Logistics Vietnam: Great opportunities but difficult to develop

VCN – With further economic integration, Vietnam has great opportunities to develop. However, challenges together with existing inadequacies have made a dream of a new image for Vietnamese logistics a difficult task to be achieved. 
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logistics vietnam great opportunities but difficult to develop

Logistics Vietnam must change quickly and remove its shortcomings to take advantage of opportunities for development. Photo: Dang Nguyen

Great opportunities for development

According to Deputy Minister of Industry and Trade Tran Quoc Khanh, with a current total import-export turnover of over US$ 400 billion with potential increase and fast growth of the economy, the opportunities for development of the logistics service are great. Thus, the State always encourages Logistics Vietnam Companies to grasp the opportunities.

Talking with a Customs newspaper correspondent, Associated Prof. Dr Trinh Thi Thu Huong, Vice Dean of Economics and International Business Faculty of Foreign Trade University analysed, opportunities for logistics Vietnam service appeared 10 years ago, especially after Vietnam joined the World Trade Organization (WTO). This potential has been more realized in the integration context where the trade in goods between Vietnam and other countries is increasing.

“Regarding the trade promotion, how to reduce the cost and time of transport of goods from Vietnam to foreign countries and vice versa to the lowest level is a concern of the logistics service. The development of trade will lead to the development of logistics service in order to meet the trend. Concerning the trade facilitation, if the cost reduces US$ 1, the trade value will increase to US$ 70. In my point of view, 2018 is the key year of integration, which brings great opportunities, but will logistics Vietnam companies as well as agencies and ministries create chances to grasp those opportunities or not?”, Mrs. Huong emphasized.

Analysing advantages of the logistics service in general and logistics Vietnam companies in particular in the integration process, some experts said that Vietnam has more advantages when owning almost all the warehouses and yards for the logistics service and understanding the market, customer’s interests, geography, weather, culture of local citizens, than foreign companies. Vietnamese labourers are smart to understand foreign processes and advanced technology.

In addition, Vietnam seaports have been invested and built on a large scale to make possible the reception of ships with capacities of over 100,000 tons and 70 international flight paths respectively. which are advantages for logistics service development. Moreover, Vietnam is always in trade deficit with materials, machinery and equipment. This is a good market for Vietnam logistics companies. In the past, Vietnam importers mainly bought goods under the CIF condition (it meant that the seller decided the shipper), now Vietnam importers have gradually shifted to FOB condition. This brings opportunities for logistics Vietnam companies to exploit.

Many challenges

In addition to advantages, the Logistics Vietnam service also faces many challenges such as poor, inconsistent and restricted infrastructure. Logistics companies are small scale and operate independently without professionalization, coordination and association, so competitiveness is limited. About 1,300 Vietnamese enterprises operate in logistics service and are mainly small and medium size enterprises, accounting for 25% of the market share. Meanwhile, the country has 25/30 international leading delivery groups engaging in investment and business in logistics service in many forms and accounting for 75% of the market share.

One of current notable shortcomings of logistics Vietnam is high cost. Mr. Le Dang Doan said “normally, logistics fees only account for 12-14% of GDP, but in Vietnam these fees account for 21-23% of GDP. The Vietnam’s logistics fees are two times higher than the world’s average fees, in which the fees for transport, loading, port and other fees are also high. This increases costs for enterprises, increases Vietnamese product prices and reduces the competitiveness of Vietnamese products.

According to Mr. Le Duy Hiep, Chairman of Logistics Vietnam Association (VLA), the shortcomings of Logistics Vietnam companies are that the service fees are uncompetitive, quality of some services are not appreciated. This is mainly due to the restriction of scale, capital, experience, management qualification, IT application, as well as human resource qualification.

Improving quality and reducing costs

Actually, during the past time, the knowledge and legal basis for development and management of logistics services has been improved. From mid-February, 2017, the Prime Minister approved “Action plan to improve the competitiveness and development of logistics service by 2025”. This is the first time that the logistics service has a comprehensive national action plan on logistics service in order to take the import and export industry for new and modern progress. In which, according to many experts, the outstanding point in the State guidance and management is the assignment of 60 groups of tasks relating to perfect the legal basis, policies, infrastructure and improve capacity of enterprises, service quality and develop logistics market to all relevant levels and units.

The experts also said that in order to carry out the plan smoothly and effectively together with the socialization of the investment, the annual state fund in the expenditure estimates under management decentralization of projects and tasks must be ensured. Furthermore, the National Steering Committee for ASEAN Single Window and National Single Window and Trade facilitation should supplement the function of management and operation of logistics services and play a leading role in guiding the implementation of the plan for development for a fair logistics market, creating a fair business environment for all enterprises in many economic fields in accordance with Vietnamese law and international treaties to which Vietnam has acceded.

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From shortcomings on quality and cost of the logistics service, many experts also assessed that in the coming time, improvement of quality and reduction of costs are urgent solutions to improve the competitiveness for the service. Mr. Le Dang Doanh noted “in order to reduce costs for enterprises, transport by waterway, railway, river way, seaway and connection between transporting vehicles should be strengthened. Especially, Vietnam has to take advantage of IT to cut waiting time. The State needs to cut fees and procedures. Currently, the Prime Minister has guided, so the logistics service should be improved in order to reduce costs and time”.

According to Decision No. 200/QD-TTG dated 14th February 2017 of the Prime Minister on approval of “Action plan to improve the competitiveness and development of logistics service by 2025” with a target to 2025, the logistics service shall contribute 8%-10% to GDP, its growth rate shall reach 15%-20%; the rate of logistics leasing shall be 50%-60%; the logistics fees shall reduce 16%-20% of GDP and Logistics Performance Index (LPI) shall be ranked No. 50 or more.

Moreover, focusing on attracting investment in logistics infrastructure, building logistics centers at regional level and international level, improving the efficiency of connection between Vietnams and other countries, brining Vietnam to be a leading logistics point in the region; developing leading logistics companies which have competitiveness in the domestic market and international market, at the same time, supporting for development of logistics service companies in modernization and professionalization.

By Duc Quang/ Huyen Trang

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