Cutting logistics costs: “the key” to empowering Vietnamese goods

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High logistics costs are causing a great impact on the competitiveness of Vietnamese goods. Photo: N.Linh

Logistics costs account for nearly 21% of GDP

Speaking at Vietnam Logistics Forum 2020 with the theme “Reducing logistics costs, improving business environment, enhancing competitiveness in the context of international economic integration”(taking place on November 26 in Hanoi), Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) Vu TienLoc said that over the past time, efforts from the Government, ministries and agencies have brought many positive changes to Vietnam's logistics industry. The most recent Logistics Performance Index ranks Vietnam at 39 out of 160 countries. This is the best ranking Vietnam has achieved since 2007 and the third highest in Southeast Asia.

Logistics is also one of the fastest growing and most stable industries in Vietnam with an average growth rate of 14-16% per year.

However, Loc also pointed out that the domestic logistics industry still faces many challenges. The biggest challenge is the high cost of logistics services.

According to Armstrong & Associates, Inc., logistics service costs in Vietnam are equivalent to 20.9% of GDP, much higher than regional countries like China, Malaysia, the Philippines, Thailand and Singapore, and almost twice as high as developed countries and 14% higher than the global average. For logistics costs in Vietnam, transportation costs are too high, equivalent to 30-40% of product costs, while this ratio is about 15% in other countries. This significantly hurts the product competitiveness of Vietnamese enterprises.

Remove many "bottlenecks"

Deputy Prime Minister Trinh Dinh Dung also evaluated that, in addition to achievements, Vietnam's logistics industry still has shortcomings and limitations, and especially the cost of logistics services is still quite high. This increases costs, reduces the competitiveness of Vietnamese goods in particular, and the competitiveness of the Vietnamese economy in general.

This is due to planning work between branches and sectors lacking a close connection with each other; transport, trade and information technology infrastructure is limited, while connection with other countries in the region is slow and the combination between e-commerce and logistics is ineffective.

The Deputy Prime Minister also mentioned that the competitiveness of logistics service enterprises in Vietnam is not high compared to other countries in the region and world. Notably, Vietnam does not have large enterprises, providing synchronous logistics services; human resources for logistics activities have not yet met the requirements.

Loc has analysed carefully from the perspective of enterprises, the connection of domestic enterprises with foreign ones is quite lax. The market share of Vietnam's logistics services today is mainly held by large foreign firms, domestic enterprises only have about 25% of the market share. Notably, domestic logistics firms understand the market and customer tastes, but they are mainly small and medium enterprises, with unequal capacity and behind FDI companies in terms of technology. “Therefore, strengthening connectivity and building cooperation networks with FDI enterprises is necessary topromote logistics, through learning new technologies as well as promoting the formation of brokerage services, intermediaries in the logistics industry,”Loc emphasised.

How to cut logistics costs in the future? In response to this question, Tran ThanhHai, Deputy Director of the Import and Export Department (Ministry of Industry and Trade), said it is necessary to have a plan that is both specific and relatively comprehensive, related to many industries and sectors. Firstly, it is the system of infrastructure and facilities that must be upgraded and completed; in particular, the connectivity between modes of transport needs to be improved, to avoid focusing too much on one mode of transport such as road, while not being able to exploit other modes effectively such as railway and waterway.

"Besides, we need to continue to improve the legal system, mechanisms and policies to promote the development of logistics services. On the other hand, logistics enterprises also need to have their own plans to upgrade services, to meet the quality requirements of customers, developing domestic and foreign markets. Notably, linkages between logistics enterprises are quite necessary when the majority of businesses in this industry are small and the current linkages are still very fragmented, not creating a collective strength for mutual development. Regarding this factor, the role of associations and local authorities is very necessary,” said Hai.

To promote the increasingly important position and role of the logistics industry in the industrialisation and modernisation of the country, Deputy Prime Minister Trinh Dinh Dung suggested the Ministry of Industry and Trade urgently study and develop a project to consolidate the appropriate personnel apparatus for the focal unit assisting the National Steering Committee on the ASEAN Single Window, the National Single Window and to facilitate trade by implementing national logistics coordination and development to report to the Prime Minister. Since then, strongly promote the effectiveness and efficiency of the inter-agency mechanism; coordinate from the central to local levels to promptly restructure the supply chain, international and domestic logistics services after the end of the Covid-19 pandemic and economic recovery.

The Deputy Prime Minister also requested to support enterprises in the implementation of commitments to international economic integration, promptly solving problems of enterprises on policy and enforcement issues of free trade agreements; help businesses participate in integration and create all favorable conditions for businesses to grow and be the core of the economy.

“Besides, all levels and branches also need to have a more smooth coordination in the direction and administration of logistics activities; especially in the task of applying science and technology, training and fostering and developing high-quality human resources in the logistics sector to be ready to adapt to practical requirements,” Deputy Prime Minister Trinh Dinh Dung said.