Maersk: Vietnam remains an attractive sourcing destination

Low labour costs, high GDP growth and political stability key advantages

In its first report covering the first three quarters of 2013, Maersk Line maintains its positive outlook on Vietnam’s economy, and comments on the likely impact the transpacific partnership will have on the country’s
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Vietnam’s economic outlook remains broadly positive with a steady flow of For-eign Direct Investment (FDI) and increasing trade volumes, according to Maersk Line.
With a strong foundation in place, the Trans Pacific Partnership (TPP) will set the path for the next phase of Vietnam’s economic liberalisation journey as the manufacturing centre of the Pacific Rim, it added.
“Vietnam continues to be an attractive sourcing destination with competitive advantages in low labour costs, a strategic geographical location, strong deep-water port infrastructure, leading positions within agricultural exports, high GDP growth, long-term political stability, and a government committed to enhancing economic stability and development,” said Nguyen Thi Ngoc Bich, general director of Maersk Line for Vietnam and Cambodia. 
That said, Vietnam was not immune to the global economic crisis, with Europe and US trade growth slowing to between 0-five percent. As a result, Vietnamese exporters had to divert more of their products to other markets, such as Asia, Latin America and Africa. 
Intra-Asia is the fastest growing container trade in the world and Vietnam has one of the highest growth rates for the intra-Asia export trade, said Maersk.
“Asia is a hotbed of opportunity with GDP growth out-pacing the rest of the world and FDI increasing year-over-year,” said Albert Van Rensburg, country manager of MCC Transport for Vietnam and Cambodia.
The next stage of Vietnam’s integration into the global economy is the TPP, where it has the competitive advantage to become the new manufacturing centre of the Pacific Rim.
Between the 12 TPP nations, Vietnam offers the lowest labour costs, making it among the most competitive country within the bloc, particularly in the textiles and garment industries. The restructuring of this sourcing landscape will also give Vietnam a significant advantage over China.
Maersk Line highlighted that they have already seen an increase in foreign investment – specifically from China, Japan, South Korea and Taiwan – from textile manufacturers eager to take advantage of anticipated TPP provisions, as they will enjoy zero preferential tariffs compared to today’s high tax levels of 17-35 percent.
There are, however, challenges that accompany the TPP, namely around managing growth, the lack of support industries and certain restrictions such as the “yarn forward rule of origin’’. 
“Vietnam is heavily dependent on imported materials to produce its exported goods, and currently close to 90 percent of its raw materials and machinery are imported from other countries, including China and other non-TPP partners,” said Marco Civardi, managing director of Damco, for Vietnam and Cambodia.
Vietnam will need to build up its domestic industries in the next few years to reap the full advantages of the TPP, he said.
Ports are one aspect of Vietnam’s infrastructure that is expected to gain from the TPP. Robert Hambleton, managing director of the Cai Mep International Terminal (CMIT), explained that CMIT currently serves the US, and any partnership that increases trade between Vietnam and North America will likely see a need for larger vessels to service those routes, and will ultimately benefit business at CMIT.
CMIT, along with other deep-water ports in Vietnam, is currently grappling with the challenge of oversupply due to the significant flooding of investment into the sector in the mid-2000s. 
However CMIT remains confident in Vietnam’s long-term growth potential, and the oversupply challenge will improve over time, with the country’s organic growth, trade pacts such as the TPP and cascading of larger vessels.