VZCZCXRO5311
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB
DE RUEHHI #2417/01 2640304
ZNR UUUUU ZZH
R 210304Z SEP 06
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 3463
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH 1847
RUEHGP/AMEMBASSY SINGAPORE 2226
RUEHBK/AMEMBASSY BANGKOK 5132
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION

UNCLAS SECTION 01 OF 02 HANOI 002417 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
STATE FOR EAP/MLS, EB/TRA AND E 
COMMERCE FOR 4431/MAC/AP/OPB/VLC/HPPHO 
BANGKOK FOR TSA SHARON WALLOOPPILLAI 
SINGAPORE FOR FAA 
TREASURY FOR OASIA 
 
E.O. 12958:  N/A 
TAGS: ETRD ECON PGOV VM
SUBJECT: SHIPPERS SAY VIETNAM TO OUTGROW PORT CAPACITY BY 2007 
 
Ref: A) Hanoi 774, B) Ho Chi Minh 411 
 
HANOI 00002417  001.2 OF 002 
 
 
¶1. (SBU) Summary:  The Ambassador met with a group of large foreign 
shippers/buyers on September 7 to discuss their predictions of 
shortages in port capacity shortages, which threaten future export 
growth in Vietnam.  They were visiting Hanoi to urge Government of 
Vietnam (GVN) officials to maximize existing port capacity and step 
up efforts to develop future capacity.  They predict that, at 
current growth rates of 25 percent a year, Vietnam's exports will 
exceed port capacity by 2007.  End summary. 
 
¶2. (SBU) On September 7, the Ambassador met with a group of large 
buyers/shippers, who collectively account for about USD 5 billion in 
annual exports from Vietnam and the employment of 500,000 
Vietnamese.  (Note:  These companies generally do not directly own 
factories in Vietnam, but source product from tightly supervised 
contractors in the country.  Their demand drives infrastructure 
development, manufacturing, employment and investment decisions. 
End note.) 
 
¶3. (SBU) Representatives from Nike, Adidas, Gap, IKEA, MAST 
Industries Far East Limited (maker of the Limited clothing brands), 
and APL Logistics (the shipping firm) came to Hanoi to urge the GVN 
to step up efforts to address a looming shortfall in Vietnamese port 
capacity.  John Isbell, Nike logistics director, showed the 
Ambassador a chart outlining the group's estimates of Vietnam's 
increases in exports and port capacity.  The chart illustrated the 
shippers' case that, at current 20-25 percent annual growth in 
Vietnam trade volume, by 2007 southern port capacity limits would 
begin to cause significant shipping delays and by 2014, even 
including current planned expansion, volumes would greatly overwhelm 
port capacity. 
 
¶4. (SBU) The recent approval of SSA Marine's Cai Mep port project in 
southern Vietnam will alleviate, but not eliminate, the port 
congestion problem, the shippers said.  According to Isbell, even 
assuming no delays, Cai Mep is only due to be completed in 2010 and, 
given Vietnam's track record on infrastructure development, some 
delays should be expected.  Seventy percent of Vietnam's exports 
leave from southern Vietnam, he pointed out. 
 
¶5. (SBU) Ambassador Marine asked if the group had shared these 
predictions and their concerns with the GVN.  Isbell said that in 
2005 the group met with then-Prime Minister Phan Van Khai in Seattle 
and raised these issues.  During their current trip, he continued, 
they will meet with Deputy Prime Minister Pham Gia Khiem, the Vice 
Minister of Transport, the Director General of Vinamarine, a 
Minister of Planning and Investment and senior officials in the 
Ministry of Foreign Affairs.  They planned to emphasize the 
importance of sticking to project timelines and the need to maximize 
the use of current facilities in order to minimize supply chain 
disruptions.  The Ambassador warned that the decision-making process 
in Vietnam is slow.  He noted that the GVN's decisions on 
infrastructure projects are often made with both political and 
commercial considerations. 
 
Shifting Production Away From Vietnam 
------------------------------------- 
 
¶6. (SBU) Nike is already experiencing delays of between 12 and 24 
hours during peak weeks at ports and is afraid that this could 
increase exponentially, said Amanda Tucker, the chief representative 
of Nike.  As a result, Nike, which plans production volumes three 
years in advance, has decided to allocate less production to Vietnam 
and divert some production to China and Indonesia.  IKEA will also 
move some production to China, said Jeff Ross, Global Strategic 
Purchase Manager for IKEA's Ocean Transport division. 
 
¶7. (SBU) Nike's Tucker added that Vietnam offered many advantages, 
including an abundant labor supply, a good work ethic and low labor 
costs, despite a recent mandatory minimum wage increase by the 
government (Ref A).  On the other hand, recent labor unrest, high 
turnover, and increasing wages have "unsettled" some manufacturers. 
Isbell said Vietnamese officials seem to believe that delays in 
developing infrastructure might only delay, but not endanger, 
investment in Vietnam.  He stressed, however, that that 
opportunities to obtain Nike investment only occurred rarely as 
factories require development molding shops and extensive networks 
of local suppliers.  This complementary investment cannot be picked 
up and moved, so lost investment opportunities might be lost 
 
HANOI 00002417  002.2 OF 002 
 
 
forever.  Tucker observed that many countries experience an initial 
investment surge, only to stagnate later. 
 
Background on Recently Approved Cai Mep Port 
-------------------------------------------- 
 
¶8. (SBU) Prime Minister Nguyen Tan Dzung approved in September the 
establishment of a joint venture between Saigon Port and SSA Marine 
to develop and operate the a new deep water Cai Mep port and 
container terminal.  Located in the Ba Ria-Vung Tau Province, the 
manufacturers group described the $160 million facility as a "crown 
jewel" of southern Vietnam ports.  Press reports state Ho Chi Min 
City's container traffic is currently 2.2 million twenty-foot 
equivalent units (TEUs) per year and growing at an average rate of 
20-25 percent per year.  The new facility will have a total annual 
capacity of 1.35 million TEUs and will be completed in 2010.  The 
construction effort is part of a plan by the GVN to shift container 
traffic to deep-water ports from more congested and smaller ports 
closer to HCMC (Ref B).  The project is the first joint venture 
approved by the GVN for a container terminal in southern Vietnam. 
 
Comment 
------- 
 
¶9. (SBU) Several of the shippers noted that they do not expect their 
efforts to have an impact on Vietnamese officials, who seem 
complacent due to the recent flood of foreign investor interest. 
Though Vietnam's WTO entry may increase the number of firms who 
investigate possible opportunities here, the shortcomings identified 
by of these influential buyers will be evident to others as well. 
 
ALOISI