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December 14th, 2011 WW Staff | NikeLeaks Cables: Asia
 

Vietnam: SHIPPERS SAY VIETNAM TO OUTGROW PORT CAPACITY BY 2007

     
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Reference ID: 06HANOI2417
Created: 2006-09-21 03:04
Released: 2011-08-30 01:44
Classification: UNCLASSIFIED
Origin: Embassy Hanoi

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.
 
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