Vietnam’s logistics industry has many natural advantages and is well placed to help develop a regional hub, or free port, but it will lose the opportunity if it does not act in haste.
 |
Sai Gon Port in HCM City’s District 7. Revenues from Viet Nam’s logistics services account for 15 to 20 per cent of national GDP, which is estimated by the World Bank to be at US$93.5 billion for 2009. |
LookAtVietnam – Vietnam’s logistics industry has many natural advantages and is well placed to help develop a regional hub, or free port (called logistic parks), but it will lose the opportunity if it does not act in haste, experts caution.
According to the Viet Nam Freight Forwarders Association (VIFFAS), there are around 800 Vietnamese businesses in the logistic sector and HCM City’s Department of Planing and Investment grants a licence for a logistics company every week, demonstrating the attractiveness of the industry.
A senior expert for the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) said revenues from Viet Nam’s logistic services account for 15 to 20 per cent of the GDP which is estimated at US$93.5 billion for 2009 by the World Bank.
However, all Vietnamese logistic businesses take only a very small slice of the domestic market pie at 35 per cent. About ten foreign logistics corporations including Maersk Logistics, MITSUI OSK, APL and Logitem dominate the market.
Logistics means a chain of services to receive and deliver goods, including a lot of links such as freight, transportation, customs clearance and storage.
Given this, Viet Nam is believed to have conditions and terrain highly favourable for developing the logistics industry. It is one of few countries having all kinds of traffic with over 17,000 kilometres of asphalted road, over 3,200km of railroads, 42,000km of waterways, and 49 seaports and 20 airports.
However, according to Nguyen Hung, office manager for the Viet Nam Freight Fowarders Association (VIFFAS), the domestic logistics industry faces a lot of difficulties, especially the inadequate traffic infrastructure that is unable to meet the demand for cargo transportation.
Except for HCM City’s Tan Son Nhat Airport, others, including international airports such as Noi Bai in Ha Noi and Da Nang in the central city of the same name are not equipped for the operation of freight planes.
Without routine maintenance and development, most asphalted roads and railroads have been downgraded and are too narrow, limiting cargo transportation nation-wide.
Marine transportation is believed to be the most important link in the chain of logistic services because up to 90 per cent of imports and exports are transported through the sea, but it is also believed to be the weakest part of Viet Nam’s logistics industry.
Vietnamese shipping companies can only cover 18 per cent of the total demand and the remaining huge chunk is controlled by foreign corporations.
“We do not have any deep seaports to dock large-sized cargo ships of over 80,000 DWT and container ships of over 6,000 DWT so far,” said Hung. “Besides, the connections between seaports and roads, railroads and canals have not been completed, decreasing cargo transportation capacity from seaports to land.”
Moreover, because they do not have complete marine transportation capabilities, most Vietnamese companies are forced to sell FOB (Free On Board) and purchase CIF (Cost, Insurance and Freight). This means Vietnamese companies without their own fleet lose out on a huge portion of the total cost of the chain of logistic services to foreign corporations.
Apart from backward traffic infrastructure, Vietnamese logistics firms face many other barriers. Most of them have no representative offices outside the country, and thus cannot land large contracts providing logistic services in Viet Nam to international corporations, because bids for such contracts, are organised outside Vietnamese territory.
Not surprisingly, the contracts are invariably snapped up by multinational corporations.
Unprofessional staff
A major stumbling block to optimal development of the logistics industry in Viet Nam is that there is a serious lack of qualified staff and the IT systems used are not up to date or professional enough.
Another weakness of Viet Nam’s logistic industry is low competitiveness. There are too many Vietnamese logistic companies, most of small size with a registered capital of around VND1.5 billion (US$79.000). With many companies competing for the small market share of 35 per cent, several have used “tricks” to get contracts, industry insiders say.
There are very few Vietnamese logistic companies with the capability to provide a complete service package. They mostly receive part of a service package from leading foreign logistic corporations, which means that they are just sub contractors.
Viable solutions
The most important opportunity for Viet Nam is believed to be the trade liberalisation process. After signing many free trade agreements with WTO, ASEAN and APEC members, trade between Viet Nam and foreign countries is expected to boom in the near future, resulting in a boom in demand for logistics services.
To exploit this opportunity, Vietnamese businesses need to improve their capabilities through a variety of measures, experts say.
Nguyen Hung said Vietnamese logistic companies could not compete with large foreign corporations directly at present, so they should co-operate with foreign partners.
An emerging co-operation model is 3PL (third party logistics), meaning Vietnamese logistics companies act as their foreign partners’ agency in Viet Nam.
However, apart from the enterprises’ efforts, the sector needs supportive policies from the Government, especially in improving infrastructure and reforming administrative procedures.
Focusing on coastal economy development, the Government has expedited the building of deep seaports like Van Phong and Cai Mep. However, the Government should also ensure synchronous development of logistics infrastructure including overland road systems, logistic entrepots and IT systems.
Experts said that for example, if the Government were to complete an overland road system connecting Viet Nam with Laos, Cambodia, southern provinces of China and Thailand early, Vietnamese deep seaports would become important entrepots for this region. But if Viet Nam hesitates, the opportunity will drop in hands of neighbouring countries like Thailand, China.
According to the Free Trade Agrrement (FTAs) it has signed, Viet Nam will open the domestic logistic 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, and if they are not well-prepared, Vietnamese logistic companies will find it very difficult to compete with giant foreign competitors.
Logistic services are seen as the blood vessels of the economy. If the industry develops well, circulation of goods and services will improve and make the economy stronger and resilient.
VietNamNet/Viet Nam News