High costs hinder Vietnamese logistics firms

Saturday, 2018-01-13 17:59:49
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The logistics sector is considered to have large room for expansion (illustrative image)
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NDO - The burden of high logistics costs has impeded the progress of the Vietnamese logistics sector despite its enormous potential and room for further development.

According to the Vietnam Logistics Business Association (VLA), Vietnam's logistics sector is growing strongly at a rate of 15-16% per year. Vietnam also ranks fourth in ASEAN in terms of the Logistics Performance Index (LPI) after Singapore, Malaysia and Thailand, as announced by the World Bank.

About 1,300-1,500 domestic firms are operating in the logistics sector, accounting for 80% of the total number of logistics firms in Vietnam, which mainly provide domestic logistics services and part of the international logistics services as agents for foreign firms.

A small number of Vietnamese logistics firms could provide third party logistics services (3PL) including Transimex Saigon, Gamedept, Saigon Newport Corporation, and others.

The value of the Vietnamese logistics market is estimated to equal to 21-25% of the country's GDP, much higher than the manufacturing industry and the sector is anticipated to have huge potential for further development.

With total import-export revenue of over US$400 billion in 2017 and high economic growth rate over the past few years, the logistics sector is considered to have large room for expansion.

However, experts say that the competitiveness of Vietnam's logistics sector remains low due to high costs. Logistics costs in Vietnam stand at nearly 25% of the GDP while the rate is 9.5% in the US, 11% in Japan, 16% in the Republic of Korea (RoK) and 21.6% in China.

Vietnam’s ranking in the Logistics Performance Index (LPI) also dropped from 48 in 2014 to 64 in 2016.

According to the Vietnam Chamber of Commerce and Industry (VCCI), the cost of transporting one container from Hai Phong port to Hanoi, with a distance of 100km, is three times higher than the cost of transporting one container from China or the RoK to Vietnam.

The high logistics costs are attributed to the limited size of Vietnamese logistics firms in addition to a lack of experience, management levels and the ability to apply information technology, and qualified human resources, said VLA Chairman Le Duy Hiep.

Moreover, logistics firms have yet to establish a close connectivity with import-export enterprises while they face difficulties due to a lack of infrastructure connecting ports with warehouses and lack of specialised freight forwarding centres.

Director of Minh Nhat Company Ltd Nguyen Thi Thuy Duong said that cost hikes are also blamed for the high fees of a number of services in Vietnam, for example, the increase of fees for the use of Hai Phong sea port infrastructure since January 2017, among others.

Duong recommended three groups of solutions to improve the competitiveness and boost the development of Vietnam’s logistics sector, including the development of human resources, infrastructure and institutions. Well qualified human resources will help Vietnamese logistics firms to keep pace with logistics firms in the region and to be capable of competing with foreign logistics firms operating in Vietnam.

Synchronous policies and institutions will help to cut costs, avoid overlaps and facilitate import-export activities.

Logistics infrastructure has seen significant improvement but the congestion at ports, highways and industrial zones has yet to be resolved. If the problem is not handled, logistics costs in Vietnam will remain higher compared to other countries in the region, Duong emphasised.

Logistics enterprises should make further efforts to reduce costs in addition to more solutions from the Government to support firms to improve their competitiveness.

Ousmane Dione, the World Bank Country Director for Vietnam suggested that the Vietnamese Government define a clear agenda for reform if Vietnam wants to enhance the quality of its logistics service in order to meet the demand of an increasingly modern economy. He also outlined a number of key aspects of the agenda including increasing investments in infrastructure to boost connectivity, facilitating trade, and cutting time and costs for enterprises.

The VLA has also suggested that the Government establish an authorised agency specialising in logistics management with the participation of representatives from enterprises to facilitate firms and enhance the competitiveness of the economy.