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A worrisome 2023 for Vietnam’s logistics industry?

A worrisome 2023 for Vietnam’s logistics industry?

Wednesday 04, 01 2023
Vietnam's logistics industry is going into a troubled 2023, facing factors that threaten the sustainability of the supply chain.

Logistics speeding up

Located in a dynamic development area of the world, where the flow of goods is concentrated and exchanges are strong, with a large open economy (over 200%), Vietnam has always achieved double-digit growth in import and export and e-commerce. That serves as a boost for the acceleration of Vietnam’s logistics service industry.

According to Agility's ranking in 2022, Vietnam's logistics market is ranked 11th among the 50 emerging logistics markets globally. The compound annual growth rate (CAGR) of Vietnam's logistics market is expected to reach 5.5% between 2022 and 2027, paralleling the country's strong recovery from the COVID-19 pandemic.

Vietnamcredit Vietnam's logistics

At the 2022 Annual Meeting of the Vietnam Logistics Business Association (VLA), Mr. Tran Thanh Hai, Deputy Director of the Agency of Foreign Trade, assessed that the import and export scale of the economy had exceeded 700 billion USD in mid-December. The trade surplus was more than 10 billion USD.

The excitement of import and export activities in Vietnam is reflected in most logistics enterprises’ profoundly positive business results. Companies have overcome difficulties after the pandemic to achieve encouraging business results with an average growth rate of 12–15%.

The increase in import and export, the boom in e-commerce, the participation in 15 free trade agreements with 60 major economies, etc., serve as leverage for Vietnam’s businesses to invest in developing the freight forwarding service business, infrastructure, and warehouses. VLA data shows that Vietnam's logistics market has the participation of more than 5,000 businesses.

However, foreign enterprises still hold a large market share in the field of providing logistics services in Vietnam. There are still 89% of small and medium-sized enterprises, the rest are joint ventures and foreign direct investment (FDI) enterprises providing cross-border logistics services.

2023 will be more difficult

The shipping industry experienced a complete reversal beginning in the middle of 2022. Freight rates plummeted to pre-pandemic levels, and the world had a surplus of more than 6 million TEUs, while there had been a container shortage previously. That signals a tough 2023 for the logistics service industry.

A representative of VLA said that in November 2022, the Association sent a report to the government detailing that the key export industries, such as textiles, footwear, furniture, etc., are in problem with orders dropping in number in 2023. The overall situation is quite gloomy and is without improvement so far.

Vietnamcredit logistics service

The decrease in orders from exporters deeply troubled Vietnam's logistics service enterprises. With the increasing trend of environmental taxes in some markets, the VLA representative noted that logistics businesses must be aware to catch up and adapt. Forwarding companies can switch to using electric vehicles, logistics centers switch to using solar energy, and businesses to use recycled packaging.

“Container freight rates are down, but volatile factors that threaten the sustainability of the supply chain are still present (diseases, conflicts, etc.). Besides, the trend of greening commercial activities is an inevitable trend, which will create higher standards, which means more costs for trade and logistics activities," said Mr. Tran Thanh Hai.

Objectives for Vietnam’s logistics industry until 2025

According to Decision No. 221/QD-TTg dated February 22, 2021, it is expected that by 2025, the contribution of logistics services to Vietnam’s GDP will reach 5-6%; the logistics service growth rate will reach 15-20%; the rate of outsourcing logistics services will reach 50-60%; logistics costs will be reduced to 16-20% of GDP; and Vietnam’s logistics industry will be ranked among the top 50 worldwide according to the Logistics Performance Index (LPI).

Logistics Performance Index

The proportion of logistics/GDP at 5-6% is quite high when compared to the corresponding proportion of economic sectors in 2021. The proportion of logistics in GDP is only behind 4 industries.


Compiled by VietnamCredit


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