Net exports remain the biggest downside risk to our outlook for the Vietnamese economy given that we expect external demand to remain sluggish as we head into H113; this will undoubtedly have a detrimental impact on the country's shipping sector. Despite recording an average monthly trade surplus of US$172mn since June 2012 (resulting in a year-to-date surplus of US$77mn), we do not see the case for a substantial pickup in external demand in the near term. Accordingly, we expect exports to expand at a moderate pace of 6.5% in 2013. We expect private consumption to grow at a relatively subdued pace of 4.9% in 2012 before accelerating towards 5.6% in 2013. However, we note that the risk of a sustained collapse in exports and further bankruptcies among SMEs, could potentially lead to widespread job losses in export-driven sectors. Indeed, the problems currently experienced 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.That said, we are sticking to our forecasts from last quarter for the Vietnamese shipping industry for 2013. Therefore, the Port of Ho Chi Minh City remains by far the country's largest port and will also be Vietnam's outperformer in terms of tonnage handled this year - forecast to increase 7.56% year-on-year (y-o-y) in 2013 to reach 38.75mn tonnes, compared with the Port of Da Nang's predicted annual growth of 4.33% (4.16mn tonnes). On the other hand, it will be the Port of Da Nang that will enjoy the higher levels of annual growth in terms of containers handled, with y-o-y growth set to come in at double figures in 2013, as opposed to the Port of Ho Chi Minh City's protracted growth of 8.03%.

Headline Industry Data

2013 tonnage throughput at the Port of Ho Chi Minh City is forecast to grow 7.56% to 38.75mn tonnes.

2013 tonnage throughput at the Port of Da Nang is forecast to increase 4.33% to 4.16mn tonnes.

2013 container throughput at the Port of Ho Chi Minh City is forecast to rise 8.03% to 3.48mn twenty-foot equivalent units (TEUs).

2013 container throughput at the Port of Da Nang is forecast to increase 10.54% to 133,366TEUs.

2013 total trade real growth is forecast to increase 5.70%.

Key Industry Trends

Government Must Delay Launch Of Cai Mep-Thi Vai Port Complex The government has announced that it is to delay the launch of the Cai Mep-Thi Vai port complex in the southern region, a scenario that was proposed by Vietnam Business Forum 2012's Infrastructure Working Group and representatives from some foreign-invested businesses providing port services, it was reported in December 2012. The launch of the port in June 2013 would result in worsening the surplus situation in southern deep-water container ports according to the group. CSCL Launches New Container Service

Chinese shipping company China Shipping Container Line has established a new service between Haikou and Ho Chi Minh in Vietnam, reported Transport Weekly in November 2012. Haikou is located on the island of Hainan. The direct container service will operate on a weekly basis. It is intended to facilitate the transportation of products, including coconuts, fruit, rice and rubber, between Hainan and Vietnam. Saigon Port Relocation Project Update

Progress has been slow at the Saigon Port relocation project in Vietnam, owing predominantly to capital shortages, the Saigon Times Daily reported in December 2012, citing Saigon Port Company Deputy Director Huynh Van Cuong. The relocation work is moving at a slow pace despite financial assistance from the Vietnamese government. The Hiep Phuoc Port construction project is required to be finished first in order to relocate the Saigon Port from Ho Chi Minh City; however, construction work is only 38% completed.

Key Risks To Outlook

The Thai and Vietnamese transport ministries have recommended that their governments extend the Khon Khen-Tien Sa Port road from the Laem Chabang Port in Thailand to Hanoi and Haiphong in Vietnam, reports the Saigon Times. The statement was made by Phan Thi Thu Hien, the deputy director of the Department of Transport and Legislation under the Directorate for Roads of Vietnam. The suggestion is aimed at improving the efficiency of the road as it is not being efficiently used by enterprises and if completed, this will provide upside risk to the industry going forward. The road, which will cover approximately 900km, will run along Ho Chi Minh Road from Lao Bao in Quang Tri to Hanoi and Haiphong. Hien added that the road was opened for traffic in June 2009; however, it was not used by any enterprise due to problems faced by transporters in supplying goods to deep inland areas. Ongoing upgrade work is a necessity if Vietnam's ports are to remain competitive and begin to make a foothold in what is an ever competitive region.In terms of downside risk, Vietnam's fortunes are very much intertwined with those of the US, considering the States are by far Vietnam's largest export partner so news of a sustained downturn in the US will come as bad news in difficult times. There are some risks to the US foreign trade outlook. While the Bush administration was firmly committed to broadening the US's free trade ties, the weakened domestic economy has put some pressure on the Obama administration to hold off on future deals for the time being. Nonetheless, the federal government approved two major free trade deals with South Korea and Panama in Q411 that had previously been put on the back burner. That said, there are some worrying signs, including the use of a 'buy American' clause in the recent fiscal stimulus package, and vocal concerns from the Treasury Department over the Chinese currency regime.

Downside risk also presents itself due to poor infrastructure in Vietnam as delays in the completion of road works to container terminals are hampering any attempts to make the country's biggest and deepest port, Cai Mep, use anything close to full capacity, according to the CEO for Asia Pacific of APM Terminals.

Henrik Lundgaard Pedersen said: 'There is a lot that can be done and should be done to attract larger vessels to make sure that you use the most modern port facility you have in Vietnam.'

Business Monitor International