How Vietnam’s Expanding Economy is Boosting Growth

The growing manufacturing, e-commerce, and country's burgeoning GDP have all helped Vietnam's logistics sector. The country's youthful population's quick embrace of e-commerce has also boosted demand for the growth of logistic services.

Vietnam wants to grow as an export-based nation. Vietnam's logistics business has a lot of promise since the government is aggressively encouraging manufacturing investments by building economic zones and industrial parks.

The logistics industry is expanding quickly.

One of Vietnam's fastest growing economic sectors is logistics, whose expansion may exceed GDP. In the first three quarters of 2020, the country's import-export receipts were close to US$390 billion. According to the General Statistics Office, there has been an increase of 1.8 percent over the same time last year (GSO). By 2025, the Vietnamese government wants to see yearly growth in logistics close to 20%.

Transportation through air, sea, and land helps logistics expand.

Vietnam's Logistics Performance Index showed a substantial improvement in 2018 rankings provided by the World Bank (LPI). It rose 25 places to number 39 out of 160 nations, up from its place in 2016. According to information from the Ministry of Industry and Trade, Vietnam's logistics industry expanded by more than 12% in 2018.

Between 2010 and 2018, Vietnam's freight throughput increased consistently in terms of weight, attaining an 8.4% compound annual growth rate (CAGR). In Vietnam, road freight tonnage increased by 5% over this time, accounting for more than three-fourths of all tonnage. In the meanwhile, the percentage of cargo tonnage carried by water decreased from a quarter to a fifth. Together, the railway and aircraft industries move less than 1% of the total weight of freight.

Vietnam's freight traffic increased by 9.6 percent CAGR in terms of freight ton-kilometers between 2010 and 2018. The aviation sub-sector, which grew by 150 percent during this time, was the key growth engine. About 95% of all freight traffic was consistently transported by the transportation sectors of aviation, sea, and roads.

Increasing industrial sector

Vietnam has developed into a significant ASEAN industrial centre during the last 20 years. It is necessary to import raw materials and then export completed items since the nation wants to have an export-driven economy.

Vietnam's logistics m&p courier gulistan e johar industry has to be developed even further as a result of the growing flow of commodities into and out of the country. The expansion of Vietnam's manufacturing sector has been further aided by the country's involvement in many free trade agreements (FTAs).

manufacturers are expanding outside of China

Manufacturers have been compelled to diversify their supply chains and transportation networks as a result of the epidemic and the US-China trade conflict. As a consequence, during the last several years, enterprises have moved their operations from China to Vietnam. The China plus one plan is another name for this.

Vietnam has seen a significant infusion of money for the establishment of labor-intensive sectors as a result of its cheap labour cost. As a result, the nation's manufacturing and assembly sectors have seen rapid expansion.

players in Vietnamese logistics

The logistics industry in Vietnam is dominated by SMEs that provide low-value services. The registered capital of the nation's 3,010+ logistics companies is less than $430,000 in over 90% of cases. The remaining 95 percent of the corporations play between these quantities, while the remaining 5 percent have capital over US$860,000.

Domestic logistics firms compete fiercely with one another and with overseas businesses. Foreign companies make up the majority of the market for logistics in Vietnam and generate around three-fourths of its income.

Over 30 organisations provide international logistics services in Vietnam, including well-known brands like DHL, FedEx, and Maersk.

Vinalines, PetroVietnam Transport (PV Trans), and Viettel are three significant local players. While PV Trans specialises on marine transport and services for the oil and gas sector, Vinalines primarily provides services in port management, shipping, and logistics. Viettel Post, a state-owned company, offers a wide range of services, including courier and storage leasing.

In Vietnam, the logistics services—which include both basic and specialist services—tend to be outsourced. Warehousing and transportation are basic services. Higher-order services include managing the warehouse, inventory, and vendors, processing orders, coordinating with customs, and reverse and climate-controlled logistics are examples of specialised services.

Vietnamese logistic businesses are set up as follows:

Multinational and joint venture businesses often draw international capital. By offering logistics packages, they cater to three groups of clients in Vietnam: foreign clients; state-owned businesses or corporations, who control the local logistics market; and joint-stock and private businesses, which predominantly serve the private sector. Small businesses with little resources that have the potential to grow are these.

Government promotion of marine transportation

Due to its geographic location and closeness to China, Vietnam has a logistical advantage. Vietnam has a huge potential to enhance its marine transportation thanks to a broad coastline that stretches for more than 3000 kilometres and a wide network of waterways.

There are 44 important seaports in Vietnam's present marine network. Vietnam does, however, have a number of minor ports, bringing the overall number of ports in the nation to 320. The largest and most sophisticated port in Vietnam is Cat Lai, located near Ho Chi Minh City. Nearly a quarter of the nation's 293 million metric tonnes of maritime freight were handled there in 2018. Its throughput of 71 million metric tonnes surpasses that of the next four greatest ports put together.

Between 2017 and 2018, the country's seaports' throughput rose by a fifth. During this time, these seaports handled nearly 520 million metric tonnes of goods. More than 1300 SMEs in Vietnam work in marine logistics, which only meets a tiny portion of consumer demand.

By 2030, the Vietnamese government wants the marine sector to contribute 10% of the country's GDP. This involves increasing the GDP contribution of the marine industry in coastal towns and provinces from 60% in 2017 to over 65% during the next ten years.

Additionally, there are plans to increase the nation's marine throughput to more than 1000 tonnes annually. These initiatives support the government's goal of reducing the nation's dependency on road networks. Nevertheless, substantial investment would be needed for the marine industry in Vietnam to expand further.

Logistics opportunities

There are a variety of possibilities in the logistics business, including:

Storage and distribution: There are opportunities to build up warehouse facilities and distribution hubs. Existing storage infrastructure must be integrated with other logistical operations including shipping, inventory control, cold chain management, customs facilities, and warehouse management.

Most warehouses and distribution facilities in Vietnam lack software programmes like the Warehouse Management System (WMS) and the Transport Management System (TMS). Modern supply chain management requires a WMS because it automates the order fulfilment process from receiving raw materials to shipping finished goods.

Routine operations like choosing and arranging items, scanning barcodes and RFID tags, and instantly updating inventory data in the ERP system are handled by the WMS. The TMS system assists shippers in planning, carrying out, and streamlining the delivery procedure.

Resources for learning: The country's logistics industry is expanding quickly, which has boosted the need for qualified workers. The sector requires sophisticated logistics strategies at fair prices. Universities in the area might potentially implement similar programmes.

Logistics that are temperature-controlled are needed because of the import and export of perishable goods like food and medicines. Due to the pandemic, there will be more possibilities for temperature-controlled logistic operators due to the need for vaccine shipment.

Last-mile delivery: The enormous growth of e-commerce in Vietnam has opened up a number of options. Two-hour and one-day delivery services have a lot of promise since the nation's expanding middle class can afford them.

Infrastructure constraints and high costs

Vietnam's logistics sector continues to be burdened by excessive expenses. The cost of logistics is 6 to 12 percent greater than in Malaysia, Thailand, and China. The manufacturing industry, which imports raw materials and exports completed items, may be less competitive as a result of these high prices. However, through enhancing its transportation infrastructure, the Vietnamese government has been actively taking steps to eliminate these. As a consequence of these initiatives, logistics costs have significantly decreased over the last ten years, falling from 25% of GDP to 16%.

Several seaports in the nation have capacity limitations due to underdeveloped infrastructure. Some seaports have begun charging users for access to their infrastructure and service facilities as a means of resolving this problem. In 2017, Haiphong started this practise, and in July 2021, Ho Chi Minh City announced similar tariffs.

Ho Chi Minh City and Haiphong should get an extra $130 million and $70 million, respectively, from these payments. The government wants to build transportation infrastructure with the money it has gathered to reduce congestion at the ports.

Vietnam's logistics sector is highly fragmented, which may be a significant obstacle to maximising its potential. Additionally, the majority of customs processes are manual, sluggish, and in need of improvement. To streamline the customs process, the government has implemented a number of steps, such as online document filing.

The nation will also need to standardise the manner in which cargo is inspected at airports and seaports. The sector may gain more from the extension of the congested motorways that connect ports and industrial hubs.

Not all logistics centres are right now near to ports and industrial centres. To make the transportation of products easier, additional warehouses and distribution facilities will need to be built closer to such hubs.