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Overview of Vietnam's Logistics Industry

Overview of Vietnam's Logistics Industry

Thursday 01, 04 2021
The logistics sector in Vietnam has developed markedly with double-digit growth in the past 10 years and is projected to expand at a CAGR of approximately 16.65% until 2023.

Overview


The concept of "freight forwarding" emerged in Vietnam market since 1997 – 8 years before logistics services was considered as commercial activities by the Commercial Law 2005. Located in a favorable area for international shipping, Vietnam witnessed a brisk growth in the logistics industry with an increase from 300 to 800 in the number of enterprises during 1997-2007 period. Since the country became a member of WTO in 2007, the logistics sector has been offered more opportunities to develop, maintaining double-digit growth. 

In Southeast Asia, Vietnam is in the top 03 best logistics performers with 2 major competitors - Singapore and Thailand. Vietnam has also remained its leading position in performing logistics in emerging and low-income groups.

Since the majority of logistics enterprises in Vietnam are small and medium in scale, the industry is still considered to be fragmented and insufficient to meet the market's demand.
A rising trend in Vietnam’s logistics industry is third party logistics or contract logistics which results from the e-commerce boom, the growing supply of manufactured goods and the increasing consumption. However, this sector is dominant by a low number of multinational companies due to their outstanding expertise and experience. 

As the delivery process has a direct impact on the rate of successful order fulfillment, the requirements for forwarding companies are becoming stricter. Therefore, a lot of enterprises operating in the e-commerce logistics in Vietnam are put under increasing pressures. 
Along with the development of e-commerce, the demand for high-quality warehouses are rising. Besides, in order to improve the speed and quality of good movement, leading companies in logistics industry are focusing on equipping their order fulfilment centres with automated classifying and distributing systems. 
 

Industry value chain

Industry value chain
Vietnam’s logistics value chain comprises three main stages to ensure the smooth movement of goods from suppliers to customers, including Inbound logistics, Outbound logistics, and Reverse logistics. The process is operating with the integration of several activities including freight forwarding, transportation, transport nodes services, handling and warehousing services. Besides, there are also the engagements of other enterprises providing information technology services, consulting, inspecting and financial services.

Opportunities, challenges and industry forecasts 

Opportunities

Vietnam’s logistics sector has benefited from the increasing domestic consumption. Besides, the transport infrastructure and logistics value-add services have been continuously improved in order to meet the market’s requirements. Noticeably, thanks to the industry 4.0 innovation, technology has been applied in every logistics activity operation, contributing to enhancing the effectiveness and efficiency of this sector.

Currently, the process of custom clearance is reduced in time and number of procedures, especially in Binh Duong, Quang Ninh, etc. 
Since the implementation of FTAs including CPTPP and EVFTA, trading activities between Vietnam and international markets are expected to increase in both volume and value. 

Challenges

Despite the potential growth, the Vietnam’s logistics industry has several challenges to overcome. A noticeable one is the logistics costs in Vietnam are relatively high, accounting for 20-25% while the revenue of logistics sector remains low, presenting only 4-5% of the total GDP. 
In term of legal environment, the consistencies among policies regulated logistics sector are lacking, leading to the difficulties in application. 
Challenges
The relatively low quality of road network, ports and warehouses remains a challenge for Vietnam’s logistics industry. The development of infrastructure requires a lot of time and investment to be improved. 
Another obstacle is most of domestic enterprises are facing the shortage of capital, quality human resources and technical knowledge. In addition, high competition from foreign enterprises in Vietnam and international competitors, especially from EU market, after the FTAs will also put more pressure on domestic companies.

Industry forecast

Since the Covid-19 pandemic, the logistics sector will continue to be influenced at least until the end of 2020. The recovery pace of the industry is considerably low, at around 50-60% of capacity. Therefore, the logistics costs will rise in the short-term due to the reduction of transport services and the increase of inspection time during import-export custom process. 
Despite all the problems, this sector is expected to continue to facilitate favourable conditions from the US-China trade war, the booming M&A and the steady growth of the economy in the long-term.

Vietnam Logistics Industry Report 2020​

Source: Vietnam’s Logistics Industry report 2020 - VietnamCredit

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Industry Report

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