In a long-anticipated move, Vietnam Airlines has submitted its plan for an IPO to the national ministry of transport. The listing is meant to generate funds for the overdue expansion of the carrier’s long-haul network. In recent years, Vietnam Airlines has added narrow-bodies to its fleet, but the last wide-body aircraft it took on board arrived nine years ago.
The B787-9s and A350-900s that management aims to add in the coming years would help Vietnam Airlines take a bigger bite out of the country’s galloping exports, which have largely gone to international rivals. In the first six months of this year, Vietnam’s exports have gone up 14.9 percent year over year, significantly above GDP growth.
“The export market is fueled by a few sectors, particularly the garment and textile industry. A lot of foreign buyers are sourcing more and more from Vietnam. We have seen a lot of foreign investment in electronics over the last few years as well, which is driving a very strong growth for the export market. In terms of countries, both U.S. and EU are going strong for Vietnam,” says Charles Kaufmann, head of operations and value-added services at DHL Global Forwarding, Asia Pacific.
Exports to the EU climbed 12.8 percent in the first six months to US$13.1 billion (9.6 billion euros), according to the General Statistics Office of Vietnam. The U.S. ranked second with US$13 billion (9.5 billion euros), up 19.5 percent, while the ASEAN market ranked third with US$9.6 billion (7 billion euros), having risen 4.8 percent. Exports to China climbed 20.8 percent to US$7.4 billion (5.4 billion euros).
A considerable factor behind the rise in exports has been the shift of production from China. “In speaking with our customers, we understand manufacturing is shifting primarily due to cost pressures,” says Thomas Lehmann, senior vice president for airfreight, South Asia Pacific at Kuehne + Nagel.
This process was cast in doubt after China moved a drilling rig into waters also claimed by Vietnam in May, which led to widespread protests in Vietnam. At least 15 foreign-owned factories were set on fire and others were attacked in anti-China protests. Observers say the factories that were targeted either belonged to Chinese firms or had Chinese characters in their logos. Some Taiwanese investors have reportedly withdrawn from Vietnam in the aftermath and one Hong Kong-based executive says that plans for a new production plant have been held back, but overall, the incident seems to have had little lasting effect.
“At the very beginning, there were some strikes at the industrial parks and some Taiwanese investors stated to withdraw. However at the moment, everything seems fine and all factories are back to normal operation. Cargo output was down for 1-2 weeks only and after that has been increasing until now,” Kevin Shek, vice president Asia and Pacific at Cargolux Airlines, says. “The airfreight market in Vietnam is seen to keep improving and growing at around 25-30 percent in general for the next 12 months.”
The Bank of Vietnam devalued the Viet dong by 1 percent in early June, which should have a positive effect on exports in the second half of the year, Kaufmann points out, adding that measures taken to hold down inflation should prevent an effect on that side, although imports have become more expensive.
Lehmann notices a decline in imports and is bracing himself for a possible further decrease, but overall, the balance between inbound and outbound flows remains comparatively healthy, Shek says.
Cargolux is running three weekly flights into Hanoi and one to Ho Chi Minh City. “Our export production from both of these markets is very stable and growing steadily,” Shek says.
Not surprisingly, other carriers have also put capacity into the market, above all the Middle Eastern airlines. Lehmann says lift out of Hanoi is up 20 percent. Growth in capacity has outstripped the rise in traffic, which has adversely affected rates, Shek says.
So far, Vietnam’s major gateways have been able to cope with the rise in traffic, but there is room for improvement, especially at Hanoi, which is too small and not considered to be on par with international standards, Lehmann says. He adds that a clear improvement has been noted in Ho Chi Minh City.
Kaufmann says DHL Global Forwarding Vietnam recently became one of the first few agents with a consolidated warehouse in the cargo terminal in Ho Chi Minh for export shipment. “Our future plan is to set up a consolidated warehouse in Hanoi when the terminal is able to provide warehouse space to forwarders,” he says.
Kuehne + Nagel has no immediate plans to expand in Vietnam, but has its eyes on the market for the longer term.
“We consider the country an important link in the chain of providing seamless, integrated transportation services to our global and regional clientele,” Lehmann says.