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Economic Sector

Last updated: Monday, December 11, 2017

 

Logistics Firms Actively Overcome Challenges

Posted: Wednesday, May 10, 2017

Recently, top negotiators from 11 countries gathered in Toronto, Canada to consider the possibility of restarting the Trans-Pacific Partnership (TPP) without the United States. Japan’s chief negotiator Keiichi Katakami expressed his confidence that the 11 countries will unite to bring the TPP into effect. When the TPP goes into practice, it will bring many opportunities for the development of Vietnamese logistics industry. However, to make great breakthroughs, this fledging industry will have to overcome a plenty of obstacles.

Identifying challenges
Trade liberalisation trends in the TPP and new-generation FTAs provide Vietnamese logistics firms with the opportunity to access and conquer new potential markets. However, Vietnam also has to fulfil its commitments to opening the domestic market. This means that local firms will face fierce competition at the advent of foreign logistics firms, particularly global concerns with profound experience, financial capacity, modern technology and premium service quality. Meanwhile, with limited capital sources, Vietnamese companies are unable to create a strong logistics infrastructure system (warehouses, yards, information technology, means of transport, etc.) and difficult to establish overseas operation networks. Moreover, FDI firms are often highly “nationalistic” and they tend to choose shipping and logistics services from fellow service providers. In this context, the opportunity for Vietnamese logistics firms to win potential contracts is shrinking as well.

In addition, service quality is also a huge challenge as most Vietnamese logistics firms are active in a small segment of the industry where added values are low, such as freight forwarding, warehouse leasing, customs clearance and bulk consolidation services. High value-added services, especially door-to-door logistics services have not been focused for development.

Challenges in information technology and e-commerce application are also hindering operations of domestic logistics firms. While they mostly prefer manual management methods in which the level of information technology is low, world-leading logistics service providers in Vietnam such as APLL and Maersk, an integrated transport & logistics company, are using specialised information technology applications, enabling their customers to control orders at any time. The degree of e-commerce applications including electronic data interchange (EDI), electronic bill of lading (eB/L) and e-vouchers at Vietnamese firms is low and inferior to that of foreign rivals. Hence, Vietnamese firms can only provide separate services for foreign companies.

In addition, there are objective difficulties and obstacles such as weak and incomplete logistics infrastructure in Vietnam, resulting in much higher logistics costs in Vietnam than other countries; lax connectivity and cooperation of domestic logistics firms, thus giving a better chance to foreign rivals to make inroads into Vietnam; inadequate legal environment; and overlapping and inconsistent logistics management policy.

Recommendations for businesses
According to Dr Tran Thang Long from Hanoi-based National Economics University, in order to overcome TPP challenges as well as effectively utilise every opportunity, domestic logistics firms need to be aware of their real situations and positions to boost up their strengths, overcome weaknesses and gradually sharpen competitive edges. In addition, they should actively cooperate with their peers, create connections strong enough to support and complement each other on the market and undertake complete logistics service chains. At the same time, they should boost cooperation with importers and exporters to form supply chains, improve service quality and performance. “Right from the beginning, logistics companies need to define their market segments while actively serving as agents or satellite service providers and accepting the role of outsourcing local services to global logistics companies in Vietnam. This is the most effective way for Vietnamese logistics firms to gradually penetrate into the market, and learn modern management, operation experience and technology from foreign firms,” he said.

Dr Nguyen Thai Son from Hai Phong University said, in addition to efforts made by local firms, authorities also need to improve State management over logistics, build a complete and consistent legal framework to avoid overlapping and operating troubles, and establish a national logistics administration body to unify and coordinate logistics operations in Vietnam to avoid fragmented administration by separate authorities as now. Furthermore, it is necessary to attach importance to stepping up information technology application to management and delivery of public services related to transport and forwarding; invest in transport and logistics infrastructure system modernisation.

“In the face of fierce competition from FDI logistics firms - rivals with superior experience, financial capacity, information technology and service delivery quality, Vietnamese logistics firms have to improve their capacity, strengthen technology, process and service quality. Each business is compared to a “cell” integral to the composition of the Vietnamese logistics industry. Strong and healthy companies will help raise the efficiency of the entire industry,” said Dr Son.

Thanh Tan

 








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