Logistics costs in Vietnam are high both regionally and globally. According to data from the international business performance assessment organization, Armstrong & Associates, Vietnam's total logistics costs in 2016 amounted to $41.26 billion, equivalent to about 20.8% of the total GDP. In contrast, this figure in developed countries ranges from 9% to 14%. Transportation costs account for nearly 60% of this, as the majority of goods are transported by road. Therefore, there are many opportunities for cost reduction in Vietnam's logistics sector.
According to a report by VCSC, the logistics sector is growing rapidly, currently at a rate of 20% per year. According to the World Bank, Vietnam ranked 39th out of 160 countries in the Logistics Performance Index (LPI) in 2018, placing third in ASEAN after Singapore and Thailand. The goal for Vietnam's logistics sector by 2025 is to achieve a growth rate of 15-20%; and an LPI ranking of 50 or better. To achieve this goal, it is necessary to identify the causes of escalating costs and propose solutions. So, what has caused the high transportation costs in Vietnam?
1. The capabilities of logistics companies
Currently, there are about 3,000 companies providing transportation services in Vietnam, and nearly 300,000 if including businesses related to logistics. However, according to the Vietnam Logistics Association (VLA), these businesses are predominantly small-scale and their operations are not yet optimized due to:
Multinational logistics companies dominate the logistics sector, leading to unhealthy competition and the practice of undercutting prices for small businesses. The VLA reports that the average registered capital of logistics companies is only about 4-6 billion VND, with 72% being small and medium enterprises with capital less than 20 billion VND. The VLA chairman emphasized: "nearly 70% of logistics companies in Vietnam are asset-less, with investments in equipment and transportation vehicles accounting for only 16%, storage and port facilities about 4%, and the remainder having to rent externally."
Coordination and connection among logistics companies are loose, as evidenced by the fact that 40-50% of trucks only operate one-way trips before returning; these companies are not participating in trading platforms or engaging in collaborations or mergers.
The quality of human resources is limited, not high, not professional, and does not meet the capital scale and high level of knowledge required, not just in transportation but also in management, methods of goods circulation, etc. Small and medium-sized enterprises have few employees, of which only 5-7% have formal and professional training.
2. Taxes and Fees
Main transportation fees, additional charges, and taxes create barriers preventing the logistics sector from developing further. Moreover, the policies of various ministries and transportation investment trends add to the challenges of cost reduction.
Fuel costs are high, currently accounting for about 30-35% of total logistics costs and are predicted to increase by 40% to a "ceiling price" if the Ministry of Finance's proposal to increase environmental protection fees is approved.
There are many types of surcharges and overlapping inspections, such as BOT road tolls accounting for 10-15% and continuing to attract investment; specialized inspection fees for about 100,000 different items, of which 58% must be inspected 2-3 times, costing businesses approximately 14.3 trillion VND per year and 28.6 million labor days.
Various taxes and fees are either unreasonable or corrupt at various stages of documentation and procedures, such as "training fees" for inspection forces, etc.
3. Infrastructure and Technology
Although there has been significant investment through FDI flows recently, Vietnam's transportation infrastructure still lags behind the development pace of the logistics sector, unable to accommodate the increasing flow of goods and not uniform with multimodal transportation. This is a weakness that limits the growth potential of Vietnam's logistics.
The transportation infrastructure system is not synchronized, with limited connectivity between sea, rail, and road transport; there is a lack of national and international logistics centers in key economic regions to serve as distribution hubs. Prime Minister Nguyen Xuan Phuc has pointed out: "Currently, someone makes an airport just focusing on the airport, someone makes a seaport just focusing on the seaport, someone makes railways just focusing on the railways. But connecting them with each other is not considered. The lack of connectivity in infrastructure will not meet the development needs." The weak transportation system is a reason for traffic congestion, inefficiency in transportation, reflected in the average speed of trucks on Vietnam's national highways being 35km/h.
Vehicles are not timely registered or inspected, leading to disparities in transportation costs. According to the Vietnam Logistics Business Association, the average age of trucks in Vietnam is 17 years, compared to 7 years in North America.
Warehouse and handling equipment are outdated and not synchronized, slowing down the loading and unloading process and causing damage to goods. According to the Vietnam Logistics Association, companies can save up to 100 million VND annually on warehousing costs.
Vietnamese companies are not ready for innovation, with low information technology adoption rates. For example: ERP 10%; EDI 17%; TMS 19%; GPS 29%...; meanwhile, in Sweden and Norway, the adoption rates for EDI are 29% and 43%, respectively, and the GPS adoption rate is 37% in Finland among small logistics service providers.
In the 4.0 Industry Revolution, companies are encouraged to apply advanced science and technology to improve the quality of logistics services and competitiveness in the industry. The logistics market in Vietnam has potential and much room for growth. By applying new technology, Abivin helps improve logistics capabilities, particularly reducing up to 30% of last-mile delivery costs and enhancing management for businesses.
References
http://congthuong.vn/phat-trien-nganh-dich-vu-logistics-viet-nam-ngang-tam-khu-vuc-va-the-gioi-102110.html
https://www.researchgate.net/figure/ICT-tools-adopted-by-small-logistics-service-providers-in-the-Scandinavian-countries_fig1_235975192
http://bnews.vn/vi-sao-chi-phi-logistics-cua-viet-nam-lai-cao-/81856.html
http://www.baogiaothong.vn/vi-sao-chi-phi-logistics-o-viet-nam-cao-vot-d248041.html
http://www.nhandan.com.vn/antuong/item/36199502-giam-ganh-nang-chi-phi-logistics.html
https://baomoi.com/thu-tuong-can-nguon-nhan-luc-de-phat-trien-dich-vu-logistics/c/25683234.epi
http://www.vla.com.vn/thong-tin-cua-vla-ve-dich-vu-logistics-viet-nam.html
https://baomoi.com/doanh-nghiep-logistic-viet-khat-vong-dao-nguoc-cuoc-choi/c/25317103.epi
Why Are Logistics Costs So High in Vietnam?