Logistics ripe for development

Logistics services are highly profitable businesses and vital to the economic performance of any country. Viet Nam News spoke to Nguyen Tham, vice chairman of the Viet Nam Freight Forwarders Association on the country’s logistics industry.

What are Viet Nam’s advantages for developing logistics services?

In my opinion, we have some advantages to developing logistics services.

Firstly, the legal framework has been gradually amended to make it suitable to the country’s global economic integration as well as its economic development.

Secondly, full membership in the WTO, ASEAN and the normalisation of trade relations with the US create the right conditions for the development of many industries and services, including logistics.

Thirdly, Viet Nam has a long coastline, and shares borders with China, Laos and Cambodia, which can create favourable conditions for providing transport services, especially multi-channel transport, an important factor in logistics service chains.

Last but not least, local logistics enterprises have acknowledged that they have to move forward to ensure their presence in the domestic market as the country integrates deeply in the world market because the Government can’t protect them forever.

Vietnamese logistics businesses, however, take only a small slice of the domestic pie, at 20-30 per cent. What are the main reasons for this unsatisfactory performance?

I must say that logistics companies are facing a lot of difficulties during the integration period. Our statistics show that we have 800-900 companies in the logistics industry 80 of them private companies with small registered capital of VND500 million -1 billion (US$26,000-53,000) each. With such limited capital, they failed to meet the requirements for joining the world’s logistics market.

Due to inadequate capital, domestic logistics companies also do not have overseas representative offices at a time when logistics are being provided on a global scale. I think this is the biggest challenge for local enterprises.

Moreover, instead of buying FOB (Free on Board) and selling CIF (Cost, Insurance and Freight) as previously, most Vietnamese companies signed contracts to sell FOB and purchase CIF. This means they lose out on a huge portion of the total cost of the chain logistics service to foreign corporations.

A lack of co-operation is also problematic. Logistics firms, who are primarily small- and medium-sized, would save a lot of money by co-operating in management, administration procedures and office rentals.

What should the Government do to help the firms overcome these challenges?

Merging local firms with sufficient financial capacity, human resources and technology to allow them to compete with foreign companies should be given top priority. In this case, the role of the Government is important. The Government should build policies to merge some State-owned logistics companies to become stronger ones which would have sufficient capital to provide logistics services in Viet Nam and overseas.

Currently, even some 100-per-cent or 50-per-cent State-owned logistics companies fail to meet capital requirements.

I also suggest that the ministries of Planning and Investment and Industry and Trade should issue guiding documents for investors to invite local logistics firms to bid on projects in the country. This would create opportunities for local logistics firms to fairly compete with foreign competitors. Winning or losing depends on their internal capacities.

Besides, the legal framework should be further improved to meet international standards.

According to the Free Trade Agreements (FTAs) it has signed, Viet Nam will open the domestic logistics market to foreign corporations by 2012. By then, there will be a lot of 100- per-cent foreign invested corporations set up in the country. Is there any opportunity for local logistics firms?

Opportunities are available if we have strong logistics companies that can effectively compete with foreign ones. If this is what we want, mergers are the only choice.

Assistance from the Government is also necessary.

As the market fully opens, more foreign firms with strong financial capacities and rich experiences will come to Viet Nam. We could lose the home market if we do not prepare well.

In my opinion, conquering the local market should be the first step of local firms. When they gain sufficient strength, they should start bidding overseas to acquire market shares abroad. — VNS

Tags: vietnam logistics