'China plus one' equals Vietnam box boomtime

DESPITE the global economic crisis, Vietnam remains one of the most attractive destinations for new investments in Southeast Asia.

As multi-nationals implement the so-called 'China plus one' manufacturing strategy, Vietnam has been a major beneficiary due to its relatively stable political environment and its young and generally well-educated workforce, with a literacy rate of over 90%.

The influx of contract manufacturing has resulted in a huge boost in containerised shipping exports. For example, footwear manufacturer Nike exports 21,000 feu of sports shoes from Vietnam annually. Food manufacturer Nestle imports and exports over 15,000 teu a year to and from the country.

In recent years, container shipping volumes in Vietnam have grown at a rate of around 25% annually. While this year the global economic crisis has slowed growth, volume growth is still estimated in the 10%-14% range.

While volumes have grown strongly, Vietnam's port infrastructure has lagged behind and it remains a feeder destination. In the southern industrial heartland around Ho Chi Minh City, only vessels of up to around 1,700 teu in capacity can be handled due to draught restrictions. In the north in Haiphong, only vessels of around 700 teu or 800 teu in capacity can call.

Vietnam Maritime Administration director for international co-operation Nguyen Viet Dzung said: "Vietnam suffers from a critical shortage of berths for large containerships."

He noted that out of over 40km of berth, only 1% can accommodate vessels of over 50,000 dwt and even that is only at a specialised facility.

Earlier this year, the full the extent of the strain on Vietnam's port infrastructure was illustrated when the ports around Ho Chi Minh City suffered severe congestion. Firstly, a move by importers to beat new tariffs led to a surge in import containers, while secondly, a rule that allowed 90-day storage led to yards becoming clogged. Just as this was being successfully cleared, the country's largest terminal operator, Saigon New Port ndash; which handles around 2m teu a year ndash; nearly ground to halt as the implementation a new terminal operating system went awry.

The last few years though have seen a slew of internationally-backed port developments in the Cai Mep-Thi Vai area close to Vung Tau to serve Ho Chi Minh City and a separate development at Hiep Phouc closer to the city.

APL's managing director in Vietnam Barry Akbar said there are some $4.5bn worth of new port investments committed.

Next year should, in theory, see the first deepwater terminals coming into operation in terms of phase one of Saigon New Port's development at Cai Mep-Thi Vai in March, DP World at Hiep Phouc in May, and PSA International at Cai Mep later in the year.

Nevertheless, the good news of new port capacity that can potentially service vessels of up to 6,000 teu is rather tempered by the issue of missing landside infrastructure and dredging projects that have only just started.

"We are expecting a lot of challenges," said Saigon New Port executive Tran Khanh Hoang. Phase one of its Cai Mep terminal, consisting of a single 300m berth, comes will officially open on March 15 next year.

However, a 4 km access road from the terminal connecting Highway 51 to Ho Chi Minh City is not yet built ndash; in fact, work on it only started in October, with completion expected in two years time.

Part of the issue is that while national highways are controlled by central government smaller connecting roads such as that between the new terminal and the highway are under the control of local government. Similar issues will face a slew of other terminal projects either already being constructed, or planned for the Cai Mep-Thi Vai area and further out in Vung Tau.

Costly and slow barging operations to and from Ho Chi Minh City look set to be the short term solution.

In addition, the dredging of the access channel to 14 m is expected to take another 18 months to complete.

For DP World's $200m Saigon Premier Container Terminal at Hiep Phouc, due to be operational in May next year, road infrastructure is less of an issue.

SPCT chief executive Roy Cummins said: "We are well placed to offer a congestion free location".

However, the dredging of the Soi Rap River, which provides access to the terminal, is yet to take place, with a draught currently of just 7 m and a maximum of 10 m at high tide. The river is due to be dredged to 12 m early next year.

As the first new international terminal projects in the Ho Chi Minh City area near completion, shipping lines and shipper executives are switching their attention to landside infrastructure connecting to the ports, or the lack thereof.

"They need to expand the roads and they need to build local roads," Mr Akbar said. He urged co-ordination between local and national authorities in planning the country's infrastructure development.

While access roads to Highway 51 from the Cai Mep-Thi Vai terminals is a serious issue, so too is upgrading the highway itself, from four to six lanes. Mr Akbar said that the road would be able to cope for the first terminals from Saigon New Port and PSA. However, many more terminals are scheduled for construction over the next two to three years.

Nike director of corporate delivery logistics John Isbell noted that the Cai Mep-Thi Vai port developments will add 5m teu of containerised truck traffic to the roads to and from Ho Chi Minh City in the coming years.

"You have to take a holistic approach to logistics developments," he said.

Even as volume growth slows due to the global financial crisis, Mr Isbell is urging both industry and the Vietnamese authorities to stay focused on solutions to the country's infrastructure issues.

"We have to keep everyone's attention during this lull. Once [growth] comes back, there will be more companies coming to Vietnam," he said