Efficient Logistics: A Key To Vietnam's Competitiveness

DIREC TIONS IN DE VELOPMENT
Countries and Regions
Efficient Logistics
A Key to Vietnam’s Competitiveness
Luis C. Blancas, John Isbell, Monica Isbell, Hua Joo Tan, Wendy Tao
Efficient Logistics
Direc tions in De velopment
Countries and Regions
Efficient Logistics
A Key to Vietnam’s Competitiveness
Luis C. Blancas, John Isbell, Monica Isbell, Hua Joo Tan, Wendy Tao
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ISBN (paper): 978-1-4648-0103-7

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Library of Congress Cataloging-in-Publication Data

Blancas, Luis C. Efficient logistics : a key to Vietnam’s competitiveness / Luis C. Blancas, John Isbell, Monica
Isbell, Hua Joo Tan, Wendy Ta.
1 online resource. — (Directions in development)
Includes bibliographical references. Description based on print version record and CIP data provided by
publisher; resource not viewed.
ISBN 978-1-4648-0104-4 (epub) — ISBN 978-1-4648-0103-7 (alk. paper)
1. Freight and freightage—Vietnam. 2. Business logistics—Vietnam. 3. Industrial policy—Vietnam.
4. Economic development—Vietnam. 5. Vietnam—Economic policy. I. World Bank. II. Title.
HE199.V5
388’.04409597—dc23 2013041631
Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Contents
Foreword xi
Acknowledgements xiii
About the Authors xv
Abbreviations xvii
Overview 1
Chapter 1 Introduction 7
Objective and Scope 7
Approach and Methodology 8
Note 10
Chapter 2 Vietnam’s Current Situation 11

Economic Overview 11
Status of Existing Infrastructure 23
Strategic Freight Corridors 49
Notes 63
References 65
Chapter 3 Freight Stakeholder Challenges and Opportunities 69

Marine Terminal Operators 69
Ocean Carriers 74
Logistics Service Providers 80
International BCOs 91
Domestic BCOs 108
Trucking Industry 110
Notes 111
Reference 112
Chapter 4 Issues Screening and List of Actionable Recommendations 113

Freight Logistics Challenges 113
Development of a Multicriteria Evaluation Matrix 119
Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 v

vi Contents
Goals Assessment and Recommendations to

Improve Performance 120
Institutional Mechanisms to Support Logistics Policy
Making 143
Notes 144
References 145
Appendix A Supporting Calculations 147
Appendix B Overweight Container Audit Process 159

Miniature Concept of Operations for Automated Weight
Auditing and Fine Assessment 159
Note 160
Appendix C Entities Interviewed 161

International and Domestic Beneficial Cargo Owners: 27 161
Factories: 4 161
Logistics Service Providers: 11 161
Ocean Carriers: 5 161
Marine Terminal Operators: 15 162
Trucking Companies: 4 162
Trade Associations: 4 162
Government Entities: 4 162
Appendix D Methodology for Calculating the Cost of Congestion

on the Vietnamese Economy 163
References 166
Appendix E Customs Flow Charts 167
Appendix F Components of Successful Public-Private Partnerships 171

Reference 173
Appendix G Organizational Structure of the Ministry of Transport

of Vietnam 175
Glossary 179
Boxes
3.1 CenterPoint Intermodal Center, Ellwood, Illinois 87
4.1 Ports of Los Angeles and Long Beach Clean Truck Program 136
4.2 Global Logistic Properties Road Ports: China Test 138
F.1 Florida State Department of Transportation PPP for I-595 172
F.2 Structuring Successful Public Private Partnerships 172

Contents vii
Figures
1.1 Analytical Approach 9
2.1 Vietnam GDP by Industry Sector, 1990–2011 12
2.2 Regional Origin of Vietnam’s Six Key Export Commodities 13
2.3 Average Worker Monthly Base Salary in Select Cities of
Developing Asian Countries, 2011 15
2.4 Structure of Government Institutions in the Transport Sector 20
2.5 Vietnam: Container Handling Volume by Region, 2000–11 25
2.6 Estimated Terminal Utilization Levels at HCMC and
Cai Mep-Thi Vai Ports 30
2.7 Vietnam: Demand and Supply at Southern Region
Ports, 2000–20 31
2.8 Number of Weekly Linehaul Services Calling at
Cai Mep-Thi Vai, 2009–12 31
2.9 Vietnam: Demand-Supply at Northern Ports without Lach Huyen 34
2.10 Comparison of Ocean Freight Rates to Japan and the
United States, 2006–11 35
2.11 Haiphong/Cai Lan Port Utilization Rates by Terminal, 2010–20 36
2.12 Vietnam: Demand and Supply at Northern Region
Ports, 2000–20 37
2.13 Average Container Vessel Sizes Calling Haiphong and Cai Lan,
September 2012 37
3.1 Asia-North Europe Services: Average Vessel Size, October 2012 71
3.2 Ocean Carriers: Relative Cost of Operations in Vietnam 75
3.3 Challenges That Impact Ocean Carrier Operation Costs
in Vietnam 76
3.4 Qualities of the Ocean Carrier Staff Functions for the Industry 76
3.5 Perceived Port Operations Performance 77
3.6 Comparison of Vietnam Operating Costs to
Other Asian Countries 81
3.7 Vietnam Trucking Costs Compared with Other Asian Countries 83
3.8 Vietnam Trucking Service Quality Compared with Other Asian
Countries 84
3.9 Average Rating of the Perceived Business Impacts of Inland
Trucking Factors 88
3.10 Type of Products Exported by Respondents 91
3.11 Types of Products Imported by Respondents 92
3.12 Marine Terminals Used by Respondents 93
3.13 Trucking Costs in Vietnam Compared with Other
Asian Countries 95
3.14 Trucking Service Quality in Vietnam Compared with Other
Asian Countries 95
3.15 Perceived Level of Highway Congestion in Vietnam Relative to
Regional Peers 97
3.16 Factors Impacting Airfreight Logistics Costs 100

viii Contents
3.17 Adequacy of Warehouse Facilities 101

3.18 Comparison of Warehousing in Vietnam with That of Other
Asian Countries 102
E.1 Import Customs Clearance: e-Declaration Process Flow 168
E.2 Export Customs Clearance Process 169
G.1 MoT Organization: 2012 176
Maps
2.1 Vietnam: Economic Geography 16
2.2 Vietnam: Six Port Groups and Main Container Ports (above
10,000 TEUs per annum) 27
2.3 Vietnam: Greater HCMC Main Container Terminals 42
2.4 Vietnam: Fragmentation of the Haiphong Port System 44
2.5 Location of Van Phong in Vietnam’s Main-Port Network 46
2.6 Vietnam: Six Primary Freight Corridors 51
2.7 HCMC-Long Thanh-Dau Giay Expressway 54
2.8 HCMC-Long Thanh-Dau Giay Expressway Link to Can Tho 55
2.9 Cho Gao Canal 60
2.10 Vietnam National Railway System 62
B3.1.1 CenterPoint Intermodal Center, Ellwood, Illinois 87
Tables
2.1 Vietnam Average Annual GDP Growth by Sector 12
2.2 Vietnam’s Top 12 Trading Partners, 2011 14
2.3 Vietnam’s Freight Volumes by Mode, 2008 and Forecast
to 2030 19
2.4 Import Cost Comparisons for 40-Foot Container of General
Merchandise 21
2.5 Export Landed Cost Comparisons for 40-Foot Container of
General Merchandise 21
2.6 Vietnam: Container Ports, Handling Volumes, 2007–11 24
2.7 Vietnam: Current Terminals at Ho Chi Minh City and
Cai Mep-Thi Vai 29
2.8 Vietnam: New Terminals Planned at Ho Chi Minh City and
Cai Mep-Thi Vai 30
2.9 Linehaul Services Calling at Cai Mep-Thi Vai as of
September 2012 32
2.10 Current and Expected Terminals in Northern Vietnam:
Haiphong, Dinh Vu, Cai Lan, and Lach Huyen 33
2.11 Vinalines’ Shareholdings of Main Vietnamese Ports and
Planned Projects 41
2.12 Vietnam: Top 30 Global Container Ports in 2011 and
Fragmentation of Vietnamese Ports 45
2.13 Distance from Main Southeast Asia Gateway Ports to Van Phong 47

Contents ix
2.14 Truck Cost Savings from Decreasing Congestion in the

HCMC Area 52
2.15 Estimates for Costs of Truck-Related Congestion in Vietnamese
Cities and Regions (2010 Data) 53
2.16 Estimates for Total Costs of Congestion (by All Vehicles) in
Vietnamese Cities and Regions (2010 Data) 53
2.17 Cai Mep-Thi Vai Terminals, Daily Truck Trips 56
2.18 Road and Coastal Containerized Cargo Flows on Vietnam’s
North‑South Trade Axis 61
3.1 Largest Container Vessels at Cai Mep-Thi Vai Terminals
since 2009 70
3.2 Domestic Carriers Serving the Haiphong-Quinhon-
Danang-HCMC Coastal Trades, September 2012 72
3.3 Comparison of Transshipment Costs at Cai Mep Relative to
Key Regional Hubs 73
3.4 Containerized Ocean Carriers Calling Vietnam 74
3.5 Positive and Negative Aspects of ICDs 77
3.6 Trucking Industry: Perceptions of Ocean Carriers 78
3.7 LSPs’ Opinions about Vietnam Customs Processes 81
3.8 LSPs’ Opinions about Vietnam’s Trucking Industry 84
3.9 Respondents’ Opinions about Vietnam’s Logistics Parks 85
3.10 Quality of Tan Son Nhat Airport 88
3.11 Quality of Noi Bai Airport 88
3.12 Total 2011 Annual Export Volumes Reported by Respondents 92
3.13 Total 2011 Annual Import Volumes Reported by Respondents 92
3.14 Trucking Industry Conditions 96
3.15 Quality of Tan Son Nhat Airport 99
3.16 Quality of Noi Bai Airport 100
3.17 Characteristics of Customs and the Import/Export Process 103
4.1 Most Significant Challenges Impacting Freight Logistics Costs
in Vietnam 114
4.2 Multicriteria Evaluation Impact Variables 120
4.3 Scoring System 120
4.4 Significant Challenges: Weighted Average Scores 121
4.5 Key Goals and Impact on Freight Stakeholders 122
4.6 Interest Cost on Extra Inventory Due to Import-Export
Clearance Delays 126
4.7 Import and Export Origin Costs for General Merchandise
Cargo in 40-Foot Container (FEU) 127
4.8 Estimated Cost of Facilitation Payments in Clearing and
Transporting Import and Export Containers 128
4.9 Highway Congestion Cost Impact on Trucking Costs 131
4.10 Cost of a Notional Truck Replacement Program 139
4.11 Terminal Handling Charges for Vietnam and Neighboring
Countries, 2012 142

x Contents
A.1 Forecast Import and Export Container Volumes 148

A.2 Vietnam, China, and Indonesia Landed Cost Comparisons 150
A.3 Inventory Carrying Costs from Import-Export Clearance Delays 152
A.4 Trucking Cost of Congestion 153
A.5 Estimation of Facilitation Costs 155
A.6 Cost to Finance New Clean Diesel Trucks 157
D.1 Estimates for Costs of Congestion in Various Sample Cities 164
D.2 Estimates for Truck Delay Costs of Congestion in Vietnamese
Cities and Regions, 2010 165
D.3 Estimates for Total Costs of Congestion in Vietnamese Cities
and Regions, 2010 165

Foreword
The old economic structure is no longer relevant: Vietnam needs to improve its competitive-
ness, facilitate stronger levels of creativity in economic production, and recognize that in a
Vietnamese economy that is increasingly open and integrated to the global economy the
low-hanging fruits have nearly been harvested.
—H.E. Bùi Quang Vinh, Minister of Planning and Investment, Socialist Republic of
Vietnam, July 15, 2013
Over the past 20 years Vietnam has achieved sustained economic growth primar-
ily driven by a rapidly expanding labor force and a shift in economic activity away
from low-productivity subsistence agriculture toward the higher- productivity
manufacturing and services sectors. Crucially, supported by pro-poor social poli-
cies, strong growth was accompanied by remarkable poverty reduction outcomes.
Vietnam’s continued macroeconomic stability, increasing economic liberaliza-
tion, and young, vast labor pool have increased the country’s attractiveness as a
destination for foreign direct investment—particularly as labor costs have
increased in key competing markets, most notably China.
Vietnam’s socioeconomic success story, however, now faces both short- and
long-term challenges. Since the onset of the global economic crisis of 2008–2009,
the Vietnamese economy has undergone a particularly challenging period of
declining foreign capital inflows and subdued, as well as more contested, export
markets. Recent reductions in economic growth, seen for the first time since the
Asian economic crisis of 1999, highlight the importance of strengthening eco-
nomic resiliency.
Over the longer term, Vietnam is faced with the challenge that both its main
drivers of past growth—labor force growth and intersectoral shifts in economic
activity—are being depleted and need to be replaced by intrasectoral productiv-
ity improvements.
More efficient transport and logistics can play a significant role in increasing
productivity going forward. By making supply chains more predictable, better
transport and logistics allow manufacturers, transportation carriers, logistics ser-
vice providers, and trade regulators to minimize avoidable delays, thereby
increasing output per unit of time while reducing the cost of doing business.
Such competitiveness enhancements can better position Vietnam to benefit
Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xi

xii Foreword
from global demand, to better serve domestic markets, to attract investment, and
to generate quality jobs.
This report makes the case that improvements in export, import, and domes-
tic logistics operations as a driver of future growth for Vietnam are fully within
grasp. The report highlights opportunities to make freight itineraries more reli-
able, to make roads safer and more conducive to high-volume commercial use,
to increase port sector efficiencies, and to better integrate barges, trucks, ware-
houses, and gateways. It also proposes interventions and policies that can address
these challenges over the short term and following years.
I hope this report will contribute to a dialogue that can bring together public
and private sector stakeholders, including the World Bank, as we continue to
explore and support ways to make Vietnam’s economy more competitive and
dynamic going forward.
John A. Roome
Director
Sustainable Development
East Asia and the Pacific
World Bank

Acknowledgements
This diagnostic report was prepared by the East Asia and Pacific Region of the
World Bank. The work was led by Luis C. Blancas (Transport Specialist, EASIN),
under the overall guidance of John Roome (Sector Director, EASSD), Victoria
Kwakwa (Country Director, EACVF), Jennifer Sara (Sector Manager, EASVS),
Abhas Jha (Sector Manager, EASIN), and Paul Vallely (Senior Transport Specialist
and Transport Cluster Leader, EASVS). The report’s co-authors are Luis C.
Blancas of the World Bank; John Isbell, Monica Isbell, and Wendy Tao of
Cambridge Systematics, Inc.; and Hua Joo Tan, Consultant.
The team is grateful for detailed comments provided by World Bank peer
reviewers Arturo Ardila Gomez (Senior Urban Transport Specialist, LCSTR),
James Anderson (Senior Governance Specialist, EASPV), Monica Alina Mustra
(Trade Specialist, PRMTR), Jordan Schwartz (Manager, TWISI), Deepak Mishra
(Lead Economist, EASPR), and Myla Taylor Williams (Country Program
Coordinator, EACVQ). Comments on earlier drafts were received from M.
Baher El-Hifnawi (Lead Transport Economist, ECSTR), Simon David Ellis
(Senior Transport Economist, SASDT), Duc Minh Pham (Senior Economist,
EASPV), Reynaldo Bench (Senior Port Specialist, TWITR), Dung Anh Hoang
(Senior Transport Specialist, EASVS), and Christopher De Serio (Operations
Analyst, EASIN). Thao Phuong Tuong (Team Assistant, EACVF), Carla Teresa
Sarmiento (Resource Management Assistant, EAPCA), Iris David (Program
Assistant, EASIN), Teresita Ortega (Program Assistant, EASWE), and Cristina
Hernandez (Program Assistant, EASWE) provided excellent production support
throughout.
The information and insight obtained from numerous private companies,
transport carriers, logistics service providers, trade groups, and government offi-
cials in Vietnam and elsewhere are gratefully recognized.
Finally, the team acknowledges the generous support from the Australian
Agency for International Development (AusAID) provided through the World
Bank East Asia and Pacific Infrastructure for Growth Trust Fund (EAAIG).
Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xiii

About the Authors
Luis C. Blancas is a Transport Specialist with the Sustainable Development

Department in the East Asia and the Pacific region of the World Bank. Since
2010 he has led and participated in the preparation and supervision of several
World Bank-financed transport infrastructure projects in Vietnam, including
interventions to expand capacity and increase efficiency in the country’s Red
River Delta and Mekong River Delta inland waterway networks and projects to
develop Vietnam’s expressway sector. He has also conducted public sector tech-
nical assistance and analytical work in transport and logistics in China, Malaysia,
and Vietnam. Prior to joining the World Bank he was an Associate with
MergeGlobal, a financial and strategic advisor to firms in the global transport and
logistics industry; a Research Analyst at the Fiscal Affairs Department of the
International Monetary Fund; and a management consultant with Deloitte
Consulting’s Mexico and Central America practice. Mr. Blancas holds a Master’s
degree in Management Science and Engineering from Stanford University and a
B.A. in Economics from Mexico’s Monterrey Institute of Technology.
John Isbell is a Freight and Logistics Specialist with Cambridge Systematics, Inc.
He has more than 34 years of experience in the areas of global supply chain
management, performance-based contracts, and value creation in transportation
service provision and management. Prior to becoming a consultant to public and
private sector entities in the broad areas of transport and logistics he was Director
of Corporate Delivery Logistics for Nike, Inc. During the last 10 of his 31 years
with Nike, he directed the activities of the Corporate Delivery Logistics group,
which was responsible for the strategic direction and global management of
Nike’s logistics service providers delivering origin consolidation, ocean freight,
and air freight of both in-line and product samples, supply chain security, and
claims management. Mr. Isbell holds an M.B.A. from Portland State University.
Monica Isbell is Practice Leader for Supply Chain and Logistics at Cambridge
Systematics, Inc. She has more than 32 years of experience as an international
logistician, focused on helping private sector companies streamline their supply
chains and optimize their processes. She also has helped ports, departments of
transportation, metropolitan planning organizations, and others to develop strat-
egies to better meet the needs of shippers and logistics service providers. Prior to
Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xv

xvi About the Authors
joining Cambridge Systematics, she was founder and President of Starboard

Alliance Company LLC, an international trade, transportation, and supply chain
consulting practice. Ms. Isbell also has held executive positions with Columbia
Sportswear Company, Asics Tiger Corp, Direct Line Cargo Management
Services/DHL Global Forwarding, and Sea-Land Service. Ms. Isbell holds a B.A.
from Princeton University.
Hua Joo Tan is an Independent Maritime Consultant with more than 15 years of
experience. As a Managing Director of American President Lines (APL) Vietnam,
he managed the ocean shipping and supply chain management services of APL
and APL Logistics with more than 150 staff in four locations across Vietnam. He
also served as member of the Board of Directors of the second largest container
port in Vietnam and as chairman of a container shipping company operating in
the Vietnam-Singapore feeder trade. He led the Ports Subgroup of the
Infrastructure Working Group of the Vietnam Business Forum. As leader of the
ports group, Mr. Tan led the efforts to spearhead the industry’s concerns on ports
and related infrastructure issues in Vietnam, including the preparation of posi-
tion papers and conduction of discussions with government ministries, including
the biannual Forum discussions and the introduction of Terminal Handling
Charges at Vietnamese ports. Mr. Tan holds an M.B.A. from Stanford University
and a B.A. in Economics from the University of Oxford.
Wendy Tao is an Associate Consultant with Cambridge Systematics, Inc. She has
eight years of experience in transport economics and has assisted the Southern
California Association of Governments (SCAG) in assessing the supply adequacy
of industrial/warehouse and intermodal facilities relative to future growth. Prior
to joining Cambridge Systematics, Ms. Tao was the Hanoi coordinator of the
Partnership for Sustainable Urban Transport in Asia, for which she collected and
evaluated greenhouse gas data along with information to evaluate air quality,
traffic, and safety for the Hanoi government. As part of a U.S. Strategic Highway
Research Program project focused on the interactions between transportation
capacity, economic systems, and land use, Ms. Tao conducted a targeted case
study on Global III Intermodal Terminal in Rochelle, Illinois, as well as highway
facilities in California, including the Sonora bypasses, SR 99, and Hollister SR
156. Ms. Tao holds an M.S. in Transportation Engineering and City Planning from
the University of California, Berkeley, and a B.S. in Economics and Environmental
Policy from the University of Pennsylvania Wharton School.

Abbreviations
AEC ASEAN Economic Community

AMS Automated Manifest Service
ASEAN Association of Southeast Asian Nations
BCO beneficial cargo owner
BOT Build-Operate-Transfer
CFS Container Freight Station
CIC Container Imbalance Charge
CICT Cai Lan International Container Terminal
CMICT Cai Mep–Thi Vai International Terminal
CMIT Cai Mep International Terminal
CM-TV Cai Mep–Thi Vai
C-TPAT Customs-Trade Partnership Against Terrorism
CY container yard
DWT deadweight tons
EDI electronic data interchange
EU European Union
FDI foreign direct investment
FEU 40-foot equivalent unit container
FTP File Transfer Protocol
GoV Government of Vietnam
GPS Global Positioning System
GDP gross domestic product
HCMC Ho Chi Minh City
ICD inland container depot
ISF International Security Filing
IT information technology
IWT Inland Waterway Transport
JETRO Japan External Trade Organization
JIT just-in-time
Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xvii

xviii Abbreviations
LNG liquid natural gas

LO/LO lift on/lift off
LPI Logistics Performance Index
LPR License Plate Reader
LSP logistics service provider
MCIP Multimodal Corridor Investment Plan
MoT Ministry of Transport of Vietnam
MTO marine terminal operator
NBA Noi Bai Airport
NH National Highway
OECD Organization for Economic Co-operation and Development
PPP public-private partnership
SAR special administrative region
SCSC Saigon Cargo Service Corporation
SITC Standard International Trade Classification
SITV Saigon International Terminals Vietnam
SOE state-owned enterprise
SNP Saigon New Port
SP Saigon Port
SPCT Saigon Premier Container Terminal
SP-PSA Saigon Port–Port of Singapore Authority International Port
SSIT SP–SSA International Terminal
STS ship-to-shore
TCCT Tan Cang–Cai Mep Container Terminal
TCIT Tan Cang–Cai Mep International Terminal
TCS Tan Son Nhat Cargo Services
TEU 20-foot equivalent unit container
THC terminal handling charge
TPP Trans-Pacific Partnership
TSNA Tan Son Nhat Airport
VCIS Vietnam Customs Information System
VICT Vietnam International Container Terminals
VNACCS Vietnam Automated Cargo and Port Consolidated System
VND Vietnamese dong
VOC vehicle operating costs
VPA Vietnam Port Association
WTO World Trade Organization

Overview
The Government of Vietnam (GoV) has articulated the goal for Vietnam to
become an industrialized country by 2020. Vietnam has attained sustained
economic growth and widespread poverty reduction over the past 20 years. This
impressive growth performance—largely based on the promotion of exports and
investment—placed Vietnam among the world’s five fastest-growing economies
of the 1990–2010 period and has benefited, particularly over the past 10 years,
from attractive labor cost rates relative to key Asian peers, like China. Yet as labor
supply growth decelerates over the next couple of decades, achieving the
country’s vision to 2020 and beyond will require a much greater focus on

productivity improvements as a source of growth. In this respect, competitive-
ness, and in particular higher transport and logistics efficiency, is increasingly
becoming a critical growth sustainability driver for Vietnam.
The performance of Vietnam’s trade logistics system (defined as infrastruc-
ture provision, facilities and equipment, service delivery, and the institutional
and regulatory environment supporting logistics operations), while stronger
than that of some regional peers, trails some of the more globally integrated
developing Asian nations. As a rapidly growing economy in transition (e.g., it has
recently joined the ranks of middle income countries), Vietnam has provided
basic infrastructure access to an industrial and manufacturing base that is
increasingly interconnected with the rest of the world. This, coupled with a his-
tory of social and political stability following the economic reforms of the late
1980s and a favorable geographic position relative to the world’s busiest
maritime trade lanes and container hubs, has facilitated a strong trade sector
performance over the past 20 years. Yet improving logistics efficiency remains
a development challenge. While no single, definitive measure of logistics
performance exists, several indicators suggest that Vietnam’s logistics (along
such dimensions as inventory carrying costs in supply chains, the incidence of
transport and handling delays, the availability of talent in logistics management,
and the processing of permits and clearances in international trade) underper-
forms that of China, Malaysia, and Thailand among developing countries in
Asia. Because Vietnam’s logistics costs are perceived to be high relative to these
Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 1

2 Overview
key peers, reducing logistics costs can be a major component of the broader
GoV agenda towards solidifying the country’s long-term economic develop-
ment trajectory.
The purpose of this report is to identify the most pressing challenges driving
transportation and logistics costs in Vietnam and to recommend policies and
interventions that could strengthen competitiveness. The methodology used in
the report was multifaceted. Numerous freight stakeholders, trade associations,
and government ministries were interviewed face to face in August 2012 through
tailored questionnaires. The study assessed the existing conditions of key ports,
highways, and airports with site visits and first-hand observations. The analysis
also benefited from a thorough review of the literature, including past World Bank
studies, to better integrate this available body of knowledge into a cohesive ana-
lytical framework.
The report finds that, to the extent that logistics operations in Vietnam are
costlier than similar operations in other countries in the region, this is due to a
persistent lack of reliability throughout the supply chain. When logistics costs
are broken down by their component parts, it is apparent that Vietnam’s relative
logistics underperformance does not originate from the transport costs side of the
equation—particularly given the present overcapacity in many transport sectors,
which tends to drive down transportation rates—but primarily from the ware-
housing and inventory carrying costs side of the equation. The latter are directly
dependent on supply chain reliability and predictability. As Vietnam seeks to
compete in the world economy and trade in higher-value added goods under
just-in-time production and time-definite local, regional, and intercontinental
itineraries, improving reliability will become critical. This challenge can and
should be seen as a key catalyst for reform.
The primary sources of unreliability in supply chains linking Vietnam with the
rest of the world are the following:
1. Government regulations are cumbersome and not easily understood. As a

result, there is inconsistent interpretation, implementation, and enforcement
of government regulations across provinces and among government officials.
This leads to import and export clearance processing that takes longer and is
less predictable than in peer countries, redundant inventory in beneficial cargo
owner (BCO) supply chains, and higher administrative costs for BCOs and
logistics service providers (LSPs).
2. There is a widespread belief among the BCO and LSP community that
facilitation payments (“tea money”) to officials from the General Department
of Vietnam Customs (Vietnam Customs, for short) and the highway police are
needed to keep imported and exported components, raw materials, and
finished goods moving through supply chains with minimal delays. This belief
leads to a high incidence of such payments in practice, artificially inflating
logistics costs for customs clearance, customs brokerage, cargo inspections, and
trucking. Moreover, this adds a nontransparent, uneven layer to international
(and to a lesser extent domestic) trade activity.

Overview 3
3. Transportation infrastructure projects are planned and executed largely in

isolation, without employing a strategic, multimodal corridor approach and
with little regard to supply-demand considerations. This has created, or
contributed to, among other issues, the following reliability bottlenecks:
a. The port and marine terminal system is highly fragmented, as planners have
emphasized quantity over quality, leading to overcapacity (most notably in
the southern port range);
b. Highway projects to enable adequate access to inland container depots,
marine ports, and airports are seldom planned and implemented as
integrated facilities (and often plagued by delays), contributing to highway
congestion and undermining the port system’s cargo catchment potential;
c. The financing of many port and road infrastructure projects has weak
foundations due to (a) faulty assessments of future demand, which under-
mines private sector interest, (b) the prevalence of high construction costs
relative to peer countries, and (c) the persistent participation of state-owned
enterprises, many of which are highly indebted and often venture well out-
side their core business (Vinalines is a case in point);
d. Logistics parks—the clustering of handling, light manufacturing, transpor-
tation, and logistics activities in proximity to gateways, major arteries, and
demand centers—remain a nascent sector with little in the way of strategic
plans for development over the medium term; and
e. Rail is not a meaningful mode of transport for freight.
4. A fragmented trucking industry delivers substandard service to BCOs relative
to peer countries.
5. The new deep-water marine terminals at Cai Mep-Thi Vai are severely
underutilized and lack critical mass to serve as transshipment centers, and the
container shipping carriers serving them are finding it increasingly less
attractive to call at these locations with the very large vessels that are now the
backbone of their intercontinental operations.
Five initiatives, able of being implemented within the next 5–10 years,
are recommended to improve predictability in supply chains and boost
competitiveness:
1. Modernize the customs clearance system. The current customs clearance process
is a hybrid of two methods: electronic (completing documentation and apply-
ing for a Vietnam Customs entry number via the Vietnam Customs portal)
and manual (physical documents hand-delivered to Vietnam Customs officials
for signature). It is subject to unpredictable interpretation of regulations by
Vietnam Customs officials, resulting in (1) extended delays in clearing cus-
toms, especially for imports and (2) the incidence of facilitation payments to
prevent more lengthy delays. Currently, only one multinational BCO in
Vietnam enjoys the “gold standard” of having a completely paperless operation
with Vietnam Customs, granted to it as a means to attract significant foreign
direct investment to Southern Vietnam.

4 Overview
Vietnam Customs should redouble its efforts to fully automate the clear-
ance process by 2014 as planned. This will significantly reduce human inter-
vention and paper work and provide a consistent, predictable, and transparent
clearance process. This system will enable products to be cleared in a timely
manner since all interactions with Vietnam Customs officials regarding estab-
lishing tariff classifications, product valuation, proper licenses, and other cus-
toms formalities will be settled in advance of the actual importation and
exportation of cargo.
Vietnam Customs should also adopt the World Customs Organization
standards for product classification and other customs clearance filing prac-
tices. This would relieve customs brokers and BCOs from having to customize
their internal systems to exchange information with Vietnam Customs.
2. Ensure transparent and consistently interpreted, applied, and enforced government
regulations and operations related to international trade. Beyond customs, freight
stakeholders encounter unnecessary operating costs due to the inconsistent
implementation and interpretation of nonintegrated government regulations.
For example, securing import and export clearance when not only customs but
other technical requirements are taken into account takes longer in Vietnam
than in Malaysia, a key regional benchmark. This report projects that the extra
time involved in clearing international shipments in Vietnam will cost BCOs
an estimated $96 million in 2012 and $182 million in 2020 in avoidable logis-
tics costs.
Similar to the case of Vietnam Customs, facilitation payments to the police
greatly reduce transparency in the importation and exportation of products.
In all, this study estimates that facilitation payments add approximately
15 percent to the cost of an imported 40-foot container and about 13 percent
to the cost of an exported container of general merchandise cargo.
To facilitate international trade while reducing costs to freight stakeholders,
the GoV should (1) establish more readily applicable circulars and decrees to
promote consistent interpretation, application and enforcement of regulations;
(2) audit the performance of individual Vietnam Customs and other officials
across provinces; (3) review the regulations governing international trade in
effect in Vietnam to determine room for simplification, ideally in consultation
with the freight stakeholder community; (4) reduce the number of documents
and certificates required to import and export; and (5) embark on a commu-
nications campaign that promotes transparency in supply chain transactions
and engages the BCO and LSP community, whose members in many instances
assume that facilitation payments are necessary as a matter of course.
3. Plan multimodal transportation infrastructure projects using an integrated corridor
approach. The execution of transportation infrastructure planning in Vietnam
reflects a monomodal approach in which the various departments (ports, inland
waterways, highways, rail, and air) within the Ministry of Transport (MoT)
appear to function as distinct entities. Limited interaction between depart-
ments and with provincial governments has resulted in inconsistent or d isjointed
planning and mismatched timing in the implementation of transportation

Overview 5
rojects, as well as minimal involvement of key freight stakeholders. This envi-

p
ronment results in infrastructure projects being executed in a piecemeal man-
ner rather than on the basis of multimodal coordination. The MoT should move
toward adopting a holistic, multimodal, multisectoral approach to planning and
executing freight infrastructure projects.
Of particular priority is the Lach Huyen deep-water port facility planned
for the Haiphong area. The GoV should strengthen the planning and execut-
ing oversight of this project to ensure that (1) implementation slippages
(e.g., funding bottlenecks and technical delays) are avoided, (2) land-side and
inland waterway connectivity improvements are aligned with port construc-
tion schedules, and (3) local congestion impacts within Haiphong city are
mitigated.
Highway congestion has a cost to both freight and nonfreight system users.
It is estimated that congestion will cost BCOs $152 million in 2012 and
$274 million in 2020. The economic impact of congestion to all system users
is estimated to be $1.7 billion annually.
4. Promote a more professional trucking industry. Vietnam’s trucking industry is
fragmented, with less than 10 large trucking companies and about 100 small
to midsized firms; the majority of the remaining carriers are single-truck oper-
ations with limited barriers to entry. The market is still splintered with many
trucking companies competing on low rates rather than quality service.
Noncompensatory rates contribute to Vietnam’s high incidence of traffic fatal-
ities, highway congestion, damage to roadbeds, and air pollution. Root causes
of this include the fact that (1) not all truck drivers are properly licensed, (2)
the national fleet is old and many operators cannot afford to properly maintain
their equipment, (3) trucks and containers are often overloaded, and (4) truck
breakdowns on highways are frequent.
Trucking regulations overseeing the above issues should be overhauled and
their enforcement strengthened. In particular, safeguards should be in place
such that regulations cannot easily be circumvented by facilitation payments
to government officials and the police. Revised regulations should focus on
rigorous truck driver license testing and semiannual vehicle and chassis road-
ability inspections. Axle loads can be better enforced through more extensive
use of modern (e.g., weigh-in-motion- and systems-enabled, adequately
staffed) permanent weigh stations and the automated monitoring of marine
terminal scales, complemented by regular unscheduled inspections through
mobile scales. Consolidation of the trucking industry can be further encour-
aged by promoting access to more affordable credit for truck carriers. Options
can be explored to reduce the incidence of empty backhauls, promote joint-
venture investments by foreign trucking companies, and develop stronger
emissions control standards.
5. Foster expanded business opportunities at Cai Mep-Thi Vai. The seaport master
plan has not fostered a balance between supply and demand in container
handling at marine terminals. The problem is more serious in the South than
in the North as a result of a proliferation of new terminal construction that

6 Overview
started after 2006 on the basis of haphazard granting of new port operating
licenses. As of September 2012, utilization was 18 percent at Cai Mep-Thi Vai,
and it is expected to barely reach 40 percent by 2020. This suggests the GoV
should take what action it can to minimize further capacity additions unless
demand prospects were to significantly improve.
In the short run, to encourage more linehaul services to call Cai Mep-Thi Vai,
the GoV could (1) further reduce tonnage dues on a temporary basis and
(2) promote the role of Cai Mep-Thi Vai as a transshipment hub for other
Vietnamese and international (e.g., Cambodian) ports. Over the medium term,
the provision of integrated multimodal access to this critical port range will be
needed.
While the above priority recommendations (and those of the report at large)
accurately reflect the sentiment of major freight stakeholders, key further ave-
nues for research and engagement are suggested. These include (1) a better
understanding of Vietnam’s opaque trucking industry (asset and nonasset based)
and the root causes that impede its modernization at a faster pace; (2) detailed
return-on-investment analyses for on-dock rail and similar investments that may
contribute to a larger role of rail intermodal in the country’s freight mix;
(3) an analysis of the nature of the ideal role the GoV should play, if any, in
elevating the logistics management capacity of small and medium-sized shippers
(particularly domestic); and (4) the drivers, market sizing, bottlenecks, and
policies for development of the warehousing/integrated logistics (e.g., logistics
parks) sector. Although this list is far from exhaustive, its components reflect
another logistics bottleneck in Vietnam: the lack of detailed data gathering and
research that can shed light on key issues and submarkets in logistics, and the lack
of formal avenues of engagement between public and private sector actors.
Improvements on this front, through, for example, the introduction of a National
Logistics Committee (which can be modeled in those established by regional
peers Malaysia and Thailand) and/or a National Logistics Observatory (particu-
larly for data gathering at the corridor level) can contribute to competitiveness
by facilitating public and public-private decision making.

Chapter 1
Introduction
The Government of Vietnam (GoV) seeks to promote economic growth, attract

foreign direct investment (FDI), increase employment opportunities, and raise
prosperity. It has increasingly embarked on efforts to attract multinational
companies and enable domestic companies to achieve international standards,
and it has set an ambitious goal for Vietnam to become an industrialized country
by 2020. It is believed that trade competitiveness, primarily driven by
productivity-enhancing freight logistics, can play a major role in this multi-

pronged effort. This is the context that motivated this report.
Objective and Scope

The report has three objectives: (1) to define and describe the drivers shaping
logistics costs in Vietnam, (2) to select the challenges and opportunities for
reducing logistics costs and increasing competitiveness that the GoV should
tackle with the highest level of priority within the next 5–10 years, and (3) to
propose infrastructure and policy-based interventions to address the selected
priority bottlenecks.
To achieve the above goals, this report set out to
• Characterize and identify key performance gaps in infrastructure provision,

particularly with regard to Vietnam’s main freight corridors for domestic and
international freight flows.
• Assess institutional, regulatory, and procedural bottlenecks that may create s upply
chain unpredictability and increase logistics costs.
• Review access to quality for-hire transportation and third-party logistics services,
including the status of facilities and equipment.
• Highlight areas where information technology (IT) and automation can stream-
line processes in international trade and reduce costs.
• Analyze the main challenges facing the deep-water port sector.
Although domestic logistics issues are addressed by the report to some extent
and the views of domestic beneficial cargo owners (BCOs) were taken into

8 Introduction
consideration through face-to-face interviews, the main focus of the report

regards improving competitiveness in international supply chains.1 This is consis-
tent with Vietnam’s model of economic growth, which is highly reliant on not
only exports but also imports of raw materials, machinery, and components neces-
sary to produce export commodities. Further, emphasis is largely placed on con-
tainerized trade—the portion of freight flows moving in domestic trailers and
containers, international (i.e., maritime) containers, and air cargo unit load
devices. This type of freight (mostly comprising manufactured goods and nonbulk
primary products, including food) accounts for the majority of trade by value and
therefore (a) represents the most time- and disruption-sensitive portion of inter-
national supply chains and (b) captures a disproportionate share of logistics costs.
Approach and Methodology

The report was conducted between August and December 2012. The analytical
approach to the report, based on three main pillars representing the three objec-
tives outlined above, is depicted in figure 1.1.
The following activities were implemented as part of the report’s
methodology:
1. A literature review was undertaken using a variety of sources. A key aim of this
exercise was to integrate into a cohesive narrative insights from previous stud-
ies on topics relevant to Vietnam’s transportation and logistics—many of
which had remained largely disconnected to date. A list of sources is reflected
in the references.
2. Market research was conducted to describe, quantitatively when possible, the
current state of Vietnam’s economy and the transport and logistics sector.
Details on the calculations underlying most of the report’s quantitative
estimates are presented in appendix A.
3. Direct feedback was obtained from a variety of freight stakeholders. Detailed
questionnaires were prepared by stakeholder sector—international and
domestic BCOs, ocean carriers, logistics service providers (LSPs), marine

terminal operators (MTOs), and trucking companies—to yield information
about stakeholder-specific operational requirements, challenges, and major
issues. The team compiled and vetted a list of potential companies to i nterview.
Based on this list, the team scheduled and conducted in-person interviews
with 73 entities in August 2012, most of them in Vietnam.
4. Concurrently, a separate list of BCOs, generally small to midsize enter-
prises, was prepared. These stakeholders were requested to complete an
exporter-importer questionnaire using an online survey tool. Four compa-
nies completed this online questionnaire, the results of which were merged
into the exporter-importer master file.
5. Interviews were also conducted with four GoV ministries and four industry
and trade associations of Vietnam. A full list of the firms and entities inter-
viewed and surveyed is provided in appendix C.

Introduction 9
Figure 1.1 Analytical Approach
Guiding questions
What is the situation? What should be prioritized? What actions to undertake?
• Review literature • Synthetize and categorize • Identify feasible interventions

challenges and opportunities
• Conduct market research to • Assess potential savings in
describe current situation: • Use multicriteria analysis to logistics costs
economic context, subsector- determine and justify
specific status of transport and prioritization rationale for • Develop implementation
logistics industry, and key freight highest-priority challenges strategies
corridors and opportunities • Identify risks and obstacles;
• Interview key freight where relevant, recommend
stakeholders (e.g., shippers potential funding sources
and Iogistics service providers)
• Define “success”under each
• Derive comprehensive list of scenario
challenges and opportunities
Output Output Output

• Detailed description of current • List of highest-priority • List of actionable
situation (chapter 2) challenges and opportunities recommendations to address
to reduce logistics costs and challenges and opportunities to
• Stakeholder feedback on major increase trade competitiveness reduce logistics costs
challenges and opportunities (chapter 4) (chapter 4)
(chapter 3)
Priority public sector interventions in multimodal transport and logistics to reduce

Vietnam's logistics costs and increase competitiveness
6. A list of key challenges was compiled based on (a) analysis of interview

testimonies, (b) findings from market research and the literature review, and
(c) the study team’s own logistics-related professional experience in Vietnam
as industry practitioners (e.g., in container shipping and manufacturing). These
challenges were then ranked using multicriteria analysis, from which a list of
the five highest-priority challenges in transportation and logistics facing
Vietnam was obtained.
7. Last, recommendations were developed on potential public and public-private
initiatives to address the chosen highest-priority challenges. Recommendations
were further contextualized and fleshed out by (a) defining feasible imple-
mentation strategies, (b) highlighting implementation risks, (c) identifying
roles, responsibilities, and potential funding mechanisms where relevant, and
(d) defining feasible outputs and outcomes from the recommended measures
as a suggested definition of implementation success.

10 Introduction
Note
1. For the purposes of this report, a country’s international competitiveness is the extent
to which foreign entities (e.g., multinational firms) can source or manufacture
products in the country in question and bring them to consumption markets (typically
their home markets) at a lower level of total logistics costs per cubic meter (including
transport, trade, and inventory carrying costs) compared to sourcing or manufacturing
in other foreign countries.

Chapter 2
Vietnam’s Current Situation
Economic Overview
Gross Domestic Product and Reliance on Export‑Driven Growth
Over the past two decades,1 Vietnam has achieved sustained, rapid economic
growth, moving from a primarily agriculture-based economy to one emphasizing
industry and export-oriented activity (see figure 2.1).
Vietnam’s annual rate of gross domestic product (GDP) growth has been
steady at 6–8 percent over the past 20 years (see table 2.1). By economic sector,
some of the highest rates of growth have been registered for the industry and
construction sector, particularly during the periods 1990–95 and 2001–05.
Growth in primary natural resources (agriculture, forestry, and fisheries) has
slowed in the period 2006–11, while growth in services has increased.
Vietnam’s 2007 inclusion as a member of the World Trade Organization
(WTO) has led to further changes in the country’s economic position, attracting
increased FDI and germinating more home-grown, privately owned enterprises.
This has combined with a history of rapid growth in international trade to
heighten then need for a robust transportation and logistics sector.
Despite two decades of sustained growth, solid poverty reduction and largely
positive economic trends, in the last few years key macroeconomic indicators in
Vietnam have foreshadowed a more tempered outlook. Real GDP growth has
decelerated, going from 6.8 percent in 2010 to 5.9 percent in 2011, and further
to 5.0 percent in 2012—the lowest annual expansion for Vietnam since 1999
and only the second time the country has grown at 5.0 percent or less since 1990
(Vietnam General Statistics Office 2011). Having reached double-digit rates (of
near or above 20 percent) in recent years, inflation has become an everyday con-
cern for Vietnamese citizens and investors alike. This tenuous balance between
growth, inflation, and the sustenance of FDI will continue to be a challenge and
only highlights the need to increase trade competitiveness, including transporta-
tion and logistics, as a means to continue to attract international businesses.
Transportation and logistics are critical to the everyday functioning of
investment- and export-led economic models like Vietnam’s. Main exported

commodities include primary products such as agribusiness commodities

12 Vietnam’s Current Situation
Figure 2.1 Vietnam GDP by Industry Sector, 1990–2011

Trillion Vietnamese dong
30,000
25,000
20,000
15,000
10,000
5,000
0
90
92
94
96
98
00
02
04
06
08
10
19
19
19
19
19
20
20
20
20
20
20
Total Agriculture, forestry, and fishing
Industry and construction Services
Source: Vietnam General Statistics Office 2011.

Note: GDP = gross domestic product. Data for 2011 are preliminary.
Table 2.1 Vietnam Average Annual GDP Growth by Sector

Average annual percentage growth in real terms
Sector 1990–95 1996–2000 2001–05 2006–11
GDP growth rate 7.9 6.2 7.4 6.3
Agriculture, forestry, and fisheries 4.0 4.3 4.0 3.3
Industry and construction 11.3 9.2 10.0 6.7
Services 8.2 4.8 6.6 7.2
Note: GDP = gross domestic product.
(e.g., seafood, rice, and coffee) and crude oil, and manufactured products like
garments and textiles, footwear, wood products (e.g., furniture), and electronics.
In a recent Trade and Transport Facilitation Assessment for Vietnam conducted by
the World Bank (Pham et al. 2013), six commodities were selected as Vietnam’s
foremost strategic export commodities: electronic components, footwear, apparel
and textiles, seafood, coffee, and rice. Figure 2.2 illustrates the production origin
distribution of these key commodities, by region. The Red River Delta (home to
Hanoi) and South East (home to Ho Chi Minh City [HCMC]) regions are
dominant production origins for manufactured products. The broader

Mekong River Delta region (including the adjacent South East region) accounts

Vietnam’s Current Situation 13
Figure 2.2 Regional Origin of Vietnam’s Six Key Export Commodities
Electronic
components
Footwear
Apprel
and textiles
Coffee
Seafood
Rice
0 20 40 60 80 100
Percent
Red River Delta North Central and Coastal Areas
South East Central Highlands
Mekong River Delta Northern Mountain Areas
Source: TDSI 2012.
for the majority of rice and seafood exports. Coffee production is concentrated in
the Central Highlands region.
Vietnam imports proportionally more manufactured products (e.g., machin-
ery and parts, fuel [imported after processing], fabrics, steel, and e lectronics)
than raw materials or primary products, and the import content of Vietnamese
exports is substantial. Imports account for 58 percent2 of the dollar value of
manufactured products that are most likely to be used in the manufacture of
exports. Take two of Vietnam’s largest exports—apparel and footwear.
Imported raw materials used in the manufacturing of apparel exports account
for 70–80 percent of the value of the end product. The equivalent number for
footwear exports stands at around 50 percent. This heavy reliance on imported
inputs impacts Vietnam’s trade balance and makes for a unique set of logistics
challenges, where realizing efficiencies in import supply chains becomes par-
ticularly critical. From a logistics p
erspective, this means that Vietnam generally
lacks the supplier clusters and integrated supply chains that have been so criti-
cal in the development of other export-led economies, most notably China but
pioneered decades ago in Japan. Import dependence substantially increases the
overall risk profile of assembly lines and supply chains and is particularly criti-
cal to certain industries, such as auto manufacturing.
Vietnam’s trade patterns are concentrated (see table 2.2). The United States,
the European Union (EU), China, and Japan account for more than half of the
country’s exports major. Similarly, China alone accounts for nearly a quarter of
Vietnam’s imports. Imports from China, the Republic of Korea, Japan, Taiwan,
and the EU already represent 60 percent of the country’s total.

Table 2.2 Vietnam’s Top 12 Trading Partners, 2011

Exports Imports
Destination country Value (million $) Percent total Origination country Value (million $) Percent total
United States 16,928 17 China 24,594 23
European Union 16,545 17 Korea, Rep. 13,176 12
China 11,125 11 Japan 10,400 10
Japan 10,781 11 Taiwan 8,557 8
Korea, Rep. 4,715 5 European Union 7,747 7
Malaysia 2,832 3 Singapore 6,391 6
Australia 2,519 3 Thailand 6,384 6
Cambodia 2,407 2 United States 4,529 4
Indonesia 2,359 2 Malaysia 3,920 4
Singapore 2,286 2 India 2,346 2
Hong Kong SAR, China 2,206 2 Indonesia 2,248 2
South Africa 1,864 2 Australia 2,123 2
Note: Countries in the EU refer to the EU-27 grouping.
Demographic and Socioeconomic Overview

Vietnam has been benefiting from what is sometimes referred to as a “demo-
graphic dividend”—the acceleration of economic growth derived from an increas-
ing supply of young workers coupled with a declining dependency ratio.3 As the
populations of neighboring countries such as Japan, Korea, and China have aged,
the percentage of the Vietnamese population between the ages of 15 and 64 has
seen faster growth (as of 2009, 69 percent of Vietnam’s population was in that
age bracket; Vietnam General Statistics Office 2011). This has provided Vietnam
with a competitive advantage in labor costs. While China’s manufacturing labor
costs are growing at double-digit rates—and have done so for several years—
Vietnam’s labor costs remain attractive throughout developing Asia (see figure
2.3). Yet the country’s demographic shift is rapidly changing. It is projected that
Vietnam’s working age population will grow at a rate of 0.6 percent per year in
the next decade, compared with 2.8 percent in the 10 years to 2010 (Breu and
Dobbs 2012). In order for Vietnam to maintain its competitive edge, productivity
gains will need to gradually replace, and in the short term more prominently
complement, the growth-boosting effect of an expanding work force.
Vietnam’s population distribution is largely concentrated in two regions: the
Northern region (the Red River Delta and the region around Hanoi) and the
Southern region (the Mekong River Delta and the region around HCMC). Each
of these regions accommodates one-third (10 million) of the total national urban
population (World Bank 2011). Not surprisingly, these regions account for a
significant amount of the country’s GDP and, by extension, its demand for logis-
tics and transport services (see map 2.1). The municipality of HCMC alone is
responsible for 23 percent of the nation’s total output, followed by the HCMC-
adjacent provinces of Dong Nai, Ba Ria-Vung Tau, and Binh Duong in Southern

Figure 2.3 Average Worker Monthly Base Salary in Select Cities of Developing Asian
Countries, 2011
Dollars
600
500
400
300
200
100
0
ng ila
en re
Sh Dal n
en ian
Ne ngk g
an g
Gu Mumhai
al gz ai
um ou
W pur
Ba Man n
en i
ng ai
Ja ao
na a
Ce g
Ka bu
lo hi
H bo
en C
no Ha e
P i
Ah D enh
ed ka
Ya bad
on
w ok
Ch elh
m no
Da rt
n
a
Ba yan
Sh eijin
Vi CM
Ku an b
Qi n
Co rac
Sh alo
m ha
d
uh
zh
tia
aL h
ng
m
ka
g
a
B
Ph
Source: JETRO 2012.
Note: Red bars represent cities in Vietnam. HCMC = Ho Chi Minh City.
Vietnam, and the municipality of Hanoi in Northern Vietnam, each comprising

10 percent of output. In other words, five municipalities/provinces (out of a total
of 63 provincial-level jurisdictions) are responsible for more than half of national
output. In 2011 the HCMC and Hanoi areas accounted for 62.4 percent and
34.7 percent, respectively, of Vietnam’s ocean container throughput.
Business Climate
Vietnam is seen by actual and prospective international investors as an attractive
yet challenging base for sourcing and manufacturing.4 The World Bank’s Doing
Business in 2013 (2012a) database ranks Vietnam 99 out of 185 economies on a
set of indicators ranging from starting a business to dealing with construction
permits, getting electricity, registering property, getting credit, protecting inves-
tors, paying taxes, trading across borders, enforcing contracts, and resolving insol-
vency (World Bank 2012a). Vietnam’s ranking compares favorably with that of
neighbors Cambodia, Indonesia, the Lao People’s Democratic Republic, and the
Philippines, but is below that of China, Malaysia, and Thailand, and the East Asia
and Pacific regional average.
Since the mid-1990s, and particularly over the past 10 years, Vietnam has
consistently attracted international firms looking to open factories and conduct
transnational operations. However, key challenges remain to not only attract new
investments but also retain those that have arrived. This section will discuss four
such challenges: (1) macroeconomic stability and inflation, (2) inconsistent regu-
latory environment and administrative burdens, (3) facilitation payments and
other forms of corruption, and (4) transparency, intellectual property, and “soft”
trade barriers.

Map 2.1 Vietnam: Economic Geography
Population density Vietnam’s key

(proxy for economic activity) logistics-intense regions
Population density
Persons/km2
<200
200–1,100
1,101–2,000
>2,000
Source: Authors with data from Vietnam General Statistics Office.

Macroeconomic Stability and Inflation

Vietnam has seen double-digit inflationary pressure in recent years. Consumer
prices increased 23 percent in 2008 and 19 percent in 2011. Between 2007 and
2011, Vietnam’s average annual inflation rate (14 percent) was significantly
higher than that of any of its main Southeast Asian developing economy neigh-
bors.5 While this has reduced purchasing power for everyday goods and services,
it has also driven borrowing costs out of reach for many businesses and entrepre-
neurs. This recent history of instability forced the State Bank of Vietnam,
Vietnam’s central bank, to switch its policy stance from primarily supporting
growth to primarily taming inflation and bolstering market confidence. In
February 2012, Vietnam passed Resolution 11, a major effort to restore macro-
economic stability and slow the growth of an “overheating” economy.6 The reso-
lution’s goals are to address high levels of inflation, tension in the foreign
exchange market, high nominal interest rates, and declining foreign exchange
reserves.7
Beyond causing market instability, inflation jeopardizes Vietnam’s ability to
provide a low-cost workforce for labor-intensive industries. A recent survey of 50
U.S. importers found that Vietnam was considered the most attractive alternative
to China as a sourcing location for manufactured products (Kulisch 2012).
Perceptions like these, which suggest that Vietnam faces a significant opportunity
to continue to gain global manufacturing share, could be reversed if the country’s
macroeconomic fundamentals continue to cause market anxiety.
Inconsistent Regulatory Environment and Administrative Burdens

Managing unpredictability and coping with delays are critical components of
conducting business in Vietnam. According to the US-ASEAN Business Council,
“Vietnam does not implement regulations consistently … the government may
start down a good path, but then special interest groups pressure the government
for special favors, which throws the government off-course.” Regulatory uncer-
tainty adds to the administrative burden of freight stakeholders, who are subject
to monitoring over 5,700 Administrative Procedures and 9,000 legal documents
(EuroCham 2012).
While much remains to be done, some efforts are under way to reduce regula-
tory complexity. For example, Project 30, an initiative sponsored by the U.S.
Vietnam Trade Council and the U.S. Agency for International Development,
aims to reduce compliance costs for businesses and citizens by 30 percent by
documenting administrative procedures in a database and developing a plan to
simplify them (Schwarz 2010). As Vietnam continues to provide basic infra-
structure, regulatory reforms will become an increasingly central component of
any strategy to increase competitiveness.
Facilitation Payments and Other Forms of Corruption

Facilitation payments to the General Department of Vietnam Customs (hereaf-
ter “Vietnam Customs” or simply “Customs”) officials and the police are a com-
mon occurrence in Vietnam, despite this being illegal under Vietnamese

anticorruption laws.8 These payments most typically take place to expedite the
customs clearance process or to mitigate traffic citations that delay the delivery
of containers en route to factories or ports. Several factors contribute to this.
A lack of meritocracy in both access to public sector jobs and the achievement
of career progression milestones (such as salary increases and promotions) is a
primary driving force behind the incidence of facilitation payments.9 But the
supply side also plays a major role, as freight stakeholders—and notably logistics
service providers (LSPs)10 on behalf of BCOs—generally perceive and/or assume
these payments to be “normal” or a “standard practice” and often initiate them on
that basis.
Facilitation takes place in a variety of ways, from invitations to entertainment
(e.g., social events and sporting activities) to outright cash payments of “tea”
money. In whatever form it takes, facilitation payments are built into the customs
brokerage and trucking rates LSPs and trucking companies charge BCOs, as con-
firmed by firms interviewed for this study. As a result, it is estimated that facilita-
tion payments range from 10 percent to 15 percent of the total origin cost to
import a container of raw materials or to export a container of general merchan-
dise. This is not insignificant and contrasts with the fact that facilitation payments
are often considered “petty” and not a “serious” source of economic impact.
It is noted that facilitation payments are the most common but hardly the
only form of corruption impacting domestic and international supply chains.
Actions undertaken with the intention of using public funds for one’s own ben-
efit, falsifying the import or export value of products, deceitfully misclassifying
cargo to receive more favorable duty rates, or outright bribery to reduce operat-
ing costs are additional examples of corrupt practices—and considered as such by
both Vietnamese and international law. Overwhelmingly, businesses, both
domestic and foreign, during interviews for this study stated the need for a more
transparent supply chain where there is visibility in product flow and a clear and
open customs clearance process with transparent costs.
The Government of Vietnam (GoV) implemented an Anti-Corruption Law
in 2005 (since revised in 2007), that criminalizes corruption; the law focused
extensively on public sector corruption. In addition, in 2009 the GoV adopted a
National Anti-Corruption Strategy to 2020, which explicitly recognizes the role
of openness and transparency in reducing corruption (World Bank 2009). While
modest improvements have been attained, most international firms interviewed
for this report still consider corruption an impediment to their operations and a
source of logistics costs.
Transparency, Intellectual Property, and “Soft” Trade Barriers

International standards for many businesses relate not to the “hard” infrastructure
of investments in quality roads, bridges and ports, but to “soft” infrastructure such
as labor conditions, legal rights, environmental protection, and transparency.
Many recent international agreements, such as the entry into the WTO and the
ASEAN Economic Community (AEC), require Vietnam to bring the level of
transparency and business climate up to an international standard. The most

recent effort relates to compliance with the Trans-Pacific Partnership (TPP), a

new regional trade agreement originally meant to be signed by the end of 2012
(Williams 2013). This is a multilateral free trade agreement aimed at expanding
the flow of goods, services, and capital across borders and to encourage a free
trade area between nine different nations. The TPP is one of many efforts of the
last several years to bring Vietnam to the forefront in terms of international trade.
However, it is still uncertain how quickly the business climate will change
because of these agreements.
Freight Transport Market Structure

Vietnam’s freight transport market, on a tonnage basis, is dominated by two
modes: inland waterway transport (IWT) and the roads sector. When demand
is measured in ton-kilometers (ton-km), coastal shipping (a mode naturally
exposed to long lengths of haul), emerges as a third dominant mode. Table 2.3
shows the estimated modal share for freight volumes in Vietnam in 2008
and the projected modal share for 2030, as estimated by a recent comprehen-
sive study of the Vietnam transport system (JICA 2009). It is noteworthy that
the projected reductions in modal share captured by inland waterways are
the direct result of Vietnam’s economic transition to becoming a more
manufacturing-intensive economy by 2030. Manufactured products are over-
whelmingly containerized and have a higher value-to-weight ratio than most
Table 2.3 Vietnam’s Freight Volumes by Mode, 2008 and Forecast to 2030

Year Road Rail Inland waterway Coastal shipping Air All modes
(millions of tons)a
2008 181 8 193 17 0.1 400
2030 640 47 395 38 0.3 1,119
Tonnage share (%)
2008 45.4 1.9 48.3 4.4 0.0 100
2030 57.2 4.2 35.3 3.4 0.0 100
Average length of haul (km)
2008 143 400 112 1,161 1,404 178
2030 201 509 122 1,107 1,348 217
Billions of ton-km
2008 26 3 22 20 0.1 71
2030 129 24 48 42 0.4 243
Ton-km share (%)
2008 36.6 4.3 30.4 28.5 0.1 100
2030 53.0 9.8 19.9 17.2 0.2 100
Average annual growth rate (%) 2008–30
Tons 5.9 8.5 3.3 3.6 6.5 4.8
Ton-km 7.5 9.7 3.7 3.4 6.3 5.7
Source: Blancas and El-Hifnawi (2013) compiled using data from JICA (2009).
a. Per-day data as reported by JICA (2009) multiplied by 300.

commodities currently moving over the waterways. Accordingly, the share of

freight flows captured by the roads sector is expected to increase from
45.4 percent in 2008 to 57.2 percent in 2030. It is also worth emphasizing that
rail is expected to continue to be a relatively insignificant mode of freight trans-
port even through 2030.
Transportation Planning Structure

Transportation planning and management in Vietnam is conducted at the
national, provincial, and local levels (see figure 2.4). The Ministry of Transport
(MoT) has responsibility over planning, constructing, and maintaining national-
level transport infrastructure and for assisting local governments in project selec-
tion. It also sets national-level policy and regulations. Every five years, in the
context of the national Public Investment Program, the MoT prepares a five-year
plan outlining long-term transport strategies. Every 12 months it prepares an
annual plan for inclusion in the annual state budget, consistent with the priorities
and directives set forth in the five-year plan. Provincial Departments of Transport
are in charge of implementing provincial-level transportation projects with MoT
support, under the guidance of Provincial People’s Committees.
Figure 2.4 Structure of Government Institutions in the Transport Sector
Prime Minister
Chairmen of People’s Minister of Ministers and heads

Committee of Transport of ministerial-level
provinces and cities Vice Minister (6) agencies covering
transport
PDOTs Directly Subordinate Project

(Provincial General Institutes
Modal Administration Corporations Management
Departments Departments and Schools
• Roads (DRVN) Units
of Transport) • Railways (VNRA)
• Inland Waterways
(VIWA)
• Maritime (Vinamarine)
• Civil Aviation (CAAV)
• Vietnam Register (VR) SOEs Ministries
SOEs under (under decision No. 91
• Engineering and with dedicated ports
provincial TTg/1994) and own-account
Quality Management
authorities transport companies
(TCQM) • Shipbuilding Industry
• Transport Health (THA) Group (Vinashin) • Industry and Trade
• National shipping • Agriculture and
Lines (Vinalines) Rural Development
SOEs under • Vietnam Airlines
Local MoT Modal Corporation (VAC) • Defense
transport Administration • Vietnam Railway
companies 1. DRVN Corporation (VNR)
(road and coastal 2. Vlinamarine
shipping) 3. VIWA
Source: Ministry of Transport of Vietnam. See appendix G for details.

Note: SOE = State-Owned Enterprise.

Under the MoT, sectoral departments responsible for ports, inland waterways,
highways, rail, and airports tend to operate in silos or “stove pipes” when develop-
ing, funding, implementing, and operating transportation infrastructure projects.
Projects that may require interdisciplinary planning are in practice split into
subprojects assigned to different agencies. This fragmented planning process
results, for example, in access roads to new ports not being completed when the
ports’ terminals open to handle cargo, or newly built bridges that become clear-
ance bottlenecks for IWT.
Logistics Costs
Table 2.4 lists the cost to import11 a single 40-foot container (FEU) of raw
materials or components into Vietnam from Busan, Korea, to be used in the
manufacture of export products. Estimated at $1,015, the cost is $8 per FEU
higher than the equivalent cost for Yantian, China, and $280 lower than that
for Jakarta, Indonesia. The $515 per FEU origin cost includes estimated facili-
tation payments to Customs officials and police of $78, or 15.1 percent (see
appendix A) of the total origin cost.
Table 2.5 shows the cost to export12 a single 40-foot container of general
merchandise from HCMC to Los Angeles, California, that a major BCO might
pay in 2012. The total landed cost, without destination duty, is $92 less expen-
sive than a shipment from Yantian, China, to Los Angeles and $205 less than a
shipment from Jakarta, Indonesia, to Los Angeles. Vietnam’s $572 per FEU origin
cost, which includes estimated facilitation payments to Customs officials and
Table 2.4 Import Cost Comparisons for 40-Foot Container of General Merchandise

U.S. dollars
Import: estimated landed cost per FEU at origin from Busan, Korea, Rep.
Country Origin cost Ocean freight Total Over/under Vietnam’s landed cost per FEU
Vietnam 515 500 1,015 n.a.
China 707 300 1,007 (8)
Indonesia 595 700 1,295 280
Source: Authors. See table A.2 for further details.
Note: FEU = 40-foot equivalent unit container; n.a. = not applicable.
Table 2.5 Export Landed Cost Comparisons for 40-Foot Container of General Merchandise
U.S. dollars
Estimated landed cost per FEU in Los Angeles, California
Vietnam 572 1,960 2,532 n.a.
China 774 1,850 2,624 92
Indonesia 637 2,100 2,737 205
Source: Authors. See table A.2 for further details.
Note: FEU = 40-foot equivalent unit container; n.a. = not applicable.

police of $76.5, or 13.4 percent (see table A.5) of the total origin cost, is less than
the comparable origin costs in South China and Indonesia.
The above results, which suggest that Vietnam’s logistics costs are about on
par with China’s and below those of Indonesia, may appear contrary to oft-cited
reports that Vietnam’s logistics costs are 25 percent of GDP (JICA 2009; KPMG
2010; Vietnam Chamber of Commerce and Industry 2012). Such a level of costs,
the reports contend, compares unfavorably with China and Indonesia, where
logistics costs are estimated to be on the order of 18–20 percent of GDP.
However, these ratios must be taken with great caution for at least two reasons.
First, some studies have also stated that Vietnam’s logistics costs as a percentage
of GDP are much lower, closer to 15 percent (Meyrick and Associates Transport
development and strategy institute, and BPO 2006) and, by one estimate, per-
haps as low as 13 percent.13 Thus, there appears to be a wide margin of variation
around any one estimate. Second, and most importantly, substantially all of the
above reports fail to publish the methodologies and data sources behind their
estimates, making their accuracy and validity difficult to assess. This is in stark
contrast to technical studies developed by an increasing number of countries
around the world (Brazil, Finland, South Africa, and the United States are but a
few examples) where nationwide logistics costs are estimated on the basis of
clearly defined methodologies that are open to scientific scrutiny.14 Since
Vietnam is yet to conduct formal assessments of this kind,15 available estimates
suggesting logistics costs to be up to 25 percent of GDP can only be seen as
rough indications of how high these costs truly are.
What is available for Vietnam on the basis of verifiable, analytically consistent
methodologies are logistics and trade facilitation indices that (1) are summary
measures of nationwide logistics efficiency, (2) are calculated primarily based on
structured surveys of logistics operators and industry practitioners (these surveys
are often complemented by quantitative data on logistics performance), and (3)
by virtue of their methodology, are meaningfully comparable across countries
(something that may not always be the case when logistics costs, in monetary
terms, are expressed as a ratio to GDP). One such metric, widely used by aca-
demics, policymakers, and practitioners, is the World Bank’s International
Logistics Performance Index (LPI; Arvis et al. 2012). According to the 2012
International LPI rankings, Vietnam outperforms regional peers Cambodia,
Indonesia, Lao PDR, and Myanmar, is about on par with the Philippines, and lags
China, Malaysia, and Thailand. This finding, coupled with existing high-level
estimates of logistics costs as a percentage of GDP in Vietnam, would suggest
that Vietnam’s logistics costs relative to its peers situate the country somewhere
in the middle of the Southeast Asia region—below those of some countries but
still above those of key competitors in extended supply chains. This broadly
reflects Vietnam’s newly earned position as a lower middle income country,
where many of the lower-hanging fruits in logistics performance (e.g., access to
basic road infrastructure, adequate electricity supply, and availability of basic
services) have been harvested, and productivity-boosting, well-coordinated (e.g.,
multimodal) investments and institutional reforms have now become a priority.

The following obstacles are key contributors to logistics costs in Vietnam

being higher than those of some regional peers:
1. High reliance on trucking as a mode compared with less expensive rail for
shipping products over longer distances. Because of Vietnam’s elongated geog-
raphy, this can be a sizable cost given the distances from HCMC/Mekong
Delta, where the majority of nonimported consumer goods are grown or man-
ufactured, to distribution facilities in the central and northern regions.
2. Facilitation payments are made to Customs and police officials to keep prod-
ucts flowing through supply chains; this increases the cost of customs clear-
ance and trucking and increases itinerary unpredictability.
3. Congestion related to inadequate highway infrastructure (e.g., weight limits
and bridge clearances on key roads are often incompatible with container traf-
fic) and the still poor quality of many highways reduces the speed (intercity
truck speeds in Vietnam average 35 km per hour; World Bank 2011), reliabil-
ity, and load capacity of truck shipments.
4. The distribution network is fragmented, forcing BCOs to contract with many
companies (suppliers, LSPs, trucking companies, etc.) to get their products to
market, making it difficult for long-standing relationships (e.g., core carrier
programs) to be established with supply chain partners.
5. The national truck fleet is old.16 This increases maintenance expenses for
truckers, and frequent truck breakdowns further contribute to unpredictable
transit times. Higher-value goods are handled by LSPs that offer international
standards for road transport service at a higher delivery cost. Some value-dense
electronic products are shipped from HCMC to Danang or Hanoi by air and
delivered only over the last mile by truck to urban retail outlets.
6. Clearing customs is a more time-consuming and unpredictable process com-
pared with some of Vietnam’s peers, forcing just-in-time (JIT) manufacturers
to carry more inventory to keep production lines operating.
7. Domestic BCOs shipping lower-value products overwhelmingly contract with
domestic LSPs that focus on cost rather than service, resulting in erratic and
extended transit times that have to be covered by higher inventory levels.
8. With nearly 30 reported fatal motor crashes daily, Vietnam’s roads remain
unsafe. In addition to the needless toll in human lives that this causes, unsafe
roads contribute to unreliability in supply chains and increase logistics costs.
Status of Existing Infrastructure

Ports and Marine Terminals
Vietnam’s container trade is sizable and has a strong record of sustained growth—
mirroring the economy as a whole. Vietnamese container terminals handled
7.7 million TEUs in 2011 (see table 2.6). The sector generated over $300 million
of revenue from handling and associated port charges that year.
In another parallel to the broader economy, container-handling activity in
Vietnam is highly concentrated: It is focused on the two key shipping centers of

Table 2.6 Vietnam: Container Ports, Handling Volumes, 2007–11

Port throughput (TEUs) 2011 2010 2009 2008 2007
Southern region 4,801,324 4,509,312 3,821,471 3,736,663 3,502,900
Saigon New Port (Cat Lai) 2,597,684 2,559,305 2,460,000 2,017,863 1,849,746
VICT 374,248 297,561 306,834 540,122 572,045
Saigon Port 308,937 401,982 378,226 510,496 350,418
ICD Phuoc Long (Midstream) 168,714 145,252 224,757 303,688 370,379
Ben Nghe 154,573 210,549 140,922 188,815 218,004
Bong Sen 56,543 4,498 23,896 24,252 24,000
Binh Duong 62,182 97,782 60,000 109,943 72,033
SPCT 139,772 95,934 8,000 0 0
Dong Nai 3,191 0 0 0 0
Cai Mep-Thi Vai terminals 893,150 657,335 191,929 0 0
Others 42,330 39,114 26,907 41,484 46,275
Central region 219,365 202,983 142,229 154,594 128,954
Danang 114,373 89,199 69,720 61,881 53,372
Qui Nhon 62,549 72,224 54,649 72,276 61,826
Nha Trang 727 2,573 3,942 4,322 4,556
Others 41,716 38,987 13,918 16,115 9,200
Northern region 2,662,605 2,442,541 2,159,941 1,569,485 1,238,453
Haiphong Port (Hoang Dieu/Chua Ve) 727,000 795,000 715,831 790,000 683,689
Other Haiphong Terminals 884,500 864,555 874,171 526,503 402,864
Dinh Vu Terminals 907,124 664,647 459,000 232,982 131,200
Cai Lan (excluding barge moves) 143,981 118,839 110,939 20,000 20,700
Total 7,683,294 7,154,836 6,123,641 5,460,742 4,870,307
Growth % year over year 7.4 16.8 12.1 12.1 29.5
Compound annual growth rate (%) 2000–11 16.8
HCMC/Cai Mep region as % of total 62.4 63.0 62.4 68.4 71.9
Haiphong/Cai Lan region as % of total 34.7 34.1 35.3 28.7 25.4
Source: Authors, Vietnam Port Association, interviews with port operators, and Liner Research Services.
Note: ICD = Inland Container Depot; TEU = 20-foot equivalent unit container.
HCMC and Haiphong, including their respective satellite ports of Cai Mep-Thi
Vai and Cai Lan. Put together, these locations account for 97 percent of the
country’s total container-handling volumes.17
Vietnam’s container flows grew at an impressive average annual rate of
16.8 percent between 2000 and 2011 (see figure 2.5). However, after an
initial period of rapid growth (from a low base) between 2000 and 2007,
when annual growth averaged 19.7 percent, growth rates since have tem-
pered to about 12 percent per annum. Going forward, it is estimated18 that
Vietnam’s nationwide container volumes will grow at an average annual rate
of 8–9 percent through 2020.
Regional volume breakdowns reveal differentiated growth rates over the past
10 years. The northern region recorded the highest average growth in container
volumes over the 2000–11 period (24.5 percent), while the relatively more
mature southern region recorded an annual growth rate of 14.3 percent. In
addition to rapid development of manufacturing activity in the Hanoi area


Figure 2.5 Vietnam: Container Handling Volume by Region, 2000–11
9
Total container handling, millions of TEU
8
7
6
5
4
3
2
1
0
00
01
02
07
08
03
04
05
06
09
10
11
20
20
20
20
20
20
20
20
20
20
20
20
Year-over-year growth (%) Central region
Northern region Southern region
60
Annual handling growth rate by region (%)
50
Average annual
40 growth 2000–11
30 North: 24.5%
Central: 15.7%
20 South: 14.3%
Vietnam: 16.8%
10
–10
–20
00
01
02
03
04
05
06
07
08
09
10
11
20
20
20
20
20
20
20
20
20
20
20
20
Central region Northern region Southern region
Source: Liner Research Services and Vietnam Port Authority.

Note: TEU = 20-foot equivalent unit container.
(e.g., electronics), growth at the northern ports has been supported by the grow-
ing cross-border transit trade with southern China, through the border gates at
Mong Cai, Lang Son, and Lao Cai. Although official statistics on container move-
ment at the border gates are lacking, this cargo is estimated to account for
approximately 400,000 TEUs, or 15 percent of the throughput passing through
the Haiphong and Cai Lan terminals in 2011. It is expected that container flows
at Northern Vietnam ports will continue to grow slightly faster than those of
Southern Vietnam through 2020, at annual rates of approximately 8.5–9.0 percent
and 8.0–8.5 percent, respectively.

Port Planning Process

Vietnam has adopted a centralized port planning process. A seaport system
development master plan is issued every 10 years. The most recent seaport mas-
ter plans were approved in October 1999 (Decision No. 202/1999/QD-TTg), for
the Master Plan to 2010, and in December 2009 (Decision No. 2190/QD-TTg)
for the Master Plan to 2020.
The current master plan separates the Vietnam seaport system under six
groups, with national ports separated into three categories (see map 2.2):
• An international transit port: Van Phong (planned)

• International gateway ports: Haiphong and Ba Ria-Vung Tau and
• Various regional major ports, including HCMC.
Despite the periodic formulation of seaport master plans, Vietnam’s port

planning process has tended to emphasize quantity over quality. Far from
responding to an overarching national strategy on ports and multimodal trans-
port, local governments continue to exert significant influence on the issuance of
new port development licenses, elevating the risk of approving wasteful invest-
ment projects and fostering demand-supply mismatches.
Nowhere is this truer than in HCMC and the Cai Mep-Thi Vai port range. Just
as cargo volumes began decelerating in 2007–08, several licenses were granted in
quick succession (and contrary to what initial plans suggested—the very plans
upon which the financial viability of many such investments was determined) in
a rush to develop Vietnam’s nascent deep-water port sector at Cai Mep-Thi Vai,
about 80 kilometers outside HCMC. By mid-2009, as the new terminals became
operational, slower-growing volumes began to be dispersed over a growing num-
ber of terminals, both in HCMC proper and at Cai Mep-Thi Vai.
The resulting overcapacity led to severe price competition among marine ter-
minal operators (MTOs), which still continues and undermines the financial
sustainability of both new and existing facilities. As volume growth has remained
subdued in the wake of the global financial and economic crises and the contin-
ued economic challenges outlined earlier, many of the new deep-water ports are
becoming increasingly less attractive to global container shipping carriers, whose
profitability is largely determined by economies of scale. Meanwhile, policies that
could bring more volumes to starved facilities, such as better and more rapid
development of land-side infrastructure in the hinterland of Cai Mep-Thi Vai,
relocation or closure of HCMC inner-city ports, and financial incentives to con-
tainer shipping carriers (through lower fees, for example), are yet to materialize.
But planning and execution challenges in the ports sector are not limited to
Southern Vietnam. The GoV continues to promote the building of a major trans-
shipment port at Van Phong despite the lack of cargo demand and investor inter-
est. A similar problem with overbuilding and lack of coordinated policy solutions
as in Cai Mep-Thi Vai may be developing in the northern region, with the simul-
taneous construction of new terminal facilities at Haiphong, Dinh Vu, Cai Lan,
Lach Huyen, and potentially South Do Son.

Map 2.2 Vietnam: Six Port Groups and Main Container Ports (above 10,000 TEUs per annum)
Percentage of Vietnam
container throughput (2011)
Cai Lan
Group 1:
Haiphong
Dinh Vu Northern seaports
from Quang Ninh to Ninh Binh 35%
Group 2:
Cua Lo Northern Central seaports 0%
(Nghe Tinh) from Thanh Hoa to Ha Tinh
Group 3:
Ports handling > 50,000 TEU Danang Central seaports 1%
from Quang Binh to Quang Ngai
Ports handling up to 50,000 TEU Ky Ha
New ports planned
Qui Nhon
Group 4:
Van Phong Southern Central seaports
from Binh Dinh to Binh Thuan 1%
(Planned)
Ho Chi Minh
City
Group 5:
My Tho Cai Mep Southeastern seaports 62%
Can Tho Group 6:

Mekong delta seaports 1%
(including Southeastern Islands)
Source: Liner Research Services.

The following sections will take a closer look at the imbalances plaguing
Vietnam’s ports sector. Given the prominence of this sector in logistics opera-
tions, these imbalances have inevitably impacted the country’s overall interna-
tional competitiveness.
Demand and Supply Mismatch at Southern Ports

The 2000–10 Master Plan did not anticipate the significant growth in container
volumes registered in Vietnam during 2000–08. Given the concentration of

international trade volumes in the broader HCMC region, this resulted in severe
congestion at HCMC inner-city ports, particularly during 2006–08. The pressure
of congestion, coupled with concerted private sector calls for expanded, more
capable (e.g., deep-water, more automated) handling facilities, created sufficient
momentum for the opening up of investment opportunities in maritime ports in
Southern Vietnam through public-private partnerships. However, since the
Master Plan lacked appropriate means to regulate new container-handling capac-
ity in light of growing demand, the ensuing construction of new port terminals
at Cai Mep-Thi Vai did not respond to integrated long-term planning and was
exacerbated by lax controls over the concession granting process at a time when
global MTOs were eager to enter an underserved Vietnam market. This led to
oversupply of container terminal capacity in the HCMC region, which began to
be felt as early as 2010 but had continued to worsen through 2012 (with addi-
tional terminals still planned as of year-end 2012).
To be sure, the Cai Mep-Thi Vai marine terminals (first opened in May 2009)
marked a watershed in Vietnam’s connectivity and held the promise of signifi-
cant benefits to BCOs. For the first time, ocean carriers were able to offer direct
services from Vietnam to North America and Europe without the need to use
feeder vessels for connections at regional transshipment hubs like Singapore or
Hong Kong SAR, China. The elimination of feeder and transshipment costs is
estimated to save about $150–300/TEU19 for containers shipped to and from
Vietnam.
The overcapacity problem caused by the rapid expansion of terminal capacity
since 2009 remains a serious concern. As of September 2012, the utilization rate
of existing container terminals in Cai Mep-Thi Vai was only 18 percent of their
current capacity of 5.2 million TEUs (see table 2.7 and figure 2.6). Three of the
five existing terminals at Cai Mep-Thi Vai (SITV, SP-PSA, and TCCT) currently
have no regular container vessel calls. In what will almost certainly contribute to
furthering the existing imbalance, two more terminals (SSIT and CMICT-ODA)
are due to open in 2013, which will bring a further 2.2 million TEUs of capacity
to Cai Mep-Thi Vai in the very short term. Construction of an eighth terminal,
Gemalink, is currently suspended but could add a further 1.2 million TEUs of
capacity as early as 2013. A second phase of the existing SP-PSA facility, repre-
senting an additional 1.1 million TEUs, is also in the planning stage. In all,
approved and planned projects could double current Cai Mep-Thi Vai capacity
(bringing it to 10.3 million TEUs) in a matter of a few years.
Given its physical proximity to HCMC, Cai Mep-Thi Vai’s capacity expansion
cannot be seen in isolation but in the context of HCMC’s inner-city ports. The
latter ports also face oversupply: Apart from Cat Lai, which is close to full capac-
ity, all the other terminals are currently underutilized (table 2.7). Similar to Cai
Mep-Thi Vai, five more terminals with container-handling capabilities (and a
combined capacity of 1.75 million TEUs) are scheduled to be launched in the
HCMC area, in Hiep Phuoc and Phu Huu districts (table 2.8).
Based on projected demand growth of 8–9 percent per annum over the
2011–20 period, the capacity utilization at HCMC and Cai Mep-Thi Vai ports

Table 2.7 Vietnam: Current Terminals at Ho Chi Minh City and Cai Mep-Thi Vai
Ben
Ho Chi Minh City Cat Lai VICT SPCT Saigon Port Nghe Gemadept Total
DP Tan Khanh
Operator: SNP FLDC World Thuan Hoi SAMCO Gemadept HCMC
Number of berths 7 4 3 4 4 4 Midstream 26
Berth length (m) 1,200 678 500 713 873 816 Buoys 4,780
Terminal area (ha) 100 20 23 — 7 32 — 182
Maximum depth alongside (m) 12 11 11 12 10 11 10 12
STS gantry cranes 17 7 5 2 0 2 0 33
Other cranes 3 0 0 5 4 3 16 31
Handling capacity (m TEU) 3.00 0.80 0.75 0.60 0.30 0.25 5.70
2011 volumes (m TEU) 2.60 0.37 0.14 0.31 0.15 0.17 3.74
Terminal utilization (%) 87 47 19 51 51 67 66
Cai Mep-Thi Vai SITV SP-PSA TCCT TCIT CMIT Total

HJS/MOL/
Operator: HPH PSA SNP WH/SNP APMT CM-TV
Number of berths 3 2 1 2 2 10
Berth length (m) 730 600 300 590 600 2,820
Terminal area (ha) 34 27 20 40 48 169
Maximum depth alongside (m) 14 14 15.8 15.8 16.5 16.5
STS gantry cranes 6 6 3 6 5 26
Other cranes 1 0 0 0 0 1
Handling capacity (m TEU) 1.20 1.10 0.60 1.20 1.10 5.20
2011 volumes (m TEU) 0.10 0.26 0.19 0.28 0.09 0.92
Terminal utilization (%) 8 23 32 23 9 18
Source: Authors based on Vietnam Port Association and interviews with port operators.
Note: — = not available. STS = ship-to-shore; TEU = 20-foot equivalent unit container.
will reach only 63 percent in 2020, even without adding the potential capacity
from the Gemalink or SP-PSA Phase 2 projects (see figure 2.7).
On the demand side, weaker than expected cargo volumes, the consolidation
of ocean carrier services due to the formation of new alliances, and the with-
drawal of a number of strings (notably by global container shipping carriers
CSAV and Zim) due to carrier downsizing have resulted in a reduction in the
number of linehaul services calling at Cai Mep-Thi Vai from a peak of 15 services
in June 2011 to only eight services as of September 2012 (see figure 2.8 and
table 2.9).
The vast majority (an estimated 95 percent) of containers currently handled
at Cai Mep-Thi Vai are barged to or from HCMC, a factor that should be taken
into consideration when planning and implementing land-side infrastructure for
the new ports. Besides cost alone (barging costs are one-third of the cost of truck-
ing containers to or from Cai Mep-Thi Vai), the existing poor condition of the
road infrastructure in the corridor and general BCO preference to receive and

Figure 2.6 Estimated Terminal Utilization Levels at HCMC and Cai Mep-Thi Vai Ports
100
90
80
70
60
Percent
50
40
30
20
10
0
Cat Lai Saigon Ben VICT SPCT TICT TCCT CMIT SP-PSA SITV
Port Nghe
Ho Chi Minh City terminals Cai Mep-Thi Vai terminals
2011 2012
Source: Vietnam Port Association, interviews with port operators, and Liner Research Services.
Table 2.8 Vietnam: New Terminals Planned at Ho Chi Minh City and Cai Mep-Thi Vai
Cat Lai Ben Nghe ITC Phu SP Hiep SNP Hiep
Ho Chi Minh City Petec site Phu Huu Huu Phuoc Phuoc Total new
Operator: SNP SAMCO ITC Saigon Port SNP HCMC
Berth length (m) 214 320 600 800 444 1,934
Terminal area (ha) 12 24 41 54 15 131
Maximum depth alongside (m) 12 12 11 11 11 12
STS gantry cranes 3 3 4 — 4 10
Other cranes 0 0 0 — 2 0
Due to open 2013 2013 2013 2013 2014
Gemalink SP-PSA
Cai Mep-Thi Vai SSIT CMICT Phase 1/Phase 2 Phase 2 Total new
Operator: SSA PMU-85 GMD/CMA CGM PSA
Berth length (m) 600 600 800 359 600 2,959
Terminal area (ha) 48 48 33 39 27 195
Maximum depth alongside (m) 16 16 16 16 14 16
STS gantry cranes 4 4 8 — — 16
Other cranes 0 0 0 — — 0
Due to open 2013 2013 Likely 2013 — —
Note: — = not available. STS = ship-to-shore; TEU = 20-foot equivalent unit container.

Figure 2.7 Vietnam: Demand and Supply at Southern Region Ports, 2000–20
16
14
Handling demand vs. capacity,
12
millions of TEU
10
0
00
01
02
03
04
05
06
07
08
20 F
09
10
20 1
20 F
20 F
20 F
20 F
20 F
20 F
20 F
F
19
12
13
14
15
16
17
18
20
1
20
20
20
20
20
20
20
20
20
20
20
20
Cai Mep ports: demand Total capacity including Gemalink Phase 1

HCMC ports: demand Total South Region capacity
Note: TEU = 20-foot equivalent unit container; F = forecast.
Figure 2.8 Number of Weekly Linehaul Services Calling at Cai Mep-Thi Vai, 2009–12
16
14
Number of weekly linehaul calls
CMIT launched
12 TCIT launched
10
8 SITV launched
6
SP-PSA launched
4 TCCT launched
0
Oc 09
Oc 10
Oc 11
Oc 12
Ap 09
Ju 9
Ja 09
Ap 10
Ju 0
Ja 10
Ap 11
Ju 1
Ja 11
Ap 12
Ju 2
12
0
1
0
0
20
20
20
20
20
20
20
20
20
20
20
20
l. 2
l. 2
l. 2
l. 2
n.
r.
t.
n.
r.
t.
n.
r.
t.
n.
r.
t.
Ja
CMIT TCIT SITV TCCT SP-PSA
deliver cargo closer to HCMC have contributed to a high incidence of barging in

Cai Mep-Thi Vai supply chains. Although barging provides a cost effective and
environmentally more sustainable mode of transport compared with trucking,
barging costs (of about $30 per TEU, including lift on/lift off) are borne by ocean
carriers (rather than BCOs), and it is uncertain whether ocean carriers are recov-
ering that cost in the rates they charge BCOs. Given the competitive nature of

Table 2.9 Linehaul Services20 Calling at Cai Mep-Thi Vai as of September 2012

Operator Service Vessels used Port rotation
MOL CHS 3 Intra- 4 × 4,200–4,400 Cai Mep, Hong Kong SAR, China, Osaka, Kobe, Yokkaichi, Yokohama,
Asia TEUs Tokyo, Hong Kong, Singapore, Port Klang, Jakarta, Port Kelang,
Singapore, Cai Mep
MOL/ SVS/AUE 3 10 × 4,700–6,300 Cai Mep, Hong Kong SAR, China, Yantian, Singapore, (Suez), Algeciras,
Evergreen FE-USEC TEUs Norfolk, Savannah, Jacksonville, Charleston, Algeciras, (Suez),
Singapore, Cai Mep
Grand Alliance AEX FE-USEC 10 × 5,300–5,900 Cai Mep, Laem Chabang, Singapore, Colombo, Cagliari, Halifax,
TEUs New York, Savannah, Norfolk, New York, Halifax, Cagliari, Jeddah,
Colombo, Singapore, Cai Mep
New World PSX FE-USEC 8 × 6,300–6,700 Cai Mep, Hong Kong SAR, China, Yantian, Los Angeles, Oakland,
Alliance TEUs Seattle, Vancouver, Tokyo, Yantian, Hong Kong, Laem Chabang,
Cai Mep
G6 Loop 1 FE-N 11 × 8,100–9,000 Cai Mep, Singapore, Jeddah, Rotterdam, Hamburg, Southampton,
Eur TEUs Le Havre, Singapore, Hong Kong, Kobe, Nagoya, Shimizu, Tokyo,
Hong Kong SAR, China, Cai Mep
CKYH AWE4 FE- 9 × 5,600–6,600 Cai Mep, Shekou, Hong Kong SAR, China, Yantian, Singapore, (Suez),
USEC TEUs New York, Norfolk, Savannah, (Suez), Singapore, Cai Mep
CKYH PSI FE-USWC 13 × 5,300–5,700 Cai Mep, Hong Kong SAR, China, Yantian, Ningbo, Long Beach,
TEUs Oakland, Busan, Shanghai, Ningbo, Hong Kong, Yantian,
Singapore, Port Said, Naples, La Spezia, Livorno, Port Said,
Singapore, Cai Mep
Maersk TP-6 FE- 15 × 9,500–9,700 Cai Mep, Nansha, Yantian, Hong Kong SAR, China, Los Angeles,
USWC TEUs Vostochny, Ningbo, Shanghai, Xiamen, Yantian, Tanjung Pelepas,
Algeciras, Bremerhaven, Bremerhaven, Hamburg, Felixstowe,
Le Havre, Tangier, Salalah, Tanjung Pelepas, Cai Mep
ocean rate negotiations, ocean carriers are not always fully compensated for their
operating costs. On the other hand, ocean carriers incur lower slot costs on
mother vessels (such as those calling Cai Mep-Thi Vai) compared with feeder
vessels, and this lower slot cost may cover the barge expense.
Aligning Demand and Supply at Northern Ports

Demand-supply mismatches in container port handling capacity could also arise
in the northern region (both over- and undersupply), with the concurrent devel-
opment of new port projects at Dinh Vu, Cai Lan and Lach Huyen (see
table 2.10). To properly mitigate this risk, the GoV will need to regulate develop-
ment of new capacity in Northern Vietnam to ensure that demand and supply
are reasonably matched.
Assuming that container volumes grow at the projected 8.5–9.0 percent in
the 2011–20 period, existing terminal capacity in the northern region will be
insufficient to meet market demand by 2018 (see figure 2.9). Specifically,
demand at the northern region ports is expected to reach 5–6 million TEUs by
2020, up from about 2.7 million TEUs in 2011. Existing capacity of 4.8 million
TEUs would be reached by 2018. Even with additional capacity from two new

Table 2.10 Current and Expected Terminals in Northern Vietnam: Haiphong, Dinh Vu, Cai Lan, and Lach Huyen
Haiphong terminals Hoang Dieu Nam Hai Doanxa Transvina Green Port Chua Ve
Haiphong
Operator Port Gemadept Doanxa Port Transvina Viconship Haiphong Port
Length (m) 413 144 220 169 320 895
CY yard (ha) 14 7 8 5 10 20
Draft (m) 8.4 8.4 8.4 7.8 7.8 8.5
Shore cranes 3 2 3 2 5 5
Gantry cranes 0 0 0 0 0 6
TEU (2011) 176,000 200,000 227,439 127,061 330,000 551,003
Capacity (TEU) 200,000 200,000 250,000 200,000 400,000 800,000
Utilization % 88 100 91 64 83 69
Dinh Vu Nam Hai Dinh

terminals SNP 189 Hai An PTSC Dinh Vu Tan Cang Vu Vinashin DV
Marina Dinh Vu Haiphong Gemadept/
Operator SNP Hanoi PTSC Port JSC Port VIPCO Vinalines
Length (m) 230 150 250 425 980 450 630
Number of berths 1 1 1 3 5 3 4
CY Yard (ha) 11.7 15 13 24 30 15 21
Draft (m) 8.5 8.5 8.5 8.7 9 9 9
Shore cranes 1 2 2 5 6 4 —
Gantry cranes 2 0 0 2 2 0 —
TEU (2011) From August 100,000 76,475 439,649 291,000 From 2013 From 2014
12
Capacity(TEU) 200,000 200,000 200,000 500,000 800,000 300,000 500,000
Utilization % 50 38 88 36
Cai Lan terminals CICT Quang Ninh

Operator SSA Vinalines
Length (m) 594 680
Number of berths 3 3
CY yard (ha) 18 14
Draft (m) 13 13
Shore cranes 0 0
Gantry cranes 4 2
TEU (2011) From September 2012 143,981
Capacity (TEU) 500,000 250,000
Utilization % 58
table continues next page

Table 2.10 Current and Expected Terminals in Northern Vietnam: Haiphong, Dinh Vu, Cai Lan, and
Lach Huyen (continued)
Lach Huyen terminals Lach Huyen Phase 1 Lach Huyen Phase 2

Operator MOLNYKIT/ Vinalines TBD
Length (m) 750 Up to 2,100
No. of berths 2 Up to 9
CY yard (ha) 45 Up to 200
Draft (m) 14 14
Shore cranes 0 —
Gantry cranes — —
TEU (2011) From 2016 —
Capacity 1,000,000 —
Note: — = not available. TEU = 20-foot equivalent unit container.
Figure 2.9 Vietnam: Demand-Supply at Northern Ports without Lach Huyen
6
5
millions of TEU
0
20 0
01
20 2
03
20 4
20 5
06
20 7
08
20 9
20 0
20 1
20 F
20 3F
20 4F
20 F
20 6F
20 F
20 8F
20 9F
F
12
15
17
20
0
0
0
0
1
1
1
1
1
1
20
20
20
20
20
Cai Lan: demand Total capacity including VIPCO/VNL

Dinh Vu: demand Total capacity
Haiphong: demand
Note: TEU = 20-foot equivalent unit container; F = forecast.
terminals planned in Dinh Vu, which would raise total capacity to 5.8 million
TEUs, the terminals are still expected to reach full capacity by 2020.
In addition to potentially running out of capacity in the medium term, there
is a strong case to be made that the northern region is already underserved with
regard to container port handling services. Haiphong is the only port in the world
today that combines annual handling volumes of over 2.5 million TEUs with
draft limits of less than 9 meters. There is a need for a deep-water port in

Northern Vietnam to cater to the growth in market volumes as well as the global
trend toward the use of larger containerships.
The 2016 planned opening of Lach Huyen, a deep-water port facility to
be located in the Haiphong area, could bring about immediate benefits by
allowing vessels of between 2,000 and 8,000 TEUs to call at Northern
Vietnam for the first time. Unit costs per TEU for such ships are significantly
lower than those for existing ships, which could result in savings of up to
60 percent for ocean carriers. The expected cost savings from the elimination
of feeder and transshipment costs for Haiphong cargo is estimated at an
additional $100–200 per TEU, with much of the cost savings expected to be
passed on to BCOs.
A recent JETRO (2012) survey of transport costs in Asian countries between
2006 and 2011 showed that the cost of shipping a container from Vietnam to
Yokohama was between $50 and $485 per FEU higher when originated at
Haiphong compared with HCMC (see figure 2.10). Similarly, a shipment from
Vietnam to Los Angeles was between $400 and 1,500 per FEU higher when
Haiphong rather than HCMC was the origin. Although freight differentials are
due to numerous factors, including container imbalance, frequency of sailings,
competition among carriers, and seasonal fluctuations, part of the reason for the
higher rates out of Haiphong was the higher costs of transshipment and the use
of less efficient vessels of below 1,200 TEUs.
Figure 2.10 Comparison of Ocean Freight Rates to Japan and the United States,
2006–11
4,500
4,000
3,500
$ per FEU (transport cost only)
3,000
2,500
2,000
1,500
1,000
500
0
2006 2007 2008 2009 2010 2011
Haiphong to Los Angeles Haiphong to Yokohama
Ho Chi Minh City to Los Angeles Ho Chi Minh City to Yokohama
Source: JETRO 2012.

Note: FEU = 40-foot equivalent unit container.

Figure 2.11 Haiphong/Cai Lan Port Utilization Rates by Terminal, 2010–20
120
Lach Huyen Phase 1
to reach full
capacity by
100
2019–20
Terminal utilization (%)
80
Based on late 2016
start for Lach Huyen
60 operations
CICT start
40 August 2012
Cai Lan volumes

20 to fall following
Lach Huyen
opening
0
00
01
02
03
04
05
06
07
08
09
10
20 1
20 F
20 F
20 F
20 F
20 F
20 F
20 F
20 F
F
12
13
14
15
16
17
18
19
20
1
20
20
20
20
20
20
20
20
20
20
20
20
Haiphong Cai Lan Dinh Vu Lach Huyen
Source: Authors based on input from Vietnam Port Association, interviews with port operators, and Liner Research Services.
Note: F = forecast.
Due to the benefits of deploying larger vessels in Northern Vietnam, the uti-
lization of Lach Huyen is expected to be high (see figure 2.11), with all vessels
of above 1,200 TEUs expected to call at Lach Huyen. Even though there are
vessels of between 1,200 and 1,500 TEUs currently calling at Dinh Vu, these
vessels are generally not fully laden because of channel draft restrictions.
Based on the planned launch of Lach Huyen in 2016, volumes at the port are
expected to reach full capacity (of about one million TEUs) within four years
(see figure 2.12). This would require the early planning for the development of
Lach Huyen Phase 2 to meet the potential demand after 2020 in conjunction
with plans to manage overall regional capacity.
What is more, managing overall regional capacity will also be necessary in the
context of Lach Huyen’s Phase 1. As shown in figure 2.11, the launch of Lach
Huyen would have an adverse impact on other terminals, particularly those at
Dinh Vu and Cai Lan. Portions of the capacity at the latter terminals (and in the
case of Cai Lan, likely most of it) will be rendered redundant.
That the oversupply threat is most apparent in Cai Lan can be seen in the
port’s operating history to date. Opened in 2004, Cai Lan port has so far failed
to capture significant container volumes. After eight years of operations, Cai Lan
has been able only to attract two weekly calls, and the volumes handled are only
6 percent of total volumes at Haiphong and Dinh Vu. About 80 percent of the
containers handled at Cai Lan are barged to Haiphong, because of BCOs’ prefer-
ence to receive and deliver containers at Haiphong terminals—despite Cai Lan’s

Figure 2.12 Vietnam: Demand and Supply at Northern Region Ports, 2000–20
7
6
imillions of TEU
0
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 11
20 2F
20 3F
20 4F
20 5F
20 6F
20 7F
20 8F
20 9F
F
20
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
20
Lach Huyen: demand Total capacity including Lach Huyen Phase 1

Cai Lan: demand Total capacity including VIPCO/VNL
Dinh Vu: demand Total capacity
Haiphong: demand
Source: Authors based on input from Vietnam Port Association, interviews with port operators, and Liner
Research Services.
Note: TEU = 20-foot equivalent unit container. F = forecast.
Figure 2.13 Average Container Vessel Sizes Calling Haiphong and Cai Lan,
September 2012
2,400
2,200
2,000
1,800 AVS at Cai Lan= 1,750 TEU
Vessel size, TEU
1,600
1,400
1,200
1,000 AVS at Haiphong= 880 TEU
800
600
400
200
0
0 20 40 60 80 100 120
Cumulative number of vessel calls
Cai Lan Haiphong
Source: Vietnam Port Authority and Linear Research Services.

Note: TEU = 20-foot equivalent unit container; AVS = Average vessel size.
current ability to receive ships of up to 3,000 TEUs, modest by global standards

but still significantly higher than what Haiphong is able to accommodate at pres-
ent (see figure 2.13). BCOs’ preference for Haiphong stems from the latter
port’s perceived infrastructure advantage (not only in terms of physical infra-
structure, but also with respect to Haiphong’s ready availability of shipping

agents, customs clearance facilities, warehouses, Inland Container Depots [ICDs],

and trucking companies), as well as the existence of truck weight limits on the
Cai Lan-Hanoi National Highway 18.
Despite weak demand at Cai Lan, a second terminal—CICT, a joint venture
between Vinalines and SSA—was launched in August 2012. This added a further
500,000 TEUs of annual handling capacity to the existing 250,000 TEUs at
Quang Ninh port. The total volume at Cai Lan was only 143,981 TEUs in 2011
(based on vessel moves only, excluding barge moves to avoid double counting),
with expected terminal utilization at only about 20 percent.
The development of gateways at Cai Lan, Dinh Vu, and Lach Huyen in close
succession and the excess capacity risk this generates is another example of
resource waste in the country’s port planning system, and one that closely
resembles the case of Southern Vietnamese ports.
Ignoring the Potential for Transshipment at Cai Mep-Thi Vai

The GoV has not provided incentives to the MTOs at Cai Mep-Thi Vai to cater
to both domestic transshipment cargo (from Northern and Central Vietnam) and
international transshipment cargo (mainly from Cambodia), despite a clear
demand for such moves.
In particular, specific calls have been made to address the following issues by
ocean carriers and terminal operators:
• Cabotage rules limit the ability of foreign flag carriers to carry containers
between Vietnamese ports, including international cargo bound for other
countries. The removal of this rule would promote the use of Cai Mep-Thi Vai
as a transshipment hub for cargo to and from Central and Northern Vietnam.
Current Vietnamese flag carriers operating on the domestic sector are not able
to handle such volumes, while existing Central and Northern Vietnam cargo
bound for Europe and the United States is currently transshipped in third-
country hubs.
• The fragmentation of, and lack of interterminal connectivity between, the vari-
ous terminals at Cai Mep-Thi Vai inhibit the growth of transshipment vol-
umes, as terminals lack sufficient scale and volume, while feeders would have
to call at multiple terminals to cater to multiple linehaul services.
• Circular 164/2010/TT-BTC and Circular 41/2012/TT-BTC provide for a 40
percent discount on tonnage dues and 50 percent discount on pilotage for
vessels above 50,000 GT (about 4,000 TEUs) calling at the port of Cai Mep-
Thi Vai. There are calls for the GoV to provide additional incentives for ves-
sels to service Cai Mep-Thi Vai, including for vessels between 25,000 and
50,000 GT (2,000–4,000 TEUs), which are currently unable to call at HCMC
ports, and vessels above 90,000 GT (above 8,000 TEUs), which are now the
primary vessels used in the Far East–Europe trade (and increasingly in the
Transpacific).
• Navigation of containerships of above 80,000 deadweight tons (DWT) (about
7,000 TEUs) to ports in the Cai Mep-Thi Vai area continue to require ad hoc

berthing approvals from local authorities each time they berth, despite the fact
that ships of up to 160,000 DWT (14,000 TEUs) have already berthed at
the port.
• GoV-imposed restrictions on Cambodian-bound containers for the imports of
used machinery and automobiles have limited the use of Vietnamese ports for
Cambodian cargo.
Insufficient Landside and Other Supporting Infrastructure

The development of new port facilities in Vietnam has not been accompanied by
the concurrent and timely development of appropriate land-side infrastructure
to support the movement of container volumes at the ports. This is partly a result
of the fragmented state of the current port network, which places a significant
strain on local and national infrastructure development resources. Problems relat-
ing to land clearance, disbursement of funds, and investment procurement are
the most commonly cited reasons for the slow development of many key road
subsector infrastructure projects.
Among the most urgent road infrastructure bottlenecks relating to the current
port network are the following:
• Northern and Central Regions

–– Dinh Vu road connections to Haiphong City and NH 5, with part of the
road currently still unpaved and highly congested. In particular, heavy con-
gestion is reported at the intersection of Nguyen Binh Khiem-Le Thanh
Tong-Dinh Vu.
–– NH 18 connecting Cai Lan port to Hanoi. Although improvements to the
highway have been made, truck weight limits have continued to divert a
significant part of Cai Lan’s container traffic to Haiphong via barges.
–– Hinterland connections to Tien Sa Port in Danang.
• Southern Region
–– Congestion on the HCMC-Hanoi NH 1 to the NH 51 junction. Although
NH 51 is being widened, there are inadequate intersections and too many
pedestrians and motorbikes crossing the highway at random locations due
to the lack of proper intersections. Several sections remain incomplete, with
damage already starting to show.
–– Interprovincial road 25B to Cat Lai port in HCMC.
–– Lack of road connections to the new Phu Huu port complex, where the
construction of the first terminal was completed in July 2010. The port
requires a connecting road between Phu Huu Port and Nguyen Duy Trinh
Road and expansion of Nguyen Duy Trinh Road to accommodate container
truck traffic.
–– The road to the new Phu My Bridge21 in HCMC is a combination of dirt
and substandard paving and has not been upgraded to be consistent with
the bridge construction.
–– Construction of Road D3 linking the Saigon Port–Hiep Phuoc terminal
new port to Hiep Phuoc Industrial Park. Roads to the Hiep Phuoc industrial

zone, including Saigon Premier Container Terminal (SPCT), remain unfin-

ished despite the launch of the terminal in 2009.
–– Road 965 linking National Road 51 to Cai Mep-Thi Vai port and the Cai
Mep-Thi Vai interterminal. Although the first terminal at Cai Mep-Thi Vai
began operations in 2009, the road connections to the terminals are still
incomplete.
In addition, the Vietnam Port Authority (VPA) has also highlighted the need to
ensure the timely completion of the channel components for the ports under
construction or investment, specifically the following issues.
Channel Access
There is a general need to dredge the channels leading to Haiphong Port; ports
in the central area including the ports of Cua Lo, Quang Binh, Thuan An,
Danang, and Quinhon; and to Cat Lai, Hiep Phuoc, and Can Tho Port in the
south of the country, all of which remain inadequate.
For the channel to the Cai Mep-Thi Vai area in particular, the VPA has called
for its timely upgrading to accommodate the use of larger vessels of above
80,000 DWT. There have been repeated calls for the GoV to consider the
revision of the master plan to have the channel dredged deeper for large con-
tainer vessels of more than 100,000 DWT to call the ports in this area, in order
to develop Cai Mep-Thi Vai into an internationally competitive port.
In addition, the VPA has drawn attention to two more channel access issues
in the southern region:
• For the channel on the Hau River, there is a need to continue dredging the
existing channel to maintain the navigability at least as before while waiting
for the implementation of the new channel via the Quan Chanh Bo Canal.
• For the Soai Rap channel to the Hiep Phuoc area, the VPA has also called for
a solution to dredge up to the master plan and as committed with the investors
in port and port urban projects in this area.
Facilitation of Night Navigation

The VPA has called for the addition of safety measures such as navigational aids,
lighting, and dredging to ease current restrictions on night time navigation and
improve navigation flow, in particular to the ports in the Haiphong and HCMC
areas.
Unsustainable Financing Framework for Port Infrastructure

The GoV has relied primarily on the state-owned Vinalines as the main domestic
investor for the country’s main port projects (see table 2.11).
Vinalines’s involvement in numerous port projects has resulted in several
challenges. For example:
• It has strained Vinalines’s limited financial resources, with losses at several

of the new terminal projects, imposing a significant financial burden on

Table 2.11 Vinalines’ Shareholdings of Main Vietnamese Ports and Planned Projects

Port Location Vinalines share (%)
Quang Ninh Port Cai Lan 100
Cai Lan International Container Terminal (CICT) Cai Lan 51
Doan Xa Port Haiphong 51
Haiphong Port Haiphong 100
Vinalines Dinh Vu Port Dinh Vu 60.3
Lach Huyen (HPCT) Lach Huyen 51
Danang Port Danang 100
Nha Trang Port Nha Trang 100
Van Phong (project suspended) Van Phong 100
Saigon Port HCMC 100
Saigon Port-PSA International Port (SP-SSA) Cai Mep 51
Cai Mep International Terminal (CMIT) Cai Mep 51
Saigon Port-SSA International Terminal (SSIT) Cai Mep 51
Source: Authors based on interview with Vinalines.
Note: Vinalines operates other facilities, including Can Tho, Cam Ranh, Cau Cui, Nghe Tinh, and Vat Cach.
the company. According to the State Inspectorate of Vietnam, Vinalines

incurred a total loss of VND 252 billion from its joint-venture ports in Cai
Mep-Thi Vai in 2007–10. Losses at these ports increased to a reported VND
460 billion in 2011 and are expected to continue to escalate with the current
oversupply situation.
• Vinalines’s weak financial position has also resulted in delays in the implemen-
tation of the Lach Huyen project, where it acts as the project’s largest private
investor. Vinalines is reported to have defaulted on five loans worth over VND
23.06 trillion and does not have the capacity to raise additional funds to finance
the large-scale (and highly strategic) Lach Huyen port project.
• Weak project management and alleged corruption by Vinalines officials
(Brummit 2012) have resulted in unnecessary waste of resources, including at
the planned Van Phong International Transshipment Port project.
• Vinalines’s participation in competing port projects within the same locations
(with separate groups of local and foreign partners) raises issues of potential
conflicts of interest. For example, Saigon Port competes with the three
Vinalines/Saigon Port–invested terminals at Cai Mep (SP-PSA, CMIT, and
SSIT), which are direct competitors themselves. Similar governance weak-
nesses exist in northern ports, where the Haiphong port is in direct competi-
tion with the two Vinalines ports at Cai Lan, as well as the planned Vinalines
Dinh Vu and Lach Huyen projects.22
The current financing framework, substantially centered on a state-owned

company that is under significant financial stress with weak governance, does not
appear sustainable. Vinalines reported a net loss of VND 1,439 billion in the first
half of 2012, in which two notable subsidiaries (Vinashin Lines and Bien Dong,
transferred from Vinashin in 2010) incurred a loss of VND 700 billion, while

another Vinalines subsidiary, Falcon, recorded a loss of VND 267 billion.

Vinalines’s balance sheet was not available, but it would likely be difficult for the
company to raise significant new capital without government support.
A more sustainable financing framework to support Vietnam’s port infrastruc-
ture investment requirements needs to be found. This would likely involve
greater private sector participation and the lifting of the 49 percent capital
investment limit on foreign investors.
Key Impacts of Port Planning Challenges on Logistics Efficiency

The promotion of multiple small ports in both the HCMC-Cai Mep and
Haiphong-Cai Lan corridors has made Vietnam the most fragmented container
terminal market in the world. It is the only market where each of the top four
global port operators—PSA, Hutchison Port Holdings, DP World, and APM
Terminals—are engaged in direct competition.
As depicted in map 2.3, there are currently 11 container terminals with
annual handling capacity of over 100,000 TEUs in the HCMC-Cai Mep area
Map 2.3 Vietnam: Greater HCMC Main Container Terminals
Ho Chi Minh
City
SNP-Cat Lai
VICT
ITC-Phu Huu
SP-Khanh Hoi
Ben Nghe-Phu Huu
SP-Tan Thuan
Ben Nghe Midstream

Cai Mep-Thi Vai
SNP-Hiep Phuoc SITV

SP-PSA
SPCT Long Tau channel; only access to
HCMC ports with draft limit of 10 m TCCT
SP-Hiep Phuoc
TCIT
CMIT
ODA port
(CMCT)
Soai Rap channel; currently
inaccessible with draft limits of 6–8 m SP-SSA (SSIT)
Gemalink
North
Existing terminals
Planned terminals

alone, with no fewer than seven more new facilities to be added and whose con-
struction has already started. This does not include various other projects planned
at Hiep Phuoc, Cat Lai, Nhon Trach, Nha Be, Long An, Dong Nai, Phuoc An, My
Xuan, Lower Cai Mep, and Ben Dinh-Sao Mai. Some of these projects have been
stalled with foreign interests, including China Merchants pulling out from its
planned investments. Despite this, both the local and central governments con-
tinue to promote additional port projects in the face of a chronic oversupply
problem.
The majority of the terminals at Cai Mep have average berth lengths of only
300 meters per berth when the ideal length would be 350–400 meters. For a
two-berth terminal, this would mean a total berth length of 700–800 meters
instead of the current 600 meters. The problem this creates is that if two 350-
meter ships arrive at the same time to berth at one terminal, one ship would have
to wait away from the dock at anchor even if neighboring terminals are empty.
This is the inefficiency created by the fragmented system now in place. The exist-
ing terminals are also not connected either by contiguous wharf or direct road
links, which hinders the development of these ports as transshipment hubs. The
current berth designs could limit transshipment cargo operations, where contain-
ers delivered by a feeder vessel cannot be efficiently transferred to a mother
vessel due to limited berthing space for both vessels, or with feeder and mother
vessels located in different, nonconnected terminals.
A similar fragmentation problem is apparent in the Northern region. There
are 12 operational container terminals in Northern Vietnam, including two ter-
minals that were launched in 2012 alone (see map 2.4). Two more terminals are
planned in the Dinh Vu area, in addition to the major new port complex planned
at Lach Huyen.
The fragmented port system results in significant inefficiencies and wasteful
investments, arising primarily from the following:
• Additional land-side infrastructure investments required to connect multiple

marine terminals
• Additional dredging and channel maintenance expenses required to facilitate
vessel navigation to the various port locations
• Inability to leverage economies of scale at individual terminals, with significant
duplication of costs due to congestion at certain terminals and under-utilization
of assets in other terminals
• Difficulties in facilitating transshipment volumes, with a lack of interterminal
connections
• Dispersion of cargo volumes, prohibiting the development of hub terminals
with centralized logistics infrastructure: The system results in the fragmentation
of downstream services, including ICDs, empty container depots, bonded and
nonbonded warehouses, trucking companies, and customs clearance facilities
• Additional costs to BCOs and ocean carriers arising from the need to maintain
multiple cargo drop-off and pick-up points or vessels making multiple port
calls within the same location.

Map 2.4 Vietnam: Fragmentation of the Haiphong Port System
CICT
Quang Ninh
Transvina
Green Port
Doan Xa
SNP 189
Nam Hai
Hai An
Hoang Dieu Dinh Vu

Chua Ve
Lach Huyen
New Port Phase 1
VIPCO
Vinashin La plex
co
ch
m
Hu (plan
ye
n p ned)
ort
Existing terminals
Planned terminals
Newly launched terminals South Do Son Port (Planned)
The fragmentation of the port system in Vietnam is best illustrated when

compared against the top 30 ports in the world (see table 2.12). The number
of terminals in HCMC/Cai Mep and Haiphong/Cai Lan is higher than those
at the world’s major ports, while handling significantly lower volumes. In a
majority of ports with multiple terminals (e.g., Shanghai, Busan, and
Kaohsiung), the terminals are located within designated port zones and do
not exhibit the same geographical, administrative, and operational fragmen-
tation as in Vietnam.
Unwise Investment Emphasis: Van Phong

The current seaport Master Plan (2010–20) places particular emphasis on the
development of the Van Phong transshipment port project in the South Central
Coast region (see map 2.5). The port was originally designed to receive 6,000–
9,000 TEU containerships based on a 2007 plan with a VND 1.1 trillion budget.
After failing to secure foreign investor interest, the project was assigned to be
fully funded by Vinalines, and construction started in October 2009. The bud-
get was continuously adjusted until the total investment increased sixfold to
nearly VND 6.2 trillion ($3.6 billion), with the design amended to receive
12,000–15,000 TEU ships.

Table 2.12 Vietnam: Top 30 Global Container Ports in 2011 and Fragmentation of Vietnamese Ports
2011 rank Port Country TEU volume in millions No. of terminals
1 Shanghai China 31.7 8
2 Singapore Singapore 29.9 5
3 Hong Kong SAR China 24.4 5
4 Shenzhen China 22.6 5
5 Busan Korea, Rep. 16.2 11
6 Ningbo-Zhoushan China 14.7 8
7 Guangzhou Harbor China 14.3 5
8 Qingdao China 13.0 4
9 Jebel Ali, Dubai United Arab Emirates 13.0 1
10 Rotterdam Netherlands 11.9 5
11 Tianjin China 11.6 10
12 Kaohsiung Taiwan 9.6 10
13 Port Klang Malaysia 9.6 2
14 Hamburg Germany 9.0 5
15 Antwerp Belgium 8.7 7
16 Los Angeles United States 7.9 8
17 Keihin Ports Japan 7.6 n.a.
18 Tanjung Pelepas Malaysia 7.5 1
19 Xiamen China 6.5 6
20 Dalian China 6.4 3
21 Long Beach United States 6.1 6
22 Bremen-Bremerhaven Germany 5.9 4
23 Laem Chabang Thailand 5.7 7
24 Tanjung Priok Indonesia 5.6 6
25 New York–New Jersey United States 5.5 6
26 Lainyungung China 4.9 1
27 Hanshin Ports Japan 4.8 3
28 Suzhou China 4.7 n.a.
29 Ho Chi Minh Cai Mep-Thi Vai Vietnam 4.5 11 in 2011 18 by 2015
30 Jawaharlal Nehru India 4.3 3
50+ Haiphong Cai Lan Vietnam 2.7 10 in 2011 15 by 2016
Source: Compiled by authors with data from Journal of Commerce and Liner Research Services.
Note: n.a. = not available; TEU = 20-foot equivalent unit container.
The Van Phong project has been divided into four phases:
Phase 1: Two berths with a total length of 690 meters (41.5 hectares) by 2013,
total capacity 710,000 TEUs/year
Phase 2: Nine berths with a total length of 2,260 meters (125 hectare) by 2015;
total capacity 2.1 million TEUs/year
Phase 3: Sixteen berths with a total length of 5,170 meters (405 hectares) by
2020, total capacity 4.5 million TEUs/year and
Phase 4: Thirty-seven berths with a total length of 12,590 meters (750 hectares)
after 2020, total capacity 17 million TEUs/year.

Map 2.5 Location of Van Phong in Vietnam’s Main-Port Network
Cai Lan
Haiphong
Dinh Vu
Van Phong
international
transshipment port
Danang
Qui Nhon
Van Phong
(planned)
Ho Chi Minh
City
Cai Mep-ThiVai
The project has weak economic justification and holds limited potential to
develop into a major container hub. The investment premise for the port was
based on mistaken assumptions that large containerships serving intercontinental
routes to Europe and the United States can be enticed to call at a deep-water
port along the central Vietnam coast where Van Phong is located.
Although Van Phong Bay offers natural water depths of up to 20 meters, the
conditions for Van Phong to develop into a container transshipment hub are not
present for the following reasons:
1. The development of Cai Mep-Thi Vai in the South of Vietnam and the planned
development of Lach Huyen in the North of Vietnam negate the need for a
transshipment hub for Vietnamese cargo. Direct linehaul services to both

Europe and the United States are already calling at Cai Mep and are also
expected to call at Lach Huyen when the port is ready.
2. There is limited cargo potential in the central Vietnam region, with total
throughput of container volumes in the Central region accounting for only
3 percent of total Vietnamese container volumes (or 219,000 TEUs) in 2011.
Future transshipment of Central Vietnam cargo is better served through
existing ports.
3. Apart from the limited cargo potential of Central Vietnam, Van Phong
offers no other natural cargo catchment for international transshipment
for cargo to and from the main gateway ports of Cambodia, Indonesia,
Malaysia, the Philippines, Singapore, and Thailand, with a longer sailing
distance required compared with existing transshipment hubs (see
table 2.13).
Other than Muara in Brunei, Van Phong is situated further from the hub ports
of Singapore, Tanjung Pelepas, Port Klang, Kaohsiung, Hong Kong SAR, China,
and Shenzhen, which would be its main competitors for regional transshipment
cargo. Even for Cambodian cargo, which is the closest gateway origin or destina-
tion for Van Phong, the existing facilities at Cai Mep offer a more attractive
option for cargo for Sihanoukville and Phnom Penh.
Apart from geographical limitations, cargo flows are limited between ports in
East Malaysia, Brunei, or southern Philippines and Vietnam, and these ports are
better served by existing connections to Malaysian and Singapore hubs.
After continuous delays to the planned construction schedule, the GoV for-
mally suspended the Van Phong project in September 2012. However, construc-
tion had already stopped since August 2011, after initial piling works had been
completed by a Korean contractor at a cost of VND 146 billion.
Table 2.13 Distance from Main Southeast Asia Gateway Ports to Van Phong
Distance in nautical miles TEUs (2011) (millions) Distance to Van Phong Distance to nearest hub
Jakarta 5.6 1,132 629 (Singapore)
Manila 3.4 699 610 (Kaohsiung)
Surabaya 2.7 1,284 758 (Singapore)
Bangkok 2.0 885 848 (Singapore)
Penang 1.2 1,202 245 (Port Klang)
Belawan 1.2 1,134 167 (Port Klang)
Pasir Gudang 0.8 783 46 (Singapore)
Davao 0.7 1,199 1,166 (Kaohsiung)
Semarang 0.4 1,191 670 (Singapore)
Kota Kinabalu and Sabah 0.4 559 785 (Singapore)
Kuching 0.2 666 448 (Singapore)
Sihanoukville 0.2 616 424 (Cai Mep)
Muara 0.1 562 740 (Singapore)

The suspension came at the request of the MoT, because of Vinalines’s finan-
cial difficulties. Despite this, the GoV continues to emphasize the development
of the port at Van Phong, with the MoT directing the Vietnam Maritime
Administration (Vinamarine) and local provincial authorities in Khanh Hoa to
set up plans to call for domestic and foreign investments in the construction of
the port.
Airports
Two Vietnamese airports handle cargo for international markets: Tan Son Nhat
Airport (TSNA) in HCMC and Noi Bai Airport (NBA) in Hanoi. A third facility,
Long Thanh Airport, is under construction in HCMC, with a completion date
scheduled for 2015. However, LSPs interviewed believe it will be delayed to
2020 and that foreign companies should be allowed to participate in the con-
struction to minimize further delays.
TSNA has two cargo terminals. Tan Son Nhat Cargo Services (TCS), the
oldest of the two, is owned in joint venture by three partners: Vietnam Airlines,
Vietnam’s national air carrier and a state-owned enterprise (SOE) of the
Ministry of Defense; Singapore Airport Terminal Services Ltd., the ground
handling agent; and Southern Airports Services Company Ltd. BCOs and LSPs
consider TCS to be crowded and inefficient with cargo-handling equipment
that is substandard relative to other Asian countries. All air carriers utilize this
terminal.
The other terminal, Saigon Cargo Service Corporation (SCSC), was
established by four groups of investors in April 2008: Southern Airport

Corporation, 25 percent; Gemadept Corporation, 23 percent; the Vietnamese
military, 24 percent; and ACB, 28 percent. This terminal is more modern and
efficient and has sufficient capacity. However, to reduce competi-
tion, Vietnam Airlines has applied pressure to air carriers to focus their
operations at TCS, which makes air carriers reluctant to sign agreements
with SCSC.
The terminal at NBA is also owned by Vietnam Airlines, and the operating
environment is similar as at TSNA’s TCS. The ground handling agent is Noi Bai
Cargo Terminal Services, JSC, a subsidiary of Vietnam Airlines.
In general, LSPs view the skill level of air cargo terminal operator workers as
low, which results in delays, cargo damage, and increased costs for LSPs and
BCOs. Security is also lax.
LSPs reported during interviews that if TSNA’s TCS and NBA terminals
were owned and operated by private companies rather than SOEs, Vietnam’s
airports would be more competitive with comparable countries. LSPs esti-
mated that their logistics and operating costs could be decreased by approxi-
mately 50 percent because private companies would operate air cargo
terminals more efficiently.
LSPs are not permitted to engage in cargo consolidation activities at
airports. All loading is done by the terminal operators. It would be beneficial
for LSPs to be allocated space and be allowed to load build-up pallets at

airports so that light and dense cargo could be combined for better pallet
utilization. This would allow LSPs to offer their customers more competitive
rates.
Air carriers offer a limited number of regularly scheduled air freighter
services at TSNA and NBA. Most freighters serve the airports on an ad hoc
basis, and since all aircraft stop in the Middle East, Korea, Singapore, or
Taiwan, capacity in Vietnam is often tight, particularly at the end of the
month. As a result, much air cargo moves in the underbellies of passenger
aircraft, but this capacity is limited. Since the decision to move orders as
airfreight is usually made by buyers at the last minute, they often have to
pay higher rates to move cargo out of Vietnam than from other Asian
countries.
Cargo-Handling Facilities and Logistics Parks

The concept of logistics parks—clustering cargo-handling facilities operated by
LSPs in an area nearby a port, airport or industrial zone to promote operating
efficiencies—is not widely understood or prevalent in Vietnam. Most cargo-
handling facilities are developed by the private sector and are standalone ware-
houses usually located near factories, ports, or airports.
According to LSPs interviewed, the GoV tightly controls issuance of
Container Freight Station (CFS) licenses, particularly of bonded facilities,
and the rules for applying for licenses are onerous and difficult for LSPs to
comprehend.
Most existing facilities are substandard relative to what can be found in other
Asian countries. General standards, such as fire protection and security, are low.
Many lack full concrete floors and are built with bricks over sand that settles,
resulting in uneven floors that can lead to cargo damage. Ventilation is limited,
which impacts product quality when cargo is stored for any length of time. The
skill level of workers also needs improvement. All these factors reduce LSP effi-
ciency and increase operating costs.
Although some LSPs desire to build and operate their own, modern facilities,
land parcels of adequate size are not readily available, so lease arrangements are
common.
Central and provincial government authorities do not seem to have reason-
able plans for locating cargo-handling facilities where they would be the most
effective. According to BCOs and LSPs, the GoV should plan logistics parks
in HCMC, Hanoi, Nha Trang, Lam Dong, and the Mekong Delta, and invest
in adequate infrastructure like access roads in these areas to make cargo flows
smoother.
Strategic Freight Corridors

The concept of strategic freight corridors has proven to be an effective way
for government entities around the world to look more holistically at land-
side transportation infrastructure. Corridor approaches to improving logistics

performance respond to the fact that most freight shipments move on mul-
tiple modes (water, air, truck, and rail) and large land-side infrastructure
projects generally pass through numerous jurisdictional boundaries within a
freight corridor. For example, the HCMC–Vung Tau Corridor comprises
three provinces—Binh Duong, Dong Nai, and Ba Ria-Vung Tau—and the
HCMC municipal government. These jurisdictions need to work coopera-
tively to effectively plan, fund, and implement land-side infrastructure that
will be routed through their individual demarcations to deliver the highest
benefit for transportation system users, including freight stakeholders. For
the purpose of this report, six critical freight corridors have been identified
(see map 2.6).
As this report is primarily concerned with containerized freight, emphasis has
been placed on those corridors currently handling the highest volume of con-
tainer flows today and through 2020. As a result, the report zeroes in on the two
highest-volume freight corridors: the HCMC–Vung Tau Corridor and the Hanoi-
Haiphong Corridor. Less detailed overviews of the rest of the corridors follow
overviews of the chosen major corridors.
HCMC–Vung Tau Freight Corridor

This corridor handled 4.8 million TEUs in 2011, and 9.5 million TEUs
are projected for 2020. This corridor has 11 primary container-handling
marine terminals, including five deep-water terminals and numerous ICDs.
These terminals are served by highways and barge service on a major inland
waterway system. Presently barges transport about 95 percent of the

containers from the HCMC area to the Cai Mep-Thi Vai terminals. The
inland waterway system also transports heavy bulk products ranging from
food to construction materials. This waterway transportation system is criti-
cal to the economic growth in this corridor and the entire Southern
Economic Zone.
While significant highway and bridge developments have been made in this
corridor over the past 10 years, major unfinished road projects remain.
Specifically, plans for additional highways—including ring roads, connector roads,
and port access roads—over the next 20 years are as follows:
1. NH 51: The expansion from four lanes to six lanes is scheduled to be com-
pleted by the end of 2012.
2. Bien Hoa–Vung Tau Highway (Parallel to NH 51): Construction is scheduled to
commence in early 2013 and planned to be completed at the end of 2017,
although these dates are likely to be pushed out. This is expected to be a
limited-access, tolled expressway system that will allow heavy container trucks
to travel at high speeds to Cai Mep-Thi Vai terminals.
3. HCMC–Long Thanh–Dau Giay Highway: Currently under construction, this
is a controlled-access, tolled expressway system that will cut travel distances
and allow heavy container trucks to travel at higher speeds. It was scheduled to

Map 2.6 Vietnam: Six Primary Freight Corridors
Source: Authors.
be completed at the end of 2012. However, this will likely be pushed back to
late 2013 or early 2014.
4. Beltway 2: Currently under construction, the beltway is scheduled to be com-
pleted in late 2014.
5. Beltway 3: The construction plan (three phases) was approved by the prime
minister in September 2011. Construction has not started. Phase 1 is sched-
uled to be completed before 2017.

6. Beltway 4: The construction plan (five phases) was approved by the prime
minister in September 2011. Construction has not started. Phase 1 is sched-
uled to be completed before 2017.
7. Cho Tho–HCMC Expressway: This will complete the expressway network
(HCMC–Long Thanh–Dau Giay Highway and HCMC–Trung Luong
Expressway [completed]) from Cho Tho to NH 1 north of HCMC.
8. Long Thanh International Airport: Construction has not started. Phase 1 is
scheduled to be completed and operational in 2020.
Increasing highway and road capacity is critical for the rapidly growing
HCMC area. Road congestion in the corridor results from much the same chal-
lenges that impact other corridors in the country (and notably the Hanoi-
Haiphong corridor): rapidly expanding urbanization, increasing levels of car
ownership, higher volumes of freight, a shortage of road capacity, and poorly
designed highway and road intersections.
The use of more modern highway design could substantially reduce overall
highway congestion and, by extension, logistics costs. Most Vietnamese highways
intersect at traffic circles. There are few overpasses or flyovers that allow traffic
from one highway system to merge with another highway system to maintain
traffic flow. Access roads leading to ports use traffic lights instead of ramps. The
municipality of HCMC plans to construct overpass bridges at two major traffic
circles on the main highways to industrial areas in Binh Thanh and Dong Nai,
and to NH 51 and the Cai Mep-Thi Vai terminals. The implementation of this
type of civil works projects should be extended.
Improvements in highway congestion (e.g., through increases in average truck
speeds and/or reductions in travel time variability) reduces the transport cost
dimension of logistics costs through improvements in trucking operational effi-
ciency. Using information from Vietnamese trucking companies interviewed for
this report, it is estimated that annual savings in trucking costs in this corridor
can reach $121 million by 2020 if more truck trips per truck per day can be
generated through better highway and road designs (see table 2.14). Given the
competitive nature of Vietnam’s trucking sector, it is expected that most of these
savings would be passed on by truck carriers to BCOs.
But the bulk of logistics cost savings to be obtained from less congested
highways and more predictable trucking itineraries is associated with inventory
Table 2.14 Truck Cost Savings from Decreasing Congestion in the HCMC Area
Millions of dollars (unless otherwise specified)
Location 2012 2015 2020
HCMC terminals 70.9 84.5 113.0
Percentage barge service to Cai Mep-Thi Vai 95% 90% 90%
Cai Mep-Thi Vai terminals 1.3 4.1 8.2
Total truck cost savings: HCMC/Cai Mep-Thi Vai Port range 72.3 88.5 121.2
Source: Authors. See table A.4 for details.

carrying cost reductions. It is estimated that truck-related congestion on road-

ways has an estimated total cost impact23 of $487 million on the Vietnamese
economy (see table 2.15).
The cost of congestion when all motor vehicle highway users are included
(i.e., beyond freight trucks), has an estimated cost of $1.7 billion on the Vietnam
economy (see table 2.16).
Table 2.15 Estimates for Costs of Truck-Related Congestion in Vietnamese Cities and Regions (2010 Data)
Population GDPa GDP Cost of congestionb Congestion costs
Urban area (million) (VND trillion) ($ billion) ($ million) (% of total country)
Whole country 87.8 1,981 104 487 100%
Red River Delta 20.0 475 25 121 25
Of which: Hanoi 6.7 160 8 97 20
Northern Midlands and
Mountain Areas 11.3 57 3 8 2
North Central Area and
Central Coastal Area 19.0 185 10 19 4
Central Highlands 5.3 15 1 2 0.4
Southeast 14.9 1,050 55 268 55
Of which: HCMC 7.5 399 21 215 44
Mekong River Delta 17.3 199 10 68 14
Source: Authors’ estimates. See appendix D for details.
a. General Statistics Office of Vietnam.
b. Cost of congestion is derived from applying GDP factors from comparable U.S. cities. The GDP factor accounts for the value of truck
commodities and truck delays and in the U.S. ranges from 0.16% of GDP to 0.47% of GDP.
Table 2.16 Estimates for Total Costs of Congestion (by All Vehicles) in Vietnamese Cities and Regions
(2010 Data)
GDPa GDP Cost of congestionb Congestion costs
Urban area Population (VND trillion) ($ billion) ($ million) (% of total country)
Whole country 87.8 1,981 104 1,709 100%
Red River Delta 20.0 475 25 426 25
Of which: Hanoi 6.7 160 8 341 20
Northern Midlands and
Mountain Areas 11.3 57 3 27 2
North Central Area and
Central Coastal Area 19.0 185 10 68 4
Central Highlands 5.3 15 1 7 0.4
Southeast 14.9 1,050 55 942 55
Of which: HCMC 7.5 399 21 753 44
Mekong River Delta 17.3 199 10 239 14
Source: Authors’ estimates. See appendix D for details.
a. Vietnam General Statistics Office 2011.
b. Cost of congestion is derived from applying GDP factors from comparable U.S. cities. The values for cities in the U.S. range from 0.76% of GDP to
1.65% of GDP.

Map 2.7 HCMC-Long Thanh-Dau Giay Expressway
Source: Asian Development Bank.
One of the future key highway developments to improve freight flows in the
corridor is the planned HCMC–Dau Giay Expressway. Cofinanced by the Asian
Development Bank and the Japan Bank for International Cooperation, it will link
the junction of the Second Ring Road in District 9 to the junction of NH 1 at
Dau Giay (see map 2.7). The project (1) is scheduled to be completed in early
2014, (2) will eventually serve the new Long Thanh International Airport,
and (3) will offer a shorter distance from HCMC to NH 51 and to the Cai Mep-
Thi Vai terminals. This project will provide approximately 51 kilometers of four-
lane, tolled expressway with only three highway access points. It is unclear
whether such access points will be equipped with efficiently designed overpasses
and on-off ramps.
Map 2.8 depicts the HCMC–Dau Giay Expressway (represented in green)
eventually connecting with the planned Can Tho–HCMC Expressway
(shown in magenta and orange), which has yet to be approved. This highway
would help expedite the shipments of two of Vietnam’s largest export
commodities—rice and seafood—to the HCMC and Cai Mep-Thi Vai

terminals.
During the planning and construction of Cai Mep-Thi Vai, the expansion
of NH 51 and access roads to the Cai Mep-Thi Vai terminals was a critical
part of this corridor’s planned multimodal improvements. Today it serves as
a good example of a poorly executed multimodal strategy. The first Cai

Map 2.8 HCMC-Long Thanh-Dau Giay Expressway Link to Can Tho
Source: Asian Development Bank.
Mep-Thi Vai marine terminal was open in 2009, and yet the planned expan-
sion of NH 5124 to three lanes for freight and vehicles and a separate lane
for motorcycles in each direction was not expected to be completed until the
end of 2012, as was the access Road 96525 from NH 51 to the Cai Mep-Thi
Vai terminals.

Because of the continued excess capacity in HCMC terminals, and

e specially the Cai Mep-Thi Vai terminals, the current plans to develop the
new Bien Hoa–Vung Tau Expressway as a parallel structure to NH 51
(see map 2.7) will likely not be needed by 2020 to handle the expected land-
side transport of containers to Cai Mep-Thi Vai. That is because barge ser-
vice is expected to continue handling between 80 and 90 percent of all
containers transported between HCMC and Cai Mep-Thi Vai through the
year 2020,26 primarily because the cost of barging containers to and from
Cai Mep-Thi Vai is one-third the cost of trucking (which is generally paid by
the ocean carriers and is not a direct pass-through cost to BCOs). It is esti-
mated that there were 80 truck trips per day to transport containers to and
from Cai Mep-Thi Vai in 2012, and that this will climb to approximately
500 trips per day in 2020 (see table 2.17).
As stated in interviews with Cai Mep-Thi Vai terminal operators, barge service
is not expected to interfere with mother vessel berthing operations until these
terminals’ overall utilization approaches 70 percent. Assuming SSIT, CMCT, and
Gemalink Phase 1 (see table 2.8) are operational by 2020, the combined capacity
at Cai Mep-Thi Vai would be 8 million TEUs, and 70 percent of that number
would bring total demand to 5.6 million TEUs. If the projected demand level is
1.5 million TEUs by 2015 (see figure 2.7), the 5.6 million TEUs could be
achieved only by 2020 if annual demand was to grow by 31percent per year,
which seems unrealistic. It is on this basis that barge service will likely continue
to handle the majority of the containers transiting between HCMC and Cai
Mep-Thi Vai through 2020. This suggests that the expanded NH 51 should be
able to accommodate container truck trip demand between HCMC and Cai
Mep-Thi Vai through 2020 without adding appreciably to traffic congestion on
this artery.
Based on the above scenario, justification for the Bien Hoa–Vung Tau
Expressway may be based on factors other than the need to transport large vol-
umes of containers to and from Cai Mep-Thi Vai, such as strategically to provide
network resiliency.27 Furthermore, additional truck trips in the HCMC–Vung
Tau Corridor could be generated from the development of a major logistics park
at the junction of the Long Thanh–Dau Giay Highway and NH 51 and/or from
the expansion of manufacturing between HCMC and Qui Nhon. This would
increase the volume of containers specifically routed by truck to and from Cai
Mep-Thi Vai.
Table 2.17 Cai Mep-Thi Vai Terminals, Daily Truck Trips

Cai Mep-Thi Vai terminals truck volume 2012 2015 2020
Total container volume (TEUs) 965,000 1,500,000 3,000,000
Percentage barge service to CM-TV 95 90 90
Total containers trucked (FEUs) 24,000 73,500 148,000
Daily truck trips 80 250 500
Source: Authors. See table A.4 for details.
Note: CM-TV = Cai Mep-Thi Vai; FEU = 40-foot equivalent unit container; TEU = 20-foot equivalent unit container.

Hanoi–Haiphong Corridor
This corridor handled 2.7 million TEUs in 2011, and 5.5 million TEUs are
projected for 2020. This corridor has three port complexes: (1) Haiphong
port, with five container terminals, (2) Dinh Vu port, with five container
terminals (and two more container terminals to be opened by 2014) along
with other terminals for bulk and liquid cargo, and (3) Cai Lan port, with two
container terminals. A fourth port, Lach Huyen, is planned to open its phase
one terminal in 2016. Lach Huyen will be able to accommodate larger,
mother vessels with its channel depth of 14 meters (see map 2.4 for a d iagram
of these ports and terminals).
Haiphong is 100 kilometers from Hanoi, where the majority of manufacturing
is done in Northern Vietnam. The Haiphong-Dinh Vu terminals are served by
NH 5, which has three lanes for vehicles and a separate motorcycle lane in each
direction. However, part of the Dinh Vu road connection to Haiphong City and
NH 5 is currently still unpaved and highly congested.
Cai Lan is served by NH 18, but about 80 percent of Cai Lan’s container
traffic is barged to Haiphong terminals due to weight restrictions on Highway
18 and customers’ preference to use Haiphong’s freight infrastructure.
Although improvements to the highway have been made, truck weight limits
have continued to divert a significant part of Cai Lan’s container traffic to
Haiphong via barges.
There is rail service from Hanoi to Haiphong, but trucking is the preferred
mode of transit. It typically takes about four hours to truck containers to or
from Haiphong–Dinh Vu terminals; this is about two hours more than in
noncongested periods. There is also significant congestion in the Haiphong
terminal area.
The Red River provides small barge transport for bulk materials from
Haiphong to Hanoi and beyond, but its shallow draft cannot accommodate
barges with containers at this time. Based on background studies for the World
Bank–financed Northern Delta Transport Development Project (Royal Haskoning
Nederland B.V. 2008), the GoV does have plans to improve channel depth and
improve ports and landings along the Red River. Even if these improvements are
implemented, transit time will be the determining factor whether the Red River
becomes a meaningful transport mode for containers from the Hanoi area to and
from Haiphong.
A new Hanoi to Haiphong Expressway28 is planned to be completed by
2015. It will accommodate trucks up to 30 metric tons compared with
an 18 metric ton limit on NH 5. This tolled expressway is among the
first such facilities in Vietnam to be built to international technical standards.
It will be 105.5 kilometers in length and 33 meters in width on average,
allowing a maximum speed of 120 kilometers per hour. This highway
will likely be a significant game changer for Vietnam in terms of mod-
ern highway infrastructure development to support heavier trucks and
the use of exit lanes and overpasses to keep traffic from bottling up at
intersections.

Improving the rail link to Haiphong is an important strategy if properly

designed. The distance of 100 kilometers between Hanoi and Haiphong is
very similar to the Lat Krabang IDC near Bangkok to the port of Laem
Chabang (JETRO 2008). However, because of the fragmentation of the ports
in Haiphong, only one terminal (Chua Ve) offers an on-dock rail facility.
A near-dock rail yard where containers can be transported from double-
stacked railcars to the terminals with minimal delays and cost could make
rail a viable option that is cost-competitive and removes a portion of the
current container cargo from the congested road network. (In the United
States, Seattle and Tacoma, Washington, are good examples of how near-
dock rail yard operators worked with marine terminals to develop an attrac-
tive service.) Although a direct rail link to the new Lach Huyen terminals is
planned, there needs to be a stronger commitment to promote this as a cost-
efficient and effective rail option since it would also benefit the China-
Vietnam corridor.
Although a Hanoi–Cai Lan rail connection (the Yen Vien Pha Lai–Ha Long–
Cai Lan Railway Project) has been proposed since 2004, actual construction was
delayed until 2008 and scheduled to be complete by the end of 2012. Delivery
of this project will most likely be delayed further.
Vietnam-China Corridor
The cross-border trade with southern China transits through the border gates at
Lang Son, Lao Cai, and Mong Cai. Vietnam’s annual exports are primarily fresh
fruits, seafood, and rubber. China’s primary exports include machinery, raw
materials for manufacturing, and finished goods. In 2011 Vietnam exported
approximately 20 million metric tons (or 1.8 million TEUs) to China across
these border gates. About 400,000 of the TEUs shipped to China transited
through the Haiphong and Cai Lan terminals in 2011. Vietnam imported
approximately 25 percent of its export volume, which translates into 250,000
TEUs in 2011.
The main freight border crossing point in this corridor is the Friendship Gate
near Lang Son. This is one of the busiest border trading points of Vietnam and
the point where NH 1 begins. Effective August 2012, Vietnamese trucks have
been allowed to dray containers to the Ping Xiang ICD, 50 kilometers inside
China. Chinese trucks are permitted to dray containers to Tien Son ICD, about
150 kilometers inside Vietnam. At these ICDs, container contents are customs-
cleared and transloaded into the other country’s containers29 and trucked to final
destinations by trucks registered in that country. Lightweight containers can be
lifted off and on chassis; otherwise, the contents of containers are physically
transloaded between containers.
Midland Corridor
The Central Corridor ports of Danang, Qui Nhon, and Nha Trang accounted
for only 3 percent of Vietnam’s container throughput in 2011. Danang is the

largest port (Tien Sa), with a channel depth of 11 meters and the ability to
handle ships up to 2,000–2,500 TEUs. However, as a result of relatively small
volumes, the port receives only vessels of 700–1,700 TEUs. In 2011 Danang’s
throughput was 114,373 TEUs, or 1.5 percent of Vietnam’s total container
volumes. Besides being a gateway for domestic cargo, Danang lies at one end of
the East-West Economic Corridor, which connects Vietnam with Lao PDR,
Myanmar, and Thailand, but the volumes moving on this corridor are insignifi-
cant. Given the low cargo volume in this c orridor, no strategic infrastructure
issues are relevant to this region at this time.
Mekong Delta Corridor

The region is famous as a large rice-growing area. It produces about half of the
total of Vietnam’s rice output. Vietnam is the second largest exporter of rice
globally after Thailand. Seafood is the second largest export commodity from
the region.
The port of Can Tho is 65 nautical miles upriver from the sea and has a maxi-
mum draft of 7.5 meters with a tidal surge of three to four meters. The maxi-
mum vessel size at Can Tho port is 10,000 DWT. As Can Tho primarily handles
breakbulk cargo, the total number of containers handled by Can Tho in 2011 was
only 3,196 TEUs, a decrease of more than 12,000 TEUs from its 2004 volume
(this is mainly because of the new Can Tho bridge over the Mekong River). For
containerized shipments, trucks are now the primary mode of travel from the
Mekong Delta region to HCMC.
The primary mode for container freight transport from the region is on the
NH 1 to HCMC ports. Seafood is mostly trucked in refrigerated containers or
trucks from the Mekong Delta to HCMC ports. Trucking is done at night to
avoid HCMC’s truck restriction hours, thus allowing containers to be deliv-
ered directly to HCMC marine terminals. Night trucking also reduces the
transit time to four hours compared with the daytime average travel time of
seven to eight hours, because the highway is two lanes in each direction with
no divider for motorcycles. Some of the containers delivered to VICT and Cat
Lai are barged to Cai Mep-Thi Vai. The port of Can Tho is not used because
the cost savings over truck transport do not offset faster truck delivery times,
and it was reported that container service from Can Tho is not available year
round. The construction of the Can Tho Bridge over the Mekong River in
2010 has definitely increased the volume of container and truck freight ship-
ments to HCMC ports. As noted in map 2.6, there are plans to construct a
Can Tho to HCMC Expressway in the future, but the project has not yet been
approved.
The Cho Gao Canal (see map 2.9) is a critically positioned, narrow water-
way linking the much wider, higher-capacity Tien and Vam rivers at each
end, providing a critical freight link between the Mekong Delta region and
HCMC. This navigable waterway is the main channel for barges carrying
loose cargo from the Mekong Delta region to HCMC ports. This narrow

Map 2.9 Cho Gao Canal
Source: World Bank.
canal has become a major bottleneck for waterway cargo transport in the
region due to increased traffic levels and larger-sized vessels over the past
several years. It is a safer method than open sea navigation from HCMC
ports to Can Tho. The resulting congestion has not only increased logistics
costs for regional BCOs, importers and exporters, but has also led to unsafe
navigation. As a result, the GoV has made the upgrading of the Cho Gao
Canal a transport efficiency and competitiveness priority network-wide
(World Bank 2012b).
The GoV considers barge shipments between Cambodia and Vietnam to be
“transit” rather than “transshipment” because the border is an inland border. This
reduces the potential volume of commodities like second-hand machinery and
used autos from moving on the barge system because it is illegal to import them
into Vietnam.
North-South Corridor
Table 2.18 shows that in 2008 approximately 29,000 tons of containerized cargo
were transported every day between the two delta regions (Red River and
Mekong Delta), of which about 13,000 tons per day traveled the southbound leg

Table 2.18 Road and Coastal Containerized Cargo Flows on Vietnam’s North‑South Trade Axis
Tons per day
2008 2020 2030 CAGR 2008–20 CAGR 2020–30
Road
North-South 3,341 22,923 39,241 17.4% 5.5%
South-North 7,624 20,347 30,950 8.5 4.3
Both 10,965 43,270 70,191 12.1 5.0
Coastal
North-South 9,611 65,945 112,889 17.4 5.5
South-North 8,642 23,064 35,083 8.5 4.3
Both 18,254 89,009 147,972 14.1 5.2
Total
North-South 12,952 88,868 152,130 17.4 5.5
South-North 16,266 43,411 66,033 8.5 4.3
Both 29,219 132,279 218,163 13.4 5.1
Source: Blancas and El-Hifnawi 2013 using data from JICA 2009.
Note: CAGR = Compounded annual growth rate.
while slightly more than 16,000 tons per day traveled the northbound leg. In
other words, the North-South trade is directionally imbalanced overall, with
more volumes traveling from Southern to Northern Vietnam. However, the story
changes when volumes are segregated by mode: The southbound leg is the domi-
nant leg for coastal shipping while the northbound leg is the dominant leg for
highway shipping. This imbalance continues today but is projected to become
dominated by southbound trade in 2030.
The volume of containers moving South-to-North and North-to-South
will expand significantly beyond present levels because of the dominant
domestic production base in the HCMC area and to a lesser degree in the
Hanoi area. One of the key drivers for Vietnam’s export growth, as noted in
section 2.1, is Vietnam’s young and comparatively less expensive workforce.
Between manufacturers in the HCMC area looking for additional low-cost,
semiskilled workers to expand their Vietnamese operations, and the expecta-
tion that the GoV will encourage new FDI export-based manufacturing to
locate in the less-developed Central Vietnam area, these new manufacturing
locations will need to draw upon the domestic production bases in
HCMC and Hanoi for the raw materials needed for the production of export
products. Therefore, these manufacturers will need a multimodal infra

structure system to provide timely and cost-efficient transport for their raw
materials.
The three transport options for freight in this corridor are NH 1, coastal ocean
shipping, and rail. NH 1 is 1,726 kilometers in length between Hanoi and
HCMC, with Danang located roughly at the midpoint.
It takes about 72 hours to truck freight from Hanoi to HCMC. For the
most part, NH 1 is a two-lane highway. Being a National Highway, it falls
under the exclusive control of the MoT. Currently an ongoing road-widening

Map 2.10 Vietnam National Railway System
Vietnam Railways/Livitrans
Vietnam Railways
Railways under construction
Cities
National capital
International boundaries
Source: World Bank with data from TrainTicketDeliver.
project is underway from Hanoi south to Ha Tinh, which has significant

congestion. One BCO using NH 1 regularly for shipments of domestic prod-
ucts from HCMC to distribution facilities in Danang and Hanoi stated there
are two major congestion points between HCMC and Danang at the Deo Ca
mountain pass (between Phu Yen and Khanh Hoa) and at the Cu Mong

mountain pass (between Phu Yen and Binh Dinh). This area should be stud-
ied for possible lane expansion such that trucks do not divert around these
two points by using secondary roads, which can cause additional safety and
road-weight bottlenecks.
Besides coastal ocean shipping, another option in the North-South corridor
is to move freight between Hanoi and HCMC via the National Railway system
(see map 2.10). Rail service provides a single track between Hanoi and HCMC
and carries only about 4 percent of Vietnam’s freight. Freight is moved in two
types of boxcars: “green” cars (shorter transit time, less cargo damage, and more
reliable schedule) and “red” cars (longer transit time and lower cost). Transit
time from HCMC to Hanoi using “green” boxcars is seven days, compared with
10 days for “red” boxcars. The railroad offers no tracking of cargo during transit,
and BCOs are not advised in advance of arrival as to what boxcars contain their
products. Rail transport, as reported by one BCO, is about 20–30 percent less
expensive than ocean transport. However, there is no appreciable difference in
total transit time from inland pick-up location in HCMC to inland delivery
location in Hanoi between rail and ocean shipping, hence the low usage of rail
as a mode in Vietnam.
Notes
1. The Doi Moi economic reforms of 1986 in Vietnam were explicitly implemented to
develop a socialist-oriented market economy and have been credited with current-day
economic growth in the country.
2. Vietnam General Statistics Office (2011), by Standard International Trade
Classification (SITC) Code 2010 data.
3. The term “demographic dividend” was popularized by Bloom, Canning and Sevilla
(2001).
4. Interview testimonies by the European (EuroCham) and American (AmCham)
Chambers of Commerce in Vietnam, the US-ASEAN Business Council and the
Vietnam Competitiveness Initiative (VNCI).
5. Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, the Philippines,
and Thailand. None of these countries registered double-digit inflation over the
period.
6. Fitch Ratings Sovereigns Division (2012), “Vietnam Trade Balance, Inflation Improves,
Risks Remain,” February 27.
7. Although inflation risks remain heightened, by August 2012 inflation nationwide had
fallen to 5 percent from its peak of 23 percent in August of 2011.
8. For a comprehensive, survey-based look at corruption in Vietnam specifically in the
interface between government officials (e.g., Customs) and the public (citizens and
firms), see World Bank and Government Inspectorate of Vietnam (2012). That report
observes that “the top four most corrupt sectors, according to [survey] respondents,
are the traffic police, land administration, customs and construction,” and that, among
firms facing difficulties created by state organizations, “59% chose to give gifts and/or
money to the officials to settle the work.” A separate survey of 246 Vietnam-based
trucking companies and owner-operators conducted by the World Bank (2011) found

that corruption was perceived by respondents as the most pressing obstacle to inter-
city trucking. The testimonies gathered by the present study from Vietnam freight
stakeholders are consistent with these earlier findings.
9. Opaquely defined allowances are a typical (and in many cases substantial) supplement
to base salaries for public sector officials in Vietnam, which weakens the merit orien-
tation of the civil service body. Furthermore, citizens have reported making large
unofficial payments in exchange for access to job applications in the public sector.
10. Particularly those domiciled in countries where facilitation payments are exempt from
national antibribery laws (there are five such countries—including the United States
and the Republic of Korea, home to large multinational LSPs). This stance, of course,
ignores the more important point that the practice is nonetheless illegal under
Vietnamese law. Increasingly emphatic calls are being made by the international com-
munity (notably by the OECD) to universally ban facilitation payments.
11. Import costs include origin costs (fees for delivery order, container imbalance charge,
document administration, Customs and cargo inspection, terminal handling charge,
and trucking costs for a 100-km drayage dispatch) and ocean freight from Busan,
Korea.
12. Export costs include origin costs (fees for full container processing, document admin-
istration, Customs, port construction and security, container seal, terminal handling
charge, container lift-on-lift-off chassis, advance manifest security filing, and trucking
costs for a 100-km drayage dispatch) and ocean freight to Los Angeles, California.
13. Boston Logistics Group, in NCF (2008).
14. For a comprehensive survey of this type of reports and studies globally, see Rantasila
and Ojala (2012).
15. Under the World Bank–financed Mekong Delta Transport Infrastructure Development
Project (2007–14) efforts are being made to measure Vietnam’s logistics costs as a
percentage of GDP based on a survey-based methodology developed by a global
logistics research firm in conjunction with technical inputs from the World Bank.
16. World Bank (2011) found that in a sample of 852 origin-destination trucking routes,
the average truck age was 16.6 years. By way of comparison, the average age of the
U.S. active Class 8 truckload fleet is approximately seven years.
17. The Central Region ports of Danang and Qui Nhon account for only 3 percent of the
total throughput at Vietnamese ports.
18. For this and similar references throughout the report, volume forecasts conducted by
this study are based on inputs from the Vietnam Port Association, interviews with
port operators, Liner Research Services data, and study team estimates.
19. Estimates provided by two foreign-flag ocean carriers.
20. Members of CKYH are Costco, K Line, Yang Ming and Hanjin. The Grand Alliance
comprises Hapag-Lloyd, NYK, and OOCL. The New World Alliance is made up of
APL, Hyundai, and MOL.
21. Phu My Bridge provides a more direct routing from South HCMC area in District 7
and other southern provinces to the Cat Lai Industrial Park and Cat Lai Port in
District 9. The bridge also provides a north-south link to NH 1, allowing traffic to
bypass the center of HCMC. It is also a land bridge link to VICT and to SPCT/Hiep
Phuoc ports, bypassing the HCMC center and its container transit-hour restrictions.

22. The issue of conflicts of interests in Vietnam’s port sector extends far beyond
Vinalines and is directly connected with many of the issues this report has dealt with,

including supply-demand mismatches, port fragmentation, and poor service levels. See
Pincus and Nguyen (2011) for a detailed account of conflicts of interest in the plan-
ning and management of port projects in Southern Vietnam.
23. Cost of congestion is based on key statistics from several U.S. cities. Although data
have not been collected for validation of the Vietnam situation (this lay beyond the
scope of this study), the analysis provides an order of magnitude understanding of the
cost of annual hours of delay for commuters and trucks, including inventory costs,
excess fuel consumed, vehicle operating costs and commuter stress. Bespoke analysis
of the cost of congestion in the Vietnamese context is an area in need of further study.
24. Under the credit agreement signed on June 9, 2010, the six banks financing the expan-
sion of NH 51 have invested close to VND 2.4 trillion, or $125 million, equivalent to
72 percent of the total invested capital. The expansion of the 72.7-kilometer road
running through Dong Nai and Ba Ria-Vung Tau provinces will take three years to
build from August 2. It will be widened from 32.9 meters to 39.3 meters to have eight
lanes and allow for a design speed of 80 kilometers per hour.
25. Road 965 will be a divided, two-lane road in each direction from NH 51 to the inter-
port road to all the Cai Mep-Thi Vai terminals.
26. Based on interviews with terminal operators and ocean carriers.
27. It is recommended that a careful evaluation is conducted by the GoV to study the
potential traffic volumes on NH 51 and determine when conditions warrant the con-
struction of the Bien Hoa–Vung Tau Expressway.
28. Two major Japanese banks will provide preferential credit for the $1.5 billion Hanoi-
Haiphong Expressway project under an agreement signed in Tokyo on February 22,
2012, by the Vietnam Development Bank (VDB), Japan’s Sumitomo Mitsui Banking
Corporation (SMBC), and Citibank Japan. SMBC and Citibank will provide VDB
with $270 million to finance the contract packages nos. 3 and 8 of the project at
preferential interest rates.
29. Since trucking companies purchase their own containers, Chinese trucking companies
are not inclined to surrender their containers to a Vietnamese trucking company (and
vice versa). In addition, a country’s chassis would not be properly licensed to travel in
the other country beyond the designated border area.
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Chapter 3
Freight Stakeholder Challenges and

Opportunities
In August 2012, the authors conducted face-to-face interviews with a broadly

defined set of freight stakeholders engaged in Vietnam’s logistics. The results are
presented in this section. Interviews were held with 25 international beneficial
cargo owners (BCOs), two domestic BCOs, four Vietnamese apparel and foot-
wear factories, 11 international logistics service providers (LSPs), four container-
ized ocean carriers, 15 marine terminal operators (MTOs), four Vietnamese
trucking companies, four trade associations, and four national-level agencies of
the Government of Vietnam (GoV) (Appendix C lists the names of these stake-
holders). With the exception of four international BCOs interviewed in the
United States, all interviews took place in Vietnam. The interviews were con-
ducted by seasoned industry practitioners with significant direct exposure to
Vietnam, aided by detailed, sector-specific questionnaires. They comprised open
and closed questions and gave ample opportunity for respondents to provide
candid comments and opinions, which were later collated, assessed, and sum-
marized for this report.
Marine Terminal Operators

Managing Capacity Utilization at Cai Mep-Thi Vai
Conversations with Cai Mep-Thi Vai MTOs1 quickly revealed that their most
pressing short-term challenge is the issue of low utilization rates. What follows
are potential ways, as suggested by these MTOs, to improve facility utilization
(and therefore strengthen supply chain reliability).
Seaport master plan parameters that limit the size of vessels calling at Cai
Mep-Thi Vai ports to only 80,000 deadweight tons (DWT) should be adjusted to
reflect current operational practice. The size of the largest containerships already
calling at Cai Mep-Thi Vai terminals has exceeded the 80,000 DWT (about
7,000 TEUs) limit since 2010—by up to a factor of two (table 3.1). Moreover, it
is expected that vessels above 80,000 DWT will continue be deployed on both
Asia–North Europe (see figure 3.1) and Asia–North America services for years

70 Freight Stakeholder Challenges and Opportunities
Table 3.1 Largest Container Vessels at Cai Mep-Thi Vai Terminals since 2009
Date Terminal Vessel name DWT 2 GT 3 TEU LOA4 (m)
Dec. 19, 2011 CMIT CMA CGM Laperouse 157,092 150,269 13,830 366
Mar. 30, 2011 CMIT CMA CGM Columba 131,263 131,332 11,388 363
Mar. 21, 2011 TCIT HANJIN Germany 122,900 114,144 10,114 349
Nov. 16, 2010 SP-PSA CMA CGM Pelleas 120,853 111,249 9,661 350
Feb. 12, 2010 SP-PSA Albert Maersk 109,000 93,496 8,650 352
June 3, 2009 TCCT MOL Premium 72,968 71,776 6,350 293
May 29, 2009 SP-PSA APL Alexandrite 59,603 49,716 3,821 288
1,80,000 18,000
Vessel deadweight tons (DWT)
1,60,000 16,000
1,40,000 14,000
Vessel TEU capacity

1,20,000 12,000
1,00,000 10,000
80,000 8,000
60,000 6,000
40,000 4,000
20,000 2,000
0 0
CMA CGM Laperouse

MOL Premium
CMA CGM PELLEAS
Hanjin Germany
CMA CGM Columba

APL Alexandrite
Albert maersk
SP-PSA TCCT SP-PSA SP-PSA TCIT CMIT CMIT
DWT TEU

Note: DWT = Deadweight Tons; GT = Gross Tonnage; LOA = Length Overall; TEU = 20-foot equivalent unit container.
to come. This will require Vietnamese ports to ensure the safe navigation of such
vessels, especially at Cai Mep-Thi Vai. Artificial operating limits should be
removed, and infrastructure needs should be assessed based on actual demand.
Financial incentives could be provided to ocean carriers to promote additional
vessel calls at Cai Mep‑Thi Vai. At present, the average number of container
moves per port call at Cai Mep-Thi Vai (1,000–2,000 TEUs) is significantly
lower than the corresponding number at most other deep-water ports in the
region (3,000 TEUs). As a result, tonnage and pilotage fees constitute a higher
percentage of operating costs, on a per-TEU basis, for carriers calling Cai M
ep-Thi
Vai. One way to alleviate this extra burden, at least temporarily while volumes
remain depressed, is through volume discounts assessed on vessel tonnage. The
suggested discounts should be targeted, for example by establishing a container
move threshold that would trigger them (e.g., below 3,000 TEUs). It is estimated
that additional incentives along these lines, coupled with the lifting of current

Freight Stakeholder Challenges and Opportunities 71
Figure 3.1 Asia-North Europe Services: Average Vessel Size, October 2012
Average vessel size (TEUs)

0 5,000 10,000 15,000
AE-10 Maersk
AEX 7/FAL 2 CSCL/UASC/QMACGM
Silk/FAL 6 MSC
FAL 1/Condor CMA CGM/UASC
Lion/FAL 7 MSC
Lp 4 G6
NE 3 CKYH
NE 6 CKYH
FAL 3/Swan CMA CGM
NE 1 CKYH
AE 6 Maersk
CEM/CUS Evergreen/Hanjin
Lp 6 G6
Lp 7 G6
Lp 5 G6
CES 2/AEX 2 Evergreen/CSCL/Zim
NE 2 CKYH
AE 1 Maersk
Lp 1 G6
AE 7 Maersk
AE 2 Maersk
AEX 1 CSCL
AE 9 Maersk
CES Evergreen
Above 8,000 TEUs

Note: G6 Alliance members are APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK Line and OOCL;
TEU = 20-foot equivalent unit container.
restrictions on vessels of over 80,000 DWT, could potentially increase the num-
ber of direct Vietnam-to-Europe services from one (as of September 2012) to
four or five weekly service strings.
Transshipment traffic at Cai Mep-Thi Vai should be promoted as an addi-
tional, more permanent means to improving capacity utilization. Due to the very
competitive nature of current handling tariffs at Vietnamese ports, there is strong
unmet demand for additional transshipment cargo volumes at Cai Mep-Thi Vai.
However, actual transshipment volumes remain limited, with little incentives
provided to attract volumes from the natural catchment regions of Cambodia
and Northern and Central Vietnam.
In particular, a relaxation of cabotage rules would increase the attractiveness
of Cai Mep-Thi Vai as a national transshipment hub. This would enable foreign

flag carriers to carry transshipment containers to and from Haiphong, Danang,

and Quinhon into Cai Mep-Thi Vai.
As of September 2012, no domestic Vietnamese flag carrier serving the main
cabotage routes calls at Cai Mep-Thi Vai terminals. Instead, these carriers call at
inner-city terminals at Saigon Port, Ben Nghe, Tan Thuan Dong, VICT and Bong
Sen, which are not specifically geared to handle transshipment cargo volumes
with regular connections to mother vessels calling at Cai Mep-Thi Vai
(see table 3.2).
The relaxation of cabotage rules for international transshipment containers
would have little impact on existing Vietnam-flag carriers’ share of the domestic
container market. This is because Vietnam-flag carriers cannot deliver the service
needed for transshipped international containers. Instead, Vietnam forgoes port
revenue at Cai Mep-Thi Vai as these international containers will be trans-
shipped through hubs external to Vietnam when the cabotage rules become
enforced in January 2013.
Table 3.2 Domestic Carriers Serving the Haiphong-Quinhon-Danang-HCMC Coastal Trades,

September 2012
Operator Vessel TEU Route
Vinalines Vinalines Diamond 1,118 HCMC-Haiphong-HCMC
Me Linh 594
Van Xuan 594 Singapore-HCMC-Haiphong-HCMC-Singapore
Vinalines Pioneer 588
Bien Dong Bien Dong Navigator 1.016 Haiphong-HCMC-Singapore-Haiphong
Bien Dong Mariner 1,016
Gemadept Pacific Pearl 699 Haiphong–Hong Kong SAR, China–Haiphong-
Pacific Express 749 HCMC–Danang (1/3)–Haiphong
Pacific Gloria 699
NASICO Nasico Navigator 336 HCMC-Haiphong-HCMC
Nasico Sky 260
Nasico Ocean 260
VSICO Prudent 436 HCMC-Haiphong-HCMC
Vsico Pioneer 420
Duong Dong Duong Dong 404 HCMC-Haiphong-HCMC
Viet Sun Tai Ping 602 Haiphong–Cua Lo–HCMC-Haiphong
VOSCO Fortune Navigator 580 HCMC-Haiphong-HCMC
Fortune Freighter 570
Vinafco Vinafco 25 252 HCMC-Haiphong-HCMC
Dong Du 561
Truong Hai Truong Hai Star 2 228 HCMC–Chu Lai–HCMC
Duong Dong 404
Hub Line Hub Stellar 714 HCMC-Haiphong-HCMC–Port Klang–HCMC
(foreign flag) Hub Grandiose 714
Note: Danang and Quinhon port calls also served on an irregular basis by all operators. HCMC = Ho Chi Minh City;
TEU = 20-foot equivalent unit container.

Table 3.3 Comparison of Transshipment Costs at Cai Mep Relative to Key Regional Hubs
Dollars
Estimated transhipment Difference vs. Difference vs. Hong Kong
Port cost per TEU Singapore SAR, China
Cai Mep 40 −60/TEU −80/TEU
Singapore 100 n.a. n.a.
Hong Kong SAR, China 120 n.a. n.a.
Source: Authors based on interviews with ocean carriers.
Note: Handling rates are estimates only, and would differ in practice based on individual carriers’ contracts with terminals at
the various hub ports. TEU = 20-foot equivalent unit container; n.a. = not applicable.
Transshipment volumes to or from other countries in the region can benefit

from accessing Cai Mep-Thi Vai while meaningfully contributing to these ports’
financial footing. Incentives such as transshipment rebates and streamlined cus-
toms regulations for transshipment cargo on international routes, including those
linked to Cambodia, Malaysia, the Philippines, and Thailand, could potentially
increase the container throughput at Cai Mep-Thi Vai by between one and two
million TEUs per annum by 2020.
A more open policy for transshipment volumes could also generate
significant cost efficiencies for container shipping carriers. Specifically, poten-
tial savings from shifting transshipment volumes from existing hubs in
Singapore and Hong Kong SAR, China, to Cai Mep-Thi Vai could be between
$60 and $80 per TEU, to be realized from the lower costs of transshipment at
Cai Mep (see table 3.3).
Land and inland waterway connections at Cai Mep-Thi Vai need to be
improved or developed. In particular, the upgrading and completion of the NH
51 expansion and the connector Road 965 from NH 51 to the Cai Mep-Thi Vai
terminals should be prioritized. At present, a traffic signal controls the intersec-
tion of NH 51 and Road 965. When completed (completion was originally
planned for early 2013), Road 965 will be a divided highway with two lanes in
each direction and connecting to the Cai Mep-Thi Vai Interport Road,5 construc-
tion of which is also behind schedule.
Inland waterway connections between Cai Mep-Thi Vai and the various
Inland Container Depots (ICDs) in the port’s hinterland are currently provided
to the following locations:
• ICD Tang Cang

• ICD Transimex
• ICD Sotrans
• ICD Tanamexco
• ICD Phuoc Long/Phuoc Long 3 and
• ICD Phuc Long.
These ICDs, which store empty and full containers with customs clearance and
container maintenance facilities located on site, are located throughout the Ho
Chi Minh City (HCMC) area. Some are situated along the inland waterway

system for direct loading on to barges. Other ICDs are located near industrial
areas, and containers must be drayed directly to a port or to another ICD, owned
by the same company, located on an inland waterway for barge loading. The size
of ICDs can range from 500 TEUs to 1.4 million TEUs.
As previously reported, 95 percent of containers to and from Cai Mep-Thi Vai
are barged to or from HCMC area ICDs. Because of traffic restrictions on con-
tainers transiting through HCMC, between 40 and 80 percent of the container
volumes to or from the inner-city terminals (SPCT and VICT) are barged from
ICDs located on the opposite side of HCMC.
Highway connectors and access roads to many ICDs contribute to overall
highway congestion in the HCMC area. There is also concern about navigational
safety on the local inland waterways due to the number of barges transporting
containers to or from marine terminals. The improvement of these land-side and
inland waterway infrastructures would significantly improve the operating effi-
ciency of the ports in the Southern region and provide lower operating costs for
ocean carriers and BCOs.
Ocean Carriers
Doing Business in Vietnam Today
As of September 2012, 46 containerized ocean carriers,6 foreign and domestic
flag, made port calls in Vietnam as part of regular, scheduled services (see table 3.4).
Apart from Cai Mep-Thi Vai ports, which are able to receive ships of up to
14,000 TEUs, no Vietnamese port is able to receive ships above 3,000 TEUs.
From a cost-competitiveness perspective, the four foreign carriers were unani-
mous in identifying their highest operating costs to be utilities and expatriate
Table 3.4 Containerized Ocean Carriers Calling Vietnam

Vietnamese-flagged carriers Foreign-flagged carriers
Bien Dong Shipping Co. APL Maersk Line
Duong Dong Asean Seas Line Co. MCC
Gemadept CNC Mariana Express Lines
Nasico China United Lines MOL
Truong Hai CK Line MSC
Vietsun CMA CGM Namsung Shipping
Vinafco COSCO NYK
Vinalines CSCL OOCL
VOSCO Evergreen PIL
VSICO Gold Star Line RCL
Hainan PO Shipping Samudera
Hanjin Sinokor
Heung-A Sinotrans
HMM SITC
Hubline STX Pan Ocean
Interasia TS Lines
K Line Wah Hai
KMTC Yang Ming

Figure 3.2 Ocean Carriers: Relative Cost of Operations in Vietnam
Office/rental costs
Utilities costs
Staff costs
Expatriate costs
Taxes
Borrowing costs
Foreign exchange costs
Cargo agency/freight …
Ship husbandry/ship agency …
Port handling costs
Container storage/depot costs
Container M&R costs
Container repositioning costs
Trucking costs
Bunker costs
0 1 2 3 4
Number of respondents
High Moderate Low
Note: M&R = Maintenance and repair.
costs (see figure 3.2). Three carriers identified the cost of borrowing money,
taxes, and bunker costs to be high compared with other costs. The high expatri-
ate cost refers to the need to bring in foreign nationals for senior management
positions (e.g., country general managers, directors of sales and marketing and
other key director-level positions). This issue will be discussed in more detail
later in this report.
Some cost drivers affect operating costs more than others (see figure 3.3).
Issues with the greatest impact on operating costs include the high inflation rates
prevailing at the time of the survey (which lead to wage inflation) and the per-
ceived incidence of taxation. Road congestion and government regulations are
also stated as having a higher than average impact on operating costs.
The quality of carriers’ Vietnamese staff is believed to be above average (see
figure 3.4). Regarding sales, one respondent noted that its office staff is compe-
tent and often used as a “beta site” to test new processes before implementing
them in other Asian offices. Another respondent mentioned that sales staff at the
manager level and below is adequate, but its sales team is not sufficiently cus-
tomer service oriented. Although not shown in figure 3.4, carriers reported that
Vietnam lacks experienced executive level managers and directors who have
sufficient supply chain and logistics experience to replace expatriate staff.
Figure 3.5 shows how carriers rated port operations for HCMC, Cai Mep-Thi
Vai, Haiphong, and Danang ports. Cai-Mep-Thi Vai ports rank the highest in all
categories simply because of the tremendous amount of excess capacity at those

Figure 3.3 Challenges That Impact Ocean Carrier Operation Costs in Vietnam
Inflation rate
Wage inflation
Staff turnover
Office rental
Road congestion
Port congestion
Port productivity
Number of terminals/ICDs
Government regulations
Tax issues
0 1 2 3 4
High Moderate Low
Note: ICD = inland container depot.
Figure 3.4 Qualities of the Ocean Carrier Staff Functions for the Industry
Sales
Customer service
Operations
Finance/accounting
Human relations
0 1 2 3 4
High Moderate Low/in need of improvement
locations (with only six vessel strings currently calling those ports). The ratings
for HCMC ports are for Cat Lai and VICT terminals. Given the significant vol-
ume of containers transiting through these two terminals, the ratings reflect
above average performance. Although Haiphong terminals have the same perfor-
mance for port congestion rating as HCMC ports, their overall performance is
about average. Danang’s ratings reflect a sporadic performance rating for a little
used container terminal. One BCO said it stopped using Danang 18 months ago
because of poor port operations and inadequate feeder service.

Figure 3.5 Perceived Port Operations Performance
9.0 1–10 Performance handling scale: 1 = poor to 10 = excellent
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
tio rt
rv er
ss
tiv th
tiv rd
tio h
tio e
es Gat
es ert
es Po
ce
se om
uc Ber
uc Ya
n
ice
ity
ity
n
B
ac
st
ad
Cu
ng
ng
ng
Ro
od
od
co
co
co
pr
pr
CM-TV HCMC Haiphong Da Nang
Table 3.5 Positive and Negative Aspects of ICDs

Positive aspects Negative aspects
The current number of ICDs in the HCMC area provides Although the high number of IDCs around HCMC fosters
a wider footprint for receiving containers closer to large competition, it is difficult for a carrier to monitor its
manufacturing areas inventory of loads and empties within the various ICDs.
Most BCOs prefer to use ICDs around HCMC because they BCOs have preferences about which ICDs to use (mainly
have relationships with Vietnam Customs officials there. for customs purposes), so carriers have to juggle
operations to accommodate customer demands.
ICDs near inland waterways allow containers to be Highway connectors and access roads to many of the ICDs
transported to marine terminals by barge as opposed to are generally poorly planned which contributes to the
more expensive truck transport. overall highway congestion within the HCMC area.
ICDs are especially helpful for transporting containers to Two to three small ICDs in HCMC should be merged into
VICT that would otherwise have to transit through HCMC a single larger one with higher professional and quality
during non–truck-traffic restriction hours. standards.
Note: ICD = inland container depot; HCMC = Ho Chi Minh City; Vietnam Customs = General Department of Vietnam Customs.
Besides delivering containers direct to ocean terminals, carriers also interact

with ICDs for positioning empty containers and picking up full containers. To the
questions of (1) whether current locations and operation of off-dock depots were
adequate for carriers’ operational needs and (2) whether ICDs added significant
extra costs to carriers’ operations, mixed reactions were expressed, with two car-
riers agreeing with the questions while the other two disagreed. They all agreed,
however, that trying to consolidate the ICDs would be nearly impossible. The
perceived pros and cons on the number of ICDs are shown in table 3.5.

Table 3.6 Trucking Industry: Perceptions of Ocean Carriers

Agree Disagree
There is an adequate supply of trucking companies to meet our company’s business needs. 1 2
The trucking industry in Vietnam is characterized by a number of small companies that lack
the capacity to expand their businesses. 3 1
The majority of trucking companies use old and polluting trucks. 3 1
Trucking companies generally do a good job in minimizing loss or damage to cargo/
containers. 1 3
Responses to the statements shown in table 3.6 reflect viewpoints that are
divided by carriers’ operating setup, with three carriers outsourcing trucking
services and one owning and operating its own trucks. Specifically, the company
that invested in its own trucks had a markedly more positive view of the trucking
industry than did the carriers relying on third-party truckers.
Ocean carriers reported that the state of the trucking industry in Vietnam has
considerable room for improvement. Trucking companies generally are small,
trucks old, and driver attitudes poor. Most trucking companies do not meet inter-
national standards, which led one of the four international ocean carriers inter-
viewed for this report to invest in its own fleet of trucks to maintain the high
service level demanded by its customers. It has become risky for this ocean car-
rier to purchase additional trucks, so it has to employ subcontracted trucking
companies. Like the other ocean carriers, this ocean carrier found that its subcon-
tracted trucking companies are not consistent in meeting international perfor-
mance standards.
Cost Management Challenges

Containerized ocean carriers operating in Vietnam reported the following four
key cost management challenges:
1. A fragmented trucking industry increases ocean carriers’ operational costs.

Fragmentation forces ocean carriers to manage numerous trucking contracts to
be assured of service during peak shipping periods, as the number of trucks any
one trucking company can commit to a carrier is limited. The use of multiple
trucking companies may also be tied to the special arrangements they often
have with the police on certain road sections. This may generate a need to use
different trucking companies for different routes. Without such arrangements,
trucks risk being delayed by unannounced road inspections, ostensibly for the
purpose of exchanging undocumented facilitation payments.
2. Vietnam has a complex and costly process for international ocean carriers to
file the necessary documents to avoid double taxation.7 Even after filing the
paperwork, the GoV does not fully exempt carriers from paying some
Vietnamese taxes on freight. This is not the experience carriers have in other
countries that have double freight taxation agreements. The additional tax
costs for each international carrier are estimated to range from $50,000 to
$200,000 per year. The GoV could simplify the tax filing exemption process

in order to align itself with the international standards designed to eliminate

double taxation on freight.
3. The GoV considers barge shipments between HCMC/Cai Mep-Thi Vai and
Cambodia as “transit” rather than “transshipment.” This responds to the fact
that the trade is linked by an inland border connection. Cambodia allows
imports of second-hand machinery and cars originating in the United States
and other foreign countries that are prohibited from being imported into
Vietnam. Therefore, this type of restricted cargo cannot be transported to
Cambodia via Vietnam. Currently the trade between Vietnam and Cambodia
is imbalanced, with more cargo coming out of Cambodia than going in.
Vietnam’s economy loses potential revenue as a result of this restriction, and
carriers could be more profitable in this barge trade by having a more balanced
two-way flow of cargo.
4. The cargo insurance coverage of transportation partners involved in the
domestic portion of container shipments is limited. For example, barge

companies generally carry freight insurance with a maximum payment of
$50,000 per occurrence (roughly the value of the goods inside a typical 20-foot
container in Vietnam). As such, barges loaded with 20–80 such containers cre-
ate a loss exposure for carriers, as they would not be able to recoup, in the
event of loss, the full compensation they are required to pay the BCO from the
barge operator that was responsible for the loss incident. A similar issue arises
with underinsured trucking companies, although the exposure is limited to the
truck’s (typically single) trailer capacity. A root cause of these challenges is that
obtaining cargo insurance in Vietnam is expensive (an average of $0.50 per
$1,000) compared with regional peers (average $0.125 per $1,000).
BCO Supply Chain Impact

As Northern Vietnam attracts more manufacturing activity, the worsening port
congestion in the Haiphong area could lead to longer cutoff times for manufac-
turers to deliver containers to ocean carriers. This in turn would increase BCOs’
inventory carrying costs, especially for time-sensitive cargo. The same may occur
as a result of increasing highway congestion in the HCMC area between ports,
ICDs, manufacturing locations, and logistics parks.
Future Freight Flow Impacts

The future operating environment in Vietnam for ocean carriers will change (both
positively and negatively) as a result of the following four anticipated impacts:
1. A strict enforcement of cabotage rules in 2013, which will prevent foreign flag
carriers from carrying internationally destined containers from Northern and
Central Vietnam to Cai Mep-Thi Vai to connect with mother vessels. This will
increase carriers’ operating costs, as they would be forced to incur higher tran-
shipment costs at foreign hubs.
2. New infrastructure being developed in the HCMC area has the potential to
generate higher container flows in and out of this region. The completion of

the HCMC–Long Thanh portion of the HCMC–Long Thanh–Dau Giay

Expressway by 20148 will create a shortcut from HCMC to NH 51 and on to
Cai Mep-Thi Vai. The remaining portion of the HCMC–Long Thanh–Dau
Giay highway connecting NH 1 is also under construction. When the new
Long Thanh Airport is completed, this triangle will become an important
logistics area where new logistics parks could be built for closer access to ports
and the new airport.
3. Some industries are likely to move out of the inner-HCMC area and into Nhon
Trach and Long Thanh, closer to Cai Mep-Thi Vai. There are numerous steel
mills and glass and chemical plants located in Phu My, which would allow
manufacturers to source more raw materials in the Phu My area compared
with the current heavy reliance on imported raw materials.
4. The GoV is considering setting up a coal center in HCMC where bigger ves-
sels can call and transload to barges for distribution to electric plants locally
and in the Mekong Delta region. The importance of the Cho Gao Canal, con-
sidered the most pressing bottleneck of the Mekong Delta inland waterway
network connecting Can Tho and HCMC, is growing, and congestion due to
vessel queuing is delaying cargo movement. Government plans to increase
capacity at Cho Gao, with World Bank support, are ongoing.
Logistics Service Providers

Respondents’ Profile
Ten LSPs were consulted and interviewed for this study. Nine are large interna-
tional LSPs with operations in Vietnam and across the globe; one is a Vietnamese
company. Two are integrators handling small package shipments. All LSPs pro-
vide service across Vietnam. Two LSPs are subsidiaries of ocean carriers; the rest
are non–asset-based operators. These LSPs provide a wide range of services,
including ocean and airfreight forwarding, customs brokerage, storage and value-
added warehousing, and trucking.
Cost Management Challenges for LSPs Related to Customs Processes and

Transportation Infrastructure
According to LSPs, their operating costs are generally lower in Vietnam com-
pared with their operations in China, India, Malaysia, and Thailand (see
figure 3.6). However, 70 percent of respondents noted that regulations nega-
tively impact their business operations and cited inflation as a recurrent concern
for them and their customers.
Customs and Import/Export Documentation

More than half of respondents consider Vietnam’s customs requirements to be
more stringent and expensive to comply with compared with other Asian coun-
tries where they operate (see table 3.7). All but one of the interviewees was
concerned with the inconsistent manner in which customs regulations and fees
are applied and with the cumbersome nature of working with the General

Figure 3.6 Comparison of Vietnam Operating Costs to Other Asian Countries
China
Thailand
Malaysia
India
0 1 2 3 4 5 6 7 8
More expensive Similar Less expensive
Table 3.7 LSPs’ Opinions about Vietnam Customs Processes

Strongly Mostly Strongly
agree agree Disagree disagree
Customs decisions, policies, and/or directions are arbitrary and
inconsistent. 6 3 1
Customs is bureaucratic, but consistent among the various Customs
districts. 1 6 2 1
Customs operations are consistent with other Asian countries. 3 6 1
Customs operations are better than in other Asian countries. 2 5 3
Customs officials work cooperatively with our company to address issues. 5 3 2
Customs fees are well publicized and consistently applied. 3 3 3
Note: Customs/Vietnam Customs = General Department of Vietnam Customs.
Department of Vietnam Customs (hereafter “Vietnam Customs” or simply

“Customs”). Vietnam Customs is also viewed as being harder to conduct business
with than with equivalent agencies in some of Vietnam’s peer Asian countries.
From Table 3.7 it is evident that LSPs overwhelmingly believe that Customs
rules are subjective and that dealing with Vietnam Customs is cumbersome and
more difficult than in other Asian countries. Only half of the LSPs stated that
Customs officials try to work cooperatively with them to solve problems. Two-
thirds consider that Customs fees are not well publicized and are inconsistently
applied.
Issues that LSPs brought up repeatedly during interviews include the
following:
• As customs modernization is underway and the electronic e-Customs system

has not been fully implemented, inefficient manual customs import and export
clearance processes continue to result in clearance delays, increased adminis-
trative time and costs for BCOs and LSPs, and higher inventory carrying costs
for BCOs.

• Regulations governing international trade need to be more transparent, less

ambiguous, and easier to understand such that companies can more easily
comply with them. Interpretation of rules is inconsistent among Customs
agents across Vietnam. This includes commodity classification and valuation,
product inspection, and licensing and certification of certain products. Several
LSPs reported that, given that dealing with Customs is unpredictable and
often cumbersome, they have larger numbers of staff members handling
customs processing in Vietnam than in other Asian countries.
• Corruption is perceived to be endemic throughout the Customs ranks and

with officials in other government agencies involved in international trade.
LSPs believe it is common practice for Customs agents to solicit undocu-
mented, nontransparent facilitation fees to accept such things as wrong data
on documents (e.g., inaccurate weights or Harmonized Tariff System num-
bers) or missing documentation in order to clear the cargo in a timely manner.
Since any facilitation paid by LSPs on behalf of their BCO customers is built
into the overall LSP rates, facilitation cannot be easily tracked by BCOs. LSPs
and BCOs that do not engage in facilitation firmly believe they are at a com-
petitive disadvantage to those that do. Every LSP interviewed stated that cor-
ruption in customs needs to be tackled as the competitiveness area in most
need of improvement, especially related to the import process.
• The skill level of government officials who work directly with the movement of
cargo is perceived to be inadequate, especially in rural areas. These positions are
often allocated on the basis of relationships with people in power or by sharing
facilitation payments. GoV human resource systems are not merit-based. This
suggests more ongoing training and testing for Customs officials is needed.
Addressing these critical customs-related issues would speed import and export
clearance, have a direct and positive impact on customs clearance costs, decrease
the amount of redundant safety stock BCOs keep in their supply chains, create a
level playing field for BCOs and LSPs, and enable LSPs to provide better service
to their customers at lower costs. Three LSPs indicated that if conditions were
better, their companies would be more likely to expand operations in Vietnam.
From the specific perspective of the two international integrators interviewed
for this report (companies that handle end-to-end express deliveries utilizing
their own transportation and IT assets), Vietnam Customs is viewed as more
progressive in some areas, for example:
• Customs deploys a team solely focused on the express industry; this team
reports to the Department of General Customs in HCMC.
• Import shipments under $50 are not taxed; Vietnam is progressive in this
regard relative to other Asian countries.
• Airfreight can be cleared for export at industrial parks, allowing it to be shipped
directly to the loading area at the airport with an export declaration. In a

separate express processing center near the loading area for aircraft, the cargo
is security-cleared (x-rayed) and weighed prior to loading.
However, it is reported that high-value express import shipments generally take

between six and eight days to be processed (and can take up to four weeks in
some instances). A root cause for this is that the import process for express ship-
ments over $50 is a manual process subject to interpretation by Customs
officials.
Vietnam, like China, is perceived by LSPs as administratively burdensome.
Whereas India, Indonesia, and Malaysia all have more complex import regula-
tions than Vietnam’s, their processes are not as slow to navigate. Presentation of
prearrival documents is not permitted in Vietnam, because it has not imple-
mented a “trusted shipper” program. As a result, the customs clearance process
may start only after the cargo arrives with the original documents. Import
license requirements are based on commodity type rather than value.
According to one express interviewee, in handling express shipments, India is
most restrictive, followed by Indonesia, the Philippines, Thailand, Vietnam,
China, Malaysia, Japan, Korea, Taiwan, Hong Kong, and Singapore.
Trucking Industry
Most LSPs consider trucking costs to be higher in Vietnam than in China, India,
Malaysia, and Thailand (figure 3.7). At the same time, trucking service delivery
is considered to be substandard compared with India and Thailand, and similar
to China and Malaysia (figure 3.8). This suggests that Vietnam’s trucking indus-
try generally offers a lower value proposition compared with most of Vietnam’s
key regional peers.
LSPs have concerns about the fragmented and unsophisticated nature of the
trucking industry (table 3.8). No pan-Vietnam companies exist, and most
Figure 3.7 Vietnam Trucking Costs Compared with Other Asian Countries
China
Thailand
India
Malaysia
0 1 2 3 4
More expensive Similar Less expensive

Figure 3.8 Vietnam Trucking Service Quality Compared with Other Asian

Countries
China
Thailand
India
Malaysia
0 1 2 3 4 5 6
Below average Similar Above average
Table 3.8 LSPs’ Opinions about Vietnam’s Trucking Industry

There is an adequate supply of trucking companies to meet our company’s
business needs. 2 5 2
The trucking industry in Vietnam is characterized by a number of small
companies that lack the capacity to expand their businesses. 3 5 1
The majority of trucking companies use old and polluting trucks. 5 2 2
Shipment tracking is a requirement for us and/or our customers. 3 6
Most trucking companies do not offer GPS tracking. 3 6
Trucking companies generally do a good job in minimizing loss or damage
to cargo. 4 4 1
trucking companies are small and use second-hand trucks that are inadequately
maintained. Driver attitude is generally poor. In order to satisfy the requirements
of their customers, several LSPs have invested in their own trucking fleet.
Imposition of trucking regulations based on international standards would
prompt consolidation in the trucking industry and enable the larger, more profes-
sional companies to be more price-competitive with the substandard trucking
companies, while improving the overall quality of trucking in Vietnam. Stricter
licensing and training of truck drivers would also help upgrade the industry and
improve traffic safety.
Nearly 80 percent of LSPs do not believe there is sufficient capacity in the
trucking industry to enable them to adequately service their BCO customers
(table 3.8). All but one stated that trucking companies are small, with few
resources to expand. All but two LSPs consider trucks used in Vietnam to be old
and poorly maintained, contributing to air pollution. BCO customers of every
LSP require shipment tracking, but few trucking companies offer Global
Positioning System (GPS) support in trucks. More LSPs say that trucking

companies do not take sufficient care to minimize cargo loss or damage than
those who believe they do.
Logistics Parks and Cargo-Handling Facilities

LSPs stated that it is difficult to locate cargo-handling facilities in Vietnam of the
quality adequate to satisfy their BCO customers—particularly in the Northern
region. Specific challenges cited are as follows:
• Though LSPs generally feel cargo-handling facilities are physically similar to

those in other Asian countries, it is reported that not enough are available
today, and they are often not located near ports and areas of production (see
table 3.9). Better (e.g., more demand-driven) location of cargo-handling facili-
ties could contribute to improving the flow of products and reduce logistics
costs for BCOs through synergies between transport modes and logistics
services.
• Logistics parks have generally not been pursued by government officials, and
as a result no strategy has been established to create efficient, well-placed
logistics parks. Cargo-handling facilities are usually standalone facilities. Good
quality container freight station (CFS) facilities are a scarce commodity in
the country. Recently built facilities are modern, but older ones are substan-
dard. Provision of good general international standards (e.g., fire protection,
layered security, consistent supply of power, efficient warehouse m anagement
systems) is rare.
• As the process to secure CFS operating licenses is complex and difficult to
navigate, these are often granted through facilitation payments and relation-
ships, rather than clear rules.
LSPs suggested numerous examples of what they consider promising, under-

served locations for logistics parks, including the following:
• Nonurban areas around HCMC, in Dong Nai, in Lam Dong, at the future inter-
section of the Long Thanh–Dau Giay Expressway and NH 51, and in Vung Tau
• In the Mekong Delta near Can Tho
• Near the ports in Danang and Nha Trang
• In the nonurban areas around Hanoi and in Bac Ninh and
• More generally, near key highways leading to ports and near the two major
airports.
Table 3.9 Respondents’ Opinions about Vietnam’s Logistics Parks

Yes No
Are the numbers of locations adequate today? 1 7
Do you think they will be adequate in the future? 3 3
Are existing and planned sites located conveniently to factories and ports? 2 5
Are existing facilities built to standards comparable to those you operate in other
Asian countries? 5 2

Logistics parks and cargo-handling facilities should be considered integral ele-

ments of end-to-end supply chains and, therefore, integrated into the transporta-
tion infrastructure network. Similar to the case of maritime terminals, access to
logistics parks from highway arteries should be enhanced through the use of such
tools as fly-overs or timed traffic signals that keep trucks moving with minimal
delays. To enable use of rail, logistics parks should be adjacent to planned rail
yards and/or have tracks for container and boxcar loading within the park. An
excellent example of a multimodal logistics park concept is the CenterPoint
Intermodal Center in Ellwood, Illinois (USA) (see box 3.1).
Marine Terminals
The majority of LSPs interviewed manage truck shipments between factories,
cargo-handling facilities, ports, and airports on behalf BCOs, whether by using
their own equipment or by subcontracting with trucking companies. As shown
in figure 3.9, LSPs’ most significant highway congestion challenges are associated
with highway corridors to/from gateways and with access roads to marine termi-
nals in the HCMC and Haiphong areas. Since there is still little truck traffic to
Cai Mep-Thi Vai terminals, highway congestion is moderate in that area and is
even less of a challenge in the Central region. BCOs have only moderate diffi-
culty with the closing or cutoff times at terminal gates or in getting access to
containers.
Airports
As shown in tables 3.10 and 3.11, LSPs see room for improvement at Vietnam’s
two cargo airports, Tan Son Nhat Airport (TSNA) and Noi Bai Airport (NBA).
This is both in terms of reducing congestion and operating costs and improving
service levels. They rank these airports as delivering substandard service relative
to other Asian countries.
The two terminal operating companies at TSNA—Tan Son Nhat Cargo
Services (TCS) and Saigon Cargo Service Corporation (SCSC)—have different
ownership models. LSPs consider TCS’s public ownership structure an impedi-
ment to modernization of the terminal and its operations. They also rated the
service performance of the three SCSC terminals, operated under a joint venture
arrangement, higher than TCS’s. But because not all air carriers have signed con-
tracts with SCSC, as they have with TCS, LSPs must continue to deal with TCS.
As production of high-tech goods has increased in the Northern region, NBA
is considered to be too small, and current capacity is insufficient during certain
seasons. This situation is likely to worsen over the medium term as high-tech
production increases, making a strong case for the cargo-handling capacity at the
airport to be expanded.
LSPs repeatedly stated that TSNA and NBA should have more competitive
operations and modernized facilities and equipment. Many called for privatiza-
tion of terminal operations because of their belief that private companies gener-
ally operate more efficiently than state-owned enterprises (SOEs). All LSPs
desired to have areas to rent at both airports, where they could perform cargo

Box 3.1 CenterPoint Intermodal Center, Ellwood, Illinois

CenterPoint Intermodal is a freight logistics center that integrates direct rail, truck, transload,
and intermodal services with distribution and warehousing. In operation since 2002, it is
located 40 miles southwest of Chicago, near the intersection of I-55 and I-80 (see map B3.1.1).
All levels of government, more than a dozen public agencies, and private industry came
together during the planning of this facility to create a coherent, overarching plan. Over the
past 10 years, CenterPoint has achieved the desired outcome of benefiting the community
and freight stakeholders by consolidating a critical mass of multimodal cargo-handling
activities in one location.
CenterPoint is one of the largest private developments ever undertaken in North America.
It comprises approximately 1,000 hectares, with a total investment of $1 billion. It features a
312-hectare intermodal yard (BNSF Logistics Park–Chicago), has the capacity for up to
12 million square feet of industrial and distribution facilities, and provides easy on-off access
to adjacent multilane interstate highways. CenterPoint’s customers include BNSF Railway,
Wal-Mart Stores, DSC Logistics, Georgia Pacific, Potlatch, Sanyo Logistics, Partners Warehouse,
California Cartage, and Maersk.
This example demonstrates how rail and highway access makes a logistics park more
valuable to BCOs by enabling multimodalism. In particular, it drives cost reductions in supply
chains through rail transloading, value-added warehousing, and dedicated distribution. The
example also illustrates the impact that public and private sector collaboration can have in
enabling higher-service-level logistics.
Map B3.1.1 CenterPoint Intermodal Center, Ellwood, Illinois
Source: Authors, Google.

Figure 3.9 Average Rating of the Perceived Business Impacts of Inland Trucking Factors
3.8 Rating:
1 = Significant impact
3.6 5 = No impact
Modertale
impact
3.4
3.2
3.0
2.8
Significant
2.6
impact
2.4
2.2
2.0
Highway corridor to Access road to Closing time of Container availability
terminal access road terminal terminal gates
HCMC Area Cai Mep/Thi Vai Central Vietnam Haiphong
Table 3.10 Quality of Tan Son Nhat Airport

agree agree Agree disagree
The airport meets my service needs. 5 3
The airport freight area is congested so I experience delays in getting my
products customs-cleared and out of the airport. 2 1 3 1
The cost of ground services is expensive and I would like to see
improvements. 2 2 1 3
There needs to be more than one ground provider. 4 1 3
I occasionally have damage to cargo due to storage conditions at the airport 1 3 2 2
I would like to see more freighter aircraft calling the airport. 4 2 2
Table 3.11 Quality of Noi Bai Airport

agree agree Agree disagree
The airport meets my service needs. 1 3 3
The airport freight area is congested so I experience delays in getting
my products customs-cleared and out of the airport. 2 2 3
The cost of ground services is expensive and I would like to see improvements. 2 2 1 2
There needs to be more than one ground provider. 4 2 1
consolidation and build pallets—an activity now performed by air carriers. This,
they noted, would give them better control over the cargo and enable them to
reduce airfreight rates for the exporting community. One LSP estimated that its
operating costs for handling airfreight could go down by up to 50 percent if it
had the ability to consolidate cargo at the terminal.

LSPs generally believe that airport terminal workers need better cargo-
handling skills. Attention to detail was repeatedly cited as a key skill in air cargo
handling, to prevent cargo damage and loss and to reduce processing times.
Several LSPs reported that there is also a high degree of corruption at tally
stations, where cargo is measured and weighed by air terminal workers to deter-
mine the chargeable weight upon which the freight rate is calculated. One LSP
explained that it is common practice for the airport tallyman to make two
tallies—one official, the other unofficial. He reduces the chargeable weight on
the official tally by 1,000 kilograms, for example, and then solicits 50 percent of
savings from certain freight forwarders who are willing to engage in this type
of corrupt activity. The transaction takes place only in cash. In the eyes of LSPs,
this practice should be discontinued so that ethical airfreight forwarders will no
longer be disadvantaged.
Somewhat surprisingly, international integrators observed that, as far as their
businesses were concerned, the efficiency of Vietnam’s exporting process is virtu-
ally at par with global best practice. Cutoff is four hours before wheels up for all
freight except heavy freight, which has a 24-hour cutoff. The express facility at
TSNA is near the aircraft loading area, which facilitates cargo flow. The airports
provide integrators priority cargo handling over regular airfreight shipments.
Supply Chain Impacts to BCOs

While their core competency is, by definition, an ability to adapt to the circum-
stances and find cost-effective ways to connect shippers and consignees, LSPs in
Vietnam are routinely exposed to operational bottlenecks. These stem from
(1) transportation infrastructure (e.g., absence of logistics parks, substandard
cargo handling facilities, and small airport facilities), (2) challenges arranging for
and monitoring the provision of transportation services by LSP partners (e.g.,
trucking companies, MTOs, and airfreight terminals), (3) manual, cumbersome
processes and ambiguous, inconsistently applied regulations of Customs and other
government agencies that govern international trade, and (4) a perceived necessity
of engaging in payment of facilitation to keep cargo flowing through the system
in a reasonably timely manner. The collective negative impact of this landscape on
BCOs is substantial. BCOs experience higher-than-necessary transport and logis-
tics costs and increased transit times. BCOs routinely hold additional, redundant
safety stock to their supply chains to mitigate the risk of lost sales and customer
dissatisfaction. They spend more time monitoring the activities of their LSPs.
Future Freight Flow Impacts

Two issues that undermine freight mobility and the ease of doing business in
Vietnam were particularly troublesome to all LSPs:
1. Every LSP interviewed expressed a high degree of concern about corruption

among government officials across Vietnam, especially Customs, and how cor-
ruption will reduce Vietnam’s competitiveness in the future. LSPs believe that
if operations were transparent and solicitation of facilitation was curbed,

their costs for activities relating to customs clearance could be reduced by up

to 20 percent.
2. The GoV issues decrees, but provincial leaders have to implement them and
interpretation of regulations is inconsistent across provinces. Many provincial
leaders have trouble understanding decrees in a legal language that is nuanced
and subject to interpretation. According to LSPs, regulations seem to be
vaguely defined and ever-changing, and it is unclear what the rules are at any
given time. LSPs experience a high risk of being noncompliant.
It will be critical for the GoV to address corruption and the uneven implemen-
tation and application of regulations to keep Vietnam competitive with its
peers.
BCOs generally nominate an LSP to handle cargo in multiple countries or
regions. It is the nature of the business for LSPs to offer services in countries
where their BCO customers have shifted sourcing or selling. In other words, LSPs
follow their customers around the globe. Because Vietnam has proven to be a
desirable place for BCOs to purchase and market products, their nominated LSPs
have had to locate operations in Vietnam to serve the customers for which they
already perform work in other countries. LSPs generally do not have the choice
of avoiding or vacating a country that is difficult or unprofitable in which to do
business; instead, they remain and develop competencies to provide responsive
services to BCOs within the existing system.
Establishing a National Logistics Observatory

A full 80 percent of respondents welcomed the potential establishment of a
national logistics observatory that would manage data related to cargo move-
ments for all modes of transport and for import, export, and domestic cargo. This
in contrast to the current situation, where they have to rely on sources that either
are not considered reliable or do not provide enough relevant information that is
up-to-date. In order to be meaningful and useful, however, the observatory
should be a neutral-data platform, provide visibility to performance of the trans-
portation and logistics sector as well as costs, and provide an open forum for
sharing best practices. Comments from LSPs include the following:
• “Company gets data from different private agencies, chambers of commerce,

and embassies, which it uses to cross-check against what is available from the
GoV website and other government sources. Government information is gen-
erally at an aggregate level and there are gaps in the data, so Company does not
use government data to make investment decisions. When making investment
decisions, many of the GoV’s plans are hard to come by and the timelines on
master plans are always inaccurate.”
• “The real issue is that an observatory would be unable to capture all the hidden
costs of logistics (facilitation payments, corruption, environmental impact,
poor productivity, bureaucracy, etc.) since they are either not available or do
not translate directly to measurable/traditional logistics costs.”

International BCOs
Face-to-face interviews were conducted with 25 international BCOs doing busi-
ness in Vietnam. Approximately half of these companies (13) can be identified
as exporters, three as importers, and the balance both export and import. They
are small, medium, and large BCOs. These companies import raw materials,
components, and finished goods from a diversified set of origin countries, and
export raw materials and finished goods across the globe as well. Four have their
main Vietnam offices in the Hanoi area, and the balance are situated around the
HCMC region. Production facilities and/or distribution centers are primarily in
the Southeast and Northern regions, though several also operate in the Mekong
Delta and Central region.
The average value of a loaded 40-foot regular or 40-foot high cube container
from all respondents is $96,563 per container. The range is between $10,000 and
$300,000 per container, showing that the interviewees import and export low- to
high-value raw materials, components, and finished goods.
Figures 3.10 and 3.11 summarize the types of products exported or imported
by the BCOs consulted for this report.
The “Other” category includes exports of power products for transformers,
general consumer goods, metal products, sports accessories, beverages, diapers,
personal care items, and cement and building materials.
The “Other” category includes imports of raw materials for transformer com-
ponents, automobiles, leather and textile materials, mining/construction machines
and tools, raw materials for beverage manufacturing and pharmaceutical
products.
Table 3.12 shows the total annual aggregated export volumes for 2011 for all
respondents.
Figure 3.10 Type of Products Exported by Respondents
12
10
0
Textiles/ Footwear Toys Furniture Electronics Seafood Other
apparel

Figure 3.11 Types of Products Imported by Respondents
5
4
0
Inputs for Inputs for Finished Finished Consumer Agricultural Other
export domestic consumer industrial food products
consumer consumer products goods products
products products
Table 3.12 Total 2011 Annual Export Volumes Reported by Respondents

Region of Vietnam
Total aggregated volume for all respondents South Central North
Ocean freight (TEUs) 84,476 1,800 12,408
Air freight (millions of kilograms) 15.2 0.6 1.1
Table 3.13 Total 2011 Annual Import Volumes Reported by Respondents

Region of Vietnam
Total aggregated volume for all respondents South Central North
Ocean freight (TEUs) 10,790 0 19,185
Air freight (millions of kilograms) 0.4 0 0.3
Individual responses on freight activity varied substantially. Annual containers

exported by region ranged from less than 10 TEU to over 33,000 TEUs, and
airfreight volumes ranged from a few thousand kilograms to more than
2.6 million kilograms. The heavy users of airfreight ship, for the most part, high-
value or perishable finished goods.
Table 3.13 shows the total aggregated annual import volumes for 2011 for all
interviewees.
Containers imported by region ranged from less than 10 TEU to over 17,000
TEUs, and airfreight volumes ranged from a thousand kilograms to more than

250,000 kilograms. It is less common for the BCOs interviewed to import raw
materials, components, or finished goods via airfreight.
Use of Maritime Transportation

As reported in figure 3.12, marine terminals at Cat Lai, Haiphong, and Cai
Mep-Thi Vai are the most popular with international BCOs; usage of ICDs is
also prevalent. Cat Lai is the only terminal in Vietnam handling over one
million TEUs per year. It is an efficient operating terminal that is within the
HCMC area, close to major manufacturers. Cat Lai BCOs benefit from having
closer cutoff times to vessel departures, lower drayage rates, no restricted hours
for draying containers to and from the terminal, and preferred customs opera-
tions. Cat Lai has the largest number of container feeder services berthing at the
terminal.
Supply Chain Impacts Relating to Maritime Transport

The general consensus among international BCOs is that the GoV should focus
on developing and modernizing a few key ports, rather than all ports across
Vietnam. Several BCOs called for key marine terminals to have electronic track-
and-trace systems that would enable them to monitor the status of their contain-
ers and track all information related to their shipments (e.g., truck gate-in and
exit time), instead of manual tracking. We will discuss the further feedback by
region obtained from BCOs below.
Southern Vietnam Marine Terminals

Most BCOs continue to use marine terminals in the HCMC area even though
these terminals are served by feeder vessels. Except for one service out of Cai
Mep, current feeder services from HCMC terminals connecting with mother
Figure 3.12 Marine Terminals Used by Respondents
22
20
18
Number of responses
16
14
12
10
8
6
4
2
0
ai
CT
ai
CT
ng
ng
an
D
ho
an
tL
iV
iL
IC
VI
SP
Na
ho
u
Tr
iN
Th
Ca
Ca
Ph
ip
Da
Na
Qu
-
Ha
ep
iM
South Central North

Ca

vessels at transshipment hubs in Singapore, Tanjung Pelepas, Hong Kong SAR,

China, or Kaohsiung provide the same overall transit time to destinations on the
Asia-to-Europe and Mediterranean services and on the Transpacific. Nevertheless,
some BCOs, usually shipping time-sensitive, higher-value consumer goods, have
switched either all or a portion of their shipments to terminals at Cai Mep-Thi
Vai to enable their cargo to be loaded directly on mother vessels, which reduces
the chance that the cargo will be delayed during transshipment. For one service
from Cai Mep to Los Angeles, California, the transit time is generally three days
faster than using feeder service from either Cat Lai or VICT.
Throughout 2012, as they faced continued financial pressure, the aftereffects
of the global economic crisis, and continued economic uncertainty in Europe,
ocean carriers reduced the number of vessel strings calling Cai Mep-Thi Vai ter-
minals by about half. It is uncertain how soon ocean carriers will add services at
these terminals. As a result, several international BCOs noted a current lack of
frequency of vessel calls, with the implication that the potential of these termi-
nals is not being fully realized. BCOs felt that scarce foreign direct investment
(FDI) and GoV funds were not being put to good use. “Use of Cai Mep-Thi Vai
is currently running at just 20 percent of capacity, which is a waste of resources,”
observed one BCO. Several BCOs were concerned about how the GoV issued
operating licenses to foreign operators at Cai Mep-Thi Vai in a way that resulted
in numerous small terminals and led to overcapacity. The small footprint of each
of the terminals is considered an impediment to smooth operations and quick
container turnaround time. “Critical road network projects such as Highway 51,
which is targeted to be completed by the second quarter of 2013, need to be
completed without delay and with a high degree of quality in order to support
the development of deep sea ports,” expressed another BCO.
Northern Vietnam Marine Terminals

BCOs reported several connectivity challenges facing Haiphong port in Northern
Vietnam. It was noted that (1) dredging is needed to enable larger vessels to
berth, (2) container-handling facilities are outdated, and (3) all container services
are served by feeder vessels. (Some BCOs assume feeder vessel service is slower
than direct mother vessel calls, which has not been the case for all direct mother
vessels services from Cai Mep-Thi Vai.) Congestion in surrounding roads and
within marine terminals sometimes exists, adding up to an extra three days to
transfer goods between the port and distribution centers or factories.
As one BCO pointed out, “Management of Haiphong Port is poor. 80 percent
of terminals are operated by SOEs, which are inefficient. Sometimes Company’s
containers are lost within the terminals because yard management systems do
not work well.”
Use of Truck Transport

About half of the international BCOs interviewed rely on their ocean carriers
and LSPs to arrange truck transportation. A handful of BCOs have their factories
deal directly with truck carriers.

A large contrast is seen in trucking cost comparisons between LSPs (figure 3.7),

which contract directly with trucking companies on behalf of BCOs, and BCOs’
own views on trucking (figure 3.13), who may or may not have direct contracts
with trucking companies. Based on the authors’ primary research, all-in trucking
costs on a per-kilometer basis are higher in Vietnam than in China or Indonesia.
LSPs negotiating truck rates know this to be true because of the differences in the
price of diesel, inflation rates, facilitation payments, and congestion, among other
factors. On the other hand, many of the interviewed BCOs look at the total cost
of trucking. As lengths of haul in Vietnam are generally shorter than those in
China, for example, total trip costs may seem to BCOs to be less expensive in
Vietnam, when on a per-kilometer basis it is just the opposite.
Both LSPs (figure 3.8) and BCOs (figure 3.14) are in general agreement that
the service quality of trucking in Vietnam is overall lower than in the other coun-
tries they were asked to rate.
Figure 3.13 Trucking Costs in Vietnam Compared with Other Asian Countries
China
Thailand
India
Malaysia
Cambodia
0 2 4 6 8 10
More expensive About the same Less expensive
Figure 3.14 Trucking Service Quality in Vietnam Compared with Other Asian

Countries
China
Thailand
India
Malaysia
0 1 2 3 4 5
Below average About average Above average

Table 3.14 Trucking Industry Conditions

There are plenty of trucking companies that provide export container
haulage. 2 15 4
There are plenty of trucking companies that have 10 or more truck heads,
chassis, and containers. 4 7 8 2
There are plenty of trucking companies that provide box trucks for
haulage to CFS facilities. 1 14 6
Most of the trucks are old and pollute the environment. 9 10 2 2
I would like to see more trucking companies provide GPS tracking. 15 5 1 1
Cargo security is becoming more of a problem in Vietnam. 9 8 5 1
The cost for cargo insurance coverage is expensive and the coverage
provided is not adequate. 5 8 5
BCOs consider the trucking industry to be fragmented, with many small

trucking companies operating in the market—a factor that contributes to the low
level of service quality (table 3.14). “Company feels there are only from five to
ten quality trucking companies,” asserted one BCO. BCOs repeatedly stated that
consolidation of trucking companies would be a positive development in the
industry.
They also saw direct benefits if the GoV imposed stringent regulations on
trucking companies and their drivers and/or strictly enforced those rules through
imposition of penalties for noncompliance. A driver licensing system and the
need for formal driver training were often brought up in discussions of how to
strengthen the trucking industry. “The level of professionalism would improve as
a result” was a typical remark.
One BCO advised that it has not found long-term, reliable partners to meet
its service standards. “Trucking companies typically do not follow international
standards (e.g., contracts, meeting commitments, etc.) and security issues are also
a concern. Truck heads are old, of poor quality, and highly polluting.” Another
BCO reported trucking company workers are “poorly paid and do not have a
good work ethic.” “No good cold chain for temperature-controlled goods moving
via trucks exists. Vehicles are in bad condition and are not maintained well.
Company cannot rely on temperature readings,” remarked a third BCO.
BCOs noted that trucking subsidiaries operated or contracted by ocean carri-
ers and LSPs, as well as the largest, more professional trucking companies, have
good quality trucks, but rates can be up to 40 percent higher than those of local
trucking companies typically using old, polluting trucks. In other words, if a BCO
desires reliable, quality service, it has to pay higher rates.
The imbalance of trade between the Northern and Southern regions (with
more cargo going North than South) also contributes to high truck rates. It is
common for trucks to be overloaded (average overloading rates have been esti-
mated at 20–30 percent). This puts BCOs that do not permit their trucking
companies to overload trucks at a competitive disadvantage to those that are not

concerned about safety. Cargo is often loose-loaded without pallets; this causes
cargo to shift, leading to accidents and cargo damage. Cargo security is also
viewed as becoming more problematic.
Nearly all BCOs mentioned that undocumented facilitation payments to
truck drivers to cover traffic fines inflate the rates they pay for truck transport.
Police issue citations to truck drivers for such infractions as speeding, using the
wrong lane, turning infractions, overweight loads, worn tires, and carrying the
wrong transport documents. Depending upon the offense, a typical traffic ticket
costs between $25 and $100. Two LSPs estimated that undocumented facilita-
tion payments are between 50 and 60 percent of the actual ticket price, depend-
ing upon the negotiation skills of the truck driver.
It was observed that trucking companies engage in a variety of tactics to
minimize delays. For example, it is reportedly common for laden truck drivers
to stop at police stations on the main routes on every journey to pay facilita-
tion proactively at each location (typically $7.50–12.50), in order to avoid
being stopped by police while en route to their destination (this is not done
when transporting empty containers). A BCO said these fees account for
“50 percent of the overall trucking fees Company pays to its LSP to transport
cargo from Hanoi to Haiphong.” Another BCO said, “Some trucking compa-
nies pay $10 and $25 to drivers to cover traffic fines for a given trip or time
period. Corruption is a major issue in Vietnam and adds to company’s busi-
ness costs.”
Use of Highway Infrastructure

Highway congestion is a major concern for international BCOs (figure 3.15). In
particular, they view the level of highway congestion in Vietnam as worse than
Figure 3.15 Perceived Level of Highway Congestion in Vietnam Relative to

Regional Peers
Rating:
1 = Worst
5.0 5 = Best
4.5
Vietnam is
better off
4.0
3.5
3.0
2.5
Vietnam is
worse off
2.0
1.5
1.0
China Thailand Indonesia Malaysia India
Southern Vietnam Central Vietnam Northern Vietnam

in China, Malaysia, and Thailand, countries that have invested in highway infra-
structure, but similar or better than in India and Indonesia, which are known
throughout the industry for highway gridlock. India and Indonesia have commit-
ted to invest in transportation infrastructure, so they also could surpass Vietnam
if Vietnam stands still.
Supply Chain Impacts of Highway Congestion

Interviewees had a great deal to say regarding how highway congestion reduces
truck speeds and negatively affects the operations of their supply chains. There
was general consensus that highway congestion creates more costs and increases
transportation time. This impacts delivery planning and timing, often forcing
factories to finish production earlier and rush products to the ports to meet ves-
sel cutoff times. If the cutoff time is missed, the BCO must rebook to a later
vessel, which increases administrative work and costs as well as delivery delays at
destination. Delivery unreliability causes BCOs to lose the trust of their custom-
ers. Similar things happen when raw materials and components are imported and
there are delays on highways from the port or airport to the factory. Because of
frequent delays, airfreight costs can also increase.
HCMC Highways
Several BCOs noted that the daytime tractor trailer and container truck restric-
tions in HCMC have a ripple effect. For example, access in and out of Cat Lai at
night is constrained because of heavy traffic, which is exacerbated by road infra-
structure limitations.
Transit time to one BCO’s factory in the HCMC area from Cai Mep is around
four hours if the truck travels at night. During daytime travel, it can take seven
to eight hours to get to HCMC:
Road conditions and congestion between Cai Mep and HCMC are terrible, espe-
cially at year-end. Three hour delays are common during the peak season. Normal
transit time from port to factory is about four hours; during peak season it is over
eight hours. Trucking companies charge more as well. Congestion really impacts the
Company’s operations because the Company tries to have drivers make a round
trip of two loads, which sometimes cannot occur due to the production schedule.
There is only one lane in each direction with no divider for motorcycles.
Construction is underway to expand it to two lanes each way, but it is uncertain
when that will be finished
In addition to congestion on NH 51, BCOs encounter congestion on local roads

around HCMC and on the Saigon Bridge leading to HCMC marine terminals,
especially during peak truck travel times. The access road to the Phu My Bridge
is partly made of dirt and partly with poor-quality paving. On Thursdays and
Fridays the bridge experiences a high volume of truck traffic because vessels are
being loaded at Cat Lai, and congestion is further exacerbated because trucks
have to slow down when traveling over the substandard access road. The road
infrastructure surrounding TSNA was also called out as being inadequate.

Hanoi-Haiphong Highways
According to one BCO, “There seems to be a disconnect between what the GoV
is trying to encourage in terms of production in the Northern region and the
volume of cargo that can efficiently be transported on the existing infrastruc-
ture.” Another BCO reported that, “Transit time from Hanoi to Haiphong aver-
ages 4.5 hours because of road congestion compared to two hours without
congestion. Trucks must stay in Haiphong half a day to pick up a container (full
or empty). There is no separation between motorcycle, cars, and trucks on the
Hanoi-Haiphong highway, which is dangerous and slows down the movement of
trucks.” Another BCO said, “In Haiphong 100 percent of company’s containers
were delayed from September 2011 to January 2012 due to road congestion.”
General Discussion of Highways

One BCO sells its finished goods to customers in the Northern and Central
Highlands regions. “The conditions of highways and roads are poor and transit
delays are common. Company has to build extra time into the total lead time
to account for this, but it is not always possible due to customer delivery
requirements.”
Many BCOs commented that the general quality of roads is low and repairs
must often be made, which causes traffic delays and, according to a BCO, “is a
waste of money” in light of the limited funds available for increasing capacity of
highways and maintaining existing ones to be of good quality. They are uncertain
whether the construction quality is adequate and if the materials will hold up to
wear-and-tear, especially because of the common practice of truck overloading.
Use of Airfreight
As demonstrated in tables 3.15 and 3.16, international BCOs generally rate the
quality of TSNA and NBA to be adequate relative to their airfreight require-
ments. However, 14 BCOs indicated it would be helpful to have additional air
freighter services at both.
The TCS terminal is considered small and crowded with insufficient storage
areas. Trucks have to queue outside, which creates congestion. The general con-
sensus was that service at the TCS terminal is unreliable and SCSC provides
better service compared to TCS. A BCO exporting agricultural products stated,
Table 3.15 Quality of Tan Son Nhat Airport

The airport meets my service needs. 18 1
Cutoff times to meet uplift are okay for our production. 1 12 4
I occasionally have damage to cargo due to storage
conditions at the airport. 3 5 8 2
I would like to see more freighter aircraft calling the
airport. 8 9 1

Table 3.16 Quality of Noi Bai Airport

The airport meets my service needs. 9 1 1
Cutoff times to meet uplift are okay for our production. 1 5 2
I occasionally have damage to cargo due to storage
conditions at the airport. 1 5 2
Figure 3.16 Factors Impacting Airfreight Logistics Costs
Later cutoff times

from factories
Congestion at airports
Damage to cargo due to

storage conditions at airports
0 1 2 3 4 5 6 7
Tan Son Nhat Airport Noi Bai Airport
“TSNA has no cold storage warehouse available so company stores product in a

HCMC cold storage facility while waiting for the flight departure.”
NBA’s storage area is small, and infrastructure at NBA needs to be improved
to increase capacity. During the peak season, one BCO noted, it “[is difficult]
getting cargo onboard flights and there are few alternatives” to rely on. According
to another BCO, “timely processing of airfreight shipments in general could
become a problem with increased airfreight volume.” A third BCO explained:
“Improvements needed include new equipment for security checking and weigh-
ing cargo. Storage costs are high when Customs delays the clearance process.
NBA is able to handle the recent 50 percent growth in imports because a larger
warehouse to handle exports was built. Shipments on weekend flights require
longer time to clear customs.”
Congestion at TSNA is viewed as the most critical factor negatively impacting
airfreight-based supply chains (figure 3.16). One BCO reported that “Company’s
confidence in the security levels at both airports is low and during wet weather
cargo damage occurs.” Another said it pays higher airfreight costs in Vietnam
compared with other Asian countries.
Use of Third-Party Warehouses

International BCOs operating in Southern Vietnam generally consider ware-
houses there to be satisfactory (see figure 3.17). This is not surprising, consider-
ing that over the past decade more third-party warehouse development has
taken place in the Southern region than in the Northern region to support the

Figure 3.17 Adequacy of Warehouse Facilities
14
12
10
0
South Central North
Adequate Not adequate
growth in production and evolving requirements of BCOs. Of those interviewed,

seven BCOs use warehouses in the Northern region, and five of them consider
them to be adequate. Only three BCOs use warehouses in the Central part of
Vietnam, and their opinions differ, although a majority of them view available
facilities as generally inadequate.
The quality of the warehouse buildings and services often depends upon the
types of customers served. One BCO stated the warehouse it uses “is of good
quality with very high standards because it handles distribution for a high end
consumer products company.” However, many small, antiquated cargo-handling
facilities are still in use, particularly in the Northern and Central regions.
“Company uses three CFS facilities in Hanoi in order to be able to manage its
export volume, because there is not enough capacity in just one,” noted one BCO.
Another BCO indicated, “Most facilities around Hanoi lack full concrete
floors (they are bricks over sand) and have limited ventilation, which impacts
product quality if storage is required. These facilities also have substandard cargo
and facility security practices. Although a few modern facilities exist, smaller
shippers will not benefit from them in the short term because they are full of
cargo from large BCOs. Facilities in the Northern region are what facilities were
like in the Southern region a decade ago.”
This BCO continued: “There is a risk for BCOs in the Northern region
because CFS [operations] are less sophisticated than in the Southern region.
Facilities have room for improvement to be on par with those in Southern
Vietnam. Investment in equipment is necessary to improve the speed of unload-
ing and scanning.” Another BCO offered the following view: “The transportation
infrastructure and CFS facilities in the Northern region will be inadequate to
accommodate the increase in production that is occurring due to government
incentives for factories to operate in Northern bonded industrial zones.”
More modern warehouses will be required as production increases in Vietnam.
Ideally, logistics parks need to be created near production clusters, agricultural

Figure 3.18 Comparison of Warehousing in Vietnam with That of Other Asian Countries
14
12
10
0
Better Similar Worse
Relative operating costs of Competitiveness of cargo
warehouse/CFS insurance
Facility size and layout Quality of facility and cargo security
Availability and quality of warehouse
management systems
Note: CFS = container freight station.
areas like the Mekong Delta, urban centers, and ports. They should have easy
access to highways.
Upgrading warehouse processes such as the use of warehouse management
systems and better security controls to be in line with international standards is
viewed as a way to reduce the costs charged to BCOs. Time required to unload
cargo from containers to warehouses should also be reduced.
One person commented, “The GoV should allow LSPs to consolidate goods
from different CFS warehouses into one container, which is not permitted today.
There should be clear guidelines and policies for CFS consolidation for Vietnam
as a whole. Today Company sees different practices and treatment from Customs
in different provinces.”
Warehouse facilities, warehouse operations, and costs paid by international
BCOs are generally in line with what is found in other Asian countries, as
depicted in Figure 3.18. One BCO commented that, “As a whole package, costs
for warehousing, transportation, marine terminal operations, customs, systems,
etc., in Vietnam are more expensive than in many other Asian countries. But if
warehouse costs and facilities are viewed separately, the cost is about average to
less expensive.”
Customs Clearance Process

International BCOs provided a great deal of insight on their experience with the
customs clearance process in Vietnam.9

Table 3.17 Characteristics of Customs and the Import/Export Process

Customs decisions, policies, and/or directions are arbitrary and
inconsistent. 6 7 6 1
Customs is bureaucratic, but consistent among the various Customs
districts. 5 7 6 1
Customs operations are consistent with other Asian countries. 9 9 1
Customs operations are better than in other Asian countries. 3 10 2
Customs officials work cooperatively with our company to address issues. 1 10 7 1
Customs fees are well publicized and consistently applied. 1 11 2 4
Table 3.17 shows responses from BCOs regarding six questions covering
various aspects of customs policies and procedures, operations and fees, and
their interactions with Customs officials in importing and exporting products.
About half of the respondents said Customs decisions, policies, and directions
are arbitrary and inconsistent, while seven disagreed. The general consensus is
that application of customs regulations is not consistent across provinces and
among Customs officials. Those indicating it is more cumbersome to work with
customs administration officials in Vietnam than in other Asian countries and
those who say it is about the same were nearly even. About half of the inter-
viewees consider customs operations in Vietnam to be more cumbersome than
in other Asian countries, and only three considered it was better. More respon-
dents feel they can work cooperatively with Customs officials than those who
say the opposite. Two-thirds of those who answered the question said they
understood the published customs fees and consider these fees to be consis-
tently applied across the country.
The majority of BCOs interface with Customs via the Customs web-portal
system, which allows customs brokers to (1) electronically complete Customs
entry documents on their internal systems and (2) apply for a Customs entry
number. Customs brokers print the entry documents referencing the assigned
entry number and hand-deliver them to Vietnam Customs for final sign-off. The
exception to this procedure is land-border crossings, where Customs has not
installed its web-portal system. The benefit of the web-portal is that customs
brokers can complete all Customs forms electronically, compared to manually
having to fill out the forms. The drawback is that part of the process—presenting
hard copy documents—is still manual, which leads to unnecessary administrative
effort and time.
The next iteration in customs modernization is to transition to a fully auto-
mated system for all BCOs. This is scheduled to be available in 2014 to customs
brokers and BCOs that invest in technology enabling them to communicate
electronically with Vietnam Customs.
Today, in the eyes of international BCOs, the functional area of clearing cus-
toms in Vietnam is only better than Cambodia and Indonesia and is less competi-
tive than in other Asian countries. The application of customs policies needs to

be simplified and universally applied, say BCOs. Reducing the number of

required certificates and licenses would also streamline the clearance process.
According to one BCO,
Customs follows the World Customs Organization guidelines, but how Customs
operates is another story. Customs officers’ views vary in their interpretation of
regulations and this appears to be more of an issue in the Northern region com-
pared to the HCMC area. This variation between Customs offices and even
Customs officials within the same office leads to delays in obtaining proper licenses
and correctly completing forms, as there are often inconsistencies between different
imports of the same material.
The majority of the challenges BCOs find with Customs are on the import side
of the business. Most of the BCOs interviewed for this report manufacture goods
for export, and their reliance on imported raw materials and components to
produce export products ranges from 50 to 75 percent of their input needs.
Therefore, inconsistencies in processing imports through Customs represent a
significant competitiveness disadvantage, as judged by the nearly unanimous
comments on this issue from all interviewed BCOs.
According to these BCOs, and confirming the testimonies obtained from
LSPs, facilitation payments to Customs officials to avoid delays are a common
practice when clearing imports and exports through Customs. BCOs noted that
gaining and maintaining good relationships with Customs officials is generally
perceived to be a necessary cost of doing business by international LSPs. BCOs
perceive this as a driver of increased supply chain and logistics costs. When que-
ried during interviews, BCOs were typically unable to estimate the cost of facili-
tation because it is a hidden, undocumented cost to them. But the general
consensus among LSPs and BCOs was that facilitation fees to Customs officials,
either as direct payments or in the form of social entertainment, was between
5 percent and 50 percent of customs brokerage fees, with 30 percent being about
average. Other instances where facilitation payments are reportedly common are
to reduce duty liabilities, settle disputes over tariff classifications and duties, and
arrange for the import of restricted items.
Impediments to Streamlined Import and Export Customs Clearance

The generally high import content of Vietnam’s manufacturing exports makes
the country’s trade competitiveness particularly vulnerable to customs clear-
ance delays for import logistics. Imported raw materials, components, and parts
account for 50–70 percent of the inputs Vietnamese factories need to manufac-
ture products for export. Despite this, imported goods typically remain at the
port for four to five days because of procedural bottlenecks and Custom’s oper-
ating setup (e.g., Customs does not work weekends or at night). In response,
just-in-time (JIT) manufacturers are forced to carry additional inventory. Many
LSPs noted that Customs is rarely able to notify them about the potential
length of delays, further increasing management complexity and elevating the
cost of doing business.

For single import shipments, the BCO must submit its buying contract to
obtain an import license upon arrival of the goods at the port or airport in
Vietnam, a process that can sometimes take up to 10 days. This is also true for
single export shipments and for all high-valued consumer goods. However, for
known importers and exporters, buying and selling contracts, respectively, must
be to be presented only with the initial import or export application. BCOs
importing or exporting hazardous cargo can apply for licenses in advance of
importing or exporting such products, but the GoV often changes its
requirements, causing delays when those hazardous products actually arrive or
depart.
One manufacturer with factories in Malaysia stated: “Less-than-container load
cargo can be cleared in Malaysia in three days compared to six days in Vietnam.
Full container loads shipments are cleared in one day in Malaysia compared to
three to four days in Vietnam.”
Inbound shipments arriving by air need to be weighed by Customs, as that
becomes the official weight of the shipment. Due to frequent deviations, even
those that are insignificant, between the official weight and the weight customs
brokers provide from import documents produced at origin, customs brokers are
forced to wait until Customs assigns the weight before preparing and submitting
import clearance documents. This adds to the document preparation cost since
the customs broker cannot take full advantage of the electronic document feed
from their origin offices. As a result, the cargo release is delayed.
Streamlining International Trade Processes by Customs

The following actions to improve the customs clearance process were suggested
by international BCOs and manufacturers:
• Promote a better understanding of the business requirements of BCOs and

work more cooperatively with them to understand their business needs and
processes to avoid unnecessary duty costs and cargo delays.
• Enable quicker clearance of imports by fully implementing a preclearance
process in which customs brokers can present customs entries in advance of
cargo arrival in Vietnam.
• Minimize the frequency of cargo inspections and speed up inspection time.
• Accept English versions of all clearance-related documents.
• Reduce BCOs’ origin consolidation costs by allowing unloading or loading of
containers at more than one factory and across Customs districts, and in the
case of export shipments, perform customs clearance of co-loaded containers
at ports.
• Have consistent policies regarding commodity classification, valuation, and
duty payments. There is too much variability in the system, as nearly all BCOs
reported that Customs officials seem to repeatedly have a different answer
regarding these processes.
• Stabilize customs duty rates in the framework of the World Trade Organization
(WTO) and existing trade agreements like the Association of Southeast Asian

Nations (ASEAN) Trade in Goods Agreement, ASEAN-China Free Trade Area

Agreement, and the Agreement between Japan and the Socialist Republic of
Viet Nam for an Economic Partnership. The Trans-Pacific Partnership (TPP) is
expected to follow these trade agreements.
• Work with companies to develop an electronic calculation of raw material
usage to finished goods material usage in order to avoid duty payments on
imported raw materials used exclusively for manufacturing export products.
This process would make it easier for Customs to validate imported raw mate-
rial usage in finished goods.
• Maintain the exemption allowing 275 days for exporting products manufac-
tured with imported raw materials without paying duty and continue to grant
extensions as long as manufacturers can document excess raw materials to
future purchase orders. In dealing with some major international buyers, man-
ufacturers occasionally need the flexibility to get longer extensions without
having purchase order documentation because the buyer has pushed out its
need for the material beyond the next season.
• Assure BCOs that Customs can safeguard BCO records filed electronically in
order to successfully handle the year-end reconciliation process between
imported raw material value and the export value of finished goods, as duties
will be imposed on the manufacturer for any discrepancies.
• Provide better training to raise the level of professionalism of Customs officials
in the smaller cities and provinces in order to have a more uniform application
of customs regulations.
• Increase the number and/or expand the testing capabilities at the three certi-
fied product inspection centers in HCMC in order to minimize delays. BCOs
need to have timely and predictable turnaround times for better inventory
management or shipment planning.
• Expedite customs inspection at Cat Lai’s external customs inspection site by
acquiring one or more additional scanners, as this is a bottleneck area. Container
inspection usually takes a day depending on the truck queue and arrival time
of the container at the port, as Customs works only eight hours a day, five days
a week.
• Expedite the processing of export licenses, especially for temperature-con-
trolled products because long delays can result in product spoilage, especially
for airfreight shipments, because of the lack of affordable cold storage at
airports.
• Be more proactive and consistent in handling hazardous material imports, as
procedures that are followed to obtain import licenses in advance of the
shipment are frequently changed at the time of import. This leads to delays
and added cost. New regulations for all types of cargo need to be communi-
cated in advance and all regulations should be uniformly followed by all
Customs agents. This is especially important for domestic products so that
BCOs are able to build in the cost of import duties and develop strategies for
marketing and selling products in Vietnam.

Suggested GoV Actions for Reducing Logistics Costs

Interviewees offered numerous comments and suggested actions that the GoV
could take that would lower their logistics costs. Recommendations covered top-
ics of multimodal transport infrastructure planning; the various modes of trans-
port; warehouse facilities and logistics parks; streamlined processes; transparency
and consistent application of laws and regulations, particularly relating to import
and export customs clearance; and training of government officials.
Six representative ideas and suggestions from international BCOs are listed
below:
• “Company is concerned that the GoV will not pay enough attention to the
recommendations from this study and that growth will stagnate. If Vietnam’s
competitiveness stagnates relative to its peers, company will find it difficult to
further invest here.” Through the interviews, the study team learned that com-
panies are frustrated in their attempts through trade organizations or other
means to have their voices heard by government officials or the lack of action
by the GoV to address their collective concerns to make doing business in
Vietnam easier and more profitable.
• “Transportation infrastructure projects need to come online now here in
Vietnam, or other countries such as Indonesia and Myanmar will sooner rather
than later take over the current market position of Vietnam. It is crucial for
Vietnam to react now to keep the momentum going, because the other coun-
tries here within the region do not sleep.”
• “Overall, logistics and transportation infrastructure has been improving com-
pared with several years ago; however, further upgrading and expansion is
needed to reach the same level as other Asian countries like China in order to
improve Vietnam’s competitiveness ranking as well as drive positive economic
growth. To avoid waste and/or minimize the risk of not achieving the benefits
desired, any future port, logistics or transportation project, from a strategic
standpoint, should be planned by keeping the entire system in mind (ports,
inland waterway system, airports, highways, access roads, warehouses, etc.)
instead of the GoV taking a piecemeal approach.”
• “The GoV should take a multimodal approach and consider road infrastruc-
ture, ports, waterways, ICDs, warehouses, and other elements of transportation
infrastructure holistically as a system. At some point, the labor cost component
in Vietnam will not be as competitive, and then it will get down to transporta-
tion infrastructure and logistics. Vietnam is still relying on low labor costs to
attract foreign investment and production.”
• “More infrastructure improvements are needed in highways, ports, airports,
and logistics parks to improve product flow, as Company is a JIT manufacturer.
Company estimates these improvements might reduce its transportation and
warehousing-related costs 10–15 percent.”
• “Ministries need to work together cooperatively, rather than in silos, in order
to create better transportation infrastructure master plans.”

National Logistics Observatory

Two-thirds of interviewees thought it would be wise for the GoV to establish a
national logistics observatory to provide BCOs, other freight stakeholders, and
public policy makers with actual freight-related data that measure multimodal
transportation system performance and cost competitiveness. Only 7 percent
said this would not be beneficial to them, and 26 percent had no opinion.
Currently, relevant data are limited and difficult to obtain from the GoV, LSPs,
MTOs, and other sources. As a result, BCOs routinely engage in guesswork when
formulating business strategies. They have few good ways to benchmark or vali-
date information. A neutral third party must collect, audit, and maintain the data
to ensure objectivity and accuracy.
Domestic BCOs
The two domestic BCOs with operations in Vietnam that were interviewed
for this report ship building materials, automobiles, low-value consumer
goods, and electronic consumer goods. One of the BCOs manufactures its
products in Vietnam for both export and domestic distribution to wholesal-
ers and retail stores. It is noted that many more domestic companies were
contacted for interviews for this report but never returned electronic mail or
phone calls.
Cities within Vietnam from which the BCOs source their raw materials
include Hai Duong, Phu Tho, Hoa Binh, Haiphong, and Bac Gian. China, Italy,
and Spain are also sourcing areas. Primary customers are located in major
Vietnamese cities, but one domestic BCO also ships to customers in Australia,
Japan, Panama, Taiwan, China, and Thailand.
Trucking Industry and Highway System

Motor carrier service is essential to domestic BCOs, and they overwhelmingly
rely on domestic trucking companies as part of their supply chains. In the par-
ticular case of the domestic BCOs interviewed, they engage in regular business
with the following trucking companies, all but one of which (Yusen Logistics) are
Vietnamese: Anh Kiet, Diep Hung, Greenlines Logistics, Logitem Vietnam
Company, Phu Son Transportation Company, Thong Nhat, VEAM Transportation
Company, Viet Anh, and Yusen Logistics.
Some interesting contrasts were found in domestic BCOs’ views about the
trucking industry compared with those of LSPs (table 3.8) and international
BCOs (table 3.14). While the sample size of domestic BCOs is small, suggest-
ing these views should be taken with considerable caution, it is also true that
domestic BCO business requirements differ from those of their international
counterparts. For example, domestic BCOs use trucks mainly to transport fin-
ished goods to distribution facilities and stores, rather than to haul international
container shipments to and from major gateways. Perhaps the main area of
contrast was the issue of average fleet size. While all but one of the LSPs agree

that trucking companies generally lack the capacity to expand, suggesting a

preponderance of small firms, domestic BCOs interviewed for this report
appear to be dealing with fewer, relatively larger trucking companies. On the
other hand, there is strong agreement among all three of these freight stake-
holders (LSPs, international BCOs, and domestic BCOs) that most trucking
companies lack GPS tracking capabilities, a service feature that all BCOs inter-
viewed (domestic and international) consider to be a business imperative. This
is likely due to the fact that all three stakeholders see cargo security as a sub-
stantial risk. Moreover, domestic BCOs’ perception of cargo insurance as
expensive suggests that trucking companies do not have adequate insurance
coverage.
The primary truck corridors these domestic BCOs rely on are Hanoi-
Haiphong, Hanoi-HCMC, Hanoi-Danang, and Hanoi–neighboring provinces.
Congestion in Southern Vietnam is considered to be heavy. Because of the
truck operating restrictions in HCMC during the day, one respondent stated the
delivery of products can be late, and the other said its operations are con-
strained, even though air quality is improved. Highways in the central region
allow smooth flow of trucks, and congestion in the Northern region is rated as
either having little or no congestion.
Domestic BCOs reported that to improve the highway system, two key initia-
tives could be implemented. First, road infrastructure should be upgraded on key
freight corridors to provide more capacity for trucks, which would improve
freight velocity. Roadways need to be viewed as a network to provide access and
connectivity for goods and services. Second, traffic laws must be stricter and
more consistently enforced. Vehicle operators of all types, including motorbikes,
must observe traffic rules. This would improve safety and reduce the congestion
caused by traffic accidents.
Supply Chain Impacts to Domestic BCOs

Respondents believe the GoV could take the following actions to reduce their
logistics costs:
• The GoV should invest in the inland waterway system to major international
seaports and other provinces to reduce congestion and traffic on roadways.
This would reduce overall transportation costs for BCOs. This respondent uses
coastal shipping services and sometimes experiences delays due to inconsistent
electrical supplies at marine terminals when the weather is bad.
• The GoV could improve rail system infrastructure and service delivery to
increase rail volumes. One BCO uses rail to a certain extent, as rail’s current
service profile aligns well for its commodity. Daily train service is available.
Transit times from HCMC to Hanoi range from seven days using green (ser-
vice reference) boxcars and up to 10 days using red (service reference) box-
cars. The freight visibility offered by the rail network is poor: No advanced
arrival notices are available, and BCOs often ignore which specific boxcars
contain their products.

• Bridge height limits should be reviewed along key freight corridors to ensure
that height restrictions are valid. Low bridge height restrictions enable the
police to frequently stop truck drivers to issue tickets, and costs are passed on
to one domestic BCO. Despite cargo equipment being 4.7 meters high, height
restrictions are set at 4.5 meters.
Trucking Industry
Four trucking companies operating in Vietnam agreed to be interviewed for this
study. These firms ranged from fewer than 10 to 500 employees, with the former
size being more typical of Vietnamese trucking companies. Because of the large
size of one of the trucking companies, which allows it to have a more modern fleet
of trucks, information collected on average age of trucks is skewed (56 percent are
between 2000 and 2007 models, and the remaining are 1995–2000 model
trucks). In a larger sample size, more trucks would be in the 1995–2000 model
year range. Besides the tractor heads10 to pull containers and trailers, trucking
companies own straight trucks that haul products between factories and LSPs’
CFS facilities. Three out of the four companies either leased or owned their own
warehouses, with an average facility size of 35,000 square meters.
Trucking Industry Performance

The truck carriers indicated that road and port congestion has the highest dollar
impact on their businesses, followed by port productivity and government regu-
lations (mostly in the form of taxes). In addition, one trucking company noted
that it pays police 20–30 percent of truck rates to operate, suggesting that facili-
tation payments to the police are a major determinant of all-in rates to BCOs and
LSPs.11
Not surprisingly, all four companies expressed concern with the GoV’s deci-
sion to increase the vehicle licensing fee on trucks by $70 per month and impose,
for the first time, a licensing fee on chassis of $27.50 per month. These fee
increases, originally planned to be implemented in June 2012, have been made
effective as of January 1, 2013, and are being rolled out on a province-by-
province basis. MoT has indicated that 70 percent of the increased fees would
finance improvements to national highways, with the balance used to improve
provincial- and local-level roads. To temper the fees’ negative impact on trucking
companies, toll stations have been closed on all but Build-Operate-Transfer
(BOT) based highways.
For one trucking company, the increased fees represent more than $350,000
on an annual basis. This would increase its average per-kilometer cost to transport
containers in Vietnam by 3–4 percent. This company also stated that the main
reason the fees are unpopular is that they would not fully replace the tolls truck-
ing companies currently pay for road maintenance.
But the measure has other potential disadvantages. While, on the one hand,
the fees are straightforward to implement as they are based on vehicle

registrations, they do not adequately internalize the road degradation caused by

truckers as the fees are independent of actual volume and type (e.g., by vehicle
class or actual weight carried) of road use. It is also not clear how the burden of
the new fees will be effectively distributed across vehicle types within and out-
side trucking (to include, for example, buses and passenger cars).
The trucking companies generally concurred that there is an adequate supply
of truck capacity in the market at present. But they also observed that too many
trucking companies rely on old equipment, lack GPS and other IT tools, and
have insufficient access to skilled drivers. There was a mixed response to infla-
tion being a major contributor to higher truck rates for their BCO customers
compared with other countries, but upon further questions they suggested that
government taxes and highway tolls are major contributors to truck rate
increases.
These trucking companies—along with ocean carriers, LSPs and international
BCOs—were nearly unanimous in stating that the trucking industry should be
more and better regulated. Specifically, it was observed that regulation should
not focus on rates, but on driver qualifications; model year requirements for trail-
ers and tractor heads; equipment roadability, including straight trucks of various
sizes, tractor heads, and chassis; emissions testing; proper licensing of all vehicles;
and monitoring truck and container weights to reduce overloading and highway
damage.
Notes
1. See Appendix C for a list of the terminals that were consulted for this study.
2. DWT (Deadweight Tons) is a measure of how much weight a ship is carrying or can
safely carry. It is the sum of the weights of cargo, fuel, fresh water, ballast water, provi-
sions, passengers and crew.
3. GT (Gross Tonnage) is a function of the molded volume of all enclosed spaces of the
ship.
4. LOA (Length Overall) is the maximum length of a vessel’s hull measured parallel to
the waterline.
5. The Interport Road project will link the Cai Mep terminals with the Thi Vai terminals.
Today it requires a detour of about 5 kilometers to move containers and other traffic
between the two terminal complexes. Road 965 from NH 51 will connect to this
interport road.
6. This information is based on interviews with one domestic (Vinalines, largest
Vietnamese shipping company, six container vessels) and four foreign flag container-
ized ocean carriers (by 2010 Global Ranking: Maersk [no. 1, 2.1 million TEU, 509
vessels], APL [no. 4, 0.6 million TEU, 144 vessels], MOL [no. 11, 0.4 million TEU,
100 vessels], and NYK [no. 14, 0.4 million TEU, 88 vessels]), expert industry knowl-
edge, and trade publications. These four foreign carriers account for approximately
22 percent of the world’s cellular containership fleet capacity.
7. Article 8 of the Organisation for Economic Co-operation and Development (OECD)
tax convention states: “Profits from the operation of ships or aircraft in international
traffic shall be taxable only in the Contracting State in which the place of effective

management of the enterprise is situated”. Vietnam is not a member of the OECD,

but the double taxation agreement it operates under has similar language.
8. Asian Development Bank, Project Number 40198-02 (September 2008), Proposed
Loan to the Socialist Republic of Viet Nam: Ho Chi Minh City–Long Thanh–Dau
Giay Expressway Construction Project.
9. High-level charts depicting the import and export Customs clearance processes are
shown in appendix E.
10. Tractor heads are the power units that connect to chassis to transport containers.
11. Based on a representative sample of trucking companies nationwide, World Bank
(2011) estimates that, on average, Vietnamese intercity trucking firms devote 8.4
percent of total operating costs to informal facilitation payments. While still being a
significant portion of operating costs, this is considerably lower than the magnitude of
facilitation payments referenced by the one trucking company (out of four inter-
viewed) that was willing to provide details on this subject for this study. However, the
20–30 percent level would be consistent with the magnitude of facilitation payments
in Customs clearance reported by a much larger number of BCOs and logistics service
providers (LSPs) interviewed for this report. Obtaining a more definitive understand-
ing of the magnitude and nature of facilitation payments in the trucking industry is an
area in need of further research.
Reference
World Bank. 2011. Vietnam Urbanization Review: Technical Assistance Report. Hanoi:
World Bank.

Chapter 4
Issues Screening and List of

Actionable Recommendations
The report has so far described (1) the current state of Vietnam’s economy and
logistics system (chapter 2) and (2) the main challenges and opportunities to
reducing logistics costs as perceived and identified by key freight stakeholders
nationwide (chapter 3). The purpose of this chapter is to integrate these findings
into a cohesive analytical framework where they can serve as a basis to produce
actionable advice to the Government of Vietnam (GoV). While it is clear that
Vietnam’s logistics challenges and opportunities are numerous and span virtually
all elements of the supply chain, taking action on these issues requires that they
be prioritized and properly sequenced. To that end, this chapter synthetizes the
issues and assesses them based on multicriteria analysis. This will help determine
the most pressing, highest-priority challenges, for which a targeted intervention
agenda will be proposed.
Freight Logistics Challenges

The most salient challenges identified in chapters 2 and 3 have been distilled in
table 4.1; these are the 23 most significant challenges in Vietnamese logistics
identified by this report. The challenges have been grouped into three categories:
Infrastructure, Freight Operations, and Policy, as defined below:
• Infrastructure: Issues related to the physical assets of ports/marine terminals,

inland waterways, highways, roads, and rail.
• Freight Operations: Issues related to freight-handling operations at Tan Son
Nhat Airport (TSNA) and Noi Bai Airport (NBA), warehouses operated by
logistics service providers (LSPs), and trucking company operations.
• Policy: Issues that arise from regulations, laws, and circulars issued by the GoV
and the application, interpretation, and enforcement of these regulations, laws,
and circulars by the General Department of Vietnam Customs (hereafter

114 Issues Screening and List of Actionable Recommendations
Table 4.1 Most Significant Challenges Impacting Freight Logistics Costs in Vietnam

No. Issue description Impact for freight stakeholders
Infrastructure issues
I‑1 Transportation infrastructure planning at the central and Unnecessary cost and time is added to
provincial government levels is not conducted using a macro- BCO supply chains.
approach. Planning is done in modal silos without having a Vietnam’s competitiveness relative to
multimodal, integrated, holistic perspective. The multimodal peer countries is diminished.
transportation network is not viewed as a total system that is Network bottlenecks remain in place
critical to freight stakeholders when moving raw materials and longer than would otherwise be the
components to production locations and finished goods to point case. Maintenance expenditures are
of consumption. There seems to be no clear conviction that not properly assessed and balanced
an efficient, cost-effective multimodal transportation system relative to capital expenditures.
is integral to facilitating international trade and economic Relatively low economic returns to
development. scarce state budget resources
Infrastructure projects are executed in a piecemeal manner without invested in infrastructure projects.
regard to the importance of establishing smooth links between
the various modes of transport and addressing bottlenecks along
entire strategic freight corridors.
Funding is not always allocated to the projects that will deliver the
greatest benefit to BCOs and other freight stakeholders.
I‑2 The master plan for the development of seaports in Vietnam from Potential expenditure of infrastructure
2010 to 2020, approved by the prime minister in December 2009, capital would be diverted from more
promoted the development of a regional transshipment hub at critically needed projects that would
Van Phong in Central Vietnam despite the limited demand for such better serve higher volume freight
a port. After continuous delays to the planned schedule, the GoV corridors.
formally suspended the Van Phong project in September 2012, even
though construction work had already stopped in August 2011 after
initial piling works were done by a Korean contractor at a cost of
VND 146 billion ($7.3 million).
The suspension came at the request of the MoT, because of Vinalines’s
financial difficulties. Despite this, the GoV continues to emphasize
the development of the port at Van Phong, with the MoT directing
Vinamarine and local provincial authorities in Khanh Hoa to
set up plans to call for domestic and foreign investments in the
construction of the port.
I‑3 The master plan has failed to match market demand to supply, with Cai Mep-Thi Vai MTOs’ operating costs
the excess supply in the greater HCMC area, including Cai Mep-Thi and return-on-investment have been
Vai, expected to last through 2020 due to the haphazard granting of negatively impacted.
new port operation licenses. New port developments continue to be
approved in the Cat Lai and Hiep Phuoc areas, despite the current
oversupply and the concurrent development of Cai Mep-Thi Vai.
Left with small terminal footprints, MTOs are finding it difficult to attract
sufficient containerized ocean carrier business to be profitable.
I‑4 The existing master plan provides for the ports at Cai Mep-Thi Vai to Restrictions on access to Cai Mep-Thi
receive container ships of between 4,000 and 8,000 TEUs (60,000 Vai terminals increase ocean carriers’
and 100,000 DWT) although ships of 11,000–14,000 TEUs (130,000– operating costs, which eventually
160,000 DWT) have already successfully docked at the port. Foreign- increases transportation costs for
owned ocean carriers are not receiving sufficient incentives to offset importers and exporters.
the relatively low container move counts at Cai Mep-Thi Vai currently
(of 1,000–2,000 TEUs per call), tonnage and pilotage fees form a
high percentage of their operating costs on a per TEU basis and are
facing obstacles in getting approval to bring in larger ships over
80,000 DWT.

Issues Screening and List of Actionable Recommendations 115
Table 4.1 Most Significant Challenges Impacting Freight Logistics Costs in Vietnam (continued)
I‑5 The development of the port system at the key gateway ports Economies of scale have been difficult
of HCMC (including Cai Mep-Thi Vai) and Haiphong (including to achieve in the large gateway ports
Cai Lan) remains highly fragmented. The country continues to because cargo is dispersed.
favor the development of new terminals based on outdated Ocean carriers select ports to call based
berth designs (e.g., of 200–300 meters each when latest on cargo demand.
generation large containerships are 300–400 meters long) and Funding spent on small ports and
relatively small terminal facilities compared to international terminals has yielded little benefit
standards. for BCOs.
I‑6 The potential for Cai Mep-Thi Vai to act as a transshipment hub Cabotage restrictions increase
for other Vietnamese ports has not been fully exploited. In operating costs for ocean carriers,
2013 foreign carriers will no longer be permitted to carry resulting in higher transportation
empty containers and international laden containers between costs for BCOs.
Vietnamese ports on foreign-flagged ships because of cabotage
restrictions. Unable to rely upon Vietnamese-flagged carriers to
provide suitably reliable feeder services between Vietnamese
ports, these international laden containers will be shipped to
foreign ports for consolidation.
I‑7 The development of Lach Huyen Port continues to face delays Delays will result in a shortage of vessel
and could miss the 2016 target for operations to commence. capacity and longer wait times for
Haiphong could face a potential port congestion problem by available vessel space for BCOs.
2016, with demand exceeding supply if Lach Huyen Port does
not proceed as planned.
Planners of the Lach Huyen port could repeat the same mistakes
made in the development of Cai Mep-Thi Vai with the competing
ports at Cai Lan and the potential development at South Do Son,
which could result in the dispersion of cargo volumes and the
inability to exploit the benefits of large-scale marine terminal
operations.
I‑8 Most Vietnamese highways intersect at traffic circles that are Freight velocity and highway safety are
especially congested Monday through Saturday. Today there compromised, resulting in increased
are few overpasses or flyovers that allow traffic from one fuel consumption, more air pollution,
highway system to merge with another highway system to keep and higher personal liability and
traffic moving. HCMC does have plans to construct overpass cargo insurance claims.
bridges at two major traffic circles, Hang Xanh Crossroads and BCOs need to add more buffer time
Thu Duc Crossroads, on the main highways to the industrial when planning transportation,
areas in Binh Thanh and Dong Nai and to NH 51 and the Cai Mep- which increases inventory carrying
Thi Vai terminals. Exits to major port terminal areas like Road costs.
965 to Cai Mep-Thi Vai are controlled by signals as opposed to Weight restrictions, lower maximum
overpasses that allow through traffic to continue to flow. Besides highway speeds, and congestion
creating congestion issues, poor highway safety is a major combine to increase the cost of
challenge. freight shipments in Vietnam
Highways are not constructed to handle truck weights connected compared to countries like China.
with today’s larger sized, 45-foot containers and/or heavier smaller
containers.

I‑9 The concept of logistics parks (a campus environment where many Exporters cannot benefit from later
LSP-managed distribution and warehouse facilities are colocated) cutoff times because of the absence
is not well-understood in Vietnam. Cargo-handling facilities are of logistics parks located along major
usually standalone near factories, ports, or airports. Vietnam lacks highways.
adequate logistics parks alongside major highways leading to the The absence of appropriately located
Haiphong ports and NH 51 to Cai Mep-Thi Vai. logistics parks increases overall
Ideally, logistics parks should be located next to inland waterways, cargo-handling costs for both
major highways, and rail yards to accommodate multimodal freight importers and exporters.
options. Highway access to the parks would provide quick easy-on, The process for moving finished goods
easy-off access to the main highway or road adjacent to the park. or raw materials and components
Designating land for logistics parks along new expressways should out of or into Vietnam is not
be a requirement for highway investors. These logistics parks could seamless.
be developed with FDI funds.
I‑10 Although some modern buildings exist, the quality of CFS warehouses It is a challenge for LSPs to locate
and other cargo handling facilities is generally poor relative to other quality facilities that enable cost-
Asian countries such as China, Indonesia, Malaysia, and Thailand. effective and efficient operations.
Facilities are generally small in size and availability is limited. It More modern warehouses operated
is not uncommon to find buildings with floors made of packed by international LSPs are often too
dirt, especially in the Northern region, which is not conducive for expensive for domestic BCOs to use.
handling and storing cargo, particularly high-value products.
Some international and domestic LSPs have modern warehouse
facilities supported with warehouse management systems, but this
is not the norm across Vietnam.
Freight operations
F-1 TSNA has two terminal operators, TCS (operates facilities TCS1 and Operations at TCS1 and TSC2 are less
TCS2) and SCSC. TCS is partially owned and operated by Vietnam efficient than SCSC.
Airlines, the national flag carrier, which has pressured many Capacity at SCSC is underutilized.
air carriers to only serve TCS, even though BCOs and airfreight Airfreight rates are higher than they
forwarders generally rate SCSC’s service as superior. should be.
F-2 Airfreight forwarders cannot perform cargo consolidation at TSNA and Airfreight rates for BCOs are higher than
NBA; consolidating cargo on build-up pallets is only done by ground they might be if cargo consolidation
handling agents. Airfreight forwarders are allowed to perform this by airfreight forwarders was
function in most other Asian countries. unrestricted.
F-3 The trucking industry is fragmented, with fewer than 10 large trucking Although BCOs reported that trucking
companies and about 100 midsized ones operating in Vietnam. rates are generally lower than in peer
There are no pan-Vietnam trucking companies. BCOs, ocean carriers, countries, most are dissatisfied with
and LSPs must contract with numerous trucking companies to take the poor quality of service delivered
care of demand. This increases operational costs of ocean carriers by trucking companies and the lack
and LSPs because they have to manage many trucking contracts of visibility of cargo when transiting
to be assured of service during peak shipping periods due to the in trucks.
limited number of trucks any one trucking company can commit to Low truck rates contribute to instability
the ocean carrier or LSP. in the industry and delivery of
Truck tariff rates are low. In order to make a profit, trucking companies substandard service.
frequently overload trucks and avoid tolls roads. To minimize the risk
of being stopped by local police, some trucking companies make
special payment arrangements with the local police in exchange for
“protection” at a particular road segment.

F-4 Because the trucking industry mainly comprises small companies, it is While BCOs benefit from competitive
difficult for them to gain economies of scale. Most operators cannot trucking rates, trucking practices
afford to properly maintain their trucks, which contributes to air like overloading containers cause
pollution and unsafe vehicles. Overloading of trucks is common. highway damage.
Regulations governing trucking companies and drivers such as on- The lack of driver training leads to
duty driver hour limits, use of GPS units in trucks, driver training and accidents, which increases the
safety, cargo load ceilings, vehicle quality, equipment depreciation, trucking companies’ cost of doing
and road speed limits are not stringent enough to change how the business, reduces road safety, and
trucking industry operates. increases logistics costs to BCOs.
Improper truck maintenance increases
air pollution.
Policy issues
P-1 Government-issued regulations, including those made by Vietnam The ambiguity in regulations and
Customs, are often not clear or easy to understand. This uncertainty the inconsistency in interpreting
in new circulars and laws creates a risk exposure for BCOs and LSPs and enforcing regulations creates
in making business decisions. BCOs also stand the risk of being in unexpected costs to BCOs for
violation of laws previously not enforced. unintentional noncompliance;
Implementation of decrees at the provincial and local levels is delays in getting imports cleared
not consistent. Interpretation of regulations can be different necessitates that importers carry
from province-to-province, official-to-official, and day-to-day. higher levels of safety stock; missed
Enforcement of regulations is based on shades of gray, not black aircraft and vessel departures for
and white. exporters; and higher-than-normal
administrative costs to monitor and
react to government regulations.
P-2 Bureaucracy throughout the central and provincial governments and The number of licenses that are
requirements for multiple certificates and documents slows the required to do business and the
clearance of imports and exports. lengthy process that must be
Multiple ministries can be involved in the import and export process. followed to obtain licenses bogs
Import licenses are required on many types of consumer goods, down the system; creates delays,
particularly those considered by the GoV to be luxury items. unnecessary work and costs for
Obtaining import licenses can take from 4 to 10 days, while the BCOs; and generates additional
cargo sits at the port or airport before customs clearance can be inventory carrying costs.
completed.
P-3 The GoV considers movement via barge between HCMC or Cai Mep Barge operators in Vietnam and the
and Cambodia to be “transit” rather than “transshipment” because Vietnam economy lose potential
the border is an inland border. Cambodia permits imports of revenue from Cambodia’s large
secondhand machinery and autos originating in the United States secondhand automobile and
that are prohibited from being imported into Vietnam, so this type machinery market as a result of this
of restricted cargo cannot be transported to Cambodia through inland border restriction.
Vietnam via barge. This is an arbitrary rule imposed because of GoV
concerns about smuggling, but this reduces the pool of cargo that
can travel on the barge service (likely via Cai Mep-Thi Vai). Now
this cargo goes through Singapore to Sihanoukville and bypasses
Vietnam altogether.
Currently the trade between Vietnam and Cambodia is imbalanced
with more cargo coming out of Cambodia than going in. But if this
restriction were lifted, the trade would come into balance and barge
operators could be more profitable in this barge trade.

P-4 Corruption in various forms is endemic at all levels of government. Business dealings are not transparent,
Payment of facilitation, as noted by freight stakeholders and the playing field is not level for
interviewed, accounts for anywhere between 5 and 50 percent of all participants.
their customs clearance costs in Vietnam. Because of facilitation, BCOs, for
Companies believe that facilitation payments, which are illegal in example, can never be certain how
Vietnam, are nevertheless necessary to expedite the movement long it will take to clear cargo, or if
of goods through Customs. Facilitation relates to frequent small inspection of cargo will be required,
payments made by BCOs and other freight stakeholders to how long the inspection will take,
government officials to get routine activities accomplished in and how much it will cost.
a timely manner. But it may also refer to outright bribery, such Inventory carrying costs are high
as paying Customs agents to accept wrong data on documents because of the extra time built into
(e.g., inaccurate weights or Harmonized Tariff System numbers) or the supply chain.
missing documentation. The system therefore operates on wrong LSPs find it difficult to work efficiently
and missing information, which is inefficient. and provide superior service
LSPs believe it necessary to engage in constant relationship building to their customers because
to get things done in their cargo-handling facilities, which includes government officials are perceived
pampering Customs agents, taking them to dinner, providing gifts, as deliberatively slowing down
etc. Customs has a policy of rotating agents every six months to processes as leverage to exact
other facilities, which reportedly forces LSPs to start the relationship facilitation payments.
building all over again.
P-5 The application of customs policies is inconsistent and not universally The lack of transparency of regulations
applied. Customs is supposed to adhere to the World Customs and enforcement oversight increases
Organization guidelines, but how Customs operates is another uncertainty (and therefore costs)
story. The interpretation of customs regulations varies among in supply chains and leads to
different Customs officials and between provinces. In some cases, undocumented facilitation payments
local Customs officials are not aware of special arrangements to Customs officials.
granted to certain BCOs.
P-6 E-Customs has only been partially implemented. Entries are required Hybrid customs model creates
to be filed with Customs electronically, but hard copy documents unnecessary administrative
must also be presented for signature. work for BCOs and LSPs, higher
Vietnam Customs is planning to implement a single-window, fully operating costs, clearance delays,
automated customs solution called the Vietnam Automated and opportunities to exchange
Cargo and Port Consolidated System and the Vietnam Customs facilitation payments.
Information System (VNACCS/VCIS) by 2014, but it is uncertain if this
schedule will be achieved.
P-7 Business licensing requirements are generally vague, and the licensing LSP operating costs increase.
process is very controlled. For example, obtaining CFS licenses
is very difficult due to the lack of straightforward laws, and LSPs
cannot easily determine what the rules really are. Often licenses are
granted through facilitation payments and relationships, rather than
based on clear rules.
P-8 The skill level of some government officials who work directly with the Delays in moving cargo occur and
movement of cargo is perceived to be poor. Often they get their jobs operating costs increase for freight
by having relationships with people in power or through payment of stakeholders.
facilitation, not because they are qualified. This is more likely to be the Situations arise where facilitation
case in rural areas. GoV human resource systems are not merit-based. payments may be offered or
requested.

P-9 International BCOs and LSPs have difficulty hiring managers Operations costs for international BCOs
experienced in supply chain and logistics. Vietnamese with this and LSPs increase.
experience are expensive to recruit and retain. International Identifying local staff to assume
LSPs find it more cost-effective to staff senior management level an expatriate’s position so far in
positions with experienced expatriate staff. advance is difficult.
The GoV has recently required that expatriate work visa requests
include a development plan for a Vietnamese employee to
assume the expatriate’s position when the expatriate departs
Vietnam.
Note: BCO = beneficial cargo owner; CFS = container freight station; DWT = deadweight tons; FDI = foreign direct investment; GoV = Government
of Vietnam; GPS = Global Positioning System; HCMC = Ho Chi Minh City; LSP = logistics service provider; MoT = Ministry of Transport;
MTO = marine terminal operator; NBA = Noi Bai Airport; SCSC = Saigon Cargo Service Corporation; TCS = cargo terminal at TSNA; TEU = 20-foot
equivalent unit container; TSNA = Tan Son Nhat Airport; Vietnam Customs/Customs = General Department of Vietnam Customs.
“Vietnam Customs” or simply “Customs”), provincial authorities, and other

government officials.
The challenges, as listed, are not ranked in order of significance.
Development of a Multicriteria Evaluation Matrix

A multicriteria evaluation matrix was created to prioritize the above list of
challenges (table 4.4). The matrix scores each of the major challenges accord-
ing to key impact variables as defined in table 4.2, along with a timeline indica-
tor showing whether full implementation could be accomplished within the
next five years (short-term), 5–10 years (medium-term), or beyond 10 years
(long-term).
Prior to evaluating the key challenges, similar issues (e.g., those driven by simi-
lar root causes) were grouped together, resulting in 14 major categories (second
column of table 4.4). Using a three tier scoring system of Low, Medium, and
High (see table 4.3) to reflect expected impact on logistics costs along each of
the criteria of table 4.2, categories were given a weighted impact score (second
to last column of table 4.4). The five highest-scored categories are the primary
challenges this report suggests the GoV should address with the highest level of
priority to have (1) the greatest economic and financial impact on logistics costs
for freight stakeholders and (2) a more enduring improvement in trade
competitiveness.
Five goals were developed for the highest-rated challenges. Table 4.5 indicates
how these goals impact the various freight stakeholders using the same scoring
system as shown in table 4.4.
For each of the chosen priority challenges/cross-cutting goals of table 4.5,
section 4.3 will (1) describe their relevance (e.g., impact on freight stake-
holders), (2) recommend solutions and, where appropriate, implementation
strategies, (3) identify barriers and obstacles to implementation, and

Table 4.2 Multicriteria Evaluation Impact Variables

Code Description of key impact variables
GSC Impacts global BCO supply chains that demand JIT deliveries, visibility of product flow, and high
responsiveness.
FSI Has cost impact to BCOs and other freight stakeholders.
FFF Impacts future freight flow decisions in Vietnam in five to ten years, given authors’ container volume
projections.
LAW Impacts compliance with international laws governing fair trade and anti-corruption practices as demanded
by trade agreements like the Trans-Pacific Partnership.
COR Requires strategic freight corridor investments or policy.
ENV Provides an opportunity to reduce the environmental carbon footprint of freight shipments.
SOL Has a reasonable solution that is implementable based on anticipated costs, associated government policy
changes, and/or freight stakeholder pushback.
Timeline for full implementation (years)
ST 0–5
MT 5–10
LT Longer than 10
Note: BCO = beneficial cargo owner; JIT = just in time.
Table 4.3 Scoring System

Expected impact on
logistics costs Score Symbol Description of measure
No or low impact 1 l No impact; or only has an insignificant positive or negative impact; or is
unlikely to be implemented by the GoV, at least during the next 10
years.
Medium impact 3 May create a measureable positive or negative impact on logistics costs,
◗
infrastructure planning, fair trade, and/or the environment and would

not likely result in reevaluating strategies and business practices; or has
a reasonable chance of being implemented by the GoV.
High impact 5 l Will create a measureable positive or negative impact on logistics costs,
infrastructure planning, fair trade, and/or the environment and could
result in reevaluating strategies and business practices; or has a good
chance of being implemented by the GoV.
Note: GoV = Government of Vietnam.
(4) sketch what a successful implementation timetable could look like, as

well as potential funding mechanisms (in selected cases).
Goals Assessment and Recommendations to Improve Performance

Customs Modernization
Why This Is Relevant
The administrative effort associated with the current customs clearance pro-
cess is time consuming and costly to customs brokers, who pass along their
costs to beneficial cargo owners (BCOs). Clearing customs is fraught with

Table 4.4 Significant Challenges: Weighted Average Scores

Impact Time
Task no. Category description GSC FSI FFF LAW COR ENV SOL score line
Weights => 4 4 2 3 1 1 2
P-5 P-6 Cumbersome and
inconsistently applied
customs policies, procedures,
and practices l l l l l l l 77 ST
P-1/P-2 Inconsistent implementation,
P-4 interpretation and
enforcement of government
regulations; lack of
transparency; bureaucracy;
and facilitation payments l l l l l l 65 MT
◗
I‑1 I‑7 I‑8 Infrastructure projects:
Nonintegrated multimodal
transportation infrastructure
planning Development of
port at Lach Huyen l l l l l 67 LT
◗
F-3/F-4 Fragmented trucking industry
delivering suboptimal
service l l l l l l l 61 MT
I‑4/I‑6 Lack of critical mass of Cai-Mep/
Thi Vai as transship terminals l l l l l l 61 ST
◗
I‑9 Absence of strategically located

I‑10 logistics parks integrated
with ports, airports,
highways, and production
facilities l l l 51 MT
◗
F-1/F-2 Inefficient terminal ownership

structure and operations
at TSNA and inability for
airfreight forwarders to
consolidate cargo l l 47 ST
◗
I‑3 Imbalanced of supply and

demand at marine terminals
in Southern Vietnam l l l l l l 43 LT
◗
P-7 Cumbersome business

licensing processes for LSP
cargo-handling facilities l l l l l 43 LT
◗
P-8 Inadequate education and

skills of government workers
relating to logistics l l l 41 LT
◗
I‑5 Small footprint of marine

terminals in Southern
Vietnam l l l l l 39 MT
◗
P-3 Underutilized Cambodia barge

service l l l 35 ST
◗
P9 Lack of skilled Vietnamese

managers who are
knowledgeable in logistics l l l l l l 33 MT
◗
I‑2 Van Phong Seaport

development l l l l l l 21 LT
◗
Note: LSP = logistics service provider; TSNA = Tan Son Nhat Airport.

Table 4.5 Key Goals and Impact on Freight Stakeholders
Key issue Impact on freight stakeholders

identifier Cross-cutting goals MTOs LSPs Trucking Ocean carriers Shippers
P5, P6 Customs modernization l l l l
◗
P1, P2, P4 Transparent and consistently
applied, interpreted, and
enforced government
regulations and operations;
reduced bureaucracy l l l l
◗
I1, I7, I8 Strategic corridor planning l l
◗
F3, F4 More professional trucking
industry l l l
◗
I4, I6 Expanded business
opportunities at
Cai Mep-Thi Vai l l l
◗
facilitation payments to officials as a perceived requirement to “get things
done,” primarily due to a high level of human involvement and variation in
interpretation of customs regulations. It is also a major contributor to extended
delays in processing import and export shipments, with the greatest impact on
imports.
Customs modernization is a key component of Vietnam’s trade liberalization
and international integration agenda. For example, it will likely strengthen
Vietnam’s participation in the TPP multilateral trade agreement, currently under
negotiation between Australia, Brunei Darussalam, Canada, Chile, Malaysia,
Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. In meet-
ing this requirement Vietnam stands to gain tremendous growth opportunities in
key export products—such as apparel and electronics—through the reduction of
duties among trading partners. Both the president and prime minister of Vietnam
have expressed commitment to securing Vietnam’s position in this trade
agreement.
Customs modernization is also required by Vietnam’s commitments to the
ASEAN Economic Community (AEC). These commitments call for simpler,
harmonized customs procedures in line with international standards and best
practices. The AEC also calls for smooth customs valuation with origin determi-
nation and establishing ASEAN e-Customs.1
In all interviews with BCOs and LSPs doing customs brokerage and/or
international expedited freight shipments, the prospects of moving to an
e-Customs platform in 2014 was seen as a giant leap toward reducing their
operating and inventory costs. In particular, it was consistently seen as an
effective way to reduce points of what has sometimes been referred to as
“system nervousness”—choke points in the supply chain that account for a
disproportionate share of delays and itinerary unpredictability (including of
cost and time).

Recommended Solutions
Vietnam Customs’ primary goal should be to implement a fully automated
system by 2014 as planned. This will significantly reduce human intervention
and paperwork and will provide a consistent, predictable and transparent clear-
ance process. When customs clearance is aided by a fully electronic exchange
of data and documents, products are not only cleared in a timely manner, but
all interaction with Customs officials (e.g., to establish tariff classifications,
proper licenses, and other customs formalities) is settled in advance of the
physical importation and exportation of the BCO’s inputs and finished goods.
By eliminating the physical handling of documents, no paper documents are
printed or compromised. Customs officials are still expected to occasionally
inspect shipments to validate the BCO’s compliance to what the electronic
records report.
In connection with a paperless environment, Vietnam Customs will need to
assure BCOs that it can safeguard data in the records filed electronically. The
relevance of this stems from the handling of the year-end reconciliation process
between imported raw material value and the export value of finished goods.
Since this reconciliation determines whether manufacturers can avoid duties
imposed for documentation discrepancies, Customs’ ability to safeguard the
integrity of electronic records would be a critical component of paperless
clearance.
Not only does operating in an e-commerce environment with Customs
expedite the customs clearance process, it should greatly reduce instances
where facilitation payments to Customs officials are offered or requested. It
also provides a strong foundation upon which to develop a formal (e.g., well-
established, IT-enabled) “trusted shipper” or “green lane” concept that works
well in other countries and country groups, notably the United States and the
European Union (EU). The physical inspection of documents is a significant
revenue stream for Customs and Customs officials. But it contributes greatly
to the delay of cargo, especially import cargo where every container is
inspected either partially or fully. Under a “trusted shipper” program, inspec-
tions would be reduced in number and scope. Scope may range from door
inspections of several cartons to full inspection of container contents, where
the sample size is defined by accepted (e.g., industry standard) statistical
methodologies.
Vietnam Customs should also adopt the World Customs Organization stan-
dards for classification, filing practices and common electronic data interchanges
(EDI) like File Transfer Protocol (FTP). This would relieve LSPs and BCOs from
having to customize their international systems in order to exchange information
with Vietnam Customs.
Recommended Strategies
Assuming the e-Customs system is completed in 2014 (as planned), the
system should be implemented under a phased deployment over a period of

at least 12 months. Beyond an electronic interface, the customs clearance

process can be further streamlined by taking some of the following actions:
• Begin implementing a “trusted shipper” program that is based on a to-be-

determined compliance level for document and shipment accuracy based on a
formula that considers such things as the BCO’s length of time doing business,
location of BCO’s buyers (e.g., the United States or the EU, which have more
stringent cargo security requirements), frequency of shipments, type of com-
modity, and volume of shipments. It is recommended that compliance be less
than 100 percent, but more than 95 percent.
• Establish an effective prearrival classification system that allows BCOs to
obtain official product classifications and required customs forms for timely
product clearance upon cargo arrival.
• Accept small variations in weight for airfreight imports such that customs
brokers can be confident in preparing customs documents prior to cargo
arrival.
• Simplify documentation requirements for purchase orders and sales contracts
on imported items to be consistent with other ASEAN countries.
• Use trucking companies’ bills of lading as the only document truck drivers
need to possess instead of carrying a complete set of documents.
• Operate Customs inspection and testing stations with sufficient staff and
equipment, and adequate cargo storage areas (e.g., with refrigeration for per-
ishable food products), to expedite the cargo inspection process and to main-
tain shipment integrity.
• Staff Customs offices, inspection sites, and testing stations six days a week to
process shipments to and from factories and marine terminals, as the latter
operate on that schedule.
• Communicate well in advance any new regulations for all types of cargo, with
assurance that they will be uniformly followed by all Customs officials upon
cargo arrival.
• Develop an electronic calculation process to measure raw material content in
finished goods to prevent redundant duty payments on imported raw materi-
als used exclusively for the manufacturing of export products. Also maintain,
as a minimum, the 275 days currently allowed for duty-free imports to be
exported in finished goods.
• Stabilize customs duty rates within the framework of existing free trade
agreements.
• Raise the level of professionalism of Customs officials through improved
training (this can be an area for South-South collaboration) and
performance evaluation, especially in the smaller cities and provinces, to
promote a more uniform application and interpretation of customs

regulations.
• Establish an open “hot line” for communication with Vietnam Customs such
that BCOs can report inconsistencies in the way customs rulings are applied
by officials.

Barriers and Obstacles

An implementation roadmap and performance benchmark have already been
established by the e-Customs “Gold Standard” system developed and operated
for one high-profile international BCO in the HCMC area. All the freight stake-
holders interviewed were supportive of this paperless system.
Customs officials could be the biggest barrier to full implementation of
an electronic customs process that would minimize human touch, since
this would redefine their role in the clearance process and potentially
take away a major if informal source of income. Another potential obstacle
is the d efinition of customs regulations, which at present are prone to sub-
jective interpretation. To the extent that the application of regulations is
significantly streamlined (e.g., made more predictable and consistent) by
reducing the need for in-person interaction between officials and BCOs, this
risk can be mitigated through the e-Customs system. However, a strong case
can be made that, irrespective of the customs clearance process in place,
customs regulations should be simplified. Best practice examples from
advanced and middle-income countries in the region can be used as an initial
benchmark.
Definition of Success
By the end of 2015, the e-Customs system will ideally be available for use by
customs brokers for the timely processing of import and export shipments at any
of Vietnam’s water or land entry points for ocean, truck, and airfreight shipments.
Deployment of the new system will be field-tested prior to a phased deployment
over a one-year period (in 2015) in order to avoid unnecessary disruption to the
flow of commerce.
Transparent, Streamlined Government Regulations and Operations

Inconsistent implementation and interpretation of government regulations
beyond customs is widespread across Vietnam, as reported by every international
BCO and LSP interviewed for this report. This stems largely from red tape (e.g.,
cumbersome procedures), a legal framework whose gaps give de facto discretion
and power to officials, and a lack of transparency and accountability. Root causes
include (1) gaps in institutional capacity, (2) unnecessarily complex, incomplete
and/or ambiguously drafted regulations, and (2) inadequate recruitment and
compensation management processes at the various levels of government.
Besides having a number of direct impacts on the ease of doing business and the
profitability of freight stakeholders, this provides fertile ground for (and is there-
fore a root cause of) the solicitation and/or offering of undocumented facilitation
payments.
BCOs and LSPs incur higher-than-necessary administrative costs to monitor
and react to government regulations that are constantly changing. Moreover,
this increases the risk of incurring penalties for unintentional noncompliance.
For example, BCOs risk being in violation of regulations that were not

previously enforced. BCOs and LSPs spend unexpected and unnecessary

administrative time to assess how to change their business practices to comply
with new or revised regulations.
Bureaucracy and complex procedures increase the time involved in moving
inputs and finished goods in and out of Vietnam and make this process unpre-
dictable. Cumbersome and sometimes onerous clearance regulations create bot-
tlenecks in the import and export process. A single import shipment may require
dealing with Vietnam Customs, Ministry of Health, Ministry of Information and
Technology, Ministry of Agriculture, and Ministry of Culture and Communication,
all of which may require myriad documentation. Because Customs does not reg-
ister the importer using an official number or code, the importer must copy and
present its import buying contract with each bill of lading. Obtaining import
licenses can take from 4 to 10 days, while the cargo sits at the port or airport
before customs clearance can be accomplished. BCOs can rarely be certain how
long it will take to clear cargo, if inspection of cargo will be required, how long
the inspection will take, and how much it will cost. LSPs stated that these issues
undermine their ability to operate efficiently and provide superior service to their
customers.2
Because of the need to add redundant safety stock to their supply chains to
account for clearance delays, BCOs experience higher-than-necessary inven-
tory carrying costs (table 4.6). It takes three days longer to clear3 imports and
two days longer to clear exports in Vietnam compared with Malaysia.4 It is
conservatively estimated that, if Vietnam’s clearance times matched Malaysia’s,
manufacturers and BCOs engaged in nondomestic imports and exports of con-
tainerized cargo could have saved $96 million in inventory carrying costs in
2012. Taking into account projected growth in international trade, savings in
inventory carrying costs from faster clearance times could reach $182 million
in 2020.
With remarkable consistency, interviewees across all freight stakeholder
categories stated that situations routinely arise where facilitation payments
are exchanged between BCOs/LSPs/truck drivers and government officials
(particularly Customs and the police). Most international BCOs were unable
to pinpoint the relative magnitude of facilitation payments as a share of logis-
tics costs, since facilitation is typically paid by their LSPs or trucking compa-
nies and built into their customs entry, cargo handling, and trucking rates.
Some stakeholders, however, estimated that these nontransparent facilitation
Table 4.6 Interest Cost on Extra Inventory Due to Import-Export Clearance Delays

Millions of dollars
Interest cost on extra inventory due to clearance delays: 2012 2015 2020
In import shipments 46.6 58.4 86.7
In export shipments 49.5 62.7 95.1
Total capital cost of carrying inventory 96.1 121.1 181.8
Source: Authors; see table A.3 for details.

costs added as much as 50 percent to these rates. All ocean carriers, LSPs,
trucking companies, and BCOs that deal directly with trucking companies
and/or customs brokers stated unanimously that the undocumented facilita-
tion payments made to Customs officials and police constitute anywhere
between 5 and 50 percent of customs brokerage fees, cargo inspections, and
trucking.
The estimated cost of facilitation payments paid to Customs officials and
police is $78 per FEU on imports and $76.50 per FEU on exports (table 4.7).
These facilitation amounts were calculated assuming that a 30 percent facili-
tation fee5 is included in what LSPs identified as “good market rates” for
customs brokerage and trucking. As a percentage of total origin costs,6 facili-
tation fees are estimated to be 15.1 percent and 13.4 percent of import and
export origin costs, respectively, for general merchandise cargo in a 40-foot
container.
For illustrative purposes, assuming that all foreign import and export con-
tainers were subject to the above estimated facilitation payments, annual
facilitation fees associated with clearing customs and transporting containers
over the road would be $261 million in 2012 and $493 million in 2020
(table 4.8).
Table 4.7 Import and Export Origin Costs for General Merchandise Cargo in 40-Foot
Container (FEU)
Facilitation Facilitation
Cost per FEU paymentsa payment % total
Charge types (dollars) (dollars) origin cost
Import costs
Delivery order 35.0 n.a. n.a.
Terminal handling charge 130.0 n.a. n.a.
Related ocean charges 70.0 n.a. n.a.
Origin administration fees 20.0 n.a. n.a.
Foreign security filing n.a. n.a. n.a.
Customs brokerage and container inspection 75.0 22.5 n.a.
Trucking from port to factory 185.0 55.5 n.a.
Total origin costs 515.0 78.0 15.1%
Export costs
Bill of lading 35.0 n.a. n.a.
Terminal handling charge 130.0 n.a. n.a.
Related ocean charges 15.0 n.a. n.a.
Origin administration fees 75.0 n.a. n.a.
Foreign security filing 62.0 n.a. n.a.
Customs brokerage and container inspection 70.0 21.0 n.a.
Trucking from port to factory 185.0 55.5
Total origin costs 572.0 76.5 13.4%
Note: n.a. = not applicable.
a. Facilitation payments that are included in the customs brokerage, container inspection, and trucking origin costs (cost per
FEU column).

Table 4.8 Estimated Cost of Facilitation Payments in Clearing and Transporting Import and
Export Containers
Millions of dollars
Annual facilitation payments based on: 2012 2015 2020
Total foreign import volumes 134.6 168.7 250.3
Total foreign export volumes 126.2 159.9 242.4
Total facilitation costs 260.8 328.5 492.8
Solutions to promote consistent implementation, interpretation, and enforce-
ment of regulations, and to streamline government processes related to interna-
tional trade, are generally feasible of short-term implementation. Interventions to
minimize the incidence of facilitation payments are medium- to long-term in
nature, given the strong behavioral component of such initiatives and the obvious
entrenched interests that would oppose reform. Specific recommendations are as
follows:
• The GoV should be as clear and transparent as possible when stating policies
and issuing decrees and laws related to international trade in order to remove
vagueness, ambiguity, and room for individual (and especially idiosyncratic)
discretion; there should be no or minimal room for different interpretations by
different government officials.
• The GoV should establish an audit system whereby it could set up selected
key regulations governing international trade as test cases. By surveying BCOs
and LSPs on a set schedule over the course of one to two years, the GoV could
review how those regulations were implemented by the various ministries and
provincial governments. Identified gaps and issues could then be addressed,
and strategies for more consistent application and interpretation of laws could
be applied for general rule making and execution.
• Using other ASEAN countries as models, the GoV and Customs should
streamline import and export clearance processes by loosening onerous require-
ments and reducing the number of required documents and certificates.
• The hiring, promotion, salary scale, and salary-adjustment system for govern-
ment officials should transition to being merit based.
• The GoV could embark on a communications campaign that promotes trans-
parency in supply chain transactions, highlights ongoing public sector efforts
on this front, and engages the BCO and LSP community, whose members in
many instances assume that facilitation payments are necessary as a matter of
course.
Possible Funding Mechanisms

Establishing more easily understandable circulars and decrees in the future
should not cost the GoV more than the amount of administrative time

expended today. The GoV will incur some cost to study existing laws and
regulations relating to the import and export process and determine how they
can be made more streamlined and transparent. This should come from the
general treasury.
To ensure consistent application, interpretation, and enforcement of regula-
tions, the GoV will need to spend more administrative time auditing the perfor-
mance of individual Customs officials across provinces. This audit activity could
be funded, at least partially, through higher Customs entry filing.
Some amount of effort will need to be applied by the GoV to review the
regulations governing international trade in effect in Vietnam today to determine
how to simplify them and reduce the number of documents and certificates
required to import and export. This activity should be funded from the general
treasury.
Eliminating facilitation payments to Customs officials and police will in part
require the restructuring of hiring, pay, and benefit programs for these officials.
Funding to pay for skills-aligned, merit-based salary increases for Customs offi-
cials can come from increasing the published filing fees for import and export
clearance, cargo inspections, and other inspections. The expectation is that the
new, higher published fees will be less than what LSPs are currently charging
BCOs for customs brokerage services.
Funding for police officers should come from the general treasury, as is the
case in advanced countries. The role of the police is to serve the general public;
the general public should therefore bear the cost of their service.
Roles and Responsibilities

Going forward, the prime minister’s office and National Assembly could
devote more attention to establishing unambiguous laws and regulations
governing international trade activities; assessing how existing laws and regula-
tions can be clarified; implementing a process to routinely audit how i ndividual
Customs officials in the provinces apply, interpret, and enforce those laws and
regulations; and evaluating how import and export regulations and documen-
tation can be streamlined and simplified to reduce logistics costs for BCOs and
LSPs.
Laws will need to be enacted to change the hiring and compensation basis of
Customs officials and police officers to coincide with implementation of the
e-Customs solution. The Ministry of Finance could have responsibility to admin-
ister a new human resources administration program.

To simplify laws and regulations, ensure consistency among Customs agents, and
streamline customs processes the Prime Minister should make a clear case to
government officials and the public of the benefits to be derived from such
actions in terms of making Vietnam an easier place for freight stakeholders to
conduct business. Changing attitudes and behaviors will take time, and overcom-
ing systemic inertia will be challenging.

As seen throughout this report (and as noted by other studies), facilitation

payments are commonplace in Vietnam, and there will likely be significant
barriers of resistance to implementing the recommended strategies. It will
take a concerted effort by the prime minister’s office to recognize the need
for this transformation and to steer the necessary legislative and social
changes needed to eliminate facilitation payments and increase
transparency.
Custom’s proposed deployment of an e-Customs system can be the prime
driver for making the hiring, promotion, and compensation system for Customs
officials more merit based.
In 2015–16, when surveyed by the GoV, BCOs, and LSPs will report that
Vietnam is an easier place to do business and is comparable to other Asian coun-
tries such as China and Thailand.
Beginning in 2016, facilitation payments will be significantly reduced, aided
by the rollout of higher, documented rates for import and export clearance fil-
ings. By the end of 2019, facilitation payments to Customs officials and police
will no longer be routinely reported by LSPs and BCOs, and police will be
enforcing highway laws with clearly defined citation amounts with documented
payments.
Strategic Freight Corridor Planning

Mode-specific, silo-based planning with limited avenues to foster logistics-
informed (e.g., integrated) transport infrastructure has resulted in inadequate
connectivity and broad demand-supply mismatches. A lack of complementary
land-side infrastructure reduces international competitiveness for Vietnam’s
ports. The overbuilding of port facilities in Southern Vietnam, which stand unde-
rutilized, has translated into financially weak investments for terminal operators.
This undermines supply chain stability and increases risks not only to terminal
operators themselves but also ultimately to BCOs.
While Southern Vietnam ports are plagued by overcapacity, Northern ports in
the Hanoi area are at risk of saturation in the medium term. Demand at the
Northern region ports is expected to reach 5.5 million 20-Foot Equivalent Unit
Containers (TEUs) by 2020, from about 2.7 million TEUs in 2011. The existing
terminals are expected to reach full capacity (4.8 million TEUs) by 2018. Even
with additional capacity from two additional terminals planned in Dinh Vu,
which would raise total capacity to 5.8 million TEUs, the terminals are still
expected to reach full capacity by 2020.
The development of Lach Huyen, a deep-water facility at Haiphong port, is
expected to bring about immediate benefits, allowing vessels between 2,000 and
8,000 TEUs to call Northern Vietnam for the first time. Unit costs per TEU for
such ships are significantly lower than existing feeder ships, which could result
in s avings of up to 60 percent for ocean carriers. The expected cost savings from

the elimination of feeder and transshipment costs for Haiphong cargo is esti-
mated at an additional $100–200 per TEU, for an annual savings to ocean carriers
that could reach over $74 million7 by 2020, with much of the cost savings
expected to be passed to BCOs.
On the land side, manufacturers and BCOs in both the Northern and
Southern regions continue to pay higher trucking fees resulting from significant
congestion on the main highways leading to ports and on the access roads from
those highways to the marine terminals. In 2012 BCOs will have paid approxi-
mately $150 million in additional trucking costs, and up to $270 million in 2020,
because of highway congestion (see table 4.9).
The MoT would benefit from adopting a holistic, multimodal approach to
planning and executing strategic freight infrastructure development. The con-
cept brings relevant public and private sector freight stakeholders together to
(1) build consensus in determining the appropriate investments for each
strategic freight corridor, (2) agree upon the needed development timelines,
(3) review funding options, and (4) transparently communicate and execute
the plan.
Corridor Planning: Strategic corridor planning should replace the MoT’s
current “stove pipe” planning process. This planning process brings together offi-
cials from the highways, ports, waterways, rail, and air transport functional
departments to produce multimodal design and management structures for cho-
sen (e.g., high-volume) corridors. This process will also need to include input
from key freight stakeholders: marine terminal operators (MTOs), ocean carriers,
LSPs, trucking companies, and prominent BCOs.
Specifically, in conjunction with the next five-year Master Plan, the MoT
should develop a Multimodal Corridor Investment Plan (MCIP) based on inputs
from a tactical planning process that reflects the needs of multisectoral central
Table 4.9 Highway Congestion Cost Impact on Trucking Costs

Millions of dollars (unless otherwise specified)
2012 2015 2020
North
Haiphong and Lach Huyen terminals 75.4 95.8 144.9
Cai Lan terminals 4.3 5.4 8.0
Total truck savings: North 79.7 101.2 152.9
South
HCMC terminals 70.9 84.5 113.0
Percentage barge service to CM-TV 95% 90% 90%
Cai Mep-Thi Vai terminals 1.3 4.1 8.2
Total truck cost savings: South 72.3 88.5 121.2
Total truck savings: Vietnam 151.9 189.7 274.1

government officials, provincial government freight leaders, and major freight

stakeholders. To ensure the plan is fully executed, resources allocated to provincial
governments for infrastructure development should include a c ommitment-based
funding mechanism linked to the timely construction of MCIP-targeted infra-
structure projects, such as critical port access roads. This will better ensure that
the right projects (e.g., those that will deliver the most benefits to freight stake-
holders) are identified, funded, and completed within the prescribed timeframes
to keep pace with demand.
Lach Huyen Port Development: Haiphong is the only port in the world today
handling annual volumes of over 2.5 million TEUs but with draft limits of less
than 9 meters. There is a need for a deep-water port in Northern Vietnam to
cater to the expected growth in market volumes as well as the global trend
toward the use of larger containerships. The Lach Huyen Port project should be
given the highest priority among all ports in Northern Vietnam. It will be the
only port in the Northern region able to accommodate vessels above 4,000 TEUs,
making it both a game changer for the region and compliant with standard BCO
requirements.8 Based on a planned launch of Lach Huyen in 2016, volumes at
the port are expected to reach full capacity (of about one million TEUs) within
four years. This would require the early planning for the development of Lach
Huyen Phase 2 to meet the potential demand after 2020.
Funding for Lach Huyen includes the construction of the Tan Vu Highway,
which will be connected to the new, under construction, Hanoi–Haiphong
Expressway. Total budget for this project has been currently set at
$1.6 billion.
The new Lach Huyen port complex will benefit ocean carriers (and their
BCO customers) by allowing them to deploy larger ships with lower slot costs.
It will also result in savings of approximately $74 million per year from the
elimination of feeder vessels transshipping containers to foreign ports. More
broadly, Lach Huyen will enable significant economic growth opportunities in
the northern part of the country. In particular, BCOs will have a more cost-
efficient and effective transportation system from factories around Hanoi to
end-customers in the global economy.
As part of developing the next five-year Master Plan for ports and land-side
infrastructure, the MoT should begin the process of creating an MCIP for each
of the six strategic freight corridors discussed in chapter 3, with short-term
emphasis on the HCMC–Vung Tau, the Hanoi-Haiphong, and the Mekong Delta
corridors.
The development of Lach Huyen Port should address its funding constraints
and move forward toward construction completion in 2016 using the experience
in developing the Cai Mep-Thi Vai terminals. Crucially, every effort should be
made to avoid repeating at Lach Huyen the same mistakes now affecting Cai
Mep-Thi Vai (see chapter 2).

The following further contextualizes the challenge of operationalizing a more

strategic approach to corridor planning and strengthening the development of
port capacity at Lach Huyen:
• Corridor Planning
–– Funding mechanism: Developing MCIPs will require no major funding effort
by the MoT since the extra cost to the current infrastructure planning pro-
cess will be in the form of additional meetings and committee travel to
major production and consumption areas (e.g., Hanoi, HCMC, Danang,
Mekong Delta) to hold feedback sessions with local freight stakeholders.
–– Roles and Responsibilities: MoT will be responsible for organizing MCIPs
that will include govern ment representatives from Vinamarine, inland
waterways, highways, rail, airports, the Ministries of Planning and Investment
and Finance, and appropriate provincial government representatives of
major urban cities within their jurisdictions.
–– Barriers and Obstacles: Provincial governments currently have indepen-
dence in how non–National Highway public funding resources are spent in
their jurisdictions on access roads to ports as well as land zoning issues.
–– Definition of Success: The next five-year MoT Master Plan is developed with
a holistic approach toward addressing transportation infrastructure invest-
ments using multimodal solutions to provide freight stakeholders with
seamless access to/from international gateways and major domestic
destinations.
• Lach Huyen Port

–– Funding Mechanism: The port is currently funded through a combination of
Japanese Official Development Assistance ($900 million) and a Public-
Private Partnership (PPP)9 arrangement comprising a Vietnamese state-
owned enterprise (SOE) and a Japanese consortium ($321 million). The
PPP component is a joint venture between Vinalines and MOLNYKIT
(a group led by Itochu Corporation and including ocean carriers MOL and
NYK). However, the latter arrangement is far from stable, given Vinalines’s
financial struggles.10
–– Roles and Responsibilities: Vinamarine has responsibility for this high-profile
project (Vietnam’s prime minister has urged for timely project completion,
consistent with launching port operations in 2016). The Ministry of Finance
has oversight to ensure foreign and state funding sources are available.
–– Barriers and Obstacles: The current financing framework, centered on a
single state-owned company (Vinalines) with weak management and under
significant financial stress, does not appear to be sustainable. Ongoing
discussions to replace Vinalines in the developing consortium may lead to
significant delays in implementation, with the associated impact this would
have on BCOs who would continue to face substandard international con-
nectivity in the economically vital Hanoi region.

–– Phasing and Dependent Projects: Lach Huyen will be developed in two

phases with the first phase, according to existing plans, completed by 2016.
Dredging the access channel and quay side channel to a depth of 14 meters
is required.
–– Definition of Success: Phase 1 of Lach Huyen is operational by 2016, includ-
ing all the connector roads to NH 5.
Promoting a More Professional Trucking Industry

With fewer than 10 large trucking companies and about 100 small to midsized
carriers, the trucking industry is fragmented. Like their counterparts in China,11
most Vietnam-based trucking companies are single-truck outfits. This reduces
service levels as marginal carriers are constantly exposed to shipment disruption.
In an environment of lax regulation of trucking operations and inconsistent
enforcement, barriers to entry in the trucking industry are low. This has led to a
race to the bottom in rates as a means for low-performing carriers to stay in busi-
ness. Because rates are not always compensatory, most operators cannot afford to
properly maintain their equipment, resulting in unsafe vehicles, frequent acci-
dents, congestion from truck breakdowns on highways, and air pollution.
Although inflation has put pressure on wages and fuel costs continue to
escalate, the competitive pricing of truck rates is a major driver of truck over-
loading. This further degrades the condition of already poor roadbeds and is a
contributor to accidents due to the need for longer minimum stopping
distance. Indeed, the prevalence of poorly maintained and overloaded trucks
on Vietnam’s highways is a major root cause of the country’s alarmingly high
13 road crash fatalities per 100,000 people.12 The rate pressure issue also sug-
gests that truckers will avoid toll roads when possible, which contributes to
trucks clogging secondary highways that are even less suited to handle over-
weight or large trucks. There is little incentive for larger trucking companies
to add to their capital stock by investing in newer equipment when truck rates
are noncompensatory.
The incidence of facilitation payments to the police increases operating costs
and hurts service levels beyond disruptions at the shipment level. Because of
special arrangements established by trucking companies with the police on cer-
tain road sections (a notable example being Binh Nai to Vung Tau), ocean carriers
and other LSPs need to contract with many trucking companies to transport
freight on behalf of their BCO customers in order to reduce transit delays due to
police stops. This increases management complexity, drives up costs, and acts as
a disincentive to long-standing relationships with trucking companies that are
critical in times when shipment volumes are high.
While international BCOs may make trucking decisions based solely on price,
by and large the substandard portion of the trucking market is believed to be
driven by domestic shippers. Most large international BCOs, which tend to
manage large volumes of high-value, time-sensitive goods (and/or security com-
pliance obligations like C-TPAT) prefer larger trucking companies because of

their ability to better dispatch trucks and track the movement of goods with
operable GPS systems. Domestic BCOs tend to have much less demanding
operational requirements and their lower service expectations generally lead
them to seek the lowest-cost truckers.
Mandating and/or better enforcing suitable operator licenses for truck drivers
and properly maintained trucks can be an effective way to encourage industry
consolidation; it should also lead to fewer accidents, fewer equipment break-
downs on highways, and lower congestion levels. While this would almost
certainly require driver wage increases and generate higher maintenance expenses
for truck carriers, these additional costs would likely be more than offset by
increased equipment utilization (due to fewer itinerary disruptions) and a better
ability to command compensatory trucking rates from BCOs and LSPs. Since
larger companies are already operating at this level, there could be a contraction
in the number of trucking companies (e.g., among marginal carriers) and an
overall increase in the average fleet size.
One operational area in need of performance improvement is the high inci-
dence of empty backhauls. Trucking companies benefit when they can secure a
high percentage of backhaul cargo, thereby increasing equipment utilization and
better spreading operational fixed costs. Not only would this increase trucking
sector profitability, it would also reduce congestion, as fewer trucks would be
needed to move the same amount of freight.
A younger national fleet could contribute to both reducing shipment dis-
ruptions and improving the carbon footprint profile of international and
domestic supply chains. If the GoV should impose more stringent require-
ments regulating the engine emission standards (and therefore model year) of
trucks on highways (probably involving a subsidy program), the economic
costs of trucking could be reduced. From a financial cost standpoint, trucking
companies would likely benefit from lower maintenance costs, but would incur
higher capital costs in the form of payments for the purchase of new(er) trucks
(partially offset by public subsidies, if these were deemed feasible). The impact
on BCOs would likely be higher trucking rates, as resulted from the implemen-
tation of the Clean Truck Program recently established by the ports of Los
Angeles and Long Beach, California (see box 4.1), partially or fully offset by
lower inventory carrying costs in their supply chains through more reliable
trucking services.
Trucking regulations should be strengthened, and a revamped enforcement pro-
gram should be introduced. This two-pronged approach would focus on the
following:
• Improving active duty driver qualifications

• Requiring proper licensing of all trucks and chassis
• Requiring semiannual vehicle and chassis inspections and
• Eliminating overweight containers and trailers.

Box 4.1 Ports of Los Angeles and Long Beach Clean Truck Program13
In 2008, 1,200 trucking companies were in operation in the Southern California San Pedro Bay
region. Drivers operated 16,000 port drayage trucks, of which 5,000 were part-time drivers
who mostly worked on weekends and made minimal investments in equipment on their old,
fully depreciated trucks. In an effort to reduce air pollution, the ports’ Clean Truck Program
mandated that all trucks not meeting the 2007 Federal Clean Truck Emissions Standards by
January 1, 2012, be banned from entering to the ports.
As of year-end 2012, there were 8,000–9,000 registered trucks and 400 trucking companies
serving this region. The two ports offered trucking companies grants of $20,000 and $50,000
to help finance new diesel or liquid natural gas (LNG) trucks, respectively. The Southern
California Air Quality Management District offered additional grants of $50,000 and $100,000
for new diesel or LNG trucks, respectively. New trucks partially financed by these grants were
required to make 350 trips to the ports annually or the trucks were supposed to be used in the
Southern California drayage business for seven years.
The cost of a 2007 or newer diesel truck is approximately $150,000 and $200,000 for an LNG
truck. The increased cost to BCOs ranged from $35 to $50 per container move, depending on
the length of the trip. The incentive for BCOs to support higher truck rates was that new port
infrastructure development was suspended until trucking companies complied with the new
regulations. Trucking companies were also required to meet established safety scores for
driver performance, the equipment was subject to biannual inspections and drug testing
became mandatory for all drivers.
The GoV should also (1) evaluate interventions that can help reduce the
number of empty backhauls (as this will lead to an overall reduction of trucks on
highways), (2) support firm-level expansion plans (where these are assessed
financially viable) by asset-based trucking companies as a means to reduce indus-
try fragmentation and promote better service levels, (3) incentivize the develop-
ment of a vibrant truck brokerage sector, and (4) strengthen the environmental
sustainability of the trucking industry in ways that can also improve trucking
profitability.
The following specific actions are recommended to implement the solutions
outlined above:
• Set up rigorous truck driver license testing based on the driver’s ability to pass
a stringent driver’s exam and eyesight testing. This should be administered at
GoV-sanctioned exam centers (actual operation of such centers could be
licensed to private parties under PPP arrangements). Irrespective of the chosen
operating arrangement, specialized training should be given to management
and staff in order to prevent tests from being compromised by facilitation paid
to officials.

• Conduct semiannual vehicle and chassis roadability inspections (head and tail
lights in working order, appropriate tread on tires, adequate braking system,
and good engine performance) and proof of insurance. These inspections could
also be conducted by private parties in partnership with the GoV to promote
efficiency.
• Monitor container weights at marine terminal in-gates using electronic scan-

ners.14 These devices are able to photograph truck license plates and container
numbers at marine terminal in-gates to match the container to the trucking
company. If the weight scale is not at the in-gate, the container will be weighed
later as part of the vessel preload planning process. When overweight contain-
ers are identified, the container number can be traced back to the trucking
company, which is then automatically issued a fine by the system.
• Off-port overloading controls should be extended where available, and estab-

lished where not, through permanent weigh stations with weigh-in-motion
capability—and ideally operated under PPP arrangements. To increase the
impact of a weigh station network, random audits at low-traffic sections may
be conducted via mobile scales. Whether on highways or at port locations,
overloading fees assessed on offenders should strictly reflect the cost to repair
roads from overloading-induced damage.
• Provide access to more affordable, longer-term credit to trucking companies,

whether fleet-owning carriers or smaller owner-operators, that have a solid
business plan, meet (or have a credible plan to meet) revamped regulations,
and/or are seeking possible expansion plans through acquisition or internal
growth.
• Promote joint-venture investments by foreign trucking companies.

–– As a potential measure to reduce the incidence of empty backhauls, assess
the viability of implementing electronic information exchanges where
BCOs can post loads on which trucking companies (for this type of setup,
typically owner-operators) can bid. Under such a scheme, the lowest-priced,
qualified carrier (e.g., based on requirements posted by the BCO) would be
awarded the load. China is testing such a system, known as the “Road Ports”
program (see box 4.2).
• As a means both to further reduce backhauls and to increase trucking industry

performance, support the development of the truck brokerage sector. This can
be done through credit access support, increased openness to foreign company
participation, and stronger (e.g., accessible, unambiguous, internationally com-
petitive) regulations for this subsector.
• Develop stronger emission control standards for trucks and review current
import regulations for new and used trucks that meet such standards.

Box 4.2 Global Logistic Properties Road Ports: China Test

China is developing electronic exchanges where truck drivers can bid on shipments to reduce
empty trips. Global Logistic Properties, a $566 million company and one of the largest logistics
property developers in China and Japan, is working on a solution it hopes will make Chinese
trucking more efficient and less uncertain. The company partnered last year with China’s
Transfer Road-Port to build a network of logistics centers and “road ports” throughout China
under a joint venture company, Zhejiang Transfer Logistics. Such road ports are now hubs
where owner-operators can park trucks, have meals, rest, and find freight using a digitized
exchange.
Giving drivers the ability to interact with an electronic software system to bid on freight
loads saves time, as it grants owner-operators access to a virtual dispatch office. However, the
early stages of implementing the new “road ports” concept have shown that it is difficult to
change deep-seated habits of using traditional methods to secure backhaul loads rather than
relying on an impersonal, automated, electronic bid system.
Source: Cassidy 2012.
• Develop and disseminate tools (e.g., an interactive website, workshops at areas

of high trucking activity, free informational material, university courses) to
promote a better understanding, on the part of both truckers and shippers, of
the tradeoffs involved in logistics management (e.g., transport costs versus
inventory carrying costs), of how to strengthen business operations (e.g., in the
case of truckers, practical ways to improve fuel efficiency), and of ways to
assess and measure logistics value (e.g., savings and responsiveness in the sup-
ply chain). This can improve trucking industry performance from both the
supply and the demand side.

Better enforcement of trucking industry safety standards is an area where PPP
arrangements can be pioneered (e.g., to operate testing centers, weigh bridges,
and inspection yards) as a funding and efficiency enhancing mechanism. Should
these activities be kept government run and implemented, requiring all truck
drivers to have their licenses revalidated by passing a driving test and having their
eyesight checked will likely require increasing the staff at MoT to develop and
administer the tests. Additional staff needed for this activity can be paid in part
from examination fees collected from drivers. Similarly, MoT-administered truck
and chassis inspections for roadability should be conducted throughout the
country and paid by trucking companies.
Marine terminals currently weigh containers upon arrival. Ongoing monitor-
ing of weight information will require additional staff positions and equipment
provision, which may be implemented on a fully private or public-private basis.
A system of these characteristics can be incrementally implemented, starting

with a pilot at one or more selected locations. This would allow for the econom-
ics of the intervention to be corroborated and for operational issues to be
addressed.
As part of developing stronger truck emission control standards, if the
GoV decides to limit the number of imported, used model-year trucks in
favor of new or more recent imported model-year trucks that have higher
emission standards, it may consider providing subsidies to support this
(e.g., this was the case for the Port of Long Beach and Port of Los Angeles
Clean Truck Program). For illustrative purposes only, if the GoV were to help
finance the purchase of 10,000 new tractor heads countrywide, where these
are new $150,000 clean diesel trucks with a $70,000 contribution per tractor
head, the GoV’s cost would be $700 million over a four-year period. The
total cost to all trucking companies participating in the program—assuming
they pay a 20 percent down payment plus financing costs on a 10-year
10 percent interest loan—would be $1.1 billion (see table 4.10). The return
on investment of such a scheme would be mainly determined by fuel and
maintenance savings for transport carriers and the impact of lower diesel
emissions on health and environmental outcomes. Reducing the public’s asso-
ciated health costs from lower truck pollution is the key driver for funding a
clean truck program.15
The concept of setting up an electronic exchange service for improving two-
way loads will need to be studied to determine its effectiveness within the truck-
ing community. A China study tour by representatives from MoT and the
Vietnam Trucking Association could be suggested, to discuss the “Roads Ports”
concept and other approaches to improving industry performance.
Table 4.10 Cost of a Notional Truck Replacement Program
Cost per new tractor head $150,000

Number of trucks to be replaced 10,000
GoV funding per tractor head $70,000
Rate of replacement per year 25%
Down payment (20%) amount $30,000
Loan amount per tractor head $50,000
Financing cost 10%
Loan term in years 10
Monthly loan payment per tractor head $660.75
Year 1 Year 2 Year 3 Year 4 Total
Number of tractor heads to be replaced 2,500 2,500 2,500 2,500 10,000
Down payment paid by trucking
companies $75,000,000 $75,000,000 $75,000,000 $75,000,000 $300,000,000
Loan payment per year 19,822,500 19,822,500 19,822,500 19,822,500
Over 10 year period 198,225,000 198,225,000 198,225,000 198,225,000 792,900,000

Total cost 1,092,900,000


• Behavioral impediments are a likely obstacle, including the entrenched role of
facilitation payments in the various licensing and inspection processes.
• Evidence of the economics of investments in new tractor heads (e.g., from
pilot programs) would need to quickly materialize in order to elicit broader
support by trucking companies and BCOs, since this initiative will likely
increase trucking costs and rates.
• As China has found in the early stages of implementing the new “Road Ports”
concept, it is difficult to change cultural habits of using traditional methods to
secure backhaul loads versus using an electronic bid system.
By the end of 2014, the GoV can revamp trucking regulations and develop
enforcement plans to be implemented in 2015.
By year-end 2015, all truck drivers should have valid, GoV-issued driver’s
licenses, and trucks and chassis must have passed mandatory roadability
testing.
By the end of 2016, scanning equipment will have been installed at major
marine terminals in HCMC, Cai Mep-Thi Vai, and Haiphong and connected
to the nation-wide software system, where container weights will be linked
back to trucking companies. With significant fines sent to trucking companies
delivering overweight containers beginning in 2017, there should be at least
some evidence of decline in overweight trucks and containers by the end
of 2018.
By the end of 2014, the MoT will have concluded whether a “Road Port”
system is justified for Vietnam and, if so, begin plans to implement one or more
test sites. The implementation horizon for such sites would depend on the choice
of financing arrangement (e.g., public funds, PPPs, or official development
assistance).
Ideally in parallel with improved enforcement of road safety regulations (e.g.,
licensing and roadability tests), the hiring and compensation policies for police
officers should be modernized in line with those recommended for Customs
officials. Traffic citations should be for valid offenses based on published regula-
tions, and fines should be published and consistently applied. Auditing mecha-
nisms should be in place to assess progress.
By 2020 or sooner, depending on economic viability, the GoV will start imple-
menting a pilot “Clean Truck Program” for drayage-only trucks at one or more
selected ports. Such a program can then be extended as feasible to wider
implementation.
Expanded Business Opportunities for Cai Mep–Thi Vai Marine Terminals

The economics of calling at Cai Mep–Thi Vai are weak for most international
container shipping carriers. For example, carriers are not receiving sufficient
incentives to offset the relatively low container move counts at Cai Mep-Thi Vai

(currently 1,000–2,000 TEUs per call), tonnage and pilotage fees form a high
percentage of operating costs on a per TEU basis, and carriers are facing obstacles
in getting approval to bring in larger ships over 80,000 deadweight tons (DWT).
Additional discounts are needed for vessels above 90,000 GT (above 8,000
TEUs), which are now the primary vessels used on the Far East–Europe routes.
These additional incentives and the lifting of current restrictions on vessels of
over 80,000 DWT could potentially increase the number of direct Vietnam to
Europe services from one as of September 2012 to four or five weekly service
strings. The lower slot costs on these larger vessels could be passed along to BCOs
in terms of lower or more stable rates.16
Further regulatory restrictions on Cai Mep–Thi Vai volumes are expected.
Effective January 1, 2013, foreign-flagged carriers that are currently arranging
their own feedering of international containers from domestic ports to Cai
Mep–Thi Vai, will no longer be permitted to do so. Cabotage laws will restrict
containers transiting between domestic ports to be only carried on Vietnamese-
flagged carriers. Foreign-flagged carriers are expected to transship the vast
majority of those international containers to a foreign port, at an estimated
cost of between $2.1 and $3.0 million per year17 because they are unable to
rely upon Vietnamese-flagged carriers to provide suitably reliable feeder
services.
Targeted (and most likely temporary) incentives to container carriers could
bring more volumes to Cai Mep–Thi Vai, benefiting not only the carriers them-
selves but also MTOs and BCOs. For example, if adequate load rates and/or
appropriate GoV discounts on tonnage, maritime security, and wharfage fees at
Cai Mep–Thi Vai were implemented on a temporary basis, ocean carriers could
benefit from lower slot costs on those larger vessels and avoidance of feeder and
higher transship costs at foreign ports. These savings can be passed along to BCOs
in terms of lower ocean rates.18
• Further capacity additions at Cai Mep-Thi Vai, as scheduled, should be
reassessed based on updated demand projections. The program to close or
relocate inner-city ports at HCMC should also be reassessed by explicitly
addressing the institutional bottlenecks that have prevented a more successful
implementation of long-held plans to reduce city congestion while improving
international connectivity.
• As a temporary measure, volume discounts on operating fees should be
extended for vessels calling Cai Mep-Thi Vai, and especially those above
80,000 GT.
• Cabotage rules should be further relaxed to allow foreign-flag carriers to carry
international containers from Haiphong, Danang, and Nha Trang to/from Cai
Mep-Thi Vai.
• Incentives should also be provided to attract international transshipment
volumes (e.g., from Cambodia, Malaysia, the Philippines, and Thailand) to
Cai Mep-Thi Vai.


Financing for the additional discounts to ocean carriers for calling Cai Mep-Thi
Vai can come from the general treasury or by increasing the current Terminal
Handling Charge (THC) that ocean carriers charge BCOs. The current THC
ranges from $114 to $151 with most carriers charging around $130. Table 4.11
lists the 2012 THCs for neighboring countries, demonstrating that there is room
for Vietnam to raise its tariff fee and still be competitive with most Asian
countries.

One barrier will likely emerge from Vinalines and the other Vietnamese-flagged
carriers resisting the continuation of foreign-flagged carriers transshipping inter-
national containers from domestic ports to Cai Mep-Thi Vai. However, foreign-
flagged carriers have said they will transship these containers at foreign ports
because Vietnamese-flagged carriers cannot provide the service needed to make
transshipping over Cai Mep-Thi Vai work.
Another barrier may come from the MTOs in the HCMC area targeted to be
shut down or relocated.
In the very short term, continued fee-discount support is provided to ocean car-
riers calling Cai Mep-Thi Vai, until such time as there is sufficient volume to
offset the tonnage, maritime security, and pilotage fees. Further, the GoV contin-
ues to allow foreign-flagged carriers to transship international containers from
domestic terminals to Cai Mep-Thi Vai.
By 2014 ocean carriers will find it more attractive and financially viable to
serve Cai Mep-Thi Vai, resulting in additional liner services for BCOs within two
years. Capacity at Cai Mep-Thi Vai terminals will be better utilized.
By 2015 fewer marine terminals will be operating in the HCMC area, bringing
supply and demand into closer alignment.
By 2016 Cai Mep-Thi Vai terminals succeed in attracting additional volume
and this port complex becomes a viable transshipment hub.
Table 4.11 Terminal Handling Charges for Vietnam and

Neighboring Countries, 2012
U.S. dollars
Country Terminal handling charge
China $301 (includes new 6% VAT)
Singapore $219
Thailand $156
Indonesia $145
Vietnam $130
Philippines $120
Cambodia $115
Source: Authors.

Institutional Mechanisms to Support Logistics Policy Making

Achieving more effective logistics policy making requires Vietnam to adopt a
more integrated approach, resembling the integrated (e.g., multimodal) nature of
the underlying measures that should be pursued. A critical feature of most of the
recommendations proposed in chapter 4 is that their conceptualization, plan-
ning, approval, and execution is best conducted through multi-agency (in many
cases, multiministry) collaboration and in consultation with a broad base of
freight and competitiveness stakeholders—including BCOs, LSPs, trade associa-
tions, academia, and the donor community. It should also be informed by verifi-
able data rather than anecdotal evidence or narrow views of market trends and
requirements.
International experience has shown that inclusive institutional arrangements
can facilitate multidisciplinary decision making in logistics—and that without it
projects tend to continue to be managed in silos. Such arrangements have
included in practice logistics councils and committees made up of senior repre-
sentatives of a wide array of public sector entities, such as modal administrations;
Ministries of Planning, Industry and Trade, Economy, Agriculture, and Finance;
Customs administrators; police and law enforcement; and governance and
anticorruption agencies; and chaired by the country’s highest executive authority,
such as the president or prime minister. Typically set up at the national level,
logistics councils may also be established at the subnational level and be comple-
mented by mechanisms to systematically promote and facilitate public-private
avenues of engagement, consultation, and collaboration, such as logistics fora. In
East Asia, examples of countries that have implemented dedicated institutional
arrangements of this kind include Australia (Australian Logistics Council, state-
level Freight Logistics Councils, Transport and Logistics Centre, and the
Integrated Logistics Network), Japan (Japan Institute of Logistics Systems),
Malaysia (Malaysian Logistics Council), and Thailand (National Logistics
Committee).19 Logistics councils and committees can be particularly effective at
(1) coordinating interministerial priorities within budgetary, technical, legal and
other constraints—something that can be done, for example, through the crafting
of a National Logistics Strategy; (2) monitoring the timely and cost-effective
implementation of such priorities; (3) assessing systemwide performance
improvements by tracking selected key performance indicators; and (4) inform-
ing public policy by evidence-based research and consultations with concerned
(public and private) parties. Since some of the latter activities are data intensive,
logistics committees are best supported by the establishment of a data-gathering
body—for example, in association with one or more academic institution—such
as a Logistics Observatory.
However, it should be noted that multistakeholder institutional arrangements
are not necessarily a “silver bullet” and should be strictly seen as a means to an
end. For example, despite its several years in operation, Malaysia’s Logistics
Council continues to work toward truly delivering on its promise of coordinating
strategies, policies, and regulations across the logistics sector. In Vietnam itself, the

donor community has called for the GoV to establish interagency coordination
mechanisms and institutions in the context of logistics policy making since at
least 2006,20 to little avail. This reflects the complexity of setting up such institu-
tions in practice.
It is recommended that Vietnam continue to pursue the establishment of
inter- and intraministerial coordinating bodies, such as a National Logistics
Committee, as well as a Logistics Observatory; it is also recommended for the
GoV to develop, adopt, and monitor the implementation of a long-term
National Logistics Strategy. Ideally, this should be done in parallel to the imple-
mentation of the short- and medium-term recommendations offered by this
report, as well as those being generated by academia, the private sector, the
broader donor community, and other actors relevant to national and interna-
tional supply chains.
Notes
1. ASEAN Economic Community Blueprint, http://www.aseansec.org/5187-10.pdf.
2. Frequent and lengthy product inspection and delays in import clearance can cause
production schedule complications, missed delivery dates to customers, diminished
customer satisfaction and future lost sales. Delays in export clearance can result in
spoilage of perishable products because of the length of time it takes to test products
and obtain export licenses. The export shipment may miss the intended aircraft or
vessel and have to wait for the next available slot.
3. Including not only customs but also technical (e.g., security, legal, etc.) clearance.
4. Customs clearance information was obtained from one beneficial cargo owner (BCO)
that manufactures in Vietnam and Malaysia. Data are largely consistent with findings
from the World Bank’s Doing Business in 2013 database.
5. With facilitation fees reported at between 5 and 50 percent, 30 percent was used as
the approximate median of the reported percentages.
6. Origin costs for imports include import declaration, delivery order preparation,
Terminal Handling Charge (THC), Container Imbalance Charge, container inspection
as charged by the LSP, and trucking fees for a 100-kilometer drayage haul. Origin costs
for exports include bill of lading fee, THC, export declaration, Container Yard
Administration Fee, security fillings (for the U.S. and European Union), container
inspection, and Load-on/Load-off.
7. Ocean carriers report saving of between $100 and $200 per TEU by not having to
transship containers (e.g., at Hong Kong SAR, China). Assuming 1.1 million TEUs will
be handled at Lach Huyen by 2020, and 45 percent of that volume will be exports,
the total savings to ocean carriers using mother vessels will be 1.1 million × 45% ×
$150 = $74 million.
8. The existing draft limit at Cai Lan Port is insufficient to permit the deployment of
ships over 4,000 TEUs, which are commonly utilized in linehaul routes.
9. See appendix F for a brief discussion of PPPs in Vietnam and the key components to
successful implementation of PPP projects.
10. As of January 2013, there were discussions by the MoT to replace Vinalines as Lach
Huyen developer with Saigon New Port Corporation, another state-owned enterprise
and the largest terminal operator in the country.

11. Cassidy (2012).

12. Status Paper on Road Safety (For the Calendar year 2010), available at http://www
.unescap.org/‌ttdw/common/Meetings/TIS/EGM-Roadsafety-2011/Status/Countries
/VietNam-2010-Status.pdf.
13. Based on Cambridge Systematics research with several Southern California–based
trucking companies.
14. Based on Cambridge Systematics Prior Project Work; see appendix B for more details.
Additional information is available at http://www.htsol.com/Files/TOCAsia2003.pdf.
15. Estimating the return on a clean truck program investment of this type for Vietnam
was beyond the scope of this report and is offered as a main avenue for future
research.
16. As of September 2012, low rates have resulted in ocean carriers in the Asia-to-Europe
trade operating in the red; being able to use larger vessels today will only help to
defray those losses.
17. Transshipment cost estimates are based on an estimated weekly volume of transship
containers for three of the largest ocean carriers of 600–850 TEUs per week at a cost
of $68 per TEU.
18. Same note as note 16, except that rates in the Asia-to-U.S. trade are more compensa-
tory to the ocean carriers than in the Asia-to-Europe trade.
19. For a more detailed discussion of the institutional arrangements of the Australian
logistics sector in particular and of institutional approaches to logistics policy making
see World Bank (2012).
20. Specifically, Meyrick and Associates et al. (2006), a World Bank–sponsored report,
called for the establishment of an Inter-ministerial Logistics Committee and a
National Logistics Forum. Further efforts in this respect are being supported by the
World Bank–financed Mekong Delta Transport Infrastructure Development Project
(2007–present).
References
Cassidy, William B. 2012. “China Hits the Road.” Journal of Commerce 13 (34): 15–15.
Meyrick and Associates, Transport Development and Strategy Institute (TDSI), and
Carl Bro. 2006. Vietnam: Multimodal Transport Regulatory Review. Washington, DC:
World Bank.
World Bank. 2012. How to Decrease Freight Logistics Costs in Brazil. Transport Papers Series
(TP-39). Washington, DC.

Appendix A
Supporting Calculations

148
Table A.1 Forecast Import and Export Container Volumes

TEUs
Total volumes 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Haiphong 1,611,500 1,708,190 1,810,681 1,919,322 2,034,482 2,156,551 2,285,944 2,423,100 2,568,486 2,722,595
Dinh Vu 907,124 1,015,989 1,137,896 1,274,444 1,427,377 1,598,662 1,790,502 2,005,362 2,246,006 2,515,526
Cai Lan 143,981 155,499 167,939 181,375 195,885 211,555 228,480 246,758 266,499 287,819
Total Northern Vietnam 2,664,616 2,881,690 3,118,529 3,377,155 3,659,759 3,968,784 4,306,943 4,677,238 5,083,010 5,527,960
HCMC ports 3,862,653 4,094,412 4,340,077 4,600,482 4,876,510 5,169,101 5,479,247 5,808,002 6,156,482 6,525,871
Cai Mep-Thi Vai 839,684 965,637 1,110,482 1,277,054 1,468,613 1,688,904 1,942,240 2,233,576 2,568,613 2,953,904
Total Southern Vietnam 4,702,337 5,060,049 5,450,559 5,877,536 6,345,123 6,858,005 7,421,487 8,041,578 8,725,095 9,479,775
Combined total 7,366,953 7,941,739 8,569,088 9,254,691 10,004,882 10,826,789 11,728,430 12,718,816 13,808,105 15,007,735
Percentage growth 7.8% 7.9% 8.0% 8.1% 8.2% 8.3% 8.4% 8.6% 8.7%
Total volumes by imports/exports
Imports
Northern Vietnam 1,465,873 1,585,378 1,715,763 1,858,141 2,013,718 2,183,838 2,369,994 2,573,839 2,797,210 3,042,145
Southern Vietnam 2,305,827 2,474,405 2,657,632 2,857,067 3,074,465 3,311,803 3,571,312 3,855,511 4,167,251 4,509,756
Total 3,771,699 4,059,783 4,373,395 4,715,209 5,088,183 5,495,641 5,941,306 6,429,350 6,964,461 7,551,901
Exports
Total 3,595,254 3,881,956 4,195,693 4,539,482 4,916,699 5,331,148 5,787,124 6,289,466 6,843,644 7,455,834

Table A.1 Forecast Import and Export Container Volumes (continued)

TEUs
Foreign-only volumes 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Imports and Exports Adjusted for Domestic Moves
Imports
Total 3,205,944 3,450,815 3,717,386 4,007,927 4,324,956 4,671,295 5,050,110 5,464,948 5,919,792 6,419,116
Exports
Total 3,055,966 3,299,663 3,566,339 3,858,560 4,179,194 4,531,476 4,919,055 5,346,046 5,817,097 6,337,459
Combined total 6,261,910 6,750,478 7,283,725 7,866,487 8,504,150 9,202,771 9,969,166 10,810,994 11,736,889 12,756,575
149
150 Supporting Calculations
Table A.1 Forecast Import and Export Container Volumes (continued)

Network-wide assumptions
Import percentagea Domestic percentage
Haiphong 55% 15%
Cat Lai 56 15
HCMC 51 15
Cai Mep-Thi Vai 40 15
a. Based on 2011 data supplied by Gemadept.
Key Cai Mep–Thi Vai assumptions

2013 2014 2015 2016 2017 2018 2019 2020
Year-over-year
volume
growth 15% 15% 15% 15% 15% 15% 15% 15%
Container
volume (TEU) 1,110,482 1,277,054 1,468,613 1,688,904 1,942,240 2,233,576 2,568,613 2,953,904

Barge service
(in % of
total port
volumes) 95% 90% 90% 90% 90% 90% 90% 90%
Containers
moved by
truck 55,524 127,705 146,861 168,890 194,224 223,358 256,861 295,390
Cost of road
congestion $1,536,213 $3,533,289 $4,063,285 $4,672,775 $5,373,693 $6,179,746 $7,106,710 $8,172,714
Source: Authors based on input from Vietnam Port Association, interviews with port operators, and Liner Research Services.
Note: TEU = 20-foot equivalent unit.
Table A.2 Vietnam, China, and Indonesia Landed Cost Comparisons

All cost amounts in U.S. dollars
Export cost comparison of CY 40-foot container shipped to Los Angeles, California, in 2012 from China, Indonesia,
and Vietnam
Description North America export Asian import Base for rate
Yantian, China export costs for CY FEU a
Automated Manifest Service—U.S. Customs
(AMS) 35.00
International Security Filing (ISF) 32.00
Consolidation fee 125.00 125.00
Document administration fee 56.00 56.00
Port construction fee 20.00 20.00
Port security fee 5.00 5.00
Terminal handling charge (THC) 301.00 301.00 Market price (a)
Subtotal 574.00 507.00
Origin trucking 200.00 200.00 Estimated 2012 rate (b)
Total origin costs 774.00 707.00
Ocean freight with bunker 1,850.00 300.00 Estimated 2012 rate (c)
Total landed cost without duty 2,624.00 1,007.00

Supporting Calculations 151
Table A.2 Vietnam, China, and Indonesia Landed Cost Comparisons (continued)
Description NA export Asian import Base for rate
Jakarta, Indonesia, Export Costs for CY FEU a
AMS 35.00
ISF 32.00
Consolidation fee 145.00 145.00
Document verification 40.00 40.00
Terminal handling charge (THC) lift on/lift off
(LO/LO) charge 25.00 25.00
Subtotal 462.00 395.00
Origin trucking 175.00 200.00 Estimated 2012 rate(b)
Vietnam export costs for CY FEU a
AMS 30.00
ISF 32.00
Bill of lading 35.00
Delivery order 35.00
Container imbalance charge (CIC) 70.00
Seal 4.00
Consolidation fee 75.00
Customs and inspections 75.00
Lift on/lift off (LO/LO) charge 11.00
Subtotal 387.00 330.00
Origin trucking 185.00 185.00 Estimated 2012 rate (b)
Export: estimated landed cost per FEU in Los Angeles, California
Vietnam 572.00 1,960.00 2,532.00
China 774.00 1,850.00 2,624.00 92.00
Indonesia 637.00 2,100.00 2,737.00 205.00
Base for rates for CY FEU a
Code Description
a Market tariff rates: larger BCOs negotiate lower rates
b Truck rate: based on best 2012 rate information
c Ocean rate: average 2012 rate for large BCOs

Table A.2 Vietnam, China, and Indonesia Landed Cost Comparisons (continued)
Import: estimated landed cost per FEU at origin
Vietnam 515.00 500.00 1,015.00
China 707.00 300.00 1,007.00 (8.00)
Indonesia 595.00 700.00 1,295.00 280.00
Source: Authors.
a. CY FEU refers to a factory-loaded, 40-foot container drayed to ocean port.
Table A.3 Inventory Carrying Costs from Import-Export Clearance Delays

Key variables Notes
Additional inventory carrying cost due to delays in clearing import cargo
Average export container value (FEU) $90,000 As reported by interviewed shippers
Import value as % of export value 60% As reported by interviewed shippers
Average import shipment container value (FEU) $54,000 = Average FEU value times 60%
Average number of days to clear nonagriculture or food imports 6 As reported by interviewed shippers
Acceptable standard import clearance time (days) 3 As reported by interviewed shippers
Additional import clearance time in Vietnam (days) 3 As reported by interviewed shippers
= Average import value × additional
Total value of imports in delayed pipeline $162,000 clearing time
Average interest rate to finance inventory 6% Estimate
Carrying cost per container (a) $27.00 FEU volumes
Total no. foreign imported containers 2012 (b) $46,586,008 1,725,408
Total no. foreign imported containers 2015 (c) $58,386,904 2,162,478
Total no. foreign imported containers 2020 (d) $86,658,064 3,209,558
Explanations for both import and export cargo calculations

Code Explanation
Value of imports in delayed pipeline
A times (6%/360 days)
b, c, d FEU volumes (shown) times carrying
cost per container
Additional inventory carrying cost due to delays in clearing export cargo

Average export container value (FEU) $90,000 As reported by interviewed shippers
Average number of days to clear nonagriculture or food exports 3 As reported by interviewed shippers
Acceptable standard export clearance time (days) 1 As reported by interviewed shippers
Additional export clearance time in Vietnam (days) 2 As reported by interviewed shippers
= Average FEU value × additional
Total value of imports in delayed pipeline $180,000 clearing time
Average interest rate to finance inventory 6% Estimate
Carrying cost per container (a) $30.00 FEU volumes
Total no. foreign imported containers 2012 (b) $49,494,941 1,649,831
Total no. foreign imported containers 2015 (c) $62,687,908 2,089,597
Total no. foreign imported containers 2020 (d) $95,061,884 3,168,729

Table A.3 Inventory Carrying Costs from Import-Export Clearance Delays (continued)
Combined import and export carrying costs
Additional cost Total volumes
Total no. foreign imported containers 2012 $96,080,949 3,375,239
Interest cost on extra inventory Amount (million $)

due to clearance delays 2012 2015 2020
Imports $46.6 $58.4 $86.7
Exports $49.5 $62.7 $95.1
Total inventory carrying cost $96.1 $121.1 $181.8
Source: Authors.
Note: FEU = 40-foot equivalent unit. All monetary amounts in U.S. dollars.
Table A.4 Trucking Cost of Congestion
Additional trucking costs due to congestion

Average trucking rate for distances less than
55 km (a) $2.47/km
Average trucking rate for distances greater than Actual rates obtained from trucking
55 km (b) $2.17/km contract negotiated with
Percent reduction in truck rates if normal travel Vietnamese trucking company as
time (c) 30% of July 1, 2012
Fuel as percent of freight rate (d) 30%
Reduction in diesel fuel usage if normal travel
time (e) 15%
Average no. of kilometers per container truck trip in
HCMC (f) 55 km
Average no. of kilometers per container truck trip in
Hanoi (g) 100 km
Rate savings
without Rate with Rate
congestion congestion savings
($) ($) (%)
Cost savings per container trip in HCMC area (a) 34.64 135.85 25.5
Cost savings per container trip in Hanoi area and
Cai Mep-Thi Vai (b) 55.34 217.00 25.5
The 25.5 percent savings per km is assessed as conservative given the following testimony from one truck carrier
interviewed for this report:
“Reduced congestion results in better utilization of equipment; diesel savings with higher speed limit, less idling time;
less stop and go with proper intersection signaling or by-pass; [and an ability to] accommodate heavier trucks. In
Busan, Korea, terminal time to pick up or drop off a container is 30 minutes, whereas in Haiphong one hour is normal,
but 50 percent of the time it is longer. Hanoi to Haiphong is 100 kilometers, and the normal transit time for truck is
4 hours. For example, if the cost to operate a truck in Vietnam is $1.00 per km, that same truck could operate in China
for $0.65 per kilometer.”

Table A.4 Trucking Cost of Congestion (continued)

Annual savings through less congestion ($) Calculation Projected container volumes in TEU
2012 2015 2020 code 2012 2015 2020
Northern Vietnam
Haiphong and
Lach Huyen
terminals $75,371,222 $95,780,984 $144,925,713 (c) 2,724,179 3,461,859 5,238,121
Cai Lan terminals $4,302,269 $5,419,648 $7,963,232 (d) 155,499 195,885 287,819
Total truck
savings: North $79,673,491 $101,200,632 $152,888,945 2,879,678 3,657,744 5,525,940
Southern Vietnam
HCMC terminals $70,918,798 $84,465,420 $113,033,796 (e) 4,094,412 4,876,510 6,525,871
Percentage barge
service to CM-TV 95% 90% 90%
Cai Mep-Thi Vai
terminals $1,335,838 $4,063,285 $8,172,714 (f) 965,637 1,468,613 2,953,904
Total truck cost
savings: South $72,254,637 $88,528,705 $121,206,510 5,060,049 6,345,123 9,479,775
Total congestion-
related truck
costs: Vietnam $151,928,128 $189,729,337 $274,095,455 7,939,727 10,002,867 15,005,715
Cai Mep-Thi Vai terminals: truck volume

Total container
volume (TEU) 965,637 1,468,613 2,953,904 (g)
Percentage barge
service to CM-TV 95% 90% 90%
Total containers
trucked (FEU) 24,141 73,431 147,695 (h)
Daily truck trips 80 245 492 (i)
Calculation explanations
Code Explanation
a Cost savings per trip = ((A×(1−C)) ×D+(A×D×E))*F
b Cost savings per trip = ((B× (1−C)) ×D+(B×D×E)) ×G
= Total container throughput for Haiphong and Lach Huyen times (b) × 0.5 (convert TEUs to
c FEUs)
d = Total container throughput for Cai Lan times (b) × 0.5
e = Total container throughput for HCMC times (a) × 0.5
f = Total container throughput for Cai Mep-Thi Vai × (1−Barge %) × (b) × 0.5
g = Total container throughput for Cai Mep-Thi Vai in TEUs
h = Total container throughput for Cai Mep-Thi Vai × (1−Barge %) × 0.5 (convert to FEUs)
i = (h)/300 working days per year

Table A.4 Trucking Cost of Congestion (continued)

Amounts (millions)
2012 2015 2020
Northern Vietnam
Haiphong and Lach Huyen terminals $75.4 $95.8 $144.9
Total congestion-related truck costs: North $79.7 $101.2 $152.9
Southern Vietnam
HCMC terminals $70.9 $84.5 $113.0
Cai Mep-Thi Vai terminals $1.3 $4.1 $8.2
Total congestion-related truck cost: South $72.3 $88.5 $121.2
Total congestion-related truck costs: Vietnam $151.9 $189.7 $274.1
Northern Vietnam
Haiphong and Lach Huyen terminals $75.4 $95.8 $144.9
Total truck savings: North $79.7 $101.2 $152.9
Southern Vietnam
HCMC terminals $70.9 $84.5 $113.0
Cai Mep-Thi Vai terminals $1.3 $4.1 $8.2
Total truck cost savings: South $72.3 $88.5 $121.2
Source: Authors.
Note: FEU = 40-foot equivalent unit; TEU = 20-foot equivalent unit. All monetary amounts in U.S. dollars.
Table A.5 Estimation of Facilitation Costs

40-foot container with 58 cbms
Estimate Facilitation
facilitation payment %
1 FEU payment a total Origin
Charge types ($) ($) cost
Sea port: imports
Delivery order (DO) 35.00
Full containerload terminal handling charge
(THC) (average) 130.00
Document handling fee 20.00
Container imbalance charge (CIC) 70.00
Subtotal market-based rates 255.00
Average custom brokerage costs (not duty) 50.00 15.00
Average container inspection fees (average) 25.00 7.50
Trucking from port to factory 185.00 55.50
Subtotal origin rates subject to “tea payments” 260.00 78.00 15.1%
Total origin costs 515.00

Table A.5 Estimation of Facilitation Costs (continued)

40-foot container with 58 cbms
Estimate Facilitation
facilitation payment %
payment a total Origin
Charge types 1 FEU ($) ($) cost
Sea port: exports
Bill of lading fee 35.00
Full containerload terminal handling charge
(THC) (average) 130.00
SEAL fee (FCL) 4.00
CY administrative fee 75.00
Automated Manifest Service—U.S. Customs
(AMS) 30.00
International Security Filing (ISF) 32.00
Load on/load off 11.00
Subtotal market-based rates 317.00
Custom brokerage costs 70.00 21.00
Container inspection fees
Trucking from factory to port 185.00 55.50
Subtotal origin rates subject to “tea payments” 255.00 76.50 13.4%
Total origin cost 572.00
2012 2015 2020 Calculation explanations

Annual foreign volumes (FEUs)
Foreign import volume 1,725,408 2,162,478 3,209,558
Foreign export volume 1,649,831 2,089,597 3,168,729
Total volumes 3,375,239 4,252,075 6,378,287
Amount (million $)
2012 2015 2020
Annual facilitation fees based on
Total foreign import volumes 134.6 168.7 250.3 Respective annual foreign
Total foreign export volumes 126.2 159.9 242.4 import Volumes times
average “tea money”
Total facilitation costs 260.8 328.5 492.8 for imports and
exports
Annual cost of facilitation payments in truck rates based on:

Total foreign import volumes 95.8 120.0 178.1 Respective annual foreign
Total foreign export volumes 91.6 116.0 175.9 import volumes times
average “tea money” for
Total facilitation costs 187.3 236.0 353.9 trucking
Annual facilitation fees involved in clearing customs based on:

Total foreign import volumes 38.8 48.7 72.2 Subtracting lower truck
Total foreign export volumes 34.6 43.9 66.5 rates from annual
facilitation costs
Total facilitation costs 73.5 92.5 138.8
Source: Authors.
Note: FEU = 40-foot equivalent container. All monetary amounts in U.S. dollars.
a. Estimated facilitation payment = 30% of cost, based on study survey.

Table A.6 Cost to Finance New Clean Diesel Trucks
Cost per new tractor head $150,000

No. of trucks to be replaced 10,000
Government subsidy per
tractor head $70,000
Rate of replacement per year 25%
Downpayment (20%) amount $30,000
Loan amount per tractor head $50,000
Financing cost 10%
Loan term (years) 10
Monthly loan payment $660.75
Year 1 Year 2 Year 3 Year 4 Total

No. of tractor heads to be
replaced 2,500 2,500 2,500 2,500 10,000
Downpayment paid by
trucking companies $75,000,000 $75,000,000 $75,000,000 $75,000,000 $300,000,000
Loan payment per year $19,822,500 $19,822,500 $19,822,500 $19,822,500
Over 10-year period $198,225,000 $198,225,000 $198,225,000 $198,225,000 $792,900,000
Total cost by trucking companies $1,092,900,000
Calculation explanation
Downpayment: 20% paid by trucking company
Loan payment: based on mortgage rate
calculator
Source: Authors. All monetary amounts in U.S. dollars.

Appendix B
Overweight Container Audit

Process
Miniature Concept of Operations for Automated Weight Auditing and

Fine Assessment
The automated weight audit and fine assessment concept can be designed by
repurposing technologies utilized in countries such as the United States.1 The
auditing process can be done using primarily roadside equipment:
• License Plate Readers (LPRs), which are mounted at the side of the gate. Commonly
available LPR devices can manage identification for five to seven jurisdictions
(e.g., different plate designs) in real time along with reading the container
identification number.
• Static weight scales, to measure the weight of the vehicle at a full stop. If the con-
tainer and truck are not weighed at the marine terminal in-gate, the export
container will be weighed prior to loading on board the vessel. If the container
is weighed after the truck has departed, the software system can match the
overweight container information with the trucking company based on the
electronic information (truck license number and container number) captured
at the in-gate.
• A centralized system to tabulate weight information from each of the gates and
check against national or provincial vehicle registration data.
By using the static weight scale to measure the actual gross vehicle weight, the
LPR to identify the vehicle, and the centralized system to identify registered
weight, a violation audit can be created and demographic information can be
tabulated for each violation.
Once an audit trail is constructed, an optional step would be to implement a
centralized fine assessment module. Depending on the arrangement carriers may

160 Overweight Container Audit Process
have with national and provincial governments regarding vehicle registration, as

well as the processes around vehicle registration renewal and tax payments, vari-
ous options are possible. Examples include the following:
• Directly invoicing carriers for fines on a weekly or monthly basis

• Attaching accumulated fines to the costs of vehicle registration and
• Attaching accumulated fines to the taxes to be paid.
The estimated costs for the concept would be as follows:
• Auditing Component:
–– Per site costs of should be less than $500 for the LPR and static scale and
–– A single cost of $150,000–$300,000 for the auditing system, depending on
the needed interfaces with the national or provincial registration system.
• Overweight Fine Collection Component: $350,000–500,000 depending on
the system interfaces required and the process for documenting received fines.
Note
1. This appendix is based on Cambridge Systematics research and advisory work.

Appendix C
Entities Interviewed
International and Domestic Beneficial Cargo Owners: 27

ABB Ltd (power and automation technology), Adidas Sourcing Ltd (footwear,
apparel), Audi Vietnam (Automotive Asia Ltd), Columbia Sportswear (footwear,
apparel), Esquel Garment Manufacturing (VN) Co., Ltd (apparel), Global Silver
Ltd Co. (consumer goods), Ha Noi–Vung Tau Beer JS Company (beverages), HP
(computers and electronics), Hung Vuong Corp (seafood), IKEA Trading Hong
Kong Ltd (furniture, housewares), Intel Products Vietnam Ltd Co (semiconduc-
tors), Kimberly-Clark Vietnam (diapers), MAST Industries (apparel), Metro
Cash & Carry (general department store merchandise), Minh Phu (seafood),
Nestlé Vietnam Ltd (coffee), Nike (footwear, apparel), Novartis Pharma Services
AG (pharmaceuticals), Openasia Heavy Equipment (CFAO Group) (heavy
machinery), Penflex Viet Nam (corrugated metal hoses), Phu Thai Group (retail
and distribution), Target (general department store merchandise), Thach Ban
JSC (construction materials), Toyota Motor Vietnam Co Ltd (autos), Unilever
(home, personal care products), Vissai Group (cement, building materials), and
ZC International Ltd (precision steel parts).
Factories: 4
Nike (footwear, 2 factories), Nike (apparel, 2 factories).
Logistics Service Providers: 11

APL Logistics, CEVA Freight (Thailand) Ltd, DHL Global Forwarding, DHL
Express, Damco, Gemadept, Kuehne + Nagel, Schenker Vietnam Co Ltd,
Trimax/OIA Global Logistics, UPS Vietnam Joint Stock Company, and an anony-
mous global LSP.
Ocean Carriers: 5
APL, Maersk, Mitsui OSK, NYK, Vinalines.

162 Entities Interviewed
Marine Terminal Operators: 15

Cai Mep-Thi Vi and Cat Lai terminals: SITV, SP-PSA, TCIT, CMIT, SSIT, Saigon
New Port, Gemadept, VICT, and SPCT; Cai Lan terminals (2); and Haiphong
terminals (4).
Trucking Companies: 4
Ban Mai, Cong Thanh, Dan Thinh, and MACs.
Trade Associations: 4
American Chamber of Commerce (AMCHAM), European Chamber of
Commerce (EUROCHAM), US-ASEAN Business Council, and Vietnam
Competitiveness Institute.
Government Entities: 4
Ministry of Planning and Investment, Ministry of Transport, Vinamarine, and
Vinalines (state-owned enterprise).

Appendix D
Methodology for Calculating the

Cost of Congestion on the
Vietnamese Economy
Table D.1 shows the cost of congestion as a percentage of gross domestic product
(GDP) for Jakarta, Sydney, and a selection of major cities in the United States
with significant transportation and logistics activity. The data for both Jakarta and
Sydney show the total costs of congestion including passenger and truck delay, as
well as vehicle operating costs. The data for U.S. cities parse out the value of truck
commodity value and truck delay, a specific component of overall congestion
costs relevant for this study. These data range from 0.16 percent of GDP to
0.47 percent of GDP costs to congestion from truck delays. This is likely a con-
servative estimate of the costs of congestion in cities in Vietnam, as U.S. road
networks and infrastructure are more mature. With regard to total costs of
congestion from annual hours of delay for commuters and trucks, excess fuel
consumed, vehicle operating costs, and commuter stress, the values in the United
States range from 0.76 percent of GDP to 1.65 percent of GDP.
Using the upper range of congestion factors based on table D.1, one can apply
a GDP factor to various cities and/or regions in Vietnam. This provides an esti-
mate of the cost of congestion for various cities.
For Vietnam as a whole it is conservatively estimated that truck delays cause
approximately $487 million of cost to the Vietnamese economy annually, as
shown in table D.2. Table D.3 shows total costs of congestion, estimated at
$1.7 billion, including additional factors such as annual hours of delay for com-
muters and trucks, excess fuel consumed, vehicle operating costs, and commuter
stress.

164 Methodology for Calculating the Cost of Congestion on the Vietnamese Economy
Table D.1 Estimates for Costs of Congestion in Various Sample Cities

Urban area Costs included Cost (million $) Population Cost/capita ($) % of GDP d
Jakarta (2010)a Fuel, other VOC, delay 5,200 9,594,000 542 5.70
Sydney (2005)b Fuel, other VOC, delay, reliability,
CO2, other emissions 3,500 4,599,000 761 1.60
Chicago area (2010)c,d Truck commodity value and
truck delay, 2010 2,317 8,583,000 270 0.47
Chicago area (2010) c,d Total congestion costs, 2010 8,206 8,583,000 956 1.65
Los Angeles–Long Truck commodity value and
Beach–Santa Ana truck delay, 2010
(2010)c,d 2,254 13,124,000 172 0.31
Los Angeles–Long Total congestion costs, 2010
Beach–Santa Ana
(2010)c,d 10,999 13,124,000 838 1.49
New York–Newark NY- Truck commodity value and
NJ-CT (2010)c,d truck delay, 2010 2,218 18,852,000 118 0.17
New York-Newark NY- Total congestion costs, 2010
NJ-CT (2010)c,d 9,794 18,852,000 520 0.76
Houston, TX (2010)c,d Truck commodity value and
truck delay, 2010 689 4,056,000 170 0.18
Houston, TX (2010)c,d Total congestion costs, 2010 3,203 4,056,000 790 0.83
Washington, DC-VA- Truck commodity value and
MDc,d truck delay, 2010 683 4,536,000 151 0.16
Washington, DC-VA- Total congestion costs, 2010
MDc,d 3,849 4,536,000 849 0.91
Seattle, WAc,d Truck commodity value and
truck delay, 2010 467 3,237,000 144 0.20
Seattle, WAc,d Total congestion costs, 2010 1,913 3,237,000 591 0.83
Source: Authors’ compilation from selected sources as follows:
Note: VOC = vehicle operating costs.
a. Arditya 2011.
b. Australian Bureau of Transport and Regional Economics 2005.
c. Schrank, Lomax, and Eisele 2011.
d. Bureau of Economic Analysis 2011.

Methodology for Calculating the Cost of Congestion on the Vietnamese Economy 165
Table D.2 Estimates for Truck Delay Costs of Congestion in Vietnamese Cities and Regions, 2010
GDP (million GDP % of GDP Cost of congestion Congestion costs
Urban area Population VND)a (million $) factor (million $)b (% of total country)
Whole country 87,840,000 2,963,499,700 148,175 0.47 487 100.0
Red River Delta 19,999,300 474,576,709 24,814 Calculated 121 24.9
Of which: Hanoi 6,699,600 159,933,872 8,362 based on 97 19.9
regional
Northern
size and
midlands and
GDP
mountain areas 11,290,500 57,243,307 2,993 8 1.6
North-central area
and central
coastal area 19,046,500 185,165,779 9,682 19 4.0
Central highlands 5,282,000 15,202,338 795 2 0.4
Southeast 14,890,800 1,049,645,827 54,882 268 55.1
Of which: Ho Chi
Minh City 7,521,100 398,546,234 20,839 215 44.1
Mekong River
Delta 17,330,900 199,080,039 10,409 68 14.0
a. General Statistics Office of Vietnam, authors’ estimates.
b. Cost of congestion is derived from applying the GDP factor from comparable U.S. cities and applying it to Vietnam. The GDP factor accounts
for truck commodity value and truck delays and in the United States ranges from 0.16 percent of GDP to 0.47 percent of GDP.
Table D.3 Estimates for Total Costs of Congestion in Vietnamese Cities and Regions, 2010
GDP (million GDP % of GDP Cost of congestion Congestion costs
Urban area Population VND)a (million $) factor (million $)b (% of total country)
Entire country 87,840,000 2,963,499,700 148,175 1.65 1,709 100.0
Red River Delta 19,999,300 474,576,709 24,814 Calculated 426 24.9
Of which: Hanoi 6,699,600 159,933,872 8,362 based on 341 19.9
regional
Northern
size and
midlands and
GDP
mountain areas 11,290,500 57,243,307 2,993 27 1.6
North-central area
and central
coastal area 19,046,500 185,165,779 9,682 68 4.0
Central highlands 5,282,000 15,202,338 795 7 0.4
Southeast 14,890,800 1,049,645,827 54,882 942 55.1
Of which: Ho Chi
Minh City 7,521,100 398,546,234 20,839 753 44.1
Mekong River
Delta 17,330,900 199,080,039 10,409 239 14.0
a. General Statistics Office of Vietnam, authors’ estimates.
b. Cost of congestion is derived from applying the GDP factor from comparable U.S. cities to Vietnam. The GDP factor accounts for the value of
truck commodities and truck delays, as well as for additional factors such as annual hours of delay for commuters, excess fuel consumed, vehicle
operating costs, and commuter stress. The values for cities in the United States range from 0.76 percent of GDP to 1.65 percent of GDP.

166 Methodology for Calculating the Cost of Congestion on the Vietnamese Economy
References
Arditya, Andreas D. 2011. “Congestion Costs Jakarta Rp 46 trillion.” The Jakarta Post.
http://www.thejakartapost.com/news/2011/03/16/congestion-costs-jakarta-rp
-46-trillion.html.
Australian Bureau of Transport and Regional Economics. 2005. Estimating Urban Traffic
and Congestion Cost Trends for Australian Cities. Working Paper 71. Canberra:
Department of Transport and Regional Services.
Bureau of Economic Analysis. 2011. News Release: GDP by Metropolitan Area, Advance
2011, and Revised 2001–2010. http://www.bea.gov/newsreleases/regional/gdp
_metro/gdp_metro_newsrelease.htm.
Schrank, David, Tim Lomax and Bill Eisele. 2011. 2011 Urban Mobility Report. College
Station, Texas: Texas Transportation Institute.

Appendix E
Customs Flow Charts
Figures E.1 and E.2 depict Vietnam’s customs clearance process for import and
export transactions. In light of the fact that manufactured exports tend to incor-
porate significant levels of imported components, it is pertinent to outline a few
key observations about the customs clearance process for imports based on elec-
tronic declarations. Managing this process effectively has become critical to the
efficient functioning of export supply chains in Vietnam:
• Electronic customs declaration (e-Declaration) for major importers has been

in place since 2011.
• In comparison with previous (manual) customs declaration, e-Declaration
has some benefits, such as shorter declaration time and fewer required
documents.
• Importer of record is required to have an account in the customs system with
a user name and password.
• The customs broker can help the importer of record apply for the account at
the Provincial Customs Department free of charge.
Standard required documents for import customs clearance include the

following:
–– House bill of lading or house airway bill

–– Original commercial invoice
–– Original packing list
–– Copy sales contract/purchase order
–– Original master list approved by the Provincial Customs Department for
duty exemption
–– Product catalog/technical data sheet and
–– Relevant import license, investment license, and any other relevant license
depending on commodity and transaction type.

168 Customs Flow Charts
Figure E.1 Import Customs Clearance: e-Declaration Process Flow
E-Declaration submitted to assigned Customs Division

Day 1
Assigned Customs Division reviews and approves customs documentation
Customs documents submitted to imported of record for signature and stamping
Day 2
Importer of record signs, stamps, and returns customs documents to customs broker
Goods transferred to inspection yard
Yes Subject to No
inspection?
Day 3
Customs officer approves and
Customs officer inspects goods
releases goods
Goods delivered to site; proof of delivery signed
Source: Authors.

Customs Flow Charts 169
Figure E.2 Export Customs Clearance Process
Broker receives documents from BCO

(commercial, packing list, and shipping request)
Shipping order received

Broker prepares documents and data to transmit
to e-Customs (2 days before CY cutoff)
Customs office provides feedback via

Customs e-Customs system:
clearance by • Blue light (noninspection)
Yes
customs broker • Yellow light (inspection/non-inspection)
2 days before CY • Red light (inspection)
cutoff?
No Broker arranges cargo pick up at BCO facility,

performs tally, and arranges for dray to port
for inspeciton
BCO prepares and submits all
relevant documents to local Customs
Department
Customs process is completed
End
Source: Authors.
Note: BCO = beneficial cargo owner.

Appendix F
Components of Successful
Public-Private Partnerships
Freight infrastructure projects in Vietnam have generally been funded by

state budget resources, Official Development Assistance (ODA) or through
public-private partnerships (PPPs), where the latter mobilize private capital
with or without partial government co-funding. All of the new port termi-
nals at Cai Mep-Thi Vai, as well as Cai Lan’s new Cai Lan International
Container Terminal (CICT) terminal, have used PPP arrangements. Lach
Huyen’s first phase terminal development will also utilize a PPP modality,
complemented by Japanese ODA.
When the new HCMC–Vung Tau Expressway is eventually constructed, the
Government of Vietnam (GoV) may consider a PPP approach, whereby it may
provide a subsidy (sometimes referred to as viability gap financing) and seek
private investors to mobilize the balance of the investment. An alternative is to
use a Build-Operate-Transfer (BOT) arrangement, similar to that used by the
State of Florida Department of Transportation in selecting a single company to
design, build, finance, operate, and maintain Interstate 595 (I-595) for 35 years
(see box F.1).
As pointed out by the U.S. Asian Business Council and the Vietnam
Competitive Institute in interviews conducted for this report, Vietnam does not
have an established record of structuring and managing PPPs and has had diffi-
culty putting in place a comprehensive legal and regulatory framework for them.
The country also lacks a supportive ecosystem for PPPs, such as long-term com-
mercial financing options and large, sophisticated, privately held construction
and engineering firms. This has discouraged some foreign companies to partici-
pate in PPPs. One freight-related example of a mismanaged PPP is the invest-
ment made by foreign marine terminal operators (MTOs) in some of the Cai
Mep-Thi Vai terminals. Government promises to close some of the HCMC
inner-city terminals have not been kept. This is one reason why the utilization
rate of the Cai Mep-Thi Vai terminals, as of year-end 2012, is a small fraction of

172 Components of Successful Public-Private Partnerships
their combined capacity. As a result, those PPP investments are operating at a loss
for the MTOs.
Box F.2 summarizes the viewpoints provided by the U.S. ASEAN Business
Council, the Vietnam Competitiveness Institute, and others on what Vietnam
could do to strengthen the way it manages and structures PPPs.
Box F.1 Florida State Department of Transportation PPP for I-595

After considering several PPP alternatives, the Florida Department of Transportation chose to
move forward with improvements to I-595 with a single concessionaire responsible for the
design, building, financing, operation, and maintenance (DBFOM) of the highway asset over a
35-year period. Under a DBFOM, the public agency owns the facility, but the concessionaire is
given the exclusive right to operate the facility from the start of construction through the end
of the agreement. At the end of the term, the concessionaire transfers the facility back to the
public agency in compliance with the hand-back standards described in the Concession
Agreement. This arrangement encourages high-quality construction at the outset and ensures
that the facility will be carefully maintained.
Sources: Authors; http://www.dot.state.fl.us/financialplanning/finance/P3%20Summary.pdf.
Box F.2 Structuring Successful Public Private Partnerships

Discussions conducted for this report with the U.S. ASEAN Business Council and Vietnam
Competitiveness Institute revealed that there are concerns among investors as to whether
Vietnam’s business climate can support a critical mass of PPP projects in the freight sector. The
following are actions that the GoV could take to structure successful PPP projects:
1. A strong transportation infrastructure master plan must be developed, and the GoV must
not be influenced by SOEs or private parties to amend the plan for their own benefit.
2. The GoV must manage a truly competitive bid process and not be inclined to award the
project to SOEs or favored private companies, since that will only add unnecessary costs
to the project.
3. A “go to” person(s) in the GoV must be assigned authority and responsibility for making
decisions and facilitating the timely issuance of licenses necessary for the successful com-
pletion of the project on time and within budget.
4. Since tolls are not likely to provide sufficient revenue for the PPP contracting company to
build, say, a highway, any land adjacent to the highway given to the contractor for devel-
oping logistics-related facilities must be used for that exclusive purpose.
5. To minimize the risk to both private and public sector parties, the GoV needs to safeguard
their contractual rights against arbitrary decisions made by government agencies and/or
box continues next page

Components of Successful Public-Private Partnerships 173
Box F.2 Structuring Successful Public Private Partnerships (continued)
by provincial governments that are contrary to MoT and Ministry of Planning and
Investment directives. Corruption is major concern of international companies.
6. The GoV must ensure loan negotiations can stand the test of public scrutiny.
7. Only contractors with proven track records in managing large scale projects that are deliv-
ered on time and within budget should be hired. Competitive bidding can make a critical
difference towards meeting this goal.
The following are additional points and suggestions related to freight sector PPP projects in
the United States that can serve as lessons learned for Vietnam:
1. When tolling as a revenue source and PPPs as a project delivery mechanism are pursued
at the same time, toll rate setting control appears to move from the public sector, where
elected officials are accountable, to private companies that are motivated by rates of
return. When toll rate setting is taken away from politically motivated officials, the asset
value of the project increases, as the revenue source is sufficient to keep the highway
properly maintained.
2. PPPs are not a source of public revenue; in fact, to be financially feasible, they require a
stable revenue source. However, they can be used to free up existing public revenue,
increase the certainty of project lifecycle costs, and protect general revenue from revenue
shortfalls.
3. Most PPPs in the United States have not been exclusively privately financed. Most PPPs
have required public sector financial support in the form of up-front capital contributions
or credit assistance to attract private investment.
4. PPPs are not a panacea to the transportation funding shortage. PPPs are not a source of
free money, so their pricing includes a healthy, market-appropriate profit.
5. PPPs are not “privatization.” While the private sector plays a larger role in delivering PPPs,
the public sector retains ownership and directs what the private partner can and cannot
do through statute and contract.
6. Availability payments, where the public sector partner retains demand risk, represent one
way in which public agencies have structured PPP contracts to attract more bids that are
competitive and keep financing costs down.
Sources: Authors based on interviews with U.S. ASEAN Business Council and Vietnam Competitiveness Institute; Buxbaum
and Ortiz 2009.
Note: GoV = government of Vietnam; PPP = public-private partnership; SOE = state-owned enterprise.
Reference
Buxbaum, Jeffrey N. and Iris N. Ortiz, Consultants. 2009. Public Sector Decision-Making for
Public-Private Partnerships, National Cooperative Highway Research Program Synthesis
391. Washington, DC: Transport Research Board.

Appendix G
Organizational Structure of the

Ministry of Transport of Vietnam

176
Figure G.1 MoT Organization: 2012
Prime Minister
Chairmen of People’s Committees of

Provinces and Cities Vice Ministers (6) Minister of Transport (MOT) Ministers and heads of
ministerial-level
agencies covering
transport
PDOTs Directly subordinate modal General departments Institutes and schools Corporations Project management units
(Provincial Department administrations under MOT 1. Office of the
of Transport) Government (GO)
1. Directorate for Roads of 1. Ministry's Office 1. Transport Development 1. Transport Engineering 1. PMU “HCM Road”
2. Ministry of Planning
Vietnam (DRVN) 2. International Cooperation and Strategy Institute (TDSI) Design Incorporated (TEDI) 2. PMU 1
and Investment (MPI)
2. Vietnam Railway Department 2. Institute of Transport 2. Vietnam Air Traffic 3. PMU 85
3. Ministry of Police
Administration (VNRA) 3. Finance Department Science and Technology Management Corporation 4. PMU Thang Long
(Traffic Police Bureau)
3. Vietnam Inland Waterway 4. Planning and Investment (ITST) (VATM) 5. PMU My Thuan
4. Ministry of
Administration (VIWA) Department 3. Institute for Transport 3. Vietnam Maritime Safety– 6. PMU 2 (DRVN)
Construction
4. Vietnam Maritime 5. Science and Technology Administration and North (VMS-N) 7. PMU 6 (DRVN)
5. Ministry of Finance
Administration (VINAMARINE) Department Management Cadres 4. Vietnam Maritime Safety– 8. PMU 7 (DRVN)
(MOF)
5. Civil Aviation Authority of 6. Personnel and Organizing 4. Vietnam Maritime South (VMS-S) 9. PMU–NIW (VIWA)
6. General Department
Vietnam (CAAV) Department University (VIMARU) 5. Civil Engineering 10. PMU–SIW (VIWA)
for Management of the
SOEs under provincial 6. Vietnam Register (VR) 7. Legislation Department 5. Vietnam Aviation Construction Corporation 1 11. Maritime PMU I
State Capital and Asset
authorities 7. Transport Engineering 8. Transport Department Academy (CIENCO 1) (VINAMARINE)
in State Enterprises
Construction and Quality 9. Transport Infrastructure 6. Ho Chi Minh City 6. CIENCO 4 12. Maritime PMU II
(MOF)
Management Bureau Department University of Transport 7. CIENCO 5 (VINAMARINE)
- Road transport
(TCQM) 10. Transport Safety 7. University of Transport 8. CIENCO 6 13. Maritime PMU III
company (freight and
8. Transport Health Department Technology (UTT) 9. CIENCO 8 (VINAMARINE)
passenger)
Administration (THA) 11. Environment 8. Transport College IIT 10. Thang Long Construction 14. Transport Safety PMU
- Provincial ports
Department 9. Transport College III Corporation
- Provincial coastal
12. Inspectorate 10. Central Vocational 11. Vietnam Waterway SOEs (under decision No. Ministries (with
shipping
13. Innovation and Public College of Transport I Construction Corporation 91 TTg/1994) dedicated ports and
Transport Enterprises 11. Central Vocational (VINAWACO) own-account transport
Local transport Management Unit College of Transport II 12. Vietnam Expressway 1. Vietnam Shipbuilding companies)
companies (road and SOEs under MOT modal 14. Public-Private 12. Central Vocational Corporation (VEC) Industry Group (VINASHIN)
coastal shipping) administration Partnership (PPP) Projects College of Transport III 13. Cuu Long Corporation for 2. Vietnam National 1. Ministry of Industry
Management Unit 13. Central Transport Investment, Development and Shipping Lines and Trade
1. Cooperative (HTX) 1. DRVN (VINALINES)
15. Transport Newspaper College Project Management of 2. Ministry of
2. Private operator 2. VINAMARINE 3. Vietnam Airlines
16. Transport Magazine 14. Inland Waterway Infrastructure (Cuu Long CIPM) Agriculture and Rural
3. Company limited 3. VIWA Corporation (VAC)
17. Information Technology Vocational College I Development
(joint-venture) (TNHH) 4. Vietnam Railway
Center (ITC-MOT) 15. Inland Waterway 3. Ministry of Defense
Vocational College II Corporation (VNR)
Figure G.1 MoT Organization: 2012 (continued)

Institutes and schools Corporation
16. Motor Vehicle 14. Waterway Transport 28. Road Repair and
Mechanics Vocational Corporation Management Single Member
School 15. Vietnam Motors Industry Limited Liability Company Gia
17. Road Transport Corporation (VINAMOTOR) Lai, Phu Yen, DakLak
Vocational School 16. Transport Investment 29. Construction and
18. Northern Transport Cooperation and Import and Management Single Member
School Export Company Limited Limited Liability Company No. 71, 76
19. Southern Transport (TRACIMEXCO) 30. Road Repair and
School 17. Vietnam Travel and Management Single Member
20. Maritime College I Marketing transports Company Limited Liability Company No.
21. Maritime Vocational (VIETTRAVEL) 78, 714, 719
College Ho Chi Minh City 18. Transport Publishing House 31. Mechanical Structure
Company Limited Construction and Repair
19. Consultant and Construction Company No. 721
Limited Company (CAC-UTT) 32. Transport Structure
SOEs without 20. ISALCO (VIMARU) Construction Single Member
management board 21. Vietnam Maritime Limited Liability Company No.
Communication and Electronics 829, 892, 875
Company (VISHIPEL) 33. Bridge Construction Single
22. Transport and Construction Member Limited Liability
Limited Company Company No. 75
23. Vietnam Salvage Single 34. Single Member Limited
Member Limited Liability Liability Company No. 507, 508
Company (VISAL) 35. Transport Material Production
24. Road Management and Company No. 529
Construction One Member 36. Thang Long One-Member
Limited Company No. 224, 226, Limited Bridge Company No.1
232, 240, 242, 244, 248 37. Waterway Transport Single
25. Road Company No. 230 Member Limited Liability
26. Road Management and Company
Construction One Member 38. Tan Son Nhat Port Air
Limited Company No. 474, 483, Services Limited Liability
495, 496 Company
27. Hai Van Road Tunnel 39. Maritime Pi lotage Single
Management and Operation Member Limited Liability
Single Member Limited Liability Company (PILOTCO) Zone I, II,
Company (HAMADECO) III, IV, V, VI, VII, VIII, IX
Source: Ministry of Transport of Vietnam.

177
Glossary
BCO: Beneficial Cargo Owner. This is the entity owning the product; it may
refer to a manufacturer, a shipper/seller, or a consignee/buyer.
Vietnam Customs/Customs: General Department of Vietnam Customs. It is the
agency of the Government of Vietnam, under the Ministry of Finance, respon-
sible for customs administration. Local Customs Departments under the
control of the General Department of Vietnam Customs manage customs
procedures and implement regulations at the provincial level.
CFS: Container Freight Station. A cargo-handling facility owned or leased and
operated by a third-party logistics service provider.
CIC: Container Imbalance Charge, assessed by ocean carriers on importing ship-
pers for having to reposition empty containers. Vietnam tends to have large
amounts of TEU containers from imports that cannot be used for the majority
of export commodities, as well as a shortage of FEU containers for export
cargo.
C-TPAT: Customs-Trade Partnership Against Terrorism, is program administered
by the United States Customs and Border Protection certifying that member
BCOs, ocean carriers, and other freight stakeholders have taken measures to
better secure their supply chains against potential acts of terrorism.
CY: Container Yard. A facility where empty and loaded containers are stored. It
is typically managed by an ocean carrier.
EDI: Electronic Data Interchange. EDI refers to the electronic transmission of
data between parties to reduce or eliminate manual processes and paper.
FEU: 40-Foot Equivalent Unit Container. An FEU is a standard container size
used in ocean transportation.
FTP: File Transfer Protocol. A network protocol used to transfer files electroni-
cally over the internet.
ICD: Inland Container Depot. Ocean carriers and LSPs establish ICDs near ports
or in inland locations as facilities and bases where empty and loaded contain-
ers can easily be picked up or dropped off.

180 Glossary
JIT: Just-In-Time. Usually referred to in manufacturing settings, JIT implies the

use of controlled and efficient processes in tight timelines by which inputs are
delivered to the factory and production occurs to reduce redundant safety
stock, costs, and time within supply chains.
Landed Cost: This includes the cost of the products being shipped, all export
and import documentation costs, all related transportation costs to ship the
products from the designated free-on-board point to final destination
listed on the bill of lading, and duty payments at the destination country.
Notably, for the purposes of this report, landed cost does not include
inventory carrying costs.
LSP: Logistics Service Provider. A third party that furnishes ocean freight for-
warding, airfreight forwarding, warehousing and distribution, and/or customs
brokerage services to BCOs.
MCIP: Multimodal Corridor Investment Plan. This is a transportation infrastruc-
ture plan prepared by a government agency that incorporates the perspective
that beneficial cargo owner supply chains are multimodal and connections
between modes should be as seamless as possible to facilitate efficient and
cost-effective supply chains.
MoT: Ministry of Transport of Vietnam. This is the ministry responsible for trans-
portation planning and infrastructure development.
NH No.: This refers to a National Highway in Vietnam under the Ministry of
Transport’s responsibility for planning, constructing, and maintaining.
PPP: Public-Private Partnership. As referred to in transportation infrastruc-
ture projects, PPP is a funding mechanism in which one or multiple private
entities team with a public agency to develop and/or manage a transporta-
tion infrastructure project or asset, such as a highway. The private partner
usually recoups its investment through tolling the asset over a period
of time.
SOE: State-Owned Enterprise. An SOE is a company established by the govern-
ment sector to produce goods and services or manage infrastructure assets.
TEU: 20-Foot Equivalent Unit Container. A TEU is a standard container size
used in ocean transportation.
THC: Terminal Handling Charge. The THC is the fee BCOs or factories pay to
the marine terminal operator to lift the container on or off the vessel.
TPP: Trans-Pacific Partnership. The TPP is a multilateral trade agreement under
negotiation at the time of writing. Potential participating countries include
Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand,
Peru, Singapore, Vietnam, and the United States.
VPA: Vietnam Port Association. VPA is a transport association comprising
40 member ports in Vietnam, representing over 80 percent of the country’s
total annual port throughput. The association strives to create business

Glossary 181
opportunities for its member ports and fosters collaboration both among ports
and between ports and the broader shipping community.
WTO: World Trade Organization. The WTO is a multilateral entity that engages
in the global rules of trade between nations. As of August 2012, the WTO
comprised 157 member countries.

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ages electronic publishing options and print-on-demand technology, which is
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More information about the Bank’s environmental philosophy can be found
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Vietnam has attained a strong record of economic growth and poverty reduction since the adoption of
market-based economic reforms and pro-poor policies starting in the mid-1980s. Much of this achievement
was driven by an untapped, rapidly growing labor force and the enablement of greater labor participation in
higher productivity sectors of the economy. Yet, as Vietnam has restructured its economic activity toward
manufacturing, more mechanized primary sector production and, increasingly, services, and as the labor
force is projected to expand at a markedly lower rate than before, finding new sources of productivity
improvements has become the key to sustaining economic growth going forward.
Improvements in freight logistics can unlock productivity gains across the Vietnamese economy for years to
come. The main source of underperformance in Vietnam’s logistics sector appears to be the
inventory-carrying implications of unreliable freight itineraries; unpredictable inspection and clearance
procedures, and an uncertain planning, legal, and regulatory framework. Efficient Logistics: A Key to Vietnam’s
Competitiveness points out that by making commerce more predictable, particularly for regional and
inter-continental trade, more efficient logistics can lower the cost of doing business, boost competitiveness,
attract investment and generate employment. In short, efficient logistics can become a driver of lasting
growth.
Directed at industry practitioners and policy makers alike, Efficient Logistics: A Key to Vietnam’s Competitiveness
highlights five key initiatives to improve the reliability and cost-effectiveness of transportation and logistics
in Vietnam’s domestic and international supply chains. These initiatives include modernizing the customs
system more broadly to enable goods clearance in a consistently timely manner; enhancing regulatory
transparency to minimize discretion in the regulation of commerce; promoting multimodal transport
corridor planning; enhancing competition and professionalism in the trucking industry; and deploying
capacity more strategically at major gateways, particularly at Cai Mep-Thi Vai.
ISBN 978-1-4648-0103-7
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ISBN (paper): 978-1-4648-0103-7

Library of Congress Cataloging-in-Publication Data

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Chapter 2 Vietnam’s Current Situation 11

Chapter 3 Freight Stakeholder Challenges and Opportunities 69

Chapter 4 Issues Screening and List of Actionable Recommendations 113

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Goals Assessment and Recommendations to

Appendix A Supporting Calculations 147

Appendix B Overweight Container Audit Process 159

Appendix C Entities Interviewed 161

Appendix D Methodology for Calculating the Cost of Congestion

Appendix E Customs Flow Charts 167

Appendix F Components of Successful Public-Private Partnerships 171

Appendix G Organizational Structure of the Ministry of Transport

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Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

3.17 Adequacy of Warehouse Facilities 101

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2.14 Truck Cost Savings from Decreasing Congestion in the

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A.1 Forecast Import and Export Container Volumes 148

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Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xi

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Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xiii

Luis C. Blancas is a Transport Specialist with the Sustainable Development

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xv

joining Cambridge Systematics, she was founder and President of Starboard

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AEC ASEAN Economic Community

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 xvii

LNG liquid natural gas

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Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 1

1. Government regulations are cumbersome and not easily understood. As a

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3. Transportation infrastructure projects are planned and executed largely in

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

­ rojects, as well as minimal involvement of key freight stakeholders. This envi-

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

The Government of Vietnam (GoV) seeks to promote economic growth, attract

Objective and Scope

• Characterize and identify key performance gaps in infrastructure provision,

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7 7

c­onsideration through face-to-face interviews, the main focus of the report

Approach and Methodology

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Figure 1.1 Analytical Approach

What is the situation? What should be prioritized? What actions to undertake?

• Review literature • Synthetize and categorize • Identify feasible interventions

Output Output Output

rojects, as well as minimal involvement of key freight stakeholders. This envi-

consideration through face-to-face interviews, the main focus of the report