Foreign firms dominate Vietnam logistics market through recent M&As

Vietnam's logistic market may reach US$87 billion by 2022

Foreign companies are taking up 70%-80% of Vietnam’s logistics market thanks to a series of merger and acquisition (M&A) deals over the past years, leaving domestic firms struggling with fierce competition.

International firms account for only 2%-3% of more than 1,300 logistics companies in Vietnam but they dominate the logistics and warehousing market which is likely to reach US$86.7 billion by 2022, according to Pieter Pennings, consulting director at CEL Consulting.

Local firms which provide separate services and small segments are unable to compete with foreign rivals which are much stronger in terms of finance.

Foreign firms get more customers thanks to their well-equipped facilities and advanced technology services, enabling them to boost the market share.

In addition, Vietnam’s export-led economy has made it one of the manufacturing bases in the region and the logistics sector is projected to make up 8%-10% of the country’s GDP by 2025 thanks to the fast-growing middle-income population, urbanization rate, and e-commerce, the Dau Tu newspaper reported.

Foreign-invested companies including those from Japan, the Republic of Korea, China, Singapore, and France see opportunities for both expanding business and adding more services, Pieter Pennings said.

As a result, M&A deals in the logistics sector have been on the rise since 2015 and Vietnam becomes one of the best choices, he said.

Big M&A deals

Several big M&A deals in Vietnam’s logistics market have been reported over the years with key brands coming from Japan, South Korea, and Singapore.

The latest case took place in early July when Singapore-based Symphony International Holdings bought a 28.57% stake worth US$42.6 million at Indo Tran (ITL Corp) from Singapore Post.

Earlier this month, SSJ Consulting Vietnam Llc, a company in which Sumitomo Corp owns a 51% stake and Japan Overseas Infrastructure Investment holding 46%, acquired a 10% stake in Gemadept Corp. for US$37 million. Currently, Sumitomo operates three industrial parks near Hanoi and owns a logistics company in the country.

In 2018, the Republic of Korea-based CJ Logistics spent US$125 million to buy stakes at Gemadept. Meanwhile, another South Korean firm named Tae Kwang revealed a plan to buy a 51% stakes at Gemadept valued at US$444 million.

At the same time, Alibaba’s Best Inc poured money into VinaCapital-invested VNC Post to make inroads into the logistics business in Vietnam, according to the Dau Tu newspaper.

Vietnam’s logistics outlook

The logistics and warehousing market is expected to register a positive compound annual growth rate (CAGR) of 13.3% in the 2018-2022 period thanks to expanding industrial activities, growing e-commerce industry, continuous investment in infrastructure and logistics facilities, and consistent economic growth, according to Ken Research – a market research and consulting company based in India and the US.

Vietnam’s logistics sector is expected to escalate its way thanks to the following reasons.

First of all, a good connection in the urban cities where a huge share of traffic is coming from the tier 2 and tier 3 cities.

Modern technologies like enterprise resource planning, electronic data interchange, customs and accounting software, GPS, bar code system, radio frequency identification (RFID), automatic retrieval system, robotics, drones, among other are anticipated to improve the logistics services in near future.

Macroeconomics has supported the sector’s growth with various free trade agreements (FTAs) signed between Vietnam and single economies or economic blocs which will boost the country’s trade relations in the long term.

Additionally, foreign investments are estimated to rise strongly in Vietnam as many logistics enterprises in ASEAN countries are keen to invest and have a better understanding of the laws, customs and culture of Vietnam.