Vietnam Logistics Industry PDF

VIETNAM LOGISTIC INDUSTRY
July 31, 2014
INDUSTRY COVERAGE
Logistics cost growth (CAGR by region) Asia Pacific’s logistics sector has been expanding rapidly, in
line with economic growth.
2010 - 2012 2012 - 2015E
10.8%
The industry landscape of Vietnam’s logistics sector is
10% teeming with opportunities. The main drivers are the growth
6.7% 8%
of GDP and of import-export activities based on the upcoming
5.9%
Trans-Pacific Partnership.
4.6%
5%
3.5% Logistics costs occupy about 25% of Vietnam’s GDP, which is
2.1% much higher than peer countries, due to the prevalence of
3%
8.2% 5.8% 3.4% 1.6% 2.1% 0.6% unpredictability in the supply chain. This creates many
0% limitations to the development and efficiency of the logistics
Greater Asia South Japan North Europe
China Pacific * America America sector that include: cumbersome and inconsistently applied
government regulations; facilitation payments to officials;
2008‟2030 CAGR of Vietnam’s freight isolation in planning and executing transportation
transport market on a ton-kilometer basis 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,
8.5% the road sector is expected to continue to dominate the value
6.5% of transportation infrastructure investment.
5.9%
3.3% 3.6% The port sector in Vietnam has grown quite well over the past
years. It is estimated that the average annual growth rate of
Railroad Road Inland Seaway Airway national container volume is 8% to 9% through 2020.
waterway
However, due to the overexpansion of ports, there is currently
Logistics stock price index (% change) a mismatch in supply and demand in the South.
HNX-Index Vietnam’s shipping industry has been going through a tough

80 time from 2011 till now. For 2014 and 2015, there are still no
Logistics
VN-Index signs of recovery yet.
60
Air transportation is also a rapid growth sector in Vietnam.
Nonetheless, the market is dominated by the stated-owned
40 enterprises and limitations of regulations from the government.
The logistics stocks appeared to outperform the VN-Index and
20 HNX-Index during the last twelve months, mostly due to the
speculation in small cap stocks by investors and strong
0 expectations for companies that have a positive fundamental
7/13 9/13 10/13 12/13 1/14 3/14 4/14 6/14 7/14
outlook.
-20 Please see important disclosure information at the end of this report.
www.VPBS.com.vn Page | 1
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
USDtn
20
15
10
-
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Source: United Nation Conference on Trade and Development
Logistics activities aim to move Logistics typically include the following key elements (World Bank, 2004):
goods from their point of origin
to the point of consumption  Infrastructure: ports, terminals, railway, roads;
while conforming to customer
requirements. Transportation  Operations: warehousing, storage, local distribution, trucking, cabotage;
typically accounts for 40% to  Services: freight forwarders and customs brokers.
60% of logistics costs.
The objective of such activities is to move goods from their point of origin to the
point of consumption while conforming to customer requirements.
Types of logistics
Logistics
Other value added

services Warehouse Forwarding Transportation
Customs Bonded Container loading & Airway

Cold chain
clearance warehouse unloading
Roadway
Packing, Cold storage Inland container depot
Inspection, & Container Freight Railway
Fumigation, etc. Station services
Cold Shipping
trasportation
IT management
Pipeline
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
Airplanes are the fastest mode but Availability of appropriate airport
Airways / airplanes
very expensive facilities
Trucks are relatively quick and a very Subject to the fluctuation of fuel costs
Roadways / trucks
flexible mode and road conditions
Rail is a cost efficient mode but can be
Railway / rail Availability of rail lines
slow
Ship is very cost efficient but the
Shipping / vessels Availability of ports and canals
slowest mode of transport
Restricted to liquid commodities and
Pipelines Pipelines can be very efficient
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.
Historical development of growth stage of logistics
First party Second party Third party Fourth party
logistics (1PL) logistics (2PL) logistics (3PL) logistics (4PL)
1960s 1970-1980 1980-2000 >2000
Logistics were limited to Corporate logistics were Companies create complete Integrated logistic system is a
distribution. Problems relating gradually extended to logistical chains and systems very complex, system-related
to transaction with finished supplying (purchases, connected with customer and problem. One of the requirements
products and related physical procurement) and to supplier. The integration of is the establishment of strategic
distribution were dominant. The production management. corporate activities and the alliances between companies,
problem of inventories was not development of supplying, their customers, product suppliers
important. production and distribution and logistics providers.
systems is actually being
materialized.
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
Inbound logistics Warehousing Outbound logistics Reverse logistics

„ Container „ Shared/Dedicated „ Last Mile Delivery „ Return
shipping modern (FTL/LTL) transportation
„ Freight forwarding warehousing „ Inter-facility „ Re-working
„ Trucking „ Receipt/Put-away/ transferring „ Re-packaging
„ Customs Pick/Pack/Ship „ Trucking „ Transport
Clearance and „ Inventory „ Freight forwarding management
Compliance Management
(FIFO, LIFO, etc.) „ Customs
„ Transport clearance and
Management „ VAS (repackaging, compliance
„ Vendor co-packaging,
labeling, etc.) „ Transportation
Management management
Source: VPBS collected
Third-party logistics is currently Global revenues of 3PL logistics from 2006 to 2013 achieved 5.2% of compound
a global trend with revenue
annual growth rate (CAGR), which is higher than the CAGR of 4.3% in logistics cost
CAGR from 2006 to 2013 of
5.2%. 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.
Global third-party logistics revenues
USDbn
800
640
480
704 727 753

320 662 685
631
471 489 507 507
160
-
2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
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

USDbn
Logistics Cost GDP growth rate Logistics cost growth rate
10,000 20%
16%
8,000 15%
6,000 10%
4% 5%
4% 3% 3% 4%
4,000 3% 3% 5%
1%
4.1% 4.0% 4.1% 3.4%
2,000 2.9% 2.4% 2.4% 2.8% 0%
1.4%
-2.1%
- -5%
2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
Note: E: estimated. Source: Armstrong & Associates, World Bank
Logistics cost growth of Asia From 2010 to 2012, Asia Pacific (excluding Greater China and Japan) was the region
Pacific region (excluding
Greater China and Japan) is
with the highest CAGR of logistics at 6.7%. It is expected to grow at 5.8% from 2012
estimated to be 5.8% from 2012 to 2015 because of the slower estimated GDP growth rate. Internationally, this region
to 2015. 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.
Logistics cost growth (CAGR by region)
12.5%
10.8%
2010 - 2012 2012 - 2015E
10.0%
8.2%
7.5% 6.7%
5.8% 5.9%
4.6%
5.0%
3.4% 3.5%
2.1% 2.1%
2.5% 1.6%
0.6%
0.0%
Greater China Asia Pacific * South America Japan North America Europe
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

USDbn Logistics cost % of GDP
3,000 20%
18%
2,400 16%
13% 12%
1,800 9% 12%
9% 9%
2,997
1,200 8%
1,603 1,654 1,492
600 4%
520 520
0 0%
Greater China Asia Pacific South America Japan North America Europe
Source: Armstrong & Associates
LOGISTICS PERFORMANCE INDEX (LPI)
Logistics Performance Index (LPI) In order to evaluate the logistics capacity of each country and offer a relative
is the World Bank’s measure of comparison about logistics competitiveness, the World Bank provides a Logistics
logistics competitiveness of over
160 countries. The higher LPI the Performance Index (LPI) that assesses over 160 countries. The index ranges from 1 to
country obtains the higher the 5, with a higher score representing better performance.
competitiveness the country has
in terms of international trade and The LPI consists of both qualitative and quantitative measures and helps build
national development.
comparative profiles for logistics friendliness of each country. It measures
performance along the logistics supply chain and offers two different perspectives:
 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

5
2014 2012 2010 2007
4
0
Singapore Malaysia China Thailand Vietnam Indonesia India Philippines Cambodia Lao PDR Myanmar
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.
Percentage changes of LPI score from 2007 to 2014
60%
Customs Infrastructure Ease of arranging shipment Quality of logistics services Tracking and tracing Timeliness
40%
20%
0%
-20%
Singapore Malaysia China Thailand Vietnam Indonesia India Philippines Cambodia Lao PDR Myanmar
Source: World Bank
Quality of logistics services is The quality of services is driving logistics performance in emerging and richer
the main driver of logistics
performance in emerging economies. In Thailand, for example, although five criteria increased, the rank
countries, followed by changed from 31st to 35th due to the slight decrease in the score of quality of logistics
infrastructure development and
services from 3.31 in 2007 to 3.29 in 2014. Another case is India, the LPI score of
customs.
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.
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
4,540 4,939 5,245 5,523 5,839 6,183
(RPK), USDbn
% y-o-y -2.4% 8.8% 6.2% 5.3% 5.7% 5.9%
Freight Tonne Kilometers
192 192 189 187 191 197
(FTK), USDbn
% 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
Air transport continues to Consumer spending on air transport achieved a CAGR of 10.5% from 2009 to 2013,
generate huge value for its
users, passengers and shippers, and reached USD710 billion, equivalent to 1% of world GDP in 2013. The figure in
and others in the value chain 2014 is expected to be USD746 billion due to consumers benefitting from cheap
but destroys value for its airline
equity investors. 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).
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.
Although fuel costs remain at Fuel prices are expected to remain stable at USD124.2 per barrel in 2014, down
high levels, fuel efficiency has
been increasing gradually. 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.
Fuel efficiency and jet fuel prices
USD / barrel Jet fuel prices Fuel use/100 RTK USD/100RTK
140 50
126
45
112
40
98
35
84
70 30
2007 2008 2009 2010 2011 2012 2013 2014E
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
APAC region is now the world’s According to the Association of Asia Pacific Airlines (AAPA), the Asia Pacific (APAC)
single largest aviation market region is now the world’s single largest aviation market. APAC airlines today
with estimated RPK growth rate
in 2014 of 7.4%. 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).
Regional net post-tax profits (USDbn) Regional RPK growth
Africa Asia-Pacific Middle East
2012 2013 2014E
Latin America North America Europe
16%
2014E 3.2 1.6 9.2 2.8 13%
10%
2013 2 1 7 0.5
6%
3%
2012 2.7 1 2.3 0.4
0%
-5 0 5 10 15 20 Africa Asia-Pacific Middle East Latin North Europe
America America
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)

10%
Chargeable weight Yield
8%
6%
4% 9.1%
6.4%
2%
-0.3%
0%
-0.2%
-2%
Global 20 air forwarders Total air forwarders
Source: World ACD
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.
Dry cargo (five major bulks and The trend of international trade was mostly ruled by dry cargo movement (including
others) drove the growing
trend of international trade.
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
12,000 Container Dry cargo Oil and gas Total
15%
9,000 10%
5%
6,000
0%
-5%
3,000
-10%
2008 2009 2010 2011 2012 2013E
Container 4.7% -9.8% 13.1% 11.5% 4.2% 6.6%
-
2008 2009 2010 2011 2012 2013E 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%
Container Other dry cargo Five major bulks Oil and gas
Total 2.4% -4.5% 7.0% 4.5% 4.3% 4.4%
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.
BDI index felt significantly from The Baltic Dry Index (BDI) was created by the London-based Baltic Exchange. It
2008 to 2012. From the
measures changes in the cost to transport raw materials such as metals, grains and
beginning of 2014, BDI has
continued to decline, which fossil fuels by sea. From 2008 to 2014, the BDI index felt significantly from the highest
means that freight rates have point of 11,793 in 2008 to the lowest point of 647 in 2012.
not yet recovered.
BDI Index
12,500
10,000
7,500
5,000
2,500
-
2008 2009 2010 2011 2012 2013 2014
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.
The Asia region dominated the In 2012, the Asia region dominated the main loading and unloading regions with 39%
main loading and unloading
regions in terms of world
and 57% of total volume of goods, respectively. From 2008 to 2012, the CAGR of
seaborne trade. The CAGR loaded goods and unloaded goods of Asia region was 1.5% and 6.9%,
from 2008 to 2012 for the Asian correspondingly. Of which, dry cargo contributed the largest part of total volume,
volume of goods loaded was
1.5%. 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.
World seaborne trade, by geographic region in 2012 Asian volume of goods loaded ‟ million tons
Crude Petroleum product and gas Dry cargo
Loaded Unloaded
60% 4,000
48% 3,200
39%
36% 2,400 2,075
1,962 2,023
1,836 1,849
57% 23%
24% 18% 1,600
11% 339 346 338 388 398
12% 9%
22% 800
16%
1% 4% 903 872 908 916 905
0% -
Asia Americas Europe Oceania Africa 2008 2009 2010 2011 2012
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

USDbn Import value Export value Import % of GDP Export % of GDP
150 100%
120 80%
90 60%
60 40%
30 20%
0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: World Bank, GSO
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.
Logistics improvement is one According to the World Bank, the key advantages of Vietnam’s economy over the
of the keys for development of past 20 years were its rapidly-expanding labor force and a shift in economic activity
Vietnam in the future.
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
GDP Import Export GDP Import Export
30% 20%
16%
20%
12%
10%
8%
0%
4% 5.6% 5.7% 5.8% 5.9% 6.0% 6.0%
-10% 0%
2000 2002 2004 2006 2008 2010 2012 2014f 2015f 2016f 2017f 2018f 2019f
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.
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
Vietnam’s logistics cost Although there is no accurate statistics about Vietnam’s logistics costs as a share of
occupies about 25% of GDP,
which is much higher than national output, the “Efficient Logistics” report of the World Bank, issued in January
China, Malaysia and Thailand. 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

Overall Customs Infrastructure
Ease of arranging shipment Quality of logistics services Tracking and tracing
5
Timeliness
4
0
Vietnam Lower middle income East Asia & Pacific
Source: World Bank
There are only 25 multinational According to the Vietnam Logistics Association (VLA) (previously known as the
logistics companies but they Vietnam Freight Forwarder Association (VIFFAS)), there are more than 1,200
account for 70% to 80% of
Vietnam’s logistics market. 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.
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

300 275 2PL Revenues (USDbn) 3PL Revenues (USDbn)
Outsourcing ratio of 2PL (%) Outsourcing ratio of 3PL (%)
240 40 60%
32 48%
180
140 24 36%
120 16 24%
60
60 41 8 12%
18
4 0 0%
0
1994 - 1997 - 2000 - 2003 - 2007 - 2011 -
1997 2000 2003 2007 2010 2014
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 (26 th), 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 Vietnam’s freight transport market, on a tonnage basis, is dominated by two modes:
market, on a tonnage basis, is
inland waterway transport (IWT) and the road sector. From 2000 to 2013, the CAGR of
dominated by two modes: the
road sector (75.7%) and inland freight transport volume was 12.3%. Of which, the road sector maintained the highest
waterway transport (17.9%). proportion with 75.7%, followed by IWT (17.9%) and seaway (5.8%). On a basis of
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

million tons
Railroad Road IWT Seaway Airway
10%
1,250
8%
1,000
6%
750
4% 8.5%
500
5.9% 6.5%
250 2% 3.6%
3.3%
- 0%
2000 2002 2004 2006 2008 2010 2012 Railroad Road IWT Seaway Airway
Note: E: estimated. Source: GSO Source: World Bank
The estimated CAGR of According to Business Monitor International (BMI), the transportation infrastructure
value of the transportation in 2013 is estimated to be VND42,086.3 billion (USD2 billion), up 9.5% y-o-y and
infrastructure from 2012 to
2023 is 10.1%. 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
Transportation infrastructure industry value Regional breakdown
Roads and Bridges Railways Red river Mekong Delta River Others
Airports Ports Harbours and Waterways
100% 5%
100,000 13%
24%
80% 41%
80,000
60% 71%
60,000 46% 62%
40% 36%
40,000
20,000 20%
23% 30% 25% 24%
- 0%
Population Enterprises Industrial Seaport
VNDbn output container
throughput
Note: e: BMI estimated, f: BMI forecast. Source: BMI Source: World Bank
LIMITATIONS AND OBSTACLES

The prevalence of unpredictability Currently, the World Bank assesses that the logistics infrastructure of Vietnam may
in the supply chains creates many
limitations in the logistics
be able to accommodate fast growth but there are many limitations. The limitations
infrastructure of Vietnam. 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
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
Conditions for sea transportation and support service. This decree requires the entity in the sea
Decree No. 30/2014/ND-CP,
transportation sector must have minimum legal capital of VND20 billion for international maritime
effective from July 1, 2014
transportation and VND5 billion for domestic maritime transportation
Decree No. 161/2013/ND-CP Register, purchase and sell vessels
Permission for foreign and domestic vessels, which reduce the participant of foreign vessels in inland
Circular 04/2012/TT-BGTVT
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
Supplements and amendments a number of articles of Decree No.91/2009/ND-CP on road transport
Decree No. 93/2012/ND-CP
business and business conditions
Detailed regulations on the Commercial Law, 2005 regarding conditions for engaging in logistic
Decree No. 140/2007/ND-CP
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.
From 2014 to 2020, the average The seaborne trade in Vietnam is broadly concentrated in two locations: Haiphong ‟
annual rate of nationwide Quang Ninh and Ho Chi Minh City (HCMC), where the goods are ample while the
container volumes is estimated
to be 8% to 9%. The most others lack goods and operate under-capacity.
active ports are in Haiphong,
Quang Ninh and HCMC. 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
Northern ports Central ports Southern ports Northern ports Central ports Southern ports
200 70%
Million tons
160 50%
107
93 91 30%
120 77
76 79
72
80 52 10%
15 19 21 24
44 15 17
38 15
40 29 31 34 11
12 -10%
27 11 64 56 63 62 61
7 9 47 56
5 6 18 21 26 31 39
- 12 14 -30%
2000 2002 2004 2006 2008 2010 2012 2001 2003 2005 2007 2009 2011 2013
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.
There is a mismatch between The situation happens not only in the Southern ports but also in Northern ports when
supply and demand in the port
industry due to the rapid pace
the new huge project ‟ Lach Huyen port comes to full operation in the next years.
of growth in ports which have
outpaced demand. 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.
Although Vietnam has 1,788 At the end of 2013, Vietnam had 1,788 vessels with a total capacity of 6.9 million DWT
vessels with total capacity of
6.9 million DWT, 80% of the (deadweight tonnage), ranked fifth in ASEAN. However, 80% of the ships have
ships have capacity lower than capacity lower than 50,000 DWT, leading to a low average deadweight of Vietnamese
50,000DWT.
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
In 2014, Vietnam should Vietnam has a strategic location in the North-South and East-West route among the
become the world’s third-
fastest growing market for
region, hence, it has a huge potential in developing airline transportation and air
international passengers and cargo. From 2009 to 2013, the CAGR of air cargo throughput and passengers was
freight and the second-fastest 12.5% and 18.4%, respectively. According to IATA, in 2014, Vietnam should become
growing market for domestic
passengers. 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
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
thousand Domestics Foreigners Transists million Domestics Foreigners Transists
tons
800 50
141
40
600 122 14
121 126 12
30 12
400 128 409 76 11 9
279 326 8 8
272 20 5 7
7
212 255 6 5
200
10 18 21
201 221 15 17
141 188 195 12 12
118
0 0
2009 2010 2011 2012 2013 1H2014 2009 2010 2011 2012 2013 1H2014
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).
 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.
Shipping by barge is four times The government approved the master plan for developing IWT through 2020 with
less expensive than by truck. In
the near future, the government
orientations toward 2030 with some major points as follows:
will focus on developing this
segment taking into account its  Targets to achieve cargo throughput of 356 million tons by 2020 with an average
efficiency and environmental annual growth rate of 8%. In 2030, the total volume of goods is targeted at 586
advantages.
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.
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)

HNX-Index Logistics VN-Index
80
60
40
20
0
7/13 9/13 10/13 12/13 1/14 3/14 4/14 6/14 7/14
-20
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.
LOGISTICS
Transportation Forwarding
Other
value
added
services
Airway Roadway Railway IWT Seaway Port Warehouse Container CFS &
Ticker Exchange loading 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
Market YTD 2013 net 1Q2014 1Q2014 net
2013 sales 2013 2013 Debt /
Ticker Echg Company cap price income Sales income P/E P/B
(VNDbn) ROE ROA Equity
(VNDbn) change (VNDbn) (VNDbn) (VNDbn)
% 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
Source: Bloomberg, Company’s financial statements. Data as of 7/31/2014
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

YTD
HNX-Index Shipping VN-Index Market Market 52-week 52-week 1Y avg 1Y price
Ticker price
120 cap price low high volume change
change
VNDbn VND VND VND share % %
80 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
40 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
0
GSP 345 11,700 7,800 16,100 100,987 52.7 (4.2)
7/13 9/13 10/13 12/13 1/14 3/14 4/14 6/14 7/14
SFI 256 29,400 20,000 38,500 8,669 50.1 (14.9)
-40 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
Fuel cost Shipping BDI - Index TCO 151 11,800 8,300 15,000 38,291 37.8 5.3
120 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)
80
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
40 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
0 TJC 48 8,100 2,000 8,600 16,825 237.5 90.5
7/13 9/13 11/13 1/14 3/14 5/14 HCT 23 11,900 5,400 13,400 2,523 112.6 24.2
-40 Average 231,214 70.1 15.9
Median 30,982 51.9 11.1
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.
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

YTD
HNX-Index Ports VN-Index Market Market 52-week 52-week 1Y avg 1Y price
Ticker price
120 cap price low high volume change
change
VNDbn VND VND VND share % %
GMD 3,995 34,800 22,300 38,100 417,259 42.6 2.4
80 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)
40
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)
0 VGP 150 19,000 13,300 27,000 5,022 33.9 (14.1)
8/13 10/13 12/13 2/14 4/14 6/14 HMH 207 21,600 14,400 24,900 20,027 44.1 12.8
Average 152,283 68.8 23.3
-40 Median 47,089 43.3 7.6
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.
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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VIETNAM LOGISTIC INDUSTRY

July 31, 2014

HNX-Index Vietnam’s shipping industry has been going through a tough

Other value added

Customs Bonded Container loading & Airway

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

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

Typical integrated logistics in supply chain management

Inbound logistics Warehousing Outbound logistics Reverse logistics

Source: VPBS collected

704 727 753

Note: E: estimated. Source: Armstrong & Associates

Global logistics cost

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

Logistics cost in 2013

Source: Armstrong & Associates

LOGISTICS PERFORMANCE INDEX (LPI)

International LPI score of selected countries

Source: World Bank

Source: World Bank

Worldwide airlines industry

Worldwide airlines industry

Worldwide cost of airline industry

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

ROIC and WACC of worldwide airline industry

2014E 3.2 1.6 9.2 2.8 13%

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

Air Cargo Carriers

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

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

Nonetheless, the international seaborne trade remains vulnerable to many downside

VIETNAM’S LOGISTICS INDUSTRIES

Import and export value

Source: World Bank, GSO

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

Free trade agreements

International LPI in 2014

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

Freight transport volume of domestic players CAGR of freight transport market

LIMITATIONS AND OBSTACLES

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

Source: CAAV Source: CAAV

Obstacle from road sectors

Investments in Vietnam’s Aviation sector

Logistics ticker price performance (% change in 12 months)

Performance of shipping tickers

Performance of port tickers

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