Vietnam’s logistics sector: low competitiveness despite rapid growth

The sector's progress could be derailed unless staff and infrastructure are upgraded.

Vietnam’s logistics industry has seen strong growth over the past few years but problems arising from the lack of infrastructure and the limited capacity of local businesses have put the brakes on its development.

Data from the Vietnam Logistics Business Association said that the sector is expected to record average growth of 20 to 24 percent over the next five to 10 years. In 2014 and 2015, 80 percent of logistics enterprises reached or exceeded their annual targets.

Despite recording significant progress, Vietnam’s logistics industry still lags behind other Southeast Asian countries. The country ranks 64th on the Work Bank’s Logistics Performance Index in 2016, much lower than Singapore (5th), Malaysia (32nd) and Thailand (45th).

Annual logistics expenses in Vietnam account for approximately 21-25 percent of the country's gross domestic product (GDP) per year, as opposed to 10 percent in developed countries and 18 percent in other developing nations.

Do Xuan Quang, vice chairman of the Vietnam Logistics Business Association, said that the country spends $37-40 billion on logistics each year, of which $30-35 billion flow into the pockets of foreign firms.

Domestic companies, mostly small and medium-sized, account for 80 percent of the country'slogistics firms but make up only 25 percent of the market share.

Companies are also struggling to find qualified workers, with 54.7 percent saying they lack staff with management and language skills.

Aside from these problems, infrastructure for logistics services in Vietnam is underdeveloped, said Tran Bao Ngoc, head of the Logistics Department under the Transport Ministry.

Being a long, narrow country with key economic zones located evenly from north to south, the country’s railway sector should act as the major means of freight transportation. However, in reality, the railway sector only accounts for one percent of the market share. Only 6.7 percent of Vietnam's 2,653 kilometers of railways meets international standards.

There is also a lack of connectivity between road, sea and railway transport due to the lack of dry ports and storage facilities, which play an important role in transiting and distributing commodities, Ngoc said.

To increase the competitiveness of Vietnam’s logistics sector, economic experts said the government should form a national logistics committee to boost cooperation between different means of transportation. Small and medium enterprises should be granted preferential policies to access investment capital and support to train logistics staff.

Vietnam is aiming to climb to 4th on the Logistics Performance Index in Southeast Asia and 50th in the world by 2020.