Tapping Vietnam’s international logistics potential

Vietnam’s geographic location and the import, export capabilities of its domestic businesses offer favorable conditions for the country to develop logistics services. However, Vietnam has yet to bring into play these advantages. An action plan to enhance the competitiveness of logistics services has been prepared by the Ministry of Industry and Trade and approved by the government. This initiative is expected to create an impetus for the logistics sector and the entire economy.

Limited services

The World Bank ranked the Vietnamese logistics sector, with a logistics performance index (LPI) of 2.98 points, 64th among 160 worldwide and fourth in the ASEAN region, behind Singapore, Malaysia and Thailand.

The Vietnamese logistics sector has grown 16-20 percent annually and is one of the service sectors that have maintained stable growth in recent years. However, most domestic logistics businesses remain small in size, weak in technology, and lack qualified human resources. Data from the Institute for Economics and Development Studies under the National Economics University show that 54.7 percent of surveyed logistics companies said they lacked professional employees capable of working on information technology applications.

Therefore, domestic logistics companies are only able to provide simple services, such as implementing customs procedures and providing transportation and storage facilities.

Addressing the weaknesses of the Vietnamese logistics sector, Tran Thanh Hai, Deputy Director of the Agency of Foreign Trade under the Ministry of Industry and Trade, said that domestic logistics service providers remain too small in number (1,300-1,500 firms among 700,000-800,000 businesses nationwide). Moreover, the logistics sector currently contributes a mere two or three percent to Vietnam’s gross domestic product (GDP). Many import, export and trading companies choose to serve themselves rather than using logistics services. Overall, domestic logistics services are said to be ineffective.

Foreign logistics companies, including large shipping, airlines and express forwarding firms, are already operating in Vietnam, while domestic businesses only hold a small market share, Tran Thanh Hai said.

FTI Logistics Corporation Deputy Director Truong Van Nhat agrees with this assessment. Domestic logistics service providers, while accounting for more than 80 percent of the total number of businesses operating in this sector, handle only small supply chains within Vietnam, while large-scale activities catering for trans-national transportation, which bring high added value, are carried out by multinational corporations, he said.

Therefore, said Tran Thanh Hai, domestic logistics companies need to compete with foreign businesses to become deeply involved in service supply chains, otherwise they will forfeit their share of their very own home market.

Impetus for logistics firms

The action plan to enhance the competitiveness of logistics services seeks to turn Vietnam into a regional logistics hub in order to enhance its connectivity with the world. It targets a contribution of five percent by this sector to Vietnam’s GDP by 2020.

The plan focuses on short and medium-term measures to improve logistics services in the next seven to eight years. Appropriate state support policies and management mechanisms will be put in place to create a favorable legal framework for the logistics sector to develop. Specific regulations will also be applied to ensure that logistics companies operate according to the law.

Vietnam is located in the center of Southeast Asia, at the crossroads between powerful countries and major manufacturing hubs. The East Sea is the busiest shipping route worldwide. Tran Thanh Hai believes that these advantages can turn Vietnam into a logistics hub through which goods can be distributed not only to Southeast Asia but also to Northeast Asia, America and Oceania. “Large logistics hubs must have favorable locations, near the sea and major manufacturing hubs. Vietnam can build international logistics hubs in its southeastern region and coastal localities in the north, such as Ho Chi Minh City, Ba Ria-Vung Tau, Dong Nai, Quang Ninh, Hai Phong and Hanoi,” he said.

According to the Agency of Foreign Trade under the Ministry of Industry and Trade, the linkage between export, import businesses and domestic logistics companies remains limited. Moreover, domestic logistics businesses are still weak in terms of competitiveness due to high service costs and lack of qualified staff.

Thuy Linh & Phuong Lan / VEN