Closer Linkage among Logistics Service Providers Needed

Located in the capital of Vietnam where the economy and infrastructure are well-developed, logistics enterprises have not put these advantages to use effectively. According to the Hanoi Department of Industry and Trade, most of the logistics service providers (LSP) are only small and medium-sized, with the average capital of VND18.6 billion. The size on average is 58 people. Particularly, there are some with the capital of only VND500 million and 10 people. Also, the fact shows that more than 60 percent of the LSPs in Hanoi are branches of LSPs in Ho Chi Minh City. Hence their scales are less limited than those of the headquarters. Another drawback of the LSPs in Hanoi is that up to 90 percent of them have not applied information technology into their operations.

 

Also, according to Tran Thi Phuong Lan, Deputy Director of the Hanoi Department of Industry and Trade, there is a big development gap between domestic LSPs and foreign ones. Specifically, the number of domestic enterprises accounts for about 20 percent of all the LSPs in Hanoi. The Southern Freight Company (Sotrans), VinaFreight, Macs Maritime JSC and VOSA are some brands in this sector.

 

However, a difference between the state-owned LSPs and foreign invested ones is that the number of foreign LSPs accounts for only 2 percent but their market share is up to 80 percent. Another difference is that the foreign LSPs have large amounts of capital and highly skilled logistics management systems powered by application of modern information technology. They mainly provide international transport services and value-added services such as consulting, cross-docking, and order tracking. Such the main differences have created major barriers that narrow the domestic market share of the domestic LSPs, weakening the competitiveness of the local LSPs and causing operational inefficiencies.

 

According to Tran Nguyen Nam, Deputy Director of the Domestic Market Department, Ministry of Industry and Trade (MoIT), most of the logistics enterprises in Vietnam in general and in Hanoi in particular lack comprehensive development, professionalism and modernisation of scale, and qualified human resources as well as the application of modern technology. Vietnamese enterprises in the sector can only meet the demand of the local cities and businesses in industrial parks and export processing zones. The linkage among the LSPs is still low. In particular, the system of legal documents is still weak; many regulations are lax, impractical and not clear enough to support the businesses.

 

Tran Thanh Hai, Deputy Director of the Export Department (MoIT), shared more about the development of trade inspection services in the logistics operations. There are so many laws such as the Investment Law, Business Law, Trade Law and many agencies such as the Ministry of Industry and Trade, General Department of Vietnam Customs, and General Department of Taxation that get involved in the logistics activities. This causes the conflicts in the consensus among the management and operations. For example, in regards to the assessor's seal; a shipment often is tested by an agency before clearance. However, few goods are easily tested and monitored by the agency. And the results of the tests will be sent to the main office. This causes incurred financial costs and time for business. MoIT has proposed to the Government that each assessor, who is legally enforced, will be issued a separate seal to have a proactive assessment and give a seal directly at the warehouse yard, instead of not transferring the results to the main offices as before. "This will save costs and increase the productivity of the business activity of the LSPs", Hai said.

 

Agreeing with this idea, Nguyen Tuong, Head of Representative Office of the Vietnam Logistics Association, said that the current competitiveness of the Vietnamese state-owned LSPs and private ones is so weak compared to other foreign companies. They are not capable of providing high quality logistics services. Furthermore, Mr Tuong indicated that the current network of transport and urban infrastructure is not consistent and does not meet the needs of shippers. Although Vietnam has a long and beautiful coastline; it is poorly planned so this causes drawbacks to the development of logistics industry in the country. In addition, the fact shows that logistics activities do not have any privileges in some peak seasons with high traffic such as lunar new year and university entrance exams, which causes time-consuming storage and rising costs. The in-bound roads ban the 3-tonne trucks for operation so the businesses must hire more vehicles and the more routes are required. "This leads higher cost," said Mr Tuong.

 

Faced with these difficulties, he suggested that Hanoi should focus policies to support the development of logistics industry. Specifically, the city should establish a steering committee that is supervised by the Department of Industry and Trade. The agency will act as a focal point to propose the problems in the logistic industry to the competent authorities for solutions. Besides, the logistics enterprises should self-enhance their capacity, scale and quality of services to compete with foreign businesses and gain the trust of customers.