Vietnam Freight Transportation Report Q2 2008

In January state-owned Vietnam Airlines said it would hire an international consultant to advise it on launching an IPO in which up to 20% of its shares would be sold to three foreign strategic investors.

Deputy Prime Minister Nguyen Sinh Hung had reportedly agreed to the plan, under which 70% to 80% of the company would remain in state hands. Vietnam Airliners also said that to cope with rapidly rising demand and a growing economy it would expand its fleet to 110 aircraft by 2020, up from 47 at the beginning of 2008. It expected annual air passenger traffic to more than double to 32.4mn by 2020, from 14.5mn now. Earlier, in December Vietjet Air, the country's first privately owned airline, said it was planning to launch its first commercial service in December 2008 or in early 2009. The company received its air transport license on December 20 2007, and said it would start off by leasing either Boeing 737s or Airbus A320s to offer domestic and international services. For all local carriers, total passengers carried in the first 11 months of the year were 7.9mn, up y 15.7% on 2006 levels. Airfreight carried in the same period rose by 4% to 119,700 tonnes. The Civil Aviation Administration of Vietnam (CAAV) forecasts that the aviation market will grow y 12-14% each year in the 2006-2010 period. Taking these developments into consideration, along with our projections for the growth of demand, BMI's newlyreleased Vietnam Freight Transport report concludes that airfreight traffic will increase by an annual average of 11.8% in 2008-20112 measured in tonnes per km.

A number of factors underpin our optimism. One is the realistic prospect of a long export-led boom in Vietnam, with GDP growth likely to average 8.4% in 2008-2012, up from 8.0% in the preceding five-year period. Vietnam Airlines is poised for strong growth. Infrastructure plans are also ambitious. The government has announced plans to build the country's largest airport at Long Thanh in the southern province of Dong Nai, at an estimated cost of nearly US$8bn. Noi Bai International in Hanoi will also be modernised, with a new runway and the enlargement of the cargo terminal.

Our overall outlook for the nascent freight transport industry across the different modes is bullish. In road haulage, we have trimmed our forecast to take account the effects of high oil prices and continuing infrastructure bottlenecks. But we still see road-freight turnover running ahead of the general rate of economic expansion in Vietnam. We see it growing by an annual average of 10.9% over the next five years, followed closely by maritime freight (10.5%), pipeline throughput (9.7%) and rail (9.3%). Full World Trade Organisation (WTO) membership, achieved in early 2007, can be seen as supportive of greater freight transport turnover relative to GDP across all modes, particularly so for shipping. We now expect total freight carried growth across all modes, measured in million tonne-km (mntkm), to average 10.3% per annum in 2008-2012.

Under BMI's freight transport rating system, Vietnam achieves a composite score of 55.1 out of a potential maximum of 100. Vietnam's stronger points are freight growth, transport infrastructure growth and the transport intensity index, which measures the dynamism of the country's foreign trade. BMI views Vietnam as being weaker in the other four categories: economic and political long-term risks and the country's regulatory and competitive environment (corruption is a particular problem).

According to our latest estimates, the total value of transport and communications GDP will rise to US6.4bn in nominal terms by 2012, representing 4.3% of Vietnam's GDP.