Saturday, November 03, 2007

Vietnam's port problems continue

VietNamNet Bridge - Vietnam’s economy has displayed great growth in the past few years, boosting trade between the country and international markets. However, Vietnam’s ports poor infrastructure is hindering the economy’s development, writes Ngoc Linh.

Before kicking off a recent conference in Hanoi covering Vietnamese ports and logistics, organisers were sceptical over how many people it would attract.

However, the conference room became too small when representatives from local and international companies such as Maersk Vietnam, Nike Vietnam, APL Vietnam and DP World rolled up for the two-day conference. Late-comers even had to stand because all the seats were occupied. The overwhelming response underscores how Vietnam’s port development has become a major source of concern for local and international companies.

The country’s impressive growth over the last several years has made Vietnam more attractive to international companies, but Vietnam’s rapid economic growth has not been matched by rapid infrastructure development. Vietnam’s underdeveloped ports have become an impediment to those who wish to expand their business to Vietnam.

Master plan needs to be renewed

With 3,200 kilometres of coastline, Vietnam has 266 ports, about 144 of which are seaports stretching from north to south. However, most ports are relatively small with obsolete facilities and poor support services.

Under economic development pressure, investment capital is being pumped into port projects nationwide. More and more ports are being renovated and updated to meet international standards.

“We expect $4.5 billion to be invested in ports in the next five years,” said Tan Hua Joo, managing director of APL Vietnam Company, an international shipping firm in Vietnam.

In the north, seven leading domestic firms including Vietnam Shipbuilding Industry Group (Vinashin) and the Bank for Investment and Development of Vietnam last March announced they would build the Hai Ha port complex in Quang Ninh province, 100km from Quang Ninh’s Cai Lan seaport and 200km from Haiphong seaport. Meanwhile, the country is calling for investment into Lach Huyen deep-seaport in Haiphong, which could cater for vessels up to 80,000 dead weight tonnes (dwt), with the total investment capital of about $1.6 billion.

In the south, Saigon Port will be relocated to Cat Lai and Hiep Phuoc ports in Ho Chi Minh City and Cai Mep-Thi Vai port complex in Ba Ria-Vung Tau province. The new ports will not only resolve size and traffic issues, but also be more efficient as the new port complex is located conveniently among the region’s industrial parks and export processing zones of Ho Chi Minh City and Binh Duong, Dong Nai and Ba Ria-Vung Tau provinces.

Six investors were granted investment certificates for developing ports in the Cai Mep-Thi Vai port complex such as SP-PSA international port, Saigon International Vietnam and Saigon Premier Container Terminal.

Many seaports are located in the central region between Ha Tinh and Khanh Hoa provinces, including Vung Ang, Chan May, Danang, Ky Ha, Dung Quat and Quy Nhon ports.

Vietnam is also calling for investment for the Van Phong international deep-seaport in Khanh Hoa province, which could become a hub for transiting goods to compete with regional international transiting rivals.

However, these central region ports are operating under capacity. Last year, central region ports handled only 3 per cent of the country’s total cargo volume, while Ho Chi Minh City boasted 72 per cent and Haiphong 22 per cent.

Joo said Vietnam should focus on developing one or two international deep-seaports. “New port developments must be focused on the key cargo origins of Ho Chi Minh City and Haiphong,” said Joo.

He said a government plan to invest $3.5 billion by 2020 to turn Van Phong Bay in Khanh Hoa into a transhipment hub might lead to inefficiency as Vietnam’s central region would not be a major area for cargo movements.

Nguyen Thu, vice chairman of Vietnam Seaports Association, said: “The rapid increase in number of ports also created a price racing situation, where Vietnamese ports have reduced their price to attract customers. The direct results are lower service quality and an inability to reinvest into port development.”

Deputy Minister of Industry and Trade Nguyen Thanh Bien said the existing port development master plan, which was issued in 1999, was not suitable for the country’s current development.

“Many things have changed and we need a study and a new port development master plan to meet economic development requirements,” said Bien.

Although investors are pumping money into developing key ports in the country, the lack of supporting inland infrastructure is hindering port development.

For instance, Haiphong port complex could handle vessels up to 40,000dtw, but only ships below 10,000 tonnes can gain access to the port due to its limited access channel. Others have to dock at distant transshipment points. This common problem arises at Dinh Vu port in Haiphong city and Quang Ninh province’s Cai Lan port.

“This could lead to the increase of handling costs from $3 to $5 per tonne of cargo and many business opportunities have been missed because both the carrier and shipper did not accept that handling price,” Vuong Dinh Lam, director of Vietnam Maritime Administration, said.

Cai Mep-Thi Vai port complex investors are also facing difficulties when developing their projects due to inadequate infrastructure and channel access. Due to the lack of inland infrastructure, the construction of some terminals will have to be done from the water’s edge which will negatively impact on construction timelines planned to be completed in 2009 or 2010.
Amanda Tucker, general director of Nike Vietnam, said shippers were facing a lack of a sufficient highway and bridge infrastructure to move freight from factories to terminals.

Phu My bridge and No.2 Ring Road around Ho Chi Minh City are attracting attention from shippers as well as port operators. The project was originally scheduled for completion in 2007 which has been pushed out to December, 2009. The long-awaited project would greatly relieve cargo traffic congestion in the Ho Chi Minh City and provide needed access to the new Hiep Phuoc terminal.

Besides the Ho Chi Minh-Long Thanh and the new Bien Hoa-Vung Tau highways, plans to dredge the entire access channel to the Cai Mep-Thi Vai terminals to a minimum depth of 14 metres and dredge the access channel to 10m in Hiep Phuoc port is still unclear.

Vietnam Seaports Association’s Nguyen Thu said if landside infrastructure and access channels were not adequately developed investment in Vietnam’s ports would be wasteful. He said: “Some countries use port and infrastructure facilities as the primary competitive advantage for the entire country and Vietnam may have this opportunity. The concern is that if the current problems are not fully addressed, the infrastructure situation in Vietnam may become a competitive disadvantage for the country.”

Impacting on the country’s economy

In 2006, Vietnam’s exports grew significantly to $39.5 billion. Consequently, Vietnam’s freight infrastructure network and long-term development strategy is of critical importance not only to exporters, but also to the future health of Vietnam’s economy.

Currently, Vietnam’s ports are handling 80 per cent of the country’s imported and exported cargo. Due to the lack of deep-water ports, Vietnamese cargo must transit in foreign ports like Singapore or Hong Kong before being transported to international markets. Transshipment means additional handling of shipments, which is more expensive. Consequently, the added shipping costs drive up product costs and can help to decrease Vietnam’s advantages over China or Thailand. Vuong Dinh Lam said that the transport costs have increased from $101 to $231 per 20-foot container. This makes Vietnamese products lose their competitiveness in international markets.

Tucker said with likely growth of 25 per cent to 30 per cent, the capacity shortage for shippers is likely to be more than 300,000 TEU.

“This means shippers can expect delays in loading containers on feeder vessels in 2007, especially during the peak shipping season.

“Current business operators are already looking at contingency plans should port and road congestion reaches crisis levels. These concerns and the likelihood of near term major port congestion could very well be undermining Vietnam’s potential to reach its economic growth potential,” said Tucker.