[Vnbiz] Maritime success lies at heart of Vietnam's ambitions

[Pham Hoang Duong]

>From Lloydslist:

Maritime success lies at heart of Vietnam’s ambitions 

As Vietnam prepares to become a member of the World Trade Organisation, David Osler analyses the country’s growth strategy for shipbuilding- Thursday November 09 2006 


 
VIETNAM has ambitions to become a developed country by 2020, and shipbuilding will be central in its drive towards industrialisation. The country remains a one-party Communist state, of course. But it is also one of the fastest-growing economies in southeast Asia. As the example of China underlines, the political structures that are formally in place need not be an insuperable barrier to playing the capitalist game.
Vietnam, so devastated by decades of conflict from 1954 to 1975, is increasingly coming back into the international mainstream.
Private enterprise has been permitted since the late eighties, and a stock exchange was opened in 2000.
These moves have met with a measure of success, making the country one of the darlings of the international aid community.
In 1998, 38% of the population lived in poverty. By 2002, that proportion had fallen to 29%, and will have declined further since.
But much remains to be done. Average annual income is just $630 a head, and on some estimates a million jobs a year need to be created to keep its young population in work.
However, much of the economy remains in government hands, which is seeking to act as a developmental state.
In this role, it has singled out a number of industries as strategic, and shipbuilding is one one of them.
Nationalised shipbuilder Vietnam Ship Industry Corp owns the majority of the country’s shipyards, and is already the 10th largest shipbuilder in the world.
Vinashin — as it is better known — has been tasked with a national shipping fleet to meet domestic transport and 30% of the export transport demand for crude oil.
But it has also entered the world market in a big way, and is now predicting major growth.
As a result, it hopes to move up the charts to occupy the number four position within a decade.
If it manages to expand at the rates seen recently — and it has averaged 30% growth a year for the last 10 years — it may well get there.
Vinashin reports that it has secured export contracts worth $4.5bn so far this year.
These include its biggest deal yet, namely a $1bn deal to manufacture eight pure truck and car carriers for Ray Car Carriers of Israel.
Generally speaking, the group specialises in vessels with loading capacity running from 5,300 to 56,000 tonnes, and boxships of 900-1,100 teu. Typical in this respect has been its work for Britain’s Graig Group.
Under the $332.5m deal, Vinashin is building 15 handymax bulk carriers of 53,000 dwt — the so-called ‘Diamond 53’ ships — for the Cardiff-based concern.
Graig executives have commended Vinashin for its ability to manufacture these innovative units for below the price of their Japanese or Chinese counterparts quoted for off the peg designs.
However, there have been minor mishaps, including the revelation that the first of the series sprang a leak shortly after launch.
But such incidents notwithstanding, it is worth noting that Graig has been able to strike several lucrative resale deals on several of the ships delivered already.
Now Vinashin is also starting to take on larger projects.
Work has just started on three aframaxes for state-owned oil company PetroVietnam, for a reported price of around $65m each.
The first of the 105,000 dwt units will be handed over by March 2008.
The second and third will be delivered by 2009, before the Dung Quat Oil Refinery goes on stream.
These vessels will be built to American Bureau of Shipping class.
The Korean Register of Shipping has also maintained a presence in Vietnam for over a decade, and opened an office in the country earlier this year.
A spokesman told Lloyd’s List in May: “We believe that the political stability and rapidly developing economy of Vietnam will transform the nation into one of the world’s leading shipbuilders in the next decade or so.
“We want to have a firm presence there from the beginning of this shipbuilding spurt.â€
Lloyd’s Register also regards Vietnam as a target market, and has a representative office in Vung Tau.
A spokesman added that it is currently considering expansion possibilities.
But it is probably Det Norske Veritas that has built the strongest position for meeting Vietnam’s classification needs.
DNV handled the work on the Diamond 53 vessels, and claims that some 70% of vessels currently under way in Vietnam are being constructed to its rules.
The DNV website currently carries an interesting analysis of the shipbuilding situation in the country.
Nguyen Quoc Anh, vice-president of Vinashin, told the Norwegians: “There is ongoing development and fundamental change at most Vietnamese shipyards.
“I firmly believe they will expand their capacity and win the confidence of even more overseas owners in the future.â€
However, Mr Anh admitted that there is still plenty of work to do if Vinashin is to realise its ambitions.
“The shipbuilding industry in Vietnam is still lagging behind other countries,†he said.
To rectify this situation, Vinashin has embarked on major investment to increase the efficiency of its yards.
For instance, its facilities at Nam Trieu, known as Nasico, are currently getting a new slipway and a 300 tonne gantry crane.
Some $37.5m will be spent to upgrade the Pha Rung Shipyard in Haiphong, enabling it to build vessels of up to panamax size.
The shipyard will also have the capacity to repair vessels of up to 16,000 dwt. According to Vietnamese media reports, its investment plans could be worth as much as $2.5bn over the next five years.
Some of the money will be raised on the international capital markets.
Vinashin has been the prime beneficiary of a recent $750m government bond issue, for example.
In addition, there are plans to set up a financial leasing company, a securities company, an insurance company, and shipbuilding industrial investment fund.
As the country industrialises, it is better able to source spare parts and equipment locally.
Mr Anh told DNV that importing parts has in the past proved both expensive and time-consuming.
However, it now uses around 40% Vietnamese parts, and hopes to increase that figure to 65% by 2010.
For its part, DNV praises Vinashin’s readiness to invest and the willingness of its workforce to learn the required skill set.
John Marshall, DNV’s maritime country manager for Vietnam, said that the Graig contract was a giant leap forward for the Vietnamese shipbuilding industry.
“Since then, Vinashin has invested heavily in its yards and secured an ever-increasing number of orders, the majority of which are to DNV class.
“We expect the number of orders to DNV class to reach 45 vessels in 2008,†he went on.
DNV has hired 10 surveyors in the country over the last 18 months, and expects to take on some 20 more over the next two years.
Last month, Vietnam finally sealed the terms for its entry into the World Trade Organisation.
If everything goes according to plan, it could become the WTO’s 150th member — even before 2006 is out.
Liberalisation of its maritime sector forms part of the deal, so there should be plenty of opportunities for the international shipping industry.
In the first instance, foreign shipping concerns will be allowed to establish joint ventures with local parties, taking equity of up to 51%.
After five years, 100% ownership will be allowed. Similar arrangements will be possible for both container handling and customs clearance specialists.
Again after five years, there will be no restrictions on foreign involvement in road, rail and integrated transport facilities.
Earlier this month, the International Exhibition and Convention Centre in the capital Ho Chi Minh City hosted a three-day exhibition and conference focused on possibilities in the maritime sector. According to the organisers, the event attracted 200 exhibitors.
Some 90% of them were foreign, mainly from China, Germany, Holland, South Korea and Singapore.
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Pham Hoang Duong
Maersk Broker Asia

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