Economic Sector

Last updated: Tuesday, March 19, 2019


Eliminating Barriers to Logistics

Posted: Thursday, November 08, 2018

Eliminating existing barriers to encourage Vietnamese enterprises to participate in the logistics service chain, thereby contributing to boosting national trade and economic development, is the main content that was brought up for discussion by the Central Institute for Economic Management (CIEM) at a workshop held on October 29, in Hanoi.

Barriers identified
Logistics play an important role in Vietnam's economy and is among the 12 prior industries supported by the ASEAN community. When logistics services have low cost and are highly responsive to customer needs, they will contribute to boosting national trade and economic development. For countries with the same income per capita, those with the best logistics performance will see an increase of one percent GDP in growth and two per cent in trade.

On the logistics market of Vietnam, foreign logistics providers only occupy three per cent of the volume but hold 80 per cent of the market share. Vietnamese logistics companies dominate in numbers, but their sizes are small with limited international competitiveness. They mainly provide simple services and act as satellites for foreign logistics enterprises. In addition, business conditions, specialised management and administrative procedures remain barriers for logistics enterprises.

According to CIEM, road transport accounts for 77.5 per cent of the Vietnam freight transportation market, while that number for waterway, seaway, railway and airway are 17 per cent, 5 per cent, 0.4 per cent and 0.02 per cent, respectively. Road transport cost is high, only lower than that of airways. This has led to a high cost of logistics in Vietnam.

Expensive transportation costs have been a burden for businesses. According to experts, transportation costs account for about 59 per cent of logistics costs, of which road transport accounts for 77 per cent, whereas road transport is the most expensive mode of transport (with gasoline cost accounts for 30-35 per cent, BOT accounts for 10-15 per cent). Another factor making transportation costs more expensive is also unofficial cost (accounting for 5-10 per cent of transportation costs) while road maintenance cost is VND17.5 million / vehicle / year.

An example of the high cost of road transport in Vietnam, as quoted by Nguyen Thi Minh Thao, Director of the Business Environment and Competitiveness Department, CIEM, is that the cost to transport a 40-foot container from Ho Chi Minh City to Tan Thanh border gate by road is VND5.8 million, while that cost from Ho Chi Minh City to California (US) by sea is only US$200 (equivalent to about VND4.6 million).
"In particular, undercover payments occur at most stages, pushing up service prices and reducing the competitiveness of the logistics industry," said Ms Thao. In addition, other reasons include the pressure from the market management force, from the relationship with the state management agencies.

Causes and solutions
The cause of this situation is the poor connectivity between modes of transport, which does not exploit the full potential of other modes of transport such as railways, seaways and inland waterways, to share the burden with road transport, contributing to reducing public investment and lowering logistics costs.

Additionally, multimodal freight transportation has not been developed due to unplanned and improperly set up infrastructure. The investment for the connection of modes of transport is not uniform. Road transport has caused many conflicts of traffic, causing traffic congestion; especially on the way to the port. As 85 per cent of the railways are 1m track gauge, which do not meet international standards and 1.435m gauge rail only accounts for less than 7 per cent; Vietnam railways cannot integrate into the international railway network.

Vietnam jumped 25 spots in the World Banks’s Logistics Performance Index 2018, ranking 39th among 160 countries. Amongst all the major components that were analysed for comparisons, the highest improvement was seen in Tracking and Tracing and Logistics Competence, which rose by 41 and 29 levels respectively.
Another reason is the low level of application of information technology in logistics enterprises in Vietnam, making them unable to operate effectively, cutting costs and improving service quality. Vietnam Logistics Association has proposed deploying electronic delivery orders. There have been related success such as e-customs and e-manifest system (eManifest) of General Department of Customs or electronic port of Hai Phong and Tan Port (ePort). However, in order to implement this system, enterprises have to invest in information technology applications to connect with customers, state management agencies and especially need to start from the legal system.

Furthermore, CIEM said that in order to improve the competitiveness of the logistics industry, it is necessary to plan the construction of container and truck parking in order to facilitate the transportation of goods, thus contributing to reducing logistics costs. At the same time, it is essential to reduce business requirements by 50 per cent, enhancing management reform and specialised inspection, reducing items subject to inspection by 50 per cent according to the direction of the Government, thus ensuring quality and effectiveness, as well as building and developing a freight exchange platform.

Nguyen Thanh

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