Vietnam freight transport report q4 2015

... Business Monitor International Ltd Page Vietnam Freight Transport Report Q4 2015 SWOT Freight Transport Vietnam Freight Transport Industry SWOT Analysis Strengths ■ Vietnam' s strong domestic growth... © Business Monitor International Ltd Page 32 Vietnam Freight Transport Report Q4 2015 Road Transport dominates freight mix in Vietnam 2015 Vietnam Freight Mode Breakdown % of Total BMI calculation... Office of Vietnam, BMI © Business Monitor International Ltd Page 31 Vietnam Freight Transport Report Q4 2015 Market Overview BMI View: The Vietnam freight industry is dominated by road transport,

Q4 2015 www.bmiresearch.com

VIETNAM

FREIGHT TRANSPORT REPORT

INCLUDES 5-YEAR FORECASTS TO 2019

INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: August 2015

© 2015 Business Monitor International Ltd

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

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DISCLAIMER

INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: August 2015

© 2015 Business Monitor International Ltd

All rights reserved

All information contained in this publication is

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

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

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

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 9

Freight Transport 9

Political 11

Economic 12

Operational Risk 14

Industry Forecast 16

Trade Forecast 16

Table: Trade Overview (Vietnam 2012-2019) 18

Table: Key Trade Indicators (Vietnam 2012-2019) 19

Table: Main Import Partners 20

Table: Main Export Partners 20

Road Freight Forecast 22

Table: Road Freight (Vietnam 2012-2019) 24

Rail Freight Forecast 25

Table: Rail Freight (Vietnam 2012-2019) 27

Air Freight Forecast 28

Table: Air Freight (Vietnam 2012-2019) 31

Market Overview 32

Company Profile 34

Vietnam Airlines Cargo 34

Political Outlook 36

Foreign Policy 36

Table: Vietnam Political Overview 39

Long-Term Political Outlook 41

Oil Price Outlook 45

Global - Crude Oil, Refined Fuels And Natural Gas Prices, 10-Year Forecasts 45

Table: Energy Price Forecasts (Global 2013-2018) 45

Table: Energy Price Forecasts (Global 2019-2024) 46

Macroeconomic Forecasts 48

Economic Analysis 48

Table: Economic Activity (Vietnam 2010-2019) 53

Demographic Forecast 54

Table: Population Headline Indicators (Vietnam 1990-2025) 55

Table: Key Population Ratios (Vietnam 1990-2025) 55

Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 56

Table: Population By Age Group (Vietnam 1990-2025) 56

Table: Population By Age Group % (Vietnam 1990-2025) 57

Methodology 59

Industry Forecast Methodology 59

Sector-Specific Methodology 60

Sources 62

BMI Industry View

BMI View: Strong foreign direct investment (FDI), in addition to steady trade growth and the prospect of

ongoing infrastructure development, both public and private, will impact favourably on the freight industry Falling fuel prices will encourage road transport whilst rail transport will be spurred on by new investment both domestic and foreign Government approval of the development project of Long Thanh Int'l Airport signals recognition of the need to strengthen Vietnam's credentials as an air transport hub for the Southeast Asian region.

We expect export growth in Vietnam to be maintained at a steady level in the medium term, averaging6.52% y-o-y between 2015 and 2019 In 2015, total trade real growth will come in at 6.65%, with importsoutperforming exports Of the key trade indicators, agricultural exports will see the biggest year on yeargrowth in 2015, with fuel exports seeing the smallest growth figures The signing of a free trade zoneagreement between Eurasian Economic Union (EEU) and Vietnam will drive trade growth between the twomarkets

Strong foreign direct investment, infrastructure development and growing export through 2015 are set tobenefit the road freight sector in Vietnam This will set y-o-y growth in terms of tonnage transported byroad on an upward curve with a forecast growth of 7.75% in 2015 up from 6.77% in 2014, rising to 8.12%

in 2016 Road freight companies look set to benefit in particular from falling fuel prices and rising

consumer demand, as they strive to offer economical alternatives to air and shipping freight

Year-on-year tonnage growth of the rail freight industry is set to half in 2015 to 5.07% compared to 10.01 in

2014 with further contraction predicted to the coming years, this despite increased investment in

infrastructure development and the proposed construction of new lines, such as a partnership with Russia.Access from private investment using the PPP model is likely to facilitate development

Following a spike in 2014, air freight in Vietnam looks set to grow by 6.27% in 2015 with levels expected

to remain similar until 2019, as the country is credited with one of the three fastest growing air freightindustries in the world Growth will be facilitated by the in-flow of hi-tech manufacturing from China andIndia along with government action to restructure the market and increase the role of the industry in keyeconomic zones and remote areas

Recent developments

■ Russia and Vietnamese Railways sign co-operation agreement with the construction of a railway line inthe south of Vietnam marking the start of the joint development of infrastructure between the twocountries

■ The Ministry of Transport approves the restructure of the air freight market by 2020 in order to developthe cargo transport market and increase the role of airfreight, especially in key economic zones andremote areas

■ Vietnam Airlines adds Boeing 787-9 Dreamliner and new generation Airbus A350 XWB to fleet, inaddition to securing access from Heathrow Airport

■ Government approves construction of Long Thanh Int'l Airport, which will begin in 2019

■ Third-party logistics provider C H Robinson Worldwide opens new global forwarding office in Ho ChiMinh City

Key BMI Forecasts:

■ We forecast total road freight volumes will rise by 7.75% y-o-y over 2015 to reach 880.14mn tonnes

■ We forecast total rail freight volumes will grow by 5.07% year on year over 2015 to reach 7.54mntonnes

■ We forecast total air freight volumes will rise by 6.27% year on year over 2015 to reach 214.67 tonnes

■ We forecast total trade value to increase by 6.65% to reach USD319.27bn in 2015

■ The top export trade partners will be the US, China, Japan, South Korea and Germany, with imports led

by China, South Korea, Singapore, Japan and China

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

■ Recent cooperation between Russia and Vietnam signals the beginning of a jointinfrastructure development starting with the construction of a railway line in the south

of the country

■ Government approval of the restructure of the air freight market by 2020 will see thedevelopment of the cargo transport market and increase the role of airfreight,particularly in key economic zones and remote areas

■ High level of foreign direct investment into Vietnam's manufacturing sector continues

to be a strong driver for international transport and logistics services

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

■ Despite air freight seeing the third fastest growth in the world, it appears that Vietnamhas struggled to establish a comprehensive logistics chain to take advantage of thisgrowth Unresolved business environment issues and lack of significant improvement

in access 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

Vietnam Freight Transport Industry SWOT Analysis - Continued

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

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

■ Increase in hi-tech production moving into Vietnam from China and telecoms fromIndia will increase demand in transport capacity and particularly air freight

■ Government approval of the VND336.7 trillion (US$16 billion) construction of LongThanh international in the southern Dong Nai Province provides opportunity for newroutes and increased capacity, with the handling of five million tons of cargo by 2050

■ Vietnam's signing of a free trade deal with Russia-led Eurasian Economic Union (EEU)will drive trade growth and therefore between the two markets opening up newopportunity for the freight industry

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

■ Need for transport services in the country to meet growing customer demand throughrapid modernisation and expansion or competitiveness will be threatened

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 coming years The one-partysystem is generally conducive to short-term political stability

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

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

ruling Communist Party

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

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

acted to clamp down on graft among party officials

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

Threats ■ Although strong domestic control will ensure little change to Vietnam's political scene

in the next few years, over the longer term, the one-party-state will probably beunsustainable

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

SWOT Analysis

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

GDP growth averaging 6.5% annually between 2000 and 2014

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

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

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

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

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

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

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

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

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

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

on this front could result in a decline in investment

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

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

SWOT Analysis - Continued

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

Operational Risk

SWOT Analysis

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

literacy rate for its income level

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

• Growing levels of foreign investment encourage further trade and spin-off industries

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

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

creates shortages of skilled labour

• Underdeveloped rail capacity overburdens the road network

• An underdeveloped banking sector decreases the options for keeping money in thestate

• Vietnam's military forces are only a quarter the size of China's, meaning that Beijingwould probably prevail in any naval battle over maritime disputes in the South ChinaSea

Opportunities ■ Explosive growth in demand for tertiary education will increase the number of highly

skilled graduates in the medium term

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

of port facilities will provide adequate capacity

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

Threats ■ Dysfunctional labour-management relations increase the risk of disruption and strike

action

SWOT Analysis - Continued

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

• Corruption and inefficiency in the legal system

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

Industry Forecast

Trade Forecast

BMI View: 2015 will see export growth of 5.8% just down from 2014's 5.92%, though this is expected to

rise over the following three years That said, exports will likely underperform the 8.92% nominal growth pace set in 2014, settling at 6.66% in 2015, with rice exports in the first half of 2015 down 6.2 percent from the same period last year to 3.05 million tonnes, according to the Agriculture Ministry Import growth is likely to remain steady in 2015, with dipping only slightly by 2019

In terms of geographical breakdown, we believe the US market will be the key to sustaining robust exportgrowth in Vietnam over the coming quarters amid ongoing regional headwinds Indeed, the US remains thelargest destination for Vietnamese exports, receiving 19.8% of the total in the first four months of 2015.While there was a poor run of economic data from the US in the month of April, we nevertheless expect the

US economy to continue its recovery amid a healing labour market and weak global oil prices Recovering

US consumer confidence will in turn provide a boost to demand for Vietnamese goods, particularly fortextiles and garments In Q1 2015, the 'textiles and garments' category grew by 7.8% y-o-y to USD4.8bn,which is, by extension, welcome news to the air freight mode as it will be via air, as well as sea, that theseexports are transported The US accounted for 17.6% of all exports out of Vietnam in 2013 (latest availabledata), which underlines the importance of the US market to Vietnamese freight modes

While the US economy appears to be back on its feet, the regional economic slowdown in Vietnam's otherkey trading partners, particularly China, Japan and South Korea, will act as a drag on Vietnamese exportgrowth, thus resulting in export growth in 2015 dipping slightly on 2014's 5.92% y-o-y gains Indeed,China, Japan and South Korea received a combined 23.8% of the total for the first four months of 2015.Growth in exports to these major trading partners will likely be negatively impacted by ongoing generalweakness in these economies In China, ongoing economic rebalancing efforts by the Chinese governmentwill continue to slow growth in the world's second largest economy Import growth in China contracted by12.3% y-o-y in March, reflecting the economic slowdown in recent quarters Meanwhile, attempts to revivethe Japanese economy appear to have fallen short, with real household income and industrial productiongrowth remaining rather lacklustre

The ability to attract strong foreign direct investment (FDI) inflows to the manufacturing sector is anotherfactor that will keep the Vietnamese export sector vibrant The exports of manufactured goods are set togrow by 7.08% in 2015 Well-known multinational companies like Samsung (one of the largest foreign

investors in Vietnam) and Procter and Gamble are increasing their investment in the country, which will

only benefit the freight industry, in particular air freight as goods are flown out to more developed

countries In particular, Samsung (through its various subsidiaries) is running several large scale projects in

Vietnam, including the construction of a second smartphone factory worth USD3.0bn in the northernprovince of Thai Nguyen and a USD1.0bn production plant in the province of Bac Ninh to manufactureLCD screens According to the Ministry of Planning and Investment, registered capital investment from theSouth Korean giant is estimated to hit USD20.0bn by 2017 The total investment from Samsung in thecountry currently stands at around USD11.0bn

Trade Sees Steady Growth Through To 2019

Imports and Exports Value (2013-2019)

Vietnam - Imports, USDbn Vietnam - Exports, USDbn

2013 2014 2015f 2016f 2017f 2018f 2019f0

200 400 600

f = BMI forecast Source: ADB, General Statistics Office of Vietnam, BMI

Medium Term

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

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

Minister Nguyen Tan Dung and South Korean President Park Geun-hye on the sidelines of the Korea Commemorative Summit The FTA seeks to triple bilateral trade turnover to USD70bn by 2020 TheFTA covers 17 areas, including products, services and investment and intellectual property; however, it

ASEAN-excludes rice, a sensitive product for Korean farmers, as reported by the Korea Times The two Asiannations have held nine rounds of FTA talks since August 2012, reported Thanh Nien News If Vietnam andSouth Korea can appease farmers in the latter country, the former is set to benefit from its large rice exports.The anticipated bounce from the FTA is one of the key reasons why we see export growth in Vietnamperforming strongly over our medium term forecast period, growing by an average 6.52% y-o-y between

2015 and 2019

Long Term

Coal production will remain the overwhelming power source of choice, most notably in China and India,and with Vietnam exporting significant amounts of coal, it is well placed to benefit from growing demandover the long term Not only is coal the cheapest option, but it is relatively abundant, scalable and has afaster turnaround than other fuel sources We forecast that despite rising environmental concerns, by 2024,coal will still account for approximately 70.0% of China's energy mix, down only marginally from about73.0% currently Although coal will remain the power source of choice, we do expect policy changes toboost growth in nuclear and renewable energy sources over the next decade

With Europe being the second largest export destination for Vietnamese goods (receiving 18.8% of the totalfor the first four months of 2015), weakness in the euro will undoubtedly weigh on European demand forVietnam's exports going forward, a situation that has occurred in the first half of 2015 The euro hasdepreciated against the Vietnamese dong by about 20% since May 2014, making Vietnamese goods moreexpensive in euro terms and this is a scenario that could worsen in future, affecting demand for Vietnamesegoods and thus having a detrimental effect on the country's freight modes, in particular air freight

Table: Trade Overview (Vietnam 2012-2019)

Imports, real growth, % y-o-y 9.09 7.90 7.50 7.50 7.30 7.20 7.00 7.00 Exports, real growth, % y-o-y 15.71 6.00 5.92 5.80 6.20 6.60 6.80 7.20 Total Trade, real growth, % y-o-y 12.40 6.95 6.71 6.65 6.75 6.90 6.90 7.10 Imports, USDbn 118.98 133.50 147.57 159.94 178.12 202.18 229.09 259.36 Import growth, % y-o-y 5.86 12.20 10.54 8.38 11.37 13.51 13.31 13.21 Exports, USDbn 124.43 137.15 149.38 159.34 175.63 198.25 224.21 254.31 Export growth, % y-o-y 16.46 10.22 8.92 6.66 10.23 12.88 13.10 13.42 Total trade, USDbn 243.41 270.65 296.96 319.27 353.75 400.43 453.30 513.67

Trade Overview (Vietnam 2012-2019) - Continued

Total trade growth, % y-o-y 11.03 11.19 9.72 7.51 10.80 13.20 13.20 13.32

f = BMI forecast Source: ADB, General Statistics Office of Vietnam, BMI

Table: Key Trade Indicators (Vietnam 2012-2019)

Agricultural raw materials, exports,

USDmn 3,882 4,482 4,864 5,301 6,246 6,883 8,144 9,026Agricultural raw materials, exports, % y-o-

y -8.0 15.4 8.5 9.0 17.8 10.2 18.3 10.8Agricultural raw materials, imports,

USDmn 3,767 3,363 4,677 4,982 5,205 6,095 6,599 7,702Agricultural raw materials, imports, % y-o-

y -9.0 -10.7 39.1 6.5 4.5 17.1 8.3 16.7Ores and metals, exports, USDmn 729 1,055 1,102 1,179 1,276 1,472 1,639 1,892 Ores and metals, exports, % y-o-y -9.8 44.8 4.5 7.0 8.2 15.3 11.4 15.5 Ores and metals, imports, USDmn 4,759 4,369 5,779 6,289 6,769 7,953 8,788 10,204 Ores and metals, imports, % y-o-y 4.8 -8.2 32.3 8.8 7.6 17.5 10.5 16.1 Iron and steel, exports, USDmn 2,395 2,589 2,930 3,150 3,576 4,031 4,663 5,295 Iron and steel, exports, % y-o-y 7.2 8.1 13.2 7.5 13.5 12.7 15.7 13.6 Iron and steel, imports, USDmn 6,959 8,172 10,167 11,012 11,048 13,542 14,172 16,967 Iron and steel, imports, % y-o-y -3.7 17.4 24.4 8.3 0.3 22.6 4.7 19.7 Manufactured goods, exports, USDmn 78,489 89,452 91,874 98,383 112,654 124,875 145,703 163,012 Manufactured goods, exports, % y-o-y 26.2 14.0 2.7 7.1 14.5 10.8 16.7 11.9 Manufactured goods, imports, USDmn 83,710 97,013 102,206 110,872 125,294 140,987 161,530 181,741 Manufactured goods, imports, % y-o-y 13.2 15.9 5.4 8.5 13.0 12.5 14.6 12.5 Fuels, exports, USDmn 11,353 14,709 16,092 17,012 16,959 20,155 21,003 24,731 Fuels, exports, % y-o-y 3.1 29.6 9.4 5.7 -0.3 18.8 4.2 17.8 Fuels, imports, USDmn 11,452 15,978 16,687 18,087 19,677 22,731 25,355 29,031 Fuels, imports, % y-o-y -8.6 39.5 4.4 8.4 8.8 15.5 11.5 14.5

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

Table: Main Import Partners

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

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

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

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

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

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

Table: Main Export Partners

United States, USDmn 7,845 10,105 11,887 11,356 14,238 16,928 19,668 22,930 United States, USDmn, % of

total 19.7 20.8 19.0 19.9 20.4 18.2 17.8 17.6 China, Mainland, USDmn 3,243 3,646 4,850 4,909 7,309 11,125 12,388 15,351 China, Mainland, USDmn, % of

total 8.1 7.5 7.7 8.6 10.5 12.0 11.2 11.8 Japan, USDmn 5,240 6,090 8,468 6,292 7,728 10,781 13,060 12,917 Japan, USDmn, % of total 13.2 12.5 13.5 11.0 11.1 11.6 11.8 9.9 Korea, Republic Of, USDmn 843 1,243 1,794 2,065 3,092 4,715 5,580 6,523 Korea, Republic Of, USDmn, %

of total 2.1 2.6 2.9 3.6 4.4 5.1 5.0 5.0 Germany, USDmn 1,445 1,855 2,073 1,885 2,373 3,367 4,095 5,683 Germany, USDmn, % of total 3.6 3.8 3.3 3.3 3.4 3.6 3.7 4.4 TOTAL 39,826 48,561 62,685 57,196 69,820 92,881 110,795 130,551

Main Export Partners - Continued

TOTAL, top 5 countries, USDm 18,616 22,939 29,072 26,507 34,740 46,916 54,792 63,403

% from top 5 trade partners 46.7 47.2 46.4 46.3 49.8 50.5 49.5 48.6

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

Road Freight Forecast

BMI View: Strong foreign direct investment, infrastructure development and growing exports through 2015

are set to benefit the road freight sector in Vietnam This will set y-o-y growth in terms of tonnage

transported by road on an upward curve with a forecast growth of 7.75% in 2015 up from 6.77% in 2014, rising to 8.12% in 2016 Road freight companies look set to benefit in particular from falling fuel prices and rising consumer demand, as they strive to offer economical alternatives to air and shipping freight

Short Term

Vietnam will see private consumption remain broadly the same in 2015, which is why our road freighttonnage handled forecast for the year does not differ so much from 2014 The rise in this mode will

predominantly occur due to lower fuel prices for truckers

The Vietnamese economy is currently resting on a growth-inflation sweet spot, with consumer priceinflation (CPI) coming in at just 0.9% y-o-y in March (in part owing to the slump in global oil prices) versusthe peak of 23.0% in August 2011 Price stability and positive economic growth prospects will lend support

to the Vietnamese dong, while a richer domestic consumer continues to benefit the road freight sector,hence our healthy growth forecast over the short term The confluence of these factors will restore and shore

up investor confidence, enhancing Vietnam's attractiveness as a place to invest and do business in, whichshould have a knock on effect on infrastructure, which could mean enhanced facilities for truckers and,therefore, a boost for the road freight sector

Glowing Consumer Picture Impacts On Road Transport

GDP Per Capita (2013-2024)

Vietnam - GDP per capita, USD (LHS) Vietnam - GDP per capita, USD, % y-o-y (RHS)

2013 2014 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f0

2,000 4,000

6,000

10

5 7.5 12.5

f = BMI forecast Source: General Statistics Office, Asian Development Bank, BMI

Medium Term

Over our forecast period to 2019, we expect to see y-o-y average growth to come in at a healthy 7.79%, asthe sector goes from strength to strength This is predicated on a glowing consumer picture, as well asVietnam's rising stature as an attractive place for investment Looking ahead, we expect the economy tocontinue growing robustly, on the back of greater foreign direct investment (FDI) inflows and ongoingefforts by the government to improve the country's business conditions, which will all boost the road freightsector as demand grows and increased investment improves Vietnam's reputation as a place to do business

latter's road freight industry as a result Speaking at a reception hosted for Thai Deputy Prime Minister andForeign Minister Thanasak Patimapragorn in Vietnamese capital city Hanoi, Sang lauded the outcome ofthe meeting of the Joint Committee on bilateral cooperation Sang also expressed his gratitude to Thailandfor paying attention to the needs of the Vietnamese community in Thailand, saying that he hopes a bilaterallabour deal will be signed soon Sang noted that the economic ties between the two nations were developingstrongly with many large Thai firms investing in the country, reported Intellasia/Vietnamnet.

Over the longer term, the Vietnamese government's decision to introduce tighter regulation to clamp down

on overloaded trucks, which will now result in firms having to procure additional vehicles to transport theircargo, should promote driver safety and make the road freight sector more attractive as a direct

consequence The decision by Vietnam's Ministry of Transport (MOT) to increase control and oversight ofoverloaded vehicles so as to ensure driver safety is a positive development for the commercial vehicle (CV)sector

Table: Road Freight (Vietnam 2012-2019)

Road Freight Tonnes (000) 722,156 765,070 816,857 880,142 951,611 1,026,523 1,105,191 1,188,832 Road freight tonnes, % y-o-y 10.4 5.9 6.8 7.7 8.1 7.9 7.7 7.6 Road freight tonnes-km (mn ton

km) 43,902 46,790 48,146 50,399 52,546 54,648 57,260 59,935Road freight tonnes-km, % y-o-y 9.4 6.6 2.9 4.7 4.3 4.0 4.8 4.7

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

Rail Freight Forecast

BMI View: Year-on-year tonnage growth of the rail freight industry is set to half in 2015 to 5.07%

compared to 10.01 in 2014 with growth levels predicted drop further in the coming years, this despite increased investment in infrastructure development and the proposed construction of new lines, such as a partnership with Russia Access from private investment using the PPP model is likely to facilitate

development.

Short Term

Vietnam exported 9.29mn mt of crude, up 10.5% y-o-y from January to December 2014 While the exportvolume for December was 23.5% higher than November, the export value was 4.7% lower at USD414mncompared with November 2013 Greater demand for crude has a positive knock-on effect on Vietnam's railfreight sector, which is why we anticipate positive growth to remain in this freight mode both in 2015 andover the medium term also

Tempering our forecast, however, is the news that state-owned PetroVietnam is likely to reduce production

from four of its oil fields to cut costs, as expenses have exceeded prices This scenario has resulted in BMI

deciding that double-digit growth seen in 2014 is unlikely to take place again in 2015

Demand For Crude Impacts Positively On Rail Freight

Rail Freight Tonnage (2006-2019)

Vietnam - Rail freight tonnes ('000) Vietnam - Rail freight tonnes, % y-o-y

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f0

2,500 5,000 7,500 10,000

-10 -5 0 5 10 15

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

Medium Term

The expansion of Japan's K Line into Vietnam's logistics sector in 2014 could offer upside risks to the rail

freight sector going forward The move is part of the company's wider strategy to reduce its exposure to thecontainer shipping sector by increasing its exposure to more profitable sectors, including logistics Shouldother firms follow suit, the rail freight mode could benefit and the mode is already set to perform steadilyover our forecast period, averaging y-o-y growth of 3.5% to 2019

Long Term

Discoveries and foreign investments are encouraging signs for both Vietnam's gas production and

consumption growth prospects and, by extension, provide welcome news for rail freight as it is the modemost concerned with heavy industry transportation This is reflected in our optimistic growth forecast forVietnamese gas production and consumption Nonetheless, gas prices and regional security pose risk tofurther growth

Table: Rail Freight (Vietnam 2012-2019)

Rail freight tonnes ('000) 7,003.50 6,525.90 7,178.90 7,542.90 7,808.41 8,085.61 8,375.07 8,678.25 Rail freight tonnes, % y-o-y -3.87 -6.82 10.01 5.07 3.52 3.55 3.58 3.62 Rail freight tonnes-km (mn ton

km) 4,024.60 3,804.10 4,297.20 4,475.96 4,782.00 5,102.78 5,439.65 5,797.80Rail freight tonnes-km, % y-o-y -3.30 -5.48 12.96 4.16 6.84 6.71 6.60 6.58

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

Air Freight Forecast

BMI View: Following a spike in 2014, air freight in Vietnam looks set to grow by 6.27% in 2015 with levels

expected to remain similar until 2019, as the country is credited with one of the three fastest growing air freight industries in the world Growth will be facilitated by the in-flow of hi-tech manufacturing from China and India along with government action to restructure the market and increase the role of the industry in key economic zones and remote areas June 2015 saw the approval of the construction of a Long Thanh Int'l Airport to serve as an aviation hub in both the country and the Southeast Asian region.

Short Term

Vietnam's pharmaceutical industry, meanwhile, is currently facing challenges to compete with Indian drugfirms, according to state management agencies With domestic firms preferring to import materials for drugproduction, rather than spending money on research, the air freight sector by extension is poised to benefitfrom what could be a lucrative revenue stream A free trade agreement signed with the ASEAN, of whichVietnam is a member, has also led to this rise in imports of Indian medicines There were 4,269 registeredIndian drugs in 2014, accounting for 26% of the total registered items in Vietnam, which is welcome newsfor Vietnam's air freight operations

Year-On-Year Growth Unchanged Across Medium Term

Air Freight Tonnage (2006-2019)

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

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f0

100 200 300

-20 0 20 40

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

Medium Term

Significant private sector interest in Vietnam's airport sector bodes well for the government's efforts to raisefunds for additional projects and also provides potentially significant upside risk to our air freight forecastsover the medium and longer term Nonetheless, we maintain our moderate forecast as we expect issues such

as permit approvals, environmental clearances and land acquisition to result in project delays, hinderinggrowth Consequently, we currently forecast y-o-y air freight tonnage throughput growth of an average6.6% between 2015 and 2019

Private sector interest in Vietnam's airports indicates that the government's plan to privatise the sector is

gaining traction French airport operator Aeroports de Paris (ADP) has expressed interest in being a

strategic stakeholder of Airports Corporation of Vietnam (ACV) through a 25-30% ownership, according tothe Vietnam Investment Review In addition, ADP is also looking to work with Credit Suisse, Vietnam'sTransport Ministry and ACV to raise USD2-3bn for the construction of the Long Thanh InternationalAirport in southern Vietnam

Elsewhere, Vietnam Airlines has recently announced that it wants to buy the domestic passenger terminal

at Hanoi's Noi Bai International Airport from the ACV, pitting itself against VietJet Air, which also wants

to purchase Terminal 1 at Noi Bai T&T Group, a Hanoi-based conglomerate had also requested in March

2015 that the Transport Ministry approve its investment into the Phu Quoc Airport - currently fully owned

by AVC With the country expected to see significant growth in air passenger traffic over the coming years(expanding by 25% between 2015 and 2019 to 10.4mn based on our forecast), the government has

ambitious plans to develop airport infrastructure, and the partial privatisation of ACV's assets will help tounlock funds to support airport construction The knock on-effect of this will be better facilities for airfreighters, as well as increased foreign interest in the sector as Vietnam begins to better compete regionally.Besides the Long Thanh airport project which ADP is interested in and is estimated to cost USD15.8bn,there are also plans to build an additional terminal at Cam Ranh International Airport The Cam Ranhproject is expected to cost VND1.0tn (USD47mn), with the new terminal expected to operate in 2018.Meanwhile, construction of new terminals at the Cat Bi International Airport and Phu Cat Airport alsocommenced in January 2015

Beyond funding, the entrance of private players in the operations of Vietnam's airports will help improveefficiency in the sector AVC currently operates all civil airports in Vietnam, and we believe a lack ofprivate sector participation has resulted in several airports operating below capacity and becoming

significant fiscal drags As such, private investment would also allow various projects to operate in morecompetitive, revenue driven environment which will see standards and capacity utilisation improve

Existing hurdles to project execution such as permit approvals, environmental clearances and land

acquisition could result in delays of airport projects A case in point is the possible expansion of the TanSon Nhat Airport, which is expected to reach passenger capacity by 2017 While the Long Thanh

International Airport has been planned with the intention of alleviating traffic at Tan Son Nhat, it is

expected to enter its first phase of operations only in 2023 This could be delayed further; according to the

Ho Chi Minh City government, plans to expand Tan Son Nhat are 'impossible' due to issues with siteclearances, which involves relocation of residences and a significant compensation for land acquisition