Vietnam’s Rail Network Headed for Fast-Track?

December 5, 2022 Written by Mark Barnes | Vietnam-briefing

Upgrading Vietnam’s rail infrastructure and building new railroads is becoming an increasingly popular idea in Vietnam. Here’s what Vietnam wants in rail infrastructure and what it needs to make it happen.

Spanning the breadth of the Red River, Long Bien Bridge, built by the French over a century ago, was once a key arterial for the city of Hanoi.

Largely replaced by road transport and air travel, however, it now stands rusted and decayed, remnants of a by-gone era in which rail ruled supreme.

Indeed, Vietnam’s rail network has struggled to keep up with the country’s rapid economic growth. It is, however, now teetering on the cusp of being reborn, as Vietnam’s infrastructure and logistics enter a new phase of development.

Hanoi-HCMC high-speed rail may be on the cards
Last month, Vietnam’s Ministry of Planning and Investment floated the idea of a north-south high-speed railway connecting Hanoi and Ho Chi Minh City.

There are two plans on the table: one, a 250 kilometer-per-hour freight and passenger service; or two, a 350 kilometer-per-hour passenger-only service.

Even with the slowest of the two options, travel times between the two cities could be cut to a fraction of the current 32-plus hours it currently takes on the Reunification Express.

But doubts have been raised about whether the project will ever see the light of day, and with a price tag in the vicinity of US$58 billion, high-speed rail may be pie in the sky thinking.

Nevertheless, it highlights what is becoming ever clearer as the Vietnamese economy continues to grow – with the right investment and planning, railways could play a pivotal role in moving goods and people around Vietnam.

Shipping costs, carbon emissions drive need for rail in Vietnam

The air route between Hanoi and Ho Chi Minh City is among the busiest in the world. Between October 2021 and September 2022, it carried 8.5 million people between Vietnam’s two biggest cities.

The average trip between these cities creates 107 kilograms of carbon emissions, according to the International Air Transport Association. That means those 8.5 million passengers account for 909 million kilograms of carbon emissions each year.

At the same time, Vietnam is now on the record as committed to reaching net-zero emissions by 2050. Ergo, a shift away from air travel to trains may help to reach this ambitious target.

Not only that but soaring shipping costs caused by bottlenecks in supply chains as a result of COVID-19 lockdowns, highlight the need for diversification in logistics.

This manifested during the pandemic as trans-continental freight trains transported goods all the way from Hanoi to Liege in Belgium.

Reports suggest this has been running well, with three trips a week, according to the Rail Transport and Trade Joint Stock Company, which runs the freighters to Europe.

Vietnam’s rail network plan

Increasing the role of rail in Vietnam’s logistics network is not going to be easy.

Vietnam’s rail infrastructure is sorely in need of an upgrade.

The key rail artery between Hanoi and HCMC currently averages speeds of barely 50 kilometers-per-hour. This means that shipping freight between the two cities can take up to a day and a half.

As a result, it is responsible for just 6 percent of passenger transport and 1.4 percent of freight.

This underscores the uphill battle Vietnam is facing to improve the role of rail in its logistics chain.

Progress, however, is slowly being made with Deputy Prime Minister Le Van Thanh signing Decision No. 1769/QD-TTg, in 2021 to approve a national rail network plan for Vietnam.

An ambitious plan, it involves building some nine new lines with 2,362 kilometers of new track by 2030 though Vietnam’s track record with building railways on tight schedules is not particularly good.

The Yen Vien to Cai Lan railway project, which is listed as one of the nine lines to be completed in the plan, is also well over a decade behind schedule.

The project began in 2005 but budgetary constraints saw it put on hold in 2011. To date only a section from Cai Lan to Ha Long has been completed of the 131 kilometers planned.

This does not bode well for the remaining over 2000 kilometers of track outlined in the national rail plan.

Still, it bears noting that funding sources have considerably broadened since a decade back, and framework plans are better developed.

Funding rail projects in Vietnam

China is keen to invest in Vietnam’s infrastructure as part of a subsection of its Belt and Road Initiative.

In particular, China is keen to connect the border town of Ho Kieu Bridge with the port city of Hai Phong. It even handed over US$1.4 million to fund initial plans back in 2019.

But Chinese investment in Vietnamese infrastructure projects has not always gone particularly well. The Hanoi Metro, for example, built with overseas development aid (ODA) from China, ran well over both budget and schedule.

Needless to say, there is not a lot of appetite in Vietnam to engage with China on more major projects.

Alternatively, public-private partnerships (PPP) have also been touted as key to building Vietnam’s railroads.

The new public-private partnership law that took effect in January of 2021 has been specifically designed to attract investment in transport infrastructure. Though air transport and roadways have drawn the most attention, rail transport has not gone unnoticed.

In June 2022, a US$1.15 billion PPP in Southern Vietnam’s Central Highlands was approved to refurbish 84 kilometers of railway line from Da Lat to Thap Cham.

But this is just one small step with billions more dollars needed to meet Vietnam’s rail objectives.

Investing in Vietnam’s rail network

With a growing awareness of the impact of carbon emissions on climate change and rising shipping costs, the shift to rail, not just in Vietnam but around the world, shows no signs of abating. As an emerging economy, however, Vietnam faces a key challenge finding good quality finance options.

PPPs may change this, but early signs indicate that it may take some time to materialize. On the other hand, ODA may be faster and easier to access, however, given past experiences, the quality of these investments cannot be assured.

Ergo, a gap exists in funding of rail infrastructure that Vietnam is eager to fill. For foreign investors in logistics, this could well prove a good opportunity to expand their Southeast Asian logistics portfolios.