Vietnam has a coastline of more than 3,260 kilometers which offers huge potential for the country’s ocean shipping development and other sea-related services. Vietnam also has the highest density of vessel traffic globally with its proximity to the international seaway, as well as being a gateway to the sea for the landlocked neighboring countries such as Laos and the hinterlands, including northwestern Thailand and south-eastern China.
Vietnam is more visible on the global map now as the government is more willing to respond to investors’ concerns. The rapid growth of the Vietnam economy and its increased integration into the global trading system has seen Vietnam’s external trade volumes accelerate during the past few years.
Vietnam now has nearly 350 berths with a total length of 41,000 meters, including 35 access channels to national ports and 12 access channels to dedicated ports. According to the statistics, the weight of export- import good by sea occupies about 80% of the total quantity of export- import goods.
As above statistic figures, Vietnam shipping has the rapid increase in the quantity and weight total during the past few years. The growth of Vietnam shipping has been implemented through 2 main sources which are import used ships and newly domestic ships. As for buying used ships: Vietnam shipping owners often buy from such countries as Japan, Korea where the shipping industry has been developed and occupied most of share-market in the world (Korea occupies 37% of the share-market and Japan occupies nearly 34% of the share-market).
The activities of the domestic newly-built ships: are mainly done in Vietnam Shipping Corporation (Vinashin) that has gone bankrupt in 2010. Therefore, buying used ships are still considered to be the important investment for domestic shipping enterprises. Ship value is very huge so in order to finance for ship purchase, repair and maintenance shipping companies usually have to borrow a large amount of working capital. Competitive capacity of Vietnam’s cargo fleet Currently, Vietnam’s cargo vessel fleet ranks fourth in Asia and stands 60th out of 152 nations in the world.
One of the features of Vietnam shipping is the less competitiveness, even to domestic shipping sharemarket. As the above analysis, the growth of Vietnam export-import turn-over during the past few years has reached the fairly high average rate of 14% each year and this rate is predicted to constantly be at 15% during the next five years. With the amount of shipping of more than 80% of the export-import goods, shipping is the potential field for developing.
However, share-market of Vietnam shipping is always at the level of 15% and about the rest of 85% belongs to the foreign shipping. There are two key reasons that lead to the low share-market of export-import shipping of Vietnam shipping: + Firstly, Vietnam export-import enterprises mostly implement the purchasing and selling according to the method of buying CIF and selling FOB. Therefore, the right of choosing ships is always belongs to foreign partnerships.
Vietnam shipping owners do not have the active opportunities to search sources of clients + Secondly, Vietnam shipping capacity is smaller than foreign ships, with average weight of about 4,000 tons (the foreign ships size are over 10,000 tons), most Vietnamese ships only ply part of the route, unloading their cargo in Hong Kong for foreign ships to pick up and deliver to final destination ports. + Thirdly, most of the vessels of the shipping industry are old and degraded.
The average age of Vietnam ships is 14. years old while world is about 10 years old. So that many vessels in Vietnam’s existing cargo fleet also have problems meeting the international standards for security, safety and environment protection, they end up being detained at foreign ports for breaching the standards, which puts most cargo owners off. There are some domestic great enterprises that have internationally standard and highly competitive ships such as VOS, VST (bulk carrier players), which concentrate on exploiting the Far-east routes.
Some other units also concentrate on exploiting sources of parent companies such as VIP, VTO (belonging to Vietnam Petroleum Corporation), PVT (Vietnam Oil and Gas Corporation) that are tanker players. The remaining other shipping units are old ships which do not get the international standards, its experience as well as competitive capability are not good, which lead to being unable of getting the market share from foreign ships.
For 2012 and outlook for the coming years, there are many indicators show that maintaining negative on the Vietnam shipping sector. Supply – demand gap in the shipping market The buoyant growth of the previous twenty years ended abruptly in 2008, and the industry, which ordered new capacity before the crisis faces over-capacity in its market for some years to come. On the contrary, there were not many goods to carry due to the economic downturn and tight credit policy. So that oversupply of cargo carriers is inevitable.
According to the lastest shipping market report, 2012 expected total weight of fleet has a minimum increase of 12% yoy while expectation of only 4%-5% increase in the dry bulk transport demand. Vietnam’s export – import turnover decrease rapidly, Q1’ 2012 exported rice volume stand at only 50% of the same period last year. At the same time, imported fertilizer, agricultural products and raw materials decline due to weak domestic consumption. As the result, despite of low freight rates it is difficult for shipping companies to find customers.
High operating cost Fuel is one of the important input raw materials that accounts for about 30%-40% of COGS of shipping firms has fluctuating prices and on the upside trend. Besides, port charges and insurance fees tend to increase. It’s unprofitable to ship low volumes of cargo over long distances because the shipping fees won’t be high enough to offset the cost of fuel, insurance and labor. High financial leverage Many companies borrowed huge loans, mainly in foreign currencies, to purchase ships at the peak of industry development.
Hence, whenever the exchange rate was raised and interest rates increase, they obviously suffered considerable loss from exchange rate difference. Most Vietnamese shipping companies incurred losses because of huge borrowing and depreciation costs. The downtrend of shipping industry is not over as lending interests burden shipping companies already facing lower income. Besides, the expanding presence of foreign shipping companies in domestic and international routes to and from Vietnam shows the weakening of local transport firms.
Income decline, cost increase and financial burdens caused by interest expenses and exchange rate losses ate away earnings of shipping operations. Their profits, if any, primarily came from liquidating old ships. As depreciation expenses of sold old ships ran out or almost ran out, the book profit was very high. Those are the reasons why most shipping firms have reported loss in 1H 2012.
Its strategy is to maintain a balance in those 3 segments, which allows stability in business. + For dry bulk segment, it accounts for about 65% of revenue. VOS is the largest dry bulk carrier in Vietnam, dry bulk fleet includes 21 vessels with weight total of 448,720 DWT and the fairly high average age of 16 (due to the lower requirement of technical complex as well as safety requirements so groceries carrying ships can operate longer than oil-carrying ships.
Normally, groceries-carrying ships can work within 25-30 years), and major transport products cover rice, clinker, fertilizer, agricultural products, mostly for international route. VOS should maintain the leading position, and the inclusion of two Supramax vessels (about 50,000 DWT, where normally Vietnam dry bulk carrier operate the Handy-size vessels that less than 35,000 DWT) show its ambition for further expansion.
For the tanker segment, mainly transporting oil product which contributes about 25% of revenue, the fleet of the Company included 2 ships with the weight total of 94,250 DWT. Oil-carrying capacity of VOS is fairly strong in terms of weight total which is equal to some oil-carrying enterprises such as VIP, VTO. The average age of oil-carrying ships is 10. This is the fleet with the low average age compared with the average age of Vietnam oil-carrying ships. In fact, oil- carrying ships can operate within 20 years according to the International regulations.
Depending on the better recovery of freight rates of oil product transport market, VOS plan to invest 45,000– 55,000 DWT oil product vessels to maintain the target of balancing in 3 segments. + For container segment, VOS is a newcomer in this segment and the operation of 2 small-size vessels with total capacity of 1,121 TEUs is not profitable, and the recent route opening to Thailand is to make an attempt at improving the performance, which the best VOS can do is to break even in this segment.
VST also has global exposure as its operation coverage extends to international routes like: South America – West Africa/ Central Asia or West Asia (shipping sugar, 26% of total revenues), Africa – North America (shipping fertilizer, 5% of total revenues), North America SEA region (shipping steel) or transporting agricultural products inbound Asia Pacific area (14% of revenues),… The turnover of shipping services of the Company in 2011 was VND1,544bn occupying 80% of total turnover, decreasing 9% compared with 2010.
The shipping activity of the company is cosmopolitan, highly competitive and the enterprise has the large scale so turnover and profits from shipping are more likely to be stable and unchangeable during the next years. Capacity of fleets The company currently has a fleet of 13 handy size vessels with total tonnage transportation of nearly 265,000 DWT, being in second largest bulk dry shippers in Vietnam behind VOS and also youngest fleet (13. 5 years on average). Given its utilization rate being over 90%, it shows that VST has strong network with brokerage houses across the globe.
Petrovietnam Transportation Corporation (HOSE: PVT) PVT is the leading company in the liquid products transport segment with about 33% market share in terms of tonnage capacity. Its current tankers include 14 vessels under operating with a total 342,000 DWT which serve for transporting of crude oil, oil & gas products, urea and other chemical products oversea and locally. Transportation services segment makes up over 60% of total revenue in 2011. + Crude oil transportation PVT is the only company of PVN operating in the crude oil transportation and oil & gas products transportation sector.
Having the advantage of being a subsidiary of Petrovietnam Oil & Gas Group (PVN), PVT has been able to maintain stable market. At present, PVT is delivering 100% crude oil of Dung Quat oil refinery plant and transporting 50% of this plant’s outputs including gasoline and other oil-refined products. + Oil products and LPG gas transportation This segment relies on the development of the Dung Quat plant, which is expected to have production of over 5 million tons of oil annual, along with the launch of the Nghi Son plant in 2014 and Long Son plant in 2015.
PVT currently has a 5-year contract, starting in 2008, with PV Oil and PV Gas, two subsidiaries of PVN, to transport 100% of production from the Dung Quat plant. PV Oil produces roughly 45% of its oil products and PV Gas produces 100% of its liquefied petroleum gas (LPG) at the Dung Quat plant. Through these main customers, PVT enjoys stable stream of revenues. PVT currently has a fleet of 7 ships used to transport oil products and 4 ships used for carrying LPG products from Dung Quat.
In order to meet rising production volumes from incoming plants, the firm plans on investing in additional twelve oil ships and four LPG ships by 2015. PVT also transports LPG for international players such as Petronas from Malaysia and Daelim from Korea. + Bulk dry transportation: PVT had authorization to transport urea products for DPM and chemical products for DMC. Management noted that the company might invest in an additional 13 vessels by 2015 with a focus on coal. Similar to the oil product segment, the company is also a sole transporter of materials for power plants owned by PVN. FSO/FPSO: PVT put the FSO Kamari ship (134,340 DWT) into stream in 2009.
In fact, domestic Companies can get about 35% of the importing petroleum quantity, among which VIP occupied about 10% of the share market, VTO occupied about 15% of the share market, and other shipping units such as VOSCO, Au Lac and Cuu Long occupied the remaining of 10% of share market. 65% remaining share market is from foreign ships. VIP has the advantage of transporting for the Corporation so the goods sources of transporting are relatively stable. As for domestic petroleum shipping market: At the time being, the fleet of the company belonging to Petrolimex occupied over 50% of the demands for domestic coastal transporting. The turnover of petroleum shipping of the Company got VND685bn in 2011, occupying about 40% of the total of turnover.
This activity in 2011 brought about the profits of VND235bn for the company, occupying 90% of the total of the profit and increasing 75% compared with 2010. As for petroleum business activity: this is the activity to serve the activities of Vietnam Petroleum Corporation so the capability of making profit is not considerable and in the next time, there will be no sudden change As for petroleum shipping activity: the fleets of the company only exploits domestic shipping route and serves the needs for import of Vietnam Petroleum Corporation, not exploiting international routes so there is not high capacity of international competitiveness. Therefore, the extension of share market of the Company mainly focuses on domestic routes and imported petroleum shipping.
Capacity of fleets The company currently has a fleet of 4 tankers with total tonnage transportation of nearly 138,000 DWT, being in second largest oil & gas products in Vietnam behind VTO and also youngest fleet (11. 5 years on average). The utilization rate of fleet is over 90% in 2011.
The commercial activities are mainly petroleum business that contributes 20% of total turnover. However, gross profit margin of this segment is only around 1% – 2% so that gross profits come from the shipping segment mainly and occupies about 90% normally. In order to expand the shipping activities, at the time being the Company has been researching fareast ships to exploit sources of goods in South-East Asia as well as in the world. With the high stability and rate of growth in petroleum consumption of Vietnam of about 5% per year, the source of goods in the branch of VTO will create the conditions for the Company to keep the share market and actively widen the activities outside the branch and in the region.
In general, with the advantage of the source of transporting from the Parent Company Vietnam Petroleum Corporation (the greatest petroleum importing and business in Vietnam with the share market of 55%-60% of the demands of importing petroleum nationwide), all ships of VTO focuses on Petrolimex.
The sources of transported goods for other ships such Petech and Saigon Petro occupy the small rate because ships only transports for other units in the time of lacking local sources of Petrolimex. However, Dung Quat refinery plant, kicked off from 2009, has been able to satisfy 30% demand of petroleum locally. Therefore, Petrolimex, the greatest petroleum import company, have to decline their import volumes. Capacity of fleets The company currently has a fleet of 11 tankers with total tonnage transportation of nearly 172,000 DWT, being the largest oil products carrier in Vietnam.
