Vietnam to Continue Building Logistics Expertise in Face of Growing Demand

By Edward Barbour-Lacey

HCMC – Logistics are a key part of any business chain and, as Vietnam’s economy continues on its growth track, demand for logistics services has grown exponentially. Despite some problems, the country is working hard to keep up with the ever-growing logistical needs of businesses operating within the country.

In particular, the high level of foreign direct investment (FDI) into Vietnam’s manufacturing sector has been a strong driver for international transport and logistics services.

With its long coastline, Vietnam naturally leans heavily on sea freight transportation for its export trade. However, airfreight is now also seeing significant growth. All of these logistical options are facing their own challenges as they struggle to modernize and expand quickly enough to handle the growing customer demand.

Logistics problems

Currently, there are around 300,000 businesses providing logistics services in Vietnam. These businesses employ an estimated 1.5 million people, 40 percent of whom are located in Ho Chi Minh City (HCMC).

As mentioned above, the logistics industry is experiencing strong growth, however, it has been difficult for companies to hire enough qualified people to handle the increased business. In fact, according to some estimates, 60 percent of the logistics demand in Vietnam is currently going unmet – representing a significant opportunity for foreign logistics firms looking for their next growth market.

RELATED: Dezan Shira & Associates’ Pre-Investment and Entry Strategy Advisory

One of the key human resource problems is the lack of vocational training that is currently offered in the country. However, Vietnamese schools are working to rectify this situation. For example, the HCMC City University of Transport and the Vietnam Maritime University have both opened new facilities that will focus on logistics education.

Ports

Much of Vietnam’s commercial and manufacturing activity is still located in the south of the country, which has made the ports along the Mekong River Delta and in HCMC key transport and logistics locations.

According to Alphaliner, a leading shipping industry analytical firm, its 2014 list of the top 30 container ports revealed that Vietnamese ports saw the strongest growth rate out of all the ports. HCMC’s deep-water port Cai Mep saw its volume handled increase by 16.7 percent year on year. Additionally, the northern port of Hai Phong saw a 14.3 percent growth in volume. The average volume growth for the other ports on the list was just 5.3 percent.

Vietnam’s ports are continuing to see strong growth in 2015 as well. Port terminals in HCMC have already seen an increase of 12.6 percent in volume during the first quarter of the year. However, this fast growth has also resulted in some berth congestion at the terminals.

Analysts expect the region’s seaports to handle around 200 million tons of cargo in 2015, growing to 305 million by 2020, and to a staggering 650 million tons by 2030.

In order to deal with the increasing flow of shipping traffic, HCMC is building its first special economic zone (SEZ) with a focus on maritime activities. Additionally, dredging projects, such as the one in the Soai Rap, will continue to help with faster navigation and allow larger ships to enter the waterways.

Airfreight

According to Vietnam’s Deputy General Director of the Vietnam Civil Aviation Authority, the country’s airfreight services are seeing the third fastest growth in the world. However, Vietnam has struggled to set up a comprehensive logistics chain to take advantage of this growth.

Since 2001, more than 50 airlines, from 25 nations and territories, have begun operations in Vietnam. Airfreight has grown at a blistering annual rate of 15.3 percent.

RELATED: Yarn Forward’s Effect on the Trans-Pacific Partnership and Vietnam

Part of Vietnam’s airfreight logistical problems stem from the lack of coordination between the different logistics sectors, as well as from a need to update technology and better train employees.

The Vietnamese government is keen to implement solutions to these problems as quickly as possible. At the recent second International Conference and Exhibition for Airfreight Logistics Vietnam, the chairman of the Vietnam Airfreight Logistics Association, stated that “developing a complete logistics chain is a must and the conference aims to learn about airfreight experience around the world and apply it to the Vietnamese situation.”

According to Tom Hoang, Regional Director for Cargo Marketing at Boeing, Vietnam’s air cargo market will grow at an annual rate of 11.5 percent for the next ten years.

Import and Export: A Guide to Trade in Vietnam
In this issue of Vietnam Briefing Magazine, we provide you with a clear understanding of the current business trends related to trade in Vietnam, as well as explaining how to set up your trading business in the country. We also attempt to give perspective on what will be Vietnam’s place in the Association of Southeast Asian Nations (ASEAN) in 2015, and look at some of the country’s key import and export regulations.

Using Vietnam’s Free Trade & Double Tax Agreements
In this issue of Vietnam Briefing we explore how Vietnam’s Free Trade Agreements – and especially those via its membership in ASEAN – will affect foreign investment into Vietnam. We also go a step further and examine the specific, bilateral Double Tax Agreements that Vietnam has enacted, and how these can be further used to minimize profits and withholding taxes that would otherwise be levied upon foreign investors.

Developing Your Sourcing Strategy for Vietnam In this issue of Vietnam Briefing Magazine, we outline the various sourcing models available for foreign investors – representative offices, service companies and trading companies – and discuss how to decide which structure best suits the sourcing needs of your business.

• Previous Article ASEAN Rules of Origin To Be Key In China – Vietnam Trade
• Next Article State by State: Vietnam and Texas Trade