Logistics not only entails significant investment costs and exerts a substantial impact on product pricing (averaging around 5% of GDP and 20% of the final price of goods), but it also holds a determining role in the quality of international trade. In an era where regardless of distance, every customer expects their products to be delivered swiftly and impeccably.
The adoption of digital transformation in post-logistics has been comparatively slow compared to other industries in previous decades. Nevertheless, over the past 5 years, the industry has witnessed an increasing number of companies forming closer collaborations with technology firms, as this sector unveils a market worth billions of dollars. Statistical reports indicate that approximately $2.3 trillion worldwide will be invested in technology and services enabling digitalization by 2023. This underscores how logistics enterprises can potentially benefit from digital technology.
Vietnam's economy is an open economy, heavily reliant on international trade through bilateral economic relations with over 230 countries and territories. Vietnam has also signed 16 Free Trade Agreements (FTAs) with 60 economies. In general, the total value of exports and imports for the entire country reached $670 billion in 2021, nearly twice the Gross Domestic Product (GDP).
Vietnam holds a significant geo-political position in the region, particularly in the South China Sea - a crucial maritime route connecting the Pacific and Indian Oceans, Europe and Asia, and the Middle East and Asia. This route is considered the second busiest international transportation route globally. The South China Sea has immense strategic importance: aside from its potential for energy, minerals, and seafood, statistical data shows that more than 90% of the world's commercial cargo is transported by sea, with 45% of that volume passing through the South China Sea, accounting for nearly $5.5 trillion in trade value annually. Many East Asian economies heavily depend on this maritime route, including Japan, South Korea, Taiwan, Singapore, and China.
The Resolution of the 13th National Congress of the Communist Party of Vietnam has identified developing a synchronized infrastructure as one of the three strategic breakthroughs for national development. To achieve this goal, Vietnam has progressively upgraded its road, rail, air, maritime, and inland waterway systems connecting regions and linking with neighboring countries through three types of border gates: road border gates at key domestic transport junctions connecting to foreign countries (Mong Cai - Quang Ninh, Huu Nghi - Lang Son, Lao Bao - Quang Tri, Moc Bai - Tay Ninh); sea border gates at seaports, such as Hai Phong Port, Tien Sa Port (Da Nang), Saigon Port (Ho Chi Minh City), Ca Na Port (Ninh Thuan); and air border gates at domestic international airports like Noi Bai, Tan Son Nhat (Ho Chi Minh City), Cat Bi (Hai Phong), Cam Ranh (Nha Trang)...
In terms of maritime transport, the comprehensive investment in port infrastructure has a capacity of around 570 million tons per year. The two international gateway ports of Cai Mep and Lach Huyen have the capacity to handle large vessels from 130,000 to 200,000 DWT to the West Coast of the United States, Canada, and Europe; specialized ports can accommodate ships from 100,000 to 320,000 DWT; the development of inland port systems gradually supports effective exploitation of seaports and enhances logistics services.
In terms of aviation, major airports such as Noi Bai, Tan Son Nhat, Da Nang have been upgraded, while new airports like Phu Quoc and Van Don have been built, increasing the total capacity of the airport network to around 90 million passengers per year. Advanced flight operation technology ensures safety and enhances airport infrastructure efficiency.
However, the application of digital technology in logistics enterprises, and in Vietnamese businesses in general, faces numerous limitations and a significant gap in terms of Artificial Intelligence (AI). According to statistical data, investments in AI solution companies in Vietnam, alongside Thailand, Malaysia, Indonesia, the Philippines, all fall below $1 per capita. In contrast, Singapore invests $68 per capita in AI. China's investment was $21 per capita in 2019, while the United States reached $155 per capita. This presents challenges for Vietnam to significantly increase investments in order to leverage the digital foundation for production and distribution of goods, and drive economic growth in the country.
Moreover, digital transformation also carries substantial risks: a recent survey among directors, CEOs, and high-level executives revealed that the risks associated with digital transformation were their top concern in 2019, as 70% of all digital initiatives failed to achieve their goals. Out of the $1.3 trillion spent on digital transformation last year, an estimated $900 billion went to waste. Why do some digital transformation efforts succeed while others fail?
Fundamentally, it's because digital technology provides the potential for increased efficiency and customer satisfaction. However, if businesses lack the mindset for change, have unsynchronized infrastructure, and lack appropriate deployment strategies for transformation, it will lead to failure, where digital technology becomes a mere tool amplifying those failures.
For these reasons, to effectively apply digital transformation in the logistics industry, enterprises need to recognize the potential for digitization to bring various benefits such as increased efficiency, building trust between business partners and stakeholders, optimizing supply chain routes, effective transportation management, making intelligent decisions using cognitive computing and AI support. Real-world examples demonstrate that digital technology will help the logistics industry overcome challenges by optimizing processes, facilitating communication end-to-end, managing supply chains, improving customer experiences, and controlling costs. According to a recent study, digital technology in general, and AI in particular, could elevate the ASEAN region's economy, including Vietnam, to a higher level. If ASEAN members keep up the pace of AI adoption, they could add nearly $1 trillion (over $100 billion for Vietnam alone) to the region's GDP by 2030.
The global economy is currently undergoing a digital transformation. Modern digital technologies serve as tools that make this process feasible. As a result, the significance of digital technology in the logistics industry is evident and prevalent.
However, the process of applying digital technology in logistics enterprises is a high-level scientific breakthrough that requires pioneering research and the proposal of models suitable for the socio-economic planning of each region as well as the natural environment. This process demands appropriate steps of development and time models to ensure success. Logiinds Corporation (a subsidiary of CT Group) serves as a prominent example. In its plan for this year, 2023, Logiinds will focus on constructing modern Foreign Trade Warehouses in Tan Son Nhat and Da Nang. The strategic development process of applying digital technology at Logiinds comprises four stages:
Digital Transformation Initiation: Logiinds defines its business direction by specializing in providing new services through breakthrough models in infrastructure and industrial logistics, such as AI Platform and Robotics, while also offering green logistics solutions – environmentally friendly and renewable technologies. In collaboration with CT Optimal LAB in the French Republic, Logiinds directly develops a completely AI Platform dedicated to the logistics sector. In particular, it emphasizes the application of tools such as blockchain, Internet of Things (IoT), Artificial Intelligence (AI), digital twin simulation, big data and analytics, and other technologies that provide new valuable ways to rationalize or redefine business purposes driven by the existing supply chain and logistics to build advanced business processes.
Digital Business Model Transformation: Transforming the business model generates and delivers value mainly based on the application of digital technology. The ways of delivering services and solutions can transition step by step from traditional physical interactions to entirely digital experiences.
New Business Direction: In a stage of development where expertise and financial resources have been accumulated for investment, enterprises proactively expand their reach to potential new business sectors. When enterprises invest heavily in digital technology to support their core business operations, potential arises to provide digital solutions to other industries, creating profitable business prospects in entirely new verticals.
Enterprise Structure Transformation: The highest stage of digital transformation involves establishing an all-encompassing enterprise structure through long-term digital transformation. By redefining internal processes and capabilities as well as operational thinking, these improvements lay the groundwork for future expansion. Changes within the enterprise lead to flexible work processes that eliminate silos where certain departments refrain from collaboration, sharing information with others reduces efficiency in joint activities, decreases work motivation, and could contribute to the downfall of a high-performance-focused organizational culture, replacing them with real-time experimentation and decentralized decision-making procedures. These effects enable collaborative techniques and new innovations that could lead to new approaches for delivering value toward the modern 5PL logistics model, which is a type of e-commerce market service that encompasses 3PL and 4PL and manages all stakeholders in the distribution chain on an e-commerce platform. The key to success for 5PL logistics service providers lies in closely integrating three order management systems (OMS), warehouse management systems (WMS), and transportation management systems (TMS) within a synchronized information technology system.
To establish a digital business environment that ensures tangible benefits and effectively supports entrepreneurial endeavors and efficient digital business transformation, it is necessary to develop five specific macro policies:
National General Logistics Standards Policy: In technological aspects, standards take precedence. Therefore, it is essential to establish a national general logistics standards policy for Vietnam that aligns with the trend of standards and rules for digital transformation in developed industrial countries. Ensuring seamless connection of all software and hardware standards of the logistics and transportation system to create synergies.
Digital Skills Training: Any technological solution must consider the impact on labor and prioritize human resources. It is necessary to establish a collective commitment to train digital skills for the workforce.
Linking Socio-Economic Resources (Capital Cluster): Logistics serves as the foundation of the necessary pyramid not only for all supply chain activities but also for all economic activities such as tourism, commerce, and investment. However, this field also requires the most resources for investment and conversely, along with the transportation system, the logistics sector's application of digital technology will be the most important resource for the national product resources and the platform connecting closely with the four remaining key resources: natural resources, human resources, finance, and society. Only the close connection of these resources will ensure the success of the developing logistics sector and create conditions for initiating, breakthroughs, and spreading the second economic innovation of the country. In this manner, the logistics sector, with the successful application of digital technology, will be the foundational resource for positioning the national economic scale in the international market.
International Collaboration in Developing Logistics Centers: The supply chain is a global business field currently undergoing transformation. Thus, there is a need to vigorously promote international collaboration in developing logistics centers, especially in key economic regions such as the Mekong Delta, Red River Delta, and the Central region. Prioritizing economic integration within ASEAN and considering it a focal point for international trade negotiations and building a national supply chain strategy, ensuring Vietnam's important position within the region. In particular, attention must be paid to the Kra Canal project (Thailand) as it is certain to change the landscape of the ASEAN maritime industry and international transportation, especially for commercial ships on the Indian Ocean-Pacific Ocean route. This new canal is believed to be beneficial for Vietnam in all aspects (especially for southern provinces and cities), considering economic factors.
Cre: Vietnam Business Forum
