Logistics cost in Vietnam is estimated at 15-20 percent of the country’s GDP.  A major portion of this cost can be attributed to high inventory holdings, due to the less-than- sophisticated logistics systems.  Vietnam has send its economy growing at a fast pace in the last seven years.  The country’s logistics industry needs to undergo a transformation to improve its competitiveness.  

Currently, the transportation services sector in Vietnam is relatively weak with the land, ocean and air systems presenting multiple challenges for end users.  Despite having the most extensive system in the Indochina region, Vietnam’s road network is under-developed, while both ocean and air transport services are characterized by high costs and longer transit times as compared to its neighbors.  These factors continue to hamper the growth of the logistics sector in Vietnam. 

Government initiatives to improve rail, road airport and seaport infrastructure, and increasing private sector and foreign participation are expected to transform the logistics landscape in Vietnam.  Increasing deployment of IT and strengthening of the communications network are also expected to shape the future of the industry. 

In Vietnam, the transportation function is the biggest portion of logistics activities to be outsourced, followed by freight forwarding and trading services.  Demand for transportation and freight forwarding services is strong due to the high volume of materials and finished goods that need to be transported.  The complexity of freight handling also necessitates the use of forwarding and clearing services for land, air and sea freight. 

The slower-than-expected adoption of complete outsourcing of end-to-end logistics activities was due to the lack of awareness and understanding of the benefits of the integrated logistics. 

As the management of the supply chain becomes more complex due to the increased level of international freight movements, more sophisticated services will be provided foreign 3PL companies.

Market Trends & Growth Opportunities

Vietnam’s imports and exports have been consistently increasing and the economy has shown a healthy growth rate of on average 7.6 percent per annum between 2001- 2006.  The country’s exports and imports for the year 2006 totalled US$84 billion, a 21 percent increase from 2005.  The increased trading activity had created strong demand and huge opportunity to the logistics service providers, especially in the freight forwarding sector. 

Foreign investment has also been rising steadily in the Vietnamese logistics sector and is expected to increase further with the country’s entry to the WTO.  There are a large number of foreign logistics companies which are in the process of obtaining or have already obtained their licences to operate as a wholly foreign owned companies or joint ventures in Vietnam.  With the increasing penetration of multinationals, the market is expected to grow during the next five years, with service levels reaching international standards.

 In Vietnam, the Government aims to invest as much as 10 percent of its GDP on infrastructure including the transport, energy and telecommunications sectors.  The private sector is expected to play an expanded role in financing the highway, seaport and airport projects.  Improved infrastructure developments and ancillary services such as warehousing, depots and distribution centres will further boost the demand for logistics services and create huge business opportunities for the existing logistics service providers.

Challenges faced by 3PL companies 

In Vietnam, the regulatory and legislative standards such as customs clearance, ground handling, and terminal operations are highly complicated and not always consistent.  The multiple layers of administration at district and provincial levels have also led to some reports of corruption and subsequent increase in both lead times and the cost of processing freight.  Many seaports and airports also lack supporting logistics distribution centers, which can result in increased inventory and idle time for trucks, ships and planes.  

Currently, the boundaries between the operations of various businesses such as freight forwarders, warehouse operators, fleet operators and integrated logistics companies are not well defined.  They are often fragmented and do not generally complement each others’ business offerings, which can lead to duplication of effort, higher costs and lead times.  The lack of information sharing, clarity on roles and responsibilities pose great challenge and can further hamper the growth of the logistics industry in Vietnam. 

The Vietnamese logistics industry also lacks experienced logistics professionals.  This is a major challenge and drawback for the local as well as multinational logistics companies since they find it difficult to hire the right talent.  Insufficient training and education in the field of logistics is also a major contributor to the scarcity of skilled personnel.

Conclusion

The logistics industry in Vietnam is highly fragmented with more than 800 providers providing shipping, trucking and customs clearance services.  With a largely undeveloped logistics industry, the Government and service providers need to invest in new facilities, technologies and processes in order to enhance the connectivity and improve the operating conditions to make the industry more competitive.  There is a need for the public and private sector to co-operate to boost growth in the logistics industry.

Mr. Keow Soon Hiong is a Consultant with the Frost & Sullivan Transportation & Logistics Practice, Asia Pacific. For more information on the article/research studies, please contact Alice Chia – Corporate Communications at Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it