Vietnam Scramble
By Ian Putzger
Buffeted by rising fuel costs and falling yields, Asian carriers are putting destinations under the microscope, curbing or altogether dropping flights to unsatisfactory points. The Vietnamese capital, Hanoi, is apparently not one of them.
On Nov. 1, Singapore Airlines mounted a weekly 747-400 freighter run from its home base to Hanoi, continuing to Shanghai. Korean Air is not far behind, looking to launch all-cargo flights to Hanoi in 2008 with a major electronics manufacturer providing the economic lure, said Ken Choi, president of KAL Cargo.
“Samsung is going to open a new mobile phone factory in Hanoi,” he said.
Until recently, the Vietnamese capital was not on the radar of 747 freighter operators. Traditionally, carriers and forwarders have focused their efforts in Vietnam on Ho Chi Minh City, the former South Vietnamese capital once known as Saigon that is still the commercial hub of the country. The Hanoi freighter operators indicate economic activity has spread.
The rise in cargo flights also reflects a structural shift in Vietnam’s manufacturing sector. Exports are still dominated by oil, seafood and garments, but production has begun to shift to more advanced industries.
“Now we see more contract manufacturers, more production of electronics,” said Steve Dearnley, chief executive for the Asia-Pacific region of Schenker International.
He pointed to Intel’s decision to build a $300 million assembly and test facility for chips and computer parts in the country. “That kind of investment tends to draw in a gaggle of related manufacturing,” Dearnley said.
Not surprisingly, Schenker management is upbeat about Vietnam. “It’s not a massive market, but it has shown strong growth,” Dearnley said.
Slow Burn
For all its promise, Vietnam is still snaking through a development curve.
The market is steadily growing, but the volumes are not huge, said Ole Ringheim, senior vice president for airfreight, Asia Pacific of DHL Global Forwarding. At this point, the emphasis is on getting the infrastructure in place to handle serious growth down the road, he added.
Dearnley said many firms increasingly see Vietnam as a strategic alternative to producing in China. “It’s not going to pull business away from China, but companies don’t want to put all eggs in one basket. For them, Vietnam is a good alternative. You do maybe 70 percent of your production in China and 25 percent to 30 percent in Vietnam,” he said.
Logistics firms also are anticipating strong growth in the country.
In October, Schenker set up a fully owned Vietnamese air and ocean forwarding subsidiary, and broke ground the following month on a 15,000-square-foot logistics hub in the Song Than Industrial Zone near Ho Chi Minh City, which is scheduled for completion in April.
The express carriers are also stepping up their presence.
As part of a $14 million investment program in the country, DHL is building two new service centers - one of them in Hanoi - and two courier depots in Da Nang and Haiphong. In anticipation of strong and continuing double-digit growth, rival TNT Express allocated more than $10.4 million this spring toward establishing a domestic express network covering 23 stations.
Expansion Plans
The growth comes off a modest base, of course, but the rapid expansion in traffic and flights raises questions about the ability of Vietnam’s infrastructure to cope with the expansion.
Ho Chi Minh City’s Tan Son Nghat Airport opened a new passenger terminal in 2007, but the airport is hemmed in with little room to grow. The government decided in 2006 that Tan Son Nghat would ultimately serve as a domestic terminal once the international airport at Long Thanh is built.
Located about 31 miles from Ho Chi Minh City, the new airport will have four runways and the capacity to handle 5 million metric tons of cargo per year. The first phase of the project is slated for completion in 2010, with stage two in 2015.
Vietnam Airlines signaled a strong expansion drive in October when it ordered 12 787 aircraft - in addition to four previously ordered - and unveiled plans to acquire 10 A350s. The national carrier, which operates 45 aircraft, wants to double its fleet size eventually. But the first 787 is not due to arrive until 2009, and the A350s are not expected until 2014.
Freighters are not now a priority, as the airline scrambles to handle passenger growth.
Having postponed the launch of U.S. flights due to lack of aircraft, Vietnam Airlines recently said it would begin five-day 777 service to Los Angeles in late 2008. Because of the long stage length, the service will not have a large impact on cargo. But if growth is as rapid as anticipated, Vietnam may need more freighter capacity soon. With yields in many sectors depressed, airlines won’t need much prompting to oblige.
Targeted Buy
With U.S. transportation companies reaching across the Pacific Ocean for acquisitions, New Zealand trucking company Mainfreight decided to turn the targeting on its head.
Extending its reach halfway around the world, New Zealand’s largest trucking company bought Baltimore-based forwarder Target Logistics and its Target Logistics subsidiary in Carson, Calif., for $53.7 million in cash.
Mainfreight is expanding across the Asia-Pacific region and has opened offices in China recently, as has Target. “Acquiring Target is an important step in our plan to offer superior logistics services around the world,” said Mainfreight Group Managing Director Don Braid.
Founded in 1978, Mainfreight has about 3,000 employees in New Zealand, Australia, Asia and the United States. The company posted $686.6 million in revenue in 2007.
Target concentrates on international freight forwarding and has offices in 35 U.S. cities and a network of agents in 70 cities worldwide.
“The combined and complementary resources of the two organizations will afford stronger tools and greater growth opportunities for our employees, while providing stronger support and broader services for our customers,” said Target President and CEO Stuart Hettleman..
… Briefly
Cargo traffic for Asia-Pacific carriers grew 2.4 in October on a 1 percent gain in capacity, the smallest growth in air freight capacity since February 2005, according to the Asia-Pacific Airlines Association. … Thai Airways said it would outsource its cargo sales and services in Taipei, Hong Kong, Singapore and Dhaka to a general sales agent, prompting protests from unions representing the carrier’s staff. The airline says it will retain workers to oversee the GSA work at offices that now have about 10 staffers apiece. … AMB Property broke ground on freight facilities in Ningbo and Kunshan, China, totaling 608,000 square feet. … European forwarder Dachser created a wholly owned business in China, Dachser Shenzhen. … Singapore Airlines Cargo started weekly 747-400 freighter flight between Brussels and the United States as a result of a landmark revision to the air service agreement for cargo services.
