Logistics 4.0

In the context of regional and global changes, the two biggest focuses of the economy are standards and product supply chains. Logistics is part of supply chain management that deals with the efficient flow of goods, services and related information from the point of origin to the point of consumption according to customer needs. Driven by digital development, logistics is increasingly central to the supply chain.

Logistics not only requires huge investment costs and has strong impacts on product prices (on average, accounting for about 5% of GDP and 20% of the cost of goods) but also determines the quality of international trade because every customer wants their products to be delivered as quickly and perfectly as possible regardless of distance.

The adoption of digital transformation in logistics has been slow relative to other industries in previous decades. However, over the past five years, the sector has seen more businesses partner more closely with tech firms as this sector is opening up a market worth trillions of U.S. dollars. Statistical reports show that US$2.3 trillion worldwide will be invested in technologies and services that enable digitization by 2023. This shows how logistics businesses can benefit from digital technology.

Vietnam has an open economy, strongly relying on international trade as it has bilateral economic relations with more than 230 countries and territories. The country also signed 16 free trade agreements (FTAs) with 60 economies. In general, in 2021, the total merchandise export and import value reached US$670 billion, nearly twice its gross domestic product (GDP).

Vietnam also has an important geo-political position in the region, especially in the East Sea - the lifeline of maritime traffic that connects the Pacific-Indian Ocean, Europe-Asia and the Middle East-Asia. This is considered the second busiest international shipping route in the world. The East Sea holds great strategic importance: Apart from its potential for energy, minerals and seafood, more than 90% of the world's commercial transportation is ocean shipping and 45% of it goes across the East Sea, with trade worth nearly US$5.5 trillion a year. Many East Asian countries and territories vitally depend on sea routes, including Japan, South Korea, Taiwan, Singapore and even China.

The resolution of the 13th National Party Congress defines synchronous infrastructure construction as one of the three strategic breakthroughs for national development. To realize this target, we have gradually upgraded roads, railways, air routes, sea routes and inland waterways that link localities in the country and connect countries in the region through three classes of border gates, including overland border gates at domestic and foreign intersections (Mong Cai-Quang Ninh, Huu Nghi-Lang Son, Lao Bao-Quang Tri, Moc Bai-Tay Ninh); maritime border gates located at seaports like Hai Phong Port, Tien Sa Port (Da Nang), Saigon Port (HCM City) and Ca Na Port (Ninh Thuan); and air border gates located at domestic international airports such as Noi Bai (Hanoi), Tan Son Nhat (HCM City), Cat Bi (Hai Phong) and Cam Ranh (Nha Trang).

By sea, the seaport system has been invested synchronously with a throughput capacity of 570 million tons a year. Cai Mep and Lach Huyen international gateway ports can receive large vessels of 130,000 - 200,000 DWT that travel directly to the West Coast of the United States, Canada and Europe, while specialized ports can accommodate ships of 100,000-320,000 tons. Vietnam has gradually developed inland ports to support seaport operations and develop logistics services effectively.

By airway, important airports have been upgraded, including Noi Bai, Tan Son Nhat, and Da Nang, and new ones have been constructed, including Phu Quoc and Van Don, bringing the total capacity of the airport network to 90 million passengers a year. Modern flight management technology ensures safety and enhances airport performance.

However, digital application in logistics firms in particular and in Vietnamese enterprises in general is still limited and has a large gap in artificial intelligence (AI). According to statistics, per capita investment in AI solution companies in Vietnam is under US$1, the same as in Thailand, Malaysia, Indonesia and the Philippines. Meanwhile, the figure is US$68 in Singapore, US$21 in China (in 2019) and US$155 in the United States. That poses challenges for Vietnam, which needs to invest more heavily to capture digital platforms in merchandise production and distribution and boost the country's economic growth.

In addition, digital transformation involves risk exposure. A survey of directors, CEOs and senior executives found that digital transformation (DT) risks were their top concerns in 2019 because 70% of all DT initiatives failed to meet their goals. Of the US$1.3 trillion spent on DT last year, US$900 billion was estimated to be wasted. Why do some DT attempts succeed while others fail?

Basically, it is because digital technology helps enhance efficiency and customer satisfaction. If a business lacks the mindset for change, the infrastructure is not synchronized and no implementation methods of appropriate transformation strategy are in place, it will lead to failure and then DT will be simply a tool to magnify those failures.

Therefore, to apply digital transformation in the logistics industry, businesses need to be aware that they can take advantage of digitization to obtain many benefits like increased performance, established trust of trade partners and stakeholders, optimal supply routing, good transport management and smart decision-making on cognitive computing tools and AI support. Digital technology will enable the logistics industry to overcome challenges by optimizing processes, end-to-end communications, supply chain management, customer experience and cost control. According to a new study, digital technology, including AI, can transform the ASEAN economy, including Vietnam, to a higher level. If ASEAN members catch up with the pace of AI adoption, they could add nearly US$1 trillion (over US$100 billion for Vietnam alone) to the region's gross domestic product by 2030.

The global economy is experiencing digital transformation. Modern digital technology is the tool that makes this process possible. Therefore, the importance of digital technology in logistics is clear and present.

However, applying digital technology in logistics companies is a breakthrough transformation process that requires pioneering research and proposing models suitable to the socioeconomic planning of each region as well as the natural environment. That process requires appropriate development steps and timing models to ensure success. Logiinds Corporation, affiliated to CT Group, is a typical example. In its plan for 2023, Logiinds will focus on building modern bonded warehouses in Tan Son Nhat and Da Nang. Its digital application strategy consists of four development stages:

1. Starting digital transformation: Logiinds determines a new direction: Delivering services based on breakthrough models in the infrastructure and logistics industry such as AI platforms and robotics and supplying green and renewable logistics. With its cooperation with CT Optimal LAB in France, Logiinds directly develops a complete AI Platform for the logistics business. In particular, the company focuses on applying blockchain, internet of things (IoT), artificial intelligence (AI), digital twin, big data and analytics and other technologies that provide new valuable ways to streamline or redefine business intents driven by inbuilt logistics and supply chains to build cutting-edge business processes.

2. Transforming the digital business model: Transforming the business model that creates and delivers digitally based values. Services and solutions delivered can gradually move from a traditional physical interaction to a fully digital experience.

3. Redefining new business directions: To a certain development stage where the company has accumulated a lot of professional knowledge and financial resources for investment, it will actively expand its reach to new potential business fields. As the company invests a lot in digital to support its core business, it can potentially deliver digital solutions to other industries and create profitable business prospects in totally new vertical industries.

4. Transforming the business structure: The highest development stage in digital transformation is establishing an enterprise-wide structural system through long-term digital transformation. These innovations facilitate future expansion by redefining internal processes, capabilities and operational thinking. Business changes lead to flexible workflows that eliminate silos of some uncooperative departments that do not want to share information with others, which undercuts the efficiency of overall operations, weakens working morale and may cause the collapse of a corporate high-performance culture, replaced with real-time experiments and decentralized decision-making procedures. These effects allow new inventions and collaborative techniques leading to new approaches to value delivery towards the 5PL modern logistics model - a type of e-commerce market service that embraces 3PLs and 4PLs that manage all stakeholders in the distribution chain on e-commerce platforms. Key to the success of 5PL logistics service providers is the order management system (OMS), warehouse management system (WMS) and transport management system (TMS) which must be managed closely together in a synchronous information technology system.

To build a digital business environment that ensures practical benefits and supports startups and effective digital business transformation, it is necessary to develop five specific macro policies:

a. National general logistics standard policy: In technology, standards are No. 1 priority. So, it is necessary to build a general logistics standard policy for Vietnam in accordance with digital transformation standards and rules of industrialized countries. It is important to ensure the perfect connection of all logistics software and hardware standards and transportation systems to create synergies.

b. Digital skills training: Any technology solution must take into account impacts on workers and put people first. There is a need to build a shared commitment to digital skills training for the workforce.

c. Linking social and economic capital clusters: Logistics is at the base of the pyramid that is needed not only for all supply chain operations but also for all economic activities such as tourism, trade and investment. However, this field needs the most investment resources. Along with the transport system, the logistics industry, powered by digital applications, will be the most important of national product resources and a platform closely connected with four key remaining resources: Natural, human, financial and social. Only the close connection of these capitals will ensure the success of logistics development and create conditions to initiate, breakthrough and spread the country's second economic renovation. If so, the logistics industry, powered by successful digital applications, will be the foundational resource to position the national economic scale in the international arena.

d. International cooperation in logistics cluster development: The supply chain is a global business that is currently transitional. So, there is a need to have policies on international cooperation in logistics cluster development, especially in key economic regions such as the Mekong Delta, the Red River Delta and the central region. It is necessary to attach importance to economic integration development in ASEAN, consider it a focus for international trade negotiations and build a national supply chain strategy to make sure that Vietnam will have an important position in the region. In particular, special attention should be paid to constructing Kra Canal (Thailand) because it will certainly change the landscape of the ASEAN maritime industry and international transport, especially commercial ships on Indian-Pacific routes. This new canal is said to be economically beneficial to Vietnam in all aspects (especially southern provinces and cities).

e. Cybersecurity: Digital transformation brings many benefits as well as risks. Therefore, it is necessary to strengthen cooperation and enhance cybersecurity in developing and implementing technology application strategies.

Along with the awareness and endeavor of the business community in digital transformation, the government’s effective policymaking and enforcement will position Vietnam's logistics industry to play an increasingly important role in the country’s socioeconomic development resources, as well as regional and global economic transformation.

Dr. Doan Duy Khuong

Sour: Vietnam Business Forum