as

Japan, South Korea and Taiwan This offers the possibility of the transfer of high-techskills and know-how

■ Vietnam is pressing ahead with the privatisation of state-owned enterprises and theliberalisation of the banking sector This should offer foreign investors new entrypoints

Threats ■ Ongoing trade disputes with the US, and the general threat of American

protectionism, which will remain a concern

■ Labour unrest remains a lingering threat A failure by the authorities to boost skillslevels could leave Vietnam a second-rate economy for an indefinite period

Industry Forecast

The Vietnamese government will continue to promote progrowth policies, by running a fiscal deficit albeit a declining one - maintaining a dovish stance with regard to monetary and exchange rate policy,restructuring many state owned enterprises (SOEs), promoting foreign direct investment and exports as well

-as attracting developmental-type aid For the first six months of the year, we estimate that the governmentposted a fiscal deficit of approximately 4.3% of GDP, with spending rising by 9.7% year-on-year (y-o-y)

At the same time, the State Bank of Vietnam (SBV) has maintained a dovish bias since the beginning of theyear, cutting its refinancing rate by 50 basis points in March to 6.5% in an effort to spur lending Indeed, theSBV recently also devalued the Vietnamese dong by 1% in June, in what we believe is a pre-emptive move

to boost exports in the event of a slowdown driven by the ongoing political spat with China Given lowinflationary pressures, we would not be surprised to see either another cut to the refinancing rate, or anotheradjustment to the currency before year-end in the event of a slowdown in growth, although it is not our coreview Combined, both accommodative monetary and fiscal policy will continue to support growth over thecoming quarters

Meanwhile, we have downgraded Vietnam's growth forecast from 5.9% to 5.7% for 2014 on the back of

weaker-than-expected first half of 2014 growth numbers, combined with the risk of a an economic backlash from China That said, we have maintained our forecast for growth to come in at 6.4% in 2015, and we continue to believe that the economy will be driven by growth supportive government policies, as well as a strong outlook for foreign investment and exports.

GDP To Enjoy Healthy Medium Term

Real GDP, % change y-o-y (2000-2018)

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

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f

5 6 7 8

Souce: Asian Development Bank, General Statistics Office

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 remainsrobust.

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%

However, we note that China's fake data is expected to distort more export numbers until at least June,making it difficult for the analysts to assess the strength of the country's trade Despite the crackdown inMay 2013 on the practice of inflated invoices, which were used to disguise capital inflows, over-invoicing

is still prevalent This implies that the export data then was artificially boosted, making the recent data lookweak by comparison According to Royal Bank of Scotland, the government data that revealed the Marchexports had unexpectedly declined 6.6% y-o-y marked the height of distortions (Bloomberg) China ishesitant to revise figures that it acknowledged were inflated, but this leaves the analysts to do a lot ofexplanation on why the trade numbers are better than they appear

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

Road Freight

Road Dominates And Offers Best Links Into China

Despite its low standing in road infrastructure, with the Global Economic Forum's Competitiveness Report2013/14 ranking Vietnam's roads a very poor 102 out of 142 globally, and placing it last in comparison with

13 of its Asia peers, the country's logistics needs are primarily met by road In 2014 and beyond, we predictthat road freight volumes in Vietnam will account for the majority of freight carried in the country

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's with the south of China Road links continue to be developed

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

a twice-weekly trucking link connecting Shenzhen and Hanoi

Table: Road Freight, 2011-2018

2011 2012 2013 2014f 2015f 2016f 2017f 2018f

Road Freight

Tonnes (000) 654,127.10 722,156.40 765,070.40 811,036.61 878,167.51 949,432.46 1,024,120.02 1,102,546.65 Road freight

tonnes, %

y-o-y 11.43 10.40 5.94 6.01 8.28 8.12 7.87 7.66Road freight

tonnes-km

(mn ton km) 40,130.10 43,902.40 46,790.70 50,070.85 54,324.79 58,840.69 63,573.48 68,543.21Road freight

tonnes-km,

% y-o-y 10.92 9.40 6.58 7.01 8.50 8.31 8.04 7.82

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

Inland Waterways

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 2014, we are sticking to last quarter's forecast thatthe inland waterways sector will increase by 6.64% to reach 192.821mn tonnes, which will be slightly down

on 2013's estimated 7.31% annual growth figure Over our forecast period, we anticipate average annualgrowth of 6.34%

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, 2011-2018

Network Lacking And No Impetus To Develop It

Despite rail's potential as an overland trade link for Vietnam with its three neighbours, the mode's role in thecountry's freight transport sector remains small In 2013, 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

In 2014, the rail freight sector is poised to register steady, if uninspiring, annual growth of 3.12%, whichwill at least provide a welcome return to positive growth following last year's contraction of 6.82% Indeed,positive growth has been lacking from this sector over recent years but is set to return at least over ourforecast period, with an average annual growth of 4.62% pencilled in between 2014 and 2018

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)

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 2013/14 gives Vietnam's rail infrastructure a low ranking, placing it 58th globallyout of 123 countries measured A major problem for Vietnam's rail freight development is the relativeshortness of the country's rail network Vietnam's railway lines extend for just 2,632km; this compares withthe 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 (eg, a planned high-speed railway link between Vietnam andLaos)

Table: Rail Freight, 2011-2018

2011 2012 2013 2014f 2015f 2016f 2017f 2018f

Rail freight tonnes ('000) 7,285.10 7,003.50 6,525.90 6,729.53 6,958.33 7,306.25 7,715.40 8,178.32 Rail freight tonnes, % y-o-y -7.33 -3.87 -6.82 3.12 3.40 5.00 5.60 6.00 Rail freight tonnes-km (mn ton

km) 4,162.00 4,024.60 3,804.10 3,903.01 4,020.10 4,160.80 4,343.88 4,576.92Rail freight tonnes-km, % y-o-y 5.08 -3.30 -5.48 2.60 3.00 3.50 4.40 5.37

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

Air Freight

On Growth Trajectory As Vietnam Gets Better Connected

Vietnam's air freight sector may only account for a small percentage of the country's freight transport sector;although this is not expected to change, there is a lot of growth potential in this sector The government hasambitious plans to modernise and expand the country's airport infrastructure over the long term

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 2014, we are once again sticking to previous forecasts We therefore anticipate that the Vietnamese airfreight sector will grow by 3.00%, up from 2013's 2.80%, to reach 189,210 tonnes Over the forecast period,

we predict Vietnam's air freight levels to grow on average per annum by 3.96% to reach 223,040 tonnes

Taking Off

Vietnam Air Freight Tonnage, 000 tonnes

Vietnam - Air Freight Tonnes (000)

2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f0

50 100 150 200 250

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

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

Hanoi

While still at the development stage, Vietnam is seeking to play a greater role in the electronics 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 Nokia phones, iPods, PlayStations and Sony laptops, which will all drive up air freight demand.

Vietnam's pharmaceutical sector exports much of its output, but the country also imports a lot Vietnam'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 2011-2018)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Air Freight Tonnes (000) 200.30 178.70 183.70 189.21 195.64 203.27 212.42 223.04 Air freight tonnes % y-o-y 5.37 -10.78 2.80 3.00 3.40 3.90 4.50 5.00 Air freight tonnes-km (mn ton km) 426.70 480.90 469.80 477.79 489.73 504.42 522.08 542.96 Air freight tonnes-km % y-o-y -0.02 12.70 -2.31 1.70 2.50 3.00 3.50 4.00

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

Maritime Freight

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 provide upside risk for the sector going forward The new intra-Asiaservice, which calls at the port of Ho Chi Minh, will boost both companies' intra-Asia operations and wehave long highlighted intra-Asia trade as a region of strong growth and we note the port of Ho Chi Minh to

be a specific beneficiary of the new route - with the launch of the service offering upside risk to our forecastfor 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 Connected

UNCTADstat 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

throughput, tonnes, % y-o-y 7.4 7.7 7.9 6.1 6.7 7.3 7.6 6.8Port of Da Nang throughput, tonnes

'000 3868.0 4423.0 5010.2 5360.9 5709.4 6043.2 6406.8 6794.9Port of Da Nang throughput, tonnes, %

y-o-y 17.1 14.3 13.3 7.0 6.5 5.8 6.0 6.1

e/f = BMI estimate/forecast Source: Port authorities

e/f = BMI estimate/forecast Source: National Sources/BMI

Table: Key Trade Indicators, 2011-2018

metals, exports,

% y-o-y 33.69 17.84 10.94 15.00 13.32 12.64 13.63 13.51Ores and

metals, imports,

USDmn 4,380.12 4,660.11 5,274.85 6,188.31 7,136.18 8,086.25 9,280.20 10,530.86

Key Trade Indicators, 2011-2018 - Continued

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Ores and

metals, imports,

% y-o-y 32.72 6.39 13.19 17.32 15.32 13.31 14.77 13.48Iron and steel,

exports,

USDmn 2,001.30 2,393.82 2,677.63 3,109.12 3,549.79 4,073.86 4,616.02 5,303.97Iron and steel,

exports, %

y-o-y 23.31 19.61 11.86 16.11 14.17 14.76 13.31 14.90Iron and steel,

imports,

USDmn 75,042.01 79,480.00 89,223.98 103,702.81 118,726.96 134,376.88 152,914.66 173,241.74Iron and steel,

imports, %

y-o-y 23.94 5.91 12.26 16.23 14.49 13.18 13.80 13.29Manufactured

goods, exports,

USDmn 54,334.08 63,709.07 70,487.53 80,793.28 91,318.20 102,572.47 116,360.96 131,848.32Manufactured

goods, exports,

% y-o-y 33.15 17.25 10.64 14.62 13.03 12.32 13.44 13.31Manufactured

goods, imports,

USDmn 74,013.10 78,376.54 87,956.83 102,192.43 116,964.18 132,426.78 150,603.63 170,668.23Manufactured

goods, imports,

% y-o-y 24.28 5.90 12.22 16.18 14.45 13.22 13.73 13.32Fuels, exports,

USDmn 17,080.91 19,787.49 21,744.44 24,719.73 27,758.29 31,127.17 35,028.32 39,718.32Fuels, exports,

% y-o-y 54.08 15.85 9.89 13.68 12.29 12.14 12.53 13.39Fuels, imports,

USDmn 14,091.50 14,948.60 16,830.41 19,626.65 22,528.20 25,593.14 29,145.41 33,144.21Fuels, imports,

% y-o-y 45.88 6.08 12.59 16.61 14.78 13.60 13.88 13.72

Source: BMI calculation, UNCTAD

Table: Top Import Destinations, 2004-2012

2004 2005 2006 2007 2008 2009 2010 2011 2012

China, Mainland, USDmn 4,595 5,900 7,391 12,710 15,974 16,441 20,019 24,594 37,647 China, Mainland, USDmn, % of total 14.4 16.0 16.5 20.3 19.8 23.5 24.0 23.5 27.2 Korea, Republic Of, USDmn 3,359 3,594 3,908 5,340 7,255 6,976 9,761 13,176 17,541

Top Import Destinations, 2004-2012 - Continued

2004 2005 2006 2007 2008 2009 2010 2011 2012

Korea, Republic Of, USDmn, % of total 10.5 9.8 8.7 8.5 9.0 10.0 11.7 12.6 12.7 Japan, USDmn 3,553 4,074 4,702 6,189 8,240 7,468 9,016 10,400 11,803 Japan, USDmn, % of total 11.1 11.1 10.5 9.9 10.2 10.7 10.8 10.0 8.5 Singapore, USDmn 3,618 4,482 6,274 7,614 9,378 4,248 4,101 6,391 11,421 Singapore, USDmn, % of total 11.3 12.2 14.0 12.1 11.6 6.1 4.9 6.1 8.3 Thailand, USDmn 1,859 2,374 3,034 3,744 4,906 4,514 5,602 6,384 7,310 Thailand, USDmn, % of total 5.8 6.5 6.8 6.0 6.1 6.5 6.7 6.1 5.3 TOTAL 31,969 36,761 44,891 62,765 80,714 69,949 83,365 104,510 138,166 TOTAL, top 5 countries, USDmn 16,984 20,424 25,310 35,597 45,753 39,648 48,500 60,944 85,721

% from top 5 trade partners 53.1 55.6 56.4 56.7 56.7 56.7 58.2 58.3 62.0

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

Table: Top Export Destinations, 2004-2012

2004 2005 2006 2007 2008 2009 2010 2011 2012

United States, USDmn 5,025 5,924 7,845 10,105 11,887 11,356 14,238 16,928 19,427 United States, USDmn, % of

total 19.0 18.3 19.7 20.8 19.0 19.9 20.4 18.2 17.0 China, Mainland, USDmn 2,899 3,228 3,243 3,646 4,850 4,909 7,309 11,125 14,755 China, Mainland, USDmn, %

of total 10.9 9.9 8.1 7.5 7.7 8.6 10.5 12.0 12.9 Japan, USDmn 3,542 4,340 5,240 6,090 8,468 6,292 7,728 10,781 13,722 Japan, USDmn, % of total 13.4 13.4 13.2 12.5 13.5 11.0 11.1 11.6 12.0 Korea, Republic Of, USDmn 608 664 843 1,243 1,794 2,065 3,092 4,715 5,199 Korea, Republic Of, USDmn,

% of total 2.3 2.0 2.1 2.6 2.9 3.6 4.4 5.1 4.6 Germany, USDmn 1,065 1,086 1,445 1,855 2,073 1,885 2,373 3,367 5,070 Germany, USDmn, % of total 4.0 3.3 3.6 3.8 3.3 3.3 3.4 3.6 4.4 TOTAL 26,485 32,447 39,826 48,561 62,685 57,196 69,820 92,881 113,944 TOTAL, top 5 countries,

USDmn 13,139 15,242 18,616 22,939 29,072 26,507 34,740 46,916 58,173

Top Export Destinations, 2004-2012 - Continued

2004 2005 2006 2007 2008 2009 2010 2011 2012

% from top 5 trade partners 49.6 47.0 46.7 47.2 46.4 46.3 49.8 50.5 51.1

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

Market Overview

The Vietnamese government will continue to promote progrowth policies, by running a fiscal deficit albeit a declining one - maintaining a dovish stance with regard to monetary and exchange rate policy,restructuring many state owned enterprises (SOEs), promoting foreign direct investment and exports as well

-as attracting developmental-type aid

For the first six months of the year, we estimate that the government posted a fiscal deficit of approximately4.3% of GDP, with spending rising by 9.7% year-on-year (y-o-y) At the same time, the State Bank ofVietnam (SBV) has maintained a dovish bias since the beginning of the year, cutting its refinancing rate by

50 basis points in March to 6.5% in an effort to spur lending Indeed, the SBV recently also devalued theVietnamese dong by 1% in June, in what we believe is a pre-emptive move to boost exports in the event of

a slowdown driven by the ongoing political spat with China Given low inflationary pressures, we wouldnot be surprised to see either another cut to the refinancing rate, or another adjustment to the currencybefore year-end in the event of a slowdown in growth, although it is not our core view Combined, bothaccommodative monetary and fiscal policy will continue to support growth over the coming quarters

Vietnam's export sector continues to be a driver of growth for the country, and we forecast this trend toremain in play over the coming months Exports for the first six months of the year expanded by a robust14.9% y-o-y, and saw the accumulated trade surplus rise to USD1.3bn in H114 Exports were primarilydriven by strong growth in textiles, telephones and footwear of 18.2%, 17.1% and 21.9%, respectively,which together account for approximately 35% of the total Moreover, we expect exports to continuedriving growth going forward given that the Vietnamese government has been making a concerted push tobuild diplomatic and trade ties with many countries and is negotiating several free trade agreements One ofthe most important ones is the Trans-Pacific Partnership (TPP), which could be signed by as early as 2015

Risks To Outlook: China, From Friend To Foe

Although we have already downgraded our growth forecast slightly for this year, we continue to monitorrisks from trade policy with China Although we do not believe that the political tensions between Hanoiand Beijing will result in military conflict, there are non-negligible risks of an economic backlash Indeed,the Chinese government has temporarily stopped Chinese state-owned companies from bidding for newcontracts in Vietnam, which could see investment flows decline substantially over the coming quarters,posing downside risks to Vietnam's growth outlook China accounted for 21.3% of foreign investment in

Vietnam in 2013, approximately 14.5% of Vietnam's exports, and about 27% of all visitors this year Assuch, a sustained economic backlash could have a more severe impact on Vietnam's growth outlook.

External Sector To Provide Tailwind

We expect the external sector (exports and foreign investment) to provide a tailwind to economic activity inthe coming quarters From a trade perspective, exports rose by 14.1% y-o-y in the first quarter, whichhelped bring the trade surplus to US1.0$bn for the first three months of the year and we expect this trend toremain in place Indeed, the Vietnamese government has been making substantial efforts to promote tradeand investment ties with other countries, and we believe it will help underpin exports over the comingmonths A case in point was the fourth round of negotiations between Vietnam and South Korea for abilateral free-trade agreement which took place in March, and officials are looking to conclude negotiations

by the end of 2014 Moreover, Vietnam has been forging very strong trade and investment ties with Japan inorder to attract funding and expertise to invest and develop the country's infrastructure and manufacturingsectors

While foreign direct investment fell by 30% y-o-y in the first quarter of 2014, it was not all bearish in ourview First, the number of projects increased by 32% y-o-y and second, the origin of the investments wasmuch more diversified, which could suggests that it is more sustainable (see table) Third, we believe thatforeign investment will continue to pick up as the business environment becomes increasingly attractive,particularly as more State Owned Enterprises (SOEs) are restructured and the limits on foreign ownershipare raised Moreover, Vietnam still boasts competitive wages compared to other manufacturing hubs such asChina, Indonesia and Malaysia, which bodes well for cost competitiveness

Signs of Strong Momentum Abound

We witnessed some highly positive data in the third quarter of 2013 that indicate strong momentum for

growth into 2014 We highlight the rebound in manufacturing production activity, with the HSBC

Purchasing Managers' Index (PMI) recording a robust 51.5 reading in September, the strongest readingsince April 2011 (see 'PMI Surprises To The Upside, VNI Testing Resistance', October 3 2013) Moreimportantly, foreign direct investment (FDI) inflows into the country have accelerated significantly inrecent months and are expected to surpass the government's full-year target of USD13bn - usually anindication of improving business sentiment, and a precursor for an acceleration in private sector investment

We believe that the positive ripple effects from the factors above will serve as strong tailwinds for 2014growth

Chinese and US demand remain integral factors influencing the performance of the Vietnamese freightpicture over the medium term In terms of the former, China's real GDP grew by 7.7% in Q413, slightlyabove consensus expectations of 7.6% For the year as a whole the economy also grew by 7.7%, whichmatches the performance seen in 2012 While a detailed breakdown of GDP by expenditure is unavailable

as of yet, we do not expect its release to reveal a great deal of economic rebalancing taking place within theChinese economy The traditional drivers of real estate and infrastructure construction continue to dominatethe economy

In terms of the US, we believe the appropriations bill recently passed by the US House of Representativesand Senate, and which President Barack Obama is expected to sign, may mark an easing in long-runningpartisan warfare over fiscal policy Furthermore, we believe the deal will have positive ramifications for theeconomy in 2014, while still allowing for fiscal consolidation over the medium term Finally, the bipartisanspending package sets the stage for a crisis-free resolution to the debt ceiling debate, which will come up inthe weeks ahead

The appropriations package provides USD1.1trn for fiscal year 2014 (FY14), which runs through

September 30, in line with a budget deal worked out between Democrats and Republicans in late 2013 that

we noted as a meaningful first step toward de-escalating tensions over fiscal issues (see 'Deal AvoidsAnother Shutdown, But Future Progress Uncertain', December 11 2013) That legislation allowed higherspending caps in FY14 than those initially envisioned by the budget sequester that went into effect in early

2013, reducing the drag the fiscal drag on the economy, one reason we see real GDP growth accelerating to2.8% this year from our estimate of 1.8% in 2013 We believe that greater clarity about the trajectory offiscal policy this year will allow the US Federal Reserve to continue reducing extraordinary monetarystimulus to the economy, eliminating its quantitative easing programme by end-2014

Domestically, over the longer term, imports will be boosted by Vietnam's young population, as youngerpopulations are generally more supportive of private consumption The country has a population of 90.7mn,

according to estimates for 2013 by BMI, 60% of which is under 35 We forecast that the population will be

94.1mn by 2017, with 57% under 35, and will rise to 97.7mn by 2022

Road Freight Remains The Dominant Force In Tonnage Terms

Road transport is the most advanced in terms of freight sector privatisation and is by far the dominant modefor freight in Vietnam, with a market share of around 75% of domestic cargo Few foreign companies arepresent in the market and there are many small, family owned road freight companies operating informally

Vietnam has a national road network of 180,549km, according to the latest data provided by the CIA's

World Factbook BMI believes the sector requires substantial investment as the quality of Vietnam's road

infrastructure was judged by the World Economic Forum (WEF) to be very poor, ranking 102nd out of 142countries surveyed in its Global Competitiveness Report 2013-2014, which has improved from 123rd in2011-12

Vietnam's railway transport sector has just one operator, the Vietnam Railway Corporation (VRC),

established in April 2003 as a state corporation operating railway transport and related services Vietnam'srail network totals 2,632km The network is of mixed-gauge, comprising 2,105km of 1.000m gauge and527km of 1.435m gauge

Vietnam's Ministry of Transport has decided to classify the country's airports with an aim to attract

investment in the country's aviation sector The ministry believes that it is a difficult task to attract

investment in the sector as it requires huge investment capital and high techniques and a longer time frame

to take back the investment capital The country recorded an increase in capacity of its domestic airportsfrom 6mn passengers in 2000 to 52mn in 2012

Meanwhile, an airport development programme approved in 2009 is moving ahead as per the schedule,according to the Civil Aviation Authorities of Vietnam Vietnam is currently operating a state-owned airline

Vietnam Airlines, as well as private airlines, namely Vietjet Air, Air Mekong and a foreign invested airline Jetstar Pacific Additionally, the government has also granted approval to the development of 25

airports

Latest data puts the total amount of airports in Vietnam with paved runways at 37, with seven unpaved Thistotal puts the country in a poor 97th place in comparison with other countries

Road Continues To Dominate Freight Mix

Vietnam Freight Transport Mode Breakdown (% Of Total), 2013

Source: General Statistics Office Of Vietnam

Vietnam's dense river and canal network provides the country with a highly developed inland waterwaysystem of 17,702km This is the second largest sub-sector involved in domestic cargo transport, accountingfor 25-30% of total transport volumes

Vietnam's seaport network comprises of many small and medium-sized entities, with inefficient

distribution Most large ports are located on rivers, such as Hai Phong and Ho Chi Minh City, with limiteddepth at the entrance Some ports are located in big cities, thus making it difficult to connect with othermodes of transport for cargo transfer due to traffic congestion

BMI does highlight, however, the substantial investments APM Terminal has made in Cai Mep

International Terminal (CMIT) since it opened in March 2011 as an important driver of growth In addition

to helping to construct the port, which it did through a joint venture (JV) with Saigon Port and Vietnam National Shipping Lines (Vinalines), APMT purchased two laden reach stackers, an empty reach stacker, two empty container handlers and a 25-tonne forklift - all of which were delivered by Konecranes in 2011.

Weak infrastructure is one of the main factors holding back Vietnam's shipping sector - the country ranks

98th out of 145 countries on the World Economic Forum's Global Competitiveness Report 2013-14 on theQuality of Port Infrastructure - an improvement on recent years As such, APMT's commitment to

improving CMIT's facilities is an important step both for the terminal and the country's shipping sector as awhole

The Vietnamese government also plans to deepen the Port of Ho Chi Minh City's draught, allowing larger

vessels to access the facility BMI notes that these works are badly needed, as we are seeing a growing

trend for shipping lines to order larger container vessels

The ongoing problems evidenced at Vinalines are indicative of a deeper malaise in the Vietnamese shipping

sector State-owned shipbuilder Vinashin was bailed out in 2010 when its USD4.5bn debt threatened to

bring down the entire Vietnamese economy Widespread investment in the country's infrastructure isnecessary if Vietnam is to compete with regional peers

Investment And Development Outlook

The Vietnamese transport sector requires vast levels of investment The majority of infrastructure

investment in Vietnam over the next 10 years will be in the transport sphere, accounting for 65% by the end

of 2021 Vietnam still suffers from a significant deficit in transportation infrastructure, and we believe theVietnamese government will continue to develop this sector over the medium term This is reflected in ourforecast for transport infrastructure industry value, which is expected to grow by an average of 3.5% y-o-ybetween 2012 and 2016

According to our key infrastructure projects database, there are USD171bn worth of infrastructure projectsplanned or currently under way in Vietnam's transport sector One of the most expensive of these is aUSD3.6bn plan to build the Van Phong International Entrepot The project will begin with the construction

of two deep water ports in Dam Mon that will be able to accommodate container ships with tonnage of9,000 twenty-foot equivalent units (TEUs) and the capacity to handle 0.5mn TEUs a year The project iscurrently suspended, however, due to an ongoing review of geological conditions at the site

On November 14 2013, Vietnam's Phuong Nam Technology Science Institute and EDES were scheduled tosign a memorandum of understanding (MoU) for the construction of the USD3.6bn railway project inVietnam The project which will be implemented via a built, operate and transfer format, will connect HoiChi Minh City to Can Tho City Upon signing the MoU, a JV will be formed by both the parties for

executing the project as well as for conducting a feasibility study, which will be presented to the country'sgovernment

Meanwhile, in Q2 2014 it was announced that Vietnam's Ministry of Transport is planning to construct anelevated monorail system to ease its traffic congestion and connect the existing railway routes in thecountry's capital Hanoi The monorail system will be developed on a design, construct, operate and transferbasis The project will involve the construction of 14 stations The monorail trains will run 4.5m above theground at an average speed of 70km per hour.

The air freight sector will undoubtedly benefit from the planned construction work on a new passengerterminal at Long Thanh international airport Costing an estimated USD6.7bn, the work would also

incorporate a new runway, providing capacity for 100mn passengers a year A tender for investmentconsultancy work was under development as of December 2011

The Vietnamese province of Dong Nai is to clear land near the proposed Long Thanh International Airport

in order to develop infrastructure facilities, it was announced in April 2013 Under a plan submitted to thegovernment, 21,000 hectares in three communes in Cam My District and seven communes in Long Thanhare to be cleared for establishing new residential and urban areas, industrial zones, research institutes andinternational service centres The airport, which was approved in 2011 at a cost of USD6.74bn, will be thecountry's ninth international airport, serving 100mn passengers and 5mn tonnes of goods every year afterbecoming operational in 2020

Meanwhile, Shipowners in Vietnam offloaded more vessels from their fleets by the close of 2013 Firms

planning to pare down their fleets include the Vinashin Joint Stock Company and Northern Shipping.

Market analysts have previously warned that the economic potential of the Vietnamese shipping market hasbeen limited by an excessive focus on non-core businesses

In the road freight sphere, bad news was delivered at the end of October 2013, when it was announced thatthe Vietnamese government has granted approval to Hanoi General Export-Import Joint Stock Company(Geleximco) to withdraw from the build-transfer model-based Hoa Lac-Hoa Binh expressway linking Hanoiwith localities in the northwest The company invested USD17mn in the project, with USD2mn in theconstruction and USD12.4mn in land acquisition, over three years, according to the transport ministry

'As the investment cost rose significantly and the property market at present is nearly frozen, it is impossiblefor us to reach the project deadline', Geleximco General Director Vu Van Tien said (Intellasia) The

government has also approved a proposal by the country's Ministry of Transport and Ministry of Planningand Investment to alter the project's investment model to public-private partnership to make it more feasibleand obtain official development assistance

Industry Trends And Developments

Multimodal

Government To Implement 14 Infrastructure Projects In Ho Chi Minh City

The government of Vietnam will implement 14 infrastructure projects in Ho Chi Minh City, Vietnam TheUSD9.44bn infrastructure projects include repair and improvement of the Luong Dinh Cua Street and theconstruction of the new Ha Noi Expressway-Eastern Ring Road link road The projects will be implementedunder the public-private partnership, build-transfer and build-operate-transfer models Construction workalso includes five elevated highways, the Rach Chiec Bridge and the Southern Ring Road Vietnam-based

Sai Gon-Ha Noi Commercial Bank will provide loan facilities to Phu My Construction for the

programme The projects are expected to be completed by 2020

DB Schenker Takes Control Of JV

One of Vietnam's leading logistics firms has sold off a 49% stake in its affiliate Schenker Gemadept Logistics Vietnam (SGL Vietnam), Cargonews Asia reported in March 2014 Gemadept Corporation (GMD) made the move to sell its shares to DB Schenker of Germany but the financial details of the deal

were not made public SGL was a joint venture (JV) between DB Schenker and GMD

A month earlier, Cargonews Asia had reported that Vietnamese logistics companies were struggling tosurvive, as foreign investors were proving to be fierce competition Previously, foreign investors had onlybeen able to own a 49% stake in Vietnamese firms but since January 2014, it has been possible for them toset up wholly invested firms in the country

Maritime

Ho Chi Minh Set For Double-Digit Growth

Double-digit annual growth is once more set to return to the Port of Ho Chi Minh City in 2014, matchingthe feat last achieved in 2012 We forecast container throughput to remain impressive over the next 12months, rising 10% year-on-year (y-o-y) to reach 4.62mn twenty-foot equivalent units (TEUs)

Tonnage throughput will not hit the same levels as the box side of operations We forecast growth of 6.1%y-o-y to 41.22mn tonnes by the end of 2014 This is slightly down on the past few years as global economicheadwinds weigh ever so slightly on demand

Data for Vietnam's external sector continues to strengthen Trade data for the first two months of the yearshow a trade surplus of USD244mn, which will help underpin the stability of the country's external sector.Traditionally Vietnam has been a trade deficit country, but in the past two years the trade account hasswung into surplus, where we expect it will remain over the forecast period as the country expands itsmanufacturing export base

Foreign direct investment (FDI) in Vietnam shrunk by more than 60% y-o-y in the first two months of 2014,but industry sources have forecast growth in foreign capital influx in 2014 According to data released bythe General Statistics Office, the processing and manufacturing industry accounted for USD1.18bn of thetotal foreign capital of US$1.54bn in the two months Investments in new projects represented USD830mn

of the total FDI

South Korea, with an investment of around USD469mn, is the biggest foreign investor in 2014 so far Theindustry insiders' prediction for the rise in foreign investment in 2014 is based on the recent trend amongforeign investors According to the US-ASEAN Business Council, the US business community viewsVietnam as a lucrative investment location, mainly because of an improved macro-economic environmentand a commitment towards stable inflation and exchange rate

Danang Port To Sell Shares On June 11

Danang Port is scheduled to launch an initial public offering (IPO) in Hanoi on June 11 The port will sellmore than 8.3mn shares at a cost of VND11, 400 (USD0.54) per share Of the paid up capital, the number ofshares being offered accounts for 12.57% (SeaShip News)

SPCT Largest Ever Vessel

The DP World-operated Saigon Premier Container Terminal (SPCT) in Ho Chi Minh City, Vietnam

received its largest ever ship in the week ending May 24 - the NYK-owned 54,000 deadweight tonne

(DWT) Northern Genius, reported PortNews The ship, with a capacity of 4,300 twenty-foot equivalent units (TEUs), sailed up the Soai Rap River channel after its opening in early 2014 Northern Genius' call at

the terminal follows the MSC vessel Xutra Bhum, which sailed up the channel in April.

DP World Senior Vice President and Managing Director of the Asia Pacific Region, Rashid Abdulla, stated:'The arrival of the Northern Genius so soon after the Xutra Bhum confirms the importance of SPCT inproviding a vital trade route for the Vietnamese economy through the newly dredged Soai Rap River