Identifier
Created
Classification
Origin
09HOCHIMINHCITY396
2009-05-26 08:17:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Ho Chi Minh City
Cable title:  

SOUTHERN SHIPBUILDING SLOWLY TRANSITIONS FROM STATE-OWNED TO

Tags:  ECON EWWT ELNT OTRA PGOV PREL SOCI VM 
pdf how-to read a cable
VZCZCXRO2415
OO RUEHDT RUEHPB
DE RUEHHM #0396/01 1460817
ZNR UUUUU ZZH
O P 260817Z MAY 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5760
INFO RUCPDOC/USDOC WASHDC PRIORITY 0136
RUEHHI/AMEMBASSY HANOI PRIORITY 3769
RUEHHM/AMCONSUL HO CHI MINH CITY PRIORITY 5996
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000396 

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
USTR FOR BISBEE
TREASURY FOR CHUN

E.O. 12958: N/A
TAGS: ECON EWWT ELNT OTRA PGOV PREL SOCI VM
SUBJECT: SOUTHERN SHIPBUILDING SLOWLY TRANSITIONS FROM STATE-OWNED TO
PRIVATE YARDS

REF: HCMC 61

HO CHI MIN 00000396 001.2 OF 002


UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000396

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
USTR FOR BISBEE
TREASURY FOR CHUN

E.O. 12958: N/A
TAGS: ECON EWWT ELNT OTRA PGOV PREL SOCI VM
SUBJECT: SOUTHERN SHIPBUILDING SLOWLY TRANSITIONS FROM STATE-OWNED TO
PRIVATE YARDS

REF: HCMC 61

HO CHI MIN 00000396 001.2 OF 002



1. (SBU) Summary: The global economic downturn has hit southern
Vietnam's state-owned ship yards hard, reducing order books to a
handful of five to 20,000 dead weight ton vessels only suitable
for domestic or regional work. Conversely, private sector
shipbuilders, both domestic and international, have leveraged
state of the art technology and skilled work forces to establish
thriving international niche construction and repair markets.
During their May 5 to 8 visit, a National Defense University's
Industrial College of the Armed Forces delegation heard time and
again that outdated technology, competing government priorities,
and state-owned shipbuilder Vinashin's allocation of new ship
orders to northern shipyards are all contributing to a slow
shift from public to private shipbuilding in southern Vietnam.
End Summary.

Nothing Vietnamese but the Labor
--------------

2. (SBU) The Vinashin shipyards in HCMC visited by the National
Defense University's Industrial College of the Armed Forces
(ICAF) delegation were low capacity, low-value added operations,
stitching together low tonnage vessels from imported inputs.
Director of the Saigon Ship Marine shipyard Mr. Le Hai Lam said
the yard built two ships last year, but because of cancellations
delivered neither. The percentage of domestic content in new
ships averages 20 percent, Mr. Lam said, although the Japanese
client for one of last year's ships provided 100 percent of the
ship's content, requiring the yard only for labor. At the
nearby Saigon Shipbuilding Enterprise, Vice General Director Mr.
Le Hong Quang quoted a similar average of 30 percent domestic
content for new ship construction, with electronics,
furnishings, and equipment all being sourced overseas, and the
steel plate imported from China.


3. (SBU) Neither shipyard is equipped to build vessels over
15,000 dead weight tons (DWT) according to Mr. Lam and Mr.

Quang, a weight category that appears to typify Vinashin's
current output. Vice Chairman of the Vietnam Shipbuilding
Industry Association (VSIA) Mr. Hoang Hung told ICAF in a
separate meeting that the majority of Vinashin's international
orders are for vessels between five and 20,000 DWT. Neither of
the HCMC Vinashin shipyards visited by ICAF had orders for new
ships beyond those that will be completed in 2010. Given the
lack of orders for new ships, both shipyards' representatives
told ICAF that repair work is what is keeping them afloat
financially.

With New Orders Down, State Shipyards Compete for Repairs
-------------- --------------

4. (SBU) According to Mr. Lam of Saigon Ship Marine, Vinashin
headquarters in Hanoi solicits shipbuilding contracts from
international customers, and then assigns the projects to
individual shipyards. As northern shipyards have better
technology, according to both Mr. Lam and Mr. Hung of the VSIA,
they receive more orders than southern yards. Individual
Vinashin shipyards are free to solicit repair work, however, and
competition for ship repair contracts has become fierce,
according to Mr. Lam, as ship owners shop around for the best
deals. Touring the repair sheds of Saigon Ship Marine, ICAF
members commented on the low level of repair work they observed,
consisting primarily of hull refurbishing and engine
replacement, with no capacity to rebuild engines or upgrade
electrical systems.

Province Opposes State-Owned Shipyard on Environmental Grounds
-------------- --------------

5. (SBU) Conflicting central government and local priorities are
hampering expansion of the state-owned shipbuilding sector in
southern provinces. High-ranking Vinashin officials such as Mr.
Do Thanh Hung, a member of the Vinashin Business Group's Board
of Directors, told ICAF that realizing Vinashin's strategic plan
to become the world's fourth largest shipbuilder by 2020 will
require building new and upgrading existing shipyards. Yet
Chairman of the Ba Ria Vung Tau (BRVT) Provincial People's
Committee Mr. Tran Minh Sanh, held a more circumspect view of
Vinashin's ambitions. Although a complex of state of the art
port facilities under construction in the province will render
BRVT Vietnam's shipping gateway to the world (Reftel),Mr. Sanh
told ICAF that "shipbuilding was not a major part of the
province's development plan." He noted repeatedly that the
province had not agreed to Hanoi's proposal to locate a
state-owned shipyard in the province because of concerns that
the project would not operate in an "environmentally sustainable
manner."

HO CHI MIN 00000396 002.2 OF 002



Private Sector Shipyard Giving Overflow Work Away
-------------- --------------

6. (SBU) Majority owned by private Vietnamese investors, the
congested but well-equipped Vung Tau Repair Shipyard 90
kilometers from HCMC is booked solid for months in advance with
ship repair contracts. As Deputy General Director Mr. Luu
Phuong led the ICAF delegation through the overcrowded facility,
he pointed out numerous specialty lathes, borers and other state
of the art repair equipment "found at no other shipyard in
Vietnam." He noted that because this equipment allows him to
rebuild engines as well as service propeller shafts on specialty
vessels such as oil rig service ships, his is the repair
shipyard of choice for international ship owners. He told ICAF
he typically refers his overflow of nine to ten major repair
jobs a year to a military shipyard in HCMC. Major expansion
plans are on hold, however, because of difficulties in obtaining
capital.

International Sector Building Most Advanced Boats in Vietnam
-------------- --------------

7. (SBU) Open only three months, Australian shipbuilder
Strategic Marine has developed the workplace culture,
highly-skilled labor force and state of the art equipment that
allow it to exploit highly profitable niche markets. The expat
General Manager described the above average wages, emphasis on
safety (each of the 2,500 workers receives first aid training),
and numerous perquisites, including free health care for
workers' families that that make Strategic Marine the
shipbuilding "employer of choice". Bar codes on workers' badges
specify skill sets, be they project manager, naval architect or
aluminum welder, many of whom Strategic Marine has sent for
training overseas. Unaffected by the economic downturn, the
shipyard is constructing 40 specialized high speed aluminum
craft for military or off shore oil support use in Singapore,
Nigeria, and New Zealand, and has orders for dozens more.


8. (SBU) ICAF faculty ended their visit with mixed views on both
Vinashin's accomplishments to date and the firm's future
prospects. They questioned the viability of Vinashin's stated
goal of becoming the world's fourth largest shipbuilder by 2020.
In fact, they attributed Vinashin's recent rapid growth more to
its coincidence with a global shortage of shipbuilding capacity
than to any inherent competitive advantage. (Note: Vinashin
enjoyed averaged annual revenue increases of 140 percent from
2003-2007, which catapulted Vietnam from 14th to 7th among the
world's shipbuilders. End Note.) Faced with a five year wait
for a Korean vessel back in 2006, shippers contracted with
marginal shipyards they normally wouldn't have dealt with. Now
that the boom is over, Vinashin appears stuck in a default niche
of constructing five to 20,000 DWT vessels which major
international shipbuilders "no longer consider worth their
while", said one ICAF faculty member.

Comment:
--------------

9. (SBU) The contrasts between that state owned and private
shipyards visited by ICAF are striking. Importing virtually all
inputs, from propellers to fog horns, while contributing
primarily labor, Vinashin's HCMC shipyards resemble Vietnam's
low-value added garment industry. Conversely, Strategic
Marine's production of customized aluminum vessels, individually
designed for various international clients, resembles custom
manufacturing more than traditional shipbuilding. Shipbuilding
has a future in southern Vietnam, but it more likely lies with
the innovative private sector than with the under-capitalized
and centrally-directed Vinashin plants. End comment.


10. (U) This cable was coordinated with Embassy Hanoi.
DICKEY