Regional linkage to turn logistics into the key service industry in Ho Chi Minh City

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Competitiveness of domestic logistics enterprises with foreign competitors is poor. Photo: Thu Hoa Burden of costs

From the survey results on the status of logistics enterprises in Ho Chi Minh City, Master Bui Thi Bich Lien, Vietnam Logistics Research and Development Institute (VLI), pointed out six weaknesses of logistics enterprises. First, logistics costs are quite high according to the assessment of businesses. According a survey by the World Bank, the costs are about 20.9% for 12 of Vietnam’s key products, and according to VLI’s statistics, this figure is about 14.5 - 18%. According to Lien, the reason is due to high domestic charges such as tolls, BOT and inland transportation; irrelevant shipping charges and surcharges; and inconsistent port fees, ICD and depot charges. Second, regarding means of transport, road transport is still the backbone, while specialized aircraft is not available in air transport, and waterways are limited and have not received proper investment. Third, the linkage is poor, because 80-90% of enterprises have legal capital of just VND1.5-2 billion, causing a fragmented service provision. Limited information exchange activities between enterprises and a lack of providing integrated services for customers leads to poor competitiveness with foreign enterprises. In addition, unhealthy competition in prices and commissions also increases Vietnam's logistics costs.

Some other limitations include human resources both in quantity and quality; poor service due to inadequate information on enterprises, non-standardized processes, and slow delivery. Moreover, the application of information technology is at an early stage, while software has just been applied, and modern software such as AI, robotics or cloud computing are not yet popular.

Due to these limitations, logistics businesses face many challenges. In particular, from the customer, the rate of outsourcing is very low, about 30-40%, while in other countries, this rate is about 60-70%. The VLI's survey of businesses using logistics services also showed that high costs were the top reason for businesses to do logistics by themselves instead of outsourcing (72.2%). Thus, costs are the biggest barrier for the development of Vietnam's logistics service.

According to Lien, difficulties of logistics enterprises also come from macro factors. Specifically, infrastructure development has not kept up with goods and logistics development. "The current highways cannot be called highways because of frequent traffic jams," said Lien. In addition, too many BOT fees and road fees are a problem. For example, there are nine BOT toll stations from Buon Ma Thuot to Ho Chi Minh City, causing an increase in the cost of logistics enterprises.
Making logistics a key service industry

In order to develop logistics services, the Ho Chi Minh City People's Committee has approved the Scheme on Logistics Development in the city until 2025. Nguyen Ngoc Hoa, Deputy Director of Ho Chi Minh City Department of Industry and Trade, said with this scheme, Ho Chi Minh City expected to increase the contribution of logistics services to 8%-10% of GDP, an increase of 15%-20%. At the same time, forming a professional logistics service will increase the percentage of outsourcing logistics services to 50%-60%, reducing Vietnam's logistics costs to 16% of GDP by 2025.
According to the approved outline, the scheme has three core tasks. First, planning the logistics development strategy of Ho Chi Minh City is based on regional linkage. It is the linkage of transport infrastructure (bridges, ports, warehouses, yards) between Ho Chi Minh City and the provinces of East-Southwest: Ba Ria - Vung Tau, Dong Nai, Binh Duong, Tay Ninh, Can Tho, Long An, Tien Giang, Dong Thap, An Giang, in order to form a chain of linkages, linking material areas with production plants and markets.

Second, in terms of technical infrastructure, identifying needs, proposing the location and scale of three logistics centers according to the orientation stated in the Prime Minister's Decision No. 1012/QD-TTg dated July 3, 2015, approval for nationwide logistics center system development planning by 2020. These three centers will meet two requirements: transshipment, storage, supply of goods for distribution chains in the inner city (supermarkets, retail stores) and transshipment and distribution of import and export goods from Ho Chi Minh City to provinces and cities through the city gateway.

Third, regarding logistics services, raising the proportion of businesses using outsourced logistics services, specifically manufacturing enterprises only focus on their production, and the transportation and delivery will be undertaken by logistics service businesses. Specialization will help reduce logistics costs, increase the competitiveness of Vietnamese goods both in domestic consumption and for export.

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Mr. Nguyen Ngoc Hoa said as many of the city's major export industries have gradually shifted to other provinces and cities, to maintain the position of national economic leader, completing and becoming a focal point of logistics services, connecting regions in the country are necessary. Accordingly, Ho Chi Minh City is rushing to complete the infrastructure as well as conditions to make logistics its key service industry.