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Vietnam Striving to Reduce Logistics Costs

Despite being rather a new sector in Vietnam, logistics has proved its importance in the country’s socio-economic development. However, the development of this potential service is facing many big challenges.

Burden of costs

Logistics is a process which is carried out to minimise costs for the identification of location and storages of goods sources from origins via many different activities to the final consumption places. In developed countries such as Japan and the US, logistics fees account for 10 per cent of their GDP.

In Vietnam, logistics development helps ensure both time and quality for business and production activities of other services. The logistics service is very attractive, which explains why the number of businesses registered to operate in logistics is sharply increasing and particularly the service is applied in all enterprises.

Nevertheless, the Vietnamese logistics industry is coping with several difficulties, including weak transport infrastructure, a big volume of inventory, complicated administrative procedures and high investment fees for services. In a developed economy, companies often use logistics for transport and distribution. But, Vietnamese businesses have a habit of self-controlling supply chain system; therefore, they do not gain high results in their operations. These are a big barrier for the development of the logistics sector in Vietnam. Ports overload is an obvious evidence for the country’s logistics weakness.

Using professional logistics services also helps businesses to control the supply chain effectively by deciding transport frequency and the inventory volume. But, most of Vietnamese companies do not think of these advantages, resulting in an increase in logistics fees. Logistics fees make up some up to 25 per cent of Vietnam’s GDP, 9.5 per cent and 21.6 per cent higher than that of the US and China respectively. The main reason for this is overload of Vietnamese ports, airports and railways which are also in a bad condition. Vietnam has to bear high transport costs which hold 30 – 40 per cent of product costs; meanwhile, the rate is only 15 per cent in many countries worldwide.

The high costs are a big difficulty for Vietnam to take advantages of cheap labour and weakens its products’ competitiveness.

Opportunities to develop

Joining the WTO has resulted in fiercer competition for Vietnam’s logistics sector. Under the WTO commitments, Vietnam will allow wholly foreign-owned maritime and logistics companies to operate equally in the country. This will lead to a challenge for local businesses in the home market.

The Vietnamese government has worked out many measures to reduce logistics costs, boosting exports, which have gained initial positive results. According to the latest report named “Vietnam Logistics 2009” released by the UK’s Transport Intelligence, Vietnam’s logistics sector will be improved in the five years to come as the local government is pouring more investment into logistics infrastructure. Vietnam has invested billions of USD to upgrade logistics infrastructure. Besides, the government has also encouraged foreign firms to invest in Cai Mep International Port in Mekong Delta with a total investment of US$628 million. Once completed, the port is expected to handle 1.7 million tonnes of cargo annually. The country has also invited foreign companies to build Long Thanh International Airport in southern Dong Nai province in 2015,

One of the outstanding advantages for Vietnam’s increased transport investment is forming roads linking the country and its neighbouring countries. Kun Ming-Ha Khou- Con Minh ,Ha Khau-Hanoi-Haiphong will permit road transport firms TNT and Kerry Logistics to connect Vietnam with its regional road network, no need using services from seaports and airports, expected to lower 30 per cent of international transport fees by 30 per cent.

Source: Vietnam Business Forum