Clearing Hurdles against Vietnam's Logistics Industry

With the advantage of being located in the center of the Asia-Pacific region, on international maritime routes, Vietnam has the potential to become a major transshipment center of the region and the world.

Plenty of room for Logistics development

According to Mr. Le Duy Hiep, Chairman of the Vietnam Logistics Business Association (VLA), Vietnam's Logistics Performance Index (LPI) was ranked 39th out of 160 countries by the World Bank in 2018, up 25 ranks compared to 2016, the third among ASEAN countries and the top in emerging markets. In Southeast Asia, the capacity of Vietnam's logistics industry is behind only Singapore and Thailand.

According to the Organization for Economic Co-operation and Development (OECD), Vietnam's logistics industry has achieved an average growth rate of 12-14%/year, contributing 4-5% to GDP and an average of 10 ASEAN countries.

Currently, Vietnam has a total of 69 large and medium logistics centers, concentrated in a number of industrial parks in Hanoi, Hai Phong, Vinh Phuc, Ha Tinh, Thua Thien Hue, Da Nang, Dak Nong, Tay Ninh, Soc Trang, Ho Chi Minh City and Can Tho.

Vietnam has great potential for shipping, with the advantage of a long coastline and an important seaport system such as Chan May, Tien Sa, Ky Ha, Dung Quat and Quy Nhon. The Central key economic zone stretches along the coast with a length of 609 km, holds a particularly important position in the socio-economic development strategy, and ensures national defense and security for the whole coastal area.

Currently, Vietnam has Cai Mep Port (Phu My, Ba Ria-Vung Tau), which is one of the 20 major ports in the world capable of receiving the largest container ships of up to 214,000 tons, followed by Hai Phong port with container ships of 132,000 tons. The capacity to receive the largest tonnage ships in the world affirms that Vietnam's import and export goods can go directly to major markets such as Europe and the U.S. without transshipping through the ports of Singapore or Malaysia, helping save costs, reducing transportation time and quickly bring goods to markets.

In particular, in recent years, Vietnam continues to have a transformation from a traditional logistics center to a new generation logistics center, applying 4.0 technology.

Many challenges

There is a lot of room for development, but according to Mr. Le Duy Hiep, Vietnam still lacks modern and large-scale logistics centers for preparation, processing and preservation in order to minimize spoilage and ensure conditions for export, especially for agricultural and aquatic products which account for a large proportion of export turnover.

Regarding difficulties in the logistics industry, according to Mr. Huynh Van Cuong, Vice Chairman of Ho Chi Minh City Logistics Association, the traffic system is not synchronized; connectivity is still limited between road, rail, and waterway transport, leading to high transportation costs and reduced competitiveness. The road transport infrastructure connecting to the main ports has not kept pace with the development and increasing the cargo output of the ports,  leading to traffic congestion on the road connecting to the port.

On the other hand, difficulties coming from unclear administrative procedures cause additional costs for businesses; some regulations such as not allowing inspection for exported goods also cause difficulties for businesses, said Mr. Huynh Van Cuong.

In addition, the port infrastructure fee expected to be applied to goods in transit, transshipment, and goods through bonded warehouses is quite high, which may force international shipping lines to use services of neighboring countries’ ports in the region.

It should be frankly acknowledged that logistics enterprises in Vietnam only provide basic services.  In addition to not having enough potential and experience as mentioned, the core problem is that 65% and 73% of imported/exported goods are carried out by foreign direct investment enterprises; most logistics packages are assigned from international bidding packages and of course the remaining piece of cake in the local market is only a small segment of the supply chain, said Mr. Huynh Van Cuong.

Solutions

In order to create a breakthrough for the logistics industry, Mr. Le Duy Hiep said that there was still a lot of work to be done, such as focusing on developing logistics infrastructure, promoting training and developing logistics human resources. To develop logistics centers with a great degree of automation and modernization, not behind other countries in the region, is an important task. To do so, it is necessary to have the participation of the State, to clear the bottlenecks related to the land fund.

Mr. Huynh Van Cuong submitted some proposals to the authorities. Regarding procedures and regulations, there should be consistency and adjustment to create flexibility and consistency; systematizing each legal document in the fields (road, waterway, Freight Forwarding, international conventions...) to eliminate or gradually open the door, avoiding violating integration commitments, or hindering the participation of small and medium enterprises; continuing to invest in and improve the National Single Window (NSW) system for imports and exports.

Mr. Huynh Van Cuong also suggested that Vietnam should form a network of large logistics enterprises and have a special mechanism for these enterprises to promote their role of leading the market, reducing logistics costs to help the logistics industry. In addition, Vietnam needs to build a synchronous infrastructure system, speeding up the progress of projects on connecting transport infrastructure and multi-modal connections to facilitate the development of logistics services, increasing investment in Logistics infrastructure and warehouses to strengthen the logistics ecosystem and regional connections in order to help improve Vietnam's trade competitiveness globally.

For port operators, Mr. Huynh Van Cuong noted that it was necessary to build a common data system for Vietnam's seaport system, connecting with ports in the region and the world, which would contribute to increasing exploitation efficiency and increasing the competitiveness of Vietnam with neighboring port clusters such as Singapore, Thailand and Hong Kong (China). In addition, seaport enterprises need to be willing to cooperate and share information, invest in the development of new ICD/river port facilities, and invest in green ports and green Logistics centers in the direction of sustainable development.

By Huong Giang, Vietnam Business Forum