Vietnam’s booming economy was given a further boost by the US-China trade war in 2018, but slow progress on infrastructure investment could hinder its long-term growth prospects.

Buoyed by its young population, strong domestic demand, and impressive upticks in manufacturing, exports, and foreign investment; last year’s 7% GDP increase will likely make Vietnam the fastest expanding economy in Southeast Asia.

Manufacturing output – rooted in seafood, footwear, apparel, and electronics (mostly TVs and smartphones produced by Korean giant Samsung) – grew by nearly 13%. Much of this production is destined for overseas markets, with 2018 exports soaring 13.8% to US$245 billion.

The US accounts for a large chunk of this trade – about US$48 billion – and Vietnam is widely seen as already benefiting from the superpower’s trade war with China. Apparel exports to the US, for example, jumped 12% between January and October to US$10.5 billion.

The frantic pace of trade growth is putting a strain on the country’s logistics infrastructure, however.

At around 21% of GDP, Vietnam’s logistics costs remain stubbornly high and are largely attributed to expensive transportation. For example, according to Viet Nam News, it costs US$1,750 to move a 40-foot container 2000km by road from capital Hanoi in the north, to Ho Chi Minh City (HCMC) in the south, the county’s primary commercial gateway.

The two cities are home to some 17 million people, or about 17% of the population, creating a geographical and logistical headache for freight forwarders – especially due to the booming e-commerce trade flows between the two megacities. Moving the same container north-to-south by sea is just under half the cost, but takes 3-5 times longer; there are no domestic airlines flying freighters, which also pushes up air cargo rates.

According to the Vietnam Maritime Administration, national port throughput jumped 20% in 2018 to 17.7 million TEU. While the country’s ports have not suffered from a lack of investment, poor planning has left the south’s relatively new Cai Mep deep-water gateway vastly underutilised since opening in 2009. Shippers preferred to continue using HCMC’s congested inner-city river terminals since Cai Mep – located 60km away – lacked decent road connections.

However, Cai Mep volumes increased 21% in the first 10 months of 2018 to 2.4m TEU. By comparison, traffic at the river terminals increased just 5% to 5.4m TEU – triggering a move by carriers to deploy larger vessels and divert traffic to Cai Mep.  The three terminals at the deep-water port are capable of handling 18-20,000-TEU mega vessels.

According to Glenn Kong, general director of Vietnam International Container Terminals (VICT), the southern metropolis’ port system is at 70% of capacity. However, he said Cat Lai, the main inner-city terminal, is “basically saturated” while Cai Mep still lies at just 40% utilisation, with additional terminals on the way by 2020.

“South Vietnam is still suffering from inadequate and sub-par road conditions,” he explained. “Ring roads 2 and 3 have yet to be fully completed to ease the traffic between the [inner-city] ports and industrial zones to the north of the city.

“As for the Cai Mep port cluster, I expect the land-connectivity between the ports and the hinterland industrial zones in the north will become more challenging ahead as the volumes grow, due to lack of adequate highways, bridges and good roads.”