In Vietnam, for decades motorbikes have flooded the roads, making a trip across the street something of an adventure. However, now one also commonly sees luxury cars making their way through the traffic as well.

To a large degree, the appearance of these luxury brands on the crowded streets of Vietnam is evidence of the rapid change taking place here. In another sense, they signal the challenges that still lie ahead as this country of 84 million people enters the World Trade Organization (WTC) and converts longstanding social, economic and political structures into competitive, dynamic institutions.

In November 2006, Vietnam hosted the Asia-Pacific Economic Cooperation (APEC) summit in Ha Noi. APEC’s 21 member economies account for approximately 60% of world GDP and about half of world trade, so to be able to host eh annual meeting was a very big deal here. All of the other 20 member economies were able to witness first-hand the change taking place, from the seemingly endless construction taking place on tower buildings to the growth of new industries like electronics and computer equipment manufacturing.

In January 2007, Vietnam officially entered into the WTO as the 150th member. While this was cause for celebration for many, the opportunities available cannot be realized without some struggle and hard worked to convert a centrally planned economy into a market-based one. Membership in the WTO requires removing many of the protections the government was able to place on domestic industries in order to keep them competitive.

Vietnam has filed commitments with the WTO, describing its legal and institutional setup, and its schedule for both goods and services. The elimination of protections on domestic industries means companies will have to compete more directly in the world market. Yet, like its neighbor to the north (China), Vietnam has as a sufficient young workforce (70% of population is under 30 years old), a low cost labor, and good education and skill-training organizations to ensure this workforce has what it needs to compete globally. Accordingly, there should be strong growth in certain industries where a competitive edge is present: textiles and apparel, footwear, fisheries, furniture, electronics and computer components, and certain farm products.

In the high-tech industries, there has been slow growth in recent years, led primarily by the traditional Japanese and Korean electronic manufacturers. However, new investment poring into the country from other parts of the world is changing the landscape of the technology industry here. Specifically, much of the new foreign investment is geared towards the creation of manufacturing sites, built strategically as part of companies’ larger logistics supply chain. In other words, this is not temporary investment and will certainly bolster the strength of the high-tech industry of Vietnam. All of this is making Vietnam a more and more attractive location for not only sourcing products, but for also strategically locating key company assets.

With all this promise, there are still some challenges in other areas, like improving the infrastructure here. Ocean logistics to and from Vietnam has been and will continue to be challenging due to a limited draft for receing large containger ships. Typically, smaller feeder vessels service river ports in the north and south and have to shuttle freight to larger ocean ports in Singapore, Hong Kong, Taiwan, and Malaysia, where the large container ships have regular service and the ports have sufficient infrastructure to handle the large “mother vessels.”

To soften the challenge and cope with future growth, there is a project currently underway in the Vung Tau province, about 60 km from Ho Chi Minh city, called the Cai Mep – Thi Vai Terminal Development, which will make a direct sailing of a large containter ship (5,000 – 6,000 TEUs) to the Ho Chi Minh City area possible in the future. To be completed by 2010, it will add three piers, with a water depth of 14-15 meters.

Vietnam has two major airports, Tan Son Nhat International Airport (SGN) near Ho Chi Minh City and Noi Bai International Airport (HAN) in the Hanoi area. Cargo space is always a critical factor during peak season because there aren’t many air carriers serving Vietnam by freighter (four in HCM and just one in Hanoi). However, air carriers will certainly add more cargo capacity into Vietnam when they smell the booming market. Meanwhile, the monopoly of airport cargo terminal & handling also makes service quality and efficiency discounted sometimes, especially during peak season. There is one state-owned cargo terminal and one handling company at both SGN and HAN. There are currently reports that another state-owned company is applying for permission to perate a 2nd cargo terminal and also be the handler in SGN Airport within 2 years. If this develops as reported, it will be good news for companies moving air freight out of Vietnam, and in particular from SGN.

Over land efforts to improve the narrow road system have been hampered by delays in land acquisition to accommodate a wider road network. Plans for a high-speed rail system are still in development, with expectations that there will be something built in the future. As the infrastructure improves in Vietnam, business will undoubtedly prosper. The entrance into the WTO will bring its challenges, and requirements for loosening restrictions (tariffs, ceilings and other subsidies), yet it will also open up markets abroad for local businesses to find new sources of growth. With national GDP growing just above 8% in recent years, it will be handling the higher growth that will prove to be one of the greatest emerging challenges.

For more information about Expeditors International’s freight forwarding services, please contact:
Expeditors International
Mr. Jeff Arrow, District Manager
Tel: 502-367-6700
Email: jeff.arrow@expeditors.com