Maersk upbeat about Vietnam, eyes TPP

The Denmark-based global corporation, aka Maersk, launched its first-ever Vietnam Trade Report on December 10, reviewing the first three quarters of 2013. The report said the country’s economic outlook is broadly positive with a steady flow of foreign direct investment and increasing trade volumes.

According to Maersk, with a strong foundation in place, the TPP will set the path for the next phase of Vietnam’s economic liberalisation as the manufacturing centre of the Pacific Rim.

The TPP is a proposed trade agreement under negotiation by Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. South Korea would be the 13th. The agreement’s purported aims are to further liberalise Asia-Pacific economies.

Remarking on Vietnam, Maersk Line Vietnam and Cambodia CEO Nguyen Thi Ngoc Bich said, “The country continues to be an attractive sourcing destination with competitive advantages in low labour costs, a strategic geographical location, strong deep water port infrastructure, leading positions in agricultural exports, high GDP growth, long term political stability, and a government committed to enhancing economic stability and development.”

The report said Vietnam was not immune to the global economic crisis, with Europe and US trade growth slowing to between 0-5 per cent. As a result, Vietnamese exporters had to divert more of their products to other markets such as Asia, Latin America and Africa.

Intra-Asia is the fastest growing container trade in the world and Vietnam has one of the highest growth rates for the intra-Asia export trade, noted Maersk.

“Asia is a hotbed of opportunity with GDP growth out-pacing the rest of the world and FDI increasing year after year,” said Albert van Rensburg, country manager of MCC Transport Vietnam Cambodia. MCC Transport is an intra–Asia carrier handling all of Maersk’s containerised cargo movements in the region.

The report added the next stage of Vietnam’s integration into the global economy is the TPP. Among the 12 TPP nations, Vietnam offers the lowest labour costs, making it the most competitive country, particularly in the textile and garment industries.

Bich said Maersk Line had already seen an increase in foreign investment – specifically from China, Japan, South Korea and Taiwan – from textile manufacturers who are eager to take advantage of anticipated TPP provisions, as they will enjoy zero preferential tariffs compared to today’s high tax levels of 17-35 per cent.

However, there are challenges such as the lack of support industries and certain restrictions such as the ‘yarn forward rule of origin’.

“Vietnam is heavily dependent on imported materials to produce its exported goods and nearly 90 per cent of its raw materials and machinery are imported from other countries, including China and other non-TPP partners,” said Marco Civardi, managing director of Damco Vietnam and Cambodia. Damco, which is also part of Maersk, is a provider of freight forwarding and supply chain management services.

Vietnam will need to build up its domestic industries over the next few years to reap the full advantages of the TPP, he added.

Ports are one aspect of Vietnam's infrastructure that are expected to gain from the TPP, according to Maersk.

Robert Hambleton, managing director of the Cai Mep International Terminal, a joint venture between Maersk’s APM Terminals business unit, Saigon Port and Vietnam National Shipping Lines, said Cai Mep currently serves the US, and any partnership that increases trade between Vietnam and North America will likely see a need for larger vessels to service those routes and will benefit business at the port.

The deep-water container terminal, located in the middle of Vung Tau and Ho Chi Minh City, is currently operating at 30 per cent capacity, equal to two million twenty-foot equivalent units (TEU) per year, much lower than the six million TEU capacity, due to the supply-over-demand reality, said Hambleton. However Cai Mep remains confident in Vietnam’s long-term growth and the oversupply challenge will improve over time with the country’s organic growth, trade pacts such as the TPP, and cascading of larger vessels, he added.