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... Office of Vietnam © Business Monitor International Page 22 Vietnam Freight Transport Report Q4 2013 Air Freight On Growth Trajectory As Vietnam Gets Better Connected Vietnam' s air freight sector... 35 Vietnam Freight Transport Report Q4 2013 Road Dominates Freight Mix Vietnam Freight Transport Mode Breakdown (% of Total 2013f) Source: General Statistics Office of Vietnam Vietnam's dense river... affect Vietnam' s freight transport sector © Business Monitor International Page 11 Vietnam Freight Transport Report Q4 2013 Political SWOT Analysis Strengths ■ The Communist Party of Vietnam
Q4 2013 www.businessmonitor.com VIETNAM FREIGHT TRANSPORT REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 1750-5364 Published by:Business Monitor International Vietnam Freight Transport Report Q4 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: August 2013 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2013 Business Monitor International All rights reserved. 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Vietnam Freight Transport Report Q4 2013 CONTENTS BMI Industry View ............................................................................................................... 7 SWOT .................................................................................................................................. 10 Freight Transport .................................................................................................................................... 10 Political ................................................................................................................................................. 12 Economic ............................................................................................................................................... 13 Business Environment .............................................................................................................................. 14 Industry Forecast .............................................................................................................. 15 Road Freight ......................................................................................................................................... 18 Table: Rail Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Inland Waterways .................................................................................................................................. 19 Table: Inland Waterway Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Rail Freight .......................................................................................................................................... 21 Table: Vietnam Transport Network Length (km) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table: Rail Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Air Freight ............................................................................................................................................ 23 Table: Air Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Maritime Freight ................................................................................................................................... 25 Table: Maritime Freight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Trade ................................................................................................................................................... 27 Table: Trade Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Table: Key Trade Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Table: Top Import Destinations, 2004-2011, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Table: Top Export Destinations, 2004-2011, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Market Overview ............................................................................................................... 31 Industry Trends And Developments ................................................................................ 39 Maritime .............................................................................................................................................. Multimodal ........................................................................................................................................... Rail ..................................................................................................................................................... Road .................................................................................................................................................... 39 40 41 42 Company Profile ................................................................................................................ 43 Vietnam Airlines Cargo ............................................................................................................................ 43 Vietnam Petroleum Transport Company (VIPCO) .......................................................................................... 45 Vietnam National Shipping Lines (Vinalines) ................................................................................................ 47 Political Outlook ................................................................................................................ 51 Domestic Politics ..................................................................................................................................... 51 Table: Vietnam Political Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 © Business Monitor International Page 4 Vietnam Freight Transport Report Q4 2013 Long-Term Political Outlook ..................................................................................................................... 53 Oil Price Outlook ............................................................................................................... 57 Global Oil Products Price Outlook ............................................................................................................. 57 Methodology ......................................................................................................................................... 57 Crude Price Forecasts ............................................................................................................................ 57 Table: BMI's Oil Price Forecasts, Average Price (US$/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Product Prices Move Back Up But No Spikes Expected ................................................................................. 58 Narrower US Market Crude-Product Spreads .............................................................................................. 59 Weak Demand Persists ............................................................................................................................ 60 Table: BMI's Refined Products Forecasts, US$/bbl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Supply: Supported By Global Refining Capacity ........................................................................................... Naphtha: Gas Renaissance Hits Demand .................................................................................................... Gasoline And Gasoil/Diesel: Subsidies & Fuel Efficiency Cap Upward Movement ............................................. Jet Fuel: Slump Restricts Upward Movement ............................................................................................... 64 67 69 71 Table: Total Air Freight And Passenger Volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Bunker Fuels: No Rest To Downward Movement In Sight .............................................................................. 73 Macroeconomic Forecasts ............................................................................................... 76 Economic Analysis ................................................................................................................................... 76 PMI Data Suggests Economic Recovery Remains On Track ............................................................................ 76 Downward Revision To Reflect Weak Q113, But Growth Trajectory Intact ........................................................ 78 Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Demographic Forecast ..................................................................................................... 81 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Methodology ...................................................................................................................... 85 Transport Industry ................................................................................................................................. 85 Sources ................................................................................................................................................ 86 © Business Monitor International Page 5 Vietnam Freight Transport Report Q4 2013 BMI Industry View Vietnam recorded a relatively weak real GDP growth figure of 5.0% year-on-year (y-o-y) in Q2 2013, up only slightly from 4.9% in Q1 2013. The latest GDP print also suggests to us that further efforts by the Vietnamese government to speed up the restructuring of debt-laden banks and restart lending to small and medium-sized enterprises (SMEs) may be necessary to support economic growth over the coming quarters. Moreover, given that we have recently begun to see signs of a slowdown in economic activity across the region, 2013 looks increasingly precarious for the Vietnamese economy. With this in mind, certain elements of the freight mix have seen their y-o-y growth forecasts downgraded slightly this quarter. Foreign direct investment (FDI) will continue to play a crucial role in driving Vietnam's economic growth over the coming quarters, and we view the recent uptick in FDI inflows into the country as a positive sign that the economic rebound is gathering pace. The shipping sector will be no different in this regard. Total foreign direct investment in industrial parks (IPs) and economic zones (EZs) in Vietnam reached an estimated US$110bn by the end of June 2013, according to the country's Ministry of Planning and Investment. IPs alone attracted around 4,665 FDI projects totalling US$70bn, while coastal and border EZs have attracted US$40bn and US$700mn in foreign investment, respectively. Vietnam remains one of the favourite investment destinations for multinational companies despite the country's turbulent economic environment and uncertainties over the country's short-term growth outlook. This continues to provide encouragement for Vietnam's freight mix going forward. Exports from Asian steelmakers have begun to be cut due to cross-border trade disputes, Reuters reported in July 2013. In developments that could dent the Vietnamese freight industry, a group of US steel pipe makers asked the US International Trade Commission in a bid to halt alleged unfairly traded steel products from outside of the US, including Vietnam, India and South Korea. Speaking to Reuters, Dinh Huy Tam, general secretary of Vietnam Steel Association, said: 'If they lose the case, for sure Vietnamese companies will face more difficulties in exporting steel overseas, especially to the United States.' Meanwhile, Ryuichi Yamashita, director at Japan's Ministry of Economy, Trade and Industry, voiced his concerns: 'Should other countries accelerate steel exports to areas where there is strong demand, it may spark off a trade war and I am afraid that Japan will get caught up because we are an exporter.' © Business Monitor International Page 7 Vietnam Freight Transport Report Q4 2013 Headline Industry Data ■ 2013 rail freight tonnage is set to increase by 4.12% to 7.29mn tonnes. ■ 2013 air freight tonnage is forecast to rise by 13.13% to 202,170 tonnes. ■ Tonnage handled at the Port of Ho Chi Minh City in 2013 is forecast to grow 6.72%, whereas tonnage handled at the Port of Da Nang is forecast to increase 3.85%. ■ 2013 road freight tonnage is forecast to grow by 11.70% to 820.5mn tonnes. ■ 2013 total trade is forecast to rise by 5.05%. Key Industry Trends DHL Intends To Invest EUR10mn - Germany's DHL Supply Chain is set to make an investment of EUR10mn (US$13mn) for expansion work in Vietnam over the next few years. The logistics specialist aims to construct new facilities, including a second build-to-suit distribution centre in Bac Ninh, which is due to be completed in Q3 2013. The company will also make investments in additional information technology, including a warehouse management system and a transportation management system. Vietnam Invites Applications For Expressway - A request was issued in July 2013 by the Vietnamese Ministry of Transport inviting applications for qualification for a second investor for the US$757mn Dau Giay-Phan Thiet Expressway Project. The successful bidders would design, finance, construct, operate and maintain a four-lane expressway and allied structures from Dau Giay in the Dong Nai province to Phan Thiet in the Binh Thuan province through a Special Purpose Vehicle. Australian Firms Eyes Megaport Project - A proposal has been submitted by Australian company N&M Commodities relating to the construction of an AUD3.5bn megaport on Hon Khoai Island. If given the go ahead, the deepwater port project will stretch over 320 hectares and the 12 berths will be capable of handling vessels up to 250,000dwts. © Business Monitor International Page 8 Vietnam Freight Transport Report Q4 2013 Key Risks To Outlook Vietnamese Ministry of Transport issued a request inviting applications for qualification for a second investor for the US$757mn Dau Giay-Phan Thiet Expressway Project in July 2013, which could provide a welcome boon to the country's road freight sector in the future. Under the project, the successful bidders would design, finance, construct, operate and maintain a four-lane expressway and allied structures from Dau Giay in the Dong Nai province to Phan Thiet in the Binh Thuan province through a Special Purpose Vehicle. The Special Purpose Vehicle would be formed between Bitexco, which has been appointed as the first investor for the project, and the second investor. The first investor will have a share of 60% in the project and the other investor 40%. However, the first investor may dilute its share in favour of the second investor during the construction. In terms of the rail freight sector, it has been announced that the Laos government is to build a new railway line between the country and its Asian neighbours, Vietnam and Thailand, reported the Asia Times in June 2013. The 220km line will run from Laos's Western border with Thailand to the Lao Bao border gate in Vietnam. Construction will commence in August 2013 with an expected completion date of the second half of 2017. Further positivity is provided by the news that Vietnam was scheduled to start the construction of the deepwater Lach Huyen terminal in Haiphong in April 2013. The statement was made by Vietnam's Prime Minister Nguyen Tam Dung in the week ended April 27 2013. Vinalines, Mitusi OSK Lines, Nippon Yusen Kaisha and Itochu jointly own the project, which is the first public-private project in Vietnam. The 900,000 twenty-foot equivalent units (TEUs) 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 be able to accommodate vessels with a capacity ranging between 8,000TEUs and 9,000TEUs. Bilateral relations are also being strengthened between Vietnam and Thailand through the establishment of new strategic partnerships focusing on regional and international cooperation on political and economic issues. The agreement was announced amid talks held in Bangkok on June 25 2013 between visiting General Secretary of the Communist Party of Vietnam, Nguyen Phu Trong and Thai Prime Minister Yingluck Shinawatra. The two countries also pledged to promote bilateral trade. Thailand is the ninth largest investor in Vietnam with 313 investment projects worth US$6.4bn, according to figures published by the Foreign Investment Agency (FIA). © Business Monitor International Page 9 Vietnam Freight Transport Report Q4 2013 SWOT Freight Transport Vietnam Freight Transport Industry SWOT 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-distance freight haulage. ■ A recovery of activity levels at the nation's ports in 2010 is expected to continue over the mid-term to 2017. ■ Vietnam's location on the South China Sea gives the country access to the main interAsian shipping routes, as well as access to the developing land transport links with ASEAN countries, allowing the country scope to develop its trade logistics. 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 network has two or more lanes and only 29% is tarred. ■ Traditionally low investment in rail, with the potential for cost-effective bulk rail freight being underutilised. ■ Decades of under-investment have left the country with a port infrastructure system that is poor by international standards. Overcapacity is a growing problem. ■ Unresolved business environment issues and lack of significant improvement in access to infrastructure financing means that we remain very conservative on the growth potential of Vietnam's freight sector. ■ A slowdown affecting the US economy has a knock-on effect on Vietnam due to it being the Asian country's largest export partner. Opportunities ■ The beginnings of local commercial vehicle production, which will help improve the stock of lorries used by road haulage companies. ■ Chinese investment could bring about much needed improvements in the rail sector. © Business Monitor International Page 10 Vietnam Freight Transport Report Q4 2013 Vietnam Freight Transport Industry SWOT - Continued ■ Growing international interest in Vietnam as a growth market within the box shipping sector. ■ The Vietnamese province of Dong Nai is to clear land near the proposed Long Thanh International Airport in order to develop infrastructure facilities. Under a plan submitted to the government, 21,000 hectares in three communes in Cam My District and seven communes in Long Thanh are to be cleared for establishing new residential and urban areas, industrial zones, research institutes and international service centres. ■ Germany-based freight company Logwin has seen growth on its Eastern China to Vietnam trade lane across a range of industries, including IT hardware and garments, in 2012, reported JOC at the end of February 2013. ■ 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 it now, 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 deposit company An Vien, also from Vietnam. ■ The US$1.2bn, 900,000TEU deepwater Lach Huyen Terminal in Haiphong (a joint venture between Vietnam's Vinalines and Japan's Mitusi OSK Lines, Nippon Yusen Kaisha and Itochu) became the first public-private project in Vietnam in April 2013. 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 in the sensitive South China Sea, subject to competing sovereignty claims. ■ A drop in international demand for exports would negatively affect Vietnam's freight transport sector. © Business Monitor International Page 11 Vietnam Freight Transport Report Q4 2013 Political 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 oneparty system is generally conducive to short-term political stability. ■ Relations with the US have witnessed a marked improvement, and Washington sees Hanoi 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 tight control 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 government policies. This is opening up opportunities for more checks and balances within the one-party system. Threats ■ Macroeconomic instabilities in 2012 are likely to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule. ■ Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable. ■ Relations with China have deteriorated over recent years due to Beijing's more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause wide-scale environmental damage. © Business Monitor International Page 12 Vietnam Freight Transport Report Q4 2013 Economic 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 official poverty rate in the country falling from 58% in 1993 to 14.0% in 2010. Weaknesses ■ Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable to global economic uncertainties in 2012. The fiscal deficit is dominated by substantial spending on social subsidies that could be difficult to withdraw. ■ The heavily-managed and weak currency reduces incentives to improve quality of exports, and also keeps import costs high, contributing to inflationary pressures. Opportunities ■ WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition. ■ The government will in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises, and liberalising the banking sector. ■ Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban population rising from 29% of the population to more than 50% by the early 2040s. 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 growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis. ■ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold as they struggle to stabilise the economy. © Business Monitor International Page 13 Vietnam Freight Transport Report Q4 2013 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, and beyond. 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 to Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123 out 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-tech skills and know-how. ■ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector. This should offer foreign investors new entry points. 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 skills levels could leave Vietnam a second-rate economy for an indefinite period. © Business Monitor International Page 14 Vietnam Freight Transport Report Q4 2013 Industry Forecast Vietnam's freight transport sector will benefit from the uptick in domestic growth and the growth outlook of its two main trade partners, the USA and China, which will drive export growth. Vietnam's logistics sector has been developing to keep up with the country's increasing role as Asia's factory, especially in the manufacturing of clothing and shoes. Vietnam's connections to its key export partners has been improving over the past three years, with the country now boasting direct container line services to the US and Europe. Vietnam's economic growth is picking up. While the country's economy continued to expand at a reasonable rate of 5.3% forecast for 2013, following a year of slowing growth in 2012, when Vietnam's GDP expanded by just 5%. Economic Growth Getting Back On Course Vietnam Real GDP growth, % change y-o-y f = BMI forecast. Source: Asian Development Bank, General Statistics Office The country's medium-term growth will place even more pressure on the country's logistics sector with Vietnam's economy forecast to expand quicker over the next four years, with an average growth of 6.4% predicted between 2013-2017 compared with an average annual growth of 5.9% between 2008-2012. © Business Monitor International Page 15 Vietnam Freight Transport Report Q4 2013 To keep pace with this growth Vietnam will continue to 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 and expand into this high growth market. We have already witnessed this to some extent in Vietnam's port sector, with considerable investment being made by container shipping lines and global port operators in the development of modern box terminals at Vietnam's ports. This investment in the country's maritime sector has ensured that Vietnam's manufacturing growth can be achieved with greater links between the country and its main export partner the US. Direct container shipping links between Vietnam and the US have been in operation since 2009, which have cut both time and 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's exports set to benefit from the slow, but steady recovery in the US economy. We project US economic growth to expand by 1.9% in 2013. Over the medium term (2013-2017) we forecast the US economy to expand by an average 2.4% per annum. China And The US To Drive Export Growth LHC: Vietnam's Main Export Partners By % 2011. RHC: China and US Real GDP growth, % change yo-y *2012 data is a BMI estimate. f = BMI forecast. Source: CIA World Factbook, National Bureau of Statistics and BEA © Business Monitor International Page 16 Vietnam Freight Transport Report Q4 2013 Vietnam's export outlook will also continue to be bolstered by China's growth outlook. Although we project China's economic growth to slow over the medium term, the country's real GDP growth outlook remains robust, estimated at 7.5% in 2013 and 6.4% over the medium term. 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's overall energy mix will slip over the medium term, it will nevertheless remain above 70%. Playing A Major Role In China's Coal Supply Chain China Coal Imports By Partner 2012 (tonnes) Source: China Custom 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. © Business Monitor International Page 17 Vietnam Freight Transport Report Q4 2013 Road Freight Road Dominates And Offers Best Links Into China Despite its low standing in road infrastructure, with the Global Economic Forum ranking Vietnam's roads at 123 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 2013, we predict that road freight volumes in Vietnam will account for 81.9% freight carried in the country. Road Reliant Vietnam Freight Mode Breakdown By Market Share 2013 Source: BMI We forecast that growth in road freight volume will strengthen in 2013 in line with the pickup in Vietnam's economic recovery and the stronger export outlook for the country. We project road freight volumes to increase by 11.7%, up from an estimated 10.6% in 2012, to reach 820.5mn tonnes in 2013. © Business Monitor International Page 18 Vietnam Freight Transport Report Q4 2013 Over the medium term, we forecast road freight volume growth will average 11.7% per annum reaching a projected 1.3bn tonnes in 2017. There is, however, upside risk to this forecast as more foreign logistics companies, with considerable road freight expertise expand in Vietnam. Recently, both FedEx and DHL have been expanding their role in Vietnam. 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 export supply chain. Road is the main form of transport linking Vietnam's factories to the country's ports and also plays 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: Rail Freight 2010 Rail freight, '000 tonnes - % change y-o-y Rail freight, mn tonnes/km - % change y-o-y 2011 2012 2013f 2014f 2015f 2016f 2017f 7,861.50 7,234.10 7,003.50 7,292.04 7,519.58 7,759.34 8,010.37 8,269.75 -4.68 -7.98 -3.19 4.12 3.12 3.19 3.24 3.24 3,960.90 4,098.50 4,024.60 4,217.78 4,457.13 4,709.35 4,973.43 5,246.28 2.49 3.47 -1.80 4.80 5.67 5.66 5.61 5.49 f = BMI forecast. Source: General Statistics Office of Vietnam Inland Waterways Play A Major Role; Mekong Offers Trade Links With Neighbours Vietnam's inland waterways play a considerable role in the country's freight transport sector making it the second-largest freight transport mode in the country. In 2013, we estimate that 163.4mn tonnes of freight © Business Monitor International Page 19 Vietnam Freight Transport Report Q4 2013 will be carried by the nation's waterways, a year-on-year (y-o-y) growth of 5.3%. In terms of total freight transport projections for Vietnam in 2013, we calculate that inland waterways will account for 16.3%. Mekong Offers Trade Connections Map of the Mekong River Source: BMI The country's inland waterways stretch for 17,702km, of which 5,000km is navigable for vessels with a draught of up to 1.8m. Vietnam's dense network of waterways ranks its seventh in the world in terms of length. The country's inland waterways include the Mekong River, which enables freight connections with Vietnam's neighbours. Although we highlight that the River's full potential has not been reached and so development in the River is an area for potential investment. © Business Monitor International Page 20 Vietnam Freight Transport Report Q4 2013 Table: Inland Waterway Freight 2010 Inland waterway freight, '000 tonnes 2011 2012 2013f 2014f 2015f 2016f 2017f 144,227.00 157,207.40 155,161.90 163,414.44 171,920.31 180,883.46 190,267.77 199,964.10 - % change y-o-y 4.73 9.00 -1.30 5.32 5.21 5.21 5.19 5.10 Inland waterway freight, mn tonnes/km* 31,679.00 36,620.90 36,792.60 38,731.92 40,730.78 42,837.09 45,042.37 47,320.98 - % change y-o-y 1.37 15.60 0.47 5.27 5.16 5.17 5.15 5.06 *2012 data is an estimate. f = BMI forecast. Source: General Statistics Office of Vietnam Rail Freight 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 the country's freight transport sector remains small. In 2013, we forecast Vietnam's rail freight volumes to account for just 1.8% of the total with the country's rail network transporting just 7.3mn tonnes of freight. Although like the other freight modes, we expect volumes to increase in line with Vietnam's economic growth outlook, rail freight volumes (while forecast to grow by 18% over the next five years) will only be handling 8.3mn tonnes in 2017; this is still way below that which we forecast for the nation's other main freight modes, road and inland waterways. There are two key factors that we believe have held back Vietnam's rail freight development and will continue to do so. © Business Monitor International Page 21 Vietnam Freight Transport Report Q4 2013 Table: Vietnam Transport Network Length (km) Vietnam Transport Network Length (km) Road 180,549 km Railway 17,702 km Inland Waterway 2,632 km Source: CIA World Factbook The first is the quality of Vietnam's railway infrastructure. The Global Economic Formula gives Vietnam's rail infrastructure a low ranking, placing it 71st globally out of 123 countries measured. This ranking places it 12th out of its 13 Asian peers. A major problem for Vietnam's rail freight development is the relative shortness of the country's rail network. Vietnam's railway lines extend for just 2,632km; this compares with the country's 180,549km network of roads and 17,702km 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 country has 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 road freight a more cost- and time-effective alternative; this stymies potential rail-freight projects between the two 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 and Laos). Table: Rail Freight 2010 Rail freight, '000 tonnes - % change y-o-y Rail freight, mn tonnes/km - % change y-o-y 2011 2012 2013f 2014f 2015f 2016f 2017f 7,861.50 7,234.10 7,003.50 7,292.04 7,519.58 7,759.34 8,010.37 8,269.75 -4.68 -7.98 -3.19 4.12 3.12 3.19 3.24 3.24 3,960.90 4,098.50 4,024.60 4,217.78 4,457.13 4,709.35 4,973.43 5,246.28 2.49 3.47 -1.80 4.80 5.67 5.66 5.61 5.49 f = BMI forecast. Source: General Statistics Office of Vietnam © Business Monitor International Page 22 Vietnam Freight Transport Report Q4 2013 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. As intra-Asia air freight routes develop, Vietnam is becoming better connected with air freight routes internationally. The key sectors that are demanding air freight as a transport option, include consumer electronics and pharmaceuticals. In line with Vietnam's economic growth and the projected pick up in international air freight, BMI forecasts the country's air freight volume growth to strengthen in 2013. We forecast Vietnam's air freight volumes to increase by 5.8% to reach 189,030 tonnes in 2013 a start of a recovery following the the 10.3% decline recorded in 2012. Over the medium term (2013-2017), we forecast Vietnam's air freight levels to grow on average per annum by 6.4% and by 36% over the full period to reach 243,200 tonnes. There are upside risks to these forecasts stemming from the continued interest of international air freight operators in Vietnam. Throughout 2012, Vietnam's Ho Chi Minh City airport became better connected with more air freight routes and BMI expects this trend to continue in 2013 and beyond. © Business Monitor International Page 23 Vietnam Freight Transport Report Q4 2013 Taking Off Vietnam Air Freight, '000 tonnes 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 supply chain, a key source of demand for air freight transport options. One example has been the impact the local production 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's trade 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 © Business Monitor International Page 24 Vietnam Freight Transport Report Q4 2013 the sector offering savings in transport time, along with environment controlled options, which are vital for the transport of some medicines and vaccinations. Table: Air Freight Air freight, '000 tonnes - % change y-o-y Air freight, mn tonnes/km - % change y-o-y 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 190.10 199.20 178.70 189.03 199.81 212.50 227.00 243.20 36.17 4.79 -10.29 5.78 5.71 6.35 6.82 7.14 426.80 449.00 480.90 499.51 527.98 557.98 589.38 621.84 34.81 5.20 7.10 3.87 5.70 5.68 5.63 5.51 f = BMI forecast. Source: General Statistics Office of Vietnam Maritime Freight Box Role To Continue Expanding 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 bulk commodity being shipped out of Vietnam and into China's main coal port of Qinhuangdao. Vietnam is an oil-producing nation, but its consumption needs have come to outweigh its supply and so the country is making use of the liquid bulk shipping sector to import oil. It is in the container shipping sector that Vietnam has seen the most development, a trend which is expected to continue. As Vietnam has become the factory of Asia, with an emphasis on the development of clothing and shoe exports, the country's ports and shipping links have had to keep up. As mentioned, considerable investment was ploughed into Vietnam's container terminal sector over the past five years, with international players participating. This investment is now starting to yield results, with Vietnam now directly connected to the key demand market of the US (in 2009) and Europe (in 2010). © Business Monitor International Page 25 Vietnam Freight Transport Report Q4 2013 Getting Better Connected UNCTADstat Liner Connectivity Index For Asia 2004 and 2013 Source: UNCTADstat The development of Vietnam's liner connections has been highlighted by data from UNCTAD's liner connectivity index. In 2004, Vietnam was ranked lowest out of its 14 Asian peers in terms of container line connectivity, but by 2013, it had jumped up the rankings to ninth place out of its 14 Asian neighbours. Vietnam's growing role in the global container shipping sector is also in evidence in the port of Ho Chi Minh's box throughput. In 2013, we expect container volumes to increase by 7.2% and over the medium term by an annual average of 8%. For more information on data and analysis of Vietnam's shipping sector, please see BMI's Vietnam Shipping Report. © Business Monitor International Page 26 Vietnam Freight Transport Report Q4 2013 Table: Maritime Freight 2010 2011 2012 2013f 2014f 2015f 2016f 2017f Port of Ho Chi Minh City (Saigon New) throughput, tonnes '000 31,132.00 33,450.71 36,029.40 38,449.95 41,115.35 44,217.29 47,788.37 51,799.89 - % change y-o-y 62.65 7.45 7.71 6.72 6.93 7.54 8.08 8.39 3,303.04 3,868.00 3,987.31 4,140.82 4,309.86 4,506.58 4,733.05 4,987.46 5.46 17.10 3.08 3.85 4.08 4.56 5.03 5.38 Port of Da Nang throughput, tonnes '000 - % change y-o-y f = BMI forecast. Source: Port authorities Trade Table: Trade Overview Real 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f Imports, real growth, % y-o-y 14.71 2.94 6.15 4.60 4.70 5.30 6.00 6.50 Exports, real growth, % y-o-y 15.41 11.42 5.10 5.50 5.90 6.40 6.70 6.90 Total trade, real growth, % y-o-y 15.06 7.18 5.63 5.05 5.30 5.85 6.35 6.70 Imports, US$bn 90.90 111.98 128.58 142.98 160.96 180.46 203.14 228.30 - % change y-o-y 24.06 12.58 12.11 12.57 12.38 Exports, US$bn 80.27 106.80 121.43 136.19 155.07 175.67 199.06 224.55 - % change y-o-y 26.14 13.87 13.28 13.32 12.81 171.17 218.78 250.01 279.17 316.04 356.12 402.21 452.86 12.68 12.94 12.59 Nominal Total trade, US$bn - % change y-o-y 25.03 23.18 33.06 27.81 14.83 13.69 14.27 11.20 12.15 11.66 13.21 e/f = BMI estimate/forecast. Source: BMI, General Statistics Office of Vietnam © Business Monitor International Page 27 Vietnam Freight Transport Report Q4 2013 Table: Key Trade Indicators Agricultural raw materials 2010 2011 2012e 2013f 2014f 2015f 2016f 2015f Imports, US$mn 2,666.48 3,758.86 4,284.36 4,814.68 5,493.28 6,233.29 7,086.65 7,994.26 28.31 40.97 13.98 12.38 14.09 13.47 13.69 12.81 3,436.62 3,385.63 3,927.56 4,397.46 4,984.36 5,620.50 6,460.05 7,213.80 116.99 -1.48 16.01 11.96 13.35 12.76 14.94 11.67 Exports, US$mn 594.33 800.03 918.52 1,038.10 1,191.11 1,357.96 1,546.57 1,753.71 - % change y-o-y 44.06 34.61 14.81 13.02 14.74 14.01 13.89 13.39 3,300.36 4,357.33 5,058.18 5,665.89 6,424.90 7,247.60 8,157.98 9,251.74 19.18 32.03 16.08 12.01 13.40 12.80 12.56 13.41 1,622.95 2,018.59 2,347.20 2,678.82 3,103.17 3,565.92 4,143.02 4,682.03 202.25 24.38 16.28 14.13 15.84 14.91 16.18 13.01 60,547.73 74,629.91 85,727.38 17.80 23.26 14.87 11.22 12.60 40,806.05 54,678.39 62,513.08 70,419.59 80,536.95 21.60 34.00 14.33 12.65 14.37 59,491.63 73,261.81 84,112.15 24.01 23.15 14.81 11.19 12.56 12.10 12.48 12.43 11,085.59 17,200.25 19,466.13 21,752.78 24,678.83 27,869.65 31,596.54 35,478.99 30.31 55.16 13.17 11.75 13.45 12.93 13.37 12.29 9,659.44 14,041.36 16,191.21 18,055.32 20,383.55 22,907.14 25,862.47 29,107.71 28.84 45.36 15.31 11.51 12.90 12.38 12.90 12.55 - % change y-o-y Exports, US$mn - % change y-o-y Ores and metals Imports, US$mn - % change y-o-y Iron and steel Exports, US$mn - % change y-o-y Imports, US$mn - % change y-o-y 95,349.88 107,368.20 120,394.90 135,293.06 152,285.94 12.13 12.37 12.56 Manufactured goods Exports, US$mn - % change y-o-y Imports, US$mn - % change y-o-y 91,569.78 103,959.06 117,709.67 13.70 13.53 13.23 93,520.36 105,271.02 118,007.63 132,736.16 149,241.20 Fuel Exports, US$mn - % change y-o-y Imports, US$mn - % change y-o-y e/f = BMI estimate/forecast. Source: BMI, UNCTAD © Business Monitor International Page 28 Vietnam Freight Transport Report Q4 2013 Table: Top Import Destinations, 2004-2011, US$mn 2004 2005 2006 2007 2008 2009 2010 2011 China, Mainland, US$mn 4,595 5,900 7,391 12,710 15,974 16,441 20,019 24,594 China, Mainland, US$mn, % of total 14.37 16.05 16.46 20.25 19.79 23.50 24.01 23.53 Korea, Republic Of, US$mn 3,359 3,594 3,908 5,340 7,255 6,976 9,761 13,176 Korea, Republic Of, US$mn, % of total 10.51 9.78 8.71 8.51 8.99 9.97 11.71 12.61 Japan, US$mn 3,553 4,074 4,702 6,189 8,240 7,468 9,016 10,400 Japan, US$mn, % of total 11.11 11.08 10.47 9.86 10.21 10.68 10.82 9.95 Singapore, US$mn 3,618 4,482 6,274 7,614 9,378 4,248 4,101 6,391 Singapore, US$mn, % of total 11.32 12.19 13.98 12.13 11.62 6.07 4.92 6.11 Thailand, US$mn 1,859 2,374 3,034 3,744 4,906 4,514 5,602 6,384 5.81 6.46 6.76 5.97 6.08 6.45 6.72 6.11 31,969 36,761 44,891 62,765 80,714 69,949 83,365 104,510 53.28 55.69 56.49 56.80 56.75 56.75 58.24 58.36 Thailand, US$mn, % of total TOTAL % from top 5 trade partners Source: IMF. N.B. Total exports is from Direction of Trade Statistics, consequently there may be some discrepancy with data used elsewhere in this report Table: Top Export Destinations, 2004-2011, US$mn 2004 2005 2006 2007 2008 2009 2010 2011 United States, US$mn 5,025 5,924 7,845 10,105 11,887 11,356 14,238 16,928 United States, US$mn, % of total 18.97 18.26 19.70 20.81 18.96 19.85 20.39 18.23 China, Mainland, US$mn 2,899 3,228 3,243 3,646 4,850 4,909 7,309 11,125 China, Mainland, US$mn, % of total 10.95 9.95 8.14 7.51 7.74 8.58 10.47 11.98 Japan, US$mn 3,542 4,340 5,240 6,090 8,468 6,292 7,728 10,781 Japan, US$mn, % of total 13.37 13.38 13.16 12.54 13.51 11.00 11.07 11.61 Korea, Republic Of, US$mn 608 664 843 1,243 1,794 2,065 3,092 4,715 Korea, Republic Of, US$mn, % of total 2.30 2.05 2.12 2.56 2.86 3.61 4.43 5.08 1,065 1,086 1,445 1,855 2,073 1,885 2,373 3,367 4.02 3.35 3.63 3.82 3.31 3.30 3.40 3.62 26,485 32,447 39,826 48,561 62,685 57,196 69,820 92,881 Germany, US$mn Germany, US$mn, % of total TOTAL © Business Monitor International Page 29 Vietnam Freight Transport Report Q4 2013 Top Export Destinations, 2004-2011, US$mn - Continued % from top 5 trade partners 2004 2005 2006 2007 2008 2009 2010 2011 49.78 47.11 46.85 47.33 46.45 46.42 49.82 50.56 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 © Business Monitor International Page 30 Vietnam Freight Transport Report Q4 2013 Market Overview Exports Provide Downside Risk Net exports remain the biggest downside risk to our outlook for the Vietnamese economy, although we expect external demand to pick up as we head into H1 2013, providing a glimmer of hope for the country's freight industry. Vietnam has been recording an average monthly trade surplus of US$172mn since June 2012 (resulting in a year-to-date surplus of US$77mn) and we see the case for a substantial pickup in external demand on the back of a rebound in regional growth over the coming month. However, we believe that China's structural imbalances will return in H2 2013, becoming a drag on regional growth. Accordingly, we still expect exports to expand at a moderate pace of 6.5% in 2013. Furthermore, the SBV's aggressive monetary easing cycle in 2012 has yet to achieve the desired effect of reaccelerating credit growth, as investor confidence remains depressed by uncertainties over the outlook for exports and the build up of bad debt in the banking sector. As the accompanying chart shows, credit growth has slowed from 9.4% year-on-year (y-o-y) in November to 8.9% as of December. Despite our view that credit conditions should continue to improve over the coming months, we expect credit growth to remain historically subdued at 11.0% for the full year, underpinning our benign outlook for inflation. Economic Recover Begins To Falter As mentioned in this report's Executive Summary, Vietnam's economic recovery is beginning to lose its momentum. The country recorded a relatively weak real GDP growth figure of 5.0% y-o-y in the second quarter of 2013, which was up only slightly from 4.9% in the quarter before that. Given that we have recently begun to see signs of a slowdown in economic activity across the Asian region, 2013 looks increasingly precarious for the Vietnamese economy. In mid-May 2013, we reported that we expect there to be further deterioration in external demand. Vietnam's trade account had fallen back into deficit territory in recent months. Should we see a sustained deterioration in the trade balance, we would not be surprised to see the Vietnamese dong coming under further selling pressures. Our bearishness towards South East Asian equities in 2013 has been predicated upon the lack of value in the market, rather than a more fundamental dislike of the region's macroeconomic credentials. As such, double-digit declines in the recent emerging markets shake-out have raised the question of whether © Business Monitor International Page 31 Vietnam Freight Transport Report Q4 2013 attractive entry points have opened up across ASEAN's benchmark bourses. While there is a case to be made for tactical opportunities in Singapore and Indonesia, our technical, valuation and fundamental assessment of the region suggests that further downside is likely in store over a multi-month horizon. That said, it is worth reminding readers that our bearishness towards South East Asian equities in 2013 has been predicated largely upon the lack of value in the market, rather than a more fundamental dislike of the region's macroeconomic credentials. The ASEAN economy, as a whole, is on course to be a global growth outperformer both this year and over the medium term. The Vietnamese government took a more aggressive stance with regards to speeding up economic reforms in 2012, and we expect this trend to remain in play in 2013 and beyond. Prime Minister Nguyen Tan Dung approved a master plan in February to further restructure the economy, strengthen oversight of the banking system and establish a roadmap to clean up state-owned enterprises (SOEs). The plan is expected to be implemented by June. We are optimistic that reforms to strengthen regulatory oversight of the banking system will help to improve the quality of credit and reinstall confidence in the banking sector. Investors have been staying on the sidelines and are keeping a close eye on the government's plan to establish a new debt management agency that is expected to consolidate non-performing loans from ailing banks. Progress on this front is encouraging, with the government unveiling plans to launch the debt management agency within a matter of weeks. Such reforms will play a crucial role in attracting greater foreign direct investment (FDI) into Vietnam over the coming quarters, and should complement renewed efforts by the government to speed up privatisation of state-owned enterprises (SOEs) to allow the private sector to assume a greater role in driving economic growth going forward. It is widely expected that at least seven SOEs will launch initial public offerings (IPOs) in 2013 and another 20 more SOEs could be listed by the end of the year if the response is favourable. © Business Monitor International Page 32 Vietnam Freight Transport Report Q4 2013 Healthy Medium Term Beckons Vietnam GDP Year-On-Year Growth 9 8 7 6 5 2016f 2017f 2015f 2014f 2013f 2011 2012 2009 2010 2008 2006 2007 2004 2005 2003 2001 2002 2000 4 Source: Asian Development Bank, General Statistics Office The economic headwinds that hit the US and the eurozone in 2012 should continue to act as a dampener on external demand throughout 2013 to some extent, especially in the case of the US, which is by some distance Vietnam's top export partner. In addition, another of Vietnam's largest export partners, China, is set to see a GDP growth cool in 2013, as is Japan. This suggests that production activity in the manufacturing sector and other export-based industries could face difficulties, with a negative effect on the freight transport industry expected as a result. The US economy's pace of growth is set to slow over the next 10 years to a long-term rate of 2.4% as deleveraging from a massive credit binge takes its toll. Nonetheless, BMI believes that the US is going to remain the world's greatest economic power over our 10-year forecast period to 2022 and beyond. It must be borne in mind that if the US sneezes, then figuratively, Vietnam catches a cold. This is true in the freight industry as a slowing in external demand will have a detrimental effect. Over the longer term, imports will be boosted by Vietnam's young population, as younger populations are generally more supportive of private consumption. The country has a population of 90.7mn, according to © Business Monitor International Page 33 Vietnam Freight Transport Report Q4 2013 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 mode for freight in Vietnam, with a market share of around 75% of domestic cargo. Few foreign companies are present in the market and there are many small, family owned road freight companies operating informally. Investment Needed Across The Board Vietnam Transport Infrastructure Rankings * Rail infrastructure is measured out of 123. Source: Global Economic Forums Competitiveness Index 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 123rd out of 142 countries surveyed in its Global Competitiveness Report 2011-2012. 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's © Business Monitor International Page 34 Vietnam Freight Transport Report Q4 2013 rail network totals 2,632km. The network is of mixed-gauge, comprising 2,105km of 1.000m gauge and 527km 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 airports from 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. This total puts the country in a poor 97th place in comparison with other countries. © Business Monitor International Page 35 Vietnam Freight Transport Report Q4 2013 Road Dominates Freight Mix Vietnam Freight Transport Mode Breakdown (% of Total 2013f) Source: General Statistics Office of Vietnam Vietnam's dense river and canal network provides the country with a highly developed inland waterway system of 17,702km. This is the second largest sub-sector involved in domestic cargo transport, accounting for 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 limited depth at the entrance. Some ports are located in big cities, thus making it difficult to connect with other modes of transport for cargo transfer 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 © Business Monitor International Page 36 Vietnam Freight Transport Report Q4 2013 111th out of 145 countries on the World Economic Forum's Global Competitiveness Report on the Quality of Port Infrastructure. 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 a whole. 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 US$4.5bn debt threatened to bring down the entire Vietnamese economy. Widespread investment in the country's infrastructure is necessary 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 the Vietnamese government will continue to develop this sector over the medium term. This is reflected in our forecast for transport infrastructure industry value, which is expected to grow by an average of 3.5% y-o-y between 2012 and 2016. According to our key infrastructure projects database, there are US$171bn worth of infrastructure projects planned or currently under way in Vietnam's transport sector. One of the most expensive of these is a US $3.6bn 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 of 9,000 twenty-foot equivalent units (TEUs) and the capacity to handle 0.5mn TEUs a year. The project is currently suspended, however, due to an ongoing review of geological conditions at the site. The air freight sector will undoubtedly benefit from the planned construction work on a new passenger terminal at Long Thanh international airport. Costing an estimated US$6.7bn, the work would also incorporate a new runway, providing capacity for 100mn passengers a year. A tender for investment consultancy 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 the government, 21,000 hectares in three communes in Cam My District and seven communes in Long Thanh are to be cleared for establishing new residential and urban areas, industrial zones, research institutes and © Business Monitor International Page 37 Vietnam Freight Transport Report Q4 2013 international service centres. The airport, which was approved in 2011 at a cost of US$6.74bn, will be the country's ninth international airport, serving 100mn passengers and 5mn tonnes of goods every year after becoming operational in 2020. © Business Monitor International Page 38 Vietnam Freight Transport Report Q4 2013 Industry Trends And Developments Maritime Government To Invest In Port Development The Vietnamese government is to invest in four big port development projects by 2020, reported VietNamNet Bridge at the end of June. The projects are marked as key initiatives by the Vietnam Maritime Bureau (Vinamarine), according to Vinamarine's head, Nguyen Nhat. The construction of big ports in Hai Phong and Van Phong, as well as deepening of the Hau River and the expansion of the Cai Mep Port are included in the projects. The building of the first two piers at Hai Phong is also set to secure financial support from the government. Meanwhile, the processing of 100,000 deadweight tonnage capacity ships will be permitted at the quays, which are due to be operational by 2016. Additionally, the state intends to secure investments to build eight wharfs. N&M Commodities To Build Deepwater Port Australian firm N&M Commodities is to build a huge deepwater port on Hon Khoai Island in the southernmost province of Ca Mau, Vietnam, it was reported at the end of June 2013. A proposal regarding the construction of the port, worth US$3.5bn, has been received by the government from the Ca Mau People's Committee. The huge deepwater port will have 12 berths to cater to coal, containers, ro-ros, oil and other commodities and will have the capacity to receive ships with up to 250,000 deadweight tonnage of capacity. The port will be spread over an area of more than 320 hectares. Work is expected to take place at the beginning of 2014. ERRIA Acquires 51% Stake In APMSS Danish shipping services company ERRIA successfully acquired a 51% stake in Vietnamese container services company APM Saigon Shipping (APMSS) from APM Terminals at the beginning of June 2013. ERRIA aims to expand the strong position built up by APMSS in a span of more than 20 years and continue to cater to the existing customers of international container transport. APMSS has also been renamed as ERRIA Container Services (ECS), and Le Ahn Tuan will continue to serve as the general manager of the firm. © Business Monitor International Page 39 Vietnam Freight Transport Report Q4 2013 Meanwhile, ERRIA's CEO Henrik N. Andersen will be appointed as ECS's new chairman. This transaction enables ERRIA to record significant and immediate growth. It will also make sure that ERRIA implement its strategic goal to grow as revealed at the Annual General Meeting in April. Multimodal DHL Intends To Invest EUR10mn German logistics specialist DHL Supply Chain is planning to make an investment of EUR10mn (US $13mn) for the expansion of its footprints in Vietnam over the next few years. As part of the expansion, the logistics specialist aims to construct new facilities, including a second build-to-suit distribution centre in Bac Ninh, which is due to be completed in Q3 2013. The company will also make investments in additional information technology, including a warehouse management system and a transportation management system. Meanwhile, DHL also announced plans to considerably raise its vehicle fleet and deploy more than 100 vehicles by 2015. This investment would amount to a forecast EUR140mn (US$180mn) with the majority of this total going towards new facilities. Oscar de Bok, CEO South and South East Asia, DHL Supply Chain, stated: 'Growing talent and training is key for DHL. In the last three years, we have doubled our headcount in Vietnam to the current 800 staff.' He added: 'To meet the demands of our future business and expand our workforce to some 2,200 people by 2015, we have rigorous training and development programmes in place to grow the local talent pool and deploy industry leading practices in the country.' Kerry Logistics Buys Majority Stake In Tin Thanh Express Hong Kong-based Kerry Logistics has expanded its network in Vietnam with the acquisition of a majority stake in Tin Thanh Express, it was reported in May 2013. Through this purchase, Kerry Logistics intends to provide one-stop-shop logistics and supply chain solutions to multi-national and local companies throughout Vietnam. The new joint venture company, named Kerry TTC Express, is a combination of Kerry Logistics' international freight network along with TTC Express' local competence and connections in Vietnam. © Business Monitor International Page 40 Vietnam Freight Transport Report Q4 2013 Kerry TT Express Chairman Rosa Du said: 'Vietnam is one of the fastest growing economies in Asia, we recognised that TTC Express is a market leader in its field. The new joint venture means that our customers will now be able to access a complete range of freight and logistics services in Vietnam, across Asia and around the world.' Logwin Moves To Hanoi Luxembourg-based air and ocean freight and logistics provider Logwin announced in May 2013 that it has moved all of its logistics and warehousing to a new facility in Hanoi, which comprises a bonded warehousing, storage and an area for specialist logistics services for the garment industry. The 5,200 square metre facility is located some 30 minutes from Hanoi, near to the airport. Logwin's Maik Juengst stated: 'The new facility is driven by growth in demand from our customers in Vietnam as the economy continues to grow and the export manufacturing sector develops. Manufacturers now actively look at leveraging the lower land and labour costs in Vietnam.' Rail VRA Reports Amendments Regarding Railway Development Planning Amendments relating to Vietnam's railway development planning to 2020, with a vision toward 2030 (2009 planning), have been reported by the Vietnam Railway Administration (VRA) to the Ministry of Transport in April 2013. According to a proposal from the consultancy unit that is tasked with amending the 2009 planning, Vietnam will weigh up the construction of a trial electrified 1,435mm Ngoc Hoi-Phu Ly gauge dual-track line, with a velocity ranging from 160 to 200km per hour. Overhauling the existing 1,726km north-south railway is estimated to require a total investment of VND39.87trn (US$1.9bn). Of the total, the capital demand to 2020 is set at VND18.61trn (US$886mn). ART Logistics Launches New Sea-Rail Service A new sea-rail service was established by ART Logistics at the beginning of June 2013. The new service, which connects Vietnam, along with Singapore, Malaysia, Indonesia, and Thailand to Central Asia will see cargo being transferred by sea from Haiphong in Vietnam and then this will be routed via railnetwork through the China corridor and onto Almaty, Kazakhstan. © Business Monitor International Page 41 Vietnam Freight Transport Report Q4 2013 Tatiana Serova of ART Logistics explained: 'The route from China to Central Asia has been underused in the past, as you need to have expertise in managing rail operations across Central Asia, and ART Logistics has its own team of professionals who ensure all documentation is in order at the China-Kazakhstan border. This ensures seamless transit for all shipments.' She added: 'Not every shipping line has container drop-off points in Central Asia, but ART Logistics has its own box fleet and an extensive network of drop-off locations within the region, as well as the on-the-ground transportation solutions.' Road Vietnam Invites Applications For Expressway Vietnamese Ministry of Transport issued a request in July 2013 inviting applications for qualification for a second investor for the US$757mn Dau Giay-Phan Thiet Expressway Project. Under the project, the successful bidders would design, finance, construct, operate and maintain a four-lane expressway and allied structures from Dau Giay in the Dong Nai province to Phan Thiet in the Binh Thuan province through a Special Purpose Vehicle. The Special Purpose Vehicle would be formed between Bitexco, which has been appointed as the first investor for the project, and the second investor. The first investor will have a share of 60% in the project and the other investor 40%. However, the first investor may dilute its share in favour of the second investor during the construction. © Business Monitor International Page 42 Vietnam Freight Transport Report Q4 2013 Company Profile Vietnam Airlines Cargo SWOT Analysis Strengths ■ Vietnam Airlines Cargo is the main air cargo provider in Vietnam. ■ The recent green light given to the purchase of Jetstar Pacific will only strengthen the company's domestic position. Weaknesses ■ Unlike its peers, Vietnam Airlines Cargo does not have a freighter fleet and is reliant on using the bellyholds of its parent company's planes. Opportunities ■ The air carrier is well placed to benefit from Vietnam's growing role in the trade sector. The country has flooded money into the development of the country's port sector, but BMI believes aviation also stands to benefit. ■ Vietnam Airlines is to reportedly run flights between the UK and Vietnam, which could result in cargo being transported in the bellyholds of aircraft in the future. ■ At the end of 2012, Vietnam Airlines announced that it was to introduce a new air route linking the Vietnamese capital with Jakarta, in a bid to 'boost tourism and economic links between Vietnam and Indonesia', according to Bloomberg Business Week. The flights will depart on Tuesdays, Wednesdays, Fridays and Sundays, leaving Ho Chi Minh City at 10am local time, and arriving in Jakarta at 1pm local time. Jakarta is now connected to six ASEAN countries in total. Threats ■ While the sector has recovered well, the outlook for global air freight remains volatile, especially with oil prices at their current high levels. Company Overview Vietnam Airlines Cargo's parent Vietnam Airlines began operations in 1956 serving the domestic market. In 1993, it was established as Vietnam's national carrier. The cargo carrier's operations are concentrated in Asia, catering for the domestic market. The airline operates its cargo business by transporting goods in the bellyholds of its passenger planes. © Business Monitor International Page 43 Vietnam Freight Transport Report Q4 2013 Strategy Operating out of hubs in Hanoi and Ho Chi Minh City, Vietnam Airlines Cargo has developed a network of both domestic and international routes. Within Vietnam the carrier lands at 18 domestic airports. It is heavily focused on Asia, with three freight flights to neighbouring Thailand and routes servicing China, Hong Kong, Japan, South Korea, Taiwan, Philippines, Malaysia and Indonesia. The air freight carrier is therefore able to cater for all five of Vietnam's top five import partners (China, Japan, Korea, Thailand and Singapore). Vietnam Airlines Cargo's expansion into China offers a launch pad for further services to other Chinese airports. It has also developed routes to Australia, with freight connections to Melbourne and Sydney. Allied to Vietnam Airlines Cargo's cargo links to three destinations in Europe (Paris, Frankfurt and Moscow), parent company Vietnam Airlines began operating a direct air route to the UK in the last months of 2011. The service flies to Gatwick Airport, with cargo space available in the bellyholds of planes going to and from London. Latest Activity Latest Activity Calls For New Vietnamese Airport In order to ease congestion at Ho Chi Minh City's Tan Son Nhat International Airport, Vietnam, officials at a meeting in Hanoi in July 2013 called for a new airport to be built in the country. Thanh Nien News reported the chairman of the board, Airports Corporation of Vietnam, Nguyen Nguyen Hung as stating: 'We should have started construction by now, in order to have the first phase completed by 2020.' Meanwhile, the Vietnamese news outlet also quoted Tran Quang Chau, chairman of the Aviation Science and Technology Association as asserting that a new airport in Vietnam should be given 'top priority'. Vietnam Airlines Increases Flight Frequency To GatwickVietnam Airlines has increased the frequency of its flights to Gatwick Airport, London, it was announced in April 2013. Another flight is to be added by the airline to Ho Chi Minh City, while Korean Air also reinstated flights to the London airport, highlighting the growth potential between Asia and the UK. Vietnam Airlines confirmed that it is to introduce a fifth weekly service from Gatwick, increasing its Ho Chi Minh City route to three flights a week from a previous two. Vietnam Airlines will also continue to serve Hanoi twice a week. © Business Monitor International Page 44 Vietnam Freight Transport Report Q4 2013 Vietnam Petroleum Transport Company (VIPCO) SWOT Analysis Strengths ■ Around 60% of VIPCO's fleet is employed by Petrolimex. ■ The company boasts a relatively young fleet. ■ It has diversified away from operating in a single sector, with a real estate arm. Weaknesses ■ VIPCO only operates in one shipping sector. Opportunities ■ The company plans to expand its fleet. Threats ■ Vietnam's reliance on imported refined products is decreasing as the country brings online more refining capacity, which could negatively affect VIPCO. In the longer term, Vietnam's refining capacity could allow the state to export. Company Overview The Vietnam Petroleum Transport Joint Stock Company (VIPCO) offers maritime transport for petroleum products. The company has a diversified portfolio, including units that support its product tanker fleet - such as its port operations and freight forwarding services. It is also engaged in real estate. Strategy VIPCO has developed a fleet of six product tankers with a total capacity of 176,111 deadweight tonnes (DWT). The fleet is relatively young with an average age of 16 years. VIPCO has a fleet expansion strategy in place and is prepared to invest either in newbuilds or purchasing tankers under the age of 10 years. The company plans to boost its fleet to 200,000DWT. The majority of VIPCO's tanker fleet (60%) is employed to meet the transport needs of the Vietnam National Petroleum Corporation (Petrolimex). The remaining 40% is charted to other consignees. Via its connection with Petrolimex, the company is able to cater for Vietnam's oil sector. While Vietnam has estimated oil reserves of 4.6bn barrels, it imports refined products. The company's shipping unit is complemented by its petrochemical terminal's sector. © Business Monitor International Page 45 Vietnam Freight Transport Report Q4 2013 Financial Data 2011 For the final quarter of 2011, VIPCO registered a drop in net income to VDN8bn, down from VDN51.7bn a year previously. Meanwhile, in mid-February 2012, the company saw its share price fall 2.2% to VND4,500. For the first half ended June 2011, the company reported a net profit of VND38.66bn (US$1.88mn), which represents a 121% year-on-year (y-o-y) increase. Revenues rose 36% y-o-y to VND943.12bn during this period, while six-month earnings per share were VND647, compared with less than half of that for the corresponding period of 2010. Latest Activity Petrolimex Launches New Subsidiary The board of directors of Vietnam National Petroleum Group (Petrolimex) made an announcement in February 2013 that a new wholly-owned subsidiary was to be established called PG Tanker. Headquartered in Hanoi, the subsidiary forms part of Petrolimex's restructuring plans and it will become the parent corporation to other subsidiary companies, including VIPCO, VITACO, PTS Hai Phong and Cua Cam Port. © Business Monitor International Page 46 Vietnam Freight Transport Report Q4 2013 Vietnam National Shipping Lines (Vinalines) SWOT Analysis Strengths ■ Diversified fleet operating in dry bulk, container and oil transport. ■ Largest commercial shipping line in Vietnam. ■ On December 16 2012, Vinalines launched the second biggest bulk carrier in Vietnam in Hai Phong city. Named Vosco Sunrise, the bulk carrier has been designed to cater for a deadweight of 56,200DWT. Weaknesses ■ Vietnam does not play a role on the major Asia-Europe routes, despite developing as a direct port of call on these routes. ■ The US$3.6bn Van Phong International Port project, primarily constructed by stateowned Vinalines, was suspended in June 2011 following a reassessment of the geological conditions at the project site. ■ Vietnamese shipping company Vinalines is currently US$2.1bn in debt, reported Reuters in June 2012. ■ Vinalines' heavy exposure to Vietnam's domestic transport sector, which has been performing well recently, indicates that the firm's struggles go beyond the troubles facing the global industry. Opportunities ■ Vietnam is expanding its role in the global box market and it is fast becoming a mainstay port of call on Asia-Europe services. ■ Potential to increase its intra-Asia role, shown by the expansion work at Cai Mep, and well placed to be chosen as a partner on these services by major lines. Threats ■ While Vietnam has invested heavily in its port network, the logistics supply chain could be let down by the landside freight network, which will have a negative impact on operators. ■ In 2011, Vinalines posted its first ever loss in 15 years of operations, with further losses expected. © Business Monitor International Page 47 Vietnam Freight Transport Report Q4 2013 SWOT Analysis - Continued ■ Overcapacity is a threat over the medium term, unless money is pumped into port facilities and infrastructure. ■ Vietnamese police issued an arrest warrant for the former chairman due to the scandal rocking the debt-mired company. Duong Chi Dung has been accused of deliberately mismanaging Vinalines during his tenure. ■ Vinalines has been stung by the poor performance of the three container terminals it has joint venture interests in. Company Overview Vinalines is Vietnam's largest commercial shipping line. Established in 1996, it caters for domestic trade in Vietnam and offers intra-Asia services. The company also has a port operating division that is the largest in Vietnam, controlling and managing ports in Quang Ninh, Hai Phong, Da Nang, Ho Chi Minh and Can Tho. Strategy Vinalines' 14 shipping companies operate a diverse fleet, dominated by dry bulk vessels but also boasting container ships, oil and product oil vessels. According to the company's website, Vinalines' fleet consisted of 128 vessels. The line is looking to expand, with a plan centred on increasing the proportion of specialised vessels such as box ships or oil tankers. In order to achieve this, the line was seeking to spend US$2bn on ordering new ships from Vietnamese yards seeking state funding for the plan. Vinalines has in fact ended up expanding its fleet quicker than intended, with the shipping line taking on 36 vessels from the debt laden Vietnamese shipbuilder Vinashin in July 2010. Vinaline's chairman, Duong Chi Dung, said at the time that up to two-thirds of the acquired vessels could not be used as they failed to meet technical requirements. He estimated that the company would need to spend US$26mn to repair the vessels and purchase insurance cover. Dung added that the company expected some financial aid from the government for the project. Vinalines services the trade needs of Vietnam's domestic shipping market, but also has exposure to the intra-Asia trade lane after joining forces with NYK in December 2010 to launch a Thailand-Vietnam-Singapore (TVS) service. Vinalines provides a 1,100 twentyfoot equivalent unit (TEU) vessel for the service. BMI believes that Vinalines' presence on the intra-Asia trade route will increase, with major lines looking to expand into the route and the company well placed to enter © Business Monitor International Page 48 Vietnam Freight Transport Report Q4 2013 partnerships with them. Vinalines is also increasing its contacts in the container sector, partnering with a number of the majors on container terminal projects in Vietnam. According to Port Strategy, Vietnam is of increasing interest in East Asia, due to the fact that it is focusing on becoming better connected with both short and long haul destinations. Providing the bedrock to this strategy are the new terminals constructed in the Cai Mep area. Financial Data 2013 Vinalines is bracing itself for a full-year loss of VND2.1trn (US$101mn) already as the company continues to perform abysmally following 2012's reported loss of VND2.44trn. The company's CEO, Nguyen Canh Viet, said: 'There are few transporting contracts amid these crisis times, while several partners refused to clear their payment on time, despite the cheap fares.' 2012 Vinalines announced a VND1,439bn (US$69.2mn) loss during the first half of 2012, which is around double the losses incurred for the corresponding period a year previous. The loss was attributed to a 'perfect storm of liquidity and jobs woes', according to Vinalines director Nguyen Canh Viet, reported by Vietnam Investment Review. 2011 Vinalines recorded a VND62.15bn (US$3mn) profit for 2011, despite posting a loss of VND660bn (US$32mn) in H111 - the first time this has ever occurred in the company's 15 years of operations. The results came as a surprise to analysts who were expecting the company to suffer from the sinking of the bulker Vinalines Queen. In 2011, Vinalines shipped 36.8mn tonnes of cargo, which was a 1% annual increase on 2010. Latest Activity Last of Vinashinlines' Ships To Be Sold Vinalines set itself the target of offloading the last of its six vessels owned by subsidiary Vinashinlines by June 30 2013 in a bid to reduce debts, according to Nguyen Dinh Thanh, deputy director of Vinalines. Previously, Vinashinlines had sold a ship for just under US$4mn on March 28. Vinashinlines is currently 'struggling to pay off debts to suppliers and repair stations,' Sea Trade Global reported. Government Asks Vinalines To Quit Port Project Vinalines has been asked by the government to withdraw its plans to participate in the development of the northern Lach Huyen Port, reported Sea Ship News in March 2013. The company will continue to concentrate on its ongoing port projects; however, Hanoi said that it needs to make arrangement of funds before it can mull over additional © Business Monitor International Page 49 Vietnam Freight Transport Report Q4 2013 expansion. Vinalines teamed up with Japan's Itochu, MOL and NYK for the development of the port. © Business Monitor International Page 50 Vietnam Freight Transport Report Q4 2013 Political Outlook Domestic Politics BMI View: The Communist Part of Vietnam (CPV) is set to face increasing pressure for political change over the coming decade. We view political reforms for a more balanced and democratic political system as a crucial element in driving the country's economic growth over the long run, and we expect the CPV to allow for limited reforms to be introduced gradually in the coming years. Vietnam's one-party political system is facing increasing pressure for change amid the growing discontent towards the government in recent years, especially among the younger and more-educated population. The ruling Communist Party of Vietnam (CPV), which has fiercely defended its totalitarian stance in the past, also appears to be slowly losing its grip on public opinion with increasing adoption of the internet, and in particular, social media's role in promoting political discussion among the country's youth in recent years. The CPV has maintained a hard-handed approach in dealing with political dissidents in the past. For example, the government has and continues to arrest and detain political dissidents who are deemed to be a major threat to the one-party system. These actions, however, have failed to stem the growing dissonance between an increasingly discontented population that is demanding democratic reforms and the almost fourdecade-old party and politburo that is desperately trying to hang on to its grip on power. Crucially, the CPV's hard-handed tactics have only further alienated itself from the younger population as Vietnam modernises and globalises, inevitably finding itself increasingly exposed to foreign influence. Democratic Reforms To Come Amid Push To Expand Economy The Vietnamese government's plan to liberalise the economy in order to attract more foreign investment to support economic growth over the next decade is likely to engender increasing calls for political reform, in our view. We believe that Vietnam's ambition to widen its economic footprint globally, coupled with its interests to remain as a member of the Association of South East Asian Nations (ASEAN) in order to participate in the region's integration, means that the CPV will inevitably see the need to shift towards a more moderate stance from its hard-handed approach to resisting political change. Failure to do so is likely to result in further dissent against the government, placing the country at greater risk of widespread public unrest and unsettling foreign investors' confidence towards the economy. Therefore, we view reforms for a more balanced and democratic political system as a crucial element in © Business Monitor International Page 51 Vietnam Freight Transport Report Q4 2013 driving the country's economic growth over the coming years, which has been factored into our forecast for Vietnam's real GDP growth to average a robust 6.7% from 2013-2022. Looking ahead, we believe that the CPV will eventually allow for limited democratic reforms to be introduced in the coming years, albeit gradually. We believe that these limited reforms will first come in the form of allowing for more debate within the National Assembly (NA) on economic policies, increased transparency and accountability from the government, greater efforts to clampdown and address rampant corruption at the lower level, and an increased tolerance towards the impact of social media and the internet. We view such reforms as a positive, if not crucial, development for both the political and economic landscape in Vietnam over the long run. To be sure, significant progress has already been made in recent years. The arrest of banking tycoon Nguyen Duc Kien in 2012 represented a strong signal that the government is adamant on eradicating corruption despite fears that doing so would damage the CPV internally, given the potential risk of retaliation from politicians with vested interests in the banking sector. At the very least, we see this as a sign of more political reforms to come. Table: Vietnam Political Overview System of Government Single-Party Socialist Republic Head of State President Truong Tan Sang (serving first five-year term) Head of Government Prime Minister Nguyen Tan Dung (serving second five-year term) Last Election Parliamentary - May 2011 Presidential - July 2011 Composition Of Current Government Key Figures Other Key Posts Communist Party of Vietnam The 14-person Communist Party Politburo, elected by the 160-person party central committee at the national party congress, acts as the de facto highest decision-making body and comprises the top leadership of the CPV. Its most important members are: Party General Secretary Nguyen Phu Trong, State President Truong Tan Sang, Prime Minister Nguyen Tan Dung, and Minister of Public Security Tran Dai Quang. National Assembly Chariman - Nguyen Sinh Hung, Minister of National Defence - Phung Quang Thanh, Minister of Planning and Investment - Bui Quang Vinh, Vice President - Nguyen Thi Doan, Central Bank Governor - Nguyen Van Binh. Main Political Parties (number of seats in parliament) Communist Party of Vietnam (CPV): Founded in Hong Kong in 1930, the CPV has been in power in North Vietnam since independence in 1954 and in the South since the end of the American War in 1975. Divisions exist within the party between a younger, more reform-minded faction originating from Southern Vietnam and an older generation, originating from the North, more aligned to traditionally communist ideology. Next Election Presidential and Parliamentary - May 2016 © Business Monitor International Page 52 Vietnam Freight Transport Report Q4 2013 Vietnam Political Overview - Continued Ongoing Disputes Ongoing dispute with China, Malaysia, the Philippines and Taiwan over Spratly Islands in South China Sea Key Relations/ Treaties ASEAN and WTO Member, Temporary seat (2008-2009) on the United Nations Security Council BMI ShortTerm Political Risk Rating 76.9 BMI Structural Political Risk Rating 52.8 Source: BMI Long-Term Political Outlook BMI View: Vietnam's biggest political question over the coming decade is whether one-party rule under the Communist Party of Vietnam (CPV) will face growing calls for democratisation, as was the case in other major South East Asian countries. While our core scenario envisages the CPV transforming itself into a technocratic administration, it faces major economic challenges which if mismanaged could lead to widespread unrest. On the foreign policy front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian nations with close relations with the US. Although Vietnam is a politically stable country, we view the ruling Communist Party of Vietnam (CPV)'s monopoly on political power as unsustainable over the long term. One of the CPV's biggest challenges will be managing Vietnam's transformation into a more pluralistic society over the coming decade and beyond. Indeed, the CPV's strict control of the media and political opinion is already cracking, with a growing number of internet bloggers becoming increasingly critical of government policy. Challenges And Threats To Stability Inflation And Devaluation As Drivers Of Discontent: As in neighbouring China, economic growth has brought sizeable material gains for the majority of the population. However, the Vietnamese government's loose fiscal and monetary policies have led to high levels of inflation and repeated devaluations of the dong in recent years, which have eroded the real value of wages and savings. A failure to contain inflation at a reasonable level and uphold the real value of the dong could undermine confidence in the regime. © Business Monitor International Page 53 Vietnam Freight Transport Report Q4 2013 Divisions Within The Communist Party: High inflation and devaluation have opened schisms within the CPV leadership between proponents of continued economic reform and a more conservative wing which believes that a deceleration or even reversal of reform policies would benefit macroeconomic stability. Ethnic And Regional Tensions: Vietnam is relatively homogeneous, with ethnic Viet comprising almost 90% of the population. Ethnic minorities in the Central Highlands have previously objected to government policies promoting migration of ethnic Viet into the highland region. While protests have died down, they could emerge in future. A potential spark could be the Chinese-financed bauxite mining project in Lam Dong and Dak Nong provinces, which is currently causing widespread environmental damage and raising ire among the local population. There are also continued cultural differences between the population of the Red River Delta around the capital Hanoi in the north and the population of the Mekong Delta in the south, where Ho Chi Minh City (formerly Saigon, the ex-capital of South Vietnam) remains the commercial capital. While the general perception is that northerners are more supportive of socialist rule and the southerners more inclined to support continued economic reform, a strong concept of national unity nevertheless exists in both parts of the country. Demands For Increased Religious Rights: One of the most concerted challenges against the CPV in recent years has come from Catholics wishing for a stronger recognition of their right to worship in what is still a nominally atheist country. Hanoi has ceded to pressure from the US to allow a higher degree of religious freedom, but is wary of the Catholic Church becoming a rallying point of political opposition, as was the case in Communist Poland and the Philippines during the Marcos dictatorship. The Vietnamese government has thus slapped heavy sentences on Catholic activists who have extended their fight to encompass increased political freedom. Relations With China: Relations with China have become increasingly strained in recent years as Beijing has expanded its economic, political and military influence southwards. The main point of contention is the conflicting territorial claims for the Paracel and Spratly Islands in the South China Sea. Vietnam's relations with China have also been strained by the large bilateral trade deficit it runs with its northern neighbour, which amounts to more than 10% of GDP, and criticism of a Chinese-financed bauxite mining project in the central highlands. That said, the regimes in Beijing and Hanoi share the same ideological base and political system, and contacts between their respective politburos have decreased tension between them. Nonetheless, we believe © Business Monitor International Page 54 Vietnam Freight Transport Report Q4 2013 Vietnam will seek increasingly close relations with the US - and potentially India and Japan - in the defence sphere, as a hedge against China's rising power in the region. Vietnam's long-term political risk rating of 53.8/100 is weighed down by a score of 27.6 in the 'characteristics of polity' subcomponent. This is due to the limited independence of the judiciary, the ban on political parties other than the CPV and severe limitations on the media and civil society. While these factors may presage stability in the short term, the experience of other South East Asian nations shows that rising wealth and development later lead to calls for political liberalisation. We have thus drawn up three scenarios for Vietnam's political future: Scenarios For Political Change Core Scenario - CPV Turns Into A Technocratic Regime: Our core scenario is for the CPV to shift increasingly towards a technocratic form of government aimed at maintaining high economic growth levels and an acceptable distribution of wealth across the population. Ambitious young Vietnamese are already joining the CPV as a career path and as a means to serve their country rather than because of ideological convictions. We thus foresee a continuation of economic reforms in spite of the criticism emanating from older more traditionally minded party members. However, intermittent periods of harsh repression against pro-democracy activists and other government critics are a strong indication that political liberalisation is not in the offing. Best-Case Scenario - Gradual Political Liberalisation: Our best-case scenario is the above scenario combined with a gradual move towards political liberalisation involving an expanded role for the National Assembly, greater scope for differing opinion within the CPV, increased political competition at elections, and greater media freedom. This scenario would see Vietnam moving from a one-party system towards a dominant-party system of the kind seen in neighbouring Cambodia, Malaysia and Singapore, where elections are held, but where only the ruling party has a realistic chance of winning them. Looking even further beyond the horizon, the experiences of South Korea, Taiwan and Japan have shown that even dominant-party systems eventually give way to opposition rule. However, in Vietnam's case this may be more than a decade away. Worst-Case Scenario - Mass Unrest And Violent Suppression: Our worst-case scenario involves severe policy missteps that lead to a period of prolonged economic upheaval with high unemployment and rapid inflation eroding wealth. This would significantly strengthen the case for regime change, as advocated by the pro-democracy movement. Faced with widespread street protests and an all-out challenge to one-party rule, we believe at least part of the CPV leadership would support a crackdown on demonstrators by © Business Monitor International Page 55 Vietnam Freight Transport Report Q4 2013 security forces in order to stay in power. A violent suppression of street protests as seen in Beijing in 1989 and in Myanmar in 2007 could easily result in a number of deaths and the imposition of sanctions by the international community. If so, Vietnam would likely face not only diplomatic isolation but also economic weakness as exports and foreign direct investment tumble. © Business Monitor International Page 56 Vietnam Freight Transport Report Q4 2013 Oil Price Outlook Global Oil Products Price Outlook As Brent partially recovered and WTI climbed steadily upward in recent months, oil product prices have also partially rebounded, though we still see weakness in naphtha and bunker fuel prices in particular. We maintain our view that as a result of lower Brent prices and relatively muted demand, oil product prices will average lower in 2013 than in 2012. In the longer term, downward pressure on product prices are likely to persist - a result of our forecast for crude prices to average lower from 2014 to 2017, a comfortable supply-demand picture in downstream production and consumption, and more importantly, weak demand in oil-based products. Nonetheless, despite the downtrend from 2012 peaks, crude prices in the US$90-100 per barrel range should keep oil product prices at historically elevated levels. Methodology Our refined products forecasts methodology is based on estimating the future spreads between each product - gasoline, gasoil/diesel, naphtha, jet fuel/kerosene, bunker fuel 180 and 380 - and its regional benchmark: WTI for products sold at New York, Brent for Rotterdam and Dubai for Singapore. Therefore, changes in crude prices (and our crude price forecasts) will automatically trigger movements in our forecasts for oil product prices. Our estimates of the spread between crude prices and individual oil products are determined by the following: ■ Supply: This will be affected by changes in regional and global refining capacity. ■ Demand: This is partly a function of our expectations of the trajectory of the global economy. With regard to customers, we have identified four main sectors/users for the respective products: kerosene/jet fuel in the aviation sector, gasoline and diesel for retail users and land freight operators, naphtha in the petrochemicals industry (a gauge for industrial activity) and bunker fuel for the shipping sector. In our outlook for demand we therefore incorporate forecasts and the views of BMI's Shipping, Freight Transport, Autos and Petrochemicals industry analysis, as well as the assumptions and forecasts from BMI's Country Risk analysts, in an effort to incorporate a wide range of industry data. Crude Price Forecasts In early June and July we revised our forecast for Brent and WTI for 2013. We now expect Brent to average US$106 per barrel (bbl) and WTI at US$99/bbl. Our forecast for Dubai, which takes into account the estimated spread between Dubai and Brent, is US$102.50/bbl (see BMI's Oil Price Outlook, 'WTI Pushed Higher As Upside View Plays Out', July 26). © Business Monitor International Page 57 Vietnam Freight Transport Report Q4 2013 Table: BMI's Oil Price Forecasts, Average Price (US$/bbl) 2013f 2014f 2015f 2016f 2017f 99.0 101.0 101.0 96.0 94.0 Brent - BMI Forecast 106.0 103.0 102.0 101.0 99.0 Dubai - BMI Forecast 102.5 101.5 100.5 98.5 96.5 WTI - BMI Forecast f = forecast. Source: BMI Product Prices Move Back Up But No Spikes Expected Economic concerns in Q213 saw the unwinding of the rally in oil prices witnessed in the first two months of 2013. As crude prices fell, oil product prices followed suit. However, a slight recovery in crude oil prices from mid-April has also led to a corresponding increase in oil product prices. Brent Makes Mild Recovery, WTI Bounces Right Up Front Month Price Of Brent & WTI, January - Present (US$/bbl) Source: Bloomberg The return of most product prices to March-April levels reinforces our view that oil product prices are likely to even out over 2013 following wild fluctuations in Q113. A moderation of prices in the Asian and © Business Monitor International Page 58 Vietnam Freight Transport Report Q4 2013 European markets should be seen as the price of Brent stabilises at around US$100-105/bbl throughout the remainder of the year, barring any supply shocks to the market caused by the eruption of tensions in the Middle East or major unplanned refinery outages. … And Oil Products Follow Suit Prices Of Selected Oil Products In Rotterdam, New York & Singapore Source: Bloomberg Narrower US Market Crude-Product Spreads However, as the graph above shows, prices of gasoil and gasoline in particular have seen stronger rebounds in New York than in other markets. This mirrors overall optimism regarding US economic growth, as well as the steep rise in the price of WTI that has wiped out much of the crude feedstock discount that US refiners had enjoyed over competitors elsewhere. Nonetheless, as US refiners have to compete with other producers in the global market, we expect the gains in product prices to be capped relative to gains in WTI. In view of higher WTI prices, we therefore anticipate a narrowing of the spread between New York product prices and WTI. Thus we have revised our spread forecasts downward for the US market. This will in turn diminish the refining margins of US refiners, though we note that they would still benefit from larger crude-product spreads than their European and Asian counterparts. The latter two are expected to see relatively stagnant crude-product spreads. © Business Monitor International Page 59 Vietnam Freight Transport Report Q4 2013 Falling Over Time Expected Crude-Product Spread* In New York, Rotterdam & Singapore (US$/bbl) *Average of forecast spread between crude benchmark and the following products: Gasoline, gasoil/diesel, naphtha, jet fuel and bunker fuels. Source: Bloomberg, BMI Weak Demand Persists Despite the recovery in crude prices, we maintain our outlook for lower prices for oil products as demand is expected to be muted over our forecast period from 2013 to 2017: ■ China worries: Consecutive months of weak PMI data coming from the Asian giant confirms our Country Risk team's below-consensus view on Chinese growth in 2013. Moreover, we have also consistently highlighted in our Commodities team's monthly write-up on Chinese industrial imports that China's refined product imports could follow a downward trend - both a result of slower growth and an increase in domestic refining capacity. As the world's second-largest oil consumer, slower Chinese demand would further loosen up the global oil products market. Our Country Risk team reiterates that the loss of momentum in the Chinese machine will also have knock-on effects for other economies. ■ Upward fuel price revisions: Some of the fastest growing oil markets have adjusted fuel prices at the pump in the past quarter in order to correct economic imbalances: China (March), Indonesia (June) and Vietnam (July). Higher prices are likely to see a cutback in oil consumption, and consequently oil product imports in these countries. ■ Other emerging market problems: Fiscal and monetary problems faced by Brazil and Argentina where subsidies fuelled a boom in oil consumption - could eventually make subsidies unsustainable. This could hit oil product demand from Latin America. © Business Monitor International Page 60 Vietnam Freight Transport Report Q4 2013 ■ Limited upside from US and Japan: Despite rising optimism in both the US and Japanese economies, we expect energy efficiency measures to limit oil demand growth that should accompany economic recovery. Moreover, Japanese oil consumption had been propped up in 2011 and 2012 by a switch to fossil fuels for power generation in the wake of the Fukushima nuclear meltdown. Tokyo is still considering the return of nuclear power, which could in turn reduce the power sector's demand for heavy fuels. ■ Weak consumption growth from Europe: Weakness in the eurozone, together with energy efficiency measures, will limit demand from this large market. ■ Increase in global refining capacity: The impact of this would be especially strong in the Asian market, thereby keeping margins depressed. ■ Beginning of a switch to alternative fuels: Liquefied natural gas (LNG) and biofuels can be expected to play a larger role, particularly in the transport sector as governments move to cap carbon emissions and as supplies of LNG and biofuels begin to grow. Our short-term forecasts for 2013 - which we have revised this quarter - show a year-on-year (y-o-y) decrease in prices across all products. This forms part of our view that an upward price trend that began in 2009 has reversed into a downtrend from 2012. This change is particularly pronounced in the bunker fuels market, for both 180 and 380 fuel grades. Nonetheless, , in the longer term, we expect prices to remain above levels seen in 2010 through to the end of our forecast period in 2017 as a result of high crude prices. © Business Monitor International Page 61 Vietnam Freight Transport Report Q4 2013 … And Bunker Prices Go Tumbling Down Bunker Fuel 180 Price Movements in Singapore, Rotterdam & New York, January 2012-Present (US$/ tonne) Source: Bloomberg The risks we highlight to our forecasts are: ■ Crude oil prices: Although we have already priced in OPEC support for prices in our crude oil price forecasts, we assume that the OPEC price floor will be set at US$100/bbl. Any larger-than-expected cuts in OPEC output, together with security risks in the Middle East, could support oil product prices. ■ Regional discrepancies in the fall in prices: As such, broad generalisations should be taken with caution. ■ Slower-than-expected downward trend in prices: Falling prices may delay the rise of alternative fuels, including some early movement towards LNG and biofuels in the transport sector and the power sector, which we have already seen in the shipping and air freight industries. This could in turn taper the downward trend in fuel prices. © Business Monitor International Page 62 Vietnam Freight Transport Report Q4 2013 Table: BMI's Refined Products Forecasts, US$/bbl 2011 2012 2013f 2014f 2015f 2016f 2017f Rotterdam 129.18 131.41 125.12 122.12 120.74 119.36 117.36 New York 128.23 130.74 124.00 121.00 119.00 117.60 115.60 Singapore 125.67 126.90 121.43 119.10 116.87 114.54 112.06 Global 127.70 129.68 123.52 120.74 118.87 117.17 115.01 Rotterdam 123.77 126.78 120.32 116.61 114.93 113.28 110.67 New York 126.64 130.79 126.37 122.89 120.70 119.64 117.64 Singapore 126.26 128.18 122.77 120.50 118.50 115.50 113.50 Global 125.56 128.58 123.15 120.00 118.04 116.14 113.94 Rotterdam 114.94 121.28 116.53 114.59 113.59 112.59 109.43 New York 119.30 124.79 121.04 118.63 116.87 113.46 111.46 Singapore 119.91 123.47 117.10 115.51 114.51 112.51 109.81 Global 118.05 123.18 118.22 116.24 114.99 112.85 110.23 Rotterdam 106.07 106.75 99.08 98.15 98.61 98.63 96.86 Singapore 102.46 102.87 97.09 98.80 97.50 95.80 94.07 Global 104.26 104.81 98.09 98.48 98.05 97.21 95.47 Rotterdam 97.27 101.52 94.80 91.69 90.58 89.46 87.46 New York 101.09 104.67 96.44 93.32 92.56 87.56 84.71 Singapore 100.14 102.46 93.52 92.07 92.01 90.86 89.63 99.50 102.88 94.92 92.36 91.72 89.29 87.27 Rotterdam 94.03 97.47 92.20 88.99 86.28 83.46 79.96 New York 97.13 100.32 91.63 88.63 86.63 79.63 75.63 Singapore 98.94 101.08 92.42 90.97 91.11 89.96 88.73 Global 96.70 99.62 92.09 89.53 88.01 84.35 81.44 Rotterdam 95.65 99.50 93.50 90.34 88.43 86.46 83.71 New York 99.11 102.50 94.04 90.98 89.59 83.59 80.17 Singapore 99.54 101.77 92.97 91.52 91.56 90.41 89.18 Jet Fuel Gasoil/Diesel Gasoline Naphtha Bunker Fuel 180 Global Bunker Fuel 380 Bunker Fuel Average © Business Monitor International Page 63 Vietnam Freight Transport Report Q4 2013 BMI's Refined Products Forecasts, US$/bbl - Continued Global 2011 2012 2013f 2014f 2015f 2016f 2017f 98.10 101.25 93.50 90.95 89.86 86.82 84.35 f = forecast. Source: BMI, Bloomberg Supply: Supported By Global Refining Capacity A slight increase in global refining capacity vis-à-vis demand between 2012 and 2017 will help contain dramatic increases in oil prices. According to our forecasts, based on refinery changes in our downstream database, refining capacity is expected to rise by approximately 10% between 2012 and 2017 - which is two percentage points higher than the growth we project for global oil consumption over the same period. Nonetheless, this expansion alone is insufficient to account for the fall in fuel prices that we expect to see. A Comfortable Supply-Demand Picture Global Refining Capacity And Oil Consumption, 2010-2017 ('000b/d) f = forecast. Source: EIA, BMI The geography of expansion is highly uneven. Emerging markets in Asia, the Middle East and Africa are building up their capacity. However, developed economies such as Japan and Europe will see more refinery © Business Monitor International Page 64 Vietnam Freight Transport Report Q4 2013 closures, which will in turn negate some of the loosening of the global fuels market that the former should have brought about. Emerging Markets Africa will see the fastest rate of regional refining capacity growth at 30%. However, the most significant growth in absolute volume will come from the Middle East - where Saudi Aramco has at least three large 300,000 barrels per day (b/d) refineries set to come online - and in Asia - where expansions continue apace in China and India, while Indonesia considers at least four large newbuild refinery projects. Meanwhile, Russia's refinery modernisation programme will see its plants continue to serve the market to make up for expected closures in Central Europe. Turkey - the fastest-growing market for oil in Europe - will also see significant refinery expansions. Market Growth Spurs Refining Expansion Refining Capacity Of Emerging Markets, 2010-2017 ('000b/d) Selected CEE = Russia, Azerbaijan, Turkey, Turkmenistan; Emerging Asia = China, India, Indonesia, Pakistan, Thailand, Vietnam; f = forecast. Source: EIA, BMI Therefore, most of these markets will be adequately prepared to meet an expected increase in local fuel demand and will have spare capacity for export, especially the Middle East and Russia. Even China, which © Business Monitor International Page 65 Vietnam Freight Transport Report Q4 2013 is set to overtake the US as the world's largest oil consumer, is on its way to becoming a net fuel exporter owing to a continued increase in its domestic refining capacity. This will loosen some pressure on global supplies and in turn prices, particularly in the Singapore market. Developed Markets Among developed markets, the outlook is brightest for US refiners which are amply supplied by cheaper crude feedstock available in the North American markets, thanks to a production boom in the US and Canada. However, due to fragmentation of the US refined fuels market, where supplies are concentrated in the refining heartlands of the Midwest and Gulf Coast, prices in import-dependent New York (East Coast) are expected to remain elevated and follow international trends. This will create an uneven market with prices that can vary vastly from region to region, reflecting differences in the crude baskets that refiners have access to. Lower runs and refinery closures in developed markets outside of the US will be the main factor propping up prices despite capacity expansion in emerging markets. At a time of high crude feedstock prices, crude import-dependent refiners in developed Europe and Japan will see their refining margins pressed. Weaker domestic demand (the cause of which will be further elaborated) also makes them dependent on external markets for support. However, their export competitiveness will be challenged by the smaller scale of their plants relative to newbuild and sophisticated facilities in emerging markets, and cheaper fuel exports coming out from the US. For example, European refiners are increasingly challenged by US competition in their traditional stronghold in West Africa, while cheaper Russian products are displacing local output in the Central European and Mediterranean markets. © Business Monitor International Page 66 Vietnam Freight Transport Report Q4 2013 Struggling Against The New Challengers Refining Capacity In Western Europe & Japan, 2010-2017 ('000b/d) f = forecast. Source: EIA, BMI This is already taking shape. At least three Japanese refineries - Sakaide, Tokuyama and Muroran - will end processing operations in 2014 on the back of a weak domestic market and legislation forcing the rationalisation and modernisation of refining operations. A Bloomberg survey highlights similar woes facing European refiners, showing that executives interviewed expect at least 10 plants in the region to permanently shut down by 2020. Losses in capacity in these traditional refining markets will limit the scale of global refining expansion, such that the global fuel markets will not be oversupplied and prices will not be forced down significantly. Slower demand growth - owing to an expected rise in fuel efficiency, tougher environmental rules, rollback of fuel subsidies and alternatives to oil products - explains the extent to which individual oil product prices will fall. Naphtha: Gas Renaissance Hits Demand Weak growth in some of the world's most industrialised economies will affect demand and its effect seems to be particularly pronounced for naphtha. Although most product prices have seen some partial recovery © Business Monitor International Page 67 Vietnam Freight Transport Report Q4 2013 following a sell-off in April, naphtha has been the slowest to rebound. At the time of writing, the average price of naphtha is 13% less than its mid-February peak price level - the lowest among all products. Slow To Rebound Differential Of Product Prices (At Time Of Writing) From 2013 Peak (%) Source: Bloomberg, BMI As a key feedstock for the petrochemicals industry - for which final demand is heavily reliant on industrial needs - naphtha is greatly exposed to wider macroeconomic trends. With the exception of the US, we expect tepid growth in key industrialised countries - growth in the eurozone and Japan is projected to average 1.0% and 1.1% respectively between 2013 and 2017. China's growth is also expected to slow from an average of 9.2% between 2008 and 2012 to 6.4% between 2013 and 2017. Although the US is expected to register 2.4% average growth over the same period, naphtha is not likely to benefit from it. This is largely because much of the petrochemical sector in the US is increasingly switching to gas-based ethane as feedstock for ethylene production instead of naphtha to capitalise on lower gas prices (see 'Gas Price Movements Present Risk To Shale Bet', July 19). With fiercer competition from the US, Asian petrochemical giants may be forced to roll back production to maintain their bottom lines, which will further dampen demand for naphtha. © Business Monitor International Page 68 Vietnam Freight Transport Report Q4 2013 Naphtha Losing Competitiveness Versus Ethane Diverging Trends In Contract Margins For Naphtha-Based Ethylene (South Korea) & Ethane-Based Ethylene (US), USd/gallon Source: Bloomberg We forecast an average price of US$99.08/bbl for naphtha in 2013 - a 7.2% fall from 2012 when economic prospects were equally bleak. Over the longer term the fall in crude prices, alongside slow growth in key countries, will see naphtha prices fall by 2% between 2013 and 2017. An exacerbation of the eurozone crisis or economic shocks elsewhere pose downside risk to this forecast, though we note that the negative spread between crude benchmark prices and naphtha prices limits the extent to which prices can fall further. Gasoline And Gasoil/Diesel: Subsidies & Fuel Efficiency Cap Upward Movement Gasoline and gasoil/diesel - key for the land transport sector - will also be affected by a weak global economic outlook. Complicating demand for gasoline and gasoil/diesel are green measures; fuel-efficient vehicles and green legislation limiting emissions will further limit growth in consumption of these fuels in developed countries. Oil-based fuels could also see a growing challenge from alternative power sources such as batteries or natural gas - LNG and compressed natural gas (CNG) - as the preferred choice in the transport sector towards the tail-end of our forecast period, both in emerging and developed markets. © Business Monitor International Page 69 Vietnam Freight Transport Report Q4 2013 For example, Indonesia, the Philippines and Pakistan are pushing their countries towards CNG for transportation, while China has already started a pilot programme to run public buses and taxis on LNG in selected cities. A rollback of fuel subsidies or price controls on fuel - which China, Indonesia and Vietnam have enacted under budgetary and monetary pressures - would also slow demand growth significantly in these key growth markets. Together with an anticipated increase in regional refining capacity (and associated output), we expect a move towards convergence in prices at Rotterdam and Singapore as the Asian market loosens. Meanwhile, in the US, major freight player UPS is deploying more gas-powered trucks in its fleet. Other major transport companies could follow suit, given the low price of domestic gas in the US and under a small but growing shift towards green policies. Meanwhile, Volkswagen's Scirocco R-Cup - a car race that will pit cars powered by CNG against each other - could also indicate a growing embrace of gas-powered cars at the household level. The challenge posed by gas to oil-based fuels will likely grow, especially if supported by a further fall in gas prices globally. Our average global gasoline price for 2013 is US$118.22/bbl, compared to an average of US$123.18/bbl in 2012. The average global gasoil/diesel price for 2013 is forecast at US$123.15/bbl - a 4% y-o-y fall. Over the longer term, we expect gasoline and gasoil/diesel prices to fall about 7% between 2013 and 2017. © Business Monitor International Page 70 Vietnam Freight Transport Report Q4 2013 Demand Pressures And Crude Price Changes Support Downward Trend Average Price Of Gasoline, 2012-2017 (US$/bbl) f = forecast. Source: Bloomberg, BMI Jet Fuel: Slump Restricts Upward Movement We forecast that jet fuel prices will fall steadily through to 2017, in line with our other fuel products forecasts. Between 2013 and 2017, prices are forecast to fall by 8% in Singapore, 7% in Rotterdam and 6% in New York. © Business Monitor International Page 71 Vietnam Freight Transport Report Q4 2013 No Take-Off Expected Average Price Of Jet Fuel, 2012-2017 (US$/bbl) f = forecast. Source: Bloomberg, BMI We expect that European, North American and Asian air freight carriers will continue to be squeezed in 2013 and going into 2014, by a challenging global economic picture and the continued growth of Middle Eastern carriers and their new hubs in the Gulf. This will have knock-on effects on jet fuel demand. Indeed, the industry's troubled run continues into 2013 with year-to-date (ytd) figures from IATA to the end of May 2013 showing a global decline in freight tonne-km (FTK) of 0.2%. The only bright spot remains the Middle East, which posted positive growth. IATA did, however, continue to record an increase in passenger demand going into 2013. At the time of writing, passenger traffic for May 2013 (the most recent data available) saw 5.6% y-o-y growth, marking year-to-date growth of 4.3%. Nonetheless, it warned that a decrease in consumer confidence owing to macroeconomic developments will affect this upward trend. Moreover, even at these higher levels, load factors were at 78.1%, implying that spare capacity remains. Hence, it will take a significantly large increase in passenger traffic to translate into more flights and jet fuel demand. Thus we see little upside risk to our short-term jet fuel price forecast. © Business Monitor International Page 72 Vietnam Freight Transport Report Q4 2013 Table: Total Air Freight And Passenger Volumes May 2013 vs. May 2012 YTD 2013 vs. YTD 2012 RPK (% change y-o-y) FTK (% change y-o-y) RPK (% chg y-o-y) FTK (% chg y-o-y) International 5.7 0.8 4.5 0.1 Domestic 5.6 0.6 4.0 -0.8 Total Market 5.6 0.8 4.3 0.1 RPK: Revenue-Passenger-Kilometres; FTK: Freight-Tonne-Kilometres. Source: IATA Bunker Fuels: No Rest To Downward Movement In Sight Our global average forecast for bunker fuel (the average of the 180 and 380 grades' global prices) has been revised downwards to US$93.50/bbl for 2013 (following a downward revision in our Brent price forecast). This marks a 7.7% decrease from the 2012 average of US$101.25 - the highest average price recorded over the last three years. Of all the oil products, the downtrend in bunker fuel prices looks the most pronounced. 2012 saw a strong downward trend in bunker fuel prices, reversing a strong price rally that had taken off in 2009. © Business Monitor International Page 73 Vietnam Freight Transport Report Q4 2013 End Of The Uptrend Bloomberg Average Weighted Price Of Bunker Fuel 180 & Bunker Fuel 380, 2010-Present (US$/bbl) Source: Bloomberg, BMI Downward pressure on bunker fuel prices is chiefly a result of weakness in the global shipping industry. We have also been highlighting three key risks to shipping, each of which will have a knock-on effect on bunker fuels demand: ■ High risk of global overcapacity: This threat is complicated by an expected increase in new and more fuel-efficient ships - especially container ships. 2013 has seen ships with new mega-vessel capacity, including Maersk Line's Triple E-Type 18,000 twenty-foot equivalent unit (TEU) vessel, the largest ship to date, come online. Importantly, these ships are not just larger, but are also more fuel-efficient than those currently employed around the globe, thereby reducing bunker fuels demand. ■ Overall cleaner shipping industry: These efficiency trends are also part of a broader push for a greener industry by both governments with forward-leaning environmental policies and major ports themselves. Hong Kong and Los Angeles - two of the largest ports in the world - are demanding that container ships utilise cleaner bunker fuels than today's standards. ■ Separate push to increase the utilisation of LNG as a shipping fuel: Several European ports have invested in LNG shipping infrastructure to support this new industry. Singapore has also engaged Lloyd's Register to help develop its port's LNG bunkering capabilities. Det Norske Veritas (DNV), a ship classification bureau, estimates that 19-45% of ships will be powered using LNG by 2030. Meanwhile, Maersk Line wants to test biofuels and NYK Line is trialling a solar power-assisted car carrier. While this remains a long-term prospect that will only kick in towards the end of our forecast period, it will dampen oil-based bunker fuel demand in the long term. © Business Monitor International Page 74 Vietnam Freight Transport Report Q4 2013 Although prices will remain elevated by historical standards, our forecast for a decline in bunker fuel costs should offer shipping companies some short-term relief and take the pressure off their bottom lines in the coming years. As such, we believe that companies will continue to slow steam in an effort to conserve fuel and cut expenditures, as well as embrace the push towards cleaner-burning fuels. All of this is to say that the overall trend for bunker fuels will be that of reduced demand over the medium term. © Business Monitor International Page 75 Vietnam Freight Transport Report Q4 2013 Macroeconomic Forecasts Economic Analysis Vietnam's real GDP growth came in relatively weak at 4.9% year-on-year (y-o-y) in Q113, missing Bloomberg consensus of 5.2% by a significant margin. The latest GDP print has fuelled concerns that the economic recovery could be losing momentum as the government races to restructure the banking sector and reassure investors that a banking crisis can be avoided. Although we acknowledge that uncertainties over the build-up of bad debt in the banking sector could continue to weigh on investor sentiment and undermine efforts by the government to reignite growth, this is typically the final saga of a credit cycle. Furthermore, we have witnessed encouraging evidence that an economic recovery in the coming quarters remains on track. Banking Sector Woes Continue To Weigh Vietnam - Real GDP, VNDbn (LHS) & % chg y-o-y (RHS) Source: BMI, General Statistics Office PMI Data Suggests Economic Recovery Remains On Track The HSBC Purchasing Managers' Index (PMI) showed that Vietnam's manufacturing sector witnessed a strong rebound in March, with the index punching above the crucial 50 point mark to post a 23-month high © Business Monitor International Page 76 Vietnam Freight Transport Report Q4 2013 of 50.8, up from 48.3 in February. We have also witnessed a strong PMI reading of 51.6 in China, up from 50.4 in February, signalling that robust demand from the Chinese economy could lend some support in boosting Vietnam's exports over the coming months. The latest set of PMI data reinforces our conviction that economic activity in Vietnam will accelerate over the coming quarters on the back of improving macroeconomic fundamentals and easing credit conditions. Meanwhile, the Vietnamese equity market has also witnessed a strong performance since the beginning of the year, with the benchmark Ho Chi Minh Index (VNI) recording impressive gains of around 20% year-to-date. We view this as a sign of increasingly bullish sentiment towards the country's long-term growth story. The Vietnamese government has also taken a more aggressive stance with regards to speeding up economic reforms since 2012, and we expect this trend to remain in play in 2013 and beyond. Prime Minister Nguyen Tan Dung approved a master plan in February to further restructure the economy, strengthen oversight of the banking system and establish a roadmap to clean up state-owned enterprises (SOEs). The plan is expected to be implemented by June. We are optimistic that reforms to strengthen regulatory oversight of the banking system will help to improve the quality of credit and reinstall confidence in the banking sector going forward. Investors have been staying on the sidelines and are keeping a close eye on the government's plan to establish a new debt management agency that is expected to consolidate non-performing loans from ailing banks. Progress on this front is encouraging, with the government unveiling plans to launch the debt management agency within a matter of weeks. Such reforms will play a crucial role in attracting greater foreign direct investment (FDI) into Vietnam over the coming quarters, and should complement renewed efforts by the government to speed up privatisation of state-owned enterprises (SOEs) to allow the private sector to assume a greater role in driving economic growth going forward. It is widely expected that at least seven SOEs will launch initial public offerings (IPOs) in 2013 and another 20 more SOEs could be listed by the end of the year if the response is favourable. © Business Monitor International Page 77 Vietnam Freight Transport Report Q4 2013 Recovery Remains On Track Vietnam - Purchasing Managers' Index Source: BMI, Markit/HSBC Downward Revision To Reflect Weak Q113, But Growth Trajectory Intact That said, we do not deny that it has been a wobbly start for the Vietnamese economy in Q113, and that progress on restructuring the banking sector has been relatively slow compared to what we have initially anticipated. We expect the recovery in real GDP growth to come into focus in the latter parts of 2013, or potentially even 2014. Accordingly, we have toned down our real GDP growth target for 2013 from 7.0% to 6.3% to take into account of the weaker-than-expected first quarter data and we are keeping our growth target of 7.2% for 2014. Expenditure Breakdown Private Consumption: We expect private consumption to grow at a robust pace of 5.2% in 2013. However, we note that the risk of further bankruptcies among SMEs could potentially lead to widespread job losses, especially in export-driven sectors. Uncertainties over the outlook for employment could, in turn, prompt households to cut back on spending. © Business Monitor International Page 78 Vietnam Freight Transport Report Q4 2013 Gross Fixed Capital Formation: We foresee a significant pickup in private sector investment growth in 2013, partly led by increased foreign direct investment inflows. We believe lending rates will gradually ease over the coming months as the effect of recent rate cuts by the SBV begins to kick in. We are also seeing evidence that credit conditions are improving. Accordingly, we expect gross fixed capital formation growth to accelerate from 4.3% in 2012 to 5.1% in 2013. Public Spending: We expect total public spending to remain relatively resilient in 2013, expanding at a respectable pace of 5.3%. However, there is limited room for the government to increase spending further owing to concerns over the need to finance a potential bailout of ailing state-owned commercial banks. Net Exports: Net exports remain the biggest downside risk to our outlook for the Vietnamese economy, although we expect external demand to pick up through H213. Vietnam's trade account has fallen back into deficits in recent months, but we see the case for a substantial pickup in external demand on the back of a rebound in regional growth over the coming quarters. Accordingly, we still expect exports to expand at a moderate pace of 6.3% in 2013. © Business Monitor International Page 79 Vietnam Freight Transport Report Q4 2013 Table: Vietnam - Economic Activity 2010 2011 2012 2013f 2014f 2015f 2016f 2017f Nominal GDP, VNDbn 2 1,980,914 2,536,631 2,950,684 3,339,417 3,788,926 4,274,013 4,802,601 5,389,075 Nominal GDP, US$bn 2 103.6 122.8 141.4 159.8 184.2 210.2 238.9 269.5 Real GDP growth, % change y-o-y 2 6.8 6.0 5.0 6.3 7.2 7.2 7.0 6.9 GDP per capita, US$ 2 1,179 1,383 1,575 1,762 2,012 2,274 2,561 2,863 Population, mn 3 87.8 88.8 89.7 90.7 91.6 92.4 93.3 94.1 Industrial production index, % y-o-y, ave 1,4 14.1 10.9 7.0 12.0 14.0 13.0 12.0 11.0 Unemployment, % of labour force, eop 4 4.3 4.5 6.0 4.8 4.7 4.6 4.5 4.4 Notes: e BMI estimates. f BMI forecasts. 1 at 1994 prices. Sources: 2 Asian Development Bank, General Statistics Office; 3 World Bank/UN/BMI; 4 General Statistics Office. © Business Monitor International Page 80 Vietnam Freight Transport Report Q4 2013 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Vietnam's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Source: World Bank, UN, BMI © Business Monitor International Page 81 Vietnam Freight Transport Report Q4 2013 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012e 2015f 2020f 67,102 74,008 78,758 83,161 87,848 89,730 92,443 96,355 0-4 years 9,340 9,212 7,002 6,776 7,186 7,186 7,026 6,529 5-9 years 8,685 9,193 9,124 6,921 6,703 6,885 7,143 6,982 10-14 years 7,504 8,604 9,142 9,038 6,844 6,539 6,668 7,104 15-19 years 7,127 7,408 8,535 9,064 8,963 8,161 6,806 6,628 20-24 years 6,492 7,003 7,305 8,420 8,954 9,115 8,892 6,745 25-29 years 5,893 6,361 6,879 7,167 8,284 8,602 8,862 8,803 30-34 years 4,884 5,779 6,250 6,765 7,058 7,475 8,202 8,779 35-39 years 3,965 4,794 5,688 6,163 6,677 6,770 6,991 8,131 40-44 years 2,420 3,884 4,710 5,614 6,086 6,304 6,609 6,925 45-49 years 2,039 2,358 3,802 4,653 5,548 5,761 6,012 6,536 50-54 years 1,933 1,968 2,287 3,739 4,580 4,936 5,449 5,914 55-59 years 1,946 1,843 1,887 2,201 3,617 4,001 4,446 5,305 60-64 years 1,544 1,822 1,737 1,767 2,076 2,573 3,455 4,268 65-69 years 1,283 1,391 1,659 1,582 1,621 1,649 1,927 3,233 70-74 years 919 1,084 1,194 1,439 1,389 1,384 1,438 1,729 1,127 1,305 1,559 1,852 2,264 2,388 2,516 2,743 Total 75+ years f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 82 Vietnam Freight Transport Report Q4 2013 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012 2015f 2020f 0-4 years 13.92 12.45 8.89 8.15 8.18 8.01 7.60 6.78 5-9 years 12.94 12.42 11.58 8.32 7.63 7.67 7.73 7.25 10-14 years 11.18 11.63 11.61 10.87 7.79 7.29 7.21 7.37 15-19 years 10.62 10.01 10.84 10.90 10.20 9.10 7.36 6.88 20-24 years 9.68 9.46 9.27 10.13 10.19 10.16 9.62 7.00 25-29 years 8.78 8.60 8.73 8.62 9.43 9.59 9.59 9.14 30-34 years 7.28 7.81 7.94 8.14 8.03 8.33 8.87 9.11 35-39 years 5.91 6.48 7.22 7.41 7.60 7.55 7.56 8.44 40-44 years 3.61 5.25 5.98 6.75 6.93 7.03 7.15 7.19 45-49 years 3.04 3.19 4.83 5.59 6.32 6.42 6.50 6.78 50-54 years 2.88 2.66 2.90 4.50 5.21 5.50 5.89 6.14 55-59 years 2.90 2.49 2.40 2.65 4.12 4.46 4.81 5.51 60-64 years 2.30 2.46 2.21 2.12 2.36 2.87 3.74 4.43 65-69 years 1.91 1.88 2.11 1.90 1.85 1.84 2.08 3.36 70-74 years 1.37 1.46 1.52 1.73 1.58 1.54 1.56 1.79 75+ years 1.68 1.76 1.98 2.23 2.58 2.66 2.72 2.85 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 83 Vietnam Freight Transport Report Q4 2013 Table: Vietnam's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age 1 Dependent population, total, '000 2 Active population, % of total 3 Active population, total, '000 4 Youth population, % of total working age 5 Youth population, total, '000 6 1990 1995 2000 2005 2010 2012 2015f 2020f 75.5 71.2 60.5 49.7 42.1 40.9 40.6 41.6 28,859 30,790 29,679 27,609 26,006 26,031 26,717 28,321 57.0 58.4 62.3 66.8 70.4 71.0 71.1 70.6 38,243 43,218 49,079 55,552 61,842 63,699 65,725 68,034 66.8 62.5 51.5 40.9 33.5 32.4 31.7 30.3 25,529 27,009 25,268 22,735 20,732 20,610 20,837 20,615 8.7 8.7 9.0 8.8 8.5 8.5 8.9 11.3 3,330 3,780 4,411 4,874 5,274 5,421 5,881 7,706 Pensionable population, % of total working age 7 Pensionable population, '000 8 f = BMI forecast; 1 0>15 plus 65+, as % of total working age population; 2 0>15 plus 65+; 3 15-64, as % of total population; 4 15-64; 5 0>15, % of total working age population; 6 0>15; 7 65+, % of total working age population; 8 65+. Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012 2015f 2020f Urban population, % of total 20.3 22.2 24.3 26.4 28.7 29.7 31.2 33.9 Rural population, % of total 79.7 77.8 75.7 73.6 71.3 70.3 68.8 66.1 Urban population, '000 13,438.6 16,201.6 18,865.4 21,940.1 25,212.5 26,649.9 28,842.1 32,664.4 Rural population, '000 52,761.4 56,778.4 58,770.0 61,166.2 62,635.9 63,080.4 63,600.5 63,690.7 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 84 Vietnam Freight Transport Report Q4 2013 Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part of all our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Transport Industry There are a number of principal criteria that drive our forecasts for each transport variable: GDP Growth As transport activity is heavily influenced by real GDP growth, this factor is examined to ascertain its relationship with overall trade volumes. Projected GDP growth is calculated using BMI's own macroeconomic and demographic forecasts. © Business Monitor International Page 85 Vietnam Freight Transport Report Q4 2013 Real Trade Volumes The sum of imports and exports plays a particularly important role in developing countries with a small domestic industrial sector. In particular, the focus is on goods, as services do not employ transport. The volumes are forecast based on the following criteria: ■ Trends manifested through historical data; ■ The impact of future step changes to the economy (such as future membership of the EU or some other regional body). Port Traffic Port traffic levels act as a 'second opinion' on trade volumes. However, this check needs to be used with caution as trade values and volumes do not always move over time in the same way. Market Share The market share of each mode (road, rail, inland waterway, coastal shipping) for future years is based upon: ■ Trends in historical modal split data; ■ Evidence of government policy favouring one or more modes over others; ■ Government and or private sector investment plans in specific modes. Sources Sources used in transport reports include local transport ministries, officially released company results and figures, established think tanks and institutes and donor agencies such as the World Bank and the Asian Development Bank. © Business Monitor International Page 86 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Vietnam © Business Monitor International Page 22 Vietnam Freight Transport Report Q4 2013 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 As intra-Asia air freight routes develop, Vietnam. .. Vietnam Freight Transport Report Q4 2013 Road Dominates Freight Mix Vietnam Freight Transport Mode Breakdown (% of Total 2013f) Source: General Statistics Office of Vietnam Vietnam's dense river and canal network provides the country with a highly developed inland waterway system of 17,702km This is the second largest sub-sector involved in domestic cargo transport, accounting for 25-30% of total transport. .. more air freight routes and BMI expects this trend to continue in 2013 and beyond © Business Monitor International Page 23 Vietnam Freight Transport Report Q4 2013 Taking Off Vietnam Air Freight, '000 tonnes 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. .. Statistics Office of Vietnam Inland Waterways Play A Major Role; Mekong Offers Trade Links With Neighbours Vietnam' s inland waterways play a considerable role in the country's freight transport sector making it the second-largest freight transport mode in the country In 2013, we estimate that 163.4mn tonnes of freight © Business Monitor International Page 19 Vietnam Freight Transport Report Q4 2013 will be... to meet its freight needs, with © Business Monitor International Page 24 Vietnam Freight Transport Report Q4 2013 the sector offering savings in transport time, along with environment controlled options, which are vital for the transport of some medicines and vaccinations Table: Air Freight Air freight, '000 tonnes - % change y-o-y Air freight, mn tonnes/km - % change y-o-y 2010 2011 2012 2013f 2014f... below that which we forecast for the nation's other main freight modes, road and inland waterways There are two key factors that we believe have held back Vietnam' s rail freight development and will continue to do so © Business Monitor International Page 21 Vietnam Freight Transport Report Q4 2013 Table: Vietnam Transport Network Length (km) Vietnam Transport Network Length (km) Road 180,549 km Railway... met by road In 2013, we predict that road freight volumes in Vietnam will account for 81.9% freight carried in the country Road Reliant Vietnam Freight Mode Breakdown By Market Share 2013 Source: BMI We forecast that growth in road freight volume will strengthen in 2013 in line with the pickup in Vietnam' s economic recovery and the stronger export outlook for the country We project road freight volumes.. .Vietnam Freight Transport Report Q4 2013 Vietnam Freight Transport Industry SWOT - Continued ■ Growing international interest in Vietnam as a growth market within the box shipping sector ■ The Vietnamese province of Dong Nai is to clear land near the proposed Long Thanh International Airport in order... Mekong River, which enables freight connections with Vietnam' s neighbours Although we highlight that the River's full potential has not been reached and so development in the River is an area for potential investment © Business Monitor International Page 20 Vietnam Freight Transport Report Q4 2013 Table: Inland Waterway Freight 2010 Inland waterway freight, '000 tonnes 2011 2012 2013f 2014f 2015f 2016f... increase by 7.2% and over the medium term by an annual average of 8% For more information on data and analysis of Vietnam' s shipping sector, please see BMI's Vietnam Shipping Report © Business Monitor International Page 26 Vietnam Freight Transport Report Q4 2013 Table: Maritime Freight 2010 2011 2012 2013f 2014f 2015f 2016f 2017f Port of Ho Chi Minh City (Saigon New) throughput, tonnes '000 31,132.00 33,450.71