Improving efficiency in Logistics: Key for competitiveness
While Vietnam has attained a strong track record of economic growth over the past 20 years, the drivers that fueled this growth are rapidly depleting, making it critical to develop new drivers of growth going forward.
More competitive transport and trade logistics can become a new driver of sustained growth through their positive impact on productivity and their direct influence on business competitiveness.
Currently, logistics operations in Vietnam are costly relative to key regional peers like China, Malaysia, and Thailand. It is estimated that Vietnam’s shippers spend approximately US$100 million annually in extra inventory carrying costs incurred due to import-export clearance delays; and this amount is projected to reach US$180 million by 2020. Various factors contribute to the high cost, such as cumbersome and inconsistently applied government regulations and major supply-demand imbalances in infrastructure provision, just to name a few.
The unpredictability in supply chains increases logistics costs by making it necessary for businesses to carry more inventory than they would otherwise need to manage their everyday operations. Vietnam’s key root causes of supply chain unpredictability are: Cumbersome and inconsistently-applied government regulations; Lack of automation in key trade-related processes such as trade clearance; Fragmented modal planning in transportation; A belief among shippers and logistics service providers that facilitation payments are necessary to avoid delays in supply chains; Low barriers to entry in trucking; and Major supply-demand imbalances in infrastructure provision.
However, these drawbacks can be reverted if the country adopts a number of actions, such as minimizing paper-based processes in the customs and technical clearance of imports and exports; ensure transparent and consistently interpreted, applied, and enforced government regulations and operations related to international trade; Improve hinterland connections to deep-water ports at the Northern and Southern gateways; and develop and execute a plan to match supply and demand in container terminal handling at these gateways; Facilitate the entrance of international players to the freight forwarding and third-party logistics service-provider market and encourage collaboration between foreign and domestic players; Promote a more sustainable supply-demand balance in the trucking industry; and creating “multimodal logistics corridors” where containerized flows on trucks or barges can move on adequate infrastructure and with minimal regulatory delays. Opening the logistics market and promoting a more sustainable supply-demand balance in the trucking industry can also help.
As such, a better performing logistics can provide international and domestic investors with an environment where they can source products for export at a lower total landed cost than what they incur in other countries. A stronger logistics sector is also consistent with Vietnam’s long-term vision of spurring export-led growth. Therefore, further investment in Vietnam’s inland waterway transport and coastal shipping sector can bring about significant economic returns, as the sector offers attractive economies of ship size. Investment in waterborne transport go well beyond the need to match demand and supply, as larger barges not only result in lower unit transport costs but also lower emissions of pollutants and greenhouse gases — a major benefit to Vietnam, given the country’s exposure to the risks caused by climate change.
In order to realize the potential benefits of waterborne transport, including capacity expansion for the corridor linking Vinh Long and Ho Chi Minh City — including the Cho Gao Canal, the network’s most pressing bottleneck at present. Investments in the Northern corridor from Quang Ninh to Viet Tri also appear to be economically viable, as well as a dedicated coastal shipping terminal at Haiphong port. It is also necessary to establish a Waterway Maintenance Fund to better pay for maintenance of the core sections of the national inland waterway network.
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