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Vietnam’s logistic costs remain high compared to regional and global average

10:25 | 28/11/2020

The logistics sector is widely regarded as a key ingredient for Vietnam's competitiveness and inclusive growth, although the country’s logistics costs remain high in comparison to the regional and global average, according to insiders speaking at the Vietnam Logistics Forum 2020 held on November 26 in Hanoi.

The forum is running with the theme of "Reducing logistics costs, improving business environment, enhancing competitiveness in the context of international economic integration" and is being held with the aim of helping to improve the competitiveness of businesses. This is amid deeper international economic integration, while simultaneously recovering from a loss in growth momentum caused by the various impacts of the novel coronavirus (COVID-19).

During the forum, Secretary of Hanoi Party Committee Vuong Dinh Hue emphasised that the country’s logistics industry is currently ranked third in Southeast Asia, with a scale of between US$40 billion and US$42 billion. Indeed, the current rate of logistics costs can still be considered to be high, therefore serving to reduce the competitiveness of local firms.

With the goal of developing Hanoi into a major trade exchange hub for the country and the wider region, the capital has proposed many solutions aimed at attracting investment in order to develop commercial and service infrastructure, including logistics infrastructure.

Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI), underlined the need to develop an advanced logistics sector that features higher levels of international competitiveness amid intensive international integration following several new-generation Free Trade Agreements (FTAs) coming into force.

With over 4,000 logistics enterprises currently operating in the market, the cost of Vietnamese logistics remains high, making up approximately 20.9% of GDP, a far higher rate compared to other regional countries, double that of developed economies, and higher than the global average of 14%.

He added that transportation costs are also too high, making up between 30% and 40% of product costs, while the rate accounting for roughly 15% in other countries.

Loc therefore underscored the importance of improving logistics activities in relation to infrastructure, administrative procedures, and linkages among domestic companies.

At present, the market share of local logistics services can be viewed as being overwhelmed by foreign businesses, while domestic enterprises hold only 25% of the market share of logistics services.

Stefanie Stallmeister, operations manager of World Bank for Vietnam, pointed out that the country has steadily improved in terms of Logistics Performance Index, moving from a rank of 53 in 2010 to 39 in 2018. This represents a stronger performance in the rankings compared to its regional neighbours, including Malaysia, Indonesia, and the Philippines, but trailing behind Thailand, Singapore, China, and Hong Kong (China).

Stallmeister noted that the country’s integration into global and regional markets through the Regional Comprehensive Economic Partnership (RCEP) and the EU-Vietnam Free Trade Agreement (EVFTA) has increased the impetus to boast a strong and competitive logistics sector.

These trade agreements will serve to generate greater trade between the nation and its trading partners, thereby boosting economic growth and reducing poverty. An increase in trade flows will also boost demand for better and more competitive logistics services.

According to the WB official, two new trends have emerged from the COVID-19 pandemic that can be seen as relevant for the domestic logistics sector, including an acceleration of e-commerce and the use of digital platforms nationwide.

She went on to reveal that businesses are turning to e-commerce and digital platforms in an effort to reach consumers more easily, especially during periods of reduced operations and mobility restrictions. Indeed, customers are also becoming more comfortable with digital tools in order to purchase goods and services.

In a World Bank survey conducted in June, almost 50% of businesses reported an increase in their use of digital platforms as a way of adapting to the COVID-19 pandemic. As the trend of e-commerce accelerates, there will be an increase in demand relating to logistics services and the need for last-mile delivery.

Furthermore, the use of digital technology solutions will also help to improve efficiency and offer new services for customers. By adopting digital technologies, companies will be able to offer cargo visibility and traceability, whilst also communicating with customers online. This will require investment in technology such as the Internet of Things (IoT), cloud computing, automation, and data analytics. In addition, frontier technologies, such as robotics, drones, and autonomous vehicles can also increase the efficiency of logistics service providers, she stressed.

Source: VOV