With the recent participation in trade agreements in recent years, the logistics industry in Vietnam has many opportunities to develop and become more involved in global transportation hubs. Many foreign investors see this as a promising market and have raced to invest in Vietnam to compete for market share.
"Surge" of Foreign Capital
Participation in the Vietnamese logistics market currently involves around 3,000 enterprises, including road, rail, sea, inland waterway, and air transportation. Among them, approximately 25 multinational enterprises invest in logistics operations in Vietnam, accounting for 70-80% of the market share. The major investors in the Vietnamese logistics market include Japan, South Korea, China, Singapore, and France.
Among these, Japanese companies have been investing in the Vietnamese logistics sector for quite some time. This is evident from the establishment of a joint venture between Vijaco (a subsidiary of VIMC) and five Japanese partners—Kanematsu, Suzue, Meiko Trans, Kamigumi, and Honda Trading—in 1994. Since then, the market has witnessed various Japanese investments in the logistics sector in Vietnam.
Most recently, in early July 2019, MOL conducted a survey at Vinh Tan International Port (VTIP) to explore the possibility of using MOL vessels for transporting coal imported from Indonesia to the port. Additionally, MOL also assessed the potential for woodchip handling by companies in the Vinh Tan port area. In the northern region, MOL, alongside Viseco, HTM, and Golden Link, established a joint venture called MVG to implement the MVG Dinh Vu warehouse project.
In the same month, Vietnam Maritime Corporation (VIMC) and Suzue, along with Sumitomo through its subsidiary and other Japanese partners, invested in Gemadept. Through this deal, Sumitomo aims to develop a logistics system connecting factories to ports to facilitate the export of products manufactured in Vietnam. In addition to investing in Gemadept, Sumitomo plans to develop a mobile application that allows container drivers to pre-register their cargo loading and unloading times at ports and handle other related paperwork.
According to Sumitomo, an estimated 14 million cargo containers are transported to and from Vietnam annually. With an average annual growth rate of 7%, this number could increase to 23 million containers by 2025, highlighting the ongoing potential of the logistics sector.
While Korean investments in Vietnam's logistics sector followed those from Japan, they are equally enticing. A notable transaction is the collaboration between Samsung SDS and Airfreight Logistics Services (ALS) to establish the ALSDS joint venture, engaging in logistics business at Noi Bai International Airport (Hanoi). Samsung SDS also partnered with Minh Phuong Logistics to explore the potential of the domestic road freight market.
ULP, a leading logistics company in Korea with a network of major clients (Samsung, Hyundai, LG, Sony, Canon, Foxconn, Doosan, Korea Power; Hyundai, CJ, HTNS, Lotte, Pantos, KGL, Damco, Schenker, Kerry), has also collaborated with Airport Services Corporation (ASG) to provide logistics services for goods with special requirements.
According to statistics from the Vietnam Logistics Business Association (VLA), the logistics sector in Vietnam has been growing at a rate of approximately 14%-16% in recent years, with a scale of about USD 40-42 billion per year. The logistics market in Vietnam is highly regarded, ranking 64th out of 160 countries in terms of logistics development and fourth in ASEAN after Singapore, Malaysia, and Thailand.
It is forecasted that by the end of 2020, Vietnam's import-export turnover will reach USD 300 billion, and the number of containers passing through Vietnam's seaports will reach 67.7 million TEUs. By 2025, Vietnam's logistics sector is expected to contribute 8-10% to the total GDP. With these figures, many experts believe that the logistics market in Vietnam will become even more vibrant in the near future. Particularly, there has been an explosion in e-commerce and e-logistics recently.
Many retail businesses in Vietnam, such as Vincommerce (part of Vingroup), FPT, Mobile World (Thế giới di động), Lotte, are focusing on developing online retail. The increasing number of orders through online channels is driving up demand for transportation and logistics, especially fast delivery services. Additionally, the entry of global e-commerce giants like Alibaba (which has acquired Lazada), JD (invested in Tiki), Tencent (invested in Shopee), and Amazon (exploring the market) will further stimulate demand for shipping and delivery services in Vietnam.
According to Vietnam Report, the scale of the e-commerce market in Vietnam has been growing rapidly in the past 3 years. Specifically, the number of orders through fast delivery companies has grown at an average rate of 45% from 2015 to 2020 and is expected to reach 530 million orders in 2020. The retail e-commerce sales of Vietnam during the period 2016-2020 are estimated to increase by 20% per year, and the total retail e-commerce sales of Vietnam are expected to reach USD 10 billion in 2020.
With the potential of the logistics market, Mr. Nguyễn Ngọc Hòa, Deputy Director of Ho Chi Minh City Department of Industry and Trade, expects to increase the contribution rate of the logistics services sector to the GDP of Ho Chi Minh City to 8%-10% and achieve a growth rate of 15%-10%. At the same time, professional logistics services will be established, aiming to raise the rate of outsourcing logistics services to 50%-60%, contributing to reducing Vietnam's logistics costs to 16% of GDP by 2025.
However, according to Mr. Pieter Pennings, Managing Director of CEL Consulting, Vietnamese logistics businesses face intense competition due to pressure from foreign investors. Most of these businesses provide small-scale services and have limited capacity. Furthermore, due to the highly fragmented market, many businesses have to operate at almost break-even prices to secure deals. This is not to mention the significant disparity in service quality between Vietnamese logistics companies and foreign ones. Hence, many large corporations still opt for the services of foreign logistics companies.
In response to this challenge, Mr. Nguyễn Tương, General Secretary of the Vietnam Logistics Business Association, believes that to compete on a level playing field at home, the Vietnamese logistics sector must exert more effort in operations and order management. This includes seeking support from the government to develop specific reform plans that will aid the growth of the logistics industry.