Top Solutions to Promote Logistics Services Development

10:04:05 AM | 7/1/2022

Logistics activities in Vietnam play a key role in import and export growth and are also an important link in the global supply chain. Maintaining stability and becoming a strong link require multiple factors, especially in the context of natural disasters, unpredictable maritime incidents, and the on-going pandemic in Vietnam and many other countries.

Difficulties and obstacles to logistics activities

As a link in the global supply chain, activities of enterprises in Vietnam are also heavily affected by reasons including high freight costs which constantly set new records, lack of space on ships, port congestion in the world making the total journey of each ship long, and lack of raw materials for manufacturing.

Difficulties due to the fact that the inability to manufacture will have a negative impact on the whole supply chain in Vietnam: Enterprises cannot guarantee production, thus, there has been a shift of orders to other regions/countries, and if the situation continues for a long time, they will face the risk of losing customers completely due to supply chain changes. Enterprises face the risk of late order delivery, fine payment for contract breach, or having to switch from sea to air transport as, even though the cost is high and there may be no profit or even loss, they can thus avoid breaching contracts. Besides, the long shipping journey poses the risk of damage to goods, especially food items.

In addition, there remain difficulties that existed prior to COVID-19 such as the unsynchronized transport system, the limited connectivity between different types of road, rail, and waterway transport leading to high transport costs and the reduction of competitiveness. The road infrastructure connecting to the main ports has not kept pace with the development and growth in the cargo throughput of the ports leading to traffic congestion on the access road to the port.

Difficulties are also due to complicated administrative procedures. For example, procedures for adjusting MNF to change destination terminals among terminals located in the same area of Ho Chi Minh City remain complicated, raising costs for businesses; Some regulations such as not allowing a customs office to conduct physical inspections of exports on behalf of another customs office also causes difficulties for businesses.

Solutions to the development of logistics services

Recommendations to the authorities

To boost the development of the logistics industry, Vietnam needs to pay attention to several measures. Firstly, it needs to regard procedures and regulations, there should be consistency and adjustment to create flexibility and consistency.

Regarding the attraction of goods in transit or transshipment: With the current charges for seaport infrastructure in Ho Chi Minh City, applied for goods in transit or transshipment, and goods in bonded warehouses (with a charge of VND2.2 million/20' and 4.4 million/40'), shipping lines have to consider services at seaports in Vietnam and the ability to move their cargo to other neighboring ports in the region. It will go against the government's orientation of "Improving the flow of goods at the gateway terminals of Lach Huyen and Cai Mep - Thi Vai, turning these terminals into focal points for domestic and international goods consolidation and transshipment". Therefore, it is necessary to have an appropriate policy to attract such goods given the context that countries in the region - countries that have a large volume of goods in transit and transshipment through Vietnam such as Laos, Cambodia, and Thailand; focus on developing the railway (the route connecting Laos with China and expected to connect with a part of the Thai railway system), developing seaports (the fast growth in throughput and routes through Sihanoukville port over the years) and continue to expand the Sihanoukville Autonomous Port with construction expected to begin in 2022. Thus, if there is no attraction policy, Vietnamese seaports will lose this volume of goods. When shipping lines change the routes and habits of customers, it is difficult to get them back. It is necessary to reduce the charges of seaport infrastructure for goods in transshipment, transit, and bonded warehouses; procedures need to be more open, for example: Allowing 2 times of port transfer for goods in transit, especially goods transited via seaports in the southern region transferred to seaports in central Vietnam and subsequently transported to Laos/ Thailand, etc.     

It is necessary to systematize each legal document by fields (road, waterway, Freight Forwarding, international conventions, etc.) from which to identify barriers, limitations, overlaps, etc. to eliminate or gradually open the door to avoid breaching integration commitments, or hindering the participation of small and medium-sized enterprises (for example, regulations on the minimum number of tractors to enter the industry, procedures for M&A remain complicated…)

Ports under the management of Ho Chi Minh City Customs should be considered a unified entity, thereby facilitating the promotion of flexible movement of goods among ports instead of carrying out complicated procedures when changing customs branches at the border gate on manifest, as being currently applied.

We need to continue to invest in and improve the National Single Window (NSW) for importation and exportation. As of May 2021, more than 3.08 million documents had been processed via the NSW. Since its launch in 2014, about 47,000 businesses and 13 out of 18 line ministries, including the Department of Transport, have joined NSW, and 226 administrative procedures have been linked to the system. However, the NSW remains incomplete and many procedures have not been incorporated into the system. More time spent on such procedures leads to increased costs for businesses, thus reducing cost advantages and competitiveness. (Source: OECD)

Secondly, Vietnam needs to create a special mechanism for Vietnamese enterprises to lead the market,  form a network of large logistics enterprises and have a special mechanism for them to promote their leading role in the market, reducing logistics costs to help Vietnam's logistics industry develop, and improving the competitiveness of Vietnamese products and goods, meeting the increasing logistics demands of not only the domestic market, but also attracting the attention and use of FDI enterprises.

It should be frankly acknowledged that logistics companies in Vietnam only provide basic services, in addition to not having enough potential and experience, there is one core problem: 65% and 73% of imports/exports are handled by FDI enterprises, and most of the logistics packages are assigned by international bidding packages and obviously the remaining piece of the cake for Vietnam accounts for a small part of the supply chain. Referral to how Asia's logistics companies have developed, although it is not entirely true, the majority of manufacturers will prioritize their national logistics companies. Thus, the government needs to identify manufacturers that are considered the spearheads of the country, prioritizing cooperation with leading logistics companies in Vietnam with the motto "Vietnamese people give priority to Vietnamese companies”. But it does not mean that there are no opportunities for small and medium-sized logistics enterprises (more than 4,000 local enterprises operating in the field of logistics, about 80% having capital from VND1.5 to 2 billion) but each segment of manufacturers will be suitable for a certain segment of logistics companies in the spirit of synergy so that production and logistics can develop together.

Next, Vietnam needs to develop a synchronous infrastructure system, speed up the progress of transport infrastructure connection projects, multi-modal connectivity to facilitate the development of logistics services, and increase investment in logistics and warehouse infrastructure to strengthen the logistics ecosystem, regional interconnection to help increase Vietnam's trade competitiveness globally. Vietnam's road infrastructure lags behind several countries in the region such as Malaysia and Thailand. Vietnam's total road network covers 200,000 km, of which only about 65% are paved, compared to the percentage of more than 77% in neighboring countries. Nearly 93% of national highways have only two lanes (Source: OECD).

Fourth is developing spearhead high-quality industries, attracting foreign investment in the fields where workers will be well-trained and skilled, instead of relying on unskilled, cheap labor to attract investment.

Fifty, we need to develop high-quality humans. Developing a set of necessary skills – with an objective that the trained employees will meet the actual needs of the business, toward the competency transparency in the logistics industry, coordinating with training centers, International Association (FIATA) to develop appropriate curriculum, ensuring training quality.

Recommendations for importers/exporters and logistics enterprises

Vietnam logistics enterprises need to actively choose new delivery solutions/locations/methods instead of the traditional ones; specifically, promoting freight forwarding at river ports close to factories.

Enterprises need to have a common voice (working with industry associations) to work with shipping lines to implement new logistics networks to connect with existing seaport clusters to reduce pressure on the transport system and optimize the transport chain.

It is recommended that the manufacturing companies map out the classification and select suppliers by low, medium or high risk. They need to diversify raw material sources; diversify supply bases and increase inventory to avoid being passive about production plans, and increase warehouses to store goods (build new warehouses, rent warehouses).

In the long term, businesses need to quickly apply automation to reduce dependence on humans, and apply new production technology.

It is necessary to prioritize the selection of Vietnamese logistics enterprises, especially leading ones that have the capacity to design logistics solutions, infrastructure and financial potential to maximize their strength and increase the competitiveness of the manufacturing company towards an objective that manufacturers are not only strong in the country but also expand to foreign countries, subsequently, Logistics enterprises will follow their path.  On the other hand, the logistics industry will support the national development of production, import, export and trade; stabilize the economy and raise the value of Vietnam in the international arena.

Vietnam needs to establish a logistics community regionally and then globally, following the model of developed countries.

Recommendations for port operators

Vietnam port operators need to develop a shared database for Vietnam's seaport system, and connect with ports in the region and in the world, thereby, enhancing performance and increasing Vietnam's competitiveness with port clusters of neighboring countries/territories such as Singapore, Thailand, or Hong Kong. Port operators should be ready to cooperate and share information in order to develop Vietnam's seaport system to become modern and keep up with those in the region. Port operators cooperate, and invest in developing new ICDs/river ports in upstream of the Dong Nai and Saigon rivers, and terminals in the Mekong Delta region to meet the demand for throughput growth and serve businesses in the Mekong Delta. They need to invest in green ports and green logistics centers towards sustainable development.

By Huynh Van Cuong – Vice Chairman of Ho Chi Minh Logistics Association (HLA)