Vietnamese logistics firms lose out to foreign competitors

By Mai Phuong, Thanh Nien News

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Foreign businesses own 70-80 percent of Vietnam's logistics market. PHOTO: DIEP DUC MINH
Vietnam's logistics industry is growing an average of 20 percent every year, but domestic firms are missing out on much of that action.
Nearly 1,200 local businesses currently compete for a combined market share of only 20-30 percent while 25 foreign companies dominate the vast majority of the market, according to figures compiled by the Vietnam Logistics Business Association.
Do Xuan Quang, chairman of the association, said sea transport accounts for 50-60 percent of logistics revenues in Vietnam, but foreign lines dominate the sector.
Local companies mainly serve as subcontractors, he said, loading and unloading cargo.
The World Bank’s latest report showed that logistics costs in Vietnam make up some 20.9-25 percent of its gross domestic product (GDP), or US$35-40 billion a year.
For instance, it costs $2,800 to ship a 20-feet container from Ho Chi Minh City to New York City, local companies take about half of that cost in handling and paperwork.
“Multinational companies have are eating the best part of the logistics cake, and it is very difficult for us [Vietnamese businesses] to win it back,” Quang said.
Vietnamese companies have also been largely shut out of air logistics--they handle only 20-22 percent of the $700 million a year business. 
One of reasons for the failure of local businesses to win shipping contracts, according to experts, is the practice of importing goods at the cost-insurance-freight price, meaning that the seller arranges to ship goods by sea to a port of destination.
Exported goods often depart at free-on-board prices, meaning that the seller delivers goods on board a vessel designated by the buyer.
A representative of Saigon Garment Manufacturing Trade Joint-stock Company said most of their foreign partners assigned goods to be shipped by foreign companies because Vietnamese businesses cannot compete with their foreign rivals in terms of quality and cost.
Last month, the Vietnam Logistics Business Association reported that most local logistics businesses are small and medium-sized and have a registered capital of between four and six billion dong.
Only about 5-7 percent of their staff have received basic logistics training.
A representative from a steel business in HCMC told Thanh Nien that he once contracted local firms to ship his goods by sea because Vietnamese law prohibited foreign companies from providing domestic shipping services.
However, the company recently switched to trucking because they found Vietnamese firms failed to deliver goods on time, the representative said.
On the other hand, foreign companies boast good supply chains, modern administration, experience and modern technology, so they can offer lower costs than Vietnamese businesses do, Quang said.
COSTLY UNPREDICTABILITY
According to the World Bank, logistics operations in Vietnam are “costly” due to variables in the supply chain which force businesses to carry more inventory than they need to manage their everyday operations.
The Vietnam Logistics Business Association estimated that Vietnam’s logistics costs are 20-30 percent higher than that of other countries in the region, including China, Thailand and Malaysia.
The World Bank report identified the following root causes:
- Cumbersome and inconsistently-applied government regulations
- Lack of automation in key trade-related processes such as trade clearance
- Fragmented modal planning in transportation
- A belief among shippers and logistics service providers that facilitation payments are necessary to avoid delays in supply chains
- Low barriers to entry in trucking
- Major supply-demand imbalances in infrastructure provisions
Vietnam’s shippers spend some $100 million every year in extra inventory carry costs due to import-export clearance delays, according to the report, adding that that amount is projected to reach $180 million by 2020.

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