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

Cargo via Vietnam Ports Forecast to Rise in 2013: U.K. BMI

Cargo via Vietnamese ports is forecast to rise in 2013, the U.K. market researcher Business Monitor International (BMI) said.

Specifically, the cargo output via ports in the southern economic hub of Ho Chi Minh City will rise by 7.56% to 39 million tons this year while the container cargo output via the ports expected to rise by 8% to 3.48 million tons.

Meanwhile, ports in Danang forecast to handle 4.16 million tons of cargo in 2013, rising by 4.3% and 133,000 TEUs tons of container commodities during the year, up 10.54%, it noted.

According to BMI, in 2013-2017, Vietnamese seaports will act as transshipment ports, just like Singaporean ports do, thus they will receive more large ships instead of just the small vessels as before.

Vietnam now has over 100 ports of different kinds. However, it has a surplus of small ports and a shortage of large ones. Port construction boom without planning has led to a situation where many ports are operating at 20% or 30% of their capacity.

Developing Seaport Infrastructure In Vung Tau

Due to the woes continuing to plague the economy, the seaport performance in Ba Ria-Vung Tau Province and the country as a whole was poor last year. However, four new seaport projects are going to be put into operation in the province this year, contributing to improving the seaport infrastructure, and may make some headway this year.

Ba Ria-Vung Tau Province Department of Transport has announced that four more seaport projects, namely Vung Tau Petro, Cai Mep-Thi Vai International, SSIT and the first phase of Gemalink, will be put into operation this year.

The seaports will have a combined design capacity of about 20-25 million tons of cargo. The southern coast province in 2013 looks to achieve cargo throughput of around 50.7 million tons and serve roughly 125,000 passengers at local seaports. It will spend more than VND4.2 trillion developing the new seaports this year, up some 10% against last year.

Ba Ria-Vung Tau is now preparing to invest in 15 seaport projects at a total cost of about VND56 trillion, with 10 in Thi Vai-Cai Mep area, four in Long Son-Vung Tau area and one on Con Dao Island.

Ryoichi Matsuno, general director of Thi Vai International Port Co., told Ba Ria-Vung Tau newspaper that work on the international seaport would start in the second quarter and would be completed two years later. "Although the project is being completed during the tough times, we are still optimistic about the port's potential,?he said. "We believe that when the port is put into use, the economy will also recover.?

Matsuno added that ports around the Thi Vai-Cai Mep area are mainly container ports. So, when the Thi Vai seaport opens, it will be the only big port with various activities, including loading steel products. This is really an advantage.

There are 26 operational seaport projects in Ba Ria-Vung Tau Province with a total capacity of more than 76 million tons annually. However, these ports handled just 50.46 million tons of cargo in 2012, equivalent to some 94% of the 2011 figure. The Thi Vai-Cai Mep complex has 14 projects and the Vung Tau-Long Son area has 11 projects. Ben Dam Port on Con Dao Island serves as a general port, including seafood handling.

Cargo throughput at the ports was 50.46 million tons in 2012, down 6% compared to 2011. Container throughput increased to 7.58 million tons (6.42 million tons in 2011) but transit container throughput decreased by 30%. The number of international passengers going to the country through the ports was put at more than 82,000 people last year, or 88% of the number recorded in 2011.

Overcoming difficulties

Since container seaports around the Cai Mep-Thi Vai area have been put into operation, particularly after successfully accommodating big vessels, some firms started to bring their mother vessels to the area to load containers. Especially, 16 new maritime routes have been set up to ship containers from Vietnam to Europe and the U.S. However, due to the ongoing economic crisis, over the past year, some foreign shipping firms have cut at least seven direct routes from Europe and the U.S. to the Cai-Mep Thi Vai area. The remaining nine routes are enough to create fierce price competition among seaports. This makes the prices of stevedoring services go down strongly, costing less than US$40 per 20-foot container, impacting business operation of ports, especially newcomers.

In addition to the economic turbulence, the slow relocation of seaports along the Saigon River and Ba Son Shipyard has a negative impact on seaports?activities of Ba Ria-Vung Tau. By this time, only Saigon New Port had completed the relocation while others had removed a part. Due to the delay, many container ships still flock to ports in HCMC, instead of those in the Cai Mep-Thi Vai area, which have had infrastructure ready to welcome the relocated seaports from HCMC as well as container ships. So there is a big gap between supply and demand here.

Talking with Ba Ria-Vung Tau newspaper, Nguyen Xuan Ky, deputy general director of Ca Mep International Seaport, said that to handle the long-lasting difficulties, enterprises must proactively carry out proper solutions, limiting mistakes. "Besides, the Government should quickly approve suggestions or master plans as well as issue new breakthrough policies to better the performance of the port complex,?he said. Some of the policies are reducing maritime charges, setting up a seaport authority and creating favorable conditions for the transportation of exports from the northern and central regions.

Meanwhile, Nguyen Thu Trang, deputy general manager of Baria Serece Joint Stock Company, the operator of Phu My deepwater port, said the port only handled 4.7 million tons of containerized goods, down 14.5% compared with the initial target. To solve the problem, the port has boosted marketing, reduced some spending and applied advanced technology. "It is forecast that the economic difficulty still exists in 2013, so port operators need to improve marketing, reduce expenditures and improve customer care,?she said.

To enable the Southern Focal Economic Hub to play a real part in the country's development and to help localities in the hub develop, it is necessary for the Ministry of Transport to boost the relocation of seaports along the Saigon River. The ministry also needs to issue a new policy to connect localities in the region in seaport cooperation. This not only helps bring benefits for each locality but also avoids overlapping and weak performance of each locality.

Saigon Times Group

Infrastructure: Vietnam Inaugurates Japan-funded Int’l Port Complex

Vietnam’s Ministry of Transport and the Japanese International Cooperation Agency (JICA) jointly inaugurated Thi Vai-Cai Mep international port complex in Ba Ria-Vung Tau province’s Tan Thanh district.

The project, with total cost of VND13 trillion ($619 million), the majority of which comes from the JICA, was started in Oct 2008 by the Ministry of Transport’s Project Management Unit 85 (PMU85).

The first of the six bidding packages is building Cai Mep container port capable of receiving 100,000DWT ships and the second one is building Thi Vai port capable of receiving 50,000DWT ships.

Approved in 2004, the project was completed with the participation of some Japan contractors including Toa-Toyo, Penta-Rinkai, Penta-Toyo, IHI-MES and two domestic contractors including Cienco6-Truong Son and Maritime Safety Corp. In addition, Japanese JPC-Nippon Koei was the major supervisor of the project.

The project aims to form a system of consistent deep water seaports, infrastructure facilities and modern logistics services to meet the increasing demand for transportation in the southern region.

The complex will support direct maritime routes from Vietnam to other countries and cut travel time and cost, helping speed up the relocation of ports to HCM City’s suburban areas and ease traffic pressure in the city.

According to the Vietnam Port Association (VPA), Vietnam has 30 ports with 166 harbors and 350 wharfs. The logistics industry has attracted a number of foreign investors.

Toan Viet Limited Company

Vietnam: Vietnam opens its largest and deepest seaport

The Ministry of Transport today opened the Cai Mep Thi Vai International Port in the southern province of Ba Ria Vung Tau, the country's deepest and biggest seaport, which designed to meet the increasing demand of container shipping in the South.

The VND13 trillion (US$619 million) project, funded by ODA loan of JICA and counterpart budget of Vietnam government, will also open direct shipping channels with other domestic and international ports worldwide, cutting the intermediate and transit shipping costs

"The project will also help increase the social economic development of Ba Ria Vung Tau in particular and the southern region in general while save other ports in the South from overload burdens." said Deputy Prime Minister Hoang Trung Hai.

Hai said the port, which marks 40th years of relationship between Vietnam and Japan, will also play as a shipping hub connecting countries in the Mekong region.

He told the port's management board to fully ultilise the ports and operate the ports with safety.

According to transport Vice Minister Nguyen Van Cong, with direct channels and access roads, the ports will play an important role in attracting foreign directo investment (FDI) to the region as well as international maritime forwarders from the USA, Denmark, Singapore, Japan and Hong Kong".

Cong said the project built an international gateway which is capable of Vietnamese exports directly to Europe and North America ports without the need to stop at international transit terminals in the region.

"This shall enhance the the competitiveness of Vietnam exports while consolidating the postion of Vietnam in the world maritime transport" Cong added.

The project, managed by Ministry of Transport's Project Management Unit 85 (PMU85), consists of seven contract packages including four civil work packages, two equipment procurement packages and one supervision consulting service package.

Meanwhile, three most important packages of the project are Cai Mep Container Port, Thi Vai general goods port, bridges and roads connecting from National Highway 51 to the two ports.

The container port package includes two perths with total length of 600m which could accommodate 130,000 DWT vessels, and other facilities which could provide navigational capacity of 700,000 TEUs per year.

Meanwhile, the general cargo port have two perths with the m which total length of 600 cound serve 50,000 tonnes vessels and other port facilities that have loading and unloading capacity of 1.6-2 million tonnes per year.

The bridges and roads package includes 8.5 km road section and four lanes which could allow vehicles to run at the maximum speed of 80 km per hour.

Approved by the government in 2004, the project was completed with the participation of a number of Japan contractors include Toa-Toyo, Penta-Rinkai, Penta-Toyo, IHI-MES and two domestic contractors include Cienco6-Truong Son and Maritime Safety Corporation.

In addition, Japanese JPC-Nippon Koei was the major supervisor of the project.

According to the Vietnam Port Association (VPA), Viet Nam has 30 ports with 166 harbors and 350 wharfs.

Of these, only some that were rendered operational after 2006 are equipped with state-of-the-art loading and unloading facilities. This shortage has reduced loading capacity in Vietnam to only 50 percent compared to advanced ports in other countries in the Asian region.

Vietnamese logistics industry has attracted a number of foreign investors and there are currently close to 1,000 companies that have established in the country.

Meanwhile, Vietnamese companies are only able to supply simple logistic services. About 70 percent of the market share is captured by foreign companies; hence logistic services contribute little to the country's GDP.

The association says that Vietnamese logistic services have not yet fulfilled their potential. More than 90 percent of imported and exported commodities are transported via the sea and it is predicted that around 600 million tonnes of goods will be transported this way by 2015 and around 1,100 million tonnes by 2020.

Total container-handling capacity through ports is as much as 15.2 million twenty-foot equivalent units (TEU) as of 2015, and 29.2 million TEU as of 2020. - VNS

Thai News Service Co. Ltd.

Vietnam opens its largest and deepest seaport

The Ministry of Transport today opened the Cai Mep Thi Vai International Port in the southern province of Ba Ria Vung Tau, the country's deepest and biggest seaport, which designed to meet the increasing demand of container shipping in the South.

The VND13 trillion (US$619 million) project, funded by ODA loan of JICA and counterpart budget of Vietnam government, will also open direct shipping channels with other domestic and international ports worldwide, cutting the intermediate and transit shipping costs

"The project will also help increase the social economic development of Ba Ria Vung Tau in particular and the southern region in general while save other ports in the South from overload burdens." said Deputy Prime Minister Hoang Trung Hai.

Hai said the port, which marks 40th years of relationship between Vietnam and Japan, will also play as a shipping hub connecting countries in the Mekong region.

He told the port's management board to fully ultilise the ports and operate the ports with safety.

According to transport Vice Minister Nguyen Van Cong, with direct channels and access roads, the ports will play an important role in attracting foreign directo investment (FDI) to the region as well as international maritime forwarders from the USA, Denmark, Singapore, Japan and Hong Kong".

Cong said the project built an international gateway which is capable of Vietnamese exports directly to Europe and North America ports without the need to stop at international transit terminals in the region.

"This shall enhance the the competitiveness of Vietnam exports while consolidating the postion of Vietnam in the world maritime transport" Cong added.

The project, managed by Ministry of Transport's Project Management Unit 85 (PMU85), consists of seven contract packages including four civil work packages, two equipment procurement packages and one supervision consulting service package.

Meanwhile, three most important packages of the project are Cai Mep Container Port, Thi Vai general goods port, bridges and roads connecting from National Highway 51 to the two ports.

The container port package includes two perths with total length of 600m which could accommodate 130,000 DWT vessels, and other facilities which could provide navigational capacity of 700,000 TEUs per year.

Meanwhile, the general cargo port have two perths with the m which total length of 600 cound serve 50,000 tonnes vessels and other port facilities that have loading and unloading capacity of 1.6-2 million tonnes per year.

The bridges and roads package includes 8.5 km road section and four lanes which could allow vehicles to run at the maximum speed of 80 km per hour.

Approved by the government in 2004, the project was completed with the participation of a number of Japan contractors include Toa-Toyo, Penta-Rinkai, Penta-Toyo, IHI-MES and two domestic contractors include Cienco6-Truong Son and Maritime Safety Corporation.

In addition, Japanese JPC-Nippon Koei was the major supervisor of the project.

According to the Vietnam Port Association (VPA), Viet Nam has 30 ports with 166 harbors and 350 wharfs.

Of these, only some that were rendered operational after 2006 are equipped with state-of-the-art loading and unloading facilities. This shortage has reduced loading capacity in Vietnam to only 50 percent compared to advanced ports in other countries in the Asian region.

Vietnamese logistics industry has attracted a number of foreign investors and there are currently close to 1,000 companies that have established in the country.

Meanwhile, Vietnamese companies are only able to supply simple logistic services. About 70 percent of the market share is captured by foreign companies; hence logistic services contribute little to the country's GDP.

The association says that Vietnamese logistic services have not yet fulfilled their potential. More than 90 percent of imported and exported commodities are transported via the sea and it is predicted that around 600 million tonnes of goods will be transported this way by 2015 and around 1,100 million tonnes by 2020.

Total container-handling capacity through ports is as much as 15.2 million twenty-foot equivalent units (TEU) as of 2015, and 29.2 million TEU as of 2020. - VNS

South Vietnam Ports

Concerned by increased valuation of the Chinese currency, rising Chinese labor and benefits costs, and eastern China's less favorable tax treatment, companies began looking toward Vietnam for other global sourcing opportunities. With relatively plentiful young labor and plans to build new ports near Hanoi and Ho Chi Minh City, the Vietnamese government was working hard to attract new factories. However, the Vietnamese government was about 20 years behind its Chinese counterparts in export-related infrastructure investment.

By late 2006, production had migrated en masse to Vietnam and the production shift continues to this day. One furniture executive predicted that most of the furniture industry would soon be in Vietnam, but he also noted that Vietnam needed to upgrade its roads and its only deep-water port (Thomas, 2008). Furniture is one of the most space-consuming products and the United States' largest containerized imports by volume (U.S. Census Bureau, 2009). The value of furniture-classified exports from Vietnam to the United States increased 1,405 percent between 2002 and 2007 (U.S. Trade Statistics, 2009). Other industries such as toys and electronics moved into Vietnam between 2006 and 2008. For example, in 2006, Intel announced greater investment in Vietnam than in China over the previous decade (Folkmanis, 2006). The exports that moved via ocean put an enormous strain on the port infrastructure and the inadequate road infrastructure (Conti, 2009). Inflation spiked from an estimated 7.3 percent to over 25 percent by May 2008 (U.S. Department of State, 2008) as the country was impacted by rapid growth.

Cargo sat on the docks waiting for consolidation, and furniture containers congested roads to the various ports and the feeder vessels. To move from the outlying factories to the port, container trucks competed with motorbikes and cars on city streets. The new ports, scheduled for completion in 2009 at Hiep Phuoc and Vung Tau, offered little short-term relief. Trucks moving with the 40-foot "High Cube" containers popular for furniture and other light goods had to take circuitous routes or hire a person to push low-hanging telephone wires above the tall container during transport. Ocean freight companies began to levy new surcharges to consolidate freight and reduce the allowed dwell time for freight awaiting consolidation. Local landlords found that they could charge rates higher than Shanghai, Hong Kong and Los Angeles and receive a two and a half year payback on their warehouse investment (Anonymous, 2009b). Capacity issues caused delays in unloading ships that could cost $5,000--$6,000 U.S. per day. Prices to transport by air versus ship increased costs from around $1,100 U.S. per container to $32,000 U.S. per container (Tam, 2009). The performance impact of these unexpected changes was severe.

The theory of FMR provides a broad framework that suggests organizations be wary of FMR for inputs from adjacent and unrelated industries. However, it does not provide any specifics regarding when such risk may exist, only that it may. The above cases of Vietnam and China offshoring provide initial evidence for the following propositions:

  Proposition 1: Moving a significant quantity of offshore production
  to a new geographic area will create FMR for capacity of supply
  chain services. (2)

  Proposition 2: Firms that anticipate and plan for impending FMR for
  supply chain services from product and nonproduct-market rivals will
  experience better on time performance of goods produced in that
  region than those that only focus on the behavior of product-market
  competitors.

  Proposition 3: Firms that anticipate and plan for impending FMR for
  supply chain services from product and nonproduct-market rivals will
  experience better cost performance on goods produced in that region
  than those that only focus on the behavior of product-market
  competitors.

Shifting market conditions create these situations, and impair the organization's ability to achieve its sustainable competitive advantage. Although the first proposition may seem obvious, rivalry and its negative impact are commonplace in global markets; the rivalry for supply chain services often seems to be unanticipated, creating disruptive effects. When rivals in the same or different industries are using similar resources, effectively managing those resources becomes even more critical to a firm's competitive advantage (Sirmon et al., 2008). Perhaps more importantly, propositions 2 and 3 suggest that although such shortages may be inevitable, the ability to effectively cope with them by managing supply chain assets more effectively than others creates an opportunity to increase competitiveness.

The potential for logistics and other supply chain capacity problems should be obvious; however, the movement of manufacturing from China to Vietnam reveals that they are not. As Markman et al. (2009) point out, competitive blind spots evolve. Even when there is no product rivalry, mobile and versatile resources such as many types of unskilled and entry-level labor and transportation capacity, can cause new and unexpected firms to compete in factor-markets. Domestic examples presented in the following section further support that supply chain services are subject to FMR.
---Journal of Supply Chain Management Jan-2013