Poor infrastructure means high logistics fee and low competitiveness

The World Bank released a report on January 15 concerning Logistics Performance Indicators (LPI) of 155 economies, revealing that Vietnam ranked the 53^rd again.  The results indicate that Vietnam has not made any progress in the last few years.

In early June 2009, Vietnamese export companies and shipping firms heard the good news that the Cai Mep deep water port complex in Ba Ria-Vung Tau was open.

Cai Mep opening applauded

Cai Mep port is capable of receiving medium-scale container ships of 3,000-7,000 TEU. A lot of shipping firms immediately docked their containers ships at the port: APL brought 4,250 TEU, MOL 5,350 TEU and Hanjin 4,000 TEU.

Cai Mep port lessens the total time to ship goods from Vietnam to the US to only two or three days, because ships can go directly to the US instead of stopping in Hong Kong or Singapore.

Before Cai Mep was put into operation, goods went to Hong Kong or Singapore and then were transferred to bigger ships heading to the US. The longer itinerary of export goods cost Vietnamese exporters more money and they had to endure high risks during the shipping, loading, and re-loading of goods.

Dr. Thai Van Vinh, a shipping expert  and lecturer at Australian Tasmania University, said that Cai Mep has obviously brought benefits to many involved parties, most especially to Vietnamese exporters.

The more favorable sea route has also brought more opportunities. Importers prefer placing orders with businesses that can provide direct shipping.

Infrastructure still poor

Professor Michael Porter, at a HCM City workshop in late 2008, suggested that Vietnam should prioritize logistics development in its plan to develop the national economy.

Yet Vietnam has not done so, according to Ngo Thanh Minh, Head of MGC Institute of Logistics.

An estimated 800-900 enterprises provide logistics services, but most are newly established and thus remain weak financially and in capability. These companies hold 25 percent of the logistics market share, while the remainder is covered by foreign firms.

According to Nguyen Tuan Hoa, a member of the HCM City logistics development projection team, most ports in Vietnam are small, while only 14 out of 150 ports are considered as medium-scale, including Hai Phong, Cat Lai and VICT. HCM City ports with the largest volume of goods every year are situated on rivers.

In 2009, the total volume of goods passing through Vietnam’s ports was 4.8 million TEU.  Of that number, 3.4 million TEU (70 percent) came through ports in HCM City.

According to Hoa, Vietnam loses $1.7 billion every year to carry export goods via transit ports. On average, enterprises spend $400 more to take roundabout routes. The figure may be double or triple if import goods are counted.

Experts have pointed out that poor infrastructure has made logistics fees of Vietnamese businesses much higher than that of other countries.

In the US, logistics expenses are equal to 9.5 percent of the GDP. The figure is 11 percent in Japan, 16 percent in South Korea, 21.6 percent in China, while it is very high in Vietnam, at 25 percent, or $17-18 billion per annum.

“Vietnam lacks deep water ports to receive big ships, but has other, redundant ports.” Hoa explained. “Meanwhile, international trade keeps growing by 20-25 percent per annum.”

VietNamNet/TBKTSG

Tags: Vietnam Infrastructure, Vietnam logistics fee