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Asia Business Development – Asia Business Consulting » Vietnam Logistics in Motion

SpirE-Journal 2008 Q2

Vietnam Logistics in Motion

Reader's Ratings:


Global Outlook & Demand Drivers-Growth to continue but at a slower rate in 2008 & 2009
World growth will slow to ~4% in 2008, with emerging markets remaining as lead growth drivers

– US GDP growth will likely be zero-tonegative in Q208-Q308
– But China, India & Russia made up almost half of global GDP growth in 2007 and will help cushion the slowdown.

While weaker US demand and a weakening US$ will make a big impact on the more export dependent economies of TW, HK & SG
other growth drivers in the region – including healthy domestic demand, exports to non-US markets markets , foreign direct investments (FDIs) foreign direct investments(FDIs) , and fixed asset investment (FAI) and fixed asset investment (FAI) – remain on track
Foreign Direct Investment (FDI) inflows into AP remain strong,including for Vietnam

– China FDI will probably exceed US$70b for 2008
– Indian FDI has been surging since 2006 and is likely to hit US$25-35b for 2008
– Vietnam’s FDI surge (~US$30b likely in 2008) continues unaffected by the inflationary crisis, due to continuing political stability & a likely easing of the Dong

Regional Overview for Logistics Robust but slowing growth in 2008
Developing Asia’s trade performance in the last two decades has been remarkable
From 1984 to 2004, its exports expanded almost 10-fold and by 2004 had reached 21.3%
Asia now accounts for 40% of the world s total output Asia now accounts for 40% of the world’s total output in PPP terms, and this percentage is expected to rise to 60% with the rapid output expansion in China and India
The Asian transportation market is projected to grow from US$700 billion to over US$1.3 trillion by 2020*, with most of the growth coming from the North-east Asian mega market
Prospects hinge on rising bunker costs and a slowing US economy
Air/Ocean Freight Growth will continue but at a slower rate compared to 2007
Fuelled by strong trans-Pacific and East Asian trade, air and ocean freight volumes have been increasing steadily
Long-term growth prospects are bright

– By 2025, 2,990 aircraft will be added to freighter fleets around the world, with three out of four of those planes being converted from passenger jets

Double-digit growth in demand for international container shipping services in 2007

– prompted operators to go on a buying spree – capesize ships, the largest type of bulk carrier, have almost tripled in price to US$96m from 1998

However there are short-term concerns – container shipping on the Asia-EU and Asia-US routes have slowed in 1Q-2Q 2008, though intra-Asian routes have not been badly affected
ASEAN Initiatives ASEAN integrates further into single market
The ASEAN logistics market has seen an upward trend for the past 3-4 years, and is expected to continue growing strongly over the next five years
Under the ASEAN Free Trade Area (AFTA), significant progress has been achieved in reducing goods tariff

– 99.8% of goods under the Inclusion List for the Asean-6 countries (Brunei, Indonesia, Malaysia, the Philippines,Singapore and Thailand) are in the tariff range of 0-5%
– ASEAN governments have also committed themselves to liberalizing their nations’ services sectors, the first of which is to establish an ASEAN Open Skies Agreement in 2008

China implemented the China-ASEAN Trade in Goods(TIG) Agreement in July 2005

– The CAFTA-TIG Agreement covers tariff-lines representing more than 95% of China-ASEAN trade, which grew annually by 23% from 1997-2005 to reach US$130 5b
– Trade with ASEAN represented about 9% of China’s total trade in 2005, making ASEAN its fifth largest trading partner following the EU, US, Japan and Hong Kong

Vietnam was admitted as a member of WTO in 2007
Asia’s Infrastructure Initiatives New infrastructure & systems will aid logistics growth in Asia

Asia’s Infrastructure Initiatives New infrastructure & systems will aid logistics growth in Asia

Vietnam is one of the world’s fastest-growing sourcing and manufacturing locations – average export growth rate was the highest in the region during the last decade
Vietnam now has an estimated 160 industrial parks
The Vietnamese government has set the following major targets for the logistics sector: more than 5mil DWT in 2010; more than 7mil DWT in 2015; and 11mil DWT in 2020

– Target is for maritime transport to account for 45% of total domestic cargo transportation by 2020
– Most ports under Vietnam Ports Association have new investment projects or upgrading projects with total of 36 projects and total investment of US$1.3b from 2008 until 2010

Vietnam will invest US$17.5b in developing logistic infrastructure
Vietnam now has >800 logistics companies, covering the North, Central and South regions

-The massive expansion in the numbers of market players is the result of the revised Law on Enterprises which came into effect on 1 Jan 2000 came into effect on 1 Jan 2000 removing many barriers in establishing logistics enterprises
– If the same trend continues, in a few years time Vietnam will surpass Thailand (1,100) in terms of the number of domestic market players, not to mention Singapore (800), Indonesia and the Philippines (700-800)

Vietnam’s logistics companies can only meet 25% of the local demand and have been focusing on a few services in this huge service value chain
Vietnam’s Infrastructure Investment VN is committed to investing heavily in logistics
Logistics volume continues to rise

– In 2007 the number of ships and cargo going through Vietnam’s sea ports increased to 88,619 with a total of 320,176 million tons of goods, an increase of 18.02% compared with 200
– Strong growth is seen in key economic hubs such as Hai Phong (growth of 47.32% compared with 2006), HCMC (17.41%) and Da Nang (27.27%)

Airports such as Noi Bai and Cat Bi will be restored and enlarged to enhance capacity
Roads will be upgraded to meet international or national standards
The Asian Development Bank (ADB) has agreed to provide soft loans totaling US$880m to Vietnam, helping it implement three projects on building expressways and roads this year

-Of the future loans, US$500m will be used to finance the development of an expressway linking southern Ho Chi Minh city and southern Dong Nai province, US$350m the construction of two bridges in the Mekong Delta, and US$30m the technical preparation for the development of three expressways in both northern and southern localities

Memoranda of understanding (MOUs) were signed between 16 companies from both the south of Vietnam and the city of Zhanjiang of China regarding a number of projects worth a total of US$158m in seaports and other industries
Country Outlook – Commodities & Logistics Commodities & LogisticsVietnam logistics and infrastructure set to ride on commodities boom
Vietnam has set an ambitious target of earning more than US$58b from exports in 2008, an increase of around 20% from 200
Rising commodity prices are lifting Vietnam’s booming commodities exports and, together with a post-WTO surge in manufacturing FDI, helping turn the country into a global export powerhouse

-Vietnam’s produce – particularly seafood, rice and coffee –contribute around 30% of the country’s GDP and command significant global market share

– The Ministry of Fisheries has unveiled plans to export US$2.3bworth of seafood this year, including about $380m from Ca Mau Province alone

-Vietnam is the second largest coffee exporter in the world –revenue of US$1.8b in coffee exports, increasing earnings by 50% from 2006

– Demand for specialized handling and transportation will rise significantly – especially in the area of integrated cold chain

-Recent public refrigerated warehouse (PRW) investment, local and foreign, will increase storage investment, local and foreign, will increase storage capacity by more than 90,000 pallet positions

– Malaysian cold storage provider Haisan Resources invested some US$3.6m to set up a temperature-controlled logistics facility in southern Vietnam

Country Outlook – Collaboration Collaboration Vietnam’s collaborations with Singapore
Vietnam is collaborating with Singapore in developing integrated port and logistics facilities in Vietnam

– At least four new container sea ports projects have been planned and are now in progress
– Singapore’s PSA has formed a joint venture with Saigon Port to develop a container terminal in the Ba Ria-Vung Tau province
– NOL Group has a stake in the Vietnam International Container Terminals, the first dedicated container port in Vietnam

A Vietnam-Singapore joint venture kicked off construction of Vietnam’s first petroleum bonded warehouse in Van Phong Bay of Khanh Hoa Province on the central coast

-The venture, comprising Vietnam National Petroleum Corporation (Petrolimex), its subsidiary Petrolimex Joint Stock Insurance Company (Pjico) and PB Tankers of Singapore, will invest US$170 million in Van Phong petrol terminal

– The terminal would be equipped with the most advanced equipment, comparable to any other storage terminals in Asia

The Concluding Picture Vietnam Logistics Is in Motion! Opportunities to Ride on This Motion
Asian economic growth will slow in 2008 and 2009, before going up again in 2010
However, there is plenty of Asian domestic demand to go around to cushion against weaker exports exports so what Asia will see is probably a slowdown not a 1998 , so what Asia will see is probably a slowdown, not a 1998–style recession
The outlook for international trade and logistics is positive – governments and private companies in Asia are prepared to invest in transport and logistics infrastructure
In spite of an inflation induced slump in domestic consumption, Vietnam will continue to grow its export sector, particularly in commodities

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