Vietnam - Vietnam's ports have sinking feeling

The waterway at Haiphong's Dinh Vu port is drying up. Designed to handle 20,000 deadweight tonnage ships (DWT), the port can currently handle only 10,000 DWT vessels due to a lack of regular dredging.

The lack of modern land links, meanwhile, underscores the mounting failure of Vietnam's ports to handle efficiently fast growing volumes of global trade.

Officials from foreign shipping lines, which handle more than 80% of Vietnam's total trade, offer a range of anecdotes about their vessels running aground or relying on support vessels to navigate and dock at Vietnam's ports. Many shippers are forced to carry cargo from Vietnam to bigger ports in Singapore or Hong Kong to load them onto larger vessels headed for global destinations.

It's not a problem of capacity: Vietnam's 320 wharves account for 45 kilometers of port space, enough combined to handle 131,000 DWT, according to industry sources. The government's Ports Master Plan for expanding and improving the national trade infrastructure in 2009 earmarked between US$46 billion and $56 billion for the development of several multi-billion dollar facilities.

The problem now, say industry sources, is a highly fragmented market where local authorities and private entrepreneurs compete with regional counterparts to build and finance ports that often fall short of international standards. The situation is aggravated, the same industry sources say, by the absence of a central authority over the fast growing port sector.

Since acceding to the World Trade Organization in 2007, Vietnam's trade has expanded rapidly. Through the first 10 months of this year, Vietnamese exports totaled $78 billion, up nearly 35% year on year. Imports hit $86.4 billion over the same period, marking a 27% year on year rise. The government projects that fast trade will gather pace, with the national trade deficit expected to expand from $10 billion this year to $12.8 billion in 2012.

Those rising volumes will put more stress on Vietnam's under-regulated and ill-equipped ports. Meanwhile, a lack of central regulation and strategic direction is bringing the government into conflict with the Vietnam Ports Association (VPA), the sector's main private trade group. VPA represents 80% of national ports and acknowledges that substantial work is required to keep pace with expanding trade, despite a recent growth spurt in the number of ports that have recently come on-line.

"There are so many works to do, not just on our side but on the government side," said Ho Kim Lan, VPA's secretary general, in a phone interview. "The plan now is to make the market more transparent and limit competition and set up a port authority to regulate the port sector."

There are several port projects underway - some led by the government, others by private investors - that now face substantial implementation problems. For instance, on October 12, Haiphong Port Development Co signed an agreement with Japanese contractor Molnykit Co Ltd to expand its port, including through the development of seven new piers capable of receiving 20,000 DWT ships and a new deepwater port at Lach Huyen.

The $321 million first phase of the project, including the development of two 750-meter terminals, is due for completion in 2016 and represents one of the first big public-private partnership joint ventures in Vietnam. However, Nguyen Hung Viet, deputy director general of the port, complained in a recent VPA statement that his company faces difficulties in implementing the government's plan because of insufficient land traffic connections and other supporting infrastructure.

Lack of links

The lank of links is a common refrain among port operators. Take, for instance, Can Tho Port, a key trade facility in the southern Mekong Delta. Although the port is near major agricultural and industrial production areas, including the Tra Noc, Hung Phu, Khanh An, Hoa Binh, Vam Cong, Thanh Loc and Thuan Yen industrial zones, produce and manufactured items are still shipped through ports 160 kilometers away in Ho Chi Minh City because Can Tho's passageway has dried up, according to Phan Thanh Tien, the port's director.

Tien says his port's efficiency has also been hampered by a lack of landside connections, including modern road and rail links. VPA said in a recent public statement that railways have not been upgraded "for the last tens of years". Nor is the situation likely to improve soon: at a presentation to a railway industry conference in Bangkok in May, Vietnam Railways officials enthused about building rail links to China; adding new port links barely received mention.

VPA also said in an October 3 statement that poor road links have hindered the development of ports, including at Danang, Ben Nghe, Ba Ria-Vung Tau and Ho Chi Minh City. The association has repeatedly complained in recent months about a lack of regulatory oversight in port development projects, warning that some major facilities could face bankruptcy without government intervention in the market.

"Most of the ports are not proper facilities, not in deep water, and don't have proper handling facilities," said VPA's Lan in a recent phone interview.

Foreign shippers have similar complaints. "I don't use the Vietnam ports. ...Because they are so congested is one reason why road freight has taken off. It can take so long to get containers out of the ports that customers are switching to road for intra-Asian traffic," said one official with an international freight moving company.

Part of the problem - and indeed the reason why VPA has aired its uncharacteristicly public criticism of the government - is that the recent spate in port building has resulted in the opening of many small, new ports that have fragmented the market and undermined its pricing power.

"There are too many, too small container terminals/projects competing with one another," said one port official, who asked to remain anonymous. He argued that the situation will get worse before it gets better in his area with eight small port projects currently underway in the Cai Mep - Thi Vai area downriver from Ho Chi Minh City.

Vietnam currently charges only $32 per 20-foot equivalent unit (TEU) against $55 in Thailand, $76 in China and $117 in Singapore, according to industry sources. The same sources estimate ports at the $7 billion Ba Ria-Vung Tau facility need to charge at least $88 per TEU just to break even on their investment. On average, ports at Ba Ria-Vung charge only $32 per TEU.

The economics of the underutilized facility, which consists of 24 operational ports, look especially suspect. Ba Ria-Vung Tau has a total capacity of 67 DWT per year but handled only 35 DWT through the first eight months of 2011. Another 10 port projects are currently under construction while 16 others are in the initial investment phase at the facility.

Low utilization and pricing power raises hard questions about many ports' long-term viability.

"The rate levels are at or close to those dictated by the local market and not sustainable long term for investors and users alike," said Malcolm Gregory, head of commercial operations at container terminal Cai Mep International Terminal (CMIT). CMIT is doing comparatively well with a utilization rate near 50%; industry analysts say that overall utilization rates at Cai Mep - Thi Vai are now around 20%.

And there is even more capacity coming on-line with the scheduled opening of the $3.6 billion Van Phong port in 2015 and a second similar-sized venture yet to be named planned for the same central region. Work on Van Phong started in 2009 but is apparently currently stalled. Industry insiders, including VPA secretary general Lan, argue that as designed both ports are too large to recoup their substantial investments in Vietnam's less commercially geared central region.

"Although we have a masterplan there is no port authority," said Lan, who believes the government should concentrate on developing ports in the more trade-geared northern and southern regions. "There is no regulatory body between the ministry of transport and the [local] port authorities. There is no proper port authority in Vietnam and that is the issue."

Michael Mackey is a Bangkok-based freelance journalist.

Asia Times

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