Why Vietnam is Not the Next China. Logistics

Thursday, October 18, 2007 10:08
Posted in category Uncategorized

There has been a lot of talk lately about where people will go should the China bubble burst, where to go when suppliers in China cannot be trusted, and more importantly where to go when congress slaps punitive tariffs on China…

Well.. it isn’t Vietnam. And here is why.

When this conversation occurs, it is typically started with”what if” and ususally will involve India and Vietnam in some manner. There are articles about Vietnam’s progress, blog posts about its future, and more talk.

The problem is, like India, it is missing the infrastructure…. specifically its logistics infrastructure.

When speaking about China’s economic miracle, it is clear that without modern ports that could cycle millions of TEUs, the trucks that were capable of handling the containers, the roads for the trucks to drive on, etc… China’s economic position in today’s world would have been much different… and with a background in logistics, one of the first things I do when looking at the potential suitability of a city is look at its logistics infrastructure.

However, as you can see in this presentation, Vietnam has a looong way to go.

What struck me after reading through this presentation is not just the fact that textiles, shoes, and oil are the top three exported items.. it is that 75% of all exports leaving Vietnam on a plane are garments (39%), footwear (25%), and handlcrafts (10%)..

In my mind there is only one reason why you would export and of these on a plane. BEcause the throughput (i.e. capacity) of Vietnam’s seaports is far less than it needs to be… 3.137 million TEUs were exported from Vientnam’s ports in 2006 (Shanghai port alone was over 20 million TEU).

For manufacturers, what this means is that in order to get your goods out of China, you will need to pay a significant premium. Perhaps the short jump to HK or Singapore is all that is required, but the costs are not just monetary.. they are also in time.vietnam port plan

Right now, this is probably an acceptable short term solution as the goods being sent have quota in China, but not in Vietnam. So there are savings there that may offset the cost of the transport, however, Vietnam still has a long way to go in many areas.. and logistics is probably going to be one of the biggest pieces of the puzzle to come.

Fortunately, acouple of weeks ago the government announced that it would pump 4.5 billion USD into their ports over the next 5 years to allow for the additional capacity needed to meet demand. … let’s just hope that is 4.5 billion now.

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6 Responses to “Why Vietnam is Not the Next China. Logistics”

  1. Alan Smitheee says:

    October 22nd, 2007 at 10:24 pm

    And with the US Dept of Commerce’s import monitoring program and the likelihood of antidumping investigations and probable retaliatory duties, Vietnam may not be a good option from a USG policy standpoint either.

  2. Rich says:

    October 22nd, 2007 at 11:45 pm


    That is a good point, and I think that could be a weak link for Vietnam’s industry. Indonesia, HK, and others have all seen this happen before, and if Vietnam is too lopsided (look at freight numbers to see where the weak points are), then it could spell trouble.

    Have a good week

  3. Lamourez says:

    December 4th, 2007 at 8:48 pm

    Why Vietnam is not a next China? It is a wrong question to ask.Vietnam is together WITH China are sinking into a biest inflation in there history. Western statistic shown that they profit milions … billions of dollar from foreign investment, but actually monies all went to the hand of Communist leaders, and they laundered those monies with their children to US and other developed countries. Their children graduated from USA and they never want to “go home”. WHY? because the can’t buy a life style that they have in USA

  4. Rich says:

    December 6th, 2007 at 8:36 am


    Thanks for stopping by.

    While I understand your angle, the relationship you are trying to draw between China’s economic and structural problems is not enough to prove that Vietnam is the next China.

    1) If it were on the children of the leaders making money, then china would not have survived. I recently read an article about how only the children who are in top 1% of china have a bright future, and I would disagree with both. Many of the new rich are not party leaders, and are not from the elite schools, they are private business owners who have IPOed their firms. the markets made them rich.

    2) Vietnam neither has the infrastructure nor the people to replace China. There will be opportunities no doubt, but the fact is that the city of Xiamen has attracted more investment than all of Vietnam, their ports are more developed, and their people are more skilled… and Xiamen is a second tier city

    As an aside, Andy Mukherjee has just posted an op-ed on Bloomberg called After China, Vietnam Will Be World’s Factory: where he also makes his case. in it, he makes his case for Vietnam, and while it is a good story.. I am still left unconvinced:

    After China, Vietnam is emerging as the world’s next factory of choice for labor-intensive goods.

    One can see that in the changing composition of the country’s exports. Rice and coffee — two of Vietnam’s biggest agricultural exports — are now becoming less significant to the $61 billion economy than textiles. Footwear shipments are gaining prominence over seafood.

    China is not just making footwear, textiles, or other simple labor pieces. china long graduated into the high tech, high value, areas.. and Vietnam still has a MINIMUM of 20 years before it will see such items.

    Where I see Vietnam succeeding in geographically in the north (close to China border), acting as suppliers to Chinese who are looking to reduce their costs of simple commodity items. If I were looking at Vietnam, I would be looking there. Not at mass production of phones or motorcycles… these are items that they will import from China.

  5. John T. says:

    February 21st, 2008 at 12:50 am

    Vietnam is the next China. There’s no other country that is more similiar to China than Vietnam. Japan and Korea already developed, China and Vietnam is next in the four chopsticks civilization.

    Vietnam has many ports, due to the country coastal regions. Many ports are being expanding right now… I don’t know if you ever been into Vietnam, it seems you did not and does not understand about Vietnam as a nation and it’s people… Vietnamese are more skills than the Chinese, just ask the Taiwanese who has plants in Vietnam moving from China. Ask any British or American doing business in both countries and they tell you the Vietnamese are more of a thinker, and the Chinese are order takers.

    Take 3 weeks off, go to Ho Chi Minh City and go to Hai Phong to view the ports… Check out the new infrastructures… Check out CBRE-Vietnam…

    Yes, you are correct Vietnam in term of population and it is still behind China 10 years, not 20 years… Wake up and smell the coffee, i think you have been in China too long…

  6. Rich says:

    February 21st, 2008 at 2:08 am


    Well. I guess as your business interests lie in Vietnam’s ability to convert I am not surprised by your response, but let me clear a couple of things. I have been to Vietnam (first trip in 95), and I am fully awake.

    The ability of Vietnam to absorb a mass movement of manufacturing from China is simply not feasible over the next 5-10 years. There will be sectors that do well, Vietnam will grow for sure, but there are a lot of resources that Vietnam is missing. So what I am saying is that while I do not believe Vietnam can be a “China”, many of the underlying things that made China attractive are what makes Vietnam attractive

    I have heard that the North of the country has done well lately in over-the-border traffic with China, and that could be interesting. The question is how much more of this type of investment could be handled from a raw material, labor, transportation, other perspective….

    With that being said, one reason why Vietnam will not reach large masses of firms moving in the China sense, that that firms have a lot more viable markets now and those that invested in China will be unlikely to close up China for Vietnam. Vietnam will need to compete with firms returning home, EU firms moving to Eastern Europe, or US firms moving to Mexico.

    Vietnam was one of my favorite countries for a long time, and I think that there are a number of opportunities for firms looking at the market…. but very few will see it as having the manufacturing or market potential of China until after all the infrastructure is in place, and even then it is going to be difficult to paint that picture to many.

    Anyway, your firm looks like it is experienced and I wish you all the best.