HANOI - Despite the global economic downturn, Vietnamese trade is outpacing its outdated and overworked ports infrastructure. Filling the capacity gap will require substantial foreign investment, but questions about the country's underlying financial health, including a recent sharp devaluation of the local currency, could hamper those inflows.
Vietnam has 40 active ports, ranging from the small Vung Ro with just over 160 meters of wharfage to the dual-site Saigon Port, which has 3,000 meters of wharfage with 20 different quays with container, bulk and bag facilities. The country has a combined berthage of 40,000 meters and last year moved nearly 197 million tons of cargo, including over five million 20-foot equivalent (TEU) container units, a standard industry measure.
That's a small fraction of the cargo moved through the region's busiest modern ports. Singapore in the 10 months through October this year moved about 20 million TEUs; last year Hong Kong, the third busiest in the world, moved 24 million TEUs. Thailand's gateway port, Laem Chabang, now moves around 9 million TEUs annually and Malaysia's Tanjung Pelepas is on course to move 6 million TEUs this year despite the country having a population less than one-third that of Vietnam.
Hon La Port in Quang Binh Province is expected to be completed by the end of 2010.
The lack of modern port facilities threatens to dampen Vietnam's economic growth prospects and limit new trade opportunities. Vietnam's trade-driven economy is expected to grow 5% this year and slightly faster in 2010. Government officials acknowledge the dearth of deepwater and internationally standardized port facilities, including enough berths to service incoming container and trans-ocean vessels. Anecdotal evidence supplied by industry analysts indicates that ships sometimes run aground due to insufficiently dredged water channels that give sea access to ports.
"The limiting factor [of Vietnamese trade] will be infrastructure," said Barry Akbar, general director of shipper APL-NOL, at a recent conference in Hanoi. "Serious terminal congestion can come as early as 2010 if full economic recovery takes hold."
A senior official at the Vietnam Maritime Administration acknowledged at the same conference, which was attended by several international representatives, that there is "no consistency and compatibility between ports and road, power and logistics ... [and] also little connection between the ports and the surrounding land use." In prepared comments, he said that "handling equipment is relatively backward with low capacity so that we cannot meet the demand of the regional marine market."
Shaun Houston, Nike's senior logistics manager for Vietnam, said that the US clothing and footwear giant last year exported more from Vietnam than it did from China and expects that volume to grow. Nonetheless, she described the country's logistics situation as "roads without bridges, bridges without roads". "Further improvements are needed" in infrastructure she said.
At the same time, she acknowledged recent improvements, pointing out that a vessel carrying Nike products produced in Vietnam recently traveled directly, for the first time, from Cai Mep in southern Vietnam to the US. Previously such products had to travel to either Singapore or Hong Kong for reshipment. Houston also highlighted other improvements related to Nike's Vietnam-based business, including customs procedures at ports and improved coordination between government departments responsible for infrastructure building.
The government's Ports Master Plan for improving facilities, indicates costs at between US$46 billion and $56 billion, including the development of the $3.6 billion Van Phong International Transshipment Terminal for big container vessels near the southern area of Nha Trang. The Maritime Administration of Nha Trang told a recent conference that the facility will be able to handle 15,000 TEU container ships and that the bay is naturally between 20 meters and 27 meters deep and thus won't require dredging for ships to gain access.
The first phase of the Van Phong project, scheduled to start next year and finish in 2015, will see construction of two large and five small berths with a quay size of up to 2,260 meters. This would allow the facility to handle 9,000 TEU vessels and have a total container throughput capacity of two million TEUs per year. The world's largest container ships, such as the Emma Maersk, have a capacity of around 15,000 TEU.
A second phase of the project foresees the addition of four large and three small berths, with 2,377 meters of total berthage that would allow for the handling of 12,000 TEUs ships with an estimated container throughput of between four million to 4.5 million TEUs per year. The ambitious plan also involves developing Van Phong into a multi-industry economic zone replete with transshipment and other services.
Envisaged in the government's broader plan, Van Phong will be supplemented by several international "gateway" ports in the northern, central and southern areas of the country. They will be smaller in scale yet able to handle container vessels of between 4,000 and 8,000 TEUs or 80,000 -100,000 deadweight tons (DWT).
An unspecified number of dedicated hub ports, designed to serve large-scale industrial areas, will be built to deal with ships of up to 400,000 DWT of liquid cargo and 300,000 DWT for coal and ore. If these plans are realized, the port improvements would represent a big boost in efficiency for the country's fast growing industrial base.
Whether the government can raise the required capital for all these port modernization plans is unclear, particularly with new signs of financial weakness and downward pressure on the local currency, the dong. The government has said the Van Phong project will be financed either through direct investment or through Private Public Partnership (PPP) joint ventures. It is courting international partners with access to global financial markets and experience with build-operate-transfer or build-lease-transfer infrastructure arrangements.
Trinh Duc Trong of the Ministry of Planning and Investment's Infrastructure Management and Urban Development Department said the government was working with the World Bank and other agencies to develop financing options for its ports wish list. "The state has focused on port development, but still we are behind the demand," said Trinh. "The demand of capital [for the] port system is far beyond state budget. We are thinking private-public partnerships."
The government has said it plans to limit its own contribution to its ports master plan to between 12% and 15% of the total investment budget. That amount is being confined to public seaport infrastructure such as breakwaters, dredging, channel construction and road connections. It's not clear that foreign investors would be willing to shoulder the larger infrastructure burden, particularly in straitened global economic times and hot competition for capital from China, India and Indonesia.
Vietnam's recent record of corruption in foreign-funded infrastructure projects won't help its sales pitch. When the so-called PMU-18 scandal broke in 2006, it exposed a deep-seated culture of corruption in the Project Management Unit of the Ministry of Transport, with top officials embezzling $1.8 million of funds provided by foreigners, including the World Bank and European Union, for infrastructure development to bet on football matches.
There is also concern about the country's macroeconomic stability. The government late last month reduced the value of the currency, the dong, by 5%, the third devaluation since June 2008. Inflation is rising, reaching 4.35% in November, and exports were down 11.4% in January-November, compared with the same period last year. Foreign investors considering putting capital towards Vietnam's ports development might consider that it is just too risky a punt.
Michael Mackey is a Bangkok-based journalist.