Vietnam Logistics Enterprises Weathering the Storm for Rapid and Sustainable Development

9:21:07 AM | 6/30/2022

The COVID-19 pandemic as well as the tensions of the Russia-Ukraine conflict have caused countless disruptions to the supply chain of raw materials for production and delivery and put pressure on logistics businesses in the context of rapid change with many emerging trends such as sustainable development, automation in production, artificial intelligence or free trade agreements. Vietnamese logistics enterprises are making great efforts to overcome difficulties and seek development opportunities.

Great potential's report shows that the size of the global logistics market is estimated at US$3.215 billion in 2021, an increase of 17.6% compared to 2020. According to the Center for Industry and Trade Information (Ministry of Industry and Trade), logistics services are evaluated as one of the fields with great potential and the strongest breakthrough in Vietnam in 2021, especially, in the context of a more deeply integrated economy and the process of shifting and restructuring international supply chains taking place more and more clearly.

Considered the "blood vessels" of the national economy, with an important role in connecting, supporting and promoting socio-economic development, Vietnam’s logistics is recognized by the business community and international organizations as the potential market for strong development, especially as the COVID-19 pandemic has been controlled and production and business activities have recovered rapidly.

According to statistics of the Vietnam Logistics Business Association (VLA), the growth rate of the logistics industry in Vietnam in recent years has reached about 14% - 16%, with a scale of about US$40 - 42 billion /year. The logistics market in Vietnam is highly appreciated, ranking 64th out of 160 countries in terms of logistics development and 4th among ASEAN countries (after Singapore, Malaysia, and Thailand). Vietnam's logistics services are still better than those of some Eastern European countries such as Bulgaria (51), Russia (99), Ukraine (73) and most other African countries. According to the Report of Emerging Market Logistics Index 2021 released by the world's leading logistics service provider, Agility, in 2021, Vietnam increased three places in the rankings, securing 8th place in the top 10 countries. Logistics is forecast to be an industry with great growth potential in Vietnam with a fast growth rate of up to 13 - 15%/year.

Statistics show that Vietnam currently has more than 30,000 enterprises registered to operate in the logistics industry, of which 89% are domestic enterprises, 10% are joint venture enterprises and 1% are foreign enterprises. Maersk Line, DHL, Kuehne + Nagel are some among transnational logistics services providers in Vietnam.

According to the Vietnam Logistics Business Association, although domestic enterprises account for a large proportion, they only account for about 30% of the market share. The rest belongs to foreign enterprises because Vietnamese enterprises are mainly small enterprises. They have many limits in both capital and human resources as well as international operation experience. There is no link between stages in the logistics supply chain and between logistics service enterprises and import-export enterprises. Therefore, in both buying and selling dimensions, domestic logistics enterprises are limited in terms of "playing ground".

In addition, Vietnamese logistics enterprises are also affected by the legal provisions related to logistics service activities which are incomplete and synchronous. Although the logistics infrastructure has been invested and upgraded, it still lacks connectivity and has not met the development requirements. The digital transformation in logistics stages is still limited. The intensive training in logistics at training institutions has not been paid enough attention to.

In addition, according to the World Bank, logistics costs in Vietnam account for 30% to 40% of total transportation costs, while in other countries this cost only accounts for about 15%. This creates a barrier to Vietnam's market competitiveness.

Synchronous solutions needed

The creation of a solid foundation of logistics infrastructure and services is considered one of the particularly important elements to help enterprises to integrate into a more proactive, effective and sustainable position. According to the Vietnam Logistics Business Association, 2022 is forecast to be a year that continues to have opportunities, advantages and difficulties, and challenges intertwined, but Vietnam has a very favorable geo-economic strength to promote production, export and logistics services because it is located in a dynamic development area of ​​the world, where the flow of goods is very concentrated. Besides, free trade agreements (FTAs} ​​are gradually being implemented and are very efficient, making the Vietnamese market grow strongly, especially in electronics, machinery and equipment, furniture, plastic, textiles and marine products. This is an opportunity to develop port and logistics services to serve the needs of connecting goods with major markets in the world.

According to Minister of Industry and Trade Nguyen Hong Dien, in order for Vietnam's logistics service industry to continue to develop rapidly and sustainably and catch up with international trends, Vietnam needs to continue to innovate and improve the quality of institutions, especially in the timely institutionalization of the Party's viewpoints and guidelines on the external economy in order to perfect the mechanisms, policies and legal provisions on logistics. At the same time, Vietnam should promote digital transformation and increase the application of the achievements of the fourth Technology Revolution in the logistics field to promote maximum automation of operational processes, helping to reduce risks, and improve the efficiency of supply chain operations in the context of limited human resources and volatile markets.

In addition, it is necessary to implement solutions to synchronously develop the system of transport infrastructure, seaports and warehouses; connect modes of transport; promote the establishment of free trade zones, create favorable conditions for localities to develop into large logistics service centers; focus on developing logistics human resources, especially high-quality, professional human resources according to national, regional and world standards, meeting the increasing requirements of international economic integration.

In particular, Vietnam needs to focus on implementing synchronously and effectively solutions to reduce costs and improve logistics efficiency as set out in Decisions 200/QD-TTg and Decision 221/QD-TTg of the Prime Minister. It is necessary to continue to promote reform and simplification of administrative procedures related to logistics activities in the direction of minimizing inspection procedures at the import stage, enhancing post-inspection and transparency in customs procedures in order to facilitate favorable conditions for the development of Vietnam's logistics industry.

According to Mr. Truong Tan Loc, Marketing Director, Saigon Newport Corporation, to seize development opportunities, it is necessary to implement a group of solutions for logistics infrastructure development such as continuing to review, supplement and perfect the master plan for Vietnam Inland Container Depot Development (ICD) in the period of 2021-2030. It is necessary to review, supplement and complete the overall and detailed planning of the logistics center system in the whole country; quickly implement road traffic projects, specifically Ring Road 3, Ring Road 4, Bien Hoa - Vung Tau Expressway, upgrade Ho Chi Minh City - Long Thanh Expressway. As for the group of solutions to complete regulations, mechanisms and policies, Mr. Loc recommended that the Government build a mechanism to develop green logistics in the direction of reducing the proportion of fossil fuel of transportation. The Import-Export Department, the Ministry of Industry and Trade is supposed to cooperate with other ministries and sectors to develop tax incentive mechanisms for businesses.

By Quynh Anh, Vietnam Business Forum