What, specifically, would larger ports in Vietnam do?

1) Larger ports would reduce or eliminate the need for transshipment of Vietnamese exports, restoring the comparative advantage of Vietnam’s cheap and relatively educated labor force. Right now, most goods exported from Vietnam to major markets are transshipped elsewhere in Southeast Asia onto larger vessels, adding costs to goods that Vietnam is able to produce more cheaply than China, Thailand, and other regional manufacturers. Depending on fuel prices, these additional shipping and handling costs eliminate some of the comparative advantage Vietnam offers investors and manufacturers, increasing shipping costs by as much as 28 percent.

2) In northern Vietnam, an improved port would bring Western Chinese exports to market faster and more cheaply. A deep water port near the northern Vietnamese city of Hai Phong would cut 800 kilometers off the shipping route of goods coming out of Western Chinaiii, giving foreign businesses further incentive to use Vietnam as a second regional base to offset the cost and risk of investing in China.

3) Improved ports would allow Vietnam to become a transshipment and consolidation point for goods coming in and out of China. Bigger ports would allow Vietnam to enter the transshipment market with competitive prices that could entice shippers away from more expensive transshipment points such as those in Singapore and Hong Kong.

4) A deep-water port in Central Vietnam would eventually allow for goods coming out of northern Thailand, Laos, and Burma to be consolidated with international shipments, as well as easier export of Vietnamese oil. The Vietnamese Government estimates that a central port would save Vietnam 1.5 billion USD a year in shipping costs for oil exports.

5) Better ports would allow Vietnam to fully realize its domestic manufacturing potential in the South, home to its large manufacturing base, by eliminating the major export bottlenecks currently experienced by domestic and international producers.

6) Better ports would allow southern Vietnamese ports to become a major shipping hub for Cambodia, southern Thailand, and the larger Southeast Asia region. While there is probably not enough demand for a third major hub-like Singapore and Hong Kongvi, Vietnam could offer competitive rates that attract shippers serving specific routes. This demand for and use of expanded Vietnamese ports does not suggest that Vietnam will ever rival the two major  shipping hubs in Hong Kong and Singapore, or that it should. Hong Kong and Singapore are so far advanced in capacity and technology that there is no point in trying to match them.

However, Vietnam can integrate itself into regional shipping routes, shortening those routes where possible, eliminate its own transshipment costs, and make the export of goods out of the Southeast Asia landmass more economical and feasible. Beyond Vietnam’s own domestic situation, several global trends in shipping support the argument for bigger and better ports in Vietnam. First, ships are becoming enormous, since larger ships can save an exporter millions in fuel costs. Second, the global economic recession has driven the price of shipping down to record lows, making sea transport extremely attractive to exporters in companies of all sizes. In fact, despite the global recession, the number of exported and imported goods coming in and out of Vietnam’s major ports in the South has increased ten percent in the last year. Finally, as we are seeing now, Asia is the preferred place to park idle ships and warehouse idle goods waiting for shipment.xi In good times and in bad, having large, deep ports with plenty of berthing and storage space is a huge economic opportunity for an economy structured as Vietnam’s is.