Recovery Expectations on Seaports and Logistics in 2021

Despite weaker business results in 2020, the seaport and logistics industry still enjoyed growth. This result largely came from expectations on Vietnam's trade growth boosted by newly-signed FTAs such as EVFTA and RCEP, as well as expectations on FDI inflows driven by the wave of diversifying supply chains and manufacturing outside China.

In 2020, disrupted global supply chains unsettled container shipping. While the demand for tankers and bulk carriers was heavily affected by COVID-19, the demand for container ships suddenly increased sharply. To cope with declining cargo demand, shipping lines cut supplies by reducing or canceling blank sailings to keep supply and demand stable and maintain high freight rates. However, shipping volume remained low. Besides, since the third quarter of 2020, demand recovered strongly before the holiday season and pent-up demand at the back of social distancing. Shipping lines worked to full capacity but vessels were redirected to high-demand areas such as China. This caused a shortage of empty containers in many areas, including Vietnam. During this period, increased shipping total and freight rates rising three times higher than pre-COVID time reflected container scarcity.

In particular, Vietnam's trade grew well despite the global economic recession. According to Vinamarine, in 2020, total international cargo throughput of Vietnamese seaports increased by 9.8%, of which international container throughput rose by 9% to 14.4 million TEUs as the trade value climbed 5%. Being less affected by COVID-19 than many other exporting countries, Vietnam benefited from a healthy production chain. Domestic container throughput even expanded by 20.6% year on year although growth was mixed in the industry.

According to many experts, the COVID-19 pandemic is still casting a long shadow in 2021. However, as social distancing measures are eased and vaccines become more available, inventory normalization and re-establishment will gradually take place in the second half of 2021.

On the other hand, Vietnam's exports may benefit from a recovering global consumption. However, growth may not be strong as other exporting countries will also restart production. According to an analysis by SSI Securities Corporation, the estimated value of Vietnam's import and export and total international cargo throughput at seaports will increase by 10% in 2021. High demand for containers may return in the second half of 2021 (it should be noted that the container throughput of Vietnamese seaports was negatively affected by the global scarcity of containers and this may continue until the end of the first quarter of 2021.)

In addition, the surging demand and supply prompted the logistics sector to establish new facilities. According to CBRE, the warehouse area was estimated to be expanded by 25% in the north and by 28% in the south in 2020, with rents rising by 5 - 10% over the same period. This industry is still quite fragmented and highly competitive.

The vessel expansion trend will be good for deep-water seaports. The expansion Cai Mep - Thi Vai and Lach Huyen deep-water seaports will attract mother ships to dock in Vietnam instead of regional hubs such as Singapore and Hong Kong. As a result, volume growth will remain as high as 20% in these two regions. Gemalink will be the newest port in Cai Mep to start operation in 2021, adding 1.5 million TEUs to the total supply in Phase I, equivalent to 22% of regional supply. The competition will intensify, but the pressure will be not high because of good demand.

Currently, rates of loading and unloading services at Vietnam's ports are much lower than in neighboring countries. The Ministry of Transport is asking for a 10% annual increase in the floor price in the 2021-2023 period. Although no official decision has yet been made, the price hike could support port operators before increasingly powerful shipping alliances.

According to SSI, marine and logistics industries are still exposed to certain problems and risks. Prolonged competition in the Hai Phong Port hindered the growth of seaport companies there. In addition, the U.S.’s accusation of Vietnam’s currency manipulation could put pressure on exports and container shortfall may return to the second half of 2021 during inventory normalization and re-establishment period, although the shipping industry will be better prepared in 2021.

By Quynh Chi, Vietnam Business Forum