vietnam logistic industry - logistics just in one...

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INDUSTRY COVERAGE

Logistics cost growth (CAGR by region)

2008‟2030 CAGR of Vietnam’s freight

transport market on a ton-kilometer basis

Logistics stock price index (% change)

Asia Pacific’s logistics sector has been expanding rapidly, in

line with economic growth.

The industry landscape of Vietnam’s logistics sector is

teeming with opportunities. The main drivers are the growth

of GDP and of import-export activities based on the upcoming

Trans-Pacific Partnership.

Logistics costs occupy about 25% of Vietnam’s GDP, which is

much higher than peer countries, due to the prevalence of

unpredictability in the supply chain. This creates many

limitations to the development and efficiency of the logistics

sector that include: cumbersome and inconsistently applied

government regulations; facilitation payments to officials;

isolation in planning and executing transportation

infrastructure projects without considering supply-demand;

fragmented trucking industry; and major supply-demand

imbalances in infrastructure provision.

Vietnam’s freight transportation market is dominated by the

road (75.7%) and inland waterway (17.9%) sectors. Up to 2020,

the road sector is expected to continue to dominate the value

of transportation infrastructure investment.

The port sector in Vietnam has grown quite well over the past

years. It is estimated that the average annual growth rate of

national container volume is 8% to 9% through 2020.

However, due to the overexpansion of ports, there is currently

a mismatch in supply and demand in the South.

Vietnam’s shipping industry has been going through a tough

time from 2011 till now. For 2014 and 2015, there are still no

signs of recovery yet.

Air transportation is also a rapid growth sector in Vietnam.

Nonetheless, the market is dominated by the stated-owned

enterprises and limitations of regulations from the government.

The logistics stocks appeared to outperform the VN-Index and

HNX-Index during the last twelve months, mostly due to the

speculation in small cap stocks by investors and strong

expectations for companies that have a positive fundamental

outlook.

Please see important disclosure information at the end of this report.

10.8%

6.7% 5.9%

4.6%

3.5%

2.1%

8.2% 5.8% 3.4% 1.6% 2.1% 0.6% 0%

3%

5%

8%

10%

Greater

China

Asia

Pacific *

South

America

Japan North

America

Europe

2010 - 2012 2012 - 2015E

5.9%

8.5%

3.3% 3.6%

6.5%

Railroad Road Inland

waterway

Seaway Airway

-20

0

20

40

60

80

7/13 9/13 10/13 12/13 1/14 3/14 4/14 6/14 7/14

HNX-Index

Logistics

VN-Index

VIETNAM LOGISTIC INDUSTRY July 31, 2014

http://www.vpbs.com.vn








CONTENTS

GLOBAL OVERVIEW ................................................................................................................................................................. 3

HISTORICAL DEVELOPMENT ............................................................................................................................................... 4

PERFORMANCE ..................................................................................................................................................................... 6

AIR AND MARINE TRANSPORT ......................................................................................................................................... 10

VIETNAM’S LOGISTICS INDUSTRIES ................................................................................................................................... 16

INDUSTRY SIZE ................................................................................................................................................................... 18

LIMITATIONS AND OBSTACLES ....................................................................................................................................... 21

LEGAL FRAMEWORK .......................................................................................................................................................... 22

LOGISTICS SEGMENTS ......................................................................................................................................................... 23

PORT AND MARINE TERMINALS ...................................................................................................................................... 23

SEAWAY TRANSPORT ....................................................................................................................................................... 25

AIR TRANSPORT ................................................................................................................................................................. 26

INLAND WATERWAY TRANSPORT ................................................................................................................................... 29

LOGISTICS TICKERS ............................................................................................................................................................... 30

Germadept Corporation (GMD-HSX): the largest market cap ..................................................................................... 33

SHIPPING TICKERS ............................................................................................................................................................. 33

PORT TICKERS ..................................................................................................................................................................... 35

Recent IPO: Haiphong Port - largest port in the North ................................................................................................. 36

New listing: Cat Lai Port JSC (CLL-HSX) ....................................................................................................................... 37

CONCLUSION .......................................................................................................................................................................... 38


GLOBAL OVERVIEW

Logistics is a significant component of global trade. The lower the logistics cost

and the greater the quality of logistics services available, the higher the amount of

world trade being conducted.

The value of international trade recorded a CAGR (compound annual growth rate)

from 1980 to 2013 of 6.9% to reach USD18.8 trillion in 2013. Since the 1990s,

international trade has flourished with the value in 2013 six times higher than that

of the 1990’s. The main reasons can be attributed to (1) the fall of Soviet Union in

1990; (2) the establishment of the World Trade Organization in 1995; and (3) the

European Union in 2004. These trade boosters have created the path for the rapid

growth of logistics because of the critical needs to move goods from

manufacturing countries to the consumptive ones.

The total value of global trade, according to the 2014 annual World Economic

Forum (WEF), is estimated to be more than USD20 trillion this year.

International trade

Source: United Nation Conference on Trade and Development

Logistics typically include the following key elements (World Bank, 2004):

Infrastructure: ports, terminals, railway, roads;

Operations: warehousing, storage, local distribution, trucking, cabotage;

Services: freight forwarders and customs brokers.

The objective of such activities is to move goods from their point of origin to the

point of consumption while conforming to customer requirements.

-

5

10

15

20

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

USDtn

Logistics activities aim to move

goods from their point of origin

to the point of consumption

while conforming to customer

requirements. Transportation

typically accounts for 40% to

60% of logistics costs.


Types of logistics

Source: Decree No.140/2007/ND-CP issued on September 5, 2007

Among the above types of logistics, the most common one is transportation, which

occupies about 40% to 60% of logistics cost. Transportation can take the form of

many combinations of modes and routes. Basically, there are five routes as follows:

Types of transportations

Routes / Modes Description Limitation

Airways / airplanes Airplanes are the fastest mode but

very expensive

Availability of appropriate airport

facilities

Roadways / trucks Trucks are relatively quick and a very

flexible mode

Subject to the fluctuation of fuel costs

and road conditions

Railway / rail Rail is a cost efficient mode but can be

slow Availability of rail lines

Shipping / vessels Ship is very cost efficient but the

slowest mode of transport Availability of ports and canals

Pipelines Pipelines can be very efficient Restricted to liquid commodities and

gases.

Source: VPBS collected

HISTORICAL DEVELOPMENT

The terminology “logistics” was first used in the late 19th century and for military

purposes during wars. Since the 1950s, logistics have been developed gradually from

the simplest stage as first party logistics (1PL) to more complex stages such as third-

party logistics (3PL) and fourth-party logistics (4PL) nowadays. The next development

stage is fifth-party logistics, which is integrated supply chain solutions’ provider.

Logistics

Transportation

Airway

Roadway

Railway

Shipping

Pipeline

Forwarding

Container loading & unloading

Inland container depot & Container Freight

Station services

Warehouse

Bonded warehouse

Cold chain

Cold storage

Cold trasportation

Other value added services

Customs clearance

Packing, Inspection,

Fumigation, etc.

IT management


Historical development of growth stage of logistics

Source: Technical University of Liberec

Thanks to advancements in technology, infrastructure and human resources, the

upper development stages of logistics are more applicable in developed countries.

Currently, especially in emerging countries, the most popular form of logistics

services is the third development stage or third party logistics (3PL). Below is a

typical 3PL process or integrated logistics in supply chain management:

Typical integrated logistics in supply chain management

Source: VPBS collected

Global revenues of 3PL logistics from 2006 to 2013 achieved 5.2% of compound

annual growth rate (CAGR), which is higher than the CAGR of 4.3% in logistics cost

during the same period. According to Armstrong & Associates, a leading professional

consultant on global 3PL logistics, the growth of 3PL revenues is expected to be

lower at 3.3% in 2014 and 3.6% in 2015, mainly due to the slower growth rate of

worldwide GDP.

Logistics were limited to distribution. Problems relating to transaction with finished products and related physical distribution were dominant. The problem of inventories was not important.

First party logistics (1PL)

1960s

Corporate logistics were gradually extended to supplying (purchases, procurement) and to production management.

Second party logistics (2PL)

1970-1980

Companies create complete logistical chains and systems connected with customer and supplier. The integration of corporate activities and the development of supplying, production and distribution systems is actually being materialized.

Third party logistics (3PL)

1980-2000

Integrated logistic system is a very complex, system-related problem. One of the requirements is the establishment of strategic alliances between companies, their customers, product suppliers and logistics providers.

Fourth party logistics (4PL)

>2000

Inbound logistics

„ Container shipping

„ Freight forwarding

„ Trucking

„ Customs Clearance and Compliance

„ Transport Management

„ Vendor Management

Warehousing

„ Shared/Dedicated modern warehousing

„ Receipt/Put-away/ Pick/Pack/Ship

„ Inventory Management (FIFO, LIFO, etc.)

„ VAS (repackaging, co-packaging, labeling, etc.)

Outbound logistics

„ Last Mile Delivery (FTL/LTL)

„ Inter-facility transferring

„ Trucking

„ Freight forwarding

„ Customs clearance and compliance

„ Transportation management

Reverse logistics

„ Return transportation

„ Re-working

„ Re-packaging

„ Transport management

Third-party logistics is currently

a global trend with revenue

CAGR from 2006 to 2013 of

5.2%.


Global third-party logistics revenues

Note: E: estimated. Source: Armstrong & Associates

PERFORMANCE

The up-trend of logistics cost is in line with the global GDP’s growth rate. According

to Armstrong & Associates, global logistics cost had a CAGR of 4.3% from 2006 to

2013, and an estimated CAGR of 3.4% from 2013 to 2015, which is higher than the

growth rate of GDP.

Global logistics cost

Note: E: estimated. Source: Armstrong & Associates, World Bank

From 2010 to 2012, Asia Pacific (excluding Greater China and Japan) was the region

with the highest CAGR of logistics at 6.7%. It is expected to grow at 5.8% from 2012

to 2015 because of the slower estimated GDP growth rate. Internationally, this region

is the largest logistics market and accounts for 35% of total global logistics cost.

During the same period, Greater China was the country with the highest CAGR, at

10.8%. It is projected to achieve 8.2% during the period from 2012 to 2015. This trend

is also in line with the trend of its GDP growth rate, which were 9.2% from 2010 to

2012 and about 7.5% from 2013 to 2015.

471 489 507 507

631 662 685 704 727 753

-

160

320

480

640

800

2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

USDbn

4.1% 4.0%

1.4%

-2.1%

4.1% 2.9% 2.4% 2.4% 2.8% 3.4%

4% 4% 3%

1%

16%

5% 3% 3% 3% 4%

-5%

0%

5%

10%

15%

20%

-

2,000

4,000

6,000

8,000

10,000

2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

USDbn Logistics Cost GDP growth rate Logistics cost growth rate

Logistics cost growth of Asia

Pacific region (excluding

Greater China and Japan) is

estimated to be 5.8% from 2012

to 2015.


Logistics cost growth (CAGR by region)

Note: E: estimated, *: exclude Greater China and Japan. Source: Armstrong & Associates

Furthermore, the developed countries tend to have lower logistics cost per GDP than

the developing countries thanks to their complete and synchronized traffic systems,

advanced technology, effective and transparent customs clearance systems, etc. In

fact, in 2013, for example, Chinese estimated logistics costs achieved USD1,603

billion, equivalent to 18% of total GDP, meanwhile, the amount of the United States

was USD1,348 billion, equivalent to only 8.5% of total GDP.

Logistics cost in 2013

Source: Armstrong & Associates

LOGISTICS PERFORMANCE INDEX (LPI)

In order to evaluate the logistics capacity of each country and offer a relative

comparison about logistics competitiveness, the World Bank provides a Logistics

Performance Index (LPI) that assesses over 160 countries. The index ranges from 1 to

5, with a higher score representing better performance.

The LPI consists of both qualitative and quantitative measures and helps build

comparative profiles for logistics friendliness of each country. It measures

performance along the logistics supply chain and offers two different perspectives:

10.8%

6.7% 5.9%

4.6%

3.5%

2.1%

8.2%

5.8%

3.4%

1.6% 2.1%

0.6%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

Greater China Asia Pacific * South America Japan North America Europe

2010 - 2012 2012 - 2015E

1,603

2,997

520 520

1,654 1,492

18%

13% 12%

9% 9% 9%

0%

4%

8%

12%

16%

20%

0

600

1,200

1,800

2,400

3,000

Greater China Asia Pacific South America Japan North America Europe

USDbn Logistics cost % of GDP

Logistics Performance Index (LPI)

is the World Bank’s measure of

logistics competitiveness of over

160 countries. The higher LPI the

country obtains the higher the

competitiveness the country has

in terms of international trade and

national development.


International LPI provides qualitative evaluations of a country in six areas by its

trading partners†logistics professionals working outside the country. The six

areas are: (i) efficiency of the clearance process (customs); (ii) quality of trade and

transport-related infrastructure (infrastructure); (iii) ease of arranging

competitively priced shipments (ease of arranging shipments); (iv) competence

and quality of logistic services ‟ trucking, forwarding, and customs brokerage

(quality of logistic services); (v) ability to track and trace consignments (tracking

and tracing); and (vi) timeliness of shipments in reaching a destination within the

scheduled or expected delivered time (timeliness).

Domestic LPI provides both qualitative and quantitative assessments of a

country by logistics professionals working inside it. It includes detailed

information on the logistics environment, core logistics processes, institutions,

and performance time and cost data.

The six areas of the international LPI are divided into two groups:

Areas for policy regulations (input): including customs, infrastructure and quality

of logistics services.

Service delivery performance outcomes: including ease of arranging shipments,

tracking and tracing and timeliness.

International LPI score of selected countries

Source: World Bank

According to the World Bank report “Connecting to compete 2014” issued in March

2014, Singapore ranked number 5 among 166 countries and was in the first place in

the Association of Southeast Asian Nations (ASEAN) with an LPI score of 4, followed

by Malaysia (3.59), Thailand (3.43) and Vietnam (3.15). Myanmar had the lowest LPI

of 2.25 among the region and ranked 145th out of 166 countries. China and India ‟ that

have relatively similar economic conditions as ASEAN- had LPI scores of 3.53 (ranked

28th) and 3.08 (ranked 54th), respectively. Overall, in comparison with the LPI of 2007,

the 2014 LPI scores of these countries (except Singapore) were higher, which means

the logistics competitiveness has been improving. Especially, among these countries,

only Vietnam showed consistent improvement over each period. This growing trend

accompanied with economic growth will, no doubt, push up the logistics sector in the

ASEAN region.

0

1

2

3

4

5

Singapore Malaysia China Thailand Vietnam Indonesia India Philippines Cambodia Lao PDR Myanmar

2014 2012 2010 2007


Percentage changes of LPI score from 2007 to 2014

Source: World Bank

The quality of services is driving logistics performance in emerging and richer

economies. In Thailand, for example, although five criteria increased, the rank

changed from 31st to 35th due to the slight decrease in the score of quality of logistics

services from 3.31 in 2007 to 3.29 in 2014. Another case is India, the LPI score of

quality of logistics services fluctuated from 3.27 to 3.03 in the same period, leading to

it being down-rated from 39th to 54th.

Inextricably linked with the quality of logistics services is the area of infrastructure

development. Regional LPI scores in infrastructure criteria enjoyed a rising trend

from 2007 to 2014. This is due to the fact that the countries have been more

successful in delivering quality in some types of infrastructure. Due to the

automation in border management, quality of information and communications

technology, infrastructure increased rapidly, leading to the narrowing of the gap

between lowest and highest performers. On the contrary, rail infrastructure inspires

general dissatisfaction. In air and maritime transport, the quality of services is

perceived better than the quality of corresponding infrastructures. Most of the

countries in the region improved their infrastructure, resulting in the increase of LPI

scores (for example, 25% for Vietnam, 15% for China and 27% for Myanmar).

In terms of customs, efficient border management is critical for eliminating avoidable

delays and enhancing predictability in border clearance. Most of the countries in the

regions are putting forth their best effort to upgrade their customs systems.

To sum up, the key factors that impact the improvement of a country’s logistics

competitiveness are the quality of logistics services, infrastructure and customs.

Recognizing this, governments in ASEAN countries have wrought some

improvements in these segments which in turn have helped to expand their

international trade performance.

-20%

0%

20%

40%

60%

Singapore Malaysia China Thailand Vietnam Indonesia India Philippines Cambodia Lao PDR Myanmar

Customs Infrastructure Ease of arranging shipment Quality of logistics services Tracking and tracing Timeliness

Quality of logistics services is

the main driver of logistics

performance in emerging

countries, followed by

infrastructure development and

customs.


AIR AND MARINE TRANSPORT

As we mentioned above, transportation makes up from 40% to 60% value in logistics

value chain. Among those types and modes of transportation, air transport and

marine transport (port and shipping) are the two most important modes that

encourage international trade. For that reason, we focus on analyzing the global, as

well as Asia Pacific’s performance, in these segments to illustrate their growth trend.

AIR TRANSPORT

Air transport is one of those industries that have transformed the world. Since the

1970s, air travel has expanded ten-fold and air cargo fourteen-fold, compared to a

three- to four-fold rise in world GDP. Nevertheless, during this period, airlines have

only been able to generate sufficient revenues and profits to pay their suppliers and

service their debts (IATA, 2014).

According to International Aviation Transport Association (IATA), air transport

continues to generate huge value for its users, passengers and shippers, and others

in the value chain but destroys value for its airline equity investors.

Worldwide airlines industry

2009 2010 2011 2012 2013 2014E

Spend on air transport, USDbn 476 579 618 679 710 746

% y-o-y -16.5% 21.6% 6.7% 9.8% 4.6% 5.0%

% global GDP 0.8% 0.9% 0.9% 0.9% 1.0% 1.0%

One-way fare, USD/pax n/a n/a 266 256 239 231

% y-o-y n/a n/a n/a -3.9% -6.4% -3.5%

Freight rate, USD/kg n/a n/a 2.61 2.44 2.28 2.18

% y-o-y n/a n/a n/a -6.5% -6.9% -4.0%

Passenger departures, million 2,479 2,681 2,845 2,977 3,141 3,320

% y-o-y -1.4% 8.1% 6.1% 4.6% 5.5% 5.7%

Revenue passenger kilometers

(RPK), USDbn 4,540 4,939 5,245 5,523 5,839 6,183

% y-o-y -2.4% 8.8% 6.2% 5.3% 5.7% 5.9%

Freight Tonne Kilometers

(FTK), USDbn 192 192 189 187 191 197

% y-o-y 19.4% -0.1% -1.6% -1.0% 1.8% 3.1%

World GDP growth, % y-o-y -2.3% 4.0% 2.6% 2.5% 2.4% 2.8%

World trade volume growth, % y-o-y -10.6% 12.8% 6.2% 2.8% 3.0% 4.3%

Source: IATA, IMF

Consumer spending on air transport achieved a CAGR of 10.5% from 2009 to 2013,

and reached USD710 billion, equivalent to 1% of world GDP in 2013. The figure in

2014 is expected to be USD746 billion due to consumers benefitting from cheap

airfare. Both the one-way fare and the freight rate grew in a declining trend with the

negative rates of 3.5% and 4.0% y-o-y in 2014, respectively. The revenue of passenger

kilometer (RPK) ‟ a measure of the sales volume of passengers carried by an airline ‟

is estimated to increase 5.9% y-o-y. Similarly, the freight tonne kilometer (FTK) ‟ a

measure of the sales volumes of goods carried by an airline ‟ is projected to raise

3.1% y-o-y. The main reason is the upturn of the economic cycle, with a faster GDP

(annual growth rate is expected to increase from 2.4% in 2013 to 2.8% in 2014) and

world trade volume growth (from 3.0% in 2013 to 4.3% in 2014).

Air transport continues to

generate huge value for its

users, passengers and shippers,

and others in the value chain

but destroys value for its airline

equity investors.


The growth of air transport has boosted the growth rate of economies worldwide as

lower transport costs and improving connectivity have increased trade flows. Over

the past 30 years, there has been a 2.5 times rise in the number of unique city pair

services, from just over 6,000 in 1980 to about 15,782 in 2013. Transport costs

continue to decrease after adjusting for inflation.

Worldwide airlines industry

2012 2013 2014E

Unique city pairs 15,412 15,782 16,161

Compared to 1994 186% 190% 195%

Transport cost, USD/RTK 104.1 101.5 98.8

% change over 1994 -52% -53% -54%

Value of trade carried, USDbn 6,357 6,490 6,802

% y-o-y 0.8% 2.1% 4.8%

Note: RTK: revenue tonne kilometer. Source: IATA

According to projections of IATA, transport costs in 2014 are about USD98.8 per RTK,

54% lower than the price (including inflation adjustment) in 1994. This will directly

help the value of trade carried increase up to about USD6,802 billion.

Worldwide cost of airline industry

2009 2010 2011 2012 2013 2014E

Fuel spend, USDbn 123 139 175 208 210 212

% y-o-y -34.2% 13% 25.9% 19.1% 1.3% 1.0%

% operating cost 26.0% 25.0% 28.0% 31.1% 30.5% 29.7%

Fuel use, billion liters 235 246 253 257 263 271

% y-o-y -4.4% 4.5% 2.9% 1.4% 2.5% 3.2%

Fuel efficiency, liter fuel/100ATK n/a n/a 25.1 24.7 24.2 23.8

% y-o-y n/a n/a n/a -1.5% -1.9% -1.7%

CO2, million tons 628 658 679 682 700 722

% y-o-y -5.0% 4.8% 3.2% 1.4% 2.5% 3.1%

Fuel prices, USD/barrel 71.1 91.4 127.5 129.6 124.5 124.2

% y-o-y -43.9% 28.6% 39.5% 1.6% -3.9% -0.2%

% spread over oil price 14.7% 15.1% 14.7% 15.9% 14.4% 15.0%

Note: ATK: Available Tonne Kilometer. Source: IATA, IEA, McKinsey

On the other hand, fuel costs are estimated at USD212 billion, which represents

30.5% of total operating costs, up 1.0% y-o-y.

Fuel prices are expected to remain stable at USD124.2 per barrel in 2014, down

slightly 0.2% y-o-y, according to IATA. Fuel efficiency is measured by the liter of fuel

per 100ATK (available tonne kilometer - a measure of an airline's total capacity (both

passenger and cargo)). The lower the amount of liters of fuel per 100ATK, the higher

the fuel efficiency. In 2014, fuel efficiency is estimated to improve by 1.7% y-o-y and

reach 23.8 liters fuel/100ATK. This requires an intense effort in the industry to replace

fleet with newer aircraft, better operations and efforts of government to remove

airspace and airport inefficiencies that waste around 5% of fuel burned each year.

The chart shows that jet fuel prices have remained high around the level of

USD125/barrel from the middle of 2010 till 2014. However, fuel use/100RTK

decreased gradually in the same period or in other words, fuel efficiency increased

gradually.

Although fuel costs remain at

high levels, fuel efficiency has

been increasing gradually.


Fuel efficiency and jet fuel prices

Source: IATA

Despite improvements in fuel efficiency, the airline industry is perceived to destroy

value for its equity investors. According to IATA, the industry generated enough

revenue to pay its suppliers’ bills and service its debts. However, the estimated

worldwide net profits of USD18 billion in 2014 are not an adequate reward for equity

owners as the net profit margin is only 2.4%. The weighted average cost of capital

(WACC) is the minimum level that an investor should expect to earn from assets that

have similar risk profiles. Although the return on invested capital (ROIC) in the airline

has improved from 3.7% in 2012 to 4.4% in 2013, and expected to bump up to 5.4% in

2014, WACC is still higher than ROIC. However, due to improvements in ROIC, the

rate of investor value loss, on almost USD700 billion of invested capital, is

significantly reduced to USD15.2 billion this year.

ROIC and WACC of worldwide airline industry

2009 2011 2012 2012 2013 2014E

ROIC, % invested capital 2.0% 6.3% 4.7% 3.7% 4.4% 5.4%

ROIC ‟ WACC, % invested capital n/a n/a n/a -3.3% -2.8% -2.2%

Investor value, USDbn n/a n/a n/a -21.6 -18.6 -15.2

EBIT margin, %revenue 0.4% 5.0% 2.2% 1.8% 2.9% 4.2%

Net post-tax profits, USDbn -4.6 19.2 8.4 6.1 10.6 18.0

% revenues -1.0% 3.3% 1.3% 0.9% 1.5% 2.4%

USD per passenger -1.86 7.16 2.95 2.05 3.37 5.42

Source: IATA

According to the Association of Asia Pacific Airlines (AAPA), the Asia Pacific (APAC)

region is now the world’s single largest aviation market. APAC airlines today

collectively carry a quarter of all global passenger traffic and two-fifths of global air

cargo traffic. In terms of RPK in 2012, APAC accounts for 30% of total market share

according to the International Civil Aviation Organization. APAC has a moderately

stronger cargo market. Additionally, this region is a manufacturing region. As such,

this helps the net post-tax profits of APAC airlines achieve USD3.2 billion, up 60% y-

o-y in 2014. As a result, the net margin is projected to be 1.6%.

Among the world, the RPK growth of APAC ranked second at 7.2% y-o-y in 2013, after

the Middle East (11.9% y-o-y). However, due to its larger size, the value of RPK in

APAC is much higher than the Middle East. In 2014, the RPK growth of APAC is

expected to be 7.4% y-o-y. Moreover, the coming into force of the ASEAN Single

Aviation market in 2015 is expected to provide a further boost to air transport growth

through the facilitation of smoother and freer flows of people and trade across the

borders of ASEAN (AAPA, 2011).

30

35

40

45

50

70

84

98

112

126

140

2007 2008 2009 2010 2011 2012 2013 2014E

USD/100RTK USD / barrel Jet fuel prices Fuel use/100 RTK

APAC region is now the world’s

single largest aviation market

with estimated RPK growth rate

in 2014 of 7.4%.


Regional net post-tax profits (USDbn) Regional RPK growth

Note: E: estimated. Source: IATA Note: E: estimated. Source: IATA

Air Cargo Carriers

Air cargo has expanded fourteen-fold since the 1970s. As a result, there are many

companies in this segment who want a piece of this big pie. The largest global air

cargo provider by international and domestic freight tonne-kilometers in 2012 was

FedEx, followed by UPS Airlines and Emirates. The revenue of the FedEx freight

segment achieved a CAGR of 14.5% from 2001 to 2014, meanwhile, the CAGR of

operating profit was 13.6%.

According to the World ACD ‟ the biggest market data provider on air cargo, in May

2014, the chargeable weight of top 20 global air forwarders increased 9.1% y-o-y,

higher than the industry level of 6.4%. However, the yield (or the fee) of the top 20

was down 0.3% y-o-y, compared with the industry’s decrease of 0.2%.

Sales distribution in May 2014 (% y-o-y)

Source: World ACD

2.7

2

3.2

1

1

1.6

2.3

7

9.2

0.4

0.5

2.8

-5 0 5 10 15 20

2012

2013

2014E

Africa Asia-Pacific Middle East

Latin America North America Europe

0%

3%

6%

10%

13%

16%

Africa Asia-PacificMiddle East Latin

America

North

America

Europe

2012 2013 2014E

9.1%

6.4%

-0.3%

-0.2% -2%

0%

2%

4%

6%

8%

10%

Global 20 air forwarders Total air forwarders

Chargeable weight Yield


MARINE TRANSPORT

International seaborne trade recorded a CAGR of 3.1% from 2008 to 2013 according

to the United Nations Conference on Trade and Development (UNCTAD). The main

drivers were growing domestic demand of China and increased intra-Asian and

South-South trade. The global seaborne trade in 2013 is estimated to have been

about 9.6 billion tons, up 4.4% y-o-y.

The trend of international trade was mostly ruled by dry cargo movement (including

five major bulks and other dry cargo). Despite the weak status of the economy, five

major bulks (that are, coal, iron, ore, grain, bauxite/alumina and phosphate rock) and

other dry cargo had a healthy CAGR from 2008 to 2013 of 1.1% and 6.2%,

correspondingly. This is due to the fact that dry-bulk commodities are the backbone

of international seaborne trade. They have been the major engine of growth

reflecting in particular the fast-growing demand from emerging developing regions.

Some observers maintain that by 2025 urban consumers are likely to inject around

USD20 trillion annually in additional spending into the economy, which in turn will

trigger a boom in commodity trade (Shipping and Finance, 2013). Rapid growth in

urbanization and infrastructure development will entail an increase in resources and

raw material. The requisite infrastructure needs in the port sector alone are estimated

to be over 2.5 times the current port infrastructure level (UNCTAD, 2013).

International seaborne trade ‟ million tons International seaborne trade ‟ growth rate

Note: E: estimated. Source: UNCTAD Note: E: estimated. Source: UNCTAD

In 2012, the maritime sector continued to experience low and volatile freight rates in

its various segments because of surplus capacity in the global fleet generated by the

severe downturn in trade in the wake of the 2008 economic and financial crisis. The

steady delivery of newly built ships into already oversupplied market, coupled with a

weak economy, has kept rates under heavy pressure. This trend is expected to

continue in 2014 and 2015.

The Baltic Dry Index (BDI) was created by the London-based Baltic Exchange. It

measures changes in the cost to transport raw materials such as metals, grains and

fossil fuels by sea. From 2008 to 2014, the BDI index felt significantly from the highest

point of 11,793 in 2008 to the lowest point of 647 in 2012.

-

3,000

6,000

9,000

12,000

2008 2009 2010 2011 2012 2013E

Container Other dry cargo Five major bulks Oil and gas

2008 2009 2010 2011 2012 2013E

Container 4.7% -9.8% 13.1% 11.5% 4.2% 6.6%

Dry cargo 3.5% -3.5% 6.7% 4.8% 6.1% 4.9%

Oil and gas -0.2% -3.6% 4.9% 0.8% 1.5% 2.4%

Total 2.4% -4.5% 7.0% 4.5% 4.3% 4.4%

-10%

-5%

0%

5%

10%

15%

Container Dry cargo Oil and gas Total

Dry cargo (five major bulks and

others) drove the growing

trend of international trade.

BDI index felt significantly from

2008 to 2012. From the

beginning of 2014, BDI has

continued to decline, which

means that freight rates have

not yet recovered.


BDI Index

Source: Bloomberg

Nonetheless, the international seaborne trade remains vulnerable to many downside

risks and is vulnerable to some game-changing trends that could redefine the

maritime transport operating landscape. The mismatch of supply and demand, the

continuous global economic uncertainty and geopolitical tensions are the main

challenges in this industry. Among the prevailing challenges, the interconnected

issues of energy security and costs, climate change and environmental sustainability

are perhaps the most unsettling. In detail, rising average global temperatures will

definitely affect shipping and ports as well as international seaborne trade in terms of

extreme weather events and rising sea levels (UNCTAD, 2013).

According to the World Shipping Council, fuel costs reportedly account for 50% to

60% of operating costs. Marine fuel prices (bunkers) as illustrated by the Rotterdam

380 centistoke increased by nearly three times between 2005 and 2012. However, in

the same period, oil prices increased two times because bunker fuel prices were

affected by other factors such as growing demand for bulkers resulting from an

expanding world fleet and the tendency of refineries to produce more distillates

(UNCTAD, 2013). Due to the high impact of fuel costs and the rising trend of oil prices

in recent years, the new tendency of the industry is to use eco-ships (innovative ship

design). Additionally, environmental sustainability also requires lower-sulphur fuels

and air emissions.

In 2012, the Asia region dominated the main loading and unloading regions with 39%

and 57% of total volume of goods, respectively. From 2008 to 2012, the CAGR of

loaded goods and unloaded goods of Asia region was 1.5% and 6.9%,

correspondingly. Of which, dry cargo contributed the largest part of total volume,

about 60% over the same period while dry cargo had a CAGR of 1.4% and 7.4%,

respectively. The key reasons were the needs of the industrialization process, rapid

growth of urbanization and the infrastructure developments of emerging developing

countries. Particularly, China, the world’s largest steel producer, has the proportion

of around 60% in the global iron ore import volume.

-

2,500

5,000

7,500

10,000

12,500

2008 2009 2010 2011 2012 2013 2014

The Asia region dominated the

main loading and unloading

regions in terms of world

seaborne trade. The CAGR

from 2008 to 2012 for the Asian

volume of goods loaded was

1.5%.


World seaborne trade, by geographic region in 2012 Asian volume of goods loaded ‟ million tons

Note: E: estimated. Source: UNCTAD Note: E: estimated. Source: UNCTAD

Global port developments continued despite the recent economic downturn. Ports

are generally considered to be a long-term investment with intensive capital growth.

World container port throughput increased by an estimated 3.8% to 601.8 million

TEUs (TEU: 20-foot equivalent unit container) in 2012. Of which, developing countries

made up 70% of the world’s throughput.

In Asia, port development projects are largely spurred by the importation of raw

materials and increased industrial output. China continued to lead the world in terms

of port throughput and efficiency and increasing as a provider of expertise in port

construction and management. In 2012, container throughput of Chinese mainland

ports occupied 25% of the total world figure.

VIETNAM’S LOGISTICS INDUSTRIES

Vietnam’s economy heavily depends on import and export activities. According to

data from the World Bank and General Statistics Office (GSO), in 2013, imports and

exports of goods and services accounted for 77.0% and 77.5% of GDP, respectively.

Import and export value

Source: World Bank, GSO

39%

23%

18%

11% 9%

57%

16% 22%

1% 4% 0%

12%

24%

36%

48%

60%

Asia Americas Europe Oceania Africa

Loaded Unloaded

903 872 908 916 905

339 346 338 388 398

1,962 1,836 1,849 2,023 2,075

-

800

1,600

2,400

3,200

4,000

2008 2009 2010 2011 2012

Crude Petroleum product and gas Dry cargo

0%

20%

40%

60%

80%

100%

0

30

60

90

120

150

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

USDbn Import value Export value Import % of GDP Export % of GDP


Over the past 13 years, the trend of annual GDP growth rate was quite in line with the

trend of imports and exports annual growth rate. The average growth rate of GDP

from 2000 to 2013 was 6.4% and has recently slowed down. From 2014 to 2019, the

International Monetary Fund (IMF) projects the growth rate of Vietnam’s GDP range

from 5.6% to 6.0% per annum, meanwhile the growth rate in the volume of both

imports and exports will decrease gradually from 18% to 8% in 2019.

According to the World Bank, the key advantages of Vietnam’s economy over the

past 20 years were its rapidly-expanding labor force and a shift in economic activity

away from agriculture and towards the higher-productivity sectors of manufacturing

and services. However, these drivers of economic growth are diminishing and are in

need of substitutes by within-sector productivity improvements. One of them would

be the improvement of the logistics system or logistics capacity. Obviously, the more

that logistics develop, the more transaction costs decrease which in turn leads to

more competitiveness within the country.

Annual growth rate of GDP and import-export value Forecast growth rate of GDP and import-export volume

Source: World Bank, GSO Note: f: forecast. Source: IMF

Free trade agreements

Vietnam’s international trade is expected to increase 18% y-o-y in 2014 due to the

coming of many free trade agreements between the borders such as the Trans-Pacific

Partnership (TPP), Free trade agreements (FTA) of Vietnam ‟ European Union (EU).

These agreements are considered strong leverage to boost Vietnam’s economy as

well as its international trade, which in turn will push up the logistics sector.

TPP is a high-standard free trade agreement that addresses new and emerging trade

issues and 21st-century challenges. The TPP brings together developed and

developing economies across the Asia-Pacific into a single trading community that

represents approximately 30% of global GDP. The establishment of TPP, however,

could be delayed past 2014 since the most recent 20th formal round of TPP

negotiations did not reach a consensus regarding issues of intellectual property

rights between the United States and other countries.

EU - a huge market with 27 countries has become an important trading partner of

Vietnam. Since June 2012, Vietnam has negotiated a FTA with the EU not only in

trade but also in capital investment. This FTA is expected to be established by the

end of 2014 and will encourage the products of Vietnam, especially agriculture and

fishery products, to enter freely or cheaply into the EU.

-10%

0%

10%

20%

30%

2000 2002 2004 2006 2008 2010 2012

GDP Import Export

5.6% 5.7% 5.8% 5.9% 6.0% 6.0%

0%

4%

8%

12%

16%

20%

2014f 2015f 2016f 2017f 2018f 2019f

GDP Import Export

Logistics improvement is one

of the keys for development of

Vietnam in the future.


With the establishment of these FTA’s, the logistics sector in Vietnam will emerge

strongly in every segment. For example, Vietnamese shippers can expand their

market share by taking on routes that have high fees such as: Vietnam ‟ EU, Vietnam

‟ America.

INDUSTRY SIZE

Although there is no accurate statistics about Vietnam’s logistics costs as a share of

national output, the “Efficient Logistics” report of the World Bank, issued in January

2014, estimates relatively that logistics cost occupies about 25% of GDP in 2013,

equivalent to USD30 billion. This ratio seems to be higher than peer countries like

China, Malaysia and Thailand, whose ratio is from 18% to 20% of GDP. Additionally,

Vietnam’s logistics costs are likely higher than some of the more globally-integrated

developing Asian countries, even as they appear to be either at par or more

competitive than those of some peers like Cambodia, Indonesia and Philippines.

As stated by the LPI report of the World Bank in 2014, Vietnam ranked 48th among 166

countries and showed an improvement from its rank of 53 in 2012. Among ASEAN,

Vietnam placed fourth after Singapore, Malaysia and Thailand. As a lower middle-

income country, Vietnam had higher rate than the average of other lower middle-

income countries and the East Asia and Pacific group. This shows that many of the

lower-hanging fruits in logistics performance (e.g. access to basic road infrastructure,

adequate electricity supply and availability of basic services) have been harvested

and productivity-boosting, well-coordinated (e.g. multimodal) investments and

institutional reforms have now become a priority (World Bank, 2014).

International LPI in 2014

Source: World Bank

According to the Vietnam Logistics Association (VLA) (previously known as the

Vietnam Freight Forwarder Association (VIFFAS)), there are more than 1,200

enterprises in the logistics sector. However, except the SOE, most of the enterprises

are very small with a contributed capital from VND4 billion (USD187 thousand) to

VND6 billion (USD281 thousand). There are about 25 multinational logistics

companies in Vietnam (e.g. DHL, UPS, FedEx, etc.), that account for 70% to 80% of

market share. Meanwhile, most of Vietnam’s logistics companies only serve as sub-

contractors or agencies for foreign companies. The logistics outsourcing ratio of

Vietnamese corporations is still low at 25% to 30%, which is much lower than China

(63%) and Japan (40%). Currently, Germadept Corporation (GMD-HSX) is considered

to be the biggest domestic company with big customers such as multinational

companies: Unilever, Fonterra, etc.

0

1

2

3

4

5

Vietnam Lower middle income East Asia & Pacific

Overall Customs Infrastructure

Ease of arranging shipment Quality of logistics services Tracking and tracing

Timeliness

Vietnam’s logistics cost

occupies about 25% of GDP,

which is much higher than

China, Malaysia and Thailand.

There are only 25 multinational

logistics companies but they

account for 70% to 80% of

Vietnam’s logistics market.


Vietnam’s logistics sector is expected to grow at a CAGR of 27% from 2013 to 2020

with increasing 3PL outsourcing needs from both existing and new multinational

corporations. The 3PL industry in Vietnam is growing fast in terms of revenues and

active firms, particularly in the South. The 3PL revenues are expected to achieve

USD11.8 billion in 2020 with a CAGR at 25.8% from 2007 to 2020. The number of 3PL

members of VLA increased tremendously from four members in the period of 1994 to

1997 to 275 members in June 2014.

Number of 3PL members of VLA Growth rate of logistics market of Vietnam

Source: World Bank, VLA Source: Business Monitor International, Euromonitor International, 2012

Vietnam enjoys an enviable location within the region and is endowed with a huge

transport infrastructure. It has more than 3,000 kilometers of coastline, situated

nearby vital international shipping lanes; 49 seaports, classified in six groups

according to their geographic location along the coastlines (Vietnam Marine

Administration - VMA, 2013); and 206 thousand kilometers of roadways (GSO, 2012).

However, the quality of the transport infrastructure is low. Vietnam ranked 44th in

infrastructure LPI, which is lower than Malaysia (26th), China (23rd) and Thailand (30th).

Additionally, in the “Global Competitiveness Report” of WEF, Vietnam was ranked

low in terms of quality of transport infrastructure but did show improvements from

2012 to 2014.

Transportation infrastructure

Type of transport Size Quality Quality

Rank/144 in 2012/2013 Rank/148 in 2013/2014

Coastline 3,260km

Road 206,633km 120 102

Railroad 3,146km 68 58

Port 49 ports 113 98

Air transport 21 airports 94 92

Inland waterway 47,130km

Overall 119 110

Source: Vietnam Railway Authority, VMA, Civil Aviation Authority of Vietnam, GSO, WEF

Vietnam’s freight transport market, on a tonnage basis, is dominated by two modes:

inland waterway transport (IWT) and the road sector. From 2000 to 2013, the CAGR of

freight transport volume was 12.3%. Of which, the road sector maintained the highest

proportion with 75.7%, followed by IWT (17.9%) and seaway (5.8%). On a basis of

4 18

41 60

140

275

0

60

120

180

240

300

1994 -

1997

1997 -

2000

2000 -

2003

2003 -

2007

2007 -

2010

2011 -

2014

0%

12%

24%

36%

48%

60%

0

8

16

24

32

40

2PL Revenues (USDbn) 3PL Revenues (USDbn)

Outsourcing ratio of 2PL (%) Outsourcing ratio of 3PL (%)

Vietnam’s freight transport

market, on a tonnage basis, is

dominated by two modes: the

road sector (75.7%) and inland

waterway transport (17.9%).


ton.km1, during the same period, the freight transport volume achieved a CAGR of

10.7%. Of which, road sector had the highest CAGR of 14.6%, followed by airway

(13.6%) and seaway (10.8%).

Due to the slowdown of the economy, the World Bank estimates the CAGR of the

freight transport market on a basis of ton.km from 2008 to 2030 to be 4.8%, of which,

the road has the highest CAGR of 8.5%, followed by airway (6.5%) and railway (5.9%).

As a result, in 2030, the road sector will continue to dominate the market share with

57%, followed by IWT (35%), railway (4%), seaway (3%) and airway (0.03%).

Being more optimistic than the forecast of World Bank, the Decision No. 318/QD-TTg

on March 4, 2014, approved the Strategy to develop transportation services to 2020

with an orientation toward 2030. The Strategy has some main points as follows:

Volume of freight market is aimed to achieve 1,300 billion tons.km (2.2 billion

tons) in 2020 with a CAGR of 9.1% from 2013 to 2020; 2,500 billion tons.km (4.3

billion tons) in 2030 with a CAGR of 6.7% from 2021 to 2030.

The road sector will dominate the freight market (57.8%), seaway (22.2%), IWT

(15.5%), railway (4.5%) and airway (0.08%).

Freight transport volume of domestic players CAGR of freight transport market

Note: E: estimated. Source: GSO Source: World Bank

According to Business Monitor International (BMI), the transportation infrastructure

in 2013 is estimated to be VND42,086.3 billion (USD2 billion), up 9.5% y-o-y and

accounts for 22% of value of the construction industry. The CAGR of the value of the

transportation infrastructure industry from 2012 to 2023 is projected to be 10.1%. Of

which, road and bridge infrastructure will account for more than 50% of the share of

the industry.

Regional breakdown showed that the Mekong Delta River and Ho Chi Minh City

(HCMC) area are the primary source of economic activity and the most

transport/logistics- intense region on a per capita basis in Vietnam.

1 Ton.km: a unit of freight carriage equal to the transportation of one metric ton of freight one kilometer

-

250

500

750

1,000

1,250

2000 2002 2004 2006 2008 2010 2012

million tons Railroad Road IWT Seaway Airway

5.9%

8.5%

3.3% 3.6%

6.5%

0%

2%

4%

6%

8%

10%

Railroad Road IWT Seaway Airway

The estimated CAGR of

value of the transportation

infrastructure from 2012 to

2023 is 10.1%.


Transportation infrastructure industry value Regional breakdown

Note: e: BMI estimated, f: BMI forecast. Source: BMI Source: World Bank

LIMITATIONS AND OBSTACLES

Currently, the World Bank assesses that the logistics infrastructure of Vietnam may

be able to accommodate fast growth but there are many limitations. The limitations

come from the prevalence of unpredictability in the supply chains as follows:

(i) Cumbersome and inconsistently applied government regulations: the logistics

sector is regulated by many ministries such as: Ministry of Transport (MOT),

Ministry of Industry and Trade (MOIT), Vietnam Customs, etc. Therefore, there

are many laws and regulations, of which, there is inconsistent interpretation,

implementation and enforcement of government regulations across provinces

and among government officials. This leads to longer times in processing import

and export clearance, higher transaction costs to beneficial cargo owner2 supply

chains and logistics services providers.

(ii) Facilitation payments to avoid delay: there is a belief among the shippers and

logistics services provider community that it is necessary to pay an amount to the

officials of Vietnam Customs and police to reduce the delay in import, export and

transportation in supply chain. According to the “Vietnam Urbanization Review

2011” by the World Bank, the informal facilitation payments (bribes) accounted

for 8% of total logistics cost. The total amount is also estimated to be USD100

million in 2012 and USD180 million in 2018.

(iii) Isolation in planning and executing transportation infrastructure projects without

considering supply-demand. The issues in detail are:

The port and marine terminal system is highly fragmented as quantity is

emphasized more than quality, leading to overcapacity (most notably in the

Southern port range);

Highway projects to enable adequate access to inland container depots,

marine ports, and airports are seldom planned and implemented as

integrated facilities and are often plagued by delays that contribute to

highway congestion and undermine the port system’s cargo catchment

potential. According to the master plan on express highways, the total

planned investments in new highways from 2005 to 2020 is about

2 Beneficial cargo owner: the buyer of the cargo in supply chain

-

20,000

40,000

60,000

80,000

100,000

VNDbn

Roads and Bridges Railways

Airports Ports Harbours and Waterways

23% 30% 25% 24%

36%

46% 62% 71%

41% 24%

13% 5%

0%

20%

40%

60%

80%

100%

Population Enterprises Industrial

output

Seaport

container

throughput

Red river Mekong Delta River Others

The prevalence of unpredictability

in the supply chains creates many

limitations in the logistics

infrastructure of Vietnam.


VND766 trillion (USD36 billion). However, the progress is still slow and the

actual investment has been much higher than planned due to cost overruns.

The financing of many port and road infrastructure projects has a weak

foundation because of unreasonable demand assessments, higher

construction costs than relative peer countries, and the persistent

participation of ineffectively operated state-owned companies.

The Government has not had medium- and long-term strategic development

of logistics parks.

Rail is not a meaningful mode of transport for freight.

(iv) A fragmented trucking industry delivers substandard service to beneficial cargo

industry relative to peer countries.

(v) Major supply-demand imbalances in infrastructure provision: the new deep-water

marine terminals at Cai Mep-Thi Vai are severely underutilized and lack critical

mass to serve as transshipment centers, and the container shipping carriers

serving them are finding it increasingly less attractive to call at these locations

with the very large vessels that are now the backbone of their intercontinental

operations.

LEGAL FRAMEWORK

Vietnam’s logistics sector is governed by many overlapping government authorities

that include: Ministry of Industry and Trade (MOIT), Ministry of Transport (MT) and

Vietnam Customs, among others. As a result, there are hundreds of laws and

regulatory requirements in this sector. Further, there are also many continuous

issuing supplements and amendments. Despite the numerous requirements, in our

opinion, the legislation is still inefficient, insufficient and very costly for companies.

We have compiled a list of some of the major laws that affect the investment and

operation of projects in Vietnam’s logistics industry.

In order to invest in the logistics sector, the Investment Law, effective July 1, 2006, is

the backbone of the legal structure that regulates foreign investment in Vietnam.

Additionally, there are many other laws which regulate details for investment that are

transport-specific as follows:


Main regulations

Regulations Contents

Law on Inland waterway navigation which came in force on January 1, 2005 and its amendment version which will be effective in Jan 2015

Law on Maritime, 2006

Decree No. 30/2014/ND-CP,

effective from July 1, 2014

Conditions for sea transportation and support service. This decree requires the entity in the sea

transportation sector must have minimum legal capital of VND20 billion for international maritime

transportation and VND5 billion for domestic maritime transportation

Decree No. 161/2013/ND-CP Register, purchase and sell vessels

Circular 04/2012/TT-BGTVT Permission for foreign and domestic vessels, which reduce the participant of foreign vessels in inland

waterway transport

Law on Railway 2006

Law on Road traffic 2009

Law on Civil aviation 2007

Law on Customs 2005

Decree No. 89/2011/ND-CP Regulations related to multimodal transportations

Decree No. 30/2013/ND-CP Regulations about air transportation and general air operation

Decree No. 93/2012/ND-CP Supplements and amendments a number of articles of Decree No.91/2009/ND-CP on road transport

business and business conditions

Decree No. 140/2007/ND-CP Detailed regulations on the Commercial Law, 2005 regarding conditions for engaging in logistic

services business, and limitations on liability of logistic services business entities

Law on Commerce, 2005

Source: VPBS collects

WTO commitment

Upon joining the WTO (World Trade Organization) from 2007, Vietnam committed to

open some of its logistics segments that include: (i) container loading and unloading

services; (ii) warehousing services; (iii) freight forwarding services; and (iv) other

services (including; checking bills of lading, checking goods, sampling and weight

determination; receiving and accepting goods and preparing transportation

documents). In these segments, foreign investors must create a joint venture with a

maximum ownership ratio of 50% to 51%. However, according to WTO

commitments, from January 11, 2014, these following logistics segments are to be

fully open to foreign companies: warehouse services, freight forwarding services and

other services. The Vietnamese logistics market is estimated to be more intensively

competitive for domestic players.

LOGISTICS SEGMENTS

PORT AND MARINE TERMINALS

Due to its preferable location, Vietnam has a sizable seaborne trade. Statistics of the

Vietnam Port Association (VPA) showed that the CAGR of throughput in Vietnam

from 2000 to 2013 was about 11.9% and reached approximately 192.0 million tons in

2013. Of which, the container trade grew with a higher CAGR of 17.6% during the

same period to achieved 8.5 million TEUs in 2013.

World Bank also estimated nationwide container volumes would grow at an average

annual rate of 8% to 9% through 2020. If so, the capacity of Northern seaports will be

insufficient to meet market demand by 2018. However, because of additional capacity

from newly established seaports under the master plan, there should be abundant

supply.


The seaborne trade in Vietnam is broadly concentrated in two locations: Haiphong ‟

Quang Ninh and Ho Chi Minh City (HCMC), where the goods are ample while the

others lack goods and operate under-capacity.

In terms of geographical breakdown, from 2000 to 2013, the Northern ports had the

highest CAGR of container throughput of 19.5%, followed by the Southern ports

(17.1%) and the Central ports (15.0%). From 2014 to 2020, the cargo throughput of

Northern ports is also projected to increase slightly faster than Southern ports at an

annual rate of approximately 8.5% to 9.0% and 8.0% - 8.5%, respectively (World Bank,

2014). The main reasons are the rapid growth rate of manufacturing activities in the

Hanoi area (e.g. electronics) and the support from growing cross-border transit trade

with southern China, through the border gate with Mong Cai, Lang Son and Lao Cai.

Vietnam has a concentrated planning process for ports and harbors every ten years.

The newest one is the Decision 1037/QD-TTg of the Prime Minister dated June 24,

2014 about the master plan on development of Vietnam's seaport system through

2020 with orientations toward 2030. In this master plan, total throughput of Vietnam

is estimated to achieve from 400 to 410 million tons in 2015 and 640 to 680 million

tons in 2020. Therefore, seaports which can serve huge ships will be built up such as:

international gateway ports in Haiphong (Lach Huyen port) and Ba Ria ‟ Vung Tau

(Cai Mep ‟ Thi Vai port), along with Van Phong ‟ Khanh Hoa transshipment port.

Volume of cargo throughput of Vietnamese ports Annual growth rate of regional container trade

Source: VPA Source: VPA

However, presently, there is a mismatch between supply and demand in the port

industry due to the rapid growth of ports which have outpaced demand. Many ports

are operating under-capacity, especially in deep-water Cai Mep ‟ Thi Vai Port (CMIT).

The designed capacity of this port is from 1.6 to 2 million tons of throughput or 5.2

million TEUs per year. Nonetheless, in fact, since the operation till now, the cargo

throughput of CMIT only accounted for a minor percentage of capacity. This led to a

price war between the ports in the region to attract and keep their customers.

Actually, all of the ports in the region of Cai Mep ‟ Thi Vai have suffered losses in

recent years. The World Bank estimates that through 2020, the total supply capacity

in Southern ports will achieve 14 million TEUs while the demand capacity will be

only approximately 10 million TEUs. The overexpansion of new ports, the poor

condition of road infrastructure in the corridor and the effect of down trend in global

freight rates are the main reasons that have driven price wars among the ports.

12 14 18 21 26 31 39 47 56 64 56 63 62 61

5 6 7 9 11 11 12

15 15

15 17

19 21 24

27 29 31 34

38 44

52

72 76

93 79

77 91

107

-

40

80

120

160

200

2000 2002 2004 2006 2008 2010 2012

Million tons

Northern ports Central ports Southern ports

-30%

-10%

10%

30%

50%

70%

2001 2003 2005 2007 2009 2011 2013

Northern ports Central ports Southern ports

From 2014 to 2020, the average

annual rate of nationwide

container volumes is estimated

to be 8% to 9%. The most

active ports are in Haiphong,

Quang Ninh and HCMC.


The situation happens not only in the Southern ports but also in Northern ports when

the new huge project ‟ Lach Huyen port comes to full operation in the next years.

The Haiphong International Gateway Port (Lach Huyen Port) includes two

components:

Component A has the investment capital of VND18,600 billion (USD885 million),

sponsored by ODA of the Japanese Government and Vietnamese reciprocal

capital under public‟private partner methods in order to build infrastructure for

the port during the plan.

Component B includes two harbors which can accommodate up to 100,000 DWT

(deadweight tonnage, one DWT equivalent to one ton) ship with investment

capital of VND6,500 billion (USD309 million) from a joint venture between Saigon

Newport (51%) and Molnykit Company ‟ Japan (49%).

The project was expected to be completed and fully operational by the middle of

2017. According to the Ministry of Transport, after operating, Lach Huyen Port will

accommodate vessels up to 8,000 TEUs in the next period. The import and export of

goods through the Northern region can be shipped directly to European and

American markets. As stated by the plan of Vietnam’s National Shipping Lines

(Vinalines), Lach Huyen Port will be able to serve about 30 million tons of

throughputs each year by 2020.

The main limitations to the fast growth rate of port systems as well as the logistics

industry as a whole are as follows:

The insufficient landside and other supporting infrastructure: Overall, the port

network of Vietnam is highly fragmented, which causes a significant strain on

local and national infrastructure development resources. Additionally, the road

infrastructure projects are slowly implemented due to problems related to land

clearance, disbursement of funds and investment procurement.

Unsustainable financing framework to the port infrastructure: Vinalines owns at

least 51% in most of the main port projects. This led to financial distress for

Vinalines, hence, the financing source is unsustainable.

The highly fragmented port systems and overexpansion of ports have contributed to

the inefficiency of the logistics industry in Vietnam and rendered Vietnam less

competitive than other countries.

SEAWAY TRANSPORT

Most of the sea lane routes that are navigated by Vietnam’s vessels focus on the

routes to China, Southeast Asia or Asia Pacific. With the generally accepted business

practice of purchasing under CIF (cost, insurance and freight) terms and selling under

FOB (free on board) terms for Vietnamese import and export companies, the

shipping sector of Vietnam cannot effectively compete with foreign companies.

The market share of Vietnamese vessels decreased from 33% in 2007 to about 10% to

12% in 2013, according to Vietnam’s Marine Administration.

There is a mismatch between

supply and demand in the port

industry due to the rapid pace

of growth in ports which have

outpaced demand.


At the end of 2013, Vietnam had 1,788 vessels with a total capacity of 6.9 million DWT

(deadweight tonnage), ranked fifth in ASEAN. However, 80% of the ships have

capacity lower than 50,000 DWT, leading to a low average deadweight of Vietnamese

vessels. Additionally, the weaknesses in shipping operations, infrastructure and

regulations impact hardly to the performance of the Vietnamese shipping market.

From 2011, Vietnamese shipping companies have been forced to weather tough

financial climate as bunker costs increased while at the same time ocean rates

decreased. As mentioned above, the BDI-index decreased significantly from its

highest point in 2008 until now and then forecast is not promising. Meanwhile, fuel

costs have exorbitantly increased.

In Vietnam, the biggest shipping companies are two SOEs: Vinalines and Vinashin

(Shipbuilding Industry Corporation). Those companies have operated inefficiently

with huge debt to equity ratios and generated losses in consecutive three- to five-

years and have to be restructured. Even the shipping subsidiaries of Petrolimex

Vietnam, which have relatively stable goods from their parent companies, have had

to dispose of vessels in order to survive.

We expect the current challenges to continue in 2014 and 2015 while total global

capacity surpasses demand, hence, ongoing severe competition among vessels. The

bright signals of this market, in our opinion, are still hidden as long as import-export

companies change their business etiquettes to using more Vietnamese vessels in

their international trading activities. In return, Vietnamese vessels have to improve

their capacity to meet conventional international quality standards.

AIR TRANSPORT

Vietnam has a strategic location in the North-South and East-West route among the

region, hence, it has a huge potential in developing airline transportation and air

cargo. From 2009 to 2013, the CAGR of air cargo throughput and passengers was

12.5% and 18.4%, respectively. According to IATA, in 2014, Vietnam should become

the world’s third-fastest growing market for international passengers and freight and

the second-fastest growing market for domestic passengers.

The market share of domestic airline corporations in terms of cargo throughput and

passengers in 2013 was 28.6% and 47.0%, respectively. There are four airline

corporations: Vietnam Airlines Corporation (Vietnam Airlines), Jetstar Pacific Airlines,

Vietnam Air Service Company (VASCO) and Vietjet Aviation Joint Stock Company, of

which, Vietnam Airlines ‟ the national flag carrier ‟ is the market leader with the

broadest air routes. In 2013, Vietnam Airlines accounted for 57.2% market share,

achieving revenue of VND72.555 billion (USD3.4 billion) and profit before tax of

VND533 billion (USD25.0 million) after three consecutive sluggish years. Jetstar

Pacific and Vietjet Air also showed some positive signals. However, there is no basis

to conclude these other airline corporations have performed any better as their

financial statements are still opaque.

In terms of cargo terminal, the most active one is Tan Son Nhat Airport with two

cargo terminals: Tan Son Nhat Cargo Services (TCS) ‟ a joint venture of Vietnam

Airlines, Singapore Airport Terminal Services Ltd. and Southern Airports Services

Company Ltd. and Saigon Cargo Service Corporation (SCSC) ‟ joint venture of

Although Vietnam has 1,788

vessels with total capacity of

6.9 million DWT, 80% of the

ships have capacity lower than

50,000DWT.

In 2014, Vietnam should

become the world’s third-

fastest growing market for

international passengers and

freight and the second-fastest

growing market for domestic

passengers.


Gemadept Corporation (GMD ‟ HSX), Southern Airport Corporation, Vietnamese

Military and Asia Commercial Bank. In Noi Bai Airport, the terminal is also owned by

Vietnam Airlines. According to a survey the World Bank conducted with beneficial

cargo owners and logistics services providers, the stated-owned terminals are

perceived to be inefficient and costly. Additionally, the lack of skillful air cargo

operators and the limitations on private enterprises to operate in the air freight

market have made the Vietnamese market less attractive than its peer countries.

Vietnam air freight market of cargo throughput Vietnam air freight market of passengers

Source: CAAV Source: CAAV

Geographic advantages

The factors that have contributed to the highest growth rate of Vietnam’s airline

industries are as follows:

Strategic location: Vietnam has a strategic location in the North-South and East-

West route among the region.

Long distance between two main cities: Hanoi and HCMC (the two main

economic centers of Vietnam) are separated by 1,760km, meanwhile, the less

developed road and rail infrastructure have pushed up demand for airlines.

Geographic advantages: Vietnam has many beautiful places, which encourage

tourism and attracts a huge number of international tourists.

Cheap labor cost and open investment policy: these are among the factors that

attract investment from multinational firms such as Intel, Samsung, Honda, etc.

Master plan

Akin to the ports planning process, there is a government master plan for the

development of the aviation industry. The Decision No. 21/QD-TTg, dated January 8,

2009, approved the master plan for aviation transportation to 2020 with an

orientation to 2030 with some of the main points as follows:

CAGR air cargo throughput: targets to achieve 16% from 2010 to 2015; 18% from

2015 to 2020 and 14% toward 2030.

Airstrips: develop cargo fleets for routes to Europe, Japan, America and China

before 2015 and develop Chu Lai Airport as an international goods transshipment

port during 2010 to 2020.

Airports: invest in five new airports and classify them into three regions: northern

region (nine airports), central region (seven airports) and southern region (ten

airports).

141 188 195 201 221 118

212

272 279 326

409

255

128

121 126 122

141

76

0

200

400

600

800

2009 2010 2011 2012 2013 1H2014

thousand

tons Domestics Foreigners Transists

12 15 17 18 21 12

6 7

7 8 9

5

5

11 12 12

14

8

0

10

20

30

40

50

2009 2010 2011 2012 2013 1H2014

million Domestics Foreigners Transists


Aviation industry: establish joint venture or 100% foreign investors to invest in

manufacturing aircraft components.

Investment capital: the investment capital for priority projects until 2020 and 2030

is estimated at USD14.2 billion and USD20.5 billion, respectively.

According to the Civil Aviation Authority of Vietnam (CAAV), there are currently 21

airports throughout the country, including seven international airports (Noi Bai, Tan

Son Nhat, Danang, Cam Ranh, Phu Bai, Phu Quoc and Can Tho) and 14 domestic

airports. On average, there is one airport per 100km. In fact, the top three largest and

most active airports in Vietnam are Tan Son Nhat Airport, Noi Bai Airport and

Danang Airport, meanwhile the others operate under-capacity.

However, based on the above master plan, in 2020, there will be 26 airports with

capacity to handle up to 123 million passengers and 3.1 million tons of goods per

year. With our assumption of a high growth rate of 20% each year and knowing the

actual number in 2013, the current airports will still operate under-capacity and are

unlikely to generate desirable profits for their investors.

Obstacle from road sectors

In terms of transportation structure, volume of goods of air transport ranked last

among transport types. According to the forecast of the World Bank, through 2030,

the market share of air transport will increase to 0.03%, with a CAGR of ton.km from

2008 to 2030 of 6.5%. The fact that Vietnam’s transportation market depends heavily

on the road sector (accounting for more than 70%) is also an obstacle for developing

the airline industry.

Investments in Vietnam’s Aviation sector

There are comparatively few foreign investors in Vietnam’s airport development

industry due to many hindrances.

Firstly, the profits are low. The global airline corporation has not generated high

profit for their investors. While in Vietnam, some airlines have gone bankrupt, such

as Indochina Airlines or Air Mekong, requested cessation of operations with no date

scheduled for resumption. Even the largest company, Vietnam Airlines, has had to

ask the Government to keep guaranteeing its loans for new aircraft purchases.

Further obfuscating the picture, the business results of ground handling agents, other

than SCSC, have not been fully disclosed.

Secondly, the government is reluctant to use foreign-invested capital for projects of

this kind. According to current legislation, foreign investors must cooperate with

Vietnamese investors but with a maximum ownership ratio of 49%.

With the huge capital needs for airports projects, however, the government can only

sponsor a minor part and the government is calling for private investors under build-

operate-transfer (BOT) or joint-venture investment approaches. Additionally,

according to Decision No. 59/ND-CP, Vietnam Airlines will be equitized during this

year and list its initial public offering (IPO) shares for strategic investors as well as

other investors ‟ another vehicle for securing investment.

In our opinion, although the airline industry in Vietnam is quite small, its prospects

are bright given its expansion will stem from the growth in its population, tourism

and the economy itself.


INLAND WATERWAY TRANSPORT

According to VMA, Vietnam has more than 47 thousand kilometers of inland

waterway transports with the two largest deltas being the Mekong River Delta and

the Red River Delta. The two largest economic centers, Hanoi and HCMC, are located

near these deltas and the satellite cities are connected via waterway paths. Moreover,

according to the World Bank, shipping by barge is four times less expensive than by

truck. And, CO2 emissions from this mode of transport are much less than road

transport. These factors are advantages that should contribute to the IWT sector’s

faster growth in the future. As mentioned above, the volume of cargo throughput of

the IWT sector had a CAGR from 2000 to 2013 of 9.2% and reached 180.8 million tons

in 2013. It is also estimated to have a CAGR from 2008 to 2013 of 3.3% on a basis of

ton.km.

The government approved the master plan for developing IWT through 2020 with

orientations toward 2030 with some major points as follows:

Targets to achieve cargo throughput of 356 million tons by 2020 with an average

annual growth rate of 8%. In 2030, the total volume of goods is targeted at 586

million tons.

Investment capital: VND56.5 trillion (USD2.7 billion) for infrastructure, vehicles

and maintenance industry, of which, VND30.8 trillion (USD1.4 trillion) will be

sponsored by other sources than the government and ODA).

Ports: in 2020, there will be 66 northern ports with a capacity of 42 million

tons/year; seven ports in the center with a capacity of 4.1 million tons/year and 56

ports in the south with a capacity of 32.6 million tons/year.

At present, the market share of this sector mainly belongs to small private

enterprises. According to the World Bank, in 2009, Vinalines occupied 60% of fleet by

tonnage and was a sole provider of scheduled container services linking Hanoi and

HCMC, which no doubt impacts both rates and service levels.

At the beginning of July 2014, the government has just announced the first coastline

route from Quang Ninh to Quang Binh. This is an effort to push up coastline and

inland waterway transport to take into account the advantages of these modes: cost

efficiency and environmental friendliness. The investments in this segment are

encouraged by many incentives. However, the current legal framework only gives

permission for domestic shippers to entice the domestic shipping industry.

Additionally, it also depends on inland port developments as well as the connection

between supply and demand, for which there is currently a mismatch.

Shipping by barge is four times

less expensive than by truck. In

the near future, the government

will focus on developing this

segment taking into account its

efficiency and environmental

advantages.


LOGISTICS TICKERS

Currently, there are 39 logistics companies listed on Vietnam’s stock exchanges, of

which, there are 23 tickers on the Ho Chi Minh Stock Exchange (HSX), and 16 tickers

on the Hanoi Stock Exchange (HNX). As of July 31, 2014, the combined market cap of

these stocks was VND19.0 trillion (USD890 million), equivalent to 1.6% of the

aggregate market cap of the two stock exchanges.

Over 12 months, investors in the logistics tickers gained 71%, which was much

higher than the VN-Index at 20% or the HNX-Index at 27%. The top gainers were

Hanoi Maritime Holding Company - MHC at 283%, Transportation and Trading

Services JSC - TJC at 238%, and Mailinh Corp in Northern Central - MNC at 201%.

Logistics ticker price performance (% change in 12 months)

Note: The logistics index was constructed from 39 tickers in the sector with equal weighting given to

each company. Source: Bloomberg, data as of 7/31/2014

Vietnam’s companies cover many stages within the value chain of logistics service.

This establishes a good foundation for integrated logistics services.

Among the value chain within the logistics sector, the common groups of Vietnam

companies are port and shipping. These groups are also the main drivers of the

logistics market with high market cap as well as integrated logistics services. Hence,

we introduce these groups to analyze their market performance.

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HNX-Index Logistics VN-Index


Ticker Exchange

Airway Roadway Railway IWT Seaway Port Warehouse Container

loading

CFS &

ICD

GMD HSX

PVT HSX

VSC HSX

DVP HSX

TMS HSX

VIP HSX

VOS HSX

VTO HSX

TCL HSX

GSP HSX

PDN HSX

SFI HSX

STG HSX

GTT HSX

HTV HSX

VNL HSX

TCO HSX

VST HSX

MHC HSX

SBC HSX

PJT HSX

VNA HSX

CLL HSX

DXP HNX

WCS HNX

VGP HNX

HMH HNX

VNF HNX

VNT HNX

VFR HNX

MNC HNX

HDO HNX

PTS HNX

MAC HNX

TJC HNX

DL1 HNX

HCT HNX

PRC HNX

SSG HNX

Source: VPBS, Company’s data

LOGISTICS

Transportation Forwarding

Other value added services


Source: Bloomberg, Company’s financial statements. Data as of 7/31/2014

Ticker Echg Company

Market

cap

(VNDbn)

YTD

price

change

2013

ROE

2013

ROA

Debt /

EquityP/E P/B

% y-o-y % y-o-y % y-o-y % y-o-y

SHIPPING SECTOR

GMD HSX Gemadept Corp 3,995 2% 2,525 -2% 192 85% 4% 3% 614 8% 40 -73% 40% nm 0.9

PVT HSX Petrovietnam Transportation Corp 3,377 24% 4,961 11% 239 119% 9% 3% 1,339 9% 50 14% 153% 13.5 1.2

TMS HSX Transimex-Saigon JSC 752 15% 398 42% 97 91% 18% 13% 98 -5% 17 -53% 20% 7.5 1.1

VIP HSX Vietnam Petroleum Transport JSC 634 -2% 785 -22% 139 156% 15% 7% 164 -19% (15) nm 70% 29.3 0.6

VOS HSX Viet Nam Ocean Shipping JSC 560 -11% 2,207 -9% (194) nm -15% -4% 539 1% (29) nm 246% nm 0.5

VTO HSX Vietnam Tanker JSC 552 11% 1,564 -5% 45 -9% 4% 2% 415 11% 4 nm 96% 8.8 0.5

GSP HSX International Gas Product Shipping JSC 345 -4% 865 26% 46 9% 13% 8% 263 31% 12 19% 49% 7.1 0.9

SFI HSX Sea & Air Freight International 256 -15% 458 38% 30 -21% 13% 6% 153 64% 8 9% 0% 8.3 0.9

HTV HSX Ha Tien Transport JSC 175 17% 204 28% 28 -29% 11% 9% 48 17% 4 69% 10% 5.7 0.7

VNL HSX Vinalink International Freight Forwarders 180 32% 583 32% 27 1% 18% 13% 150 36% 6 154% 0% 6.5 1.1

TCO HSX Duyen Hai Multi Modal Transport JSC 151 5% 186 22% 24 27% 15% 10% 45 4% 5 -6% 33% 6.4 0.9

VST HSX Vietnam Sea Transport & Chartering JSC 147 -19% 1,322 -13% (224) nm -54% -8% 358 35% (38) nm 684% nm 0.6

PJT HSX Petrolimex Joint Stock Tanker Co 80 5% 355 -3% 11 -27% 10% 6% 89 11% 3 -36% 79% 8.3 0.7

VNA HSX Vinaship JSC 60 -6% 682 -17% (108) nm -41% -9% 173 4% (10) nm 384% nm 0.3

VNF HNX Vinafreight International Freight Forwarders JSC 168 62% 1,234 29% 34 371% 22% 9% 336 20% 9 343% 3% 4.9 1.0

VNT HNX Foreign Trade Forwarding and Transportation JSC 211 43% 637 15% 27 -1% 26% 10% 136 -23% 7 5% 140% 7.7 1.9

VFR HNX Transport and Chartering Corp 149 65% 391 -22% 10 20% 4% 1% 66 -34% 10 -98% 98% 35.5 0.5

HDO HNX Hung Dao Container JSC 52 -20% 185 35% (18) nm -14% -6% 29 -6% 0 415% 84% nm 0.4

PTS HNX HaiPhong Petrolimex Transportation and Services JSC 30 15% 313 12% 0 nm 0% 0% 71 5% 41 nm 4% 31.6 0.4

TJC HNX Transportation and Trading Services JSC 48 90% 230 23% 3 nm 4% 1% 57 1% 3 nm 99% 7.1 0.6

HCT HNX Hai Phong Cement Transport & Trading JSC 23 24% 65 5% 1 -46% 4% 3% 15 9% 1 -16% 0% 15.4 0.6

Average 16% 11% 50% 3% 4% 9% 53% 109% 12.7 0.8

Median 11% 12% 9% 9% 3% 8% 7% 70% 8.0 0.7

PORT SECTOR

GMD HSX Gemadept Corp 3,995 2% 2,525 -2% 192 85% 4% 3% 614 8% 40 -73% 40% nm 0.9

VSC HSX Vietnam Container Shipping JSC 1,873 23% 792 2% 240 5% 29% 22% 202 17% 48 5% 1% 7.7 2.0

CLL HSX Cat Lai Port JSC 840 19% 199 2% 82 24% 23% 16% 52 13% 21 2% 27% 10.2 2.1

DVP HSX Dinh Vu Port Investment & Development JSC 1,660 -2% 501 5% 197 5% 31% 23% 115 2% 46 -1% 24% 8.4 2.2

VIP HSX Vietnam Petroleum Transport JSC 634 -2% 785 -22% 139 156% 15% 7% 164 -19% (15) nm 70% 29.3 0.6

PDN HSX Dong Nai Port JSC 366 35% 203 20% 45 1% 17% 13% 54 38% 11 75% 17% 8.1 1.3

MHC HSX Hanoi Maritime Holding Co 149 175% 64 -47% 16 297% 15% 7% 18 -20% 12 263% 28% 6.1 1.2

DXP HNX Doan Xa Port JSC 300 -16% 190 -24% 54 -31% 24% 21% 35 -24% 8 -37% 0% 6.1 1.4

VGP HNX Vegetexco Port JSC 150 -14% 512 27% 19 -2% 12% 8% 79 -36% 5 -7% 75% 7.9 1.0

HMH HNX Hai Minh Corp 207 13% 107 -11% 39 -1% 19% 17% 24 -13% 11 28% 6% 5.0 0.9

Average 23% -5% 54% 19% 14% -3% 28% 29% 9.9 1.4

Median 8% 0% 5% 18% 15% -5% 2% 26% 7.9 1.3

1Q2014 net

income

(VNDbn)

2013 sales

(VNDbn)

2013 net

income

(VNDbn)

1Q2014

Sales

(VNDbn)


Germadept Corporation (GMD-HSX): the largest market cap

GMD operates in many sectors, of which, port and logistics services are the core

business. It is one of the biggest 3PL service providers of Vietnam. As of July 31,

2014, GMD’s market cap was VND3,995 billion (USD187.5 million) or equivalent to

21.0% of total market cap of logistics companies. Over 23 years of development,

GMD has obtained some notable achievements:

Inland waterway transports: GMD occupies the largest market share (25%) of

HCMC ‟ Phnom Penh (PNP) barging service.

Seaway transportation: GMD has four vessels with utilization more than 90%

which is much higher than the estimate of 53% to 55% of market utilization.

Air cargo terminal: through its joint venture, SCSC, GMD is one of a duopoly of

players in the TSNA with an average 200,000 tons of throughput per year.

Project cargo: GMD ranks in second place in the field of project cargo with a

handling capacity of 1,000 tons.

Warehousing: GMD ranks first in the coffee bonded warehouse. GMD has more

than 120 thousand square meters of distribution center and warehouse space. In

2014, GMD continues to invest in an additional 30,000 to 50,000sqm of

distribution centers in the North to increase its market share.

3PL services provider: thanks to the highly intensive investment in distribution

centers, warehouse and information technology in recent years, GMD can

compete with foreign companies in the field of 3PL. At the present, GMD has

many big customers such as: Masan Group (MSN ‟ HSX), Vinamilk (VNM ‟ HSX)

and Unilever, among others.

Ports: GMD has four ports with a total capacity of 1.3 million TEUs or 2.5 million

tons per year. It aims to achieve 3.7 to 5.0 million TEUs by 2020.

Although the company has high assets, the profitability of GMD was still low, which

means their assets have not generated many profits. In 2013, net income was only

VND192 billion (USD9 million), up 85% y-o-y. The ROA and ROE were 2.7% and 4.3%.

This year, GMD will book VND567 billion profit from selling 85% value of Gemadept

Tower to CJ Group, which will boost their net profits.

In our opinion, GMD has been building their assets to position themselves for rapid

growth period when the economy recovers in the future. As of July 31, 2014, GMD

was traded at a P/B of 0.9x.

SHIPPING TICKERS

Since 2011, Vietnam’s shipping companies have weathered a tough storm. Until now,

we have yet to see fair weather for this industry. Indeed, several small- and medium-

stocks had to be delisted, one of which includes Vinaconex Transportation JSC (VCV-

HNX), a company typical of this industry that capsized after leaking profits over a

three-year consecutive period.

At present, there are 21 stocks in the field of shipping including companies that

manage their own vessels and those who perform shipping agency services. In 2013,

the median ROE and ROA were 8.9% and 3.3%, respectively. Nonetheless, the profits

were not derived from core business but from disposing assets (vessels,


investments, etc.) For example, the net profits of GMD included VND171.0 billion

(USD8.0 million) of transferring shares of Vinh Hao Mineral Water Corporation.

Similarly, net profits of VIP (Vietnam Petroleum Transport JSC) included VND147.3

billion (USD6.9 million) profit from selling Nam Hai Dinh Vu port to GMD.

In 1Q2014, the business performance of these companies has still not improved.

Indeed it is worse than 1Q2013, as profits are not available from disposable assets.

However, in contrast to the low profitability of these companies, investors still feel

confident to invest in these tickers because of low P/B ratio. Over 12 months, the

average total returns of these stocks were 70%, higher than the VN-Index and the

HNX-Index. Most of the largest stocks (GMD, PVT, VIP, and VOS) had high liquidity

with average daily trading volume over 300,000 shares per day.

Performance of shipping tickers

Source: Bloomberg, data as of 7/31/2014

Over the past 12 months, the rising trend of shipping stocks was affected by the

VN-Index and the HNX-Index. The two indexes which measure the input (fuel cost)

and output (BDI-Index) had a different trend line with Vietnam’s shipping stocks. In

summary, the shipping stocks did not reveal their factual value.

However, in our view, the actual future performance of shipping stocks in Vietnam

will determine their true value. Hence, investors would be wise to scrutinize business

results carefully and invest in companies that have track records of positive results

and high liquidity such as PVT and GMD.

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HNX-Index Shipping VN-Index

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Fuel cost Shipping BDI - Index

TickerMarket

price

52-week

low

52-week

high

1Y avg

volume

1Y price

change

YTD

price

change

VNDbn VND VND VND share % %

GMD 3,995 34,800 22,300 38,100 417,259 42.6 2.4

PVT 3,377 13,300 5,000 16,273 2,259,191 161.3 24.1

TMS 752 34,000 23,200 39,000 1,784 29.0 15.2

VIP 634 10,200 6,449 15,701 650,104 51.9 (1.9)

VOS 560 4,000 2,500 5,500 342,795 48.1 (11.1)

VTO 552 7,100 3,600 10,000 544,117 82.4 11.1

GSP 345 11,700 7,800 16,100 100,987 52.7 (4.2)

SFI 256 29,400 20,000 38,500 8,669 50.1 (14.9)

HTV 175 18,200 12,600 20,800 10,444 60.3 17.4

VNL 180 20,000 13,500 21,000 3,005 59.6 31.6

TCO 151 11,800 8,300 15,000 38,291 37.8 5.3

VST 147 2,500 1,800 4,400 162,246 13.6 (19.4)

PJT 80 7,800 5,893 8,839 8,046 16.5 4.9

VNA 60 3,000 2,300 4,400 66,165 20.0 (6.3)

VNF 168 30,100 10,700 35,000 7,469 131.5 61.8

VNT 211 39,000 20,000 39,000 3,442 95.0 43.4

VFR 149 9,900 3,700 11,200 30,982 153.8 65.0

HDO 52 3,600 2,700 7,000 176,898 (7.7) (20.5)

PTS 30 5,300 3,500 8,000 4,247 23.3 14.9

TJC 48 8,100 2,000 8,600 16,825 237.5 90.5

HCT 23 11,900 5,400 13,400 2,523 112.6 24.2

Average 231,214 70.1 15.9

Median 30,982 51.9 11.1

Market

cap


PORT TICKERS

Although Vietnam has many port companies, most of them are SOEs or joint

ventures between SOEs and foreign companies. There are only nine port tickers on

the stock exchange, of which, GMD is the largest in terms of market capitalization,

numbers and sizes of ports.

Over the past 12 months, the port tickers increased by 69% and over performed the

VN-Index and HNX-Index. Except Doan Xa Port JSC (DXP-HNX), the total returns of

port tickers were quite high. Indeed, investors in port tickers were handsomely

rewarded. However, only two tickers GMD and Vietnam Petroleum Transport JSC

(VIP-HSX) had high liquidity with average daily trading volume of 417,259 shares and

650,104 shares, respectively. One of the factors that push up their market price is the

positive business results of these companies. Although there was negative growth in

net income of small cap companies such as: DXP-HNX, VGP-HNX (Vegetexco Port

JSC) and HMH-HNX (Hai Minh Corp), the average industry ROE was quite impressive

at 18.5% in 2013.

Performance of port tickers

Source: Bloomberg, data as of 7/31/2014

In 1Q2014, average business results of these companies were up 32% y-o-y although

some companies lacked extraordinary profits from asset disposals such as GMD and

VIP. Rapid growth stocks such as MHC - HSX (Hanoi Maritime Holding Co) and PDN

(Dong Nai Port JSC) showed the most impressive results. Vietnam Container

Shipping JSC (VSC ‟ HSX) appears to be a mature stock with a steady growth rate of

5% of net income in 2013 and 1Q2014.

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HNX-Index Ports VN-IndexTicker

Market

price

52-week

low

52-week

high

1Y avg

volume

1Y price

change

YTD

price

change

VNDbn VND VND VND share % %

GMD 3,995 34,800 22,300 38,100 417,259 42.6 2.4

VSC 1,873 53,500 30,333 66,250 74,150 83.5 23.4

CLL 840 35,000 30,500 38,200 179,781 18.6 18.6

DVP 1,660 41,400 31,500 54,000 13,883 26.2 (2.4)

VIP 634 10,200 6,449 15,701 650,104 51.9 (1.9)

PDN 366 45,400 23,800 45,400 6,663 101.5 35.4

MHC 149 11,500 3,000 13,500 150,892 283.3 175.0

DXP 300 39,000 35,000 54,200 5,047 2.2 (15.9)

VGP 150 19,000 13,300 27,000 5,022 33.9 (14.1)

HMH 207 21,600 14,400 24,900 20,027 44.1 12.8

Average 152,283 68.8 23.3

Median 47,089 43.3 7.6

Market

cap


Recent IPO: Haiphong Port - largest port in the North

In our “Pre-IPO Company note of Haiphong Port Holding Limited Liability Company”,

issued in May 2014, we mentioned the following points:

Hai Phong Port was established in 1874 and operates with the largest scale in the

North (40% of market share). It is also a unique port in Vietnam, because it offers

rail connections directly from its terminals to diverse locations throughout the

country.

Hai Phong Port has three main terminals: Hoang Dieu, Chua Ve and Tan Cang.

Besides its three main ports, Hai Phong Port invested in ten peer companies,

which include well-developed and listed enterprises.

Main business lines comprise cargo handling, forwarding, storage, and other

supporting services.

Major advantages: the largest scale in the area; the gateway position; strategic

location at an important traffic intersection; a well-established brand name;

complete infrastructure and technology facilities; and highly experienced

leadership.

In the period from 2010 to 2013, Hai Phong Port operated quite effectively with

compound annual growth rates (CAGRs) of 11.2% in consolidated revenues and

32.6% in net profits. Throughput, of which container occupied more than 50%,

increased annually with CAGR achieving 6.2%.

The business plan for 2014 to 2018 is quite conservative as the company has to

face many challenges in the following years, especially in the macroeconomic

plan of the government. Obstacles, such as infrastructure construction for Lach

Huyen Port, relocation plan for Hoang Dieu area, etc. will directly affect the

normal operating activities. We recognize that, after completion of these

infrastructure projects in 2017, the business performance growth should be

stable.

The company focuses on improving its facilities and equipment, investing in new

ports to increase its market share in the area in the coming years. In the long-

term strategy, the company has applied for permission to build six harbors of

containers in Lach Huyen Port capable of accommodating vessel sizes up to 8,000

TEU (twenty-foot equivalent unit), and 50,000 to 100,000 DWT (deadweight

tonnage).

In its IPO, the company sold 17,669,000 shares, equivalent to 46.9% of shares offered

via public auction. According to the business plan after equitization as well as its

successful average auction price of VND13,507/share, Hai Phong Port shares are

trading at a 2014 P/E of 20.5x and 2014 P/B of 1.3x.

Initial public offering of SOEs will be an opportunity for investors to invest in the big

firms. However, in Vietnam, there is no determined time for the IPO shares to be

listed on the stock exchange. Hence, there is liquidity risk for investors.


New listing: Cat Lai Port JSC (CLL-HSX)

On July 8, 2014, Cat Lai Port JSC (CLL ‟ HSX), one of the most active ports in the

South of Vietnam, officially listed its shares (24 million shares) on HSX.

The company’s business segments include: container port leasing (71.1% of net

revenues in 1Q2014), trucking service (14.2%), container loading and unloading

service (11.3%) and electricity supply at port (3.4%). The main business segment is

the container port leasing with the highest gross margin of 90.6% in 1Q2014.

CLL’s main advantage is its strategic location. CLL is located on the seaport system of

Saigon Newport Corporation (area of Saigon Newport ‟ Cat Lai), which is among the

top active ports in the South of Vietnam (accounts for 38.5% of national container

throughput). Because the company leased its port to Saigon Newport Corporation

under a fixed-price contract in the beginning of each year, its growth now depends

on the growth of container loading and unloading services as well as trucking

service. As a result, management plans to invest more in these segments during

2014.

CLL has a strong historical performance. Since 2009, after the company’s port

facilities were officially put into operation, the revenues and net profits increased

gradually from year to year. The CAGR of revenues and net profits from 2009 to 2013

were 22.8% and 16.3%, respectively. Meanwhile, the CAGR of total assets during the

same period was only 5.5%, leading to the increment of ROA from 11.9% in 2009 to

16.5% in 2013. This means that the company has used their assets to generate profit

effectively; hence, the profitability was improving year by year. We note that the ROE

and ROA of the company is higher than the industry average.

In the first half of 2014, revenues achieved VND109.0 billion (USD5.1 million),

representing 47.6% of its annual target. The profits after tax were VND39.0 billion

(USD1.8 million), equivalent to 51.9% of its annual target.

According to the management forecast, EPS of 2014 is expected to be VND3,129. As

of July 31, 2014, the company’s share is currently trading at a P/E of 10.2x and P/B of

2.1x, which are higher than the industry average. Since the listing date, the

company's shares have increased by 19% from a reference price of VND31,000 to

VND35,000 per share.

Thanks to the upcoming TPP and FTAs, the company’s prospect is quite optimistic. In

our belief, the company will grow steadily as the revenues increase gradually.


CONCLUSION

Globally, Asia Pacific (APAC) is the largest logistics market (35% of total global

logistics cost). In every sector such as air transport, shipping and ports, the APAC

region has the fastest growth rate. The regional logistics cost is expected to grow at

5.8% from 2012 to 2015.

Despite several inefficiencies and weaknesses, Vietnam’s logistics are now becoming

a major driver in the development of the nation’s economic development. In fact,

Vietnam’s logistics cost occupies about 25% of GDP. It is expected to grow at a CAGR

of 27% from 2013 to 2020, which is in line with the rising trend of GDP and import-

export value. The establishment of the Trans-Pacific Partnership and other free trade

agreements such as the Vietnam-EU, that will come into effect in the near future will

serve to increase Vietnam’s international trade, and by extension, of course, the

logistics sector.

However, 70% to 80% of the logistics market belongs to 25 foreign companies among

the 1,200 logistics companies that operate in Vietnam. Further, as some segments of

the logistics market opens fully to foreign companies in accordance with WTO

commitments, the growth opportunity for Vietnamese players will narrow.

Vietnam’s logistics competitiveness showed some improvements from 2007 to 2014.

In order to increase competitiveness as well as improve the capability of the logistics

sector, the Vietnamese government has drafted a detailed master plan for each type

of transportation mode and logistics services. According to the plan, the government

calls for investment from the private sector under the build-operation-transfer (BOT)

model and public-private partnership, among others. The government will also issue

IPOs for large state-owned enterprises such as Haiphong Port. We do note, however,

these IPOs may not be attractive to investors due to their lack of liquidity.

The total market cap of logistics stocks is VND19.0 trillion (USD890 million),

equivalent to 1.6% of the aggregate market cap of Vietnam’s two stock exchanges as

of July 31, 2014. Over 12 months, logistics stocks have outperformed the VN-Index

and HNX-Index.

Port tickers have recorded positive performance over the last twelve months. We

note that the rising trend of industry was supported by the positive signal from port

market of Vietnam and healthy business results of the companies. In the near future,

with the upcoming FTAs, the prospects of this industry are quite optimistic for long-

term investment.

We believe the rising trend of shipping stocks (excluding Gemadept Corporation

(GMD - HSX) and Petrovietnam Transportation Corporation (PVT - HSX)) is not

supported by the fundamentals. As we said earlier, before setting sail with long-term

investments in this industry, the investor would be wise to carefully scrutinize the

company’s profitability and ensure that it sails in a sound vessel before plotting an

investment course.


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Luu Bich Hong

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