Too many Vietnam seaports spoiling terminal business
Robert Hambleton wants to hear more noise from the huge container port outside his office near Ho Chi Minh City. Towering cranes at the next-door competitor are silent, without a ship on the horizon.
“It’s a brand-new terminal without any customers,” said Hambleton, general director of Cai Mep International Terminal Co. “You get a sense of how dire the situation is. The whole terminal industry is oversupplied.”
With companies from Intel Corp. (INTC) to Samsung Electronics Co. (005930) building billion-dollar factories in Vietnam, regional governments have established competing ports capable of handling overseas traffic, causing plunging rates and losses for operators estimated at $1.5 billion or more, according to Seaport Consultants Asia.
Vietnam, with a coastline of about 3,400 kilometers (2,100 miles) along one of the world’s busiest sea cargo lanes, has ambitions to compete with Singapore and Hong Kong. The government wants to build even more ports, emphasizing “quantity over quality,” a World Bank report in January said. The overcapacity may undermine Vietnam’s ability to attract more higher-value manufacturing that demands efficient transportation systems, the report said.
“Almost every province along the coast of Vietnam managed to have a port project,” Vu Tu Thanh, chief Vietnam representative of the U.S.-ASEAN Business Council, said in an interview in Hanoi. “The process allows for a lot of opportunity for corruption and special interests. Many of the good ports do not have enough business.”
Foreign investors may be deterred from investing large sums in future government infrastructure projects, David Wignall, managing director of Seaport Consultants Asia, said in an e-mail. “No one trusts anything the government says on development,” he said. Wignall estimates operators in Cai Mep alone have collectively lost as much as $1.5 billion because of terminal oversupply.
The losses at the port come as the Ministry of Transport seeks about $32 billion in private funding for transportation infrastructure projects through 2020, Vietnam News reported in February.
The oversupply of terminals at Cai Mep is tied to the slow global economy, not government policy, Deputy Transport Minister Nguyen Hong Truong said after attending a conference in Hanoi Feb. 28.
“The main issue that has affected the port’s operation is the global economic slowdown, which has significantly hurt marine businesses, not just in Vietnam but in other countries that have coastal lines,” he said. “The ports in Saigon can’t receive big ships. So if there’s any big vessels coming they will have to go to the deep-water port Cai Mep-Thi Vai.”
As the global economy rebounds, so will Vietnam’s ports, Truong said. “With its long coastal line and geographic location connecting it to international sea routes, from now until 2020 Vietnam will need to have more deep-water ports,” he said. “I believe ports in Vietnam will do well when the world economy has recovered.”
About $2 billion has been invested in state-of-the-art terminals at Cai Mep port, Vietnam’s only deep-sea facility located at the mouth of the Cai Mep River and South China Sea, by foreign investors and state-owned and private Vietnamese companies. Opened in 2009, the port is part of the country’s goal to boost shipping volume more than 130 percent from 2012 to the end of the decade.
Investors backed the sprawling port southeast of the country’s commercial hub with the understanding that some of Ho Chi Minh City’s ports would shut down their container business, said Nguyen Xuan Thanh, the representative of Harvard’s Kennedy School of Government in Vietnam, who has studied the country’s terminal industry. Most remain in operation, siphoning container traffic from Cai Mep, he said.
Ho Chi Minh City port operators are reluctant to close facilities, located on prime real estate, during the country’s economic slowdown, and the city has resisted relinquishing its shipping industry to a neighboring province, Thanh said. Vietnam’s government forecasts the economy will grow 5.8 percent this year after a 5.42 percent expansion in 2013.
Ministries, the central government and local provinces all have a hand in the country’s shipping industry, creating conflicting agendas, he said.
“It doesn’t bode well for the investment environment in Vietnam when you have a lot of private investment tied up in ports and making huge loses,” said Thanh. “The underlining problem is the system in Vietnam is very decentralized. The provinces have a lot of political power. They build white elephants.”
The Cai Mep port, located in Ba Ria-Vung Tau province, has seven terminals. The newest one opened in December and is operated by the military-owned Saigon Newport. Cai Mep International Terminal, which competes against the six other terminals, is running at 30 percent of capacity, according to a report late last year by Maersk.
Four of the terminals have no container ship customers and have to rely on business such as bulk and cruise liners, said Hambleton of Cai Mep International Terminal a $260 million joint venture of APM Terminals, in turn a unit of Copenhagen-based A.P. Moeller-Maersk A/S (MAERSKB), and the state-owned Vinalines and Saigon Port.
Most shipments from Vietnamese factories are routed to larger ships in Singapore and Hong Kong from smaller ports, leaving the deep-sea Cai-Mep facility underutilized, said Thanh of Harvard. The fragmented port policy in southern Vietnam, which accounts for about 70 percent of the country’s shipping business, may deter investors from developing a deep-sea port in the northern port in Haiphong city, he said.
Vietnam’s terminal industry struggles come as the country’s trade soars. Manufacturers such as Samsung, Nokia Oyj (NOK1V) and Honda Motor Co. (7267) have boosted Vietnam’s exports, which grew 15.4 percent in 2013 from a year earlier. The country’s exports-to-GDP ratio increased to 75 percent last year from 56 percent in 2009, according to International Monetary Fund data, more than triple that of Australia.
Intel, based in Santa Clara, California and the world’s largest chipmaker, invested $1 billion to build its largest test and assembly plant on former rice fields in Ho Chi Minh City, which opened in 2010.
Samsung, based in Suwon, South Korea, has two phone factories in the country, including a $2 billion facility that is expected to reach full production in 2015. Other Samsung units, including a $1.2 billion Samsung Electro-Mechanics Co. factory that will make camera modules and circuit boards, are setting up operations in the country. LG Electronics Inc. (066570)’s $1.5 billion investment in Vietnam includes constructing a complex to manufacture TVs and appliances.
Singapore, the world’s second-busiest container port after Shanghai, is spending billions of dollars to take advantage of expanding trade from Vietnam and other Asian nations. The city-state is building a new port west of the current site, to double capacity.
Southeast Asia is one of the world’s growing markets for the shipping industry, Thomas Knudsen, Asia-Pacific chief executive officer of Maersk Line, said in an interview with Bloomberg TV March 6. “The northern part of Vietnam is definitely benefiting from an off-shoring from China of the lower-end manufacturing,” he said. “We are seeing Cambodia benefiting from increasing garment volume.” Indonesia has a “strong consumer base developing.”
Vietnam expects trade treaties being negotiated, including the Trans-Pacific Partnership and an agreement with the European Union, to bolster exports. Increasing trade could ease terminal oversupply as shipping companies deploy larger container vessels that can only call at deep-water Cai Mep-Thi Vai port, Hambleton said.
In August, Vietnam’s Ministry of Transport set a mandatory two-year minimum handling rate of $46 per 20-foot loaded container to prevent prices from spiraling even lower, Hambleton said. “It was to save the deep-sea terminal industry in Vietnam,” he said.
To help make the terminal industry more financially viable, he and other industry leaders are asking the government to close the smaller ports in Ho Chi Minh City and reduce port fees shipping companies must pay to attract more business.
His office overlooks a mostly empty facility along the tranquil river, save for a few dozen Maersk containers stacked neatly in the yard, awaiting a once-weekly mega-ship that will deliver the cargo to Los Angeles. It has a serene ambiance, not the clanking bustle of a busy terminal.
“It’s too quiet,” he said. “Peaceful is bad for business.”