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Vietnam – A Trade War Winner?

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“Understanding the potential impact of the U.S. tariffs on China, we were asked whether there has been any impact on Vietnam. Using Global Vigilance VSS, we were able to quickly analyze data across Vietnamese ports to determine if there was any material growth.”

Vietnam, home to 97 million people[1], is the 47th largest economy in the world[2].  Occupying the eastern part of Mainland Southeast Asia with its coastline along the South China Sea, Vietnam is located proximate to China by both sea and land routes.  As GDP growth has been above 6% on average year-over-year since recovering from the global financial crisis that swept across Asia almost a decade ago and is expected to accelerate through the 2020s according to Standard Chartered[3], over US$2 billion (VND 50 trillion) has been invested into the latest major port infrastructure changes to improve operations by increasing accessibility and capacity.

Ports of Vietnam. Global Vigilance.

Its largest three ports, Saigon, Danang and Haiphong – representing the southern, central and northern regions, respectively – are helping fuel the continued growth of Vietnam’s economy.  Saigon Port, comprised of a network of small urban ports along the Saigon River, is being relocated to Hiep Phuoc Port, farther outside of Ho Chi Minh City.  Danang Port completed a two year upgrade in mid-2018 that increased its cargo capacity by 5 million tons per year[4].    Haiphong Port is under development to expand the cargo capacity of its Lach Huyen International Gateway by 24 million tons[5].  Completion of Saigon Port is expected to happen in 2020[6] followed by Haiphong Port in 2022[7].

Starting in February 2018, the U.S. implemented a near global tariff for all countries except Canada on all solar panel and washing machine imports, which was followed by the implementation of another near global tariff on all steel and aluminum imports one month later.  China, in reaction to the U.S.’s aggressive, new tariff regime, imposed tariffs directly on U.S. goods, such as agriculture, automobiles and steel and aluminum products.  These events led to souring relations between the U.S. and China since then and, as a measure to negate higher tariffs imposed by China on U.S. goods, restricted market access and other grievances, the U.S. imposed additional tariffs on over $200 billion worth of Chinese goods and raised tariff rates from 10% to 25%.

A tariff is a tax imposed by a government on goods imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods[8] or goods sourced from lower-cost countries.  The tariffs imposed by the U.S. on Chinese goods increase their price making them less desirable to U.S. consumers as compared to similar goods.  As many listed under the latest tariffs are also manufactured either domestically or by companies in other countries, Chinese businesses are affected by adverse demand, especially those selling products more sensitive to price elasticity.  U.S. and foreign businesses fighting to keep price-conscious U.S. consumers are minimizing their exposure to China by buying similar goods from other countries or moving their operations elsewhere.

Understanding the potential impact of the U.S. tariffs on China, we were asked whether there has been any impact on Vietnam.  Using Global Vigilance VSS, we were able to quickly analyze data across Vietnamese ports to determine if there was any material growth.  Though our analysis included many factors, let’s just focus on container ship traffic and total TEU capacity.  TEU, or twenty-foot equivalent unit, is a standard measure for a container for transporting goods that’s used to calculate how many containers a ship can carry[9].

We queried several years of data and noticed that container ship traffic and total TEU capacity largely remained constant with expected year-to-year increases through February 2019 despite the completion of Lach Huyen International Gateway Phase 1 in May 2018, which increased its total TEU capacity by 300,000, Danang port expansion in July 2018, which added two new piers doubling TEU capacity and partial relocation of the Saigon Port network from 2016 to 2018.  However, starting in March 2019, Vietnam had significant gains in container ship traffic and total TEU capacity.  This trend has continued to date.

VSS - Vietnam TEU Capacity and Container Traffic 2019

Through the first three months of 2019, the average TEU capacity of container ships entering Vietnamese ports was 505,000 TEUs.  Over the next three months, the average capacity increased by 16% to 586,000 TEUs.  In support, through the first three months of 2019, 419 container ships entered Vietnamese ports and, over the next three months, that number increased by 14% to 479.  Compared to the same period in 2018, there was a 10% increase in average TEU capacity and 15% increase in container ship traffic.

We are seeing that container ship traffic and TEU capacity in Vietnam significantly increased along with the heightening trade tensions between the U.S. and China despite port upgrades from 2016 to 2018.  Vietnam realized expected gains year-to-year prior to 2019; however, over the first six months of this year, material gains are seen.  One can conclude there is a positive correlation between trade relations in the world’s top two largest economies and Vietnam based on this data alone, but we always encourage our customers to do more analysis. The Global Vigilance VSS supports their decisions and helps them proactively adapt to the changing world and new threats.

The Global Vigilance VSS helps our customers identify trends in real-time as it quickly analyzes millions of data points to not only measure vessel risk, but also find anomalies.  Contact us for more information on how we can help you.

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    References

    1. “Economy of Vietnam”. Wikipedia.com. July 1, 2019. Retrieved July 8, 2019.
    2. “The World Bank in Vietnam – Overview”. Worldbank.org. April 24, 2019. Retrieved July 8, 2019.
    3. Yen, Hai. (May 13, 2019). “Vietnam’s GDP per capita to increase 4-fold by 2030”. Hanoitimes.vn. Retrieved July 8, 2019.
    4. “Da Nang completes second-stage upgrading of Tien Sa port”. Nhandan.org. July 28, 2018. Retrieved July 8, 2019.
    5. “Lach Huyen International Gateway Port, Haiphong”. Ship-technology.com. Retrieved July 8, 2019.
    6. “Ports along Sai Gon River to be relocated”. Vietnamnet.vn. June 28, 2018. Retrieved July 8, 2019.
    7. “Made in Vietnam”. CNBC. June 25, 2019.
    8. “Tariff”. Shopify.com. Retrieved July 8, 2019.
    9. “TEU”. Dictionary.cambridge.org. Retrieved July 8, 2019.
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