Occupying a unique position along the Pacific Ocean, Gulf of Thailand and Gulf of Tonkin, along with shared land borders with China, Laos and Cambodia, Vietnam is well-positioned to become a dominant regional transportation centre.
However, rapid economic and population growth have led to unprecedented strains on the country’s existing transportation network, and many of its ports, highways and airports are experiencing congestion and capacity constraints after decades of under-investment. In a bid to close its widening infrastructure gap and bolster regional competitiveness, the government has outlined significant upgrades to its road networks, while recent construction of a new deepwater sea port in Cai Mep will improve trade flows and reduce shipping costs.
Additionally, a surge of new investment for fleet upgrades in the aviation segment should further support rising passenger demand, as will a major planned airport development located just outside Ho Chi Minh City, which is expected to absorb the majority of international passenger arrivals from existing facilities in the coming decades.
Attracting new private capital to the transport sector is a critical priority, as evidenced by recent moves to reform the country’s public-private partnership (PPP) framework, which should help the country implement new road and airport projects. Although PPP development remains limited at present, it is expected to play an increasingly significant role in the delivery of new transport infrastructure, paving the way for sustainable long-term growth and presenting lucrative new opportunities to both domestic and global private investors.
Running The Show
The Ministry of Transport (MoT) is the main government body responsible for overseeing the road, rail, inland waterway, sea and air transport systems nationwide. It is responsible for formulating policies and regulations; managing state-owned infrastructure; and supervising driver training, transportation services management, traffic safety, environmental protection and international cooperation. National entities operating under the MoT umbrella include the Directorate for Roads of Vietnam, the Vietnam Inland Waterways Administration, the Vietnam Maritime Administration, the Civil Aviation Authority of Vietnam (CAAV) and the Vietnam Railway Authority.
Broader transportation development priorities are outlined in a series of five-year socio-economic development plans (SEDPs). The 2006-10 SEDP laid out plans for the country’s transition to a market economy, highlighting the importance of national transportation development in supporting economic growth, poverty reduction and human resource development. Under this first SEDP, the government envisioned a competitive, integrated, inclusive and sustainable transportation system.
The 2011-15 SEDP placed greater emphasis on environmental protection and effective transportation management, as well as raising capital for new infrastructure projects, transport industrial development, and international integration and competition. The third plan, the Five-Year National SEDP 2016-20, prioritises private sector development, industrial restructuring, service sector development, integrating urban infrastructure and increasing public sector efficiency.
Transport Strategy 2020
Transportation-specific development plans are consolidated in the Transport Development Strategy up to 2020 (Transport Strategy 2020), which was amended in March 2009 to align with the country’s broader Vision toward 2030. The plan envisions 6.24bn passenger movements annually by 2020, of which 86-90% will be by road, 1-2% by rail, 4.5-7.5% by inland waterways and 1- 1.7% by air. Total cargo volumes are simultaneously forecast to reach 2.09bn tonnes, of which 65-70% will be moved by road, 1-3% by railway, 17-20% by inland waterway, 9-14% by sea and 0.1-0.2% by air.
More recent transportation strategies have focused largely on aviation development, with Vietnam being one of the region’s fastest-growing aviation markets. Private sector participation is a critical component of the country’s largest and most important transportation projects, with many big-ticket plans expected to be delivered in partnership with private sector investors.
Air Travel
Vietnam’s aviation sector is managed and overseen by the CAAV, which reports to the MoT. The country’s airports are managed and operated by the Airports Corporation of Vietnam (ACV), a state-owned company founded in 2012 after the merger of three businesses that operated airports in the north, central and southern regions of the country. ACV manages 22 airports, including eight international and 14 domestic airports, the busiest of which is Tan Son Nhat International Airport (TSNIA) in Ho Chi Minh City.
There were 70 international routes connecting Vietnam to 26 countries and territories as of July 2016. The country is home to domestic lines including Vietnam Airlines and low-cost carriers VietJet Air and Jetstar Pacific Airlines. Vietnam is set to welcome another domestic carrier in 2017. Military-run carrier, Vietstar Airlines, was given principle approval by the government in November 2016 to provide services for passengers and cargo, with an intended focus on domestic routes between northern and southern Vietnam, along with regional services. The six-year-old carrier is expected to carry 500,000 passengers and 32,000 tonnes of freight during its first year of operations.
Aviation Agenda
In July 2016 the MoT announced a number of new transportation targets set for 2016-20, focusing heavily on aviation development. According to Le Tuan Anh, head of the MoT’s International Cooperation Department, the ministry hopes to support its domestic airlines and better enable carriers to take advantage of membership in the ASEAN Single Aviation Market, with the goal of launching more international routes, including direct services to the US. The country signed on to the single market, also known as the ASEAN Open Skies protocol, in December 2016. To achieve these goals, the ministry is planning to enhance global aviation integration, including sending a permanent representative to the International Civil Aviation Organisation.
Segment Growth
According to the CAAV, annual passenger growth in air travel averaged 14.9% between 2010 and 2015. Passenger volumes reached 63m in 2015, of which 18m were international travellers. The domestic market has been increasingly dominated by low-cost carriers like VietJet Air, one of the world’s fastest-growing airlines (see analysis). The recent signing of the ASEAN Open Skies agreement is expected to further accelerate this strong growth, and the International Air Transport Association reported in October 2016 that Vietnam is one of the world’s top five fastest-growing aviation markets.
The CAAV estimates that passenger traffic through Vietnamese airports will reach 122m by 2020, and record an average annual growth rate of 14.2% between 2015 and 2020. By 2030 Vietnam’s air passenger traffic is expected to reach 322m annually, for a 10.2% average annual growth rate between 2020 and 2030.
Cargo volumes have also been growing rapidly. The CAAV reported that the aviation freight market grew by an average of 10.7% annually between 2010 and 2015, reaching 960,000 tonnes in 2015. Freight traffic is forecast to expand by an average of 12.8% annually between 2015 and 2020 to reach 1.8m tonnes, and by 15.3% annually between 2020 and 2030 to hit 7.3m tonnes.
Vietnam Airlines
Vietnam Airlines is the country’s national legacy carrier and largest airline in Vietnam. Founded in 1956 as Vietnam Civil Aviation, the airline is headquartered in Hanoi with hubs at the capital’s Noi Bai International Airport and TSNIA, flying to 21 domestic and 28 international destinations. The government holds the largest stake in the airline at 86.16%, with Japan’s ANA Holding, the Technological and Commercial Joint Stock Bank, and the Bank for Foreign Trade of Vietnam also being stakeholders.
Rapid economic growth has seen passenger volumes surge, and the company recorded a strong performance in 2016. The year ended with after-tax profits of VND1.6trn ($71.6m) – nearly six times the amount recorded in 2015 – and contributed almost VND4.9trn ($219.2m) to the state budget. The company operated 133,000 domestic and international flights in 2016, servicing approximately 20.6m passengers, which was up 18.7% on 2015. Cargo volumes were also strong and surpassed the company’s yearly target by 10%, totalling 264,000 tonnes. At the end of 2016, Vietnam Airlines’ total revenue reached VND59.1trn ($2.6bn) and pre-tax earnings hit VND2.5trn ($111.8m), representing a 140% year-on-year increase.
Fleet Upgrades
Upgrading its aircraft fleet is a priority for Vietnam Airlines. Its initial programme included purchasing 14 new Airbus A350s and 19 Boeing 787s to be delivered between 2015 and 2019. In September 2016 the airline signed a memorandum of understanding with Airbus for 10 additional A350-900s, supplementing the previous commitment of 14, six of which have already been delivered and are being used on European routes. In addition to its current three models of Airbus aircraft, the company also took delivery of its 10th Boeing 787 in November 2016. The company is gradually privatising to raise the necessary capital for fleet expansions. In December 2016 it requested permission from the MoT to increase its chartered capital to over VND14.2trn ($635.2m) in order to pay for the remaining 18 Airbus A350s.
Raising Capital
In the document sent to the MoT, Vietnam Airlines stated that it hopes to proceed with a capital injection plan in 2017, following an initial public offering (IPO) on the Hanoi Stock Exchange’s Unlisted Public Company Market (UPCoM), which occurred on December 26, 2016.
The stock began trading on January 3, 2017, with the company listing 1.2bn shares. The starting price on the first trading day was reported at VND28,000 ($1.25) per share. Proceeds will be used as reciprocal capital to purchase the 18 Airbus aircraft still to be delivered between 2017 and 2019, at an estimated total cost of VND41trn ($1.8bn). This will help the airline compete better against low-cost carriers such as VietJet Air, which has captured a significant proportion of Vietnam Airlines’ domestic market share in recent years and launched its own IPO in February 2017 (see analysis.) The ACV was also given permission to trade on the UPCoM in November 2016, selling 114m shares valued at VND1.12trn ($50.1m) the following month.
New To The Scene
Fleet upgrades will go far in meeting rising demand, but capacity constraints continue to challenge the country’s airport network, with the CAAV reporting that more than 15% of flights were delayed during the first half of 2016.
The government is hoping to alleviate some of the worst capacity constraints with the construction of a greenfield airport project, the Long Thanh International Airport near Ho Chi Minh City, which received formal approval from the National Assembly in October 2014. The new facility will be built on 5000 ha of land in the Dong Nai Province, roughly 45 km north-east of Ho Chi Minh City.
It is designed to host an annual capacity for more than 100m passengers, as well as utilise large and modern aircraft including the A380. Cargo handling capacity will be 5m tonnes annually. The new airport is forecast to serve 90% of international flights and 20% of domestic flights in the country, significantly reducing pressure on TSNIA, and potentially becoming a major transport centre and important entry point into South-east Asia.
The total value of the project is an estimated $18.7bn with construction expected to begin in 2021, although in December 2016 Trinh Dinh Dung, the Deputy Prime Minister, called on the government to push the project forward to 2019. The ACV will invest $235.34m in the project and the government will borrow $2.25bn in official development assistance for its first phase, while private funding will be used to construct its passenger terminal.
Road Network
Vietnam’s road network is also set for a mid-term overhaul, with the government targeting construction of thousands of kilometres of new national highway in an effort to bolster regional connectivity and better facilitate surging trade flows. The country’s road network currently accounts for the majority of passenger and freight movements, even though high-quality paved roads represent a relatively small proportion of the total.
The MoT reported that the country had 280,000 km of roads in 2016, of which 18,000 km were high-quality paved national roads and 26,000 km of paved or semi-paved provincial roads. Poorer quality roads, many of which are not paved, comprise the majority: 51,000 km of district roads, 161,000 km of rural roads and 24,000 km of other classified roads, according to MoT data.
Road Planning
Two important road development plans were formulated using a framework under Transport Strategy 2020. The plans set out a series of policy components for the road segment and a detailed master plan for a North-South Expressway on the country’s eastern side, dividing the 1811-km project into 16 sections and setting a 14-year schedule for implementation from 2010 to 2023. The expressway is expected to cost $17.9bn, roughly $10m per km, and require an average annual investment of $1.3bn, according to the Asian Development Bank (ADB.) The MoT also announced plans to complete 2300-2700 km of new highway construction and upgrades between 2015 and 2020. This ambitious target would entail VND181.2trn ($8.1bn) of public spending and an additional VND213.3trn ($9.5bn) of outside investment. The ministry reported that 567 km had already been completed as of June 2015. In 2011 the ADB reported that the country’s infrastructure requirements would require $16bn of funds annually between 2011 and 2020, a figure equivalent to about 20% of GDP. However, less than half that amount has been made available, thus making PPPs an important consideration for transportation stakeholders’ plans.
Legal Decree
In February 2015 the government promulgated Decree 15 on PPPs – an important legal regulation aimed to bolster transportation development in the country – which became effective in April 2015. Principle changes introduced by the decree include new feasibility study and basic eligibility requirements; a wider scope of sectors available for PPP development; new contract types; no cap on state participation in new projects; and the availability of financial support through a project development facility, as well as possible state support for viability gap funding.
Furthermore, the decree lays out new lenders’ step-in rights and rights to assignment; permits foreign governing laws to be applied to foreign-invested projects; and permits foreign arbitration in foreign-invested projects – all to reduce barriers to finance and improve project implementation.
Partnership Potential
The Dau Giay-Phan Thiet Expressway Project (DPEP) is the first PPP toll road project to be developed in Vietnam. The project includes the development of a 98.7-km, fourlane expressway passing through the provinces of Dong Nai and Bing Thuan, and stands as part of the greater North-South Expressway. Under plans conceptualised by the MoT, the DPEP will be developed under a design-build-finance-operate-maintain-transfer model, with the ministry proposing a 30-year concession period.
Two additional road projects were highlighted by the ministry in 2015 as optimal for PPP development: a section of the Mai Dich-Nam Thang Long highway in Hanoi, which kicked off in October 2016, and a section of the Tan Van-Nhon Trach highway in Ho Chi Minh City. In mid-2015 MoT officials reported that 508 km of roads projects were slated for development under a PPP model, using either a build-operate-transfer or build-transfer framework. Still, a long-delayed list of planned PPP projects under development with the ADB continues to hamper future construction.
Regional Connectivity
In its July 2016 midterm transportation development agenda, the MoT reported plans to speed up the implementation of new road projects that would enable increased connectivity to China, Laos and Cambodia.
Major projects sets for development between 2016 and 2020 include new expressways to China – including connections between Hanoi and Lang Son, Van Don and Mong Cai, and Hanoi and Cao Bang – as well as connections to Cambodia on the Long Bing-Chrey Thom bridge route.
Additional routes are planned for connections between Vietnam and Laos, Cambodia and Myanmar, according to the MoT. The ministry reported that a range of new routes had already opened along economic corridors between 2011 and 2015, including strategic connections between Hai Phone, Hanoi and Kunming, Hanoi and Nanning, and Hanoi and Shenzhen.
Sea Ports
With 3200 km of coastline along some of the world’s busiest maritime trade routes and 114 seaports – 14 of which are large, modern facilities – Vietnam’s sea transport segment is also poised for major long-term expansion.
The country’s three largest ports are the Saigon Port in the south, Hai Phong Port in the north and the central Da Nang Port. Marine trade has expanded rapidly in recent years, and the General Statistics Office of Vietnam reported that maritime and inland waterway freight volumes rose from 205.8m tonnes in 2010 to 239.9m tonnes in 2013 and 260.2m tonnes in 2015.
Prior to 2011 Vietnam did not have any deepwater seaports. Shallow drafts, obsolete handling facilities and inefficient operations meant the country’s existing ports could only handle a maximum of 2000 twenty-foot equivalent unit (TEU) vessels. Most seaborne cargo was trans-shipped in Singapore, Hong Kong, Malaysia or Taiwan prior to reaching the US or Europe.
In January 2011, however, the country welcomed its first post-Panamax ship-to-shore cranes at the Tan Cang-Cai Mep International Terminal (TCIT) – the first port in the country able to handle 15, 000-TEU vessels. Although a global shipping industry slowdown and weakening demand for Vietnamese exports could weigh on growth in 2017, TCIT’s rapid growth has had a tremendous impact on the country’s maritime transportation segment.
Deepwater Benefit
TCIT is a deep-sea container terminal located near the Cai Mep-Thi Vai River turning point. It offers a 14-metre deep channel, 16.8-metre draft at berth and a nearby turning basin 500 metres in diameter. It is one of five new container terminals located within the Cai Mep-Thi Vai deepwater port complex.
Its opening has enabled stakeholders to reduce transit times from Vietnam to the west coast of the US and to Western Europe by four days, additionally eliminating bottlenecks and reducing requirements for trans-shipment.
TCIT is also strategically located just 70 km from Ho Chi Minh City and connects to nearby industrial parks. It also connects to other ports under the portfolio of its operator, Saigon Newport Corporation – including the Cao Lanh and Dong Thap terminals – supporting a comprehensive logistics network and enabling increased shipment of transit goods between Vietnam and Cambodia.
Terminal Growth
Despite regional and global economic volatility that slowed export growth in 2016 (see Trade & Investment chapter), TCIT is expected to continue driving maritime trade growth in the country. The World Bank reported that container port traffic in Vietnam increased from 5.98m TEUs in 2010 to 6.93m TEUs in 2011, 7.55m TEUs in 2012, 9.14m TEUs in 2013 and 9.53m TEUs in 2014. Container throughput continued to rise in 2015 to 11.1m TEUs and saw 8.1% growth during Q1 of 2016, with shipping volumes bolstered by the signing of a free trade agreement between Vietnam and the EU in December 2015.
In December 2016 officials announced that over 2000 ships had made call at TCIT since January 2011, with the facility handling a cumulative 4.5m TEUs over the same period. Average net productivity reached 120 moves per hour, which is a significant accomplishment given that the most efficient ports globally of a similar size averaged between 104 and 136 moves per hour in 2012.
The terminal handled over 1m TEUs in a year for the first time in 2016 – nearly four times more than during its first year in operation in 2011. TCIT is now the second-largest port terminal by container volume in Vietnam after the Tan Cang-Cat Lai Terminal in Ho Chi Minh City.
Rail Transport
Although a less urgent priority than highway and aviation upgrades, the rail segment should also benefit from rising investment over the longer term. The government approved a railway master plan in 2002 that aims to modernise and upgrade the existing railway network, which has become increasingly dilapidated over the decades and cannot service new high-speed locomotives. The master plan envisions increasing rail transportation’s market share to handle 25% of freight movements and 20% of passenger movements by 2020, in addition to investing $7bn in new railways over the same time period.
Train passenger volumes have fluctuated over the past 15 years, with annual ridership ranging from a low of 9.8m in 2000 to a high of 12.9m in 2004. Ridership has been trending downwards since reaching 12.2m in 2012, dropping slightly to 12.1m in 2013 and 12m in 2014, then further to 11.2m in 2015. Rail investment is also low, and managing consultants A.T. Kearney reported that just 3% of annual transportation investment is spent on railroads in the country, compared to almost 90% for roads. This picture could change over the long term, however, as the country moves to study the potential construction of a high-speed rail line linking Hanoi to Ho Chi Minh City, which could dramatically reduce travel times and improve the flow of goods and passengers from north to south.
North-South Rail Project
In October 2016 the MoT announced it is undertaking a feasibility study for a high-speed north-south railway, which is expected to be submitted for parliamentary approval by 2018. The new study comes after a similar plan was rejected six years ago after lawmakers argued the $56bn in investment requirements – equivalent then to nearly half of the country’s GDP – were too high for the project to be feasible.
If approved, general upgrade work will focus on the existing single-track line connecting Hanoi and Vinh, and from Ho Chi Minh City to Nha Trang, with work to be carried out between 2020 and 2030. Early work would focus on reducing existing travel times by boosting train speeds to 90 km/h for passenger services and 60 km/h for freight services over the next four years.
The longer-term vision for the rail segment is that of a new north-south line to connect Hanoi and Ho Chi Minh City, which will travel at speeds of between 160 km per hour (km/h) and 200 km/h by 2030, and potentially up to 350 km/h by 2050.
Outlook
Rapid trade, economic and population growth have made transportation upgrades a critical priority for Vietnam. Although many major planned projects face a funding gap which could hamper their timely implementation, recent reforms to the national PPP framework have left the sector well-positioned to capture a larger share of private investment in the coming years. This will be especially critical for major planned highway and aviation projects, where rapid passenger growth has strained existing facilities, lending a sense of urgency to near-term development plans.
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