VZCZCXRO6263
PP RUEHCHI RUEHDT RUEHNH
DE RUEHHM #0757/01 2350625
ZNR UUUUU ZZH
P 220625Z AUG 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC PRIORITY 4814
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 3241
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 5042

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000757 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, ELENA BRYAN 
STATE PASS DOT FOR MARAD 
 
E.O. 12958: N/A 
TAGS: EINV EWWT EIND ECON PGOV ENRG KNNP VM
SUBJECT: UNCLOGGING VIETNAM"S PORTS:  WORLD-CLASS CONTAINER TERMINAL 
PROJECT COPES WITH BAD ROADS, POOR PLANNING 
 
REF: 06 HCMC 411 
 
HO CHI MIN 00000757  001.2 OF 003 
 
 
¶1. (SBU) Summary:  As skyrocketing cargo volumes continue to 
clog Ho Chi Minh City (HCMC) ports, a state of the art 
deep-water port complex with an eventual capacity of at least 
eight million shipping containers per year is taking shape 90 km 
from HCMC in Ba Ria Vung Tau (BRVT) province.  Poor coordination 
between GVN officials responsible for water and land 
infrastructure, however, has stalled the construction of vital 
bridge and road links, which will prevent the new ports from 
initially operating at peak efficiency. Despite these 
infrastructure shortfalls at the port that handles 70 percent of 
all container traffic to/from Vietnam, the GVN is funding 
commercially dubious deep-water projects in remote central 
provinces, such as the Van Phong bay transshipment port, as part 
of regional development efforts. Recent USG assistance in the 
form of U.S. Agency for International Development (USAID) and 
U.S. Trade and Development Agency (USTDA) transportation 
infrastructure study grants appears to have increased both the 
transparency of the GVN"s infrastructure planning process and 
coordination between GVN entities responsible for different 
aspects of transportation infrastructure development. End 
summary. 
 
Port Congestion Hikes Costs, Hinders Trade 
------------------------------------------ 
¶2. (SBU) A surge in imports, on top of ten years" of 20 percent 
annual increases in freight container throughput, has stretched 
HCMC"s ports, Vietnam"s busiest, to the breaking point. Incoming 
vessels typically wait a day or more for open berths, and port 
customers complain of an additional three to four day wait to 
retrieve inbound containers as wharfs crammed with freight 
constrain crane operations and truck movements. Shippers as well 
as port customers are straining to adapt to the unpredictable 
delays. To maintain supply chain schedules, manufacturers are 
increasing lead times and ordering more inputs, resulting in 
larger inventory costs. Several major shippers, meanwhile, 
recently announced a US$50 port-congestion surcharge on EU bound 
freight, and a US$10 per twenty foot equivalent unit (TEU) 
handling fee for U.S.-bound containers. This already bleak 
situation is set to take a sharp turn for the worse, with 
newspapers reporting that many container ships will be unable to 
fit under the construction scaffolding of the long awaited Phu 
My bridge once construction begins next month.  Reports indicate 
that the 30% of largest ships currently calling at HCMC -- ships 
that carry 60% to 70% of total volume owning to their larger 
size -- will be unable to reach their destinations, decreasing 
capacity at four of HCMC"s major ports. As manufacturers gear up 
for the crucial U.S. holiday season -- clothing, apparel, and 
electronics shipments must depart Vietnam by no later than 
October to reach U.S. store shelves in time for the holidays -- 
port customers fear that the increasing freight volumes and 
infrastructure snafus will wreak havoc with shipping costs and 
schedules. 
 
New International Container Gateway: 
Vietnam"s Direct Link To The World 
------------------------------------ 
¶3. (SBU) With no room to expand, most of HCMC"s downtown river 
ports, 85 km from the sea, are either being relocated downstream 
or replaced by new deep-water container facilities in 
neighboring Ba Ria Vung Tau (BRVT) province. State-owned port 
operator Saigon Port, and its parent company Vietnam National 
Shipping Lines (Vinalines), have initiated joint ventures with 
key international terminal operators, including Seattle-based 
SSA Marine, Singapore"s PSA, Denmark"s Maersk, and Hong Kong"s 
Hutchinson Port Holdings to develop eight state of the art 
container terminals on the Thi Vai river in BRVT province, 90 km 
from HCMC. Designed to handle so-called "Hyper-Post Panamax" 
vessels of up to 190,000 dead weight tons that are capable of 
transporting upwards of 15,000 containers at once, these 
facilities will directly link Vietnam to Europe and the U.S. 
(Note: Despite the volume of bilateral trade, there are 
currently no direct US-VN sea links since the ships that can 
call at VN ports are too small to be economically viable for 
trans-ocean trips.  All of Vietnam"s long-distance ocean trade 
is currently carried by smaller feeder vessels that transfer 
cargoes to larger ships in Singapore and Hong Kong.  End Note.) 
 
¶4. (U) Each of the new terminals under construction will 
process, on average, in excess of one million TEUs per year, 
meaning that when they come on line they will double the entire 
country"s container capacity. (Note:  According to Vinamarine 
officials, Vietnam"s 2007 container throughput was 4.2 million 
TEUs.)  While such a massive increase in capacity would normally 
 
HO CHI MIN 00000757  002.2 OF 003 
 
 
generate concerns of overcapacity, the demand for port services 
is expected to dip below the available supply by only a small 
margin in 2010.  By 2012, demand is expected to exceed capacity 
once again.  (Comment:  While the collection of eight or more 
new ports in BRVT province will collectively constitute a true 
world-class "mega port," many private port developers believe 
that instead of issuing investment licenses for eight separate 
container terminals (with three more planned), development of a 
single mega port in BRVT province would have generated the 
economies of scale necessary for a world-class transshipment 
hub.  End Comment.) 
 
Road, Bridge Delays Push Congestion Inland 
------------------------------------------ 
¶5. (SBU) While manufacturers welcome the increased port capacity 
under construction, they also worry that the commensurate 
landside infrastructure linking the new ports to industrial 
zones will not be ready on time. The one highway that currently 
links the BRVT province with regional factories is already 
overcrowded with truck and motorbikes, and will not be able to 
handle the additional four to eight million container trucks per 
year that will be needed to service the ports.  Unfortunately, 
plans for a new parallel highway remain only that. Indeed, 
several BRVT port projects, such as SSA Marine"s, currently have 
no land connection whatsoever and are using river barges and 
small passenger vessels to ferry all construction materials and 
personnel to the work site. Port developers attribute the 
looming delays to the lack of a unified ("intermodal") 
infrastructure plan, noting that queries to Vinaline, the 
government entity responsible for port development, regarding 
the lack of land infrastructure are met with "that"s not our 
problem", and referred to the Ministry of Transportation, who, 
in turn, refers questioners to the master plan and provincial 
authorities.  BRVT provincial officials meanwhile blame 
"technical problems" for road and bridge delays, and indeed the 
weak sandy soil in the area ("like building on toothpaste" one 
engineer told us) requires time-consuming treatment before 
cement can be poured. 
 
¶6. (SBU) The difficulty in building in the region does not, 
however, explain lengthy delays in starting land infrastructure 
projects.  For example, construction of the eight km spur road 
and 300 meter bridge linking the SSA terminal to the main 
highway was scheduled to begin in September 2007 but has yet to 
break ground.  The lack of intermodal planning appears to result 
in a situation in which the various entities involved simply do 
not share a common sense of the urgency of solving all of the 
problems threatening the operation of Vietnam"s main port and 
thus its export-driven economic expansion. 
 
Port to Nowhere:  Build It and They Might Not Come 
--------------------------------------------- ----- 
¶7. (SBU) While delays and underinvestment in land infrastructure 
will postpone the onset of the new BRVT ports" peak operating 
efficiency, the GVN is pushing ahead to build a two billion 
dollar international transshipment port, "to rival Hong Kong and 
Singapore" at Van Phong bay in central Khanh Hoa province. While 
Van Phong bay is one of the world"s finest natural harbors -- 
it"s natural depth of 23 meters can accommodate the largest 
container ships afloat today without resorting to expensive 
dredging -- private sector shippers question GVN officials" 
aspirations for creating a world-class transshipment facility 
here, citing the lack of local industry that would create a 
demand for cargo (the province"s cumulative FDI for the last 20 
years totals $500 million), long distances to industrial and 
population centers (450 km from HCMC and 1,300 km from Hanoi) 
and poor road and rail connections. While GVN officials have 
been besieged by foreign partners desiring to invest in the BRVT 
port complex (three additional facilities are planned in 
addition to the eight already under development there), they 
have yet to find a foreign partner for the Van Phong project, 
and recently decided to complete the first $700 million phase of 
the project entirely with public funds. 
 
¶8. (SBU) Comment: While the poverty and lack of industrial 
development in Khanh Hoa province places the port on very shaky 
economic ground, these are also the factors that apparently led 
the GVN to decide to invest so heavily in such an out of the way 
port.  The goals of the project appear to be rural economic 
development and the geographical diversification of Vietnam"s 
economic engine, which is currently heavily concentrated in and 
around HCMC.  While these are understandable goals, the Khanh 
Hoa port project has little chance of helping Vietnam"s near- to 
mid-term economic prospects. End Comment. 
 
HO CHI MIN 00000757  003.2 OF 003 
 
 
 
USG Assistance Increases Transparency and Cooperation 
--------------------------------------------- -------- 
¶9. (SBU) The U.S. Agency for International Development (USAID) 
and the U.S. Trade and Development Agency (USTDA) have recently 
funded studies designed to achieve higher efficiency in trade 
transportation logistics. In late June, fourteen high-level GVN 
decision makers, including ministerial and provincial level 
infrastructure development officials, took part in a 
USAID-funded study mission to Singapore and China to visit 
counterpart officials to discuss high-efficiency, intermodal 
transportation infrastructure development.  According to study 
mission participants, this trip was the first time 
representatives from diverse agencies such as the Office of 
Government, the Ministries of Planning and Investment, 
Transportation, and Finance as well as their provincial 
counterparts sat together to discuss intermodal infrastructure 
issues. Since then, private industry co-sponsors of the mission, 
including Nike, Neptune Orient Lines and Maersk, tell us that 
GVN officials have promised more transparency in the planning 
process and for the first time offered private sector 
stakeholders the opportunity to review GVN infrastructure master 
plans before they are released.  Also in late June, the USTDA 
awarded a $148,170 grant to Vinalines to adopt procedures and 
technologies to more efficiently move containers in and out of 
Vietnam, a project to be carried out in conjunction with SSA 
Marine. 
 
Comment 
------- 
¶10. (SBU) The challenges facing HCMC"s ports are serious enough 
to represent a very real constraint on the continued expansion 
of the Vietnamese economy.  At present, over half of the entire 
GDP of Vietnam, as well as over 80 percent of its non-oil 
exports by value, originate from the five provinces around HCMC 
known appropriately as the "Southern Key Economic Zone." If 
exports -- and imports of the inputs needed to produce them -- 
are significantly delayed or become more costly due to increases 
in shipping surcharges associated with congestion, the entire 
Vietnamese economy will suffer.  At present, the outlook is not 
good.  While the Phu My bridge project is absolutely vital for 
relieving chronic congestion and improving land-side access to 
ports, there appears to be no way to avoid the looming 
congestion that construction-related river traffic restrictions 
will generate.  The lack of investment in land-side 
infrastructure makes the next several years look even more 
challenging.  At the same time, huge publicly-funded 
developments projects such as the trans-shipment port Van Phong 
Bay and five other deep-water port projects in relatively 
undeveloped areas of central Vietnam are unlikely to make more 
than a small contribution to growth while generating a large 
public debt burden. 
 
¶11. (SBU) Comment continued: Recent efforts to influence the 
GVN"s thought processes on infrastructure planning appear to be 
bearing fruit. The USAID-funded study mission to Singapore and 
China appears to have opened up the official infrastructure 
planning process to private sector stakeholders and opened lines 
of communication between the "stove piped" ministries and 
departments that are responsible for different aspects of 
infrastructure development.  The USTDA grant to Vinamarine will 
hopefully continue this positive trend.  End Comment. 
FAIRFAX