Vietnam Freight Transport Report Q3 2012

Despite the fact that the macroeconomic picture across the globe currently looks bleak for this year - Vietnam's main export partners, the US, China and Japan, are all set to suffer slowdowns during 2012 - Vietnam's freight transport industry appears to be heading towards a period of sustained healthy growth in the mid term. The country's nickname of the 'factory of Asia' - a reputation based on the country's booming exports, which have buoyed the freight sector - still stands, although exports are set to be adversely affected by the predicted 'hard landing' in China this year, as well as a weak eurozone. Leading the way in terms of annual growth in 2012 will be the road sector, which is set for 6.97% growth. Taking second spot by mode will be air freight, with 5.72% growth predicted, while rail freight will also enjoy healthy growth of 5.29%. Inland waterways will perform well this year, with annual growth forecast to come in at 5.11%. Meanwhile, the maritime sector will be led by the port of Ho Chi Minh City, which is expected to see very healthy tonnage throughput rates not only in 2012 but in the mid term also.

However, we caution that in order for the country to fully realise its potential, there must continue to be investment in the sector through to the long term, if Vietnam is to ward off the spectre of overcapacity.

The country's existing infrastructure is sadly lacking and needs a considerable financial injection if it is to fulfil its potential.

Headline Industry Data

2012 rail freight tonnage is set to increase by 5.29% to 8.62mn tonnes.

2012 air freight tonnage is forecast to rise by 5.72% to 206,960 tonnes.

Tonnage handled at the Port of Ho Chi Minh City in 2012 is forecast to grow 7.96% in 2012, whereas tonnage handled at the Port of Da Nang is forecast to increase 3.08%.

2012 road freight tonnage is forecast to grow by 6.97%.

2012 total trade is forecast to rise by 8.45% Key Industry Trends Saudia Expands Far East Connections As Middle Eastern Air Freight Sees Fastest 2011 Growth A new service that has been launched by Saudi Airlines Cargo is indicative of a range of trends emerging, namely the declining reliance of mainland China on the airport hubs of Hong Kong and Singapore, and the rapid growth of the Middle Eastern air cargo carriers. The freight wing of Saudi Airlines, Saudi Airlines Cargo (generally known as Saudia) launched a new dedicated freighter flight between the European hub of Brussels and the Chinese industrial centre of Guangzhou on March 4.

Maersk Line And BSNF Announce Asia-US Trade Route Danish shipper Maersk Line and BSNF Railway, a US subsidiary of Warren Buffett's Berkshire Hathaway, announced the launch of a sea and rail carrier service connecting the US with Asia in March 2012. The route will carry freight from China via South Korea, Japan, Malaysia and Vietnam and reach Chicago, Dallas, Fort Worth, Houston, Memphis and Ohio before anchoring at the Port of Los Angeles.

Cai Mep-Thi Vai Ports Underused, Despite US$7bn Investment Ports in the Cai Mep-Thi Vai region of the Vietnamese province of Ba Ria-Vung Tau have been struggling to attract vessels. According to the Vietnam Port Association (VPA), the ports have a total container handling capacity of as much as 8mn twenty-foot equivalent units (TEUs); however, the actual demand only comes to around 5mn TEUs. This is despite a total investment of over US$7bn by the end of 2011.

Key Risks To Outlook The freight industry in Vietnam is no different to its regional peers in that volumes from the Asia Pacific region are very much reliant on the level of demand from the West in the key markets of the eurozone and, particularly, the US. With BMI forecasting a recession in the eurozone in 2012, and continued sluggish growth in the US, consumer confidence in purchasing expensive discretionary items has fallen.

The hard landing expected in China - as one of Vietnam's largest export partners - will also have an impact on Vietnam. We see downside risk in the form of the rate hikes being introduced for imports and exports in the shipping sphere. A report published in March 2012 by VietNamNet Bridge has stressed that 2012 could prove to be a difficult year for Vietnamese shippers due to oversupply of vessel tonnage.

The report explained that various shipping lines have made their intentions known that they are to up their rates from the current rate of US$700 per TEU to around US$1,400 per TEU. However, Vietnam Ship Owners' Association chairman Do Xuan Quynh moved to assuage any fears, saying that the planned rate hikes would not result in any great change.

Furthermore, any drop off in Chinese demand would have negative connotations for the Vietnamese shipping and ports sector. If Chinese economic growth slows, as we believe it will, volumes on intra-Asia routes will be hard hit. Given the fact that the region was flooded with interest from international lines and terminal operators in the wake of the global economic crisis, this is a cause for concern.