Amid struggling economies in Southeast Asia, Vietnam’s GDP grew 6.5% year-on-year in the first nine months of 2015. The country is expected to be one of the best performers this year among the major Asian economies, according to the Asian Development Bank.
It’s no surprise, then, that air freight carriers are very optimistic as to Vietnam’s growth potential.
Russian airline AirBridgeCargo started operating flights to Hanoi’s Noi Bai International Airport in April 2015, flying Boeing 747 freighters non-stop to Hanoi from Moscow Sheremetyevo and returning via Hong Kong. The carrier says that the service has been “developing in line with expectations.”
“During the first five months of the airline’s operations since service launch with two weekly flights, ABC carried over 1,600 tonnes to and from Hanoi,” says Joanna Li, vice president of Asia and Pacific at AirBridgeCargo. “ABC sees increasing customer demand for its services out of Hanoi and plans to add a third frequency in the winter 2015/2016 schedule to satisfy our clients’ needs.”
Last month, Air France KLM Martinair Cargo also expanded its presence in the country by signing a partnership agreement with China Southern Cargo. As part of the agreement, Air France KLM Martinair Cargo will be able to use capacity on China Southern’s freighter flights from Guangzhou to Hanoi and Ho Chi Minh City.
Because of escalating costs, manufacturing activities are shifting to Vietnam as well as other developing economies in Southeast Asia such as Cambodia and Myanmar.
“ABC aims to build its route network close to manufacturing and production centers,” Li says. “The shift of business from China to other Asian countries, not only Vietnam, represents an opportunity to grow in line with its network development strategy and to expand its presence in these markets with new routes.”
There is also a growing middle class in the Asia-Pacific region. By the end of 2015, it is expected to be larger than that in Europe and North America combined.
FedEx Express says that the relocation to emerging markets and the expansion of the middle class are “gradually re-drawing Asia’s expanding supply-and-demand ecosystem,” which traditionally used to place more emphasis on the US and Europe.
“Today, it is catering equally to Asian markets that represent surging consumer demand for products manufactured within the region,” says Karen Reddington, president of Asia Pacific at FedEx Express. “In addition, the recently concluded TPP agreement will give a significant boost to Vietnam’s attractiveness as an investment destination, not only by giving Vietnamese manufacturers improved access to key markets in North America and Japan, but also by improving the overall climate for investment in Vietnam.”
Cathay Pacific Cargo, which flies to both Hanoi and Ho Chi Minh City, says that the two cities each have a different appeal.
“We’re seeing many tech giants site-visiting Hanoi with plans to set up their factories there – the new ramped up technology production will present more opportunities for growth in air freight volumes out of Hanoi,” says John Cheng, manager of cargo sales and marketing at Cathay Pacific. “Ho Chi Minh City is heavy on the garment and footwear trades, and the Trans-Pacific Partnership deal between Vietnam, the US and 10 other countries is expected to bring trade volumes out of Vietnam to new heights, given that trade barriers among the participating countries will be reduced.”
According to ABC, high-tech and fashion goods are most commonly transported out of Hanoi, with the main destinations being Russia, Germany and the US. On the other hand, the main origin countries for cargo to Hanoi, which include industrial equipment and perishables, are Italy, Sweden, Germany and the Netherlands.
Vietnam ranked 48th out of 160 countries in the World Bank’s Logistics Performance Index for 2014, having been 53rd for the past three years. Within ASEAN, Vietnam came behind Singapore, Malaysia and Thailand, and was ahead of Cambodia, Laos and Myanmar.
But there is still much to be done to improve the logistical landscape in Vietnam. FedEx Express says that lengthy customs and regulatory practices lead to increased operational costs for logistics companies. Even though a new electronic customs clearance system called the Vietnam Automated Cargo Clearance System was set up in April 2014, delays are still common.
“These are largely due to a number of manual processes, including cargo inspections by both customs and other government agencies that have attracted criticism for lacking both transparency and consistency,” says Reddington. “According to a number of leading logistics companies, Vietnam’s customs requirements are more stringent that those in many other Asian countries.”
The lack of well-developed transport infrastructure is another issue. According to FedEx, there were approximately 209 industrial parks in Vietnam in June 2014, 33 of which had been in operation for just over three years. This fast rate of growth has outpaced infrastructural development.
“Logistics facilities such as warehouses and container freight stations are not user-friendly, as they are often standalone and located far from either ports or manufacturing plants,” says Reddington. “Traffic and port congestion also causes delays in getting shipments out of the country and can impede the delivery of imported parts and components, resulting in higher inventory-carrying costs for manufacturers.”
For ABC, one of the main challenges with Vietnam is to develop a product or service that specifically addresses the needs of the local market and is supported by locally developed capabilities and talents.
“We have been lucky with our GSA, ITL Aviation Services, which has rendered its professional support in terms of market information, sales and operations,” says Li. “Local authorities and handlers have also been very helpful. Both factors have enabled ABC to have a smooth launch and successful market penetration. Now our challenge is to keep the momentum going and to further expand our services in Vietnam.”
Cathay is upbeat but acknowledges that an emerging market always attracts a large number of new entrants. “In the near future we still see some challenges ahead with more direct competition,” says Cheng. “However, in the longer run, there are many opportunities in Vietnam, with the Trans-Pacific Partnership and the new free trade agreement between Vietnam and Europe which is expected to come into force in 2017/18.”
By Jeffrey Lee
Asia Cargo News | Hong Kong
