Foreign threat looms over uncompetitive logistics industry

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A container ship is unloaded at a port in Ho Chi Minh City

With their lack of expertise and experience, Vietnamese logistics companies are losing out to foreign rivals, and analysts warn they could be wiped out once the economy is fully opened up to the latter.

Foreign logistics companies can now operate in Vietnam only through joint ventures with local partners with a maximum stake of 49 percent.

But the country will have to allow them to run their own business by 2014 under its World Trade Organization commitments.

Analysts fear for the well-being of local firms, which already have just a small share of the logistics market, when they have to take on foreign rivals then.

According to the Vietnam Freight Forwarders Association (VIFFAS), 1,200 local companies most of them small or medium-sized have a 15-20 percent market share, with 25 foreign joint ventures accounting for the rest.

Chu Quang Thu, former chief of the Vietnam Maritime Administration, said the market is dominated by foreign firms since local ones fail to provide whole logistics services packages.

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Apart from a few state shipping firms, local companies are only able to deal with customs formalities and land transportation, he said.

Foreign companies on the other hand take advantage of their global network, deep pockets, and modern IT infrastructure to cover the entire gamut of services, he said.

Ho Kim Lan, chairman of the Vietnam Port Association, said Vietnamese exporters are keen to buy and sell goods on cost-insurance-freight and free-on-board terms in which foreign shipping companies have a wealth of experience and thus provide much better services than their local competitors.

Nguyen Huy Hoang, an expert of the Ministry of Transport said the logistics industry faces a shortage of human resources and expertise, pointing out that there is no internationally acknowledged specialist either at companies or government agencies.

VIFFAS chairman Do Xuan Quang said there is a need for 20,000 more workers in the industry by 2015, while a third of existing employees need to be retrained.

Shape up or ship out

Nguyen Van Quy, director of Ho Chi Minh City-based shipping company TRASAS, feared that many local businesses would not survive the competition once the restrictions on foreign ownership are lifted.

Vietnamese companies should improve, he said, adding that most of them continue to use "outdated" management models.

Firms should make themselves competitive by improving management and infrastructure instead of reducing service quality to bring costs down.

To equip his company for competition with foreign firms, Quy said he plans to improve warehousing and install a US$40,000 software for management.

"We are determined to have a new management model to improve service by 2014 no matter what difficulties [we would face]."

VIFFAS said it is preparing to establish a logistics association to link up Vietnamese firms specializing in different areas of logistics.

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