State-owned giant Vietnam Railways is venturing further into the logistics services market to cash in on rising trade and to prepare for the possible merger of two railway units.

Buoyed by trade, Vietnam Railways has found a new cash engine in logistics services.

In late November, Vietnam Railways (VNR) and China Railway launched a container block train connecting Huanggang Station in Nanchang and Yen Vien Station in Hanoi. This is the first container block train linking the two countries. 

With the launch, the transportation time between the cities was shortened dramatically, from the current 15 days by sea to four days with simplified customs procedures, while transportation costs are cut in half compared to shipments by road.

The two sides’ plan is to initially run the container block train once a week and then increase the frequency to three times a week. Similar trains between Vietnam and other Chinese cities are also being discussed and could be implemented in the near future.

A rush to meet growing trade demands 

The launch of the container block train is one of numerous plans and activities by VNR aimed at boosting logistics services amid stiffening competition and gaining more transportation market share. VNR is also looking to gain a greater allocation of state funding, which in some years accounts for just 2-3 per cent of the state’s entire funding for the transport sector.

“We plan to invest in loading and unloading equipment to cut logistics costs and to shorten the loading and unloading time. We will study the possibilities of investing in or calling for private investment in opening railway routes to potential ports, which boast huge volumes of goods and where site clearance is possible,” VNR chairman Vu Anh Minh told VIR. “Initially, we are proposing to invest in more railway lines at Vat Cach Port in the northern port city of Haiphong, while other ports will be studied later.”

In related developments, VNR and Vietnam Post Corporation (VNPost) – the leading postal services provider in Vietnam – have signed an agreement to co-operate in transportation of packages for customers as well as transportation of goods by rail from Vietnam to China.

The moves are backed by growing regional cross-border e-commerce and the strongly-developing transport network. This has opened huge opportunities to develop cross-border transport (CBT) between Vietnam and China.

International line-haul operations between Vietnam and China include the railway lines Nanning/Dong Dang-Hanoi and Kunming-Hekou/Lao Cai-Hanoi.

According to statistics by the Vietnam Logistics Business Association, cross-border cargo shipments between China and Vietnam reached 107,600 in 2016. The numbers for China and Laos and China and Thailand were estimated at 2,020 and 128,000, respectively.

In fact, CBT between Vietnam and China has become popular among international corporations, including those active in Vietnam, because of the high cost of air transport and the high risks of sea transport.

China’s ZhenYang Logistics Group (ZYL) specialises in the Nanning-Hanoi route and in transport between southern China and northern Vietnam, and focuses on electronics and high-tech products. “We are planning to develop more hubs to connect with Vietnam, leveraging multimodal transportation of inland routes and cross-border railways to link Vietnam with China and Europe,” Nguyen Quang Tung of Zhen Yang Logistics Group, told VIR.

The company’s customers are mainly foreign-invested firms such as Samsung or Foxconn, as well as global forwarders. The firm has witnessed the volume of shipped containers ascend from 70-80 containers to 400 containers a month in a short time.

Malaysian-invested Overland Total Logistics Services Vietnam JSC (OTL) will also open more hubs and develop multimodal transportation routes including sea, railway, and cross-border transport in the near future, driven by the growing volume of CBT goods.

Categories of goods shipped by CBT include electronic products from Samsung, LG and its subsidiaries and suppliers, Foxconn, Canon, and Foster and its subsidiaries and suppliers. Garments from Lear, Adidas, Nike, and Levi’s, as well as automotive products from Honda, Toyota, Yamaha, and GM also utilise these routes.  In addition to its CBT plans, VNR is interested in developing railway logistics networks to reach industrial parks (IPs). The group is developing inland container depots (ICDs) in some localities to attract business from nearby IPs.

“We are co-operating with Saigon Newport Corporation to build two ICDs, in the southern province of Binh Duong and in Hanoi. We are also studying the possibilities of opening a cargo station in the central province of Thanh Hoa,” Minh said.

VNR is also strengthening its co-operation with other state-run corporations in an effort to realise its plans. From April to September 2017, VNR signed agreements with several corporations – including VNPost and Petrolimex – to develop logistics services.

“We are also planning to co-operate with travel firms to develop logistics services for tourists,” Minh said.

Future preparations for possible merger

VNR’s logistics development is partly also aimed at preparing for the possible merger between Hanoi Railway Transport JSC (Haraco) and Saigon Railway Transport JSC (SRT).

As of May, Haraco had 5,170 employees, while SRT had more than 2,500. If the firms are merged, a large number of employees will be restructured.

“We are planning to launch many more new logistics services and retrain the underemployed to help them adapt to their new situation,” Minh said.

At present, the two units are providing the same services, which causes unnecessary competition between them. VNR hopes that the merger will help increase operational efficiency. “We are waiting for approval from the Ministry of Transport (MoT) before taking further steps,” said Minh.

VIR