AN OVERVIEW OF LOGISTICS
DEFINITION OF LOGISTICS
Logistics encompasses various definitions, primarily focusing on the management of material flow in production and circulation It involves the science of controlling the flow of goods, energy, information, and resources from production sources to the market This includes planning and organizing the supply chain, covering stages such as production, assembly, packaging, storage, handling, and distribution to the final consumer Additionally, logistics incorporates reverse flows of manufactured products to enhance customer service, reduce costs, minimize tied-up capital, and lower environmental impact According to the Council of Supply Chain Management Professionals, logistics plays a crucial role in the supply chain process by planning, implementing, and controlling the efficient flow and storage of goods and information, ultimately meeting customer requirements and benefiting the entire system.
Logistics lacks a single, unified definition; however, all interpretations share a common emphasis on the critical role of efficient physical and information flow within the system The effectiveness of logistics is guided by The Seven R’s, which are essential for optimizing operations.
Logistics involves the efficient delivery of the correct product or service in the appropriate quantity and quality, ensuring it arrives at the right location and time, while reaching the intended customer—all at an optimal cost.
THE ROLE OF LOGISTICS
1.2.1.1 Minimize costs, improve efficiency and enhance competitiveness
In today's competitive landscape, merely offering the right product to the right customer is insufficient for capturing significant market share Effective logistics, guided by the seven R's, is essential for businesses to enhance efficiency, reduce costs, and attract new customers As logistics represents a substantial portion of business expenditures, optimizing both input and output processes is crucial for success Lower logistics costs positively influence production, distribution, and retail operations, allowing companies to reach broader markets and benefit from economies of scale Additionally, reduced costs enable firms to source supplies from wider areas, improving both the cost and quality of materials.
The right product or service
To effectively identify customer needs at each stage before production, businesses must utilize accurate customer information, which helps minimize storage and operational costs The growth of logistics services plays a crucial role in enabling businesses and the national economy to lower expenses within the logistics chain, streamline operations, and enhance overall efficiency, ultimately boosting market competitiveness.
1.2.1.2 Ensure the criteria "Just in time”
Logistics is crucial for optimizing the time-location factor through "Just in Time" (JIT) principles The advancement of information technology facilitates seamless integration across supply, production, storage, and freight forwarding processes, enhancing efficiency and speed By strategically planning lead times to meet JIT standards, businesses can ensure timely deliveries that satisfy customer demands while minimizing inventory levels This approach effectively reduces storage and inventory costs Ultimately, logistics is essential for eliminating delays, minimizing losses, and ensuring that the right products reach the right place at the right time.
1.2.1.3 Facilitate the sale of goods and services
Logistics plays a crucial role in the successful sale of goods and services by ensuring that input materials align with production plans, thereby preventing interruptions By leveraging information technology and a robust logistics strategy, manufacturers can make informed decisions that enhance sales and meet consumer demands Ultimately, products and services achieve higher customer satisfaction, encouraging repeat usage Additionally, effective logistics aids managers in making precise decisions regarding supply sources, transportation, warehousing, and marketing strategies, which not only reduces costs and boosts competitiveness but also enhances credibility and increases sales.
Effective production is essential for meeting consumer demand, making market challenges a critical focus for manufacturers and businesses Companies aiming to dominate and expand their market presence must prioritize understanding and addressing these issues.
Logistics services play a crucial role in facilitating the movement of goods to new markets, adapting to the demands of time and place The development of these services significantly enhances businesses' ability to explore and expand their market reach Additionally, effective logistics support enables companies to integrate into the global supply chain, optimizing production and distribution processes, ultimately leading to market expansion and increased profitability (Rodrigue & Hesse, 2006).
1.2.2.1 Increase the competitiveness of the nation
Logistics services are a key competitive advantage for nations, as effective integration into the global logistics network enables access to broader markets and consumers worldwide Factors such as increased global production sharing, shorter product life cycles, and heightened competition emphasize logistics as a vital strategic asset (Arvis et al., 2007) When global firms choose locations, they consider logistics costs and the quality of transport infrastructure, which encompass transportation expenses, warehouse operation costs, ordering costs, and inventory carrying costs (UKEssays, 2018) The efficiency of logistics, as a synergistic and integrated activity, is crucial for enhancing the competitiveness of industries and trade within each country.
1.2.2.2 An engine for economic growth
According to the World Bank, logistics performance is crucial for economic growth and competitiveness, significantly impacting the GDP of industrialized nations (Duong, 2016) It plays a vital role in economic development, job creation, and value addition, while also ensuring the smooth operation of production and business across various industries Acting as a coordinator within the supply chain, effective logistics facilitates government management of the economy Enhanced logistics development leads to timely delivery, cost reduction, and improved product and service quality, ultimately increasing investment efficiency and maximizing national resource value.
FACTORS INFLUENCING THE IMPROVEMENT OF A NATION’S
The enhancement of transportation and logistics is vital for countries aiming to boost their competitiveness in the global economy Effective transportation infrastructure not only facilitates trade flows but also provides essential access to marginalized regions, integrating them into the national economy As trade and transport become increasingly important, businesses rely on efficient transportation as a core component of logistics, which ensures the timely and appropriate delivery of goods This transportation management underpins the entire supply chain, enabling the achievement of the seven Rs: delivering the right product, in the right quantity and condition, at the right place and time, to the right customer, at the right cost.
Institutional frameworks are crucial for enhancing a country's logistics systems, serving as the legal foundation for logistics development These frameworks encompass regulatory environments shaped by policies, directives, and customs decisions Research indicates that there are significant differences in regulatory arrangements between countries with high and low logistics performance (Watanuki, 2015) While there is no universally "good" regulation, countries with better logistics performance often feature clear and transparent institutional and implementation arrangements within their regulatory frameworks.
Technological advancements in the logistics industry play a crucial role in enhancing operations and profit margins By leveraging logistics technology, companies can analyze vast amounts of data to boost efficiency, streamline processes, and enhance the overall experience for both customers and providers This improved technology not only increases productivity within the supply chain but also helps minimize costs and reduce errors.
Technology plays a crucial role in enhancing the logistics industry, impacting sectors such as trucking, international transportation (both ocean and air), supply chain management, and shipment tracking By addressing challenges like cost optimization, faster service delivery, damage management, route optimization, and warehouse management, technology significantly boosts efficiency and customer satisfaction Ultimately, advancements in technology lead to a more robust, efficient, and interconnected logistics system.
The significance of human resources has surged in response to evolving roles across various sectors (Jurčević, 2009) A supply chain encompasses all participants involved in meeting customer demands, highlighting the critical role of human intelligence in executing essential tasks that machines cannot perform Despite advancements in technology that automate certain logistics functions, there remains a substantial need for a highly adaptable workforce Employees in the modern era must engage in continuous learning to keep pace with industry trends Therefore, management should prioritize training initiatives for employees interacting with new technologies and practices To satisfy the logistics industry's demands, both governments and businesses must implement effective training programs, a practice exemplified by leading logistics nations.
COMPONENTS OF LOGISTICS SERVICES
Logistics serves as the crucial link between supply sources and demand, bridging the gap between input suppliers and end users For optimal efficiency, all components of logistics services must work together seamlessly, adhering to the principles of the seven R's: the right product, at the right place, at the right time, in the right condition, in the right quantity, at the right cost, and to the right customer.
Order processing involves a series of steps including picking, sorting, pre-consolidation, and consolidation, which are essential for efficiently delivering packed items to shipping carriers (Sople, 2011) The picking stage entails collecting the required quantity of items to fulfill customer orders, while sorting organizes these items based on their destination Pre-consolidation involves weighing, labeling, and packing the items, and consolidation gathers these packages into loading units for transportation and documentation purposes The time taken for order processing significantly influences transportation costs; faster delivery incurs higher costs, but this can be offset by reduced processing times This process is crucial for the success of logistics, as it directly affects both the cost and quality of the final product.
Effective inventory management involves striking a balance between the costs of holding excess stock and the potential losses from insufficient product availability (Sople, 2011) Key components of inventory carrying costs include financing, insurance, storage, and losses due to damage or theft The specific costs are influenced by the characteristics of the goods and the primary objectives of inventory management, whether to enhance customer satisfaction or minimize expenses Companies often implement strategies like Just-In-Time (JIT) inventory to maintain a zero inventory level, which has demonstrated efficiency in reducing costs However, the JIT approach may not be suitable for all businesses.
Warehousing is essential for balancing supply and demand, serving as a critical component of logistics operations that can provide a competitive edge Beyond mere storage, it stabilizes pricing and enhances time utility Inefficient warehousing management can lead to delivery delays, making strategic decisions regarding warehouse location, infrastructure, operational processes, space allocation, and inventory management crucial Additionally, safeguarding the physical condition of goods and optimizing loading and unloading systems are vital to minimizing warehousing costs and ensuring smooth logistics.
Transportation plays a crucial role in logistics, facilitating the movement of goods from their origin to production and consumption points With advancements in transportation technology, logistics services have significantly improved, offering better efficiency and reduced costs The effectiveness of transportation directly impacts logistics outcomes, influencing both production and sales processes.
Transportation costs significantly impact product profitability, particularly for large, heavy, and low-valued items, while they constitute a minor expense for small, lightweight, and high-value products (Tseng et al, 2005) Key factors influencing transportation include the requirement, availability, and regularity of transport services, the modes of transport and their coordination, as well as costs such as freight and tariffs Additionally, considerations of time, speed, intact delivery, and point-to-point tracking information are crucial for effective logistics management.
Packaging is a vital system that ensures the safety, transport, distribution, storage, and disposal of goods while maximizing consumer value and profitability It significantly contributes to logistical efficiency through load unitization, helping to reduce packaging costs Additionally, effective packaging protects products from damage, facilitates material handling, and optimizes storage space Key aspects of packaging include safeguarding against loss, designing for handling and storage, enhancing market value, promoting reuse, and managing overall packaging costs.
Logistics is fundamentally an information-driven process, where information systems are crucial for ensuring the timely delivery of products or services to customers in the correct quantity and quality By utilizing IT tools to facilitate information flow, logistics operations can become more efficient and competitive An integrated information system that connects all logistics components can streamline processes, making them faster, more cost-effective, and more accurate.
Procurement is the process of sourcing and acquiring goods or services from external suppliers, aiming to secure materials and products at optimal costs while meeting organizational needs and timelines DHL emphasizes that procurement logistics encompasses the acquisition of essential items such as raw materials, auxiliary supplies, operating supplies, and replacement parts Disruptions in procurement logistics can adversely affect production in manufacturing facilities and storage operations, ultimately placing pressure on distributors and customers.
LAYERS OF LOGISTICS SERVICES PROVIDERS
The logistics services provider pyramid consists of five key layers, with the top layer being the most independent and efficient, offering a comprehensive range of services Each subsequent layer serves as a foundational support for the services provided above, highlighting the hierarchical nature of logistics service efficiency.
Figure 1.2: Layers of logistics services providers
First-party logistics (1PL) refers to a business or individual that handles their own logistics operations, including manufacturers, traders, importers, exporters, wholesalers, retailers, distributors, or institutions requiring the transportation of cargo and goods The primary services provided by 1PL encompass transshipment, transportation, and storage, all integral to the internal processes of the organization.
In this scenario, the demander also acts as the provider, as goods owners manage and execute logistics activities to fulfill their own requirements, ultimately aiming to boost revenue and reduce costs.
Second Party Logistics (2PL) refers to a service provider that specializes in specific logistics operations tailored to meet the needs of goods owners Typically focusing on a single aspect of the logistics chain, 2PL services encompass key activities such as transportation, warehousing, and customs clearance.
The article discusses the role of Second Party Logistics (2PL) providers, which primarily focus on transportation and warehousing services Examples of 2PL companies include carriers like shipping lines and airlines, which often own specialized transport vehicles to fulfill specific transport tasks These service providers typically handle a particular segment of the logistics chain, offering single transportation services tailored to the needs of customer companies requiring 2PL solutions.
Third-party logistics (3PL) acts as an intermediary between producers and end customers, facilitating various logistics services for import-export businesses This includes managing import and export procedures, freight forwarding, transportation, warehousing, and even light manufacturing tasks like packaging and labeling By outsourcing logistics activities to 3PL providers, companies can leverage specialized expertise, advanced technology, and flexible warehousing solutions This partnership fosters a collaborative relationship where information, risks, and benefits are shared under long-term contracts, ultimately leading to cost and time savings for customers.
Fourth-party logistics (4PL) represents an advanced evolution of third-party logistics (3PL), incorporating its elements to develop flexible distribution strategies for clients In this model, a designated organization is empowered by the customer to enhance process efficiency and oversee the entire supply chain and logistics operations Typically, 4PL firms collaborate with 3PLs and second-party logistics (2PLs) since they often operate without physical assets As a result, 4PL is becoming increasingly vital in the operational strategies of businesses.
The 5PL (fifth-party logistics) outsourcing model encompasses all aspects of 4PL providers while offering integrated information systems for real-time supply chain monitoring and control By enhancing resource utilization, 5PLs aim to deliver cost-effective solutions across the entire supply chain, regardless of the number of outsourced suppliers involved This model is particularly prevalent in E-business environments.
Chapter 1 introduces about definitions of logistics and its role in the business as well as in the economy It also demonstrates components of logistics services and layers of logistics providers Main factors for the improvement of a nation’s logistics system are transportation infrastructure, institutional frameworks, technology advancements, and human resource training Hence, a country should focus on enhancing these factors to improve its logistics Because logistics has a crucial role in the movement of goods from manufacture to consumption and is an engine for economic growth, being a developed logistics hub is the long-term goal of Vietnam However, Vietnam still needs a considerable amount of reformation and innovation to attain that target Therefore, the consultation of top logistics countries is one beneficial way for Vietnam to identify adequate actions for Vietnam logistics enhancement Since using macro analysis method, chapter 2 will concentrate on analyzing transportation infrastructure investment, technology advancements, human resource training and institutional frameworks of governments relating to logistics of top logistics countries An analysis of the condition of Vietnam logistics will also be implemented
THE LOGISTICS DEVELOPMENT IN TOP LOGISTICS
LOGISTICS DEVELOPMENT IN TOP LOGISTICS COUNTRIES
Investment in transportation infrastructure is crucial for enhancing logistics performance, as it includes expenditures on new construction and upgrades to existing networks (Melo et al, 2013) Leading logistics nations typically see substantial annual investments from both private and government sectors For example, the U.S government allocated $48.1 billion for transportation through the American Recovery and Reinvestment Act (ARRA) in 2009 (Kenton, 2018) Approximately 70% of this investment was directed towards highway and street construction, with the remainder supporting various other transport facilities Between 2010 and 2017, public transportation infrastructure spending ranged from $110 to $125 billion, while private investment was around $25 billion Although yearly construction amounts fluctuate, the overall value of new transportation projects and improvements has grown by an average of 3.3% annually, despite a minor decline in 2011.
Figure 2.1: Value of investment in transportation construction in the U.S
Source: The U.S transportation statistics report, 2018
The U.S transportation infrastructure has seen steady growth over the years, with investments leading to 4.1 million miles of public roads, 8.7 million lane-miles, and approximately 614,000 bridges by 2016 In 2017, the network included around 138,500 railroad route-miles The average freight car capacity improved from 101 tons in 2000 to 105 tons in 2016, thanks to the introduction of larger hopper and tank cars, enabling more cargo to be transported efficiently In 2016, private railroad companies invested $13.8 billion to enhance their facilities, matching the average investment over the previous six years Consequently, the U.S infrastructure score has improved since 2010, contributing to a rise in the overall Logistics Performance Index (LPI) rank, as reported by the World Bank.
In 2018, the World Bank reported that 160 countries collaborated to assess the challenges and opportunities in trade logistics, aiming to enhance their performance One of the six criteria used to evaluate a country's overall Logistics Performance Index (LPI) rank is the infrastructure score, which plays a crucial role in determining trade efficiency and effectiveness.
Figure 2.2: Relation between infrastructure score and overall LPI rank of the U.S
The regulations established by leading logistics countries form a crucial foundation for the growth of the logistics industry These governments diligently oversee the enforcement of logistics laws and programs, resulting in significant advancements A notable example is Singapore, where the government has set and actively pursued the goal of becoming a logistics hub.
In 1997, Singapore launched the Logistics Enhancement and Application Program (LEAP), comprising four solution groups and 16 specific projects to bolster business operations and infrastructure development in the shipping and logistics sector (Nguyen Thom, 2016) The government has introduced various incentives, including a 10-year income tax exemption for ships, a preferential tax rate of under 10% on revenue growth from services over five years, and favorable loans for ships and containers Additionally, Singapore promotes liberal foreign ownership policies without restrictions on foreign investors in the business sector Successful initiatives like the Logistics Capability Development Program, Local Enterprise and Association Development Program, and Strategic Manpower Conversion Program further support this growth (Qingyu & Kaiyun, 2018) The effectiveness of these regulations is partly attributed to the independence of the Singapore Corruption Authority (CPIB), which operates free from interference to maintain integrity in its investigations As a result, Singapore consistently ranks among the world's top countries in logistics performance.
Countries with advanced logistics have established comprehensive institutional frameworks For example, since the 1990s, the Republic of Korea has implemented detailed plans and regulations to enhance its logistics sector (ESCAP, 2013) Since the 2000s, Korean logistics policies have shifted focus towards treating logistics as a standalone industry instead of merely a support function for manufacturing The "Goods Distribution Promotion Act," originally enacted in 1991, was subsequently replaced by a more comprehensive approach.
“Framework Act on Logistics Policies” in 2007 A “10-year National Logistics
The "Master Plan" is updated every five years in accordance with the guidelines of the Framework Act on Logistics Policies, which establishes a legal foundation for the logistics industry This Act enhances logistics system efficiency through three key factors: first, it promotes the expansion of logistics facilities and equipment by directing the Ministry of Land, Transport and Maritime Affairs and the Ministry of Knowledge Economy to provide administrative and financial support while ensuring facility development is consistent and avoids redundancy Second, it encourages the standardization of logistics equipment and cost calculations, offering preferential treatment such as financial aid and reduced service rates for companies that adopt standardized equipment Lastly, the Act emphasizes the development of information and communication technology to improve logistics efficiency, supporting the creation of integrated logistics information networks to facilitate the effective collection, analysis, processing, and distribution of logistics data.
A country's technological advancement is closely linked to its logistics spending as a percentage of GDP In 2015, the United States, Japan, and Singapore, which had logistics costs below 12% of GDP, demonstrated strong information technology development, scoring between 4 and 4.5 on a scale where 1 is favorable and 10 is unfavorable These nations ranked 10th, 12th, and 5th, respectively, in the World Bank's Logistics Performance Index (LPI) in 2016 Conversely, countries like Vietnam, Thailand, and Indonesia, with logistics costs exceeding 20% of GDP, faced challenges in technological progress, scoring around 6 and ranking 64th, 45th, and 63rd in the LPI This indicates that enhancing technological progress can lead to reduced logistics costs, as improved computer networks contribute to more efficient transportation, prompting leading logistics countries to invest in technology for transportation development.
Figure 2.3: Relationship between technological progress and logistics costs/GDP
In Japan, the Intelligent Transport System (ITS) has significantly contributed to alleviating traffic congestion and enhancing punctuality The Japanese Cabinet, along with four key ministries, actively supports investments in ITS, highlighting its importance in modern transportation infrastructure.
The collaboration among 250 members, including information and communication technology companies in Japan, local and central governments, universities, and research institutes, has significantly advanced Intelligent Transportation Systems (ITS) For over thirty years, the government has financially supported ITS-related infrastructures, such as the establishment of the traffic control center on the Metropolitan Expressway in 1973 and the trial operation of the Highway Advisory Information Radio system in 1980 (MLIT, 2012).
“Vehicle Information and Communication System” (VICS) service began in 1996
In the same year, Japan successfully tested a cruise control system on public roads with the participation of 25 companies, operating 11 vehicles over a distance of 11 km The following year marked the launch of the Electric Toll Collection System (ETC), and by 2011, the ITS Spot service was officially introduced The Vehicle Information and Communication System (VICS) assists drivers in locating efficient routes, significantly reducing traffic congestion.
Japan's implementation of 1,600 Intelligent Transportation System (ITS) spots on expressways enhances navigation by providing drivers with dedicated traffic information The Electronic Toll Collection (ETC) system allows vehicles to bypass toll-gate stops, significantly reducing traffic congestion—by 30%—that previously occurred at these points This investment in ITS technology has fostered an efficient transportation network, lowering transportation costs and improving delivery timeliness, which in turn supports the success of Japan's logistics industry.
Figure 2.4: ITS promotion of the Japanese government
Source: Ministry of Land, Infrastructure, Transport and Tourism,2012
Germany has maintained the top position in the World Bank's Logistics Performance Index (LPI) since 2012, largely due to its highly skilled workforce Over 80 percent of German workers have formal vocational training or hold academic degrees To meet the economy's demand for qualified personnel, Germany has implemented a dual vocational training system that integrates classroom learning with practical on-the-job experience, typically lasting two to three years This approach allows German industries to cultivate a skilled workforce efficiently and cost-effectively.
German government, the “German Chambers of Industry and Commerce” and the
The German Confederation of Skilled Crafts ensures high standards in vocational training across Germany, fostering effective collaboration between the public and private sectors With one in five companies participating in the dual vocational training system, apprentices are developed into specialists tailored to meet specific company needs, leading to an 80% employment rate post-training This system is crucial for businesses and contributes to Germany's renowned international reputation for vocational education, which has resulted in the lowest youth unemployment rate in Europe Additionally, the dual education system is continuously updated to align with industry demands and labor market trends.
Figure 2.5: German workforce by the level of professional education 2015
Singapore's public education system features a robust technical and vocational education segment that provides a practice-oriented curriculum, thanks to strong connections between schools and industries that prepare students for employment Additionally, the vibrant private education sector offers a diverse range of courses for personal development, while early childhood education providers deliver bilingual programs that incorporate the latest educational methodologies.
THE CONDITION OF LOGISTICS IN VIETNAM
As reported by the International Air Transport Association (IATA), in the 2013-
In 2017, Vietnam was recognized as the 7th fastest growing market globally, with an international cargo transportation growth rate of 6.6% The World Bank also ranked Vietnam's Logistics Performance Index (LPI) higher in both 2014 and 2018.
In 2018, Vietnam was ranked 39th out of 160 countries in the World Bank's Logistics Performance Index (LPI) The logistics sector in Vietnam has experienced a robust annual growth rate of 14% to 16%, making it one of the fastest-growing service industries in the country Vietnam's advantageous geographical location and natural conditions facilitate the development of diverse cargo transport and logistics services The volume of goods passing through Vietnam's seaport system has been increasing at an average rate of approximately 11% per year, with total cargo reaching 519 million tons in 2017—a 13% increase from 2016 This growth presents significant opportunities for further logistics development in Vietnam.
Figure 2.6: LPI Ranking of Vietnam 2010-2018
Figure 2.7: Total volume of goods through Vietnam seaports 2012-2017
In 2017, logistics costs in Vietnam were notably high, representing 25% of the country's GDP, in stark contrast to developed nations where these costs range from 7% to 13% Vietnam's logistics expenses exceeded those of neighboring countries, being 6% higher than Thailand, 7% higher than China, 14% higher than Japan, 17.3% higher than the U.S., and 17% higher than Singapore The primary factors contributing to these elevated logistics costs include inadequate infrastructure connectivity, limited unloading and transshipment capacities, subpar transportation means due to bulky cargo, and low levels of containerization stemming from insufficient infrastructure and handling services.
Q u an ti ty (Th o u san d to n s)
Figure 2.8: Percentage of logistics costs/GDP in different countries in 2017
Vietnam's transportation sector, including sea, rail, and road transport, is significantly harming the environment due to outdated vehicles used in logistics (VLR, 2014) Reports indicate a continuous decline in the quality of marine and coastal environments The railway industry alone discharges approximately 10 tons of manure and garbage daily, leading to the deterioration of railway infrastructure and pollution in surrounding areas Additionally, with the evolving regulations on safety and environmental protection from international organizations, Vietnam's aging maritime fleet struggles to adapt, jeopardizing the sustainability of its shipping activities in the global market.
Transportation turnover has shown consistent growth over the years, yet there is a notable imbalance among different transport modes While air transport contributes a minor share to total transport revenue, maritime transport handles the highest volume of goods, primarily consisting of low-value items.
Singapore Europe Japan India Malaysia China Thailand Vietnam
In 2016, road transport dominated the freight transport sector, generating double the revenue of seaway transport and leading to an imbalance among transport modes By 2018, road transport maintained a significant market share, accounting for over 75% of goods transported in Vietnam, as highlighted in the Vietnam logistics report.
Figure 2.9: Turnover of goods transportation activities in Vietnam
Despite ongoing upgrades to Vietnam's transport infrastructure, it remains inadequate to meet the growing demand for goods transportation The road transport system, which serves as the backbone of logistics in Vietnam, suffers from numerous degraded and overloaded routes, leading to congestion and insecurity in supply chains Additionally, the railway system along the "North-South route" has seen unsatisfactory business results over the past decade, with a decline in goods transport due to competition from other transport modes Cargo congestion at airports, particularly during peak seasons, is exacerbated by limited warehouse facilities and inefficient cargo handling processes Without significant improvements, these issues are likely to persist, hindering the logistics sector's growth.
YearRoad Seaway Airway there is no upgrade of infrastructure in Noi Bai area as well as the operation development strategy of the satellite airport
Vietnam's inland waterways span 17,253 km, serving as vital transport routes that link major economic centers and industrial parks across the country (Vietnam logistics report, 2018) Despite rapid development of the inland port and wharf system, the limited number of ports fails to meet growing demand, leading to a surge in temporary ports and berths that are often small-scale and poorly managed This inadequacy not only complicates specialized management but also poses environmental challenges Additionally, cargo handling equipment remains outdated, with a reliance on manual processes and a lack of specialized machinery While recent investments have targeted key routes in the Mekong Delta and Northern Delta regions, state budget allocations for inland waterway infrastructure development remain low, accounting for only 2% of the total industry investment.
Vietnam currently boasts 45 active seaports, including 2 international gateway ports, 12 general focal point ports, 18 local general ports, and 13 offshore oil ports, with a total of 265 harbors and 402 wharves featuring 87,550 meters of berthing space The ports collectively have a design capacity of approximately 500-550 million tons of cargo per year and are undergoing construction and renovation to accommodate larger vessels, with most general ports capable of handling ships up to 30,000-50,000 DWT To enhance the efficiency of Vietnam's import and export logistics, it is crucial to optimize the capacity of existing large seaports However, the Cai Mep - Thi Vai international gateway port, despite its modern infrastructure, has struggled with effective utilization due to inadequate transport connectivity, being located far from major production and consumption centers in southern Vietnam, such as Dong Nai, Binh Duong, and Ho Chi Minh City.
The concentration of goods at Ho Chi Minh City seaports, compared to 33 other rear ports, places significant pressure on an already overloaded road network, leading to severe traffic congestion This situation highlights the challenges posed by the high volume of goods concentrated in these ports.
Ho Chi Minh City leads to the situation of goods going to markets like Europe and the
US have to transfer at Singapore and Hong Kong seaports (TDSI, 2018)
Despite significant investments in railway infrastructure, many aspects remain outdated, with nearly 60% of locomotives being low-capacity and obsolete The construction of container freight wagons and convertible carriages fails to meet the increasing demand for large-scale transport Inconsistent technical standards, inadequate facilities, and a lack of warehousing and loading equipment at stations hinder the efficiency of rail freight, particularly in container transport Meanwhile, Vietnam's air freight market has experienced robust growth, averaging 15.6% annually from 2011 to 2017 However, only four airports—Noi Bai, Tan Son Nhat, Da Nang, and Cam Ranh—feature dedicated cargo terminals, while others manage cargo through passenger terminals, limiting operational efficiency Currently, only major airports like Noi Bai and Tan Son Nhat have logistics centers to support air cargo handling.
Vietnam's legal framework for logistics has undergone significant reform, highlighted by the 2005 Commercial Law, which replaced the outdated 1997 Commercial Law and introduced the term "logistics" in place of "delivery service." Additionally, the 2005 amendment to the Maritime Code aligned Vietnam's maritime regulations with international law This period also saw the establishment of new laws governing aviation, road, rail, inland waterways, customs, credit institutions, and insurance, which collectively define the conditions for logistics service businesses in the country.
Decree No 140/2007/NĐ-CP outlines the Commercial Law regarding the conditions for logistics service businesses and the limited liability for traders offering these services Additionally, Decree No 163/2017/NĐ-CP was established by the Government to regulate logistics service operations, addressing the sector's rapid growth and development.
Plan was set up to improve competitiveness and develop Vietnam logistics services until 2025, issued together with “Decision 200/QĐ-TTg” in 2017
In 2017, Vietnam Customs, in collaboration with various ministries, took significant steps to simplify customs procedures by leveraging information technology and innovative management methods The General Department of Customs launched the "Electronic Tax Payment" project, enabling 24/7 customs clearance and enhancing electronic tax collection The Ministry of Agriculture and Rural Development proposed a plan to reduce administrative procedures and specialized inspections by 45%, while the Ministry of Industry and Trade cut the number of goods requiring pre-clearance inspections by over 58% For items that remain subject to inspection, the Ministry has implemented comprehensive regulations, including the use of Harmonized System (HS) codes and risk management strategies Additionally, the government has adopted information technology for monitoring goods at seaports and introduced digital signatures for administrative procedures related to vessel operations.
In Vietnam, the Customs Law of 2014 and Decree No 08/2015/NĐ-CP established the legal framework for the ASEAN Single Window and National Single Window Starting January 1, 2018, the General Department of Customs mandated that shipping lines, agents, and forwarding agents utilize digital signatures for declaring administrative procedures related to the entry and exit of ships through the National Single Window Additionally, several decrees and circulars impacting logistics services were introduced in 2018.
Table 2.1: Decrees/Circulars affect logistics service activities were issued in 2018
No Decrees/Circulars Issued date Main content
8 th March Detail the Law on Foreign Trade Management regarding goods origin
20 th April Supplement a number of articles of Decree No
08/2015/NĐ-CP providing details and measures to implement the Customs Law on customs procedures, inspection, supervision and control of customs
15 th May Detail a number of articles of the Foreign
16 th October Amend and supplement a number of articles of
Decree No 87/2009/NĐ-CP on multimodal transport which was amended and supplemented in Decree No 89/2011/NĐ-CP
15 th June Detail a number of articles of the Law on
Foreign Trade Management and Decree No 69/2018/NĐ-CP
20 th April Amend and supplement a number of articles in
Circular No 38/2015/TT-BTC regulating customs procedures, inspection, customs supervision, export tax, import tax and tax administration for goods import and export
SOME RECOMMENDATIONS FOR DEVELOPING
GLOBAL LOGISTICS TRENDS
Technology serves as a crucial competitive advantage in the logistics sector, transforming service management and delivery through innovative business models and distribution channels This shift is fundamentally altering the storage, distribution, and transportation of goods The Institute for Supply Management defines digitization as the integration of advanced tech solutions with physical and digital assets to enhance logistics practices According to a PwC CEO survey, 54% of companies anticipate revenue growth due to digitalization, while 60% of transport and logistics CEOs acknowledge the ongoing disruptive impact of technology Furthermore, 65% are actively adapting their distribution channels to align with the digital transformation of logistics.
Digitalization has significantly transformed the logistics industry and continues to hold the potential for future changes Key technologies such as big data, driven by Internet of Things (IoT) devices, have been instrumental in optimizing logistics operations since 2018 These technologies enhance user experiences, improve productivity, and facilitate asset tracking When combined with machine learning, artificial intelligence (AI), and virtual reality (VR), big data further optimizes resource utilization and decision-making processes, ultimately boosting business performance E-commerce giants like Alibaba and Amazon have adapted their communication strategies and business models by leveraging existing customer data to drive profitability The rise of e-logistics, which encompasses electronic transactions facilitating the movement of goods from suppliers to consumers, is gaining traction globally As technology continues to evolve, logistics companies must embrace digitalization to navigate the emerging opportunities and challenges within the industry.
Collaboration has become essential in the logistics industry, allowing providers to secure larger contracts and better meet the growing demands of customers and retail facilities By working together, logistics providers can enhance cost efficiency and service performance, ultimately leading to higher customer satisfaction This collaborative approach facilitates the integration and global optimization of supply chains, occurring both horizontally among logistics service providers and vertically with other organizations within the supply chain.
Collaborating offers significant long-term benefits, including increased profits and a competitive edge over rivals By leveraging specialized expertise, companies can optimize logistics and reduce costs more effectively than if they were to operate independently Emerging collaboration models, such as mergers and acquisitions, joint ventures, and strategic alliances, can enhance capabilities in critical areas, facilitated by advancements in technology and internet connectivity However, it’s essential for companies to evaluate potential partners thoroughly, as collaboration does not always guarantee efficiency.
As global warming and environmental pollution become increasingly urgent issues, logistics companies are adopting green logistics practices Green logistics refers to efforts aimed at measuring and minimizing the environmental impact of logistics activities, including proactive design for disassembly (Saroha, 2014) This approach is closely linked to reverse logistics, which involves the reproduction and resale of items returned by customers The shift towards green logistics is driven not only by government incentives but also by customer demands and the need for enhanced efficiency within logistics operations Notably, logistics activities accounted for 15% of global greenhouse gas emissions in 2010, as highlighted by Alan McKinnon.
Green logistics plays a crucial role in mitigating environmental pollution by addressing the significant carbon dioxide (CO2) emissions from transportation, a major contributor to climate change Increasing government regulations globally are driving the adoption of sustainable transport vehicles and vessels As highlighted by Saroha (2014), green logistics not only helps businesses reduce costs and optimize their supply chains but also enhances overall performance, boosts company reputation, and fosters customer loyalty Consequently, green logistics is essential for sustainable development and has emerged as an unavoidable trend in the logistics industry today.
THE LOGISTICS DEVELOPMENT ORIENTATION OF VIETNAM
The Vietnam government's Action Plan (Decision 200/QĐ-TTg) issued on February 14, 2017, outlines six key objectives aimed at enhancing the logistics sector By 2025, the logistics services' contribution to GDP is expected to reach 8%-10%, with a service growth rate of 20% and outsourcing logistics services increasing to 50%-60% Additionally, logistics costs should decrease to 16% of GDP, and Vietnam aims to achieve a ranking above 50 in the Logistics Performance Index (LPI) The plan emphasizes transforming Vietnam into a regional logistics hub by attracting investment in infrastructure and improving connectivity with other countries It also aims to foster a competitive logistics market by ensuring equal opportunities for businesses across all economic sectors Furthermore, leveraging Vietnam's strategic geographical position is crucial for enhancing regional connectivity The government is committed to improving the competitiveness of logistics service providers in both domestic and international markets while creating a supportive environment for the growth of the logistics sector.
3.2.2.1 Complete policies and laws on logistics services
According to specific tasks to improve the competitiveness of Vietnam logistics service up to 2025 issued with Decision No 200/QĐ-TTg, Ministry of Industry and
The Trade and Ministry of Justice will enhance the logistics services framework in the Commercial Law before 2020, establishing a supportive legal environment for logistics activities This includes reviewing and adjusting legal documents and policies related to logistics, aligning them with international commitments from the WTO, ASEAN, and free trade agreements to prevent conflicts with domestic laws The Ministry of Industry and Trade, along with the Vietnam Logistics Association (VLA) and the Vietnam Chamber of Commerce and Industry, will promote awareness of Vietnam's international commitments in logistics services, ensuring businesses are well-informed to comply Additionally, the Ministry of Finance and related entities will streamline customs procedures, simplify specialized inspections, standardize documentation, and implement trade facilitation commitments Efforts will also be made to enhance the trade portal, National Single Window, and support local logistics service development.
The Vietnamese government, through Decision No 200/QĐ-TTg, mandates the Ministry of Transport, Ministry of Industry and Trade, and Ministry of Finance to align transportation planning with industrial production, agriculture, and local economic strategies To enhance logistics infrastructure, the government aims to refine policies, attract investments, and foster international partnerships The Ministry of Transport will focus on restructuring the transport market, promoting multi-modal and cross-border transport, and improving the capacity of maritime, rail, air, and road transport Additionally, there is an urgent need to enhance logistics infrastructure in relation to e-commerce, with a particular emphasis on attracting investments for the development of type I logistics centers in Hanoi and Ho Chi Minh City, type II centers in key economic provinces, and aviation logistics hubs.
3.2.2.3 Improve business capacity and service quality
Decision No 200/QĐ-TTg emphasizes the importance of enhancing business capacity and service quality by encouraging enterprises in various sectors to adopt advanced supply chain management models The government prioritizes budget support for research, technology transfer, and technical advancements in logistics services The Vietnam Logistics Association (VLA) and industry associations aim to integrate logistics services with agriculture, industry, import-export, and other sectors while promoting the development of 3PL and 4PL package logistics services Additionally, the government supports logistics enterprises in accessing domestic and foreign capital, training, and valuable information to foster the growth of large logistics firms, thereby driving market development.
The Vietnam Logistics Association (VLA), along with the Ministry of Transport and the Ministry of Industry and Trade, plays a crucial role in developing the logistics service market as outlined in Decision No 200/QĐ-TTg VLA, in collaboration with the Vietnam Chamber of Commerce and Industry, actively promotes logistics services through international seminars, fairs, and exhibitions, while also organizing research missions abroad to explore investment opportunities The Ministries aim to enhance the transportation of goods from Laos, Cambodia, Thailand, and South China through Vietnam, improving the efficiency of the Cai Mep-Thi Vai port complex Additionally, domestic enterprises are encouraged to utilize outsourced logistics services for better specialization and division of labor within the supply chain VLA seeks to shift the mindset regarding delivery conditions, raise awareness among shippers, and enable Vietnamese logistics firms to engage in various supply chain stages with greater value addition Strengthening cooperation with ASEAN logistics associations and attracting foreign logistics enterprises to partner with Vietnamese companies is also a key objective for VLA.
3.2.2.5 Improve the quality of human resources
In conjunction with Decision No 200/QĐ-TTg, the government is committed to enhancing the quality of logistics human resources by promoting university-level logistics training, increasing the number and quality of logistics lecturers, and utilizing mass media for logistics programs Additionally, the government plans to collaborate with foreign training organizations to offer practical training courses, thereby improving the efficiency of logistics education and human resource development To support this initiative, several intensive logistics research centers will focus on studying trends and advanced technologies in logistics to ensure swift and effective application in practice.
Decision No 200/QĐ-TTg outlines key responsibilities for various ministries in enhancing Vietnam's logistics sector The Ministry of Planning and Investment will issue business registration codes for logistics services, while the Ministry of Industry and Trade and the Ministry of Transport will collaborate to develop statistical indicators and collect logistics data The Ministry of Science and Technology will focus on creating inspection and measurement equipment and establishing standards for logistics activities Additionally, a National Steering Committee on logistics may be formed, alongside logistics advisory departments within several ministries to improve government coordination The role of logistics associations will be strengthened to guide the sector's vision and support enterprises The Vietnam Logistics Association (VLA) and the Ministry of Industry and Trade will create logistics evaluation indicators aligned with international standards and produce annual reports to assess logistics activities and recommend future development strategies.
3.3 RECOMMENDATIONS FOR DEVELOPING LOGISTICS IN VIETNAM 3.3.1 For Vietnam logistics services providers
In Vietnam, domestic logistics enterprises represent 88% of the total market but capture only 23% of the logistics service market share, primarily offering 2PL services In contrast, 3PL services are predominantly provided by foreign or foreign-invested companies To enhance their competitiveness, Vietnamese logistics firms must diversify their service offerings and collaborate both horizontally and vertically with import-export businesses and supply chain organizations Such partnerships can lead to larger contracts and better meet the growing demands for larger, faster, and more cost-effective logistics solutions By working together, these enterprises can leverage their collective strengths for mutual growth while ensuring customer satisfaction.
3.3.1.2 Increase applying digitalization and efficient technologies
To enhance competitiveness and service quality, Vietnamese logistics enterprises must proactively embrace new technologies and digitalization, including big data, machine learning, and artificial intelligence Understanding and keeping abreast of both existing and emerging efficient technologies is crucial for these companies Learning from successful technology adopters or investing in design consultancy can help firms identify the most effective solutions for their needs Although the initial implementation of technology may incur costs, the long-term benefits include reduced operational weaknesses, lower costs, and improved service quality By effectively implementing technology, companies can gain a competitive edge in the market For those lacking sufficient capital, leveraging foreign investment and state incentives can facilitate the adoption of these essential technologies.
The logistics industry in Vietnam faces a significant shortfall in high-quality human resources, meeting only about 40% of demand despite a large young workforce and increasing training efforts To address this gap, logistics companies should not solely depend on graduates from universities and colleges; instead, they should establish their own vocational training schools or partner with academic institutions like Vietnam Maritime University and Foreign Trade University to develop skilled logistics professionals By inviting both foreign and local logistics experts for training, companies can ensure that their workforce is well-prepared for industry demands Additionally, periodic professional testing and advanced training programs can help employees stay updated with market trends and best practices from developed countries Sending staff abroad for further education will provide them with advanced knowledge and practical experience, enabling them to bring valuable insights back to the company upon their return.
Businesses are increasingly pressured by customers to adopt sustainable practices, with green logistics emerging as a key strategy to create sustainable value amid growing environmental concerns Implementing green logistics not only enhances a company's reputation but also fosters customer loyalty Additionally, green logistics is closely linked to reverse logistics, which involves the refurbishment and resale of returned items To effectively integrate green logistics, companies can adopt measures such as utilizing disposable or environmentally friendly materials.
55 packages, using machines which reduce wastes, applying reverse logistics and using of production materials such as equipment and technologies ensuring environmental protection standard
3.3.2.1 Enhance quality, balance, and connectivity of transportation infrastructure
According to Decision 200/QĐ-TTg, the Vietnamese government aims to enhance transportation infrastructure in alignment with industrial production, import-export activities, and local economic development strategies The focus will be on promoting multi-modal and cross-border transport, particularly for transit goods, through the restructuring of transportation systems Additionally, the government is committed to developing logistics centers, increasing cargo transport capacity across rail, air, sea, and road, and improving logistics infrastructure to support the growth of e-commerce.
Vietnam's transportation infrastructure faces significant challenges, including inadequate capacity, balance, and connectivity To improve the quality of this infrastructure, both private and government investments must increase annually through long-term strategic plans, similar to those implemented in the U.S This endeavor requires substantial time, effort, and resources, serving as a vital engine for economic development The Vietnamese government should prioritize projects that enhance transportation infrastructure and attract private investment, ensuring a balanced distribution of funds across various transportation modes Currently, state budget allocations for inland waterway infrastructure are alarmingly low, at about 2% of total industry investment, leading to a limited number of ports that fail to meet demand Additionally, the railway system is hindered by an abundance of low-capacity and outdated locomotives, which comprise nearly 60% of the fleet While heavy investments in seaports and road systems are crucial, equal attention must be given to developing the railway and inland waterway systems to alleviate pressure on inefficient roads Furthermore, establishing dedicated cargo terminals at airports will enhance operational efficiency To foster better connectivity, transport infrastructure must be developed according to a comprehensive long-term plan, facilitating effective interaction among different transport modes This includes creating infrastructure that allows for seamless transfer of goods between transport modes and establishing standardized cargo handling protocols.
The government's logistics development strategies primarily focus on long-term vision without addressing the essential planning of road systems and transport infrastructure connecting ports and logistics centers While existing laws limit the liability of various transport service providers, there is a notable absence of provisions for road transport service providers, resulting in 100% of these enterprises lacking professional liability insurance This gap creates significant disadvantages for road transport companies, highlighting the need for amendments to the Road Traffic Law of 2008 to ensure fairness Additionally, clarifying the role of customs agents in policy and establishing an independent body, similar to Singapore's Corrupt Practices Investigation Bureau, for oversight can enhance regulatory compliance Furthermore, encouraging the standardization of logistics equipment and calculating logistics costs, akin to Korea's Framework Act, could provide preferential treatment and financial incentives for companies adopting standardized practices.
Traffic congestion is a significant issue in Vietnam, and the government's implementation of Intelligent Transport Systems (ITS) is crucial for improving road safety and efficiency, similar to Japan's successful model Key ITS services in Japan, such as VICS, ETC, and ITS Spot, provide drivers with real-time traffic information, facilitate seamless toll payments, and enhance navigation systems, leading to a notable reduction in congestion To effectively implement ITS in Vietnam, the government must collaborate with relevant ministries and businesses, ensuring widespread communication and synchronized operations The integration of CCTV systems and automatic toll booths is essential, along with the introduction of a universal smart card for public transport Additionally, the government should focus on recruiting and training personnel to maintain ITS infrastructure and guide logistics companies in adopting new technologies Providing incentives and support for startups in logistics and technology applications will further enhance the effectiveness of ITS in addressing traffic challenges.
3.3.2.4 A dual system in vocational training