Vietnamese Silicon Valley Network

By Robert Wright in London

Vietnam needs to invest in new, deep-water ports if it is to achieve its economic potential, according to an executive of one of the foreign shipping lines most active in the country.

It would also eventually have to do more to improve its inland infrastructure, as industry spread into rural areas.

A report by Neptune Orient Lines, the Singapore-based owner of APL, a leading container carrier, says that infrastructure weaknesses could hold back the country’s rapid economic growth.

Vietnam enjoyed gross domestic product growth of 8.2 per cent last year and is expecting still faster growth this year. However, the shallow water round its shores means it is unable to handle container ships larger than short-distance feeder vessels, which take cargo to Hong Kong, Taiwan or Singapore for loading on to larger, long-distance ships.

Most large shipping lines are taking a close interest in Vietnam after it joined the World Trade Organisation on January 1. The step appears to be creating a surge in trade similar to that experienced after China joined the organisation in 2001.

Jim McAdam, NOL’s group president for Asia-Middle East, told the Financial Times that the biggest challenge was to find a consensus among all those involved about the best investments.

“The problem is not a lack of demand or of planners,” he said. “We see it as a challenge of prioritising Vietnam’s investment strategy.”

Investment in deep-water ports would enable Vietnam to handle its own trade on larger ships, which cost less per container to use. At present, according to the report, moving a 40ft container from Ho Chi Minh City to Yokohama costs $1,070 (€813, £545), while the same journey from Hanoi costs $1,480. From Singapore to Yokohama, the cost is only $940.

“Over time, in order to facilitate the growth that we think Vietnam is capable of, we have to see much more investment in deep-water ports,” Mr McAdam said.

Greater investment might also allow the country to capitalise on its geographical position between south-east Asia and China to become a trans-shipment hub, according to Mr McAdam. Vessels use trans-shipment hubs to unload or pick up containers going to or from places off the vessel’s main route.

Earlier this month, Hong Kong’s Hutchison Port Holdings – the world’s largest – signed an agreement to build a terminal in Ba Ria-Vung Tau province, in the south of the country. Danish-owned APM Terminals, Singapore’s PSA and Dubai’s DP World – the world numbers two, three and four – are all also constructing facilities.

However, there could be capacity problems at ports around Ho Chi Minh City, the main commercial hub, between this year and 2010, when the first of the new developments are expected to open, says the report.

Inland transport infrastructure, which is mostly not well-developed, would become a bigger issue in future years, Mr McAdam said. At present, most industry is gathered near Ho Chi Minh City or Hanoi, both of which are well served by ports and airports.

“While infrastructure is well established in the urban areas, in the rural areas many of the roads are not paved. So you have to start to create infrastructure into the hinterland to accommodate the growth that Vietnam is surely going to experience,” he said.

The NOL report was the latest in a series on infrastructure in emerging Asian economies and was commissioned from Frost & Sullivan, a Singapore-based consultancy.

APL is one of only three foreign shipping lines all-owed to set up a wholly owned shipping agency in Vietnam. NOL has a stake in Vietnam International Container Terminals, one of the country’s main facilities.