Seminar at Vietnam Logistics Summit

Vietnam Logistics
g
in Motion

Prepared for:
Vietnam Logistics Summit

Date:
27 August
g 2008

Presented by:
Jeffrey Bahar
ASEAN Managing Director
T l +62
Tel: 62 812 100 5940
Email: jeffrey.bahar@spireresearch.com

Prepared for: Vietnam Logistics Summit 08 Page 1

 Global Outlook & Demand Drivers
Growth to continue but at a slower rate in 2008 & 2009

World growth will slow to ~4% in 2008, Real GDP Growth (Y-o-Y) Based on PPP Weights
Difference from
with emerging markets remaining as Current Projections Oct 2007
lead growth drivers IMF Update
2005 2006 2007 2008 2009 2007 2008
US GDP growth will likely be zero-to-
World Output 4.4 5.0 4.9 3.7 3.8 -0.3 -1.1
negative in Q208-Q308
United States 3.1 2.9 2.2 0.5 0.6 0.3 -1.4
But China, India & Russia made up
Euro Area 1.6 2.8 2.6 1.4 1.2 0.1 -0.7
almost half of global GDP growth in 2007
and
d will
ill help
h l cushion
hi the
th slowdown
l d Germany 08
0.8 29
2.9 25
2.5 14
1.4 10
1.0 01
0.1 -0 6
-0.6
China 10.4 11.1 11.4 9.3 9.5 -0.1 -0.7
India 9.1 9.7 9.2 7.9 8.0 0.3 -0.5
Source: IMF, World Economic Outlook, April 2008

While weaker US demand and a weakening US$ will make a big impact on the more export
dependent economies of TW, HK & SG…

… other growth drivers in the region - including healthy domestic demand, exports to non-US
markets foreign direct investments (FDIs),
markets, (FDIs) and fixed asset investment (FAI) – remain on track

Foreign Direct Investment (FDI) inflows into AP remain strong, including for Vietnam
China FDI will probably exceed US$70b for 2008
Indian FDI has been surging since 2006 and is likely to hit US$25-35b for 2008
Vietnam’s FDI surge (~US$30b likely in 2008) continues unaffected by the inflationary crisis, due to
continuing political stability & a likely easing of the Dong

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 2

 Regional Overview for Logistics
Robust but slowing growth in 2008

Developing Asia's trade performance in the last two

decades has been remarkable

From 1984 to 2004, its exports expanded almost 10-

fold and by 2004 had reached 21.3%

Asia now accounts for 40% of the world's

world s total output
in PPP terms, and this percentage is expected to rise
to 60% with the rapid output expansion in China and
India

The Asian transportation market is projected to grow

from US$700 billion to over US$1.3 trillion by 2020*, with
most of the growth coming from the North-east Asian
mega market

Prospects hinge on rising bunker costs and a slowing

US economy

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 3

 Air/Ocean Freight
Growth will continue but at a slower rate compared to 2007

Fuelled by strong trans-Pacific and East Asian trade,

air and ocean freight volumes have been increasing
steadily

Long-term growth prospects are bright

By 2025, 2,990 aircraft will be added to freighter fleets
around the world, with three out of four of those planes
being converted from passenger jets

Double-digit growth in demand for international

container shipping services in 2007…
….prompted t d operators
t to
t go on a buying
b i spree – cape-
size ships, the largest type of bulk carrier, have almost
tripled in price to US$96m from 1998

However there are short-term concerns – container

shipping on the Asia-EU and Asia-US routes have
slowed in 1Q-2Q 2008, though intra-Asian routes have
not been badly affected

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 4

 ASEAN Initiatives
ASEAN integrates further into single market

The ASEAN logistics market has seen an upward trend for

the past 3-4 years, and is expected to continue growing
strongly over the next five years

Under the ASEAN Free Trade Area (AFTA), significant

progress has been achieved in reducing goods tariffs
99.8% of goods under the Inclusion List for the Asean-6
countries ((Brunei,, Indonesia,, Malaysia,
y , the Philippines,
pp ,
Singapore and Thailand) are in the tariff range of 0-5%
ASEAN governments have also committed themselves to
liberalizing their nations' services sectors, the first of which
is to establish an ASEAN Open Skies Agreement in 2008

China implemented the China-ASEAN Trade in Goods

(TIG) Agreement in July 2005
The CAFTA-TIG Agreement covers tariff-lines representing
more than 95% of China-ASEAN trade, which grew annually
b 23% from
by f 1997-2005
1997 2005 to
t reach
h US$130.5b
US$130 5b
Trade with ASEAN represented about 9% of China's total trade
in 2005, making ASEAN its fifth largest trading partner
following the EU, US, Japan and Hong Kong

Vietnam was admitted as a member of WTO in 2007

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 5

 Asia’s Infrastructure Initiatives
New infrastructure & systems will aid logistics growth in Asia

China Road & Rail

Add 23% more in the next 5 years
4-lane highway from Hanoi to Kunming
Construction of 100,000km
100 000km of new rail lines – one-third
one third being high-speed
high speed passenger lines
Hong Air
Kong World’s busiest airport for international cargo since 1996
In 2006, air cargo reached 3.6mil tonnes and express air cargo is to grow 13% annually for the next
decade

India Road & Rail

Highways & road development projects worth USD12b being implemented through National
Highway Authority of India
Moves to augment rail infrastructure through private sector being implemented
Korea Sea
Development of Gwangyang and Busan ports
Air
Incheon International Airport (IIA) is currently the 4th largest air freight handler worldwide
The freight terminal will be expanded from the current 132,000 to 429,000 square meters by 2020
Malaysia Air
Senai Airport Terminal Services aims to invest Ringgit 1b over the next 10 years to upgrade the
airport's infrastructure with plans to increase its throughput to around 328,000 tons

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 6

 Asia’s Infrastructure Initiatives
New infrastructure & systems will aid logistics growth in Asia (cont’d)

Philippines Road & Rail

US$430m project will put in place all enabling components of the "logistics hub" as part of the Luzon
Urban Beltway super regions' blueprint of President Gloria Macapgal Arroyo
Singapore Sea
Singapore is already home to the world’s largest container port, connecting to 123 countries and
more than 600 ports
Economic Development Board (EDB) has been developing a full range of logistics and supply chain
management
g capabilities
p
Taiwan Logistics industry saw business revenues of NTD791.9b in 2006
Government policies have also been revised to streamline trading, customs clearance and
shipping procedures, eliminating the need for long and tedious paperwork
Thailand Upgrading logistics facilities and technology infrastructure to increase the nation’s freight handling
capacityit andd assure ffaster,
t more efficient
ffi i t cargo movementt
Road & Rail
East-West Economic Corridor, a road project
North-South Economic Corridor, a transport project focusing on a rail system
Sea
Proliferation of e-logistics and RFID electronic container and seal systems to achieve paperless Free
Zone operations by 2008

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 7

 Vietnam’s Infrastructure Investment
VN is committed to investing heavily in logistics

Vietnam is one of the world’s fastest-growing sourcing and manufacturing locations – average
export growth rate was the highest in the region during the last decade

Vi t
Vietnam now has
h an estimated
ti t d 160 industrial
i d t i l parks
k

The Vietnamese government has set the following major targets for the logistics sector: more than
5mil DWT in 2010; more than 7mil DWT in 2015; and 11mil DWT in 2020
Target is for maritime transport to account for 45% of total domestic cargo transportation by 2020
Most ports under Vietnam Ports Association have new investment projects or upgrading projects with a total
of 36 projects and total investment of US$1.3b from 2008 until 2010

Vi t
Vietnam ill invest
will i t US$17.5b
US$17 5b in
i developing
d l i l i ti infrastructure
logistic i f t t

Vietnam now has >800 logistics companies, covering the North, Central and South regions
The massive expansion in the numbers of market players is the result of the revised Law on Enterprises which
came into effect on 1 Jan 2000
2000, removing many barriers in establishing logistics enterprises
If the same trend continues, in a few years time Vietnam will surpass Thailand (1,100) in terms of the number
of domestic market players, not to mention Singapore (800), Indonesia and the Philippines (700-800)

Vietnam’s logistics
g companies
p can onlyy meet 25% of the local demand and have been focusing
g
on a few services in this huge service value chain

* DWT – Dead weight tonnage

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 8

 Vietnam’s Infrastructure Investment
VN is committed to investing heavily in logistics (cont’d)

Logistics volume continues to rise

In 2007 the number of ships and cargo going through Vietnam’s sea ports increased to 88,619 with a total of
320,176 million tons of goods, an increase of 18.02% compared with 2006
Strong growth is seen in key economic hubs such as Hai Phong (growth of 47.32% compared with 2006),
HCMC (17.41%) and Da Nang (27.27%)

Airports such as Noi Bai and Cat Bi will be restored and enlarged to enhance capacity

Roads will be upgraded to meet international or national standards

The Asian Development Bank (ADB) has agreed to provide soft loans totaling US$880m to
Vietnam, helping it implement three projects on building expressways and roads this year
Of the future loans, US$500m will be used to finance the development of an expressway linking southern Ho
Chi Minh city and southern Dong Nai province, US$350m the construction of two bridges in the Mekong
Delta, and US$30m the technical preparation for the development of three expressways in both northern
and southern localities.

Memoranda of understanding (MOUs) were signed between 16 companies from both the south
of Vietnam and the city of Zhanjiang of China regarding a number of projects worth a total of
US$158m in seaports and other industries

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 9

 Country Outlook – Commodities & Logistics
Vietnam logistics and infrastructure set to ride on commodities boom

Vietnam has set an ambitious target of earning more than US$58b from exports in 2008, an
increase of around 20% from 2007
Rising commodity prices are lifting Vietnam’s booming commodities exports and, together with a
post-WTO surge in manufacturing FDI, helping turn the country into a global export powerhouse
Vietnam’s produce – particularly seafood, rice and coffee –
contribute around 30% of the country’s GDP and command Vietnam’s share of world markets for
significant global market share agricultural/wood commodities, 2000
The Mi
Th Ministry
i t off Fi
Fisheries
h i hash unveiled
il d plans
l to
t exportt US$2.3b
US$2 3b
exports Share of Change in
worth of seafood this year, including about $380m from Ca
Commodity (USD world market share
Mau Province alone mil) market (1996 – 2000)
Vietnam is the second largest coffee exporter in the world –
Rice 360.2 5.9% -30%
revenue of US$1.8b in coffee exports, increasing earnings by
50% ffrom 2006 Coffee 585.4 4.8% +38%

Demand for specialized handling and transportation will rise Spices 130.4 4.8% +88%
significantly – especially in the area of integrated cold chain
Shellfish 820.8 4.3% +80%
Recent public refrigerated warehouse (PRW)
investment, local and foreign, will increase storage Natural
140.0
140 0 2.9%
2 9% +94%
rubber
capacity by more than 90,000 pallet positions
Pulpwood 39.7 1.5% +38%
Malaysian cold storage provider Haisan Resources
invested some US$3.6m to set up a temperature- Tea 30.7 1.2% +67%
controlled logistics facility in southern Vietnam
S
Source: C
Comtrade
t d

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 10

 Country Outlook – Collaboration
Vietnam’s collaborations with Singapore

Vietnam is collaborating with Singapore in developing

integrated port and logistics facilities in Vietnam
At least four new container sea ports projects have been
planned and are now in progress
Singapore’s PSA has formed a joint venture with Saigon Port to
develop a container terminal in the Ba Ria-Vung Tau province
NOL Group has a stake in the Vietnam International Container
Terminals, the first dedicated container p
port in Vietnam

A Vietnam-Singapore joint venture kicked off construction

of Vietnam's first petroleum bonded warehouse in Van
Phong Bay of Khanh Hoa Province on the central coast
The venture, comprising Vietnam National Petroleum
Corporation (Petrolimex), its subsidiary Petrolimex Joint Stock
Insurance Company (Pjico) and PB Tankers of Singapore, will
invest US$170 million in Van Phong petrol terminal
The terminal would be equipped with the most advanced
equipment, comparable to any other storage terminals in Asia

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 11

 The Concluding Picture
Vietnam Logistics Is in Motion! Opportunities to Ride on This Motion

Asian economic growth will slow in 2008 and 2009, before going up again in 2010

However, there is plenty of Asian domestic demand to go around to cushion against weaker
exports so what Asia will see is probably a slowdown,
exports, slowdown not a 1998-style recession

The outlook for international trade and logistics is positive – governments and private
companies in Asia are prepared to invest in transport and logistics infrastructure

In spite of an inflation induced slump in domestic consumption,

consumption Vietnam will continue to grow
its export sector, particularly in commodities
As a result, the logistics and infrastructure sector will become an important economic sector for
Vietnam in the next 3-5 years, capable of contributing up to 15% of the national GDP and offering
many opportunities to private business,
business both local and foreign
This is likely to translate into sizeable growth in industries such as warehousing (including refrigerated
storage), specialized transportation (eg refrigerated trucks or “reefers”), distribution parks (“distri-parks”),
ports, airports, road infrastructure, power generation and water treatment
Transportation alone accounts for 40
40-60%
60% of logistics costs – this sector will see more investment,
investment with
maritime transport growing to take up a larger share of domestic cargo transport
Commodities trading, especially in food products, will boom in Vietnam, requiring specialized material
handling systems
Technology advancement in supplies tracking and bonded warehousing will be the next big thing in
demand by Vietnam' locally-based manufacturers/exporters

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 12

Prepared for: Vietnam Logistics Summit 08 Date: 27 Aug 2008 Page 13