According to logistics and warehousing service provider Agility, Vietnam ranks 10th out of 50 emerging logistics markets. The logistics service industry has gradually met the demands of domestic trade and import-export activities. However, to strive towards providing professional logistics services, increasing competitiveness, and meeting international standards, it is necessary to develop technology and enhance the value-added services in the logistics sector.
The Efficiency of Vietnam's Logistics Industry Ranks Among the Top 5 in ASEAN
According to the 2023 Logistics Performance Index (LPI) report released by Agility, a transportation and warehousing service provider, Vietnam is ranked 10th out of 50 emerging logistics markets, rising one spot from the previous year. With an annual industry growth rate of 14-16%, both the quantity and quality of logistics services have improved significantly. This has played a crucial role in elevating Vietnam's total import-export turnover to $732.5 billion in 2022, a 9.5% increase compared to 2021. However, in the World Bank's LPI ranking for 2023, published in April 2023, Vietnam stands at 43rd place, slipping four spots from its 2018 ranking at 39th.
Mr. Dao Trong Khoa, Vice Chairman of the ASEAN Federation of Forwarders Associations (AFFA) and Deputy Permanent Vice Chairman of the Vietnam Logistics Business Association (VLA), explained that Vietnam's decline in the LPI 2023 reflects the consequences of disruptions caused by the COVID-19 pandemic. Prolonged lockdown measures have led to transportation delays, supply chain interruptions, and disruptions to production and consumption, all of which have significantly impacted Vietnam's position in the LPI 2023. Specifically, three components of the index decreased: delivery time, the capacity and quality of logistics service providers, and the ability to track and trace goods. Nevertheless, the LPI score has increased to 3.3 points, up from 3.27 points in 2018. Vietnam falls within the top 5 among ASEAN countries, trailing behind Singapore, Malaysia, Thailand, and sharing the same rank as the Philippines, indicating gradual improvements, especially in the components related to customs clearance efficiency and infrastructure quality, which saw significant score increases.
In recent times, logistics service providers have actively embraced digital transformation, swiftly adopting technological advancements in their business operations to optimize production processes and supply chains, thereby enhancing operational efficiency. According to the LPI 2023, end-to-end supply chain digitization, especially in emerging economies, has enabled a reduction of up to 70% in port waiting times compared to developed countries.
The lack of connectivity remains a challenge for the logistics industry.
With 90% of businesses in the logistics sector in Vietnam being small and medium-sized enterprises (SMEs), there are still significant limitations in the adoption of smart logistics. Specifically, the scale and nature of technology applications remain relatively low, primarily focusing on customs declaration, tax payment, vehicle cargo tracking, and warehouse management. Several barriers hinder the widespread adoption of smart logistics in Vietnam, including limitations in awareness and understanding, challenges in choosing suitable technology, lack of financial and human resources, and the absence of coherent policies to facilitate digital transformation.
Enhancing collaboration among logistics companies, as well as between logistics and manufacturing/exporting enterprises, is weak. A network of large-scale, market-leading logistics companies that can drive industry development is yet to be formed. In addition to foreign-invested and multinational logistics firms, the number of integrated service providers (3PL and 4PL) is limited and not strong enough to compete with foreign counterparts operating in the Vietnamese market. Cooperation and connectivity between logistics service providers and user enterprises (manufacturers, importers/exporters) require further attention and improvement. Logistics centers, particularly those catering to the storage and distribution of agricultural and aquatic products for export-import purposes, have not been adequately developed.
Furthermore, many businesses focus heavily on their core business activities and pay insufficient attention to value-added services for their customers. For instance, some warehouse operators only consider metrics like how many cubic meters or containers enter their facilities, neglecting additional customer requirements such as labeling or tagging, which can reduce their competitiveness. Similarly, certain seaport operators invest only in lifting and handling equipment, leading to the need for external partners when handling oversized or overweight cargo, resulting in longer lead times and higher costs. Surprisingly, these investments do not always require significant capital outlays.
Despite the government's prioritization of logistics infrastructure development across all transportation modes (road, sea, rail, inland waterway, and air), the infrastructure remains fragmented and inadequately supports multi-modal transportation and the growing demands of supply chains and logistics services, especially for agricultural and aquatic exports. Notably, Vietnam has 41,900 kilometers of inland waterways but only transports 17.8% of total cargo volume. While waterways are a more fuel-efficient means of transportation compared to other modes, they remain underutilized.
These factors have led to higher logistics costs in Vietnam compared to neighboring countries, accounting for 18% of GDP, significantly higher than Thailand (8.5%) and other developed nations (8-15%). With logistics accounting for 30-40% of production and business costs, Vietnamese goods become less competitive on the global stage.
Developing Technology and Increasing Value-Added Services in logistics
To achieve the logistics industry's development goals by 2025, such as contributing 5-6% of GDP, achieving 15-20% growth, reaching a 50-60% outsourcing rate, reducing costs by 16-20% of GDP, and achieving an LPI ranking above 50, a concerted effort from the government, ministries, local authorities, and businesses is required.
The government should prioritize resources for infrastructure development, emphasizing public-private partnerships and mobilizing private capital for airports, highways, seaports, warehouses, and other logistics facilities. Multi-modal transportation, intermodal transportation, and sustainable logistics practices should be encouraged, with an emphasis on reducing carbon emissions.
Businesses should focus on technology adoption and provide additional value-added services. Warehouse solutions should adapt to new trends like e-commerce and last-mile delivery. Automation tools, such as cargo sorting machines and high-rack storage systems, should be integrated to optimize space utilization. Modern warehouses are gradually replacing traditional storage systems in the logistics industry. Furthermore, IoT, artificial intelligence, and automation have improved the efficiency and accuracy of warehouse operations. Companies should also aim to offer comprehensive 3PL and 4PL logistics services, promoting effective collaboration and partnership between service providers and user enterprises.
Government agencies and relevant organizations should closely monitor international and regional developments, analyze the impact on the domestic economy, and proactively build scenarios and response plans to guide logistics activities that serve production, domestic circulation, and import-export operations. The Ministry of Transport should lead and coordinate efforts to integrate transportation infrastructure development into national and regional master plans, ensuring infrastructure complements the development of the logistics service industry, including logistics centers, seaports, and customs facilities.
Tax policies, fees, and service charges need to be reviewed and streamlined to create favorable conditions for businesses, including logistics service providers. Efforts to facilitate trade, reform customs procedures, reduce sector-specific inspections, standardize documentation, and implement commitments under the World Trade Organization's Trade Facilitation Agreement should continue.
By addressing these challenges and taking a holistic approach, Vietnam can advance its logistics industry, reduce costs, enhance competitiveness, and contribute significantly to its economic growth and trade development.
Cre: The Ministry Of Finance
