Shifting Trade Winds: How trends, tariffs and tech create new cargo routes

VIETNAM ↔ UNITED STATES

In Vietnam today, the growth of manufacturing has largely outstripped expansion of its transportation facilities. “Every carrier likes to fly to [SGN], especially as production moves from China to Vietnam,” said Nguyen Thai Son, deputy managing director of cargo handler Saigon Cargo Service Corp. “Most brand-name products famous in world markets now have some items produced in Vietnam.”

Exports and imports are nearly balanced at SGN, Nguyen said, with about 52 percent exports and 48 percent imports. Perishables, e-commerce products, machinery and raw materials are imported, while export commodities to the U.S. include apparel and textiles, footwear, mobile phones, electronics and machine parts.

According to the U.S. Department of Commerce’s International Trade Administration, the increase in factories in Vietnam has led the developing country to make significant investments in airport construction and upgrades to handle demand. Key airport development projects include US$487 million to upgrade Hanoi’s Noi Bai Airport (HAN) and $548 million for SGN’s expansion. Planned new airport projects include the $4 billion Long Thanh International Airport, 40 kilometers east of Ho Chi Minh City, as well as Phan Thiet Airport on the southern coast, Sapa Airport in the far north, and under-construction Van Don Airport in Quang Ninh.

Andrew Chen, country manager for Dimerco Vietfracht (JV) Co., Ltd., in Vietnam, said that, since there are no direct flights from Vietnam to the U.S., all freight must be sent via major transit hubs, such as Hong Kong (HKG), Taipei (TPE), Singapore Changi (SIN), Guangzhou Baiyun (CAN), Incheon (ICN), or Tokyo Narita (NRT) and connect to the U.S. “So, the capacity situation is affected by other Asian countries’ export demand,” Chen explained.

However, despite the efforts to beef up capacity in Vietnam, there are conflicting reports about how much room there is for the expected growth.

For example, according to Dimerco, the country’s air export and import volume, compared with the available cargo processing capacity at its major air hubs – SGN and HAN – add up to an average capacity utilization rate of only 60 to 65 percent, suggesting that current terminal capacity will be sufficient for the next three to five years.

Others say the increase in air cargo volume has not yet hit its peak. Thuy Pham Bao, assistant to the general director of Tan Son Nhat Cargo Services and Forwarding Co., said the cargo flow from Vietnam to the U.S. is still stable, but that may change, depending on what happens with global tariffs. “The manufacturers are considering shifting to Vietnam, but that may be in two to three more years,” he said.

One other source familiar with the Vietnam air cargo market, who wished to remain anonymous, told Air Cargo World that “all airlines are now at full capacity, as are all warehouses,” in Vietnam. “Most carriers [at SGN] are not accepting cargo for at least two weeks,” he said in mid-September, adding that Japan Airlines’ warehouse at Narita was refusing cargo from Vietnam until Sept. 30. “It’s really crazy now,” the source said.

Meanwhile, at SGN’s cargo terminal, Saigon Cargo’s Nguyen said there is capacity to handle extra cargo, but he added that his competitors “are completely full.” From his perspective as a handler, “it’s no issue,” he said. “The airport has issues allocating slots, and passenger aircraft take priority. But the airport has acquired land from the military, and there’s a 100-hectare golf course adjacent to the airport.”

Saigon Cargo Service is in the first phase of development for the international cargo terminal and has expanded its capacity to 250,000 tonnes per year. The company is also preparing to handle more pharmaceutical cargo imports and is exploring CEIV-Pharma certification. “We handled 165,000 tonnes in 2017, up from 140,000 tonnes in 2016,” Nguyen said. “We have a very good perishables center, now. Each year we’re seeing general cargo [export/import] from SGN increase by 10 to 15 percent.”

Amazon visited Saigon Cargo’s terminal and plans to put a warehouse in Vietnam in the near future, Nguyen said. “I’m sure they will forward-stock much of the inventory, but some of the items they may ship from overseas,” he added. “Plans call for goods to be moved by air to their local warehouse. In this case, Amazon would work with a carrier, and we will handle if the airline is our customer.”

Delta Cargo has had a sales presence in the Vietnamese market since 2009, serving customers in Hanoi, Da Nang and Ho Chi Minh City, said Eric Anderson, director of sales for the Asia-Pacific region. He told Air Cargo World that Delta Cargo is currently focused on growing its Vietnam-U.S. presence via its joint venture partnership with Korean Air, which has 11 multiple daily flights that connect to the U.S. via Seoul. Next April, the carrier will begin a direct Seoul-Minneapolis flight, using a 777-200ER.

“With our newly implemented joint-venture agreement with Korean Air, accessibility and our network footprint has expanded significantly via our Seoul Incheon hub,” he said. “We have seen robust growth in the Vietnam market for the last several years, and this year we continue to see strong growth in our cargo activity between Vietnam and the U.S. This growth is generally not driven by one event, and we believe that long term growth in Vietnam will be sustained.”

Joanna Li, vice president, SCO and CCO of AirBridgeCargo’s Asia and Pacific regions, said that Vietnam “has some advantages in the way it has been managing high-tech production, while other Southeast Asian countries are still more focusing on ready-made garments.”

With the signing of a memorandum of understanding for the purchase of new airplanes and ABC’s intention to enlarge its fleet further in the next 10 years, “if the need arises, ABC will be able to provide sufficient capacity to the market of Southeast Asia,” Li said. However, there are infrastructure limitations in certain airports, such as proper runway and parking spaces for ABC’s 747- 8Fs, as well as some security concerns. Still, for airlines, the concerns over demand and yield are always primary factors in the decision to fly into these new airports or not.

Li added that the industry is eagerly anticipating the new Long Thanh International project, as it will be able to handle 5 million tonnes of airfreight per year after completion of its final stage in 2050. In the meantime, she said, other airports in the region have an excellent opportunity to attract cargo traffic by creating more favorable conditions for cargo airlines, truckers and ground handlers, with dedicated cargo facilities and premises.

“Nevertheless, to expand our coverage in Vietnam, we have recently added SGN into our network in addition to Hanoi,” Li continued. “Therefore, ABC would be able to cover these growing markets easily in case of boosting demand in the near future.”