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Chances and challenges of e-logistics in Vietnam

Chances and challenges of e-logistics in Vietnam

Tuesday 02, 11 2021
The booming e-commerce industry in Vietnam is paving the way for e-logistics to burgeon. E-logistics is expanding in Vietnam, proving to be a potential industry to invest in, as long as the investors can endure the heat of cost requirements.

Overview of e-logistics in Vietnam

E-logistics is a relatively new concept in Vietnam. E-logistics is considered 5PL logistics, i.e., logistics combined with e-commerce.

The factors that differ e-logistics from the traditional logistics field is that while traditional logistics specializes in large orders, e-logistics deals with small orders, handles large numbers of orders of many types, requiring fast delivery schedule and high precision.

The biggest difference is while most of the order processing and traditional logistics quotes are done manually, e-logistics requires the implementation of procurement and fulfillment handled by information technology. Processes in e-logistics are automated to meet a large number of orders up to millions of orders per day, hundreds of thousands of types of goods, delivery progress within 1-2 hours.

Ministry of Industry and Trade

According to the Ministry of Industry and Trade, in 2017, Vietnam had about 50 enterprises providing e-logistics services. Up to now the number has reached more than 3,000 enterprises registered to operate in the logistics sector, of which 89% are domestic enterprises, 10% are joint venture enterprises and 1% are foreign enterprises.

Vietnam’s potential for e-logistics

From 2018 until now, the e-commerce market in Vietnam has grown strongly. The market scale in 2018 reached 8.06 billion USD, and in 2019 the number was 10.08 billion USD. In 2020, it reached 11.8 billion USD, and it is estimated that in 2021 the market would be worth 13.6 billion USD, with an average annual growth rate of 18%, of which logistics costs account for about 10% of revenue. That is the basic foundation for the development of logistics companies, especially e-logistics.

The Vietnam E-commerce Association (VECOM) said that the volume of goods sent through the delivery service increased by 47% in 2020. VECOM also said that the scale of e-commerce has grown by an average of 30% per year from 2016 to 2019, from 4 billion USD in 2015 to 11.5 billion USD in 2019. The increase will remain at 29 % in the period from 2020 to 2025, rising to 52 billion USD in 2025.

The Vietnam E-commerce Association

According to Redseer1, 86% of Vietnamese consumers will maintain or increase online shopping after COVID-19, opening up the potential for e-logistics. The sales of e-logistics activities in Vietnam in the coming years are expected to soon reach billions of USD.

Agility's report "Emerging Markets Logistics Index 2021" listed Vietnam in the top 8 fastest growing logistics markets globally. With this attraction, the e-logistics race in Vietnam is gaining heat, with many dynamic enterprises participating and competing.

Challenges of e-logistics segment in Vietnam

In Vietnam, e-logistics is more suitable for large-scale and foreign companies. In the field of e-logistics, technology plays a vital role. To fully participate in the e-logistics supply chain, companies must invest millions of dollars in goods sorting lines.

In addition to investing in an automatic classification system, companies operating in the field of e-logistics must also be equipped with management software to connect information infrastructures. The cost of such synchronous information technology infrastructure investment is too great a burden for small and medium logistics enterprises.

The requirement for warehouses, for branches throughout Vietnam, for high-quality laborers to participate in the supply chain that demands new technological knowledge of e-logistics is also a huge obstacle, leading to the inability to enter the field of e-logistics of small and medium logistics companies.

e-logistics

With such cost requirements, e-logistics has also proven to be a difficult field for traditional logistics companies. Vietnam's logistics cost/GDP is at more than 20%, double the world average due to limited infrastructure. The cost pressure is said to have been the reason that drove a big name in the Vietnam logistics industry – DHL, out of the e-logistics segment. On the other hand, many other companies are willing to invest huge amounts into e-logistics for a long-term outlook.

E-logistics in Vietnam is very potential, as it is still a new segment. With the booming e-commerce industry, it is forecasted that Vietnam’s e-logistics segment will be fiercer than ever in the coming years.

 

Compiled by VietnamCredit

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