Tourism Flows Inbound in Vietnam

• In 2011, the growth rate gets back to the stable rate of 8% after the rapid increase in 2010

• China is continuously taking the lead in the number of tourists coming to Vietnam, despite the rising tension from the Spratly Islands dispute

• Americans, Japanese, Koreans and Russians are those who spend the most on trips to Vietnam

• Number of inbound trips is expected to continue growing well over the forecast period with CAGR of 7%

TRENDS

• In 2011, international tourists tended to choose Vietnam because the country seemed to be more affordable compared to other neighbouring destinations such as Singapore or Thailand. More importantly, the Vietnamese government invested approximately VND50 billion in the marketing campaigns to promote Vietnam’s tourism industry in 2010 through various channels, including CNN, global tourism magazines and tourism road shows in Europe, South Korea, Japan and China. Vietnam gradually gained rising interest from international tourists. Therefore, the number of arrivals to Vietnam grew at 8% in 2011 to reach nearly 5.6 million trips.

• Arrivals by air remained the largest mode of transport. Apparently, air transportation is the fastest way of travelling into Vietnam. As a large percentage of tourists come from China, the US and South Korea, airplanes provide tourists high convenience and help them to save time.

• Aside from airplanes, Vietnam has good opportunity to develop sea tourism thanks to its long coastline with beautiful beaches, ports and islands. Rail and coach are also popular modes of transport for tourists who come from the neighbouring countries such as Laos and Cambodia thanks to their lower cost compared to airplanes.

• In the context of the review period, Vietnam Airlines Corp was the leading airline in the country with many direct flights to both local and international destinations. The company recorded two thirds of its profit from international passengers. In 2010, Vietnam Airlines officially joined the SkyTeam alliance in the hope of extending its network to provide its consumers more benefits.

• Low-cost carriers such as Tiger Airways, Jetstar and Air Asia have gained more customer attention thanks to their affordable price. However, these low-cost carriers typically provide flights from neighbouring countries such as Singapore, Thailand, Malaysia and Australia to Vietnam. The higher acceptance of low-cost carriers in the country is also due to the fact that the flying time between neighbouring countries is usually short. Most consumers accept the low quality of service provided by low-cost carriers to save more money. The popularity of low-cost carriers has fuelled the rising number of inbound tourists from neighbouring countries.

COUNTRY OF ORIGIN

• China continued to take the lead in the number of arrivals to Vietnam, recording more than one million tourists in 2011. The similarity in culture and traditional customs was the main contributing factor for Chinese tourists to visit Vietnam. In addition, the tight fair-trading policy between the two countries was also contributing to the large number of tourists to Vietnam for business. Another reason which explained the high number of arrivals from China was the further expansion of China’s economy in 2011. China has become the second largest economy in the world, and Chinese are more willing to pay more for travel as they are becoming richer.

• Japan and Russia were the second and third key inbound countries in 2011. Arrivals from Japan increased by 16%, which was the highest growth rate, whilst Russia’s growth rate closely followed at 15%. The strong growth of Japanese tourists to Vietnam was thanks to the efforts of the Vietnamese government to encourage Japanese to visit Vietnam. For example, the Vietnam National Administration of Tourism (VNAT) was successful in setting up a website in Japanese to advertise Vietnamese tourism. In addition, the Vietnamese government allowed Japanese citizens to stay in Vietnam without obtaining a visa if they stay for less than 15 days.

• VNAT was associated with travel agencies and hotels to deploy advertising campaigns to foster the development of Vietnamese tourism. For example, in 2011, VNAT participated in various tourism fairs, such as Travex in Cambodia, ITB in Germany and MITT in Russia. Besides, Vietnam’s government also gave the permission to expand the length of stay for transit tourists in Vietnam from five days to 15 days.

BUSINESS VS LEISURE

• Leisure arrival accounted for 85% of the number of inbound tourist flows in 2011 with a total of almost six million tourists. The majority of tourists were backpackers who independently came single or in groups of three to four people with low level of expenditure. The rest were organised group tourists who liked to take package tours from tour agencies. Trans-Viet and Indochina were some of the most popular tour agencies which tourists normally chose when travelling to Vietnam.

• For the backpackers, Hanoi and Ho Chi Minh City are seen as not only travel destinations but also the transit locations to book short tours to other nearby destinations. There are a large number of cheap hostels available for tourists to stay in these places. Taxi service, coach and bike schemes are the most popular kinds of transportation for backpackers to commute on trips.

• Business arrivals accounted for about 15% of inbound tourists, amounting to over one million tourists, of whom 74% were MICE tourists.

• MICE tours are the kind of business tourism which requires a high-end infrastructure as well as the luxury services. MICE tourists are typically very generous and they tend to spend more than other kinds of tourists. Average spending for Europeans in MICE tours was approximately VND20 million per day whilst the average spending for an Asian tourist was around VND8 million per day. MICE tours in Vietnam gradually became favoured by foreigners because of Vietnam’s natural attractions, friendly environment and political stability. For example, Fiditour in 2011 received about 65,000 tourists in MICE tours.

• Hanoi, Ho Chi Minh City, Nha Trang, Hue and Da Nang were the places attracting the largest number of MICE tourists because of their modern infrastructure compared with other provinces in the country.

CITY ARRIVALS

• In 2011, the top three cities to attract arrivals to Vietnam were Ho Chi Minh City, Hanoi and Ha Long.

• Ho Chi Minh City received about 3.5 million international tourists with the growth rate of 45%. Ho Chi Minh City is the largest city in Vietnam. It is the centre of the country’s economy, contributing one third of Vietnam’s GDP. The most interesting attractions for tourists included Independent Palace, Notre Dame Saigon and War Remnants Museum. In addition, the city also carried out promotional activities like holding “September – Special Offer Month” or giving out more than 250,000 Shopping Handbooks for tourists to Ho Chi Minh City in 2011. It also houses the busiest airport in Vietnam, and acts as the transfer point for many tourists who want to visit other places in the country.

• Hanoi received almost two million arrivals by the end of 2011 with the growth rate of 41%. The strong growth of arrivals to Hanoi was thanks to the government campaign to persuade international tourists to visit Hanoi. The Imperial Citadel of Thang Long, Temple of Literature, Ngoc Son Pagoda, Perfume Pagoda, Duong Lam Village and Bat Trang Village were some places being promoted and advertised in the public media in attempts to attract tourists’ attention to the capital of Vietnam in 2011. More importantly, Hanoi was trying to improve its infrastructure and human resources for tourism. For example, the government offices planned to build Nhat Tan Bridge, which helped to reduce travelling time from Noi Bai Airport to the central areas of Hanoi.

• Ha Long Bay was one of the most attractive destinations for tourists to Vietnam. Ha Long is a UNESCO World Heritage site. The bay features thousands of limestone hills and mountains in various sizes and shapes. The limestone in this bay is said to have gone through 500,000 years of formation. Tourists can go on a trip on a boat to visit its limestone mountains, caves and islands, and then enjoy a night on the bay. 2011 saw a decline in the number of foreigners to Ha Long due to many ship sinking accidents in Ha Long reported in various channels in 2011. The accidents increased tourists’ concern about the safety of ships and cruises in Ha Long Bay.

• Aside from the three most popular destinations for international tourists, there are Nha Trang, Da Nang, Hue, Hoi An and many more. Nha Trang and Da Nang have the most beautiful beaches in Vietnam. Hue was once the capital of Vietnam during feudal society times, with many emperors’ palaces and its long history for tourists to explore. Hoi An is famous for its ancient houses and the beautiful beach.

PROSPECTS

• Arrivals to Vietnam are expected to grow at a CAGR of 7% during the forecast period. Growth will be fuelled by the constant government efforts in advertising and promotional activities for Vietnamese tourism. More importantly, government offices are likely to cooperate closely with hotels, tour agencies and restaurants to develop overall services and infrastructure to appeal to returning tourists.

• With the development of hotels, resorts and shopping malls, tourists are expected to benefit more from improvement of tourism services in Vietnam. Four-star and 5-star hotels and spa resorts will be the key trend in construction sites for tourism. There will be more luxury hotels and leisure complexes being built near coastline areas to provide high-end services with natural beauty. Besides, there are a lot of shopping malls being built in big cities to stimulate international tourists’ demand for shopping.

• One potential forecast threat to growth is the weak management by the government, which leads to many social issues that are unfavourable to tourists, such as tourist fraud, thefts and cheating. However, in comparison with neighbouring countries such as Singapore, Thailand and Malaysia, Vietnam still has many places that are not yet explored by international tourists. With the determined efforts to develop Vietnamese tourism as well as better management from government, tourism in Vietnam has a lot of potential to grow over the forecast period.

• Thanks to the fast development of the banking system in Vietnam, credit cards will be used more as the method of payment. However, cash will remain the major method of payment in spite of the availability of point-of-sale machines in shopping centres. It is due that the fact that traditional markets and small retailers need to take a long time to adopt point-of-sale machines.

• China, the US, South Korea and Japan will remain the top source markets which supply a large number of arrivals. MICE tours will be favoured by international business arrivals thanks to the professional, friendly and high-quality services provided in these tours.

• Hanoi and Ho Chi Minh City will continue to be the top tourist attractions in Vietnam as a result of their good infrastructure and high-quality customer services. Nevertheless, international tourists will look for more new places to discover and experience. Some of the places with strong potential for the future include Hue, Hoi An, Nha Trang and Phu Quoc.

• Promotions and discounts are expected to be more prominent during the five-year forecast period in line with the government campaign to promote Vietnamese tourism.

Vietnam Freight Transport Analysis Q3 2012

Vietnam's freight transport sector appears to be going from strength to strength, following the recession-dominated 2009, with growth in the mid term expected to be very healthy across the board. Leading the way in terms of average annual growth will be the road sub-sector, which is set to average 7.14% year-on-year (y-o-y) growth over our forecast period, to 2016. In second place will be air freight, with 6.23% .




growth predicted, with the port sector in third place with 6.03%. Inland waterways and rail freight will both also enjoy healthy average increases between 2012 and 2016, of 5.73% and 5.33% respectively.
However, we caution that in order for the country to fully realise its potential, there must be an onus placed on investment over the mid and long term, otherwise Vietnam could suffer from overcapacity. Aside from this, the country's existing infrastruc-ture is sadly lacking and needs a considerable financial injection.
With the macroeconomic picture across the globe looking bleak for 2012, Vietnam's main export partners - the US, China and Japan - are all set to suffer slowdowns during 2012, which could go on to pose some serious headaches for Vietnam.

Headline Industry Data
•  2012 rail freight tonnage is set to increase by 5.29% to 8.62mn tonnes.
•  2012 air freight tonnage is forecast to rise by 5.72% to 206,960 tonnes.
•  Tonnage handled at the Port of Ho Chi Minh City in 2012 is forecast to grow 7.96% in 2012, whereas tonnage handled at the Port of Da Nang is forecast to increase 3.08%.
•  2012 road freight tonnage is forecast to grow by 6.97%.
•  2012 total trade is forecast to rise by 8.45%
Key Industry Trends
Van Phong Port To Resume Work In 2012 At Best Vietnam National Shipping Lines (Vinalines) signed a deal with Netherlands-based Rotterdam Port to construct the US$3.6bn Van Phong port, it was reported in October 2011. We believe that the international sea port project is likely to resume construction in 2012 at the earliest, given the need for further negotiations with Rotterdam Port, Vinalines' lack of financing and the unresolved disputes with previous developers of the projects.

Cat Lai Port Denies Any Involvement In Reefer Explosions Saigon Newport, a container terminal operator at the Vietnamese Port of Cat Lai, denied any involvement in the faulty repairs or  maintenance of reefer containers which resulted in fatal explo-sions at four ports in Asia and South America in November 2011. Pham Thi Thuy Van, of Saigon Newport's marketing department, said neither the port nor the terminal operator should be blamed for the explosions, as the maintenance and servicing of the reefers is handled either by third party vendors, or by the shipping lines' own vendors.
New Vietnamese Container Rail Service Provides Upside
Risk To Forecasts:  The Vietnamese press reported at the end of 2011 that the Vietnam Railway Corporation (VRC) was seek-ing to introduce a container train service connecting the Port of Hai Phong with Hanoi and Lao Cai Province, with rail freight volumes set to increase as a result. The new service could also reduce the number of lorries on Vietnam's roads, potentially leading to a drop in road haulage in the South East Asian country. 
Key Risks To Outlook
There should be no doubt that Vietnam's biggest obstacle go-ing forward will be overcapacity, and how the country plans to traverse this will be the difference between fulfilling potential or fading into the wilderness behind regional competitors. With demand for Vietnamese freight high, the offshoot is of course being able to cater for this demand. If provisions are made to combat overcapacity, then this will undoubtedly provide risks to the upside in terms of our mid and long term forecasts.
On the downside, Vietnam is certainly not immune to the stub-born global economic headwinds that threaten to blow many an economy of course in 2012. Despite the Vietnamese government's attempts to reduce the country's persistent budget deficit, we expect to see a cooling of the economy over the coming quarters,
with real GDP growth slipping slightly from 5.9% last year to 5.8%. With most other economies set to suffer far worse than Vietnam in 2012, including key export partners, the freight sector may well take a hit in 2012 as the belt tightening commences.
Market Oveview
BMI has downwardly revised its GDP growth forecast for 2012 due to the fears that a global economic downturn may be just around the corner. Although we stated last quarter that we were 'optimistic that we could see a pickup in GDP growth to reach 6.5% in 2012, after estimated growth of 6% in 2011', we have dropped both figures, to 5.8% and 5.9% respectively. Economic headwinds in the US and eurozone should continue to act as a dampener on external demand, allied to the fact that China, Vietnam's largest export partner, is set to see a cooling of GDP growth in both2012 and 2013. This suggests that production activity in the manufacturing sector and other export-based industries could face difficulties, with negative effects for the freight transport industry.Domestically, we expect to see welfare subsidies rise as cool-ing external demand translates into higher unemployment for the manufacturing sector. Furthermore, we expect tax revenue growth to slow significantly as a result of cooling private sector income growth. Accordingly, we expect the budget deficit to widen from an expected 2.6% of GDP in 2011 to 3.4% in 2012.
However, given that we see a potential recovery in external demand in late 2012, we are pencilling a slight improvement in the budget deficit to 2.8% in 2013. Retail sales have moderated considerably since November 2010, when the State Bank of Vietnam (SBV) initiated its monetary tightening cycle. Retail sales growth slowed from 32.5% in November 2010 to 22.6% in June 2011, indicating that the meas-ures have dampened private consumption growth. Nonetheless, retail sales remain at double-digit growth rates, indicating that private consumption growth remains resilient. This supports our view that private consumption would remain resilient on the back of robust labour market conditions and rising wages in Vietnam, boding well for containerised imports. However, public spending cuts and a subdued outlook on gross fixed capital
formation (GFCF) growth due to high lending rates would lead to continued moderation in domestic demand throughout the year.
 

 Road Freight Remains The Dominant Force: 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.Vietnam has a national road network of 171,392 kilometres (km). BMI believes the sector requires substantial investment. 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 2,347km. The network is of mixed-gauge, comprising 2,169km of 1.000m gauge and 178km of 1.435m gauge. Railway infrastructure in Vietnam was ranked 101 out of 123 by the WEF.

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, like 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.
Vietnam's port infrastructure is poor by international standards. The WEF's 2011 Global Competitiveness Report ranks it 111th out of 142 countries, placing it 12th in the region, just one place ahead of the Philippines, the regional underperformer.
Investment And Development Outlook
According to our key infrastructure projects database, there are US$171bn worth of infrastructure projects planned, or cur-rently 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 construc-tion of two deep water ports in Dam Mon that will be able to ac-commodate container ships with tonnage of 9,000 twenty-foot equivalent units (TEUs) and the capacity to handle 0.5mn TEUs per year. The project is currently suspended, however, due to an ongoing review of geological conditions at the site.
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 incorporate a new runway, providing capacity for100mn passengers a year. A tender for investment consultancy work was under development as of December 2011.
Industry Forecast
Vietnam Will Not Escape Global Headwinds Although Vietnam is set to enjoy relatively good GDP year-on-year (y-o-y) growth in 2012 of 5.8%, this represents not only an ever so slight slowdown from 2011, but a downward revision from the end of 2011. We expect to witness a deterioration in the
country's fiscal position in 2012, due to the prevailing global economic headwinds. As no country can exist in a vacuum, Vietnam will find itself suffering as a result of larger downturns in other economies over the next 12 months. Vietnam's two big-gest export partners, China and Japan, are expected to encounter differing growth patterns in 2012. China's rapid growth will cool somewhat to 8.1% in 2012, down from 9.2% in 2011, and this is set to slip again in 2013. Meanwhile, although Japan will avoid the contraction it saw in 2011, it will still only post 1.8% growth in 2012, which we also forecast will fall in 2013. This will impinge on Vietnam's freight industry, due to its exposure to these economies.Our forecasts for Vietnam's road freight sector suggest further strong growth over the medium term. For 2012 we expect y-o-y growth of 6.97%, up from an estimated 6.47% in 2011. In terms of medium-term annual growth, BMI sees an average of 7.14% to reach 846.83mn tonnes.The rail freight sector will safely put the twin contractions of 2009 and 2010 out of sight with 2012 and beyond set to reflect 2011's steady growth pattern. For 2012 we expect growth of
5.29%, with the average annual growth over the forecast period just beating this figure, at 5.33%, to reach 10.61mn tonnes in 2016, up from 2012's forecast 8.62mn tonnes.
In common with  the sectors mentioned above,  Vietnam's air freight sector will enjoy steady growth rates over the medium term. We see an annual average of 6.23% over our forecast pe-riod, with tonnage throughput increasing from 206,960 tonnes in 2012 to 264,780 tonnes by the end of 2016. In 2012 BMI
forecasts y-o-y growth of 5.72%, up slightly on 2011's 5.25%. However, the Vietnamese air freight sector is by far the country's smallest in terms of annual tonnage throughput.Ho Chi Minh Port's growth forecast for 2012 is set to reflect the slower GDP growth in Vietnam. We are sticking with last quarter's prediction that the port's container throughput will increase by 4.8% in 2012 to 3.1mn twenty-foot equivalent units (TEUs), a slowdown from the double-digit growth we saw in the years prior to 2011. We also stick to Q112's
tonnage throughput growth forecast of 8%, to reach 36.11mn tonnes.However, growth at the Port of Da Nang will not mirror that of Ho Chi Minh City, with 2012's forecast set to be 3.08%, albeit an increase on 2011's estimate. Over the medium term, the port is set to see average annual tonnage throughput of 3.83%, compared to the Port of Ho Chi Minh's 8.22%.Inland waterways will also enjoy the healthy growth we expect to see in other sectors over the medium term. In 2012 we forecast growth of 5.11%, a figure that will be surpassed by the predicted y-o-y average over the forecast period of 5.73%.