The arrival of the TPP presents Vietnam’s logistics sector with the possibility of becoming a key part of regional and even global transport if cooperation comes from other sectors and also authorities to help it develop.

The Word Bank has forecast economic growth of 12 per cent by 2020 with export and import turnover standing at $623 billion, bolstering Vietnam’s already solid reputation as an investment destination of choice. Its logistics sector, as demand increases, is in need of better quality services to seize the potential on offer. 

According to the Vietnam Logistics Association (VLA), logistics costs in Vietnam represent 25 per cent of annual GDP; significantly higher than in countries such as the US, China and Thailand. When the TPP officially comes into being tariffs on tens of thousands of goods will gradually come down to 0 per cent, boosting Vietnam’s imports and exports and requiring a logistics sector that can cope.

Yet Vietnam’s logistics providers are still to find common ground with exporters. Most are of small and medium size and short on capital and infrastructure such as warehousing, IT, and even vehicles. 

Losing at home

Logistics are an important link in an economy’s value chain, delivering goods in a timely manner so that consumption and production continue unheeded. Efficiency among domestic logistics providers, however, has long been at a low level.

Most are only able to provide Second Party Logistics (2PL) services, while the foreign competition primarily focuses on Third Party Logistics (3PL) services. 

Transport infrastructure is a pressing issue, with road networks failing to keep up with industrial growth. Customs procedures, meanwhile, are too often inflexible and slow down deliveries. Waterway transport remains underdeveloped and unable to share the burden with road transport. Warehousing and goods transit centers have suffered from an absence of planning, while industry players are yet to establish a level of cooperation where most if not all can benefit. 

Costs, though, are perhaps the greatest problem in the sector. Mr. Le Phuoc Vu, Chairman of the Hoa Sen Group, has raised the matter of cost at many logistics conferences, saying it eats into the competitive advantage held by Vietnamese enterprises. The country’s ports operate poorly and lack modern infrastructure, in some cases tripling costs. International shipping fees continue upwards, to the detriment of importers and exporters alike. 

Equal market

The problem blighting domestic logistics providers easily explains why their foreign competitors hold the lion’s share of the market. According to the VLA there are 1,300 logistics enterprises in the country, with the 25 foreign enterprises holding about 80 per cent of the market share. Domestic enterprises are mostly involved in minor segments, such as storage and completing custom procedures.

According to Mr. Do Xuan Quang, Chairman of the VLA, of the $37-$40 billion spent each year on logistics, foreign companies dominate with $30-$35 billion. The vast majority of Vietnamese enterprises are only second or third distribution agents for foreign enterprises. Local enterprises only meet some 25 per cent of demand and simply focus on certain links in the value chain.

The reason, Mr. Tran Chi Dung, Director of the Vietnam Logistics Institute (VLI), believes, is that Vietnam is short of the necessary human resources and those that are employed lack skills and professionalism. Technology is also an obstacle, as it is elsewhere in the economy. The legal framework remains unclear, he added, making it difficult to implement projects that would benefit the logistics sector.

The divide in market share, he went on, is understandable and the result of globalization. Logistics are a major business cost, especially overseas shipping, so Vietnamese enterprises need to identify what market segment they can gain and which segments would naturally belong to foreign enterprises. “The state of the sector reflects the ability of the Vietnamese enterprises and the amount of investment they have made,” he said. “To win market share they need to increase their investment and the right policy support is needed from the government.”

Potential still

Though facing major competition from foreign enterprises, many experts still believe there is a good future ahead for local logistics enterprises, especially given that the free trade agreements (FTAs) signed and the TPP will boost foreign direct investment (FDI) flows into Vietnam’s manufacturing sector. Infrastructure, while still poor, is undoubtedly improving and links are being created between manufacturing areas and product destinations. Other obstacles, like customs procedures, are also getting better.

Over the last two years a number of major infrastructure projects have been completed or broken ground, such as the Long Thanh - Dau Giay Highway, the Noi Bai - Lao Cai Highway, the Hanoi - Hai Phong Highway, the Ben Luc - Long Thanh Highway, and National Road No. 51 connecting industrial zones with Hiep Phuoc Port and Thi Vai - Cai Mep Port.  

The government and the Ministry of Transport are also working together to issue policies to direct, support, and encourage the sustainable development of the domestic logistics sector, such as a policy on controlling truck weights on roads and others aimed at getting the most out of railways and ports. 

Vietnam has been proactive in implementing the One-Gate ASEAN mechanism, according to Mr. Hoang Viet Cuong, Deputy Director General of the General Department of Vietnam Customs. “This will provide many practical benefits for logistics enterprises, such as cutting the time to complete procedures and lowering fees,” he said. “Vietnam will cooperate with Indonesia, Malaysia, Singapore, and Thailand to complete technical connections this year so One-Gate ASEAN can come into being.”

The government also decided recently to set up a committee to formulate policy for enhancing the competitiveness of Vietnam logistics sector and expects to issue a working plan in June next year, which will present huge opportunities for local enterprises to develop.

In order to make Vietnam’s logistics sector improve and develop sustainably, experts agree that the State needs to create a legal framework standardizing services, upgrading infrastructure, and improving the quality of human resources. There must also be solutions to direct and encourage cooperation between logistics enterprises so together they may compete with foreign players.

There is potential for development, experts believe, but much needs to be done regardless of how many opportunities await.