Vietnamese Logistics: A Breath of Fresh Air

In recent years, along with economic development and the growth of export and import activities and investments, logistics services in Vietnam have made great strides, especially after Vietnam began, under WTO commitments, officially opening this market to foreigners from January 1, 2009. With average annual revenue growth of 20 percent, logistics has become a promising service sector in Vietnam.

Logistics development potential

Logistics is a chain of services including the transport, packaging, labelling, warehousing and distribution of goods to dealers and retail points. Goods are always ready to be forwarded immediately upon the request. Therefore, logistics involves a system of service chains. With this system, logistics service providers help customers minimise costs in transporting, warehousing and distributing goods. The logistics industry made its debut in Vietnam only when the commodity economy picked up, especially following the boom in trade between Vietnam and other countries.

Vietnam is considered to have ideal natural conditions and geographical location for logistics development, with over 17,000 km of asphalt roads, over 3,200 km of railways, 42,000 km of waterways, 266 seaports, 20 airports and hundreds of national and international border gates across the country. According to the Ministry of Industry and Trade, logistics services in Vietnam account for 15-20 percent of GDP (about US$12 billion) – a huge value. Transportation, the most important stage of logistics, which accounts for 40-60 percent of costs, is also a huge service market. This shows the importance of logistics service, and that cost reduction here will sharpen the competitive edge of goods and services supplied by domestic enterprises. The Vietnamese logistics sector, with more than 800 companies operating at different scales, expands 20-25 percent a year on average in recent years. The logistics development potential is even higher, as Vietnam’s trade turnover growth is rated the highest in the region at 18-20 percent per annum, reaching roughly US$130 billion.

According to the World Bank, in 2009, Vietnam ranked 53rd in the world and 5th in the ASEAN bloc in the Logistics Performance Index, a measure of the extent of trade facilitation. This was the second year Vietnam ranked 53rd on the LPI index. Vietnam’s LPI score was even higher than several middle-income nations (like Indonesia, Tunisia and Honduras). Besides, as chair of ASEAN in 2010, Vietnam is a pioneering country in ASEAN to build a ‘soft’ system for logistics development. In Vietnam, this sector has not been fully tapped by local enterprises. Like other developing countries in the region, Vietnamese logistics companies mainly have small and medium business scale, leading to a certain degree of unprofessionalism. Human resources are also very limited and are not systematically trained. Schools only provide very basic knowledge of foreign trade and shipping. Small logistics companies often cannot meet the requirements of customers and the overloaded system easily leads to a market share contraction. Additionally, the market is worsened by unfair competition and weak linkage between logistics companies, leading to lower competitiveness. Moreover, an asynchronous transport system and poor service quality make shipping charges in Vietnam the highest in Southeast Asia. Vietnam also lacks deepwater and transit ports, while handling technologies in many ports are still rudimentary, leading to low productivity. More importantly, the logistics sector has not created a multimodal transport corridor meeting the requirements for high-quality transit of imported and exported goods. Ruby Ngoc, General Director of ATL (Trade & Logistics), said, the biggest restraint on the development of logistics services in Vietnam is the limited road traffic. Delivery success is based on speed and timeliness, on which business prestige depends. However, they cannot control this because their operations depend on the infrastructure conditions. Hence, they can only try their best to minimise the frequency of delayed deliveries.

It is undeniable that infrastructure, particularly transport infrastructure, is the foundation, the very heart of logistics services. This requires planners to have a good vision and orientation. The Government needs to pay attention to infrastructure investment to develop the logistics industry. Furthermore, apart from traffic infrastructure weaknesses, Vietnam also lacks the presence of large domestic logistics service providers that can undertake all stages of the logistics supply chain; thus, the best parts of logistics services are falling into the hands of foreign firms. According to the Vietnam Maritime Administration under the Ministry of Transport, the most important field of logistics is shipping. Up to 90 percent of Vietnam’s exports and imports are transported by sea. Nevertheless, domestic firms can carry only 18 percent of total imports and exports, while foreign logistics service providers handle the remainder. Vietnam has a lot of logistics service providers but most are small or medium size and provide satellite services for foreign logistics firms, like customs clearance, vehicle leasing and warehousing. The very small business scale of Vietnamese logistics firms limits their penetration into global logistics markets. What’s more, the operating range of Vietnamese companies is confined to regional countries, while foreign firms operate globally. Modern logistics chains of giant foreign companies provide customers an integrated range of services such as home delivery, cargo quality control, hanging containers for garments, data management, data terminal provision, barcode scanning, online cargo monitoring and inspection, and others. Meanwhile, Vietnam logistics companies supply only a few simple services.

Efforts in logistics industry development

In spite of many shortcomings, Vietnam has made huge efforts in logistics industry development. At present, there is good progress in this field. The seaport system is being revamped to suit national development requirements. By 2015, Vietnam will double its cargo handling capacity from the current level (about 250 million tonnes a year), according to a decision approved for Vietnamese seaport development planning on December 24, 2009. In early January 2010, the Government also approved a detailed plan on the North-South expressway linking Hanoi to Can Tho (approximately 1,811 km) to boost North-South transport capacity, adding to the current National Roads 1A and 1B. Under WTO commitments regarding the logistics market, Vietnam will gradually open up the market to international companies, including container loading and unloading services, customs clearance services, warehousing services and agent services. As of January 11, 2014, Vietnam will officially allow 100 percent foreign companies to provide logistics services. Currently, more and more big logistic companies are coming and expanding operations in Vietnam, like Schenker – a joint venture between Gemadept and Lotte Sea, YCH-Protrade DistriPark, Mearsk, APL, Diethelm and Mapletree.

Together with the investments of professional logistics providers, the IT infrastructure is also being enhanced to meet logistics development requirements. Especially, Vietnam has strived to develop third party logistics (3PL) services and has achieved initial success. Successful domestic 3PL service providers include Vietranstimex, Vinatrans, Sotrans, Vietfracht, Gemadept and Tranaco thanks to their in-depth understanding of Vietnamese infrastructure and legal conditions. Particularly, in January 2010, SplendID Technology Company applied advanced Radio Frequency Identification (RFID) in Vietnam, bringing Vietnam to the list of a few developing countries with RFID technology. Similarly, Saigon Newport Corporation has applied the container management software system at Cat Lai Container Terminal to shorten waiting and loading durations.

These steps are a breath of fresh air for expectations about the Vietnamese logistics industry. These prove that the growing logistics capacity is a reliable trend, improving views of the future of the Vietnamese logistics industry. These also strengthen the belief that, in the near future, Vietnam will become a leading logistics location in the world, reaching a new high in the international arena.

Tags: vietnam logistics