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Vietnam logistics industry: risks and challenges

Thursday 26, 12 2019
Vietnam’s logistics industry is currently facing several challenges including poor infrastructure, shortage of qualified labor force, unfavorable institutions and policies, complicated administrative procedures and high logistics costs.
Vietnam logistics industry: risks and challenges

Challenges

Firstly, infrastructure is the biggest challenge for logistics businesses. Currently, commercial, transportation as well as information technology infrastructures are still weak and inconsistent, leading to many difficulties in multimodal transport services. Besides, Vietnam's logistics costs are much higher than those of other countries. The construction of warehouses and depots in three regions, along with the system of warehouses, wharves, and roads, is only at an early stage and is still incomplete, only meeting the needs for import and export rather than domestic demand, especially demand of E-Logistics.

In addition, Vietnam's logistics human resources are not only lacking in quantity but also weak in quality, especially highly qualified human resources at the managerial level, and logistics specialists who are knowledgeable about national laws and have the ability to apply and deploy it in what they are assigned to do. Among domestic businesses, up to 93-95% of workers are not professionally trained, most of whom are only in charge of small links in supply chain such as forwarding, warehousing, and bill of lading processing, etc. This greatly affects the service quality as well as the company's profits. Accordingly, 63.64% of enterprises said that the shortage of qualified human resources is an obstacle for the development of the industry.

Vietnam logistics industry: risks and challenges

On top of that, although the Government has made many breakthrough policies to support and create favorable conditions for the development of the transport and logistics industry, 54.55% of businesses believe that there still exist many shortcomings. For example, policies on import and export and customs clearance of goods are quite strict, causing many difficulties, while the guiding decree is still unclear, confusing new businesses, which slows down the industry development.

Factors affecting business operations logistics enterprises

There are many factors, both internal and external, affecting the business operations of transport and logistics businesses, creating both positive and negative impacts.

​In particular, the factors that are believed to have the greatest impact are the quality of human resources, the ability of corporate governance and the world's unstable oil prices.

Limitations on the size of enterprises, capital, experience and management capacity and the application of information technology as well as human resources not meeting the requirements of international logistics activities are the major contributors to the costly transport and logistics service in Vietnam. Moreover, the quality and professionalism of some services provided by businesses within this industry are uneven. In the context of economic integration, any enterprises that can take advantage of advanced technology, solve the problem of management and human resources will successfully improve their competitiveness, increase labor productivity and reduce logistics costs.

According to a report by VATA in October 2018, fuel prices were the drivers of logistics service, directly affecting the logistics costs. Specifically, raw material costs accounted for about 40% of road transport costs, when fuel prices soar, transport costs will be increased as a result, affecting industry profits.

Ranked third in terms of influence are the trade agreements that Vietnam has signed, followed by the general macroeconomic situation and the development of import and export activities. Businesses expect signed trade agreements to have a positive impact on demand and logistics costs. Steady economic growth accompanied by an increase in Vietnam's exports to the member markets of FTAs will contribute to improving logistics revenues.

Recommendations for the development of Vietnam's Transport and Logistics industry

Experts and businesses in the industry have proposed a number of solutions for industry development, with priority given to three aspects:

  1. Completing policies and laws related to logistics activities, simplifying manual administrative procedures, reforming customs procedures, cutting infrastructure fees and charges;

  2. Improving transportation, telecommunication and information technology infrastructures;

  3. Expanding human resource training network in logistics industry.

Vietnam is becoming increasingly integrated with the global economy, and the scale of the logistics service market is expanding, offering many development opportunities as well as challenges for logistics businesses in Vietnam. There are more competitors. The business environment is always changing. Consumer demands from the desire for quality and price to the desire to be guaranteed and committed by brand and reputation are increasing. Accordingly, transport and logistics enterprises need to find ways to modernize their modes of operation, upgrade service quality, improve human resources and financial capacity. The development of enterprises will contribute to building and enhancing brand reputation - a factor considered as a bridge to help businesses get closer to domestic and foreign partners and customers.

​Also read: Vietnam logistics industry: development trends

Compiled by VietnamCredit

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