Logistics Service Development: Full of Potential

Up to 90 percent of Vietnamese logistics companies are small and medium size, and they lack peer cooperation for integrated products. Hence, Vietnam remains a promising, untapped market for logistics companies.

Attractive market

In 2005 Vietnam officially added logistics services to the Commercial Law in order to facilitate development of the logistics services market. The degree of logistics market opening to foreign companies depends on agreements reached with partner nations, but all obstacles to foreign firms will be scrapped by 2014. However, besides the above advantages, Vietnamese logistics companies are still very young and largely unlinked, and 90 percent of them are medium and small with limited professional skills and knowledge; hence, their services are expensive and simple. As a result, foreign companies hold competitive advantages on the Vietnamese market. Insufficient, weak and asynchronous infrastructure systems like roads, seaports, handling equipment and warehouses also strongly influence the development of logistics services sector in our country.

According to Mr Bui Ngoc Loan, President of the Vietnam Freight Forwarders Association (VIFFAS), legal regulations, policies, laws, administrative procedures, customs and taxes procedures are inconsistent, unclear and costly for logistics service providers.

Mr Loan added that although the logistics service market expands 15-20 percent annually, the capacity of market remains modest (about 2-4 percent of GDP). Worse, 60 -70 percent of this market is in the hands of foreign giants.

According to Mr Loan, this challenging picture has been recently lightened by several domestic companies pursuing 3PL (third party logistics – providing integrated logistics services, using modern information technology) to form a globally reputable network.

According to the World Bank (WB), in 2010, Vietnam ranked 53rd out of 155 countries on the Logistics Performance Index (LPI), a barometer of efficiency in logistics. This was a medium position within the ASEAN bloc.

Industry leaders point out that Vietnam is an attractively profitable market for logistics companies.

Competition-edging solutions

Mr Nguyen Hung, Deputy Director of South Logistics Joint Stock Company (Sotrans), said: The State needs to make proper investments for seaports, airports, inland clearance depots, roads, railways, warehouses, waterways, bank and insurance equipment. It also needs to upgrade transport infrastructure, build the legal framework, and ensure consistency and practicality of legal documents and regulations related to the logistics sector, to provide the basis for healthy logistics market development.

According to Mr Hung, the Vietnam Freight Forwarders Association must be more active in managing and protecting the rights and interests of its members, especially training human resources and guiding its members to access and penetrate foreign markets, as well as improving customs, import and export procedures.

Meanwhile, Mr Loan said, to enhance the competitiveness of the logistics market, Vietnam needs transport infrastructure investments to create a strong foundation for logistics activities: Implementing the seaport planning until 2020 and towards 2030; road transportation development planning until 2020 and towards 2030, and especially the comprehensive study on the sustainable development of transport system – VITRANSS 2 (to be released by the Ministry of Transport). It also needs to give investment priority to key logistics programmes mentioned above.

Logistics infrastructure also includes information and telecommunications systems, among others. The Government must have policies to support and encourage private investments and the PPP (public private partnership) investment model.

Solutions for training and human resources: The process of building logistics management skills and practical skills requires time. The Government needs to institute policies assisting enterprises and schools to diversify training to meet the demand of the logistics sector. Industry associations need to seek sponsorships and international training cooperation.

Institutional solutions: The guidance of the “visible hand” of the Government is necessary. First of all, the formation of the National Logistics Commission (like in Thailand) is currently crucial to unify and manage the implementation of key programmes and boost industry coordination.

Companies are encouraged to restructure logistics activities, apply supply chain management and develop logistics outsourcing, while authorities should adjust and supplement policies to facilitate the development of logistics, remove restrictions to facilitate the operations of foreign 3PL and 4PL companies, adopt logistics specialist training policies, implement electronic data interchange (EDI) systems and non-paper transaction systems at customs and border gate points, accelerate public administration reform, and boost the transparency of public services.

Tags: vietnam logistics