FACILITATING LOGISTICS FOR ECONOMIC DEVELOPMENT

The logistics service industry is likened to the “blood vessels” of the national economy that support, connect and promote socioeconomic development and enhance competitiveness. This sector has high potential for generating a lot of added value.

According to research conducted by the Ministry of Industry and Trade in 2021, the Logistics Industry Performance Index rose to 3.34 points from 3.27 points in 2018. Vietnam also ranked among the Top 10 emerging logistics markets with high annual growth of 14 - 16%.

However, the COVID-19 epidemic has affected all aspects of socioeconomic life in the past two years. Social distancing, mobility and transportation restrictions in many countries and regions disrupted supply chains and raised shipping costs to hurt the global logistics industry, including in Vietnam.

Advantages of foreign firms

Driven by fast-developing information technology and e-commerce, consumers’ habits are changing and buying/selling methods are being shifted to online from conventional offline. Besides, the economy is opening up and integrating more deeply into the world, with a trade value of over US$ 500-600 billion a year. The scale of freight transport by road, sea, air and rail are all enormous - this is a fertile ground for logistics startups to search for opportunities.

The Vietnam Logistics Business Association (VLA) had 515 members as of September 30, 2021, including 428 official members and 87 associated members linked to 58 FDI members. More than 80% of VLA members are small and medium in size. Larger ones like Transimex, Gemadept, Sotrans and Saigon Newport are capable of providing 3PL services, competing with foreign direct investment (FDI) firms in Vietnam and having branches or representatives in foreign markets. 46 out of 63 Vietnamese logistics service firms, VLA members, were licensed by the United States Federal Maritime Commission (FMC) to provide stateside seaborne freight services. They are effectively serving trade development between Vietnam and the United States. Notably, Vietnam has the largest logistics service companies in ASEAN to be licensed by FMC.

In addition, a survey by VLA showed that world-leading logistics firms (3PL and 4PL) such as DHL, DB Schenker, Nippon Express and Sinotrans are already present in Vietnam. Foreign logistics firms are holding 70-80% of international logistics services because more than 92% of Vietnam's import and export goods are sold on FOB (Free on Board or Freight on Board) and purchased on CIF (Cost, Insurance and Freight). Vietnamese logistics companies mainly provide domestic logistics services such as domestic transportation, forwarding, warehousing, customs declaration, goods inspection and seaport services.

The COVID-19 pandemic has caused strong and deep impacts and created new global trends, models and methods of freight production, distribution and consumption. At the same time, the pandemic also gave rise to new dynamics and forced countries to change their thinking, policy, technology and human resources to avoid being left behind in the context of deep global integration and global supply chain restructuring.

Inherent weaknesses of Vietnam's logistics industry have been revealed more clearly in recent times: High logistics costs, estimated at over 20% of GDP, much higher than the world median of 11 - 12%. In addition, the linkage of logistics service providers, manufacturers and exporters is still weak and a strong network of large, capable Vietnamese logistics firms has not yet been established to lead the market and develop this industry.

Notably, digital transformation in the logistics industry remains slow, and has yet to meet development requirements. The quality of human resources remains low and insufficient, only meeting 10% of the market's demand. Furthermore, knowledge, skills, attitudes and sentiment of human resources in Vietnamese logistics firms are not actually ready for the wave of labor mobility among ASEAN countries and enforcement of new-generation trade agreements.

Opportunity to make breakthroughs

This context is posing an urgent requirement for the logistics industry in Vietnam to ensure logistics roles in supply chains of goods and services, while having vision and special solutions, shaping a new approach to catch up with the world, create a breakthrough for socioeconomic recovery in 2022 - 2023 and for the 10-year Socioeconomic Development Strategy in 2021 - 2030.

According to Minister of Industry and Trade Nguyen Hong Dien, in the context of deepening international economic integration and strongly restructured international supply chains, Vietnam's logistics industry is assessed to be a potential economic sector with an important and fundamental role in the national economy and have great opportunities to make breakthroughs, especially after the COVID-19 pandemic is controlled, and international manufacturing, business and trade is recovered and rebounded.

In order for Vietnam's logistics service industry to develop rapidly and sustainably and catch up with international trends, Vietnam needs to further reform and improve institutional quality to complete policies and laws on logistics; and accelerate digital transformation and application of Industry 4.0 achievements in logistics, said Minister Dien.

In particular, Vietnam needs to implement solutions to synchronously develop the transport infrastructure, seaports and warehouses; connect modes of transport; speed up the establishment of free trade zones and facilitate localities to build large logistics service centers; focus on developing logistics human resources, especially high-quality, professional human resources of national, regional and international standards to meet increasing requirements of international economic integration; and concentrate on implementing consistent and effective solutions to reduce costs, improve logistics efficiency, simplify administrative procedures relating to logistics by minimizing post-import inspection procedures and enhancing transparency of customs procedures in order to facilitate Vietnam’s logistics development.

Source: VCCI