The country’s potential is remarkable, but infrastructure needs to catch up.

With manufacturers on a never-ending quest for cost-effective production opportunities, Vietnam has moved up in the minds of executives, particularly for sectors such as clothing and apparel and footwear.

The country’s infrastructure, however, must be improved in order to handle any substantial amount of cargo.

APL is one company that recognizes the potential in Vietnam, and has made significant investments in the country.

Barry Akbar, Managing Director, Vietnam, APL, recently shared some details about Vietnam's opportunities and challenges.

“In the World Economic Forum’s Competitiveness Report 2011, Vietnam is ranked 97th in port infrastructure score and 123rd in overall infrastructure, both behind its ASEAN peers Cambodia and Indonesia. Not only does infrastructure have room to improve, its overall infrastructure still lags behind its port infrastructure,” he said.

“Ports in Vietnam handled 5.1 million twenty-foot equivalent units (TEUs) in container throughput last year. There are three port clusters in Vietnam today, with the Ho Chi Minh City cluster in the south being the largest, accounting for more than two-thirds of the country’s throughput. This is also where Vietnam’s first purpose-built container port project with foreign investment-the APL-operated Vietnam International Container Terminal (VICT)-is located.  The southern cluster includes terminals in the Cai Mep-Thi Vai and Hiep Phuoc areas. Almost all Vietnam’s remaining throughput comes from ports in the North, with Central Vietnam responsible for a mere 3 percent.”

Akbar notes that the Vietnamese government has been actively supporting port infrastructure upgrades, “which which has divided Vietnam’s eastern seaboard into six sections and specified in its infrastructure master plan to have at least one modern port in each section. An estimated $19 to $23 billion worth of investments will have to be directed at seaport developments by 2020.” 

According to Akbar, “the most aggressive seaport development plans still lie in the south. In the Cai Mep-Thi Vai area alone, four new terminals are now being constructed. Among them, three are scheduled for completion this year and the remaining one in 2013. Back in 2008, South Vietnam was still operating at capacity. With new terminals like the Saigon Port-PSA International Port coming on-stream in 2009 and after, port utilization in this region has fallen closer to 60 percent levels. We believe the scheduled expansion of terminal handling capacity in the south should be adequate for the market demand at least until 2018.”

He adds that landside infrastructure “has to catch up before the south can realize the full benefits of expanded capacities. The master plan to build a world-class port infrastructure calls for $5 billion worth of investments-likely through private-public partnerships-in supporting infrastructure that includes connectivity. While transportation infrastructure has improved tremendously over the past five years, there is still plenty of room for improvement. Congestion on the roads leading to major deep-sea ports is still creating bottlenecks for global supply chains.”

Akbar says that given the added volumes from completion of new projects this year, the following needs to be addressed urgently:



•    Relying on expensive barges at the Ho Chi Minh terminals to access inland container depots at Transimex and Tanamexco (refer to below maps) will only add costs to the supply chain, thereby discounting Vietnam’s competitiveness.

•    The Ho Chi Minh City-Long Thanh-Dau Giay Expressway is urgently in need of artery roads to ease congestion.

•    National Highway No. 51 also critically needs to be expanded to accommodate increased container truck volume and weekend travelers. 

•    The Bien Hoa-Vung Tau Expressway project to link key industrial parks in Dong Nai Province to the deep-sea terminals in South Vietnam can alleviate the four to five hours of congestion over the roads today – the project should be expedited.



Akbar continues: “In the north, the problem is a bit different, the restriction is in terms of the draught, they do not have deep-water ports and are not able to cater to deep-sea going vessels. The north of Vietnam, however, has far better infrastructure and roads compared to the south. There is an exact reverse situation between the north and the south of Vietnam.

“Years ago, Vietnam used to boast a proliferation of master plans. The transport department, the shipping sector, domestic line Vinamarine, the inland waterways sector, the air cargo sector all had their own master plan. The problem was that the national government and provinces had different plans, so if you look at the roads in the old days you have one highway with three lanes, turning into two lanes and suddenly becoming one lane. But over the last couple of years, we have seen real progress. The system has changed now, with government departments responsible for different modes as well as provincial leaders coming together to ensure an integrated highway master plan.”




 

Expediting freight from Cambodia

In November, APL Logistics launched its Cross-Border Trucking service from Cambodia to Vietnam’s Port of Cai Mep. Glenn Kong, Managing Director, Cambodia, APL, provided some background information on this service.

“At APL Logistics, one thing we do very well is listen to our customers. Those dealing with time-sensitive goods and relying on manufacturing facilities in Phnom Penh, Cambodia, have told us that they and their suppliers often find shipment windows too short because cargoes have to be ready days ahead of the actual vessel departure. Most consolidators set their cut-off times at container freight stations at Thursday noon, while most carriers offer Saturday noon cut-offs at container yards. Shipments via Sihanoukville port require five to six hours’ trucking-deemed too long a transit by some customers. And when production unexpectedly runs late, they have limited options to meet their committed delivery deadlind-the conventional barge services at Phnom Penh river port, feeder services via Sihanoukville port or costly airfreight. Missing the delivery deadline could well affect their credibility with their consignees and may even cost them a penalty.”

Kong explains that, “APL Logistics’ cross-border trucking service is simply a service recovery solution when late productions disrupt the manufacturer’s supply chain. Shippers can rely on our trucking service from Phnom Penh to Cai Mep to put what could become late shipments back on schedule. This helps shippers stay credible and avoid the penalty payment.

With our cross-border trucking service, shippers have up to Monday morning to deliver to the contain freight station. Compared to the options of barging from Phnom Penh river port or using a feeder service to Sihanouvkville, this effectively cuts one to four days of transit times. And, shippers have the flexibility to work with a variety of ocean carriers out of Cai Mep.”

The typical user of this service is primarily Phnom Penh’s apparel manufacturers, although retail and fast-moving consumer goods shippers that are time-sensitive would benefit from the service as well, adds Kong.




 

A promising future

As for the future expansion plans in Vietnam, Akbar remarks that, “From the onset, APL, APL Logistics, and our parent company Neptune Orient Lines have been a firm believer that Vietnam has a growing place in global shipping. After all, we were the first major foreign company to invest in the country’s first purpose-built container handling facility-Vietnam International Container Terminal (VICT), which commenced operations in 1998.

“Overall container volume growth in Vietnam was 10 percent last year. We are expecting between 11 percent and 12 percent this year. For several years now, Vietnam has seen strong growth in containerized trade. Even during the recessionary 2009, it grew at 11 percent in outbound traffic and 9 percent in inbound. APL launched a weekly direct container shipping service between Vietnam and the U.S. in mid-2009 and the service has proven to be a hit with shippers.”

On key trade lanes, Akbar notes that, “Last year, Vietnam grew 13 percent in the Transpacific box traffic, 11 percent in the Europe trade, and 16 percent intra-Asia. Over the next three years, we forecast 12 percent CAGR in Transpacific, 8 percent in Europe, and 15 percent in intra-Asia trade lanes. APL believes that Asia is key to the future of containerized trade, with Vietnam an important element in that growth. Intra-Asia trade is already the world’s largest container trade lane. By 2015, it will make up 32 percent of global containerized trade, with Asia-U.S. and Asia-Europe contributing 17 percent and 18 percent respectively.”

Another factor driving trade growth in Vietnam is rising products costs in China, adds Akbar. “Fast rising factor costs in China have prompted global manufacturers and retailers to explore their options with Vietnam. A lot of companies are using Vietnam as another platform for their production. The country has been successful in attracting a good deal of manufacturing, particularly in textiles, shoe manufacturing and electronic goods. That helps in terms of moving the raw material intra-Asia into Vietnam, and on the export side moving out all these finished goods into Chinese, ASEAN, American and European markets.”

He adds that, “Lines used to rely on feeders to serve the Vietnamese market by transshipping at hubs like Hong Kong or Singapore. Vietnam’s significant cargo base today and its swelling shipping volume are attracting more and more carriers to deploy direct line-haul services there. In mid-2009, APL inaugurated weekly direct Vietnam-U.S. West Coast service, the PS1. Last year, APL also extended its line-haul Vietnam-North Europe service JEX to Vietnam.”

Furthermore, “As time-sensitive goods like apparel, shoes and electronic goods account for a disproportionate share of Vietnam’s export volumes today, there is a growing group of discerning shippers looking for not just speedy, but also consistent and predictable shipping services.”

From Akbar’s perspective, there are several issues facing shippers in Vietnam, including:

•    Inflation and currency appreciation reduces export competitiveness in a country that already has trade and current account deficits.

•    Lack of clarity and transparency in legal, taxation policies, investments and customs regulations.

•    Lack of integration in transportation system, communication and power.



On a positive note, however, Akbar offers the following growth ideas for the shipping sector in Vietnam:



•    Bring exports from West China to market faster and more cheaply in the North.

•    Allow Vietnam to become a transshipment and consolidation point for goods coming in and out of China.

•    Allow for goods coming out of northern Thailand, Laos, and Burma to be consolidated with international shipments, and easier export of Vietnamese oil in the Central region.

•    Allow Vietnam to fully realize its domestic manufacturing potential in the South-North and growing Central region.

•    Allow Southern Vietnamese ports to become a major shipping hub for Cambodia, southern Thailand, and the larger Southeast Asia region. Wt