Investment opportunities in Logistics services
In spite of holding numerous advantages for strong development of logistics industry, Vietnam's logistics growth is still very modest. In early 2017, the Prime Minister of Vietnam issued Decision 200/QD-TTg with a view to increasing the share of logistics services to GDP to 8 - 10 per cent in 2025, four times more than now.
Logistics costs: Three times that of Singapore
According to the World Bank (WB), Vietnam ranked 64th out of 160 economies in logistics development in the world and fourth in ASEAN after Singapore, Malaysia and Thailand. With an annual growth rate of 16 - 20 per cent, this is one of the fastest-growing sectors in Vietnam in recent years.
However, also according to the WB, logistics costs in Vietnam were estimated at 25 per cent of GDP, significantly higher than that of Thailand's 19 per cent, China's 18 per cent, Malaysia's 13 per cent, and nearly three times higher than those of the United States and Singapore.
Statistics from the Vietnam Logistics Business Association (VLA) showed that logistics service is currently valued US$20-22 billion a year, accounting for 20.9 per cent of the nation’s gross domestic product (GDP), a relatively high rate in the economy and a heavy burden on enterprises. Transportation, the most important part of logistics, accounts for 40 - 60 per cent of costs.
Quantifying shipping costs in cost structure, Dr Tran Dinh Thien, Director of the Vietnam Institute of Economics, commented, “In Vietnam, transportation costs account for more than two thirds of the value of goods, compared to only a half in other countries.”
Vietnam has about 3,000 logistics firms, of which 1,300 are regular, including foreign invested firms, according to VLA.
Although domestic firms account for 80 per cent, they hold just 20 per cent of the market share. They mainly provide small supply chains in the Vietnamese territory.
Operating on seaports, warehouses, transport means, and handling equipment supplied by domestic companies, about 30 foreign multinational corporations with superior advantages in technology and human resources, without having to invest in infrastructure can handle almost all international shipping services.
High hopes on ambitious goals
In February 2017, the Prime Minister approved an Action Plan for Vietnam Logistics Service Competitiveness Improvement and Development to 2025. Accordingly, by 2025, the share of logistics industry to GDP will reach 8 - 10 per cent in 2025, the industry will expand 15 - 20 per cent a year, the ratio of logistics outsource services will be brought to 50 - 60 per cent, and logistics cost will be reduced to 16 - 20 per cent of GDP. The country’s Logistics Performance Index (LPI) will be in the Top 50 of the world.
In order to realise these objectives, the Government defines six main tasks: Perfecting logistics services policies and laws; completing logistics infrastructure; improving business capacity and service quality; developing logistics services market; training and raising awareness and quality of human resources; and others.
Particularly, Vietnam will improve policies; attract more funds for logistics infrastructure development; strengthen cooperation with foreign partners to expand logistics infrastructure connectivity; invest to upgrade logistics infrastructure to connect Vietnamese ports with neighbouring countries; raise funds for building Grade-A logistics centres in Hanoi and Ho Chi Minh City and Grade-B logistics centres in Lang Son, Lao Cai, Hai Phong, Da Nang, Quy Nhon, Can Tho and other localities.
The Government will encourage and guide enterprises in some industries like garment and textile, leather and footwear, wooden furniture, agricultural products, foods and mechanical engineering to apply advanced supply chain management models. It will also encourage industrial parks and export processing zones to build logistics-based industrial zone model; integrate downstream logistics services with agricultural and industrial production, import and export; support the construction of strong logistics corporations to make inroads in foreign countries and export logistic services.
To develop the logistics services market and promote logistics services, Vietnam will issue mechanisms to draw freight from Laos, Cambodia, Thailand and South China to transit Vietnam to other countries and vice versa; and support improving the performance, marketing and input sources for Cai Mep-Thi Vai Port Complex.
VLA Chairman Le Duy Hiep said this decision will leverage the comprehensive development of logistics services. This is also a good opportunity for domestic and foreign businesses to invest in this potential service in Vietnam.