Increasing added value of logistics services

11:18 | 29/11/2017 Companies

(VEN) - Vietnam’s logistics service industry has been formed since the 1990s based on transportation, freight forwarding and warehousing services. The industry has gone through its initial development period and achieved an annual growth rate of 15-16 percent. The World Bank’s Logistics Performance Index (LPI) Reports showed that Vietnam ranked 48th among 160 countries worldwide in 2014 and 64th in 2016. In ASEAN, Vietnam ranked fourth in 2014 and fifth in 2016, after Singapore, Malaysia, Thailand and Indonesia. However, this index focuses on evaluating international logistics services and therefore is yet to reflect the actual growth of the Vietnamese logistics service industry. 

increasing added value of logistics services
A seminar on connecting supply and demand in training to improve the quality of human resources in the logistics industry

In 2014, logistics costs in Vietnam were equivalent to about 21 percent of its gross domestic product (GDP), while in developed countries, this ranged from 9-14 percent. The logistics service industry contributed about three percent to Vietnam’s GDP in 2014. Currently, there are in Vietnam about 3,000 logistics service providers, and most of them are SMEs. The rate of outsourcing in the logistics industry remains low at 35-40 percent. Logistics service costs are still high due to limitations in terms of ICT application, management skills and high quality human resources. Moreover, linkages among logistics service providers, as well as their linkages with cargo owners remain loose. Therefore, the role and position of the logistics service industry is still incommensurate with its potential, as well as with Vietnam’s geopolitical position in a dynamic region located in a major shipping route linking the East and the West, through which more than 80 percent of international trade find their way.

Reducing service costs is crucial to enhanced competitiveness of the Vietnamese logistics industry. Logistics costs in Vietnam consist of transportation costs, which account for about 60 percent of the total costs, and inventory and management costs, about 40 percent. Overland transportation costs consist of fuel costs (about 30-35 percent), road tolls (about 10 percent, mostly BOT fees), and other expenses (3-5 percent). These costs vary depending on the area of transportation and traffics. In 2015, 75 percent of domestic trade was transported by road, while 90 percent of import and export goods were transported by sea, but only 12 percent of which were transported by the Vietnamese-flagged fleet including small-sized container ships. The inadequacy of seaport infrastructure and hinterland logistics facilities hinders transportation and increase logistics costs. Cargo owners have to pay various kinds of surcharges and fees at the seaports, including terminal handling charges (THC), when using services provided by foreign container ships. They also have to pay high seaport charges in the Hai Phong port area. The freight fleet of the domestic air transport sector is capable to meet only 10 percent of actual needs. Transport costs by rail, inland waterways and sea are much cheaper than overland transport, but they still account for small percentages. In 2015, transport by rail accounted for a mere 0.59 percent, by inland waterways 17.16 percent, and by sea 5.15 percent. Therefore, restructuring transport activities to promote multimodal transport - the backbone of logistics - is crucial to reducing logistics costs in Vietnam.

To develop the logistics service industry as a key economic sector and service that bring highly added value to the economy, the Prime Minister released Decision 200/QD-TTg dated February 14, 2017 approving an action plan to develop logistics services towards 2015 with specific measures to reduce logistics service costs, contributing to enhancement of the competitiveness of the entire economy, in general, and the trade sector, in particular.

To cut down logistics costs, along with lowering transportation costs, it is necessary to effectively implement specific tasks mentioned in this decision, which pertain to institutional and policy reforms, infrastructure development, management, development of logistics service providers, the application of information technology, and the training of highly qualified human resources in the context of economic globalization and the spread of the Fourth Industrial Revolution. A national committee for logistics coordination should be established as in other countries in the region. Currently, labor productivity of domestic logistic service providers is lower compared with transnational logistics service providers operating in Vietnam. Therefore, training highly qualified human resources for the logistics industry has become an urgent requirement which will enable Vietnamese people to seek overseas job opportunities when the ASEAN Economic Community (AEC) allows the free flow of skilled workers in logistics business. The domestic logistics industry will need at least 200,000 skilled workers by 2025.

increasing added value of logistics services

The Vietnam Logistics Business Association (VLA) with more than 350 members will celebrate the 25th anniversary of its establishment next year and is actively implementing Decision 200/QD-TTg. In April 2017, the Association launched a campaign to encourage its members to implement 10 tasks assigned to it under the decision. In September, the Association submitted to the Ministry of Industry and Trade an action plan to implement the decision. Currently, it is concentrating on developing third-party and fourth-party logistics (3PL and 4PL) services, e-logistics, improving capabilities for logistics service providers, and training highly qualified human resources. By doing such, an example, on November 2, VLA coordinated with the Vietnam Textile and Garment Association to organize a workshop on measures to reduce logistics costs to enhance competitiveness for textile and garment companies.

VLA has strengthened the Vietnam Logistics Institute to enable it to promote international cooperation in short and long-term training courses meeting global standards. In October 2017, the Federation of International Trade Associations (FITA) approved VLA’s forwarding and logistics training programs consisting of 14 modules. The association has taken the initiative in seeking opportunities to cooperate with domestic universities and institutes in providing short and long-term training for people who work in the logistics industry, as well as in working out training and education programs at university and postgraduate levels. VLA has also cooperated with logistics training centers in developed countries to implement its training schemes.

VLA expects its efforts are sure to contribute significantly to realizing the targets set for the logistics industry by 2025 under Decision 200/QD-TTg. They are annual growth rate of 15-20 percent; contribution to Vietnam’s GDP: 8-10 percent; outsourcing rate: 50-60 percent; logistics costs set to equal 16-20 percent of GDP, and Vietnam will rank among the top 50 countries as per the World Bank’s LPI report.

Nguyen Tuong, Deputy Secretary General of the Vietnam Logistics Business Association