Vietnam’s opportunities abound

Vietnam’s opportunities abound On Second Thought'by Tom Timlem

   American Shipper readers have had time to absorb Eric Johnson's updates in the February (pages 16-23) and March (pages 6-9) issues, looking at Vietnam's container ports and terminals, infrastructure challenges with road and rail connections, and other retail, manufacturing and export activities. Certainly much has happened since Johnson's December 2007 analysis of trade potential for this dynamic country (pages 6-21, the Vietnam coverage is also available online at ).
         Having participated at the recent Maritime Vietnam 2009 event in Ho Chi Minh City, I can attest to many of the observations Johnson reported, and having met with several Vietnamese ship owners and port agents, as well as government stakeholders and industry analysts, there are clearly many challenges facing Vietnamese shipping in all sectors in the near term. I too would subscribe to the statement that there's always a silver lining. In Vietnam's situation there may even be more than one!
      When looking at Vietnam, it may be useful to consider which, if any, of the current challenges are unique to this nascent economy. Take for example Vietnam's garment industry, which recently reported 20 percent to 30 percent declines in orders from the United States. Certainly not good news as some companies will surely close their doors as a result. However many countries are facing similar declines in demand. Such news is common for most exporting countries China even reported significant declines in loaded container exports during 2008.
      There is an old saying that goes something like: 'one man's problem is another man's opportunity.' In the past Vietnam has found such opportunities where others faced difficulties, and there are signs that this can continue during the current adversities.
      Take Vietnam's shipbuilding industry, which was able to attract demand that could not be met by the Japanese and Chinese yards as their order books reached full capacity. Vietnam and India were able to benefit from this situation and become significant players.
      A pessimist might point out that Vietnamese yards, like others in all regions, now have to deal with cancellations and delayed deliveries, and this is absolutely correct. But is this all bad news? Maybe not. The Vietnamese fleet would benefit greatly from an upgrade, so here again is an opportunity for the Vietnamese lines to obtain new ships at better prices.
      Again, not all news has been bad. In February things were reportedly looking up in Europe, an area that is not known to compete on cost. Shipyards in Spain's Galicia region have experienced new orders that will create hundreds of jobs by attracting business through shifting focus to specialized high-tech ships. Vietnam can learn from such trends. Entering the shipbuilding market with the cost advantage was a good start, however it will not be sustainable.
      In many sectors where labor costs initially provided competitive advantages, it has been seen that workers in time seek improved benefits, working conditions and, yes, improved wages. As this happens business can only be retained if other benefits are offered by the service providers. For the yards, the Spanish example illustrates that diversification into specialized ships can serve well to keep the order books full. This segment is less affected by market fluctuations.
      In the meantime Vietnamese yards stand to benefit from strong government support such as the Shipbuilding Industry Development Program, and $750 million earmarked for modernization of the yards.
      So there is hope for the yards, and port development projects are also underway with more to come.
      Other promising indicators to keep in mind would include the fact that prior to the 2008 global crash, Vietnam was the second-fastest growing economy in Asia. Although economic growth stalled at the end of 2008 and beginning of 2009, the country's growth potential remains and should be expected to reappear as the global economy eventually recovers.
      Johnson correctly pointed to infrastructure inadequacies that impede freight movements between Vietnam's industrial estates and shipping terminals. Clearly there is a need to boost road and rail capacity and establish deepwater container terminals that can handle larger containerships, and the country is investing in these areas. But are problems with congested roads and port terminals unique to Vietnam? Europe and the United States have also experienced these challenges. One solution to road congestion promoted by some in Europe, albeit with mixed results, has been short-sea shipping.
      Vietnam is investing to improve roads, and some companies are already moving freight by barges to avoid road congestion. Focusing on expanding road capacity is a wise move, which can be achieved at a faster pace than modernizing the antiquated railways. In the meantime, other ways to reduce road congestion, such as stricter regulations on the use of motorbikes, many of which now impede traffic serving as two-wheeled mini-vans with precariously balanced loads, deserve consideration.
      No country can expect to come through the economic downturn on its own. For Vietnam, in addition to what has been described above, there are promising opportunities involving joint ventures in the offshore sector, as well as with trading partners. Recently opened direct sailings between Vietnamese and Chinese ports will be advantageous as global trade recovers. And China's determination to maintain at least 8 percent annual growth can be expected to benefit Vietnam and other economies in the region.
      No one can be sure if the global effects of the varied stimulus packages will be seen in the middle or the end of 2009. However, despite the many challenges Vietnam faces, there is a very good chance some positive news may appear regarding this country on these pages in 2010.