On 5th October, news broke that the negotiators from 12 countries in the Americas and Asia had reached an agreement on the Trans-Pacific Partnership, analysed last week by John Manners-Bell. Though each signatory government must now attempt to get the agreement through their national legislatures, a potentially tricky manoeuvre for a few, TPP represents a major opportunity for an expansion in international trade.
One country looks set to benefit from this more than any other; Vietnam.
Representing the poorest country of the trading block, with a GDP per Capita of US$1,911 in 2013, Vietnam’s economy has posted a compound annual growth rate of 12.6% for the last five years, and is also positioned to benefit from deeper regional integration brought about the ASEAN Economic Community (AEC).
Unlike the AEC however, the TPP agreement will allow Vietnamese exports unfettered access to the vast consumer markets of the USA and Japan; Vietnam’s largest and second-largest export markets, respectively. One prediction has claimed that the TPP could boost Vietnamese GDP by 11% by 2025, driven by enhanced export growth in areas such as electronics, footwear and apparel.
China has traditionally dominated manufacturing in these areas, and as an example, currently accounts for roughly 39% of global apparel exports. Nonetheless, Vietnam has already grown to be a significant supplier to Japan and the US (apparel exports to the latter grew at a CAGR of 11.9% between 2010 and 2014), and with the cost of Chinese manufacturing increasing due to the country’s development, many producers are shifting their operations over the border.
The main manufacturing clusters in Vietnam have largely been developed in the South of the country, though recent interest has been generated in the Northern manufacturing clusters around Hanoi, which host cheaper land and labour costs. The majority of the country’s containerised cargo is handled in the South, through a cluster of facilities in and around Ho Chi Minh City. A number of the biggest logistics firms are active here; APM Terminals opened its facilities at the Tan Cang – Cai Mep International Terminal in 2011, whilst NOL and Mitsui are both investors in the nearby Vietnam International Container Terminal (VICT). Together, these two facilities handled 20% of the country’s total containerised throughput in 2013, and are growing at a significant rate; notably, the latter achieved a CAGR increase of 16.3% between 2010 and 2014.
Logistics opportunities also abound in other areas though, such as contract logistics and express. In November 2014, Yusen Logistics set up a 35,800 sq m logistics complex in Haiphong, whilst DHL Express announced the launch of a new intra–Asia express air freight service connecting Vietnam to Thailand and Hong Kong. Furthermore, internationally renowned LSP’s have expanded their freight forwarding operations in the country, with Rhenus establishing its own subsidiary in Ho Chi Minh City in December 2014, and C.H. Robinson opening its own office in the city during June 2015.
It should be remembered that there are still many difficulties hampering logistics operations in Vietnam. Customs clearance procedures are inefficient and slow, transport infrastructure is still quite bad, and there remain question marks over the government’s ability to fulfil labour requirements vis a vis the treaty. These challenges are dwarfed though, by the projected expansion in trade volumes which will occur with ratification of TPP. Indeed, export volumes are set to increase regardless of the treaty, meaning that Vietnam represents an excellent growth opportunity to those able to exploit it.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)