Vietnam Trade Growth Tests Infrastructure To Limits, Says Report

Research suggests transportation and logistics infrastructure requires significant new investment

Singapore, Ho Chi Minh City, 25 January 2007 ? Vietnam?s transition to a market economy and the fulfillment of its potential as a trading nation could be accelerated if it fast tracks the development of world-class transportation infrastructure and logistics systems, according to new research.

A white paper, entitled: ?Vietnam Transportation and Logistics: Challenges and Opportunities?, developed jointly by global growth consulting company Frost & Sullivan and global container shipping and logistics group Neptune Orient Lines (NOL) and its subsidiaries, APL and APL Logistics, examines various aspects of Vietnam?s transportation and logistics environment - from container shipping and ports to the cold chain.

The report highlights the enormous potential of Vietnam as one of the world?s fastest-growing sourcing and manufacturing locations. Its economy is forecast to grow by around 8 percent annually for the next decade. Business-friendly Government policies have led to increased inflows of foreign direct investment (FDI). Initiatives to further integrate with the world economy, including Vietnam?s recently secured membership of the World Trade Organisation (WTO), are likely to accelerate trade growth even more.

However, to cope with this expansion, Vietnam needs to address several major challenges such as improving its infrastructure and systems for transportation and logistics.

Launching the report in Ho Chi Minh City yesterday, NOL Group President & CEO, Dr Thomas Held, said: ?We hope this paper contributes to a better global understanding of Vietnam, and helps our customers navigate their way to opportunities in this exciting country.?

?The success Vietnam has seen is just the beginning. It has the potential to become a global trading power and a leading Asian logistics and shipping hub. But with great opportunities come great challenges. Vietnam?s development must be supported and facilitated by cargo handling facilities and related infrastructure of international standard. If it fails to do this, inefficiency, high costs and congestion could become a painful reality."

The NOL Group is well placed to study the Vietnam market. Its association with the country began more than 16 years ago and it was the first Singapore-based transportation and logistics company to establish wholly owned operations in Vietnam on 1 January 2007. It is also the major investor in the Vietnam International Container Terminal (VICT), which became the country?s first purpose-built container handling facility when it commenced operations in 1998.
?Vietnam has already experienced phenomenal growth, but this study reaffirms the need for more investment, expertise and infrastructure for the country to sit at the top table of Asia ?s trading nations,? said Tan Hua Joo, the NOL Group?s Managing Director in Vietnam.

"Vietnam joining the WTO will present tremendous international trade and manufacturing growth opportunities for global as well as domestic companies. Efficient logistics management will be a significant challenge for companies that want to capitalise on this growth. Having the right transportation and logistics partner with global capabilities, and local coverage will be a key factor for success in Vietnam," said Frost & Sullivan Partner, Kavan Mukhtyar.

Logistics Landscape
Vietnam?s logistics industry is relatively under-developed. The report suggests that the relative inefficiency of the air and ocean transportation system, as well as landside infrastructure such as warehouses and distribution facilities, is hampering the growth of efficient logistics practices in the country.

Logistics outsourcing is nascent and highly fragmented with around 800 operators, which are mainly small local operators with limited coverage, service ranges and IT capabilities.

On a more positive note, the report adds that the Vietnamese Government is introducing measures to improve logistics infrastructure and the participation of international operators. But change will take time.

Container Shipping
The rapid growth of the Vietnam economy and its closer integration with the global economy has been accompanied by a surge in external trade volumes ? particularly in the past five years ?according to the report. In this period, exports to Europe and the United States (US) have grown at a faster rate than Asian volumes. However, intra-Asia volumes continue to dominate ? contributing the bulk of the country?s total container volumes.

Ports
Over the past 10 years, container volumes have increased by almost 20 percent. However, the ports are facing a number of critical challenges, including the lack of deepwater facilities that can receive ships of more than 1,600 TEU (twenty-foot equivalent unit); old and inefficient ports; and a congested and under-developed landside infrastructure.

The report suggests the key commercial gateway of Ho Chi Minh City, which accounts for more than 70 percent of Vietnam?s container throughout, is facing serious congestion issues with existing port and landside infrastructure at near to full capacity, and planned new facilities not scheduled to be operational for several years.

Roads
New roads are urgently needed ? particularly in major urban areas such as Ho Chi Minh City and Hanoi, which face increasing traffic congestion.

?An improved road network will also open up more suburban and rural areas to development and provide new opportunities for the rural population to share in Vietnam?s economic success,? the report adds.

Rail and Air
Vietnam?s rail and air facilities and network also lag behind international standards and account for a disproportionately low share of the overall transportation market, according to the report. The rapid development of these modes will enhance Vietnam?s domestic and international connectivity, which will support trade growth as well as the transportation, logistics and tourism sectors.

Cold Chain
Vietnam?s produce ? particularly seafood, rice and coffee ? contribute around 30 percent of the country ?s GDP. But the report states that Vietnam lacks an integrated cold chain. WTO accession will see new domestic and international markets opening and demand for specialised handling and transportation will rise significantly. The cold chain space is a major opportunity for international operators, many of whom have already begun to launch initiatives to improve facilities and infrastructure, the report concludes.Link to Executive Summary