Improving Logistics Services for Higher Competitiveness

 

According to Ms Victoria Kwakwa, World Bank’s Country Director for Vietnam, “Many of the country’s past sources of economic growth, such as a shift in economic activity towards higher-productivity manufacturing and a rapidly growing labour force, are quickly depleting and need to be replaced with new sources of productivity growth. Moreover, Vietnam’s exposure to the risks caused by climate change, such as sea level rise and increasingly unpredictable severe-weather events, make it imperative for Vietnam to find less carbon-intense development trajectories. We believe that more efficient transport and freight logistics can play a critical role in meeting both these challenges.”

 

The report “Efficient Logistics: A Key to Vietnam’s Competitiveness” finds that logistics operations in Vietnam are costly relative to key regional peers like China, Malaysia, and Thailand. It is estimated that Vietnam’s shippers spend approximately US$100 million annually in extra inventory transport costs incurred due to import-export clearance delays; and this amount is projected to reach US$180 million by 2020.

 

Various factors contribute to the high cost, such as a lack of logistics forecast system causing the higher warehouse cost because the enterprises need to make more inventories as need to manage their business operation. The root cause for the lack of stability in the supply chain is due to the cumbersome and inconsistently applied government regulations, lack of automation in processes related to the customs clearance, and discrete commercial planning for the modes of transport; according to the transport companies through waterways and the logistics companies, to facilitate the payments, it is necessary to minimize the delay in the supply chain. In addition, other causes are related to the major supply-demand imbalances in infrastructure provision.

 

However, according to the World Bank, these drawbacks can be reverted if the government adopts a number of actions, such as minimising paper-based processes in the customs and technical clearance of imports and exports, and creating “multimodal logistics corridors” where containerised flows on trucks or barges can move on adequate infrastructure and with minimal regulatory delays. Opening the logistics market and promoting a more sustainable supply-demand balance in the trucking industry are other measures, which can also help.

The report argues that better performing logistics can provide international and domestic investors with an environment where they can source products for export at a lower total landed cost than what they incur in other countries. A stronger logistics sector is also consistent with Vietnam’s long-term vision of spurring export-led growth.

 

“Facilitating Trade through Competitive, Low-Carbon Transport”, a report on Vietnam’s inland and coastal waterways, concludes that further investment in Vietnam’s inland waterway transport and coastal shipping sector can bring about significant economic returns, as the sector offers attractive economies of ship size. Investment in waterborne transport goes well beyond the need to match demand and supply, as larger barges not only result in lower unit transport costs but also lower emissions of pollutants and greenhouse gases - a major benefit to Vietnam, given the country’s exposure to the risks caused by climate change.

 

According to the World Bank, Vietnam should focus its investment on the potential benefits of waterborne transport, including capacity expansion for the corridor linking Vinh Long and Ho Chi Minh City including the Cho Gao Canal, the network’s most pressing bottleneck at present. Investments in the Northern corridor from Quang Ninh to Viet Tri also appear to be economically viable, as well as a dedicated coastal shipping terminal at Haiphong Port. The report also suggests the establishment of a Waterway Maintenance Fund to better pay for maintenance of the core sections of the national inland waterway network.

 

“The research we have conducted over the past 2-3 years, including numerous conversations with freight logistics stakeholders in Vietnam, reveals that unpredictability in supply chains is the main driver of logistics costs for Vietnam. We hope that the recommendations made in the reports can contribute to the shaping of policies that can make logistics operations more competitive, which would generate employment opportunities, spur economic growth, and improve import-export performance,” says Luis Blancas, Lead Author for the two reports.