Vietnam’s 1,900 miles of coastline and 320 ports increasingly serve an important role in global trade. In the first half of the year, Vietnam’s container traffic rose three percent year-on-year, while Hong Kong’s dropped eight percent.
With the high number of supply chain shifts to Vietnam, it makes sense that shipping demand is increasing in the country. But Vietnam’s long-term economic trajectory is likely to see this demand continue for years to come.
The government wants the country’s seaports to handle 200 million tons of cargo by 2020 and double that amount by 2030. While this planning develops, investors that need ports for imports or exports should consider the regional variation in the quality of port infrastructure before setting up.
Vietnam’s ports competitiveness
In the last 10 years, economic growth in Vietnam has led to a significant increase in freight traffic, highlighting the importance of ports for companies that invest in the country. While this trend suggests that the country’s ports are able to manage increased demand, it also highlights the need for further investment in infrastructure to keep pace with growth and reduce logistics costs for business.
According to the World Economic Forum, Vietnam ranks 80 among 139 countries on the quality of port infrastructure, with an average score of 3.80 on a scale of 1 (lowest) to 7 (highest) between 2006 and 2018. This means Vietnam ranks lower than countries such as China, India, Thailand, and Sri Lanka.
Vietnam has 44 seaports with a total capacity of 470-500 million tons per year. The major ports in Vietnam include Hai Phong, Da Nang, Qui Nhon, and Ho Chi Minh City. However, Vietnam has a number of smaller ports as well, which takes the total number of ports in the country up to 320.
The Vietnam Port Association (VPA) states that 80 percent of container exports and imports go through smaller ports and ships, a process known as transshipment. The VPA also noted that goods owners have losses of approximately US$2.4 billion each year due not using deep-water ports.
Here, we highlight major ports in the north, central and southern parts of the country that foreign investors can start to look at. While the government continues to expand port infrastructure, we give an insight into the most developed ports for investors to begin assessing a site location.
Hai Phong and Vung Ang are major ports for international container traffic in north Vietnam, but neither are deep-water ports. In May 2018, however, the Haiphong International Container Terminal (HICT) deep-water port in Hai Phong opened.
The HICT is capable of accommodating large container ships, reducing the need for transshipments in northern Vietnam. The port allows for direct shipping between northern Vietnam and the US and EU markets. The second phase of the port is expected to be completed by 2020.
Previously, containers heading for Hai Phong or Vung Ang required transshipments, typically using ports in Singapore or Hong Kong, where the containers were loaded into smaller container vessels, and then transported to northern ports in Vietnam. Avoiding Hong Kong or Singapore means saving about one week in shipments as well as international freight transport costs.
The new port is particularly helpful for foreign businesses operating between Hanoi and Hai Phong. The port is connected to the Hanoi-Haiphong expressway and the Tan Vu Lach Huyen Bridge, and its close proximity to China will help companies that use northern Vietnam as a China+1 destination.
Northern Vietnam has become a hub for the electronics, automobiles and machinery sectors. The Deep C industrial zone near the port has already attracted 80 companies. The new port will augment northern Vietnam’s growth further.
The major ports in Central Vietnam are the Quy Nhon and Da Nang ports, the latter being a deep-water port. In addition, the region has nine minor ports as well.
The Da Nang port handles the majority of the traffic in the central region, which links Vietnam to Myanmar, Thailand, and Laos. The port’s proximity to the central city of Da Nang is an added advantage; the city’s infrastructure is developing rapidly as it has become a hub for high-tech industries.
The Quy Nhon port is mostly used for transporting goods from Mekong Delta and western Vietnam, along with transhipping goods heading for Cambodia. The port infrastructure in the central region does not currently match the northern and southern regions, but it is poised for further development.
The Ho Chi Minh City area consists of a network of ports around with the Saigon port currently the 26th biggest container port in the world and the fifth biggest in ASEAN. This follows the Port of Singapore, Malaysia’s Port Klang and Tanjung Pelepas, and Thailand’s Laem Chabang in ASEAN rankings.
Ports in Ho Chi Minh City are the main gateway for the region, accounting for 67 percent of the total throughput of all Vietnamese ports.
The Cai Mep-Thi Via Port (Cai Mep) is a deep-water port located around 80 km south of Ho Chi Minh City. Cai Mep mostly handles goods for Dong Nai and Binh Duong, which are major production centers in the region, and is popular on routes to the US and EU because of its deep-water capabilities.
Despite being a deep-water port with seven terminals, Cai Mep functions at only 30 percent capacity, due to a large number of smaller ports in the region.
For example, Cat Lai, one of the biggest and most modern container terminals in Vietnam, situated in Ho Chi Minh City’s port area, is preferred over Cai Mep due to its proximity to Binh Duong, Ba Ria-Vung Tau, Dong Nai, and Ho Chi Minh City. Cat Lai is primarily used mainly on Asian routes, but because Cat Lai is not a deep-water port there are higher transshipment costs.
The major challenge faced by the biggest ports in Vietnam is the use of smaller ports and vessels, which account for approximately 80 percent of container imports and exports in the country. Some ports also suffer from being over-burdened with shipments, which has led to congestion and significant delays.
For example, Cat Lai is preferred over Cai Mep despite the latter being a deep water port that can accommodate vessels with a capacity of 18,000 20-foot equivalent units (TEUs). Transshipments through Cat Lai can lead to delays and increase costs by around 30 percent. In addition, the increasing use of Cat Lai has led to gridlock issues due to delays in weigh stations and road intersections.
In addition, road and rail infrastructure has not been able to keep up with economic growth. The rail and road network around ports remains underdeveloped, leading to increased costs. Due to the lack of a rail network connecting the various ports, freight currently must be transported by road adding to shipping rates.
Businesses in the country are also known to complain of instances where freight has been held at ports due to customs procedures, resulting in an increased number of containers lying at ports without anyone to claim them. The government will need to streamline customs procedures so that Vietnam does not lose to rivals such as Singapore, Thailand, and Malaysia.
Increasing port capacity
The government not only needs to invest in increasing the existing port capacity, but also construct new deep-water ports to reduce transportation costs and increase efficiency, especially in the Mekong Delta.
The government has introduced a master plan related to the development of seaport systems by 2020 and 2030. It focuses on achieving a cargo clearance target of at least 1 billion tons by 2020 and 1.2 to 1.6 billion tons by 2030. However, the government will need to consider issues such as port placement, connectivity with economic hubs, and proximity to international maritime routes in their plan.
Developing inland waterways
Vietnam has over 42,000 km of inland waterways, mostly in the Mekong and Red River deltas, which have the potential to increase connectivity and reduce costs for the transportation sector. Currently, however, they suffer from the lack of connectivity to major production centers and inland ports. The development of waterway transport should be a priority for the government to increase market access, connectivity, and efficiency.
With a large-scale port development in the north and south, foreign investors from Japan and the Netherlands have shown interest in developing port projects in the central region around Da Nang. The government is also keen on the development of ports to meet its masterplan to public-private partnerships.
Since international trade is conducted mainly via sea-based transport, increasing the number of value-add ports, and adding capacity of existing ones, will be critical for the government as well as manufacturers to speed up transport and reduce costs. Cargo volume throughput at Vietnam’s ports has increased by 20 to 30 percent a year.
Ultimately, Vietnam’s ports, if developed efficiently, will help aid Vietnam’s growth in the next decade. Businesses that are keen to manufacture and trade in Vietnam should consider the regional differences in Vietnam’s port infrastructure and seek to locate in a region that best suits their activities.
(Source: Vietnam Briefing)
Sea News, August 8