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VIETNAM
FREIGHT TRANSPORT REPORT
INCLUDES 5-YEAR FORECASTS TO 2018
ISSN 1750-5364
Published by:Business Monitor International
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CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Freight Transport ...................................................................................................................................... 9
Political ................................................................................................................................................. 12
Economic ............................................................................................................................................... 13
Business Environment .............................................................................................................................. 14
Trade ................................................................................................................................................... 25
Table: Trade Overview, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Table: TOP IMPORT DESTINATIONS, 2005-2012, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Table: TOP EXPORT DESTINATIONS, 2005-2012, US$mn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
33
34
36
36
37
Page 4
Methodology ......................................................................................................................................... 56
Crude Price Forecasts ............................................................................................................................ 57
Table: BMI's Oil Price Forecasts, Average Price (US$/bbl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
59
60
61
65
Methodology ...................................................................................................................... 87
Industry Forecast Methodology ................................................................................................................ 87
Sector-Specific Methodology .................................................................................................................... 88
Sources ................................................................................................................................................ 89
Page 5
In welcome news for Vietnam's freight industry, officials from firms such as Nike, Levi's and Zara attended
a public briefing in November 2013 over the status of the trade discussions between Vietnam and the
EU. One of the matters discussed was the fashion industry's push to mitigate the global 'rules of origin'. The
rules of origin can result into a significant amount of money for the goods coming from Vietnam to the EU.
According to the apparel manufacturers, the modern trade policy must not punish firms for manufacturing
goods in more than one country.
However, Europe's domestic textile industry is against the relaxation of tariffs. 'There are still very high
tariffs and significant trade barriers in place which make it hard for importers and exporters to do business,
and the free trade agreement could potentially solve this issue,' said Tim McPhie, a European Branded
Clothing Alliance spokesperson (CNBC).
In 2014, the freight picture by mode is a little mixed but is steady across the board in terms of growth.
Leading the way over the next 12 months will be the road freight sector with healthy 6.05% tonnage yearon-year (y-o-y) growth anticipated. The maritime sector is also forecast for strong growth with the Port of
Da Nang set for slightly higher annual growth than the larger Port of Ho Chi Minh City (7.00% compared to
6.06%). Slightly lower y-o-y growth is pencilled in for both the rail and air freight sectors (3.12% and
3.00% respectively).
Tonnage handled at the Port of Ho Chi Minh City in 2014 is forecast to grow 6.06%, whereas tonnage
handled at the Port of Da Nang is forecast to increase 7.00%.
Page 7
The transport sector forms the bulk of infrastructure investment pipeline in Vietnam across our 10-year
forecast period, expected to account for 60-65% in 2022. In part, this is because the country 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. As such, we expect the transport infrastructure
industry value to grow by an average of 4.5% year-on-year (y-o-y) between 2014 and 2017.
Upside risk could present itself should the Vietnamese government pay heed to calls by the Deputy Minister
of Planning and Investment Nguyen Van Trung to create a favourable investment climate to boost investor
confidence. He emphasised the need to increase investment promotions to attract more advanced technology
and environmentally friendly projects to support the industries in its industrial zones (IZs) and economic
zones (EZs). Currently, the country has 289 IZs and 15 coastal EZs, which account for 35%, or more than
US$80bn, of the country's annual import-export turnover. In addition, these zones attract around 70% of the
total foreign investment flow into the country, and generate more than 2mn local jobs.
Page 8
SWOT
Freight Transport
SWOT Analysis
Strengths
Vietnam's strong domestic growth rate, coupled with its geography - it stretches for
thousands of kilometres on a north-south axis, creates a need for long-distance
freight haulage.
A recovery of activity levels at the nation's ports in 2010 is expected to continue over
the mid-term to 2018.
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.
Vietnamese shipping company Vinashinlines has announced that 90% of its vessels,
including Diamond Way and Sea Eagle, have been sold. The firm added that a number
Page 9
of the carriers had been purchased for prices above their original valuation, Hellenic
Shipping News reported in early October 2013.
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.
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.
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.
It was announced in June 2013 that the Laos government is to build a new railway
line between the country and its Asian neighbours, Vietnam and Thailand. 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.
Page 10
The Asian Development Bank (ADB) has announced that it will provide a US$410mn
loan for the Vietnamese government, reports KHL Group. The loan will enable the
government to develop a new arterial road between Ho Chi Minh City, the Mekong
Delta and the south of the country.
Vietnam-based Rang Dong Group has filed a petition to secure approval for
developing Phan Thiet airport, reported the Daily in August 2013, citing the
company's chairman Nguyen Van Dong.
Two berths at Vietnam's first state-built seaport, the Cai Mep-Thi Vai international
port in Ba RiaVung Tau province, are set to be leased for 30 years, according to
official sources.
Threats
A drop in international demand for exports would negatively affect Vietnam's freight
transport sector.
Page 11
Political
SWOT Analysis
Strengths
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.
Threats
Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably 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.
Page 12
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 20.7% in 2012.
Weaknesses
Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy
vulnerable to global economic uncertainties. The fiscal deficit is dominated by
substantial spending on social subsidies that could be difficult to withdraw.
Opportunities
WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam
greater 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.
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.
Page 13
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.
Opportunities
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.
Page 14
Industry Forecast
Vietnam's latest real GDP reading, which showed that the economy expanded by 6.0% year-on-year (y-o-y)
in Q4 2013, confirms our belief that 2014 will prove to be a fruitful year for the Vietnamese economy. Not
only are we witnessing more evidence of a sustained pick-up in production activity and employment in the
manufacturing sector, but we also expect foreign direct investment (FDI) inflows to accelerate as the
economic recovery gathers pace over the coming quarters. We forecast real GDP growth to come in at
6.0% in 2014, versus Bloomberg consensus of 5.5%.
Our assessment of the Vietnamese economy at the provincial level suggests that there are attractive
opportunities for foreign companies to invest in rapidly-developing provinces that are situated in the South
East region (including Ba Ria-Vung Tau, Dong Nai, and Binh Duong). We expect rising labour costs and
intense competition in developed cities to push companies to look for better opportunities in these
provinces.
6.5
5.5
2018f
2017f
2016f
2015f
2014f
2013f
2012
2011
2010
e/f = BMI estimate/forecast. Source: Asian Development Bank, General Statistics Office
Page 15
To keep pace with growth, Vietnam will 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 believe that rapid urbanisation, driven by a healthy pipeline of
government-led infrastructure projects over the next five years, will continue to spur rural-urban migration
and foreign direct investment (FDI) into developed cities such as Ho Chi Minh and Hanoi. We have also
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.
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.
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%.
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.
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
Page 16
needs are primarily met by road. In 2014 and beyond, we predict that road freight volumes in Vietnam will
account for the majority of freight carried in the country.
Road Reliant
Vietnam Freight Mode Breakdown By Market Share 2013e
Source: BMI
We forecast that growth in road freight volume will continue to impress, albeit not at the double-digit rate of
growth seen in 2012 and the years preceding it. In 2013, we estimate that annual growth was just under 6%,
which is set to rise to slightly over 6% in 2014 to reach 811.35mn tonnes. Over the medium term, we
forecast road freight volume growth will average 7.59% per annum reaching a projected 1.10bn tonnes by
the end of 2018.
There is, however, upside risk to this forecast as more foreign logistics companies, with considerable road
freight expertise expand in Vietnam. Both FedEx and DHL have expanded their role in Vietnam in recent
times. 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.
Page 17
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.
2011
2012
2013
2014f
2015f
2016f
2017f
2018f
654,127
722,156
765,070
811,346
878,497
949,784
1,024,494
1,102,945
11.43
10.40
5.94
6.05
8.28
8.11
7.87
7.66
40,130
43,902
46,791
50,090
54,346
58,863
63,597
68,568
10.92
9.40
6.58
7.05
8.50
8.31
8.04
7.82
- % change y-o-y
Road freight, mn tonnes/km
- % change y-o-y
Inland Waterways
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 180.81mn tonnes of freight
were carried by the nation's waterways, y-o-y growth of 7.31%. In 2014, annual growth will slip slightly to
a still healthy 6.67%, to reach 192.88mn tonnes, while over our forecast period, we anticipate average y-o-y
growth of 6.35%.
Page 18
Source: BMI
Vietnam's inland waterways stretch for 47,130km and the country'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.
Page 19
2011
2012
2013
2014f
2015f
2016f
2017f
2018f
160,165
168,493
180,813
192,878
205,108
218,091
231,698
245,986
11.05
5.20
7.31
6.67
6.34
6.33
6.24
6.17
34,372
37,018
39,344
42,363
45,613
49,063
52,679
56,476
8.50
7.70
6.28
7.67
7.67
7.56
7.37
7.21
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 estimate that Vietnam's rail freight volumes
accounted for a negligible percentage of the total with the country's rail network transporting just 6.53mn
tonnes of freight.
In 2013, we estimate that the rail freight sector in Vietnam performed poorly once more, seeing yet another
contraction in y-o-y growth. Growth decreased by 6.82%, following on from 2012's contraction of just
under 4% and 2011's larger contraction of 7.33%. However, in welcome news for the sector, we forecast
growth to come in the positive in 2014 at 3.12% y-o-y to reach 6.73mn tonnes, albeit well below the heyday
of 2007 when tonnage was over 9.00mn tonnes.
There are two key factors that we believe have held back Vietnam's rail freight development and will
continue to do so.
Length (km)
206,633
2.632
47,130
Page 20
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 206,633km network of roads and 47,130km 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).
2011
2012
2013
2014f
2015f
2016f
2017f
2018f
7,285
7,004
6,526
6,730
6,958
7,306
7,715
8,178
- % change y-o-y
-7.33
-3.87
-6.82
3.12
3.40
5.00
5.60
6.00
4,162
4,025
3,804
3,903
4,020
4,161
4,344
4,577
5.08
-3.30
-5.48
2.60
3.00
3.50
4.40
5.36
- % change y-o-y
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. The government has
ambitious plans to modernise and expand the country's airport infrastructure, which consists of 44 airports.
Page 21
Since early 2012, Vietnam has announced that it was in the search for foreign investors to help construct
two international airports: the US$1.2bn Van Don International airport in the northern province of Quang
Ninh and the US$10bn Long Thanh International airport in the southern province of Dong Nai.
For 2014, we predict that the Vietnamese air freight sector will see annual growth of 3.00%, up from 2013's
2.80%, to reach 189,210 tonnes. Over the forecast period to 2018, we expect Vietnam's air freight levels to
grow on average per annum by 3.96% to reach 223,040 tonnes.
Taking Off
Vietnam's Air Freight Tonnage, '000 tonnes, 2010-2018
250
200
150
100
50
2018f
2017f
2016f
2015f
2014f
2013
2012
2011
2010
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
Page 22
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
the sector offering savings in transport time, along with environment controlled options, which are vital for
the transport of some medicines and vaccinations.
2011
2012
2013
2014f
2015f
2016f
2017f
2018f
200.30
178.70
183.70
189.21
195.64
203.27
212.42
223.04
5.37
-10.78
2.80
3.00
3.40
3.90
4.50
5.00
426.70
480.90
469.80
477.79
489.73
504.42
522.08
542.96
-0.02
12.70
-2.31
1.70
2.50
3.00
3.50
4.00
- % change y-o-y
Air freight, mn tonnes/km
- % change y-o-y
Maritime Freight
Vietnam Catching The Eye Of Shippers
Taiwan-based Evergreen Line and South Korea-based Hanjin Shipping announced a new intra-Asia service
at the end of 2013, which should provide upside risk for the sector going forward. The new intra-Asia
service, which calls at the port of Ho Chi Minh, will boost both companies' intra-Asia operations and we
have long highlighted intra-Asia trade as a region of strong growth and we note the port of Ho Chi Minh to
be a specific beneficiary of the new route - with the launch of the service offering upside risk to our forecast
for the port.
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.
Page 23
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 2014, we expect container volumes to have increased by 6.06% and over the
medium term by an annual average of 6.88%.
For more information on data and analysis of Vietnam's shipping sector, please see BMI's Vietnam
Shipping Report.
Page 24
2011
2012
2013
2014f
2015f
2016f
2017f
2018f
33,451
36,029
38,867
41,223
43,986
47,176
50,748
54,212
7.45
7.71
7.87
6.06
6.70
7.25
7.57
6.83
3,868
4,423
4,812
5,149
5,484
5,784
6,111
6,461
- % change y-o-y
17.10
14.35
8.80
7.00
6.50
5.48
5.66
5.72
Trade
Real
2011
2012
2013e
2014f
2015f
2016f
2017f
2018f
4.10
9.09
7.90
7.50
7.50
7.30
7.20
7.00
10.78
15.71
6.00
5.60
5.80
6.20
6.60
6.80
7.44
12.40
6.95
6.55
6.65
6.75
6.90
6.90
112.40
118.98
136.68
157.93
180.76
204.81
232.79
263.93
24.17
5.86
14.87
15.55
14.45
13.31
13.66
13.38
106.84
124.43
140.42
159.39
179.54
201.34
227.57
257.53
- % change y-o-y
31.49
16.46
12.85
13.51
12.64
12.14
13.03
13.16
219.24
243.41
277.10
317.32
360.30
406.15
460.36
521.46
- % change y-o-y
27.63
11.03
13.84
14.51
13.54
12.73
13.35
13.27
2005
2006
2007
2008
2009
2010
2011
2012
5,900
7,391
12,710
15,974
16,441
20,019
24,594
37,647
16.0
16.5
20.3
19.8
23.5
24.0
23.5
27.2
3,594
3,908
5,340
7,255
6,976
9,761
13,176
17,541
9.8
8.7
8.5
9.0
10.0
11.7
12.6
12.7
Page 25
2005
2006
2007
2008
2009
2010
2011
2012
4,074
4,702
6,189
8,240
7,468
9,016
10,400
11,803
11.1
10.5
9.9
10.2
10.7
10.8
10.0
8.5
4,482
6,274
7,614
9,378
4,248
4,101
6,391
11,421
12.2
14.0
12.1
11.6
6.1
4.9
6.1
8.3
2,374
3,034
3,744
4,906
4,514
5,602
6,384
7,310
6.5
6.8
6.0
6.1
6.5
6.7
6.1
5.3
TOTAL
36,761
44,891
62,765
80,714
69,949
83,365
20,424
25,310
35,597
45,753
39,648
48,500
60,944
85,721
55.6
56.4
56.7
56.7
56.7
58.2
58.3
62.0
Japan, US$mn
Japan, US$mn, % of total
Singapore, US$mn
Singapore, US$mn, % of total
Thailand, US$mn
Thailand, US$mn, % of total
104,510 138,166
Source: IMF. N.B. Total exports is from Direction of Trade Statistics, consequently there may be some discrepancy with
data used elsewhere in this report
2005
2006
2007
2008
2009
2010
2011
2012
5,924
7,845
10,105
11,887
11,356
14,238
16,928
19,427
18.3
19.7
20.8
19.0
19.9
20.4
18.2
17.0
3,228
3,243
3,646
4,850
4,909
7,309
11,125
14,755
9.9
8.1
7.5
7.7
8.6
10.5
12.0
12.9
4,340
5,240
6,090
8,468
6,292
7,728
10,781
13,722
13.4
13.2
12.5
13.5
11.0
11.1
11.6
12.0
664
843
1,243
1,794
2,065
3,092
4,715
5,199
2.0
2.1
2.6
2.9
3.6
4.4
5.1
4.6
1,086
1,445
1,855
2,073
1,885
2,373
3,367
5,070
3.3
3.6
3.8
3.3
3.3
3.4
3.6
4.4
TOTAL
32,447
39,826
48,561
62,685
57,196
69,820
92,881
113,944
15,242
18,616
22,939
29,072
26,507
34,740
46,916
58,173
47.0
46.7
47.2
46.4
46.3
49.8
50.5
51.1
Germany, US$mn
Germany, US$mn, % of total
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
Page 26
Market Overview
Vietnam Emerges As An Investment Prospect
With the Vietnamese economy beginning to exhibit signs of a robust recovery as we head into 2014, we
believe that it could be a worthwhile effort for investors to assess the country's growth opportunities at the
provincial level, with the company's freight industry well poised to benefit. Firstly from a demographic
perspective, we note that Vietnam reached an estimated population of 90 million in November 2013,
according to a statement released by the General Office of Population and Family Planning. Although the
country's growing domestic market remains an attractive factor for foreign companies seeking to expand
their operations in the region, we note that rapidly shifting demographic trends at the provincial level could
become a major challenge for foreign investors.
That said, we see a handful of emerging provinces that are likely to witness faster population growth and
potentially attract greater FDI inflows over the coming years. We forecast population growth in provinces
such as Binh Duong and Dong Nai to average 4.5% and 2.3% annually over the next five years
(2014-2018). According to a report published in March 2013 by local consultancy firm Vietnam Report, the
country's top 10 fastest growing enterprises are located not only in developed cities such as Hanoi and Ho
Chi Minh, but also increasingly in rapidly developing provinces including Can Tho, Hai Duong, Nghe An,
Quang Nam, Binh Thuan and Khanh Hoa. We expect this trend to continue to shift in favour of these
smaller provinces as the Vietnamese government continues to promote foreign investment in these regions
through the establishment of special economic zones and investment in infrastructure projects.
We witnessed some highly positive data in the third quarter of 2013 that indicate strong momentum for
growth over the coming months, and potentially into 2014. We highlight the rebound in manufacturing
production activity, with the HSBC Purchasing Managers' Index (PMI) recording a robust 51.5 reading in
September, the strongest reading since April 2011 (see 'PMI Surprises To The Upside, VNI Testing
Resistance', October 3 2013). More importantly, foreign direct investment (FDI) inflows into the country
have accelerated significantly in recent months and are expected to surpass the government's full-year target
of US$13bn - usually an indication of improving business sentiment, and a precursor for an acceleration in
private sector investment. We believe that the positive ripple effects from the factors above will serve as
strong tailwinds for 2014 growth.
Page 27
Chinese and US demand remain integral factors influencing the performance of the Vietnamese freight
picture over the mid term. In terms of the former, China's real GDP grew by 7.7% in Q413, slightly above
consensus expectations of 7.6%. For the year as a whole the economy also grew by 7.7%, which matches
the performance seen in 2012. While a detailed breakdown of GDP by expenditure is unavailable as of yet,
we do not expect its release to reveal a great deal of economic rebalancing taking place within the Chinese
economy. The traditional drivers of real estate and infrastructure construction continue to dominate the
economy.
In terms of the US, we believe the appropriations bill recently passed by the US House of Representatives
and Senate, and which President Barack Obama is expected to sign, may mark an easing in long-running
partisan warfare over fiscal policy. Furthermore, we believe the deal will have positive ramifications for the
economy in 2014, while still allowing for fiscal consolidation over the medium term. Finally, the bipartisan
spending package sets the stage for a crisis-free resolution to the debt ceiling debate, which will come up in
the weeks ahead.
The appropriations package provides US$1.1trn for fiscal year 2014 (FY14), which runs through September
30, in line with a budget deal worked out between Democrats and Republicans in late 2013 that we noted as
a meaningful first step toward de-escalating tensions over fiscal issues (see 'Deal Avoids Another
Shutdown, But Future Progress Uncertain', December 11). That legislation allowed higher spending caps in
FY14 than those initially envisioned by the budget sequester that went into effect in early 2013, reducing
the drag the fiscal drag on the economy, one reason we see real GDP growth accelerating to 2.8% this year
from our estimate of 1.8% in 2013. We believe that greater clarity about the trajectory of fiscal policy this
year will allow the US Federal Reserve to continue reducing extraordinary monetary stimulus to the
economy, eliminating its quantitative easing programme by end-2014.
Domestically, 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 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.
Page 28
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
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.
Page 29
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
Page 30
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.
On November 14 2013, Vietnam's Phuong Nam Technology Science Institute and EDES were scheduled to
sign a memorandum of understanding (MoU) for the construction of the US$3.6bn railway project in
Vietnam. The project which will be implemented via a built, operate and transfer format, will connect Hoi
Chi Minh City to Can Tho City. Upon signing the MoU, a joint venture will be formed by both the parties
for executing the project as well as for conducting a feasibility study, which will be presented to the
country's government.
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
Page 31
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
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.
Meanwhile, Shipowners in Vietnam are expected to offload more vessels form their fleets by the close of
2013, according to the Hellenic Shipping News. Firms planning to pare down their fleets include the
Vinashin Joint Stock Company and Northern Shipping. Market analysts have previously warned that the
economic potential of the Vietnamese shipping market has been limited by an excessive focus on non-core
businesses.
In the road freight sphere, bad news was delivered at the end of October 2013, when it was announced that
the Vietnamese government has granted approval to Hanoi General Export-Import Joint Stock Company
(Geleximco) to withdraw from the build-transfer model-based Hoa Lac-Hoa Binh expressway linking Hanoi
with localities in the northwest. The company invested US$17mn in the project, with US$2mn in the
construction and US$12.4mn in land acquisition, over three years, according to the transport ministry.
'As the investment cost rose significantly and the property market at present is nearly frozen, it is impossible
for us to reach the project deadline', Geleximco General Director Vu Van Tien said (Intellasia). The
government has also approved a proposal by the country's Ministry of Transport and Ministry of Planning
and Investment to alter the project's investment model to public-private partnership to make it more feasible
and obtain official development assistance.
Page 32
International freight services provider Zenith Global Logistics has expanded its warehousing facility in Ho
Chi Minh City, Vietnam, according to the Journal of Commerce, reporting in November 2013. The facility
was expanded as part of the company's effort to ensure that it is able to keep up with the increasing demand
for humidity-controlled warehousing space in the region. The facility, which will house goods and cargoes
destined for the US, covers 7,500 square metres.
The gaze of express shipping and logistics firm DHL is firmly on Vietnam at present with the company
expressing its desire to invest in the Asian country now that it has taken steps to integrate into the global
economy. Chief Executive Officer of DHL Express in Asia Pacific Jerry Hsu outlined his company's
commitment to Vietnam while speaking at an event marking DHL's 20th year of operations in the country,
According to Vietnam News Brief Service.
The total investment of DHL Express in Vietnam over the past six years comes to more than US$14mn
following the company's construction of a new depot in Danang at the end of 2012. Currently, a new depot
is being built near Tan Son Nhat Airport.
As part of its growing commitment to Vietnam, Mentfield Logistics announced in October 2013 that it had
opened new offices in the country, which brings the company's total global offices to 13, according to
Lloyd's List. Vietnamese labour costs are cheaper than those in China, meaning that Vietnam is increasingly
becoming a popular destination for globally minded firms.
Mentfield Vietnam CEO James Nguyen said: 'The opening of the new offices in Vietnam is a step that gives
a significant advantage to our clients engaged in international trade in many diverse areas. He added:
'Ranging from food products to equipment & machinery, construction materials, chemicals, high-tech and
many more, we are confident that our presence in Vietnam will lead to the strengthening and streamlining
of the processes of logistics and freight forwarding from the Far East to the rest of the world.'
Page 33
Underlining the pull of Vietnam at present is the news that Cargo-Partner, the Austrian transport and
logistics company, has also chosen Vietnam to act as a base in the Asia region, with a new office opened
near Ho Chi Minh City airport.
Maritime
Evergreen-Hanjin's Intra-Asia Tie-Up Highlights Vietnam Growth Story
Taiwan-based Evergreen Line and South Korea-based Hanjin Shipping's newly launched intra-Asia service,
which calls at the port of Ho Chi Minh, will boost both companies' intra-Asia operations. BMI has long
highlighted intra-Asia trade as a region of strong growth and we note the port of Ho Chi Minh to be a
specific beneficiary of the new route - with the launch of the service offering upside risk to our forecast for
the port.
Evergreen Line has partnered with Hanjin Shipping to launch the New Ho Chi Minh Service (NHCMS) that
will see both firms receive a boost to their intra-Asia network. The NHCMS will link South Korea, China,
Vietnam, Singapore and Malaysia, and will employ four 2,500 twenty-foot equivalent units (TEUs) ships,
one supplied by Evergreen and the remaining three by Hanjin. The first vessel on the once-a-week NHCMS
is to set sail from Kwangyang, South Korea, on November 22.
BMI notes that Evergreen Line has steadily been expanding its intra-Asia service in 2013, with the addition
of a further two express routes: the first being a Colombo, Sri Lanka-Kochi, India, service; and the second
being an Indonesia- Malaysia service. Hanjin Shipping has been implementing a similar expansion strategy,
with the addition of an Indonesia service in March 2013 and an Australasia service in July 2013.
BMI has previously identified the trend of intra-Asia trade as a strong growth area for container lines.
Growth in intra-Asia liner trade is developing from a low base and is set to continue expanding as China
rebalances its economy toward the consumer sector. The development of a consumer class in China means
that the country is increasing the number of containers it imports, rather than being primarily a box operator.
Evergreen and Hanjin's decision to include the port of Ho Chi Minh as part of its NHCMS is in line with the
intra-Asia growth story seen in the region. The Vietnamese port in particular is showing strong historical
growth rates in container throughput - a trend we predict will continue over the medium term. Between
2008 and 2012 the port of Ho Chi Minh's container throughput experienced an annual average increase of
14.4% year-on-year (y-o-y). BMI forecasts this robust growth rate to continue over the medium term
(2013-2018), albeit at a slightly slower pace, and forecasts container throughput at Ho Chi Minh expected to
Page 34
expand by 53.1% from 2013 levels - an annual average increase of 8.9% y-o-y, to reach a throughput level
of 5.87mn TEUs in 2018.
Taiwanese shipping companies Wan Hai Lines and Yang Ming Line intend to begin a new direct service
between ports of Japan, South Korea and China to the Vietnamese port of Ho Chi Minh on November 29
2013. The service will be called KCV and it will function with three vessels with an intake of 1,200 twentyfoot equivalent units. KCV is expected to provide better service coverage between Japan, Korea, China and
Vietnam.
Vietnam cemented its place as a strategically important growth region in December 2013 with news of a
collaboration agreement signed by the ports of Antwerp (the second largest port in Europe) and Zeebrugge,
Rent-A-Port and Saigon Newport relating to the construction of a new bulk terminal in the port of Lach
Huyen in the north of the country.
Eddy Bruyninckx, CEO of Antwerp Port Authority, stated: 'Our subsidiary Port of Antwerp International
has been observing this growth market closely with a view to spotting opportunities that offer added value
for our port. Our partners can call upon a port that has developed into a leading international player with a
wide range of logistics, industrial and maritime activities.'
Meanwhile, further evidence of strong Flemish/Vietnamese relations were highlighted by the visit of
Flemish Minister for Mobility and Public Works Hilde Crevits to inspect the dredging work at the Soai Rap
project in November 2013.
Crevits said: 'The dredging by the DEME's dredger 'Uilenspiegel' are spectacular in Soai Rap. They are
technically advanced and offer a sustainable solution. This project also demonstrates the good cooperation
with Vietnam. Our dredgers are world class. I hope that Vietnam continues to rely on our expertise for
major projects.'
Page 35
Air
Finnair Cargo Adds New Freighter Service
Finnair Cargo announced at the end of November 2013 that it has enhanced its presence in the Asian region
by adding a twice-weekly MD-11 freighter service to the Vietnamese capital, Hanoi. This decision
underlines Finnair's strategy of improving its Brussels cargo hub connectivity.
Speaking about the move, Vice-president of global sales at Finnair Cargo Mikko Turtiainen said: 'Finnair
flew seasonal passenger operations to Hanoi until the end of October and adding Hanoi to our freighter
network brings year-round continuity to the Finnair Cargo offering to and from the Vietnamese capital. I am
very confident in terms of exports and imports linked with the fast-emerging Vietnam.'
Road
Sceptical Over Dau Giay-Phan Thiet PPP Timeline
Vietnam's public-private partnership (PPP) project management board, part of the Ministry of Transport
(MOT), has announced that construction work on the country's first PPP expressway project, the 98.7km
Dau Giay-Phan Thiet expressway, is expected to start in Q315. However, although we reiterate that the
expressway could offer an impressive return on investment, we are not wholly convinced that the project
will break ground as scheduled.
Following the completion of the fourth and final investor conference for the US$757mn Dau Giay-Phan
Thiet expressway project in September 2013, the MOT launched the qualification process for the project,
with applications due on November 29 2013. The list of qualified bidders is expected to be announced on
December 30 2013.
While we continue to view the fundamentals of the project favourably, and we expect the Vietnamese
economy to grow impressively over the coming years (see our special report, 'Vietnam: Asia's Star Rising
Again?', November 2013), we are not wholly convinced that the project will break ground as scheduled.
This is due to the lack of maturity in Vietnam's business environment. The latest edition of the Doing
Business report from the World Bank ranked Vietnam 98 out of 189 countries based on its ease of doing
business, with the country faring poorly in several key areas that facilitate project development - such as
electricity access and investor protection.
Page 36
We also believe that Vietnam's bureaucratic institutions lack the necessary institutional capacity to carry out
pre-construction activities (e.g. documentation, spatial planning, feasibility studies, public consultation,
permit issuance, land acquisition) in a timely manner or to a level of detail desired by all of the project
stakeholders (i.e. local residents, project developers and financers). The lack of human resources to boost
institutional capacity could take many years to be resolved and in our opinion, will continue to hamper
infrastructure development for the foreseeable future.
Such weaknesses in the business environment have already delayed PPP development amongst some of
Vietnam's regional peers, particularly Indonesia and the Philippines (see 'PPP Momentum On The Express
but Not Without Road Blocks', September 27 2013). Both countries have enlisted the assistance of multilateral financial institutions such as the World Bank and the Asian Development Bank to implement their
PPP plans.
Furthermore, it remains to be seen if the selected international bidder will be able to work effectively with
the Vietnamese partner on the project. In July 2013, the Vietnamese government selected Vietnam-based
Binh Minh Import-Export Production and Trade Company (Bitexco) as the primary developer of the fourlane project, with Bitexco providing up to 60% of total equity investment and the remaining 40% coming
from international investors. Although we believe that Bitexco's close relationship with the Vietnamese
bureaucracy could help navigate the project through Vietnam's business environment, Bitexco lacks
experience in managing an expressway concession as it has mainly developed hydropower plants for the
public sector.
We believe these issues are the main reasons for subdued interest in the project on the part of international
investors. Although more than 100 participants attended the final investor conference for the Dau GiayPhan Thiet expressway project, the Saigon Times reported that only seven investors have submitted
applications to the MOT. While the names of the investors are unknown, the Philippines Star reported in
mid-November 2013 that Hong Kong-based investment firm First Pacific and Philippines-based Metro
Pacific Investments are planning to participate in the Dau Giay Phan Thiet project.
Rail
EDES Signs MoU For US$3.6bn Railway project
On November 14 2013, Vietnam's Phuong Nam Technology Science Institute and EDES were scheduled to
sign a memorandum of understanding (MoU) for the construction of the US$3.6bn railway project in
Vietnam. The project which will be implemented via a built, operate and transfer format, will connect Hoi
Page 37
Chi Minh City to Can Tho City. Upon signing the MoU, a joint venture will be formed by both the parties
for executing the project as well as for conducting a feasibility study, which will be presented to the
country's government.
Page 38
Company Profile
Strengths
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.
Vietnam Airlines has increased the frequency of its flights to Gatwick Airport, London,
it was announced in April 2013, potentially opening the door for further link ups
between the two countries.
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.'
Page 39
There is further room for co-operation between Vietnam and the US in the coming
years, it was declared at the US-Viet Nam Aviation Co-operation Working Group held
in Ho Chi Minh City in September 2013.
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.
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.
Etihad Airways announced at the start of the October 2013 that it had launched its first
commercial passenger service between Abu Dhabi and Ho Chi Minh City. Vietnam
Airlines is its codeshare partner and its VN code will be placed on the Abu Dhabi-Ho Chi
Minh City sector.
Taking advantage of the fast-growing market, Etihad Airways President and CEO James
Hogan explained that: 'The United Arab Emirates is Vietnam's seventh largest trading
partner and its largest in the Gulf region. In 2012, exports from Vietnam to the UAE
exceeded US$2 billion for the first time - up 82 percent on 2011 - and forecast to
exceed US$4 billion in 2013. The 13.1-tonne belly-hold capacity of our Airbus A330-200
Page 40
aircraft, which equates to more than 9,500 tonnes per year, gives us sufficient capacity
to boost the volume and value of trade between the UAE and Vietnam and to other
markets in the GCC, Europe and North America.'
Latest Activity
Page 41
Strengths
It has diversified away from operating in a single sector, with a real estate arm.
Weaknesses
Opportunities
The company plans to expand its fleet, although no further information is currently
forthcoming.
Petrolimex made a company announcement at the end of July 2013 to state that it
had signed a memorandum of understanding (moU) with Japan International
Cooperation Agency (JICA) and Tamada Industries, Inc. (Tamada) relating to
'cooperation in the trial project of double-shell tank against harmful matters'.
Threats
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.
Page 42
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.
The board of directors of Petrolimex announced the establishment of a new whollyowned subsidiary, PG Tanker, in 2013, with Nguyen Anh Dung made chief executive
officer. Headquartered in Hanoi, the subsidiary will be charged with transporting oil
products, marine services and the repair and building of tankers.
Financial Data
2013
Deputy General Director Tran Ngoc Nam explained at the end of December 2013 that
profits were low at Petrolimex, owing to the Vietnamese government's efforts to curb
inflation and stabilise the economy through retail price adjustment. In the first half of
2013 the company announced profits of VND898bn (US$42.69mn), however, according
to Viet Nam News, earnings fell short 'of the full-year target of the country's largest fuel
wholesaler at VND1.98trn (US$94.2mn) in 2013. With only 45 per cent of the plan
covered, Petrolimex said it will exert efforts to make it in the second half of this year.'
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
Page 43
Strengths
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.
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.
Vinalines was 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 expansion. Vinalines teamed up with Japan's Itochu, MOL and
NYK for the development of the port.
The death sentence handed out to Vinalines' former chairman at the end of 2013 for
embezzlement has done little for the company's reputation.
Page 44
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.
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
Page 45
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
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.
In September 2013, the wholly-owned limited liability company, Quy Nhon port under
Vinalines launched an initial public offering as part of ongoing restructuring of the
company, approved back in February 2013.
In a high-profile court case in Hanoi in January 2014, the former chairman of Vinalines,
Duong Chi Dung admitted to handing out bribes to members of the country's ruling
communist party in a bid to avoid his imminent arrest for embezzlement. Dung was
sentenced to death in December for siphoning off millions of dong from the company.
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.
Page 46
Financial Data
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
Page 47
Political Outlook
Domestic Politics
BMI View: Despite the encouraging progress we have seen with regards to the Communist Party of
Vietnam (CPV)'s stance on allowing for broad democratic reforms, we continue to see evidence of the
party's hardline stance on having absolute control over the media. However, we believe that the growing
adoption of the internet and social media amongst the younger population will eventually pressure the CPV
to relax its media laws.
The Communist Party of Vietnam (CPV) has made significant progress in allowing for democratic reforms
in 2013 and we expect this trend to accelerate over the coming years. Indeed, we view the CPV's move in
June to implement an annual no-confidence vote for senior party officials as a major milestone that is likely
to pave the way for a more transparent and accountable government going forward (see ' No-Confidence
Vote A Major Milestone For Democratic Reforms', August 6 2013). Despite the encouraging progress we
have seen in 2013 with regards to government efforts to clamp down on corruption and impose stricter
audits of state-owned enterprises (SOEs), reforms have, however, been relatively slow in other aspects of
Vietnam's political environment.
Underneath the growing perception by most foreign political observers that the CPV is gradually shifting
towards a more democratic political agenda, we continue to observe evidence of the party's hardline stance
on having absolute control over the media and of the relentless prosecution of democracy activists.
In a latest report published by human rights group Voice of America (VoA), a Vietnamese man has recently
been convicted in October of 'abusing democratic freedoms' under Article 258 of the penal code. The
individual received a 15-month suspended sentence for using social media to campaign for the release of
another activist who had been sentenced to four years in prison for distributing anti-government material.
The latest case also highlights a growing generation of internet activists amongst the younger and more
highly-educated population in Vietnam. Although the number of similar cases has increased steadily over
the years, they have often been excluded from traditional forms of media, which is tightly controlled by the
government.
We believe that the growing adoption of the internet and social media amongst the younger population,
however, will put greater pressure on the CPV to relax its media laws. According to our telecoms team's
Page 48
forecasts, around 35.4% of the Vietnamese population currently has access to the internet, with the adoption
rate expected to rise steadily over the coming years. This is likely to further complicate the CPV's agenda
on political reforms going forward.
From our perspective, the CPV's current stance on gradually allowing for more transparency and
accountability with regards to the government's economic performance, while suppressing small-scale
protests and online activism in a bid to defend its ideology of a single-party political system, is
unsustainable over the long run. We believe that the rapid adoption of the internet will eventually force the
CPV's hand to either escalate its crackdown on internet activism (which we believe will risk triggering
widespread public unrest), or adopt a more accommodative stance towards modern media and allow for
genuine democratic reforms. The latter scenario is more likely in our view, and we see scope for progress
on this front as we head into 2014.
In terms of our short-term political risk ratings (STPR), we maintain an overall score of 79.0 (out of a score
of 100) for Vietnam. The 'Social Stability' component of the STPR stands at a weak 62.5 to reflect the
growing risk of widespread public unrest as a result of the government's hardline approach towards its
single-party ideology. However, should we continue to see evidence that the CPV is moving towards a more
democratic system of government, we would consider upgrading the country's long-term political risk rating
(LTPR).
System of Government
Head of State
Head of Government
Last Election
Key Figures
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.
Page 49
Main Political Parties (number of seats Communist Party of Vietnam (CPV): Founded in Hong Kong in 1930, the CPV has
in parliament)
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
Ongoing Disputes
Ongoing dispute with China, Malaysia, the Philippines and Taiwan over Spratly
Islands in South China Sea
ASEAN and WTO Member, Temporary seat (2008-2009) on the United Nations
Security Council
79.0
57.7
Source: BMI
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.
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
Page 50
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.
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.
Page 51
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
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 57.7/100 is weighed down by a score of 29.0 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:
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
Page 52
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
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.
Page 53
Actual
BMI Forecast
Gasoline - Global
Difference
-2.84
Rotterdam
115.19
118.13
-2.94
New York
118.7
121.38
-2.68
Singapore
115.89
118.8
-2.91
Gasoil/Diesel - Global
-0.35
Rotterdam
124.81
125.33
-0.52
New York
126.56
125.77
0.79
Singapore
123.15
124.47
-1.32
0.28
Rotterdam
126.33
126.72
-0.39
New York
125.1
123.4
1.70
Singapore
122.65
123.13
-0.48
Naphtha - Global
Singapore
-0.93
100.27
101.2
-0.93
-0.74
Rotterdam
95.07
96.4
-1.33
New York
97.52
97.15
0.37
Singapore
93.96
95.22
-1.26
-0.87
Rotterdam
91.24
93.8
-2.56
New York
93.13
94.89
-1.76
Singapore
95.84
94.12
1.72
Page 54
It also validates our view that oil product prices peaked in 2012 and will trend downwards in the future.
This is partly an outcome of our projections for crude oil prices to trend downwards.
However, we do note that oil product prices have fallen more than the decrease in Brent. Notably, prices at
New York continue to fall, notwithstanding an increase in the price of WTI in 2013. This is a result of
relatively muted demand for the product and a comfortable supply picture in the downstream sector.
Moving forward, we expect this downward trend to continue as growing substitutes to oil-based fuels - the
result of gas and natural gas liquids production growth, particularly in the US - suppress rises in prices of
oil-based products.
Page 55
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 for 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.
Page 56
For 2014, we expect Brent to average US$104.80 per barrel (bbl) and WTI at US$101.50/bbl. Our forecast
for Dubai, which takes into account the estimated spread between Dubai and Brent, is US$101.90/bbl (see
'Bullish On Brent And WTI As Uncertainties Persist', January 8).
Brent
WTI
Dubai
2012
2013
2014f
2015f
2016f
2017f
2018f
111.70
108.79
104.80
102.00
101.00
99.00
98.00
93.30
98.01
101.50
101.00
96.00
94.00
95.00
108.88
105.36
101.90
100.50
98.50
96.50
95.50
We expect oil products across all categories to see downward price movement across our forecast period, in
line with our crude oil price forecasts. Gasoline and bunker fuel in particular will see sharper downward
price movement than other products, due to a likely abundance of supplies, especially in the Atlantic Basin.
Growth in US downstream production, sustained by its crude oil boom, will see European gasoline exports
continue to struggle in the Atlantic Basin unless Europe cuts production of the product. Meanwhile,
increasingly stringent environmental standards for shipping fuel will see sulphur-heavy bunker fuel
products suffer in the North American and European markets.
While diesel/gasoil prices will be partially supported by the growing adoption of diesel in transport, prices
at Singapore are likely to underperform other markets. China has a particularly large impact on the diesel
market, as a slowdown in domestic diesel consumption and continued expansion in diesel output see the
country's diesel imports fall.
Naphtha has rebounded strongly in the Asian market as economic momentum in the region picks up. While
economic optimism could support prices in the short term, we warn that this also creates a downside risk to
prices in the longer run as it would encourage petrochemical firms in Asia to invest in gas-based production
facilities, therefore prompting a decrease in demand.
Page 57
Jet Fuel
Rotterdam
131.41
127.30
125.05
121.85
120.45
118.45
117.45
New York
130.74
125.10
125.50
122.60
121.92
120.70
119.03
Singapore
126.90
122.65
120.15
118.20
115.85
113.33
111.82
Global
129.68
125.01
123.57
120.88
119.41
117.49
116.10
Gasoil/Diesel
Rotterdam
130.36
124.81
120.30
116.73
114.99
112.29
110.62
New York
130.79
126.56
124.00
121.25
120.30
118.30
119.30
Singapore
128.18
123.15
118.40
116.67
114.35
112.03
110.72
Global
129.78
124.84
120.90
118.22
116.55
114.21
113.55
Gasoline
Rotterdam
121.28
115.19
113.30
109.65
107.89
105.54
103.23
New York
124.79
118.70
114.50
112.70
107.70
105.12
105.00
Singapore
123.47
115.89
113.65
111.66
108.55
105.54
103.64
Global
123.18
116.60
113.82
111.34
108.04
105.40
103.96
Naphtha
Singapore
102.87
100.27
100.12
98.72
96.72
94.72
93.72
Global
102.87
100.27
100.12
98.72
96.72
94.72
93.72
101.52
95.07
91.05
88.11
86.97
84.83
83.69
New York
104.67
97.52
96.00
93.85
91.00
89.25
88.34
Singapore
102.46
93.96
89.65
88.13
86.00
83.88
82.75
Global
102.88
95.52
92.23
90.03
87.99
85.99
84.93
97.47
91.24
87.80
84.83
83.14
80.96
79.78
New York
100.32
93.13
91.00
87.35
86.45
84.92
83.20
Singapore
101.08
95.84
91.15
87.23
85.10
82.98
81.85
99.62
93.40
89.98
86.47
84.90
82.96
81.61
Global
99.50
93.16
89.43
86.47
85.06
82.90
81.74
New York
102.50
95.33
93.50
90.60
88.72
87.08
85.77
Singapore
101.77
94.90
90.40
87.68
85.55
83.43
82.30
Page 58
Jet Fuel
Global
101.25
94.46
91.11
88.25
86.44
84.47
83.27
However, this could reverse from 2015 as crude oil production outstrips the country's infrastructure
capacity, thereby suppressing WTI again. This would allow them to continue benefiting from larger crudeproduct spreads than their European and Asian counterparts in 2016 and 2017, though the easing of
infrastructure constraints could see spreads in New York fall again in 2018.
Page 59
*Average of forecast spread between crude benchmark and the following products: Gasoline, gasoil/diesel, naphtha, jet fuel and
bunker fuels. f=forecast. Source: Bloomberg, BMI
Success in lifting a ban on crude oil exports from the US poses downside risks to the spreads refiners could
enjoy vis--vis Asia and Europe. The enlargement of the market for WTI would see the US benchmark
price converge with Brent and other crude grades. The upward movement of WTI and downward movement
of other crudes would even lower feedstock costs for refiners worldwide.
China Worries: We have 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 China slowly becomes a net oil
products exporter. As the world's second-largest oil consumer, slower Chinese demand would loosen up
the global oil products market.
Upward Fuel Price Revisions: Fiscal and monetary problems faced by developing countries - where
subsidies have fuelled a boom in oil consumption - could eventually make subsidies unsustainable. Some
of the fastest growing oil markets have already adjusted fuel prices at the pump in order to correct
economic imbalances: China, Indonesia, Vietnam, India and Brazil. The removal of subsidies is a trend
Page 60
that is likely to continue. Higher prices are likely to see consumption growth slow, and consequently oil
import growth from these countries even as the global supply market loosens.
Limited Upside From Developed Countries: Despite rising optimism about both the US, European 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 reduce the power sector's demand for
heavy fuels.
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.
Although developed European countries and Japan will see refining capacities shrink due to high crude
costs and less-sophisticated plants hitting their refining margins, this would be compensated by a rise in
refining capacity in other emerging markets such as China, India and Saudi Arabia. Barring an unexpected
increase in crude feedstock prices, this comfortable demand-supply picture should keep prices in check.
Page 61
Emerging Markets
Africa will see the fastest rate of regional refining capacity growth between 2013 and 2018 at 43.9%.
However, the most significant growth in absolute volume will come from the Middle East - where Saudi
Aramco is awaiting the start-up of two other large 300,000 barrels per day (b/d) refineries - and in Asia where expansions continue apace in China and India. 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.
Page 62
Selected CEE = Russia, Azerbaijan, Turkey, Turkmenistan; Emerging Asia = China, India, Indonesia, Pakistan, Thailand, Vietnam;
e/f = estimate/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 has overtaken 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.
Developed Markets
Among developed markets, the outlook is brightest for US refiners that 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.
Page 63
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. Although crude feedstock prices are expected to
fall, refining margins for crude import-dependent refiners in developed Europe and Japan will continue to
be pressed as many of these older plants lack the scale and the sophistication to compete on costs with
newer and more-modern plants in emerging countries without upgrades.
Moreover, weak growth in domestic demand also makes them dependent on external markets for support.
European refiners are being squeezed particularly by US competition in the Atlantic, as downstream
supplies from the US Gulf Coast are challenging developed Europe's position in the New York markets and
also increasingly in their West African stronghold. Meanwhile, cheaper Russian and growing supplies from
the Middle East are displacing local output in the Central European and Mediterranean markets.
Losses in capacity in these traditional refining markets will limit the scale of global refining expansion, such
that the global fuel market 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
Page 64
subsidies and alternatives to oil products - explains the extent to which individual oil product prices will
fall.
Quarterly Prices
Q413
Q114f
Q214f
Q314f
Q414f
2014f
Reference Crude
Brent
110.80
107.00
104.00
105.00
103.00
104.80
98.42
102.00
101.00
103.00
100.00
101.50
107.89
104.70
102.00
101.00
100.00
101.90
WTI
Dubai
Jet Fuel
Rotterdam
132.47
125.00
124.00
130.00
124.50
125.93
New York
132.24
127.00
123.00
122.00
130.00
125.50
Singapore
126.28
122.70
119.00
120.00
119.00
120.18
Global
130.33
124.90
122.00
124.00
124.50
123.87
Gasoil/Diesel
Rotterdam
124.54
124.00
119.00
121.00
117.00
120.30
New York
129.77
128.00
120.00
123.00
125.00
124.00
Singapore
125.90
120.20
120.00
116.00
117.50
118.43
Global
126.74
124.07
119.67
120.00
119.83
120.91
Gasoline
Rotterdam
115.26
118.00
114.00
110.00
111.00
113.25
New York
117.16
120.00
116.00
110.00
112.00
114.50
Singapore
116.11
118.70
116.00
111.00
109.00
113.68
Global
116.18
118.90
115.33
110.33
110.67
113.81
99.00
98.00
100.15
Naphtha
Singapore
107.36
104.60
99.00
Bunker Fuel 180
Rotterdam
92.63
94.00
89.00
92.00
89.00
91.05
New York
98.25
98.00
93.00
96.00
97.00
96.00
Singapore
92.40
93.70
91.00
89.00
85.00
89.68
Global
94.43
95.23
91.00
92.33
90.33
92.24
88.00
87.00
87.80
88.88
91.00
85.00
Page 65
Q413
Q114f
Q214f
Q314f
Q414f
2014f
New York
92.40
93.00
88.00
91.00
92.00
91.00
Singapore
94.20
94.70
92.00
91.00
87.00
91.18
Global
91.83
92.90
88.33
90.00
88.67
89.99
90.76
92.50
87.00
90.00
88.00
89.43
New York
95.33
95.50
90.50
93.50
94.50
93.50
Singapore
93.30
94.20
91.50
90.00
86.00
90.43
Global
93.13
94.07
89.67
91.17
89.50
91.12
Demand pressure on naphtha is likely to ease going into 2014, particularly from Europe. As we expect the
US to continue its production and exports of liquefied petroleum gases (LPG), softer LPG prices as winter
unwinds could once again increase its appeal over coal in Europe. This would increase available supplies to
the Asian market, thereby capping prices. The effect of this could be more pronounced from the start of
H214, as the unwinding of refinery maintenance puts more naphtha into the world market.
Page 66
2018f
2017f
2016f
2015f
2014f
2013e
2012e
1,000
In the longer term, naphtha prices in Singapore will continue moving downwards due to the following
factors:
Shutdown of European petrochemical plants. Poor profit margins will continue to see the
rationalisation of the petrochemical industry in Europe. For example, Ineos and Total have announced
plans to end operations at some of their plants by 2016.
Choice of gas-based feedstock for US and Middle Eastern plants. Further petrochemical expansions
are expected in these two markets, though feedstock for these plants will mainly be gas-based, due to the
cost advantages Middle East and US producers have in cheap domestic gas.
Page 67
Source: Bloomberg
This will thus loosen the market for oil-based naphtha. We forecast naphtha in Singapore to average at US
$100.12/bbl in 2014, falling to US$93.72/bbl by 2018. 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.
A further downside risk to long-term naphtha prices comes from the adoption of crude-cracking technology
in petrochemical production. ExxonMobil has spearheaded this technology, having launched the world's
first chemical unit in Singapore that bypasses naphtha to produce petrochemical building blocks such as
ethylene and propylene. Should this technology be more widely adopted in the future, this could reduce the
relevance of naphtha in the global market.
Page 68
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.
However, we note that the price of gasoline will fall more than diesel through our forecast period.
In the short term, gasoline prices are expected to rise in Q114 relative to Q413 due to the cold snap in the
US, which has hit US production and raised demand. This is expected to move back down due to limited
global demand growth relative to supply. In particular, the US has seen a sharp decline in gasoline demand,
which can be approximated by gasoline retail sales in the US. Average gasoline retail sales in the US have
fallen by about 1.83mn b/d at its peak in 2003 to 849,981b/d in 2012. The fall was particularly steep
between 2011 and 2012, which witnessed a 23.8% y-o-y decline in gasoline sales. Data for January-October
2013 indicate that gasoline sales continued to decrease to 727,784b/d.
The fall in gasoline sales is in part an outcome of the growing use of diesel in the US, and also an outcome
of greater fuel efficiency in vehicles. Yet gasoline production in the US continues on an uptrend, thereby
increasing the net volume of gasoline available for exports in the country.
Page 69
Source: EIA
The greater flow of US gasoline products from the refining heartland in the US Gulf Coast to the Atlantic
Basin has in turn increased competition for European gasoline that has traditionally flowed to this area,
pushing prices down in both New York and Rotterdam. US refiners are moving to adjust their product slate
to increase the production of diesel over gasoline, and the continued cutback in production from
beleaguered refineries in Europe could help alleviate the situation in the longer run. However, as these
adjustments take time, abundant production will keep gasoline prices on a firm downward trajectory within
our forecast period.
Page 70
Likewise in Singapore, gasoline prices have trended downwards but, interestingly, have shown greater
resistance against the quarter-on-quarter (q-o-q) plunge in prices seen in New York and Rotterdam in Q413.
Although this is partly an outcome of a larger fall in prices in Q213 relative to other markets due to supply
abundance, it also illustrates that the trajectory of the Singapore market may differ slightly from Rotterdam
and New York.
Growth in key markets in Asia will provide more support for gasoline prices in Singapore than in the other
two markets. This is particularly as the expansion of the middle class in China and India continues to see
gasoline demand increase.
Page 71
Source: China General Customs Administration, China National Bureau Of Statistics, Indian Ministry Of Petroleum & Natural
Resources, BMI
This underpins our view for a much closer convergence in global gasoline prices across all three markets
than in other oil products.
Page 72
Our view on the diesel market is less bearish than for gasoline, underpinned by a healthy expansion of the
commercial automobile market in the US - which is more diesel-heavy - as highlighted by our Autos team.
This will help support diesel prices, particularly in the New York market, which would see changes in diesel
prices trend slightly more closely to crude oil than gasoline prices.
Page 73
200M
2018f
2017f
2016f
2015f
2014f
2013e
0M
2012e
100M
Our average global gasoline price for 2014 and 2015 is US$113.82/bbl and US$111.34/bbl respectively,
compared with an average of US$116.60/bbl in 2012. Over the longer term, we expect gasoline prices to
fall about 10% between 2013 and 2017. We forecast the global gasoil/diesel price to average at US$120.90/
bbl in 2014, US$118.22/bbl in 2015, and to US$113.55/bbl by 2018.
Page 74
No Take-Off Expected
Average Price Of Jet Fuel, 2012-2018 (US$/bbl)
However, a pick-up in air traffic activity - seen in recent months - could see a smaller decline in jet fuel
prices vis--vis other products in 2014. IATA noted that global air cargo made a 'solid improvement' in
November 2013. Once again, activity in the Middle East saw the greatest growth, thanks to new hubs in the
Gulf that have increased its capacity.
Meanwhile, IATA also reported better demand in developed countries, especially Europe, which has
supported Middle Eastern growth. Europe itself has seen an 8% y-o-y increase in air cargo in November
2013. Asia also made headway with a 4.9% y-o-y growth in air cargo, and the IATA notes that growth in
the region - which makes up 39.2% of total global demand - bodes well for air carriers. North America
joined these key regions in registering a 2.5% y-o-y increase in air cargo demand.
IATA also continues to record an increase in passenger demand in the last quarter of 2013. At the time of
writing, passenger traffic for October 2013 (the most recent data available) saw 6.6% y-o-y growth,
marking year-to-date growth of 5.2%.
Page 75
RPK (Oct)
(% chg y-o-y)
FTK (Nov)
(% chg y-o-y)
YTD RPK
(% chg y-o-y)
YTD FTK
(% chg y-o-y)
International
6.9
6.7
5.3
1.2
Domestic
6.0
2.6
4.8
2.5
Total Market
6.6
6.1
5.2
1.4
RPK: Revenue-Passenger-Kilometres, latest available data is for October 2013; FTK: Freight-Tonne-Kilometres. Source:
IATA
With our expectations that the global economy is set on a road of firmer recovery in 2014, this will continue
to support the air freight and passenger industry, thereby supporting jet fuel demand (see 'Developed States
To Lead Global Recovery In 2014', December 2013). The EU's decision to scrap jet fuel import duties from
January 1 2014 could see softer prices in the Rotterdam market, and the downward trend in crude prices will
see lower jet fuel prices. However, the extent of this decrease will be capped by continued recovery in the
air freight and passenger sector.
Page 76
Testing Support
Bloomberg Average Weighted Price Of Bunker Fuel 180 & Bunker Fuel 380, January 2011-Present (US
$/metric tonne)
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 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 use cleaner bunker fuels than today's standards.
Separate Push To Increase The Use 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, 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.
Page 77
Pressure On Europe
The effect of environmental policies and regulations in North America and northern Europe (comprising the
Baltic Sea, North Sea and English Channel) will hit demand for dirtier grades of bunker fuel. Strict sulphur
standards will come into effect in 2015. By 2020, the EU will impose a strict 0.1% limit on sulphur content
of all vessels entering the EU Emissions Control Area (ECA).
Assuming no relaxation of these policies, the shipping industry will have to meet these requirements either
by retrofitting their vessels with scrubbers to reduce emissions, switching to the more expensive marine
gasoil or turning to LNG as an alternative fuel. This could squeeze demand for sulphur-heavy bunker fuel
further and hit prices particularly in Rotterdam as European shippers are expected to be most hit by new
regulations.
This underpins further downward revision in our bunker fuel price forecast for Rotterdam. We expect prices
at Rotterdam to come in at US$83.69/bbl for the 180 grade and US$79.78/bbl for the more pollutive 380 by
2018. In contrast, the slow rate of development in emissions regulations in Asia will support bunker fuel
demand and prices in the Singapore market. As such, by 2018, Rotterdam is likely to see the lowest price
for bunker fuel of the three markets.
Risks To Outlook
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.
Page 78
Macroeconomic Forecasts
BMI View: Although we expect the Vietnamese economy to record yet another quarter of sub-par growth in
Q413, we are beginning to see potential for upside surprises to domestic demand over the coming quarters.
Recent data on foreign direct investment inflows, remittances, passenger car sales, and property market
launches, suggests to us that domestic demand is on a nascent recovery, setting the stage for stronger 2014
growth.
The general consensus is expecting the Vietnamese economy to suffer yet another quarter of sub-par growth
mainly due to subdued external demand and the lack of progress on banking sector reforms. This is closely
in line with our view that real GDP growth will come in at just 5.3% in 2013, a slight improvement from
5.2% in 2012. Looking ahead to 2014, however, evidence of improving macroeconomic fundamentals in
Vietnam (especially with regards to the outlook for domestic demand) suggests to us the balance of risks to
our growth forecast of 6.0% is gradually tilting towards the upside.
Page 79
Remittances: According to estimates published by the World Bank, the Vietnamese economy is on track to
record a bumper year for remittance inflows. The country is expected to receive US$10.6bn in remittances
from Vietnamese citizens working abroad, a robust 6.5% increase from 2012. Crucially, we believe that
remittance inflows will remain strong over the coming quarters as macroeconomic conditions in Vietnam
continue to improve. Growing confidence in the stability of the Vietnamese dong should also help to
encourage Vietnamese workers abroad, to a certain extent, to remit a larger share of their earnings back
home. We believe that this will help to boost domestic demand while providing support for the currency.
Foreign Direct Investment: Total foreign direct investment (FDI) inflows are also set to surpass the
government's full-year target of US$13bn, after data released by the Ministry of Planning and Investment
showed that inflows surged by 19.5% year-on-year (y-o-y) growth over the first eight months of the year.
The strong reading chimes with our view that the country's solid long-term growth story should continue to
attract foreign investors over the coming years.
Automobile Sales: We are witnessing signs of a robust recovery in automobile sales, a sign that pent-up
domestic demand is beginning to rebound. According to the Vietnam Automobile Manufacturers
Association (VAMA), September vehicle sales of its members surged by 20.6% year-on-year (y-o-y),
exceeding our already bullish forecast of 12.5% for the year (see 'Bullish On CV Sales In The Medium To
Long Term', October 14 2013).
Page 80
Property Market: Meanwhile, we see increasing evidence that the Vietnamese property market may have
bottomed out (see 'Early Signs Of A Recovery, But No Property Market Boom In Sight', August 14 2013).
According to a quarterly report published by real estate agency CBRE Vietnam, the number of new
launches surged by 12% y-o-y in Q313. Anecdotal evidence from the local media suggests to us that
demand for real estate following the sharp decline in prices since 2011 may be recovering. To be sure, we
maintain our view that we are unlikely to see a property market boom given the healthy pipeline of new
units that will come online in 2014. Nonetheless, we acknowledge that consumer confidence is recovering
and we could potentially see some upside surprises to domestic demand in 2014.
Expenditure Breakdown
Private Consumption: We expect private consumption to grow at a relatively resilient pace of 5.0% in
2014. 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.
Page 81
Gross Fixed Capital Formation: We foresee a pickup in private sector investment growth in 2014, 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 slightly from 4.1% in 2013 to 4.8% in 2014.
Public Spending: We expect total public spending to remain relatively resilient in 2014, expanding at a
respectable pace of 6.1%. 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 in 2014. 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 5.9% in 2014.
2010
2011
2012
2013f
2014f
2015f
2016f
2017f
2,157,829
2,779,880
3,245,419
3,657,621
4,117,487
4,631,499
5,203,774
5,841,949
112.9
134.6
155.5
175.0
200.2
227.8
257.4
291.4
6.4
6.2
5.2
5.3
6.0
6.9
7.0
7.0
1,267
1,497
1,712
1,909
2,163
2,439
2,733
3,068
89.0
89.9
90.8
91.7
92.5
93.4
94.2
95.0
Industrial
production index,
% y-o-y, ave 1,5
14.1
10.9
7.0
7.6
8.7
9.6
9.9
9.8
Unemployment,
% of labour force,
eop 2,6
4.3
3.6
3.2
3.7
3.5
3.5
3.6
3.5
Nominal GDP,
VNDbn 3
Nominal GDP,US
$bn 3
Real GDP growth,
% change y-o-y 3
GDP per capita,
US$ 3
Population, mn
Notes: f BMI forecasts. 1 at 1994 prices; 2 Urban Area Only. Sources: 3 Asian Development Bank, General Statistics
Office; 4 World Bank/UN/BMI; 5 General Statistics Office; 6 General Statistics Office/BMI.
Page 82
Demographic Forecast
Demographic Outlook
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 2013, the change in the structure of the
population between 2013 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.
Population Pyramid
2013 (LHS) And 2013 Versus 2050 (RHS)
Page 83
Population Indicators
Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050
1990
1995
2000
2005
2010
2013e
2015f
2020f
68,910
76,020
80,888
84,948
89,047
91,680
93,387
97,057
0-4 years
9,315
9,323
7,128
6,898
7,229
7,152
7,012
6,575
5-9 years
8,606
9,212
9,253
7,023
6,791
7,052
7,181
6,968
10-14 years
7,857
8,541
9,162
9,117
6,899
6,619
6,757
7,147
15-19 years
7,359
7,788
8,492
9,050
9,011
7,686
6,866
6,726
20-24 years
6,644
7,222
7,673
8,333
8,874
9,148
8,936
6,802
25-29 years
6,006
6,470
7,065
7,471
8,112
8,528
8,772
8,837
30-34 years
5,138
5,890
6,352
6,910
7,286
7,703
8,022
8,680
35-39 years
3,888
5,065
5,803
6,242
6,763
7,011
7,208
7,940
40-44 years
2,463
3,826
4,994
5,719
6,147
6,472
6,685
7,127
45-49 years
2,017
2,409
3,753
4,935
5,648
5,894
6,054
6,589
50-54 years
1,968
1,959
2,346
3,700
4,855
5,306
5,521
5,926
55-59 years
2,046
1,891
1,885
2,237
3,542
4,278
4,677
5,330
60-64 years
1,669
1,934
1,790
1,734
2,068
2,795
3,352
4,444
65-69 years
1,412
1,522
1,771
1,610
1,562
1,673
1,906
3,104
70-74 years
1,028
1,216
1,322
1,530
1,399
1,360
1,379
1,695
Total
Page 84
1990
1995
2000
2005
2010
2013e
2015f
2020f
75-79 years
752
819
984
1,080
1,263
1,219
1,167
1,160
80-84 years
430
536
597
732
815
919
964
900
85-89 years
224
261
336
385
483
517
546
654
90-94 years
71
108
132
177
210
245
268
306
95-99 years
16
25
41
53
74
83
89
115
100+ years
12
17
21
24
30
1990
1995
2000
2005
2010
2013e
2015f
2020f
0-4 years
13.52
12.26
8.81
8.12
8.12
7.80
7.51
6.77
5-9 years
12.49
12.12
11.44
8.27
7.63
7.69
7.69
7.18
10-14 years
11.40
11.23
11.33
10.73
7.75
7.22
7.24
7.36
15-19 years
10.68
10.25
10.50
10.65
10.12
8.38
7.35
6.93
20-24 years
9.64
9.50
9.49
9.81
9.97
9.98
9.57
7.01
25-29 years
8.72
8.51
8.73
8.79
9.11
9.30
9.39
9.11
30-34 years
7.46
7.75
7.85
8.13
8.18
8.40
8.59
8.94
35-39 years
5.64
6.66
7.17
7.35
7.60
7.65
7.72
8.18
40-44 years
3.57
5.03
6.17
6.73
6.90
7.06
7.16
7.34
45-49 years
2.93
3.17
4.64
5.81
6.34
6.43
6.48
6.79
50-54 years
2.86
2.58
2.90
4.36
5.45
5.79
5.91
6.11
55-59 years
2.97
2.49
2.33
2.63
3.98
4.67
5.01
5.49
60-64 years
2.42
2.54
2.21
2.04
2.32
3.05
3.59
4.58
65-69 years
2.05
2.00
2.19
1.89
1.75
1.83
2.04
3.20
70-74 years
1.49
1.60
1.63
1.80
1.57
1.48
1.48
1.75
75-79 years
1.09
1.08
1.22
1.27
1.42
1.33
1.25
1.19
80-84 years
0.62
0.70
0.74
0.86
0.91
1.00
1.03
0.93
85-89 years
0.32
0.34
0.42
0.45
0.54
0.56
0.58
0.67
90-94 years
0.10
0.14
0.16
0.21
0.24
0.27
0.29
0.32
95-99 years
0.02
0.03
0.05
0.06
0.08
0.09
0.10
0.12
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100+ years
1990
1995
2000
2005
2010
2013e
2015f
2020f
0.00
0.00
0.01
0.01
0.02
0.02
0.03
0.03
1990
1995
2000
2005
2010 2013e
75.8
71.0
61.3
50.8
42.9
41.4
2015f
2020f
41.3
41.9
56.9
58.5
62.0
66.3
70.0
70.7
70.8
70.5
65.8
60.9
50.9
40.9
33.6
32.1
31.7
30.2
10.0
10.1
10.3
9.9
9.3
9.3
9.6
11.6
3,934
4,491
5,190
5,579
5,823
6,037
6,343
7,965
1990
1995
2000
2005
2010
2013e
2015f
2020f
20.3
22.2
24.4
27.3
30.4
32.3
33.6
36.9
79.7
77.8
75.6
72.7
69.6
67.7
66.4
63.1
13,958
16,867
19,716
23,175
27,064
29,632
31,384
35,771
54,952
59,153
61,172
61,773
61,983
62,048
62,003
61,286
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Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of 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.
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.
BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of
objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for
example poor weather conditions impeding agricultural output, dummy variables are used to determine the
level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
All results are assessed to alleviate issues related to autocorrelation and multicollinearity
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It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry
forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot
structural breaks, anomalous data, turning points and seasonal features where a purely mechanical
forecasting process would not.
Sector-Specific Methodology
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.
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:
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:
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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.
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