In accordance with Viet Nam’s commitment to the WTO, it will allow wholly foreign-invested entities to set up.
How foreign logistics companies are positioned
Already a number of foreign companies have set up with local JV partners to position themselves ready for the opening of the Logistics market. Specifically most foreign logistics companies are positioning themselves as 3pl and 4 pl service providers.
Viet Namese logistic providers are small at this stage and can only handle 20% of the market demand. The remaining 80% being handled by foreign logistic companies, according to Mr. Nguyen Hong Truong, Deputy Minister of Transport. (source)
Viet Namese Growth is Long Term
Viet Nam will develop in to a substantial economy, (estimated to be 70% of the UK economy by 2050). Fundamentally the Viet Namese are industrious and enterprising two critical national traits that will ensure continued growth and development.
Viet Nam is an export orientated economy, as wealth is generated from foreign trade, it would be fully expected to develop a substantive middle class, in a similar manner to China
Logistics Critical to Viet Namese Growth
Viet Nam’s growth is being hindered by logistic expenses, which are between 20-25% compared to USA at approx. 9%.
Currently the logistics market worth around $12 billion is concentrated around Ho Chi Minh City (HCMC), through which 70% of the countries imports and exports transit. (source ).
Later in this article we will discuss the main areas of logistics infrastructure constraint.
Viet Nam Economic Areas
Viet Nam major export are crude oil, textiles, agricultural products (seafood, rice and rubber) and increasingly electronics and computers to in main export United States, Japan, China, Australia and Singapore. Two areas Apparel and Textile products, will be discussed in detail as they are reflective of the nature of logistics in Viet Nam.
Viet Nam Apparel and Textile Logistics
Apparel and textile products industry is one of the main economic activities, reaching $13 billion in exports in 2013. Over 20 years the industry has sustained double digit growth rising to be Viet Nam’s biggest export earner and the world’s fifth biggest exporter, employing over 2.5 million people. (source )
Viet Nam apparel and textile product industry is a value adding manufacturer, as we have previously discussed. Countries add value along the logistics value chain, importing – adding value – then subsequently exporting to another country for the next stage of value adding. – (read article)
This process of value adding requires efficient logistics to import and export in order to be globally competitive. This is a challenge for Viet Nam.
Viet Namese garment companies need 6 billion metres of cloth per annum
Viet Namese garment companies needed 6 billion metres of cloth, of which 5.2 billion metres had to be imported, additionally approximately 70 % of other materials were also imported, according to the Viet Nam Textile and Apparel Association.
Structurally Viet Nam is seeking to replace imports with locally supplied product. However this is at odds with the changing global dynamic of value adding based on comparative advantage. The issue driving local replacement is the cost of inbound and out bound logistics within Viet Nam.
Viet Nam Cold Chain
The Cold Chain is largely a Western innovation designed to supply chilled and frozen products to retail customers such that they are safe to consume (and still high quality). Quality really was a secondary thought behind being “safe”. Safe from litigation threats that now dominant western society.
Viet Nam however has a society that is use to eating fresh not frozen. Furthermore its retail sector is highly fragmented unlike say the effective duopoly that exists in the Australian market.
To support the development of the Cold Chain though, the Viet Namese Cold Chain association was formed in 1999. However the reality is that the Cold Chain still is in its infancy and serious issues still exist. Delays in unloading, lack of refrigeration and co-ordination along supply chains are common.
Entry of major retailers will however begin to drive Cold Chain knowledge; specialist 3 pl in Cold Chain may see this as an opportunity.
Viet Nam Logistics Infrastructure
The single biggest issue facing Viet Nam is the lack of a deep water port. This means that Viet Nam needs to ship it exports to the major Shipping ports of Singapore or Hong Kong.
“We are lacking deep-water ports serving as international transshipment points, so Viet Nam’s exports are transshipped to Hong Kong or Singapore before heading for foreign markets,” Nguyen Tuan Hoa, deputy director of the Development Study Center under the HCMC government (source )
Viet Nam Road Logistics
The road infrastructure network in Viet Nam is being developed, but it is still a source of major congestion particularly around the major urban areas.
Viet Nam Rail Logistics
Rail is Government owned and is both relatively high cost and has less than desirable service levels. Major investment is required in particular if Viet Nam is to join into the Asian rail network that is being developed.
Viet Nam Air Logistics
Like rail the air transport movement of logistics is expensive. Significant infrastructure investment is needed to improve this mode of transport.
Viet Nam Logistics Education
Development of Logistics skills and knowledge is critical to Viet Nam’s future. Companies like Latus are pro-actively positioning themselves to assist in Logistics education and skills development.
However specialist foreign logistics companies are also well placed to bring their knowledge and expertise to the Viet Nam market.
Considering Entry to the Viet Nam Logistics Market
Entry to the Viet Nam market should be considered as a JV with a local logistics company. JV’s enable the foreign company to bring expertise and skills whilst the local Viet Nam logistics provider brings local knowledge and contacts – critical to the success of any venture.
Australian, USA and Canadian companies in particular with large ex pat Viet Namese populations should be looking to leverage that resource to investigate the market opportunities. Alternatively undertaking courses like our ASEAN Logistics Intensive enable foreign companies to learn and network with Viet Namese logistics professionals to identify potential opportunities.
Viet Nam is a remarkable country with a resourceful and enterprising population. It is certain that Viet Nam, with its 80 million people, will continue to grow and develop and take its place in the global economy. Foreign logistic companies should be seriously investigating the opportunity Viet Nam offers for their logistics skills and expertise.