Despite being in its early stages of development, Vietnam’s logistics sector remains on the radar of foreign investors thanks to the country’s skilled workforce, relatively low costs, and rapid e-commerce development. 

Samsung signed an agreement to cooperate with the Minh Phuong Logistics Corporation, one of Vietnam’s leading logistics companies, in July, according to South Korean media, and this was not the first time it has announced an investment in Vietnam’s logistic market. 

Broad appeal

Samsung said in a statement that it had closed a deal with Minh Phuong to establish a joint enterprise. This is the fourth time Samsung SDS has launched a joint enterprise in order to establish itself in an overseas market, and is the second time in Vietnam. 

Cooperation with a local company with substantial capacity for inland transportation is crucial when it comes to entering Vietnam, where such transportation accounts for 65 per cent of the entire logistics market, it said in the statement.  

Last year it also announced it would enter Vietnam’s aviation sector through cooperating with the country’s largest airport terminal logistics business, Aviation Logistics Services (ALS), to provide an integrated logistics service including global and inland transportation, warehousing, and customs brokerage, while utilizing ALS’s customer network along with attracting potential customers by strengthening its external sales force. 

South Korean conglomerate Taekwang, meanwhile, expressed an interest in May in acquiring Vietnam’s largest logistics and seaport services firm, the Gemadept Corporation, with the aim of establishing a secure logistics base in Southeast Asia, according to the Korea Economic Daily. 

The newswire also said that, if successful, Taekwang hopes to create a combination between its factory production system and Gemadept’s logistics network. Taekwang is expected to be able to buy the shares from Vietnam Investments Fund. 

Gemadept also issued nearly 21.17 million shares, or a 7.34 per cent holding, to businesswoman Ms. Le Thuy Huong. Ownership of foreign shareholders after the issuance increased to 49 per cent.  

Many major foreign corporations have been investing in expanding their logistics business in Vietnam. The Quang Binh Import and Export Joint Stock Company recently signed a joint venture deal with Transworld GLS Vietnam Ltd, a unit of the Transworld Singapore Group, to establish Transworld QBV ICD. 

The joint venture will specialize in providing warehousing, loading and unloading, packaging, and customs clearance services and other services relating to road, rail, and waterway transport at the Quang Binh - Dinh Vu ICD (Inland Container Depot) in northern Hai Phong city. 

International logistics giants, especially those from Asia, have been strengthening their investment in Vietnam over recent years. According to StoxPlus, there were eight recorded merger and acquisition (M&A) deals in the first half of 2016. 

Big names eyeing Vietnam potential packaging sector, which holds potential, include Shibusawa Warehouse from Japan, Aeroport de Paris from France, and DB Schenker from Germany.  

A number of factors lie behind foreign investors, especially from South Korea, being keen on Vietnam’s logistics sector, according to Mr. Nguyen Van Toan, Deputy Chairman of the Vietnam Association of Foreign Invested Enterprises. 

The first is that Vietnam has become a popular production base for several Japanese and South Korean manufacturers, including Samsung, Panasonic, and Bridgestone.  

The second is the combination of tax incentives and low labor costs making Vietnam attractive to foreign manufacturers, which have associated suppliers and support industries. This has boosted the export of finished products and the import of parts and components. 

Moreover, exporters and grocery retailers are expected to be drivers of growth in logistics demand in the future thanks to a number of free trade agreements (FTAs) signed in 2015, such as Vietnam-Korean FTA (VKFTA) and the ASEAN Economic Community (AEC). Logistics demand, including cold storage for preserving goods for import and export purposes, is expected to boom.   

Recent figures from the Vietnam Logistics Association (VLA) show that there are more than 1,300 logistics enterprises in Vietnam, including foreign-invested concerns. Most are asset-based service providers (1PL) or contract logistics providers (2PL). 

3PL logistics providers mainly serve fast-moving consumer goods (FMCG), including manufacturers such as Unilever, P&G, and Masan, and retailers and distributors such as Big C and Metro. The country’s logistics market is currently worth $20-22 billion a year, accounting for 20.9 per cent of GDP. 

Though local logistics enterprises account for more than 80 per cent of the total, their market share is just 20 per cent as they only provide small supply chain services such as forwarding, warehouse leasing, customs clearance, bulk consolidation.  

Conversely, the 25 foreign logistics enterprises in the country hold a market share of up to 80 per cent. 

“Most Vietnamese logistics companies only provide small supply chain services within Vietnam,” said Mr. Truong Van Nhat, Deputy Director of FTI International Logistics Trading Joint Stock Company. “Larger transnational activities are undertaken by multinational corporations.” 

Drive from e-commerce 

The development of e-commerce is creating a host of opportunities for logistics companies. According to Mr. Minh from Gemadept, fast delivery is as important as product quality. The greatest challenge is that e-commerce companies cannot manage their own logistics. 

“Hence, outsourcing to third party logistics providers is an increasingly important trend,” according to Ms. Regina Lim, JLL’s Head of Capital Markets Research, Southeast Asia. 

Research by Google and Temasek Holdings further highlights the region’s potential, projecting that the regional e-commerce market could grow from $5.5 billion in 2015 to $88 billion in 2025, with Indonesia accounting for 52 per cent, as quoted in the latest report from JLL entitled Southeast Asia Poised for Logistics Boom. 

The region’s young demographics will fuel this e-commerce tide. “Southeast Asian youth are sophisticated, tapped into social media, and are using technology to leapfrog barriers,” said Ms. Lim. 

Among well-known foreign companies investing in Vietnam’s logistics sector, DHL eCommerce, a division of the world’s leading logistics company, Deutsche Post DHL Group, recently launched nationwide domestic delivery operations in Vietnam, based in Ho Chi Minh City. 

“Vietnam’s e-commerce market represents huge and relatively untapped potential for local retailers, e-tailers, and marketplaces: in 2016, total e-commerce spending hit $1 billion despite barely over 50 per cent of the population being online,” said Mr. Charles Brewer, CEO of DHL eCommerce. 

“With e-commerce spending expected to grow at around 23 per cent per year between now and 2020, local e-tailers need scalable, high-quality logistics solutions with nationwide coverage more than ever before.” 

Meanwhile, with the aim of being the leader in e-commerce logistics, ITL Corp is one of the newest players in express delivery services in Vietnam with its SpeedLink brand. 

After arriving in 2016, it now has a presence in 50 cities and provinces in the country. Giaohangnhanh Startup, an e-commerce logistics provider, is also serving more than 800 online retailers, 20 of which are larger B2C e-commerce sites such as Tiki.vn and Project Lana.   

Navigating obstacles  

Vietnam’s logistics industry has seen strong growth over the last few years but problems arising from a lack of infrastructure and the limited capacity of local businesses have put the brakes on its development. 

Vietnam’s logistics industry still lags behind other Southeast Asian countries, ranking 64th in the Work Bank’s Logistics Performance Index in 2016, much lower than Singapore (5th), Malaysia (32nd), and Thailand (45th).  

According to Mr. Le Duy Hiep, Chairman of the VLA, there were four points where Vietnam’s national logistics capacity index in 2016 fell: infrastructure, logistics capacity, technology application, and inspections.

“The quality of Vietnam’s logistics infrastructure is limited, customs services have not met international requirements, and the handling capacity of Vietnamese shipping lines is limited,” he said.  

Heavy transportation costs continue to weigh down the sector’s competitiveness and hurt the economy. Vietnamese logistics costs are currently equivalent to roughly 21-25 per cent of GDP, compared to just 9-14 per cent in developed economies. Transportation costs make up a significant proportion of total logistics costs, at up to 60 per cent, while inventory costs are 34 per cent and management costs 4 per cent. 

“Thus, it is important to reduce transportation costs so as to reduce logistics costs,” Mr. Hiep said, adding that high road tolls remain a burden that account for around 10 per cent of road transportation costs, plus informal costs, which make up for at least 5 per cent. 

VN Economic Times