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Vietnam’s Logistics Market: Exploring the Opportunities

The rapid growth of Vietnam’s export-oriented manufacturing sector has boosted demand for logistics services

Foreign Investment Boosts Logistics Service Demand

While the Vietnamese logistics sector is only at an early stage in its development, demand for such services is growing fast, a development spurred by the country’s continued inflow of foreign direct investment (FDI). Following Vietnam’s 2007 World Trade Organization (WTO) accession, the country’s FDI level has been rising steadily. For the period 2008-2013, FDI inflow averaged US$10.8 billion annually - more than double the US$4.0 billion per annum average seen during the six-years prior to 2007.

Chart: Foreign direct investmant in Vietnam
Chart: Foreign direct investmant in Vietnam

Accounting for more than half of the total accrued FDI, investment in manufacturing, in particular, has been driving the country’s demand for international transport and logistics services. Situated to the southeast of the Indochinese peninsula and with a 3,200 km coastline, Vietnam depends heavily on sea freight transportation for its external trade. Since 2007, Vietnam’s container port throughput has been expanding at a compound annual growth rate (CAGR) of 12.5%, reaching 8.1 million TEUs in 2013 (double the volume seen in 2007). Driven by exports from foreign-invested manufacturers and by the import of intermediate and capital goods, Vietnam’s external trade again flourished in 2014, with exports and imports growing by 14% and 12%, respectively. 

With commercial and manufacturing activities developing much earlier in the south than in the north, the ports along the Mekong River Delta and in Ho Chi Minh City have traditionally been the mainstay of Vietnam’s transport and logistics industries. In recent years, however, trade growth in northern Vietnam has been boosted by trade with China, as well as the arrival of a number of foreign-invested electronics manufacturers. These include Samsung and Microsoft (cell phone production), who have both relocated elements of their production to Vietnam in response to the rising costs in China.

Such moves have driven the fast growth of the northern ports. Overall, the container throughput of ports in northern Vietnam grew by a CAGR of 20% during 2000-2013, outpacing both the southern ports (17%) and the central ports (15%). (This article focuses the current status of Vietnam’s logistics sector, particularly the associated business opportunities. An upcoming article - “Vietnam’s Logistics Market: Overcoming the Challenges” - examines a number of related issues.)

Photo: The Dinh Vu port, Haiphong, Vietnam (1)
The Dinh Vu port, Haiphong, Vietnam (1)
Photo: The Dinh Vu port, Haiphong, Vietnam (1)
The Dinh Vu port, Haiphong, Vietnam (1)
Photo: The Dinh Vu port, Haiphong, Vietnam (2)
The Dinh Vu port, Haiphong, Vietnam (2)
Photo: The Dinh Vu port, Haiphong, Vietnam (2)
The Dinh Vu port, Haiphong, Vietnam (2)
Chart: Major sources of foreign direct investment
Chart: Major sources of foreign direct investment

Over recent years, foreign investors have played a pivotal role in upgrading Vietnam’s export-oriented manufacturing, leading to a greater focus on higher-value products. Over the past three years, Vietnam’s exports of phones, computers, electronics and parts have tripled, reaching US$36 billion in 2014. In 2014, this category accounted for 24% of the country’s total exports, up from a 12% share in 2011. This growth in electronics exports has been driven by the export processing activities of a number of electronics manufacturers from Japan and Korea. In light of this, those Hong Kong logistics companies experienced in handling electronic parts and components may find a variety of opportunities now emerging in Vietnam.

Chart: Major export items
Chart: Major export items
Chart: Major import items
Chart: Major import items

Historically, ready-to-wear garments and shoes have dominated Vietnam’s labour-intensive, consumer goods exports. Over recent years, however, the country has evolved into an increasingly diversified manufacturing base for multinationals, with the import of production inputs inevitably generating more business for logistics companies. Intermediate and capital goods - such as machinery, raw materials, fabrics, electronic parts and components for manufacturing - now account for the lion’s share of Vietnam’s total imports and are mostly sourced from China, Japan and Korea.

Logistics Industry Opening Up to Foreign Players

Following Vietnam’s 2007 World Trade Organization (WTO) accession, foreign investors were allowed to set up joint-venture logistics companies. Since 2012, it has been permissible for wholly foreign-owned enterprises (WFOEs) to provide international maritime transport and courier services. In line with its WTO commitment schedule, Vietnam’s logistics sector further opened up from January 2014. As of that date, WFOEs have been allowed to provide container station and depot services, storage and warehouse services, as well as freight transport agency services [1].

According to several leading Vietnam logistics companies interviewed during a recent HKTDC Research trip to Vietnam, there is a rising trend for both local and multinational enterprises to outsource logistics functions to third-party logistics services providers (3PLs). In addition, Vietnamese logistics companies are keen to collaborate with their foreign counterparts, particularly those that have a large customer base and a reputation for delivering high standards of services. With their high professional service capability and access to global networks, Hong Kong logistics companies may find a variety of collaboration opportunities now emerging with Vietnamese enterprises. In turn, these domestic companies can provide both local expertise and market knowledge.

 

VIETRANS: Overseas Joint Ventures

Founded in 1970, VIETRANS is now a leading Vietnamese logistics company, with a particular focus on international freight forwarding, transportation and warehousing services. In order to enhance its service capabilities and standards, the company has formed joint ventures within Vietnam with three of its overseas counterparts:

  1. LOTUS Joint Venture Company
    Established in 1991 by Vietnam’s VIETRANS, VOSA and Ukraine’s BLASCO, this operates the Lotus Port in Ho Chi Minh City, as well as several warehousing and container yard facilities.
  2. TNT Vietnam
    Established in 1995 by VIETRANS and Netherlands-based TNT Express, this joint venture provides international and local express facilities, as well as supply-chain management services.
  3. SINOVITRANS
    Established in 2010 by VIETRANS and China’s Sinotrans, this venture provides international freight forwarding, warehousing and shipping agency services.

A Logistics Market with a High Development Potential

Thanks to its under-developed transport infrastructure and inadequate logistics facilities, logistics costs in Vietnam are estimated to run at about 25% of GDP, far higher than the 18% in China and the 13% in Malaysia. This presages a huge scope for efficiency gains in the longer run, in particular through the establishment of Vietnamese-foreign collaborations. In a 2014 report, the World Bank noted that a more competitive transport and trade logistics system in Vietnam could be a new driver of sustained economic growth in the country, enhancing productivity as well as boosting business competitiveness.

Currently, foreign companies dominate Vietnam’s logistics market, particularly in the international transportation segment. There are about 40 foreign shipping firms in Vietnam, handling more than 80% of the country’s imports and exports, primarily with regard to trade with the European and American markets. According to the Vietnam Logistics Business Association (VLA), there are more than 1,000 logistics companies in the country. Although domestic companies represent 80% of the total number of logistics firms, they only account for about 25% of total market share. Most of these home-grown businesses are small-scale companies with limited financial and human resources.

Demand for Modern Logistic Services

With an eye on the growing and increasingly liberal logistics market, many global shipping companies - including Maersk, NYK Line and APL - have strengthened their presence in Vietnam, offering a variety of value-added services, such as pre shipment inspection, labelling, and pick-and-pack. In addition, a number of Hong Kong logistics companies are now operating in Vietnam. Kerry Logistics, for example, has established logistics centres in Hanoi, Da Nang and Ho Chi Minh City.

The expansion of the multinationals in Vietnam is creating a growing demand for supply-chain management facilities, particularly with regard to handling complex sourcing issues, production requirements and servicing sales networks. This growth, however, has spurred concerns among a number of the foreign logistics companies interviewed over lack of experienced and professional human resources in the Vietnamese logistics sector. In this regard, Hong Kong services providers have considerable scope when it comes to offering customised logistics solutions and international freight forwarding, important services for multinationals with production bases and export markets in a number of different locations.

In order to successfully access Vietnam’s logistics market, Hong Kong companies should establish links with the industry associations in the country and identify suitable partners. Both the Vietnam Logistics Business Association (VLA) and the Hong Kong Business Association Vietnam (HKBAV), for example, are in a good position to suggest Vietnamese enterprises from among their members to meet with Hong Kong companies. In turn, Hong Kong logistics companies can assess the suitability of those Vietnamese businesses with regards to their market knowledge and business networks, including local services providers that handle specialised logistics functions, such as customs clearance. Such local knowledge is vital when it comes to facilitating the import-export process and maintaining business competitiveness in Vietnam.

Useful contacts

 Vietnam Logistics Business Association (VLA)Tel: +84-8-3943 3045
Email: vla-hcm1@vla.com.vn
Website: www.vla.com.vn
 Hong Kong Business Association Vietnam (HKBAV)Tel: +84-8-3824 3757
Email: hcmc@hkbav.org
Website: http://www.hkbav.org/
 Vietnam Trade Promotion Agency (VIETRADE)Tel: +84-4-3934 7628
Email: vietrade@vietrade.gov.vn
Website: http://www.vietrade.gov.vn/
 Vietnam Chamber of Commerce and IndustryTel: +84-4-3574 2022
Email: vbfhn@hn.vnn.vn
          vibforum@vcci.com.vn
Website: http://vccinews.com/
 Vietnam Foreign Investment Agency (FIA)Tel: +84-4-3835 7186
Email: dovansu@mpi.gov.vn
Website: http://fia.mpi.gov.vn/Home/en

Related information: Vietnam infographics


[1]  Freight transport agency services include freight brokerage services, freight forwarding services, aircraft space brokerage services, and freight consolidation and break-bulk services.

Content provided by Picture: Jacqueline Yuen
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