Logistics in Vietnam: Realities, Opportunities and Challenges

According to research and assessment by Nomura Institute of Japan, logistics companies in Vietnam are now able to cater for a fourth of the market demand. At present, there are wide gaps in logistics business; namely between foreign/joint venture logistics firms and Vietnamese logistics firms, and between the southern region and the rest of the country. Logistics charges in Vietnam are relatively low, but services are insecure. Vietnamese undeveloped logistics companies hardly occupy the domestic market.

 

Currently, the logistics infrastructure in Vietnam is generally poor, simple and irrationally distributed. Ports are being containerised, but are still only capable of receiving small ships. They lack modern container handling facilities and experience in loading and discharging containers. Roadways are not designed for container transportation, while container trucks are obsolete. Railways have not been brought into full play as they have not been modernised. Airways lack aircraft for transportation in peak seasons. International airports like Tan Son Nhat, Noi Bai and Da Nang do not have cargo terminals or areas for logistics agents to collect and clear cargos.

 

The second issue is overlapped management apparatus. State management authorities are reducing administration over affiliated logistics companies and focusing on introducing State management policies and mechanisms. However, this vertical decentralisation splits logistics and shipping into two separate business fields. For example, the Vietnam Maritime Administration (Vinamarine) administers ocean shipping, the Civil Aviation Administration of Vietnam (CAAV) manages airway transportation and the Ministry of Trade oversees logistic and shipping. As a result, in Ho Chi Minh City, Saigon Port is run by Vinalines, Ben Nghe Port is managed by the city’s People’s Committee, Tan Cang is under the Ministry of National Defence, VICT is operated by Sowatco, and inland clearance depots (ICD) are operated by Vimadeco, Gemadept and Transimex.

 

The third matter is legal regulations on logistics operations. The Vietnamese Law on Commerce stipulates that logistics operations are commercial activities with the main functions of providing shipping services under the law. However, to date, Vietnam lacks detailed provisions on Non-vessel operating common carrier (NVOCC) for the logistics field. Local governments licensed private companies to provide logistics and shipping services without paying due attention to their financial capacity and infrastructure systems. Express delivery remains a postal service, not a logistics service, and is regulated by post and telecom laws and decrees. This is an unreasonable situation.

 

The fourth difficulty is lack of human resources for logistics operations. Human resources for logistics operations seriously fall short. According to the Vietnam Association of Freight Forwarders (VIFFAS), its 140 member companies, more or less, have some 4,000 full-time employees and around 4,000-5,000 part-time employees. The human resources are trained by various sources. Senior managerial officials of logistics companies are well trained, and retrained to meet demanding logistics requirements. Other employees are university graduates, but they are not from logistics and shipping schools. Direct labourers have low educational backgrounds and are unfamiliar with a professional working environment. These weaknesses are the result of backward working facilities, which do not require professional working manners.

 

The fifth hardship is the limited size of Vietnamese logistics companies. Most of Vietnamese shipping and logistics companies have small and medium business sizes. Some are very small, with equity capital of several hundred million dong (US$1=VND16,000). State-run companies are being equitised but they are against the capital accumulation trend and business development rule. Therefore, many state-run companies with working experience of over 30 years, big investment capital, sufficient equipment, large warehouses and strong workforce are not strong enough to provide logistics or combined shipping services in other countries. The size of Vietnamese companies is small, capability for global competition is low and international marketing capacity is absent. As a matter of fact, we can neither provide logistics services in other countries nor keep the domestic market share.

 

The final matter is the low level of logistics technology. According to VIFFAS, logistics technology in Vietnam is very weak in comparison with the rest of the world. Contacts between logistics and shipping companies with their clients and customs offices are mainly manual and on paper. Meanwhile, regional countries like Singapore, Thailand and Malaysia have applied electronic data interchange (EDI) transactions allowing concerned parties to make electronic contacts and procedural settlements. In multimodal transport, the association of different transportation modes, like seaway, river-way, roadway and airway is very lax. Transport means are obsolete; hence, business efficiency is very low. Automatic stevedoring is still weak, while manual works remain popular. The warehousing methods are backward and have not applied new IT applications to warehouse management like barcode readers.

 

To boost the development of the Vietnamese logistics industry, the Vietnam Association of Freight Forwarders (VIFFAS), set up in April 1994, proposes several solutions as follows:

1)       Accomplishing the construction of infrastructure system (seaway, airway, roadway and railway); Rearranging ports on a long-term basis; Setting up logistics centres in key economic areas to facilitate the import, export and distribution of cargo; Building a distribution network between consignees, forwarders and distribution agents; Allowing VIFFAS to organise research, investments and construction of warehouses and customs clearance depots at international airports like Tan Son Nhat, Noi Bai and Da Nang (in airway transportation); Building specialised cargo terminals with delivery, forwarding and transhipment areas; Applying similar professional standards as regional countries of Thailand, Singapore and Malaysia; and Modernising warehouses and distribution systems.

2)       Changing and standardising regulations (licensing and business criteria) and multimodal transport; Changing the habits of “FOB sell and CIF buy”, which weakens Vietnamese shipping firms; Validating electronic documents, and Standardising cargo names and codes.

3)       Clearly defining customs regulations on NVOCC licences, specifying responsibilities of customs clearance agents and standardising logistics documents in line with ASEAN practices; and Computerising customs procedures. In airway transport, customs offices need to accept house airway bills.

4)       Encouraging IT application in logistics operations; Applying advanced logistics methods like supply chain management (SCM) or just-in-time (JIT) delivery in segmented transportation

5)       Training human resources for the fledgling Vietnamese logistics industry; and Training and retraining staff. VIFFAS needs aid from the Government, the Ministry of Transport and the Ministry of Trade, for logistics training in Vietnam.

6)       The Government should introduce policies and measures to instruct and accelerate the association between shipping and logistics companies to compete with regional and international rivals. Vietnamese logistics companies should keep their home market and extend into world markets.

 

The logistics sector in Vietnam is developing very fast. In addition to support from the Government, logistics companies themselves must make more effort to beat rivals in the coming time and contribute to the overall development of the logistic industry and the Vietnamese economy in general. VIFFAS hopes to admit more members, creating a stronger force to bring Vietnamese logistics to a new high.