The Vietnamese Logistics Market Offers Ample Room for Growth and Remains Open for Investment, According to VinaCapital Report.
The Vietnamese Logistics Market Offers Many Sustainable Development Opportunities
Michael Kokalari, CFA, Director of Macroeconomic Analysis and Market Research at VinaCapital Group, believes that Vietnam is one of the fastest-growing logistics service sectors in the world. However, the industry is still fragmented and disjointed, which presents attractive opportunities for investment funds and other investors who can help domestic businesses grow their revenue and profits by applying the best international practices.
Statistics show that in recent years, the logistics industry has grown at a rate of 14-16%, with total logistics service costs in Vietnam accounting for over 20% of GDP, one of the highest in the world due to inefficiencies in the logistics process (for example, 3/4 of Vietnam's cargo volume passes through only 6 out of 75 national ports).
VinaCapital expects attractive investment returns for logistics companies benefiting from the increasing production of high-tech goods in Vietnam and the continuous growth of the middle class in the country.
Currently, Vietnam's manufacturing sector only contributes to over 20% of the country's economy, while this figure reaches over 30% for economies considered as "Asian Tigers." Continuous FDI inflow has helped establish a solid foundation for the industrial sector in Vietnam for years to come.
This is partly due to Vietnam benefiting from the phenomenon of "friendshoring," which is a part of multinational companies' "China + 1" strategy to diversify some of their production activities outside the Chinese market (e.g., to Vietnam, India, Mexico).
Furthermore, the continuous growth of the middle class in Vietnam also brings many investment opportunities. According to VinaCapital, there are very attractive opportunities for domestic companies, given that foreign customers are willing to pay high prices for reliable logistics services, and the demand from middle-class customers for high-quality logistics services is rapidly increasing (e.g., online shopping with home delivery, demand for perishable goods and medicines).
Moreover, e-commerce in Vietnam is growing at over 25% annually, and the Vietnamese government has set ambitious targets for the future of e-commerce in the country. This is likely to create a particularly favorable legal environment for last-mile delivery services and other logistics service companies.
Potential Investment Strategies
Michael Kokalari points out three potential investment strategies in the Vietnamese logistics market, including investing in leading logistics companies to develop an integrated platform that can provide cost advantages to customers; identifying specific assets requiring capital for upgrades or reuse and driving growth by increasing operational efficiency and acquisitions/mergers.
Applying the best international practices, such as digitalization, and increasing capital are crucial for these strategies. Capital injection is necessary if an investor's strategy involves expanding a company's capacity by adding trucks to a road transport company or investing in additional cranes/heavy equipment for a business operating in port logistics.
Vietnam's logistics service sector includes both domestic and international companies, but domestic companies generally do not engage in international maritime transport business. Vietnam has more than 1,600 registered vessels, but only 3% of them are suitable container ships. The biggest challenge for the industry is to improve the quality and reliability of services, but these issues can be addressed by learning from experiences in other markets.
Representatives from VinaCapital also suggest that investors can choose logistics companies that can combine customs clearance services as part of the "core transportation business" criteria, with the ability to meet the transportation/logistics needs of high-tech manufacturing companies to earn higher service fees. Customs clearance services are an attractive branch in Vietnam's logistics industry.
According to the Vietnam Logistics Business Association (VLBA), most of the over 800 freight forwarding companies in Vietnam provide customs clearance services, but VinaCapital believes that companies can combine customs clearance services as part of the "core transportation business" criteria with the ability to meet the transportation/logistics needs of high-tech manufacturing companies to earn higher service fees.
Moreover, high-quality logistics services are essential to handle high-value consumer electronics, but logistics costs account for only over 1% compared to the price of these products (compared to around 30% for agricultural products like rice).
High demands for service quality combined with low logistics costs as a percentage of the total cost for consumer electronics manufacturers will allow logistics service companies to charge higher service fees if they can meet the demands of these discerning customers with "third-party logistics (3PL) services.
Cre: tapchitaichinh.vn
