Enhancing the information and logistics sector and establishing multimodal transport and logistics centers within transportation infrastructure will improve the competitiveness of transp
Research motivation
In recent years, the globalization of trade has heightened the need for efficient logistics services, making Vietnam's logistics sector crucial for the smooth movement of goods both domestically and internationally A competitive logistics system is essential for fostering national economic growth, boosting trade competitiveness, and attracting foreign investment However, Vietnam's logistics operations currently fall short compared to many regional counterparts, which undermines the country's overall competitiveness in the global market.
Despite government initiatives to enhance logistics infrastructure and management, Vietnam still faces significant challenges such as an inadequate transportation network, inefficient customs processes, limited adoption of modern logistics technologies, and a shortage of skilled professionals Tackling these issues is crucial for Vietnam to maximize its strategic advantages, effectively integrate into regional and global value chains, and seize opportunities from free trade agreements.
Vietnam is actively opening up and integrating into the global economy by participating in a new generation of Free Trade Agreements (FTAs) This shift presents both opportunities and challenges for the overall economy, particularly within the logistics sector To fully realize the potential benefits for the economy, it is crucial to enhance the competitiveness of Vietnam's logistics industry.
Vietnamese enterprises can enhance their competitive edge in domestic and international markets by lowering logistics costs and elevating service quality Additionally, a streamlined logistics system not only attracts foreign direct investment, especially in export-driven sectors, but also fosters job creation and stimulates economic growth.
Recognizing the vital importance of the logistics sector in development and integration, my research focuses on "Enhancing the Competitiveness of the Vietnamese Logistics Sector." This study aims to assess the current state of Vietnamese logistics and propose effective solutions and strategies to boost its competitiveness amidst growing competition.
Literature review
Numerous international researchers have explored ways to enhance the competitiveness of the logistics sector, employing various methodologies and perspectives Their studies examine key competitiveness factors and contextual influences, ultimately offering policies and practical solutions aimed at boosting the competitiveness of businesses within the sector and contributing to the overall economic advancement of the country.
Jose Tongzon (2007) predicted that logistics would experience annual growth between 3% and 10%, offering significant economic prospects for ASEAN countries
In response to emerging opportunities, countries are enhancing their logistics sectors, upgrading infrastructure, and leveraging technology to increase market share This article investigates the factors influencing competitiveness in logistics, focusing on Singapore as a case study to draw implications for Southeast Asian nations Research by Şule ệnsel Ekici et al (2019) highlights the critical role of logistics performance in national and international trade, significantly affecting economic development Policymakers, facing resource constraints, need guidance on prioritizing factors for substantial improvements in logistics The study examines how the Global Competitiveness Index (GCI) pillars impact logistics performance, utilizing a three-stage methodology that includes a Bayesian network, partial least squares path model, and importance-performance map analysis The authors propose a roadmap for policymakers to enhance their countries' logistics performance based on these insights.
During economic crises, such as pandemics and border closures, the logistics sector is often the first to encounter risks and losses, as noted by Elena Karanina et al (2020) Strongly developed transportation and logistics systems at the national level are crucial for stimulating growth in related industries and sectors Logistics is increasingly seen as vital for maximizing a country's transit potential By improving the information and logistics sector and creating multimodal transport and logistics centers within transportation infrastructure, the competitiveness of transport services can be significantly enhanced.
Not only is it a hot topic attracting foreign authors, logistics sector competitiveness is also a topic that attracts the attention of Vietnamese authors Vinh
In 2015, V Thai et al analyzed Vietnam's national logistics system using a macro-logistics assessment framework and semi-structured interviews with key stakeholders, revealing significant limitations stemming from both infrastructure and legal issues The study's framework can be adapted for similar assessments in other countries, offering valuable insights for foreign investors and international logistics providers interested in Vietnam's logistics landscape Furthermore, the findings serve as a resource for Vietnamese policymakers to strategize improvements in the national logistics system This research provides a standardized template for evaluating logistics systems and enhances the understanding of logistics in Vietnam, a country that has been underrepresented in existing literature.
Vu Thi Kim Hanh (2020) employed qualitative methodologies such as analysis, comparison, synthesis, and description to investigate the theoretical foundations of competitiveness in Vietnam's logistics service industry She identified key indicators to evaluate the sector's competitiveness Following this, quantitative research methods were applied to assess the industry's capacity from 2007 to 2018, involving data collection, analysis, and statistical techniques to uncover factors that influence competitiveness within the logistics service sector.
In her 2022 research, Vuong Thi Bich Nga assessed the logistics policies and regulations in Vietnam, alongside the country's logistics infrastructure The study examines key factors influencing the logistics industry, such as human resources, the integration of information technology in logistics services, and the current state of commodity trade development Utilizing both qualitative and quantitative methods, the thesis describes the existing challenges in the logistics sector, grounded in a theoretical framework with clear research questions and objectives It underscores the necessity for effective policy planning and infrastructure development that aligns with Vietnam's socio-economic growth, providing valuable insights for policymakers and strategists regarding the logistics landscape in the country.
Research purpose
The thesis has proceeded for the following purposes Firstly, it gives a theoretical basis related to logistics and the competitiveness of the logistics sector
This study assesses the current competitiveness of the Vietnamese logistics sector and offers recommendations for enhancing its performance.
From the research purpose stated above, the thesis needs to answer and clarify the following research questions:
- What is logistics and the competitiveness of logistics sector?
- What is the current situation of the competitiveness of Vietnamese logistics sector?
- What are the strengths and weaknesses of Vietnamese logistics sector?
- How to improve the competitiveness of Vietnamese logistics sector?
Research object and scope
Research object: The competitiveness of the logistics sector
The scope of time: The period from 2018 to 2024
The scope of space: The competitiveness of Vietnamese logistics sector.
Research methodology
The thesis employs a blend of synthesis, analysis, listing, and dialectical thinking methods to gather and construct information It relies on secondary sources, including published research works and articles from scientific journals The data is sourced from official platforms such as the Vietnam Government Portal, the General Statistics Office of Vietnam, the Ministry of Industry and Trade, the Vietnam Association for Logistics Manpower Development, and the Vietnam Logistics Business Association.
Structure of the thesis
Apart from the introduction, conclusion and reference parts, the thesis contains three main chapters:
Chapter II: The current situation of the competitiveness of Vietnamese logistics sector
Chapter III: Recommendations to improve the competitiveness of Vietnamese logistics sector
THEORETICAL FRAMEWORK
OVERVIEW OF LOGISTICS
Logistics, as defined by the Council of Supply Chain Management Professionals (CSCMP), involves the strategic planning, execution, and oversight of processes that ensure the efficient transportation and storage of goods, services, and relevant information This comprehensive approach spans from the point of origin to the point of consumption, aiming to meet customer demands while encompassing various movements, including inbound, outbound, internal, and external logistics.
The Vietnam Commercial Law 2005 does not define logistics but rather refers to "logistics services." As outlined in Article 233, logistics services encompass commercial activities where traders manage and execute various tasks such as receiving goods, transportation, storage, customs procedures, and customer consultations, among others, all in accordance with customer agreements for remuneration.
Logistics can be interpreted in two main ways: a narrow definition, as outlined by Vietnamese Commercial Law, which focuses on logistics services as the coordination of elements necessary for transporting goods from production to consumers; and a broader perspective that views logistics as a vital component of the supply chain, encompassing all phases from raw material procurement to production, manufacturing, and distribution This comprehensive view highlights the significance of both tangible (material) and intangible (information) factors throughout the entire process, from pre-production to final delivery to consumers.
Logistics involves the strategic planning, execution, and management of transporting and storing raw materials and finished products, alongside handling pertinent information from the point of origin to final consumption The primary objective of logistics is to fulfill customer needs efficiently and cost-effectively.
There are multiple ways to classify logistics based on criteria and selection methods, which can be categorized as follows:
Based on logistics service providers
First Party Logistics (1PL), or self-supply logistics, involves a business or individual who owns goods and independently manages logistics activities to meet their own requirements This model necessitates that the goods owner invests in transportation vehicles, warehouses, information systems, and labor to effectively carry out logistics operations.
Second Party Logistics (2PL) providers play a crucial role in the logistics chain by fulfilling specific customer demands Typically, these providers are transport companies, including shipping lines, airlines, and trucking firms They utilize their own specialized vehicles to execute transportation tasks and offer individual transport services throughout the logistics process.
Third Party Logistics (3PL) involves outsourcing logistics activities to specialized entities that manage the transportation and storage of goods on behalf of owners These logistics providers facilitate import and export processes, prepare necessary shipping documentation, and ensure efficient delivery by handling customs procedures and transporting goods to designated locations.
Fourth Party Logistics (4PL) is an integrated logistics solution that oversees and manages all logistics activities to achieve specific customer goals This service encompasses the entire production process, including receiving goods, customs clearance, distribution, and warehousing The 4PL model systematically connects customer support services and integrates them with procurement, purchasing, payment, and information technology functions.
Fifth Party Logistics (5PL) is emerging as a vital solution in the evolving landscape of technology and e-commerce, which is transforming logistics operations into more sophisticated and modern frameworks As businesses increasingly seek external logistics services to keep pace with rapid e-commerce growth, 5PL has gained popularity for its effectiveness This innovative service not only manages but also coordinates the operations of Third Party Logistics (3PL) and Fourth Party Logistics (4PL) within e-commerce platforms A distinguishing feature of 5PL is its substantial role in managing transportation costs, setting it apart from other logistics models.
Inbound logistics play a crucial role in ensuring that essential products and resources are delivered to production facilities on time, facilitating uninterrupted production processes Essentially, inbound logistics encompass the preliminary activities that set the stage for all subsequent logistics operations.
Outbound logistics encompasses the transportation of finished products to end consumers, involving the management of inventory, and the distribution of goods to wholesalers, retailers, or directly to customers This process starts with receiving customer orders, followed by moving products to packaging locations, and concludes with delivery and associated customer services.
Reverse logistics refers to the process of moving products from end consumers back to the supply chain, encompassing activities such as product returns, maintenance, repair, refurbishment, and recalls due to faults or labeling issues This logistics approach addresses errors and customer complaints by managing the flow of goods after the point of sale, ensuring that returned items are efficiently handled and reintegrated into the production cycle.
Fast Moving Consumer Goods Logistics: This includes logistics activities for fast-moving consumer goods with short shelf lives, such as clothing, perishables, and pharmaceuticals
Automotive Logistics: Logistics operations that serve the automotive industry Chemical Industry Logistics: Logistics services tailored for the chemical industry, including hazardous or dangerous goods
Oil and Gas Industry Logistics, etc
Definition and characteristics of International transport
Transportation is a crucial economic and technical sector that is intricately linked to a nation's infrastructure, effectively addressing both domestic and global production and distribution challenges This sector evolves alongside human civilization, driven by modern scientific and technological advancements, transportation laws, and skilled labor that ensure efficient logistics Innovations like multimodal transportation, shipping, warehousing, and logistics have emerged from this specialized field International transportation specifically refers to the movement of goods or passengers across national borders, facilitating global trade and connectivity.
Therefore, from this concept, the distinct characteristics of international transport are brought about by international factors, specifically:
- Transport occurring across the territories of at least two countries
- Origin and destination points belonging to different countries
Transportation relationships often involve international elements, making them subject to international legal regulations This international aspect may not apply to all parties involved; rather, it can pertain to just one party, allowing the governing laws of that specific party to regulate the process.
There are many types of international transport, depending on the standard, selection methods can be divided into the following types:
- Based on the mobile environment: roadways, railways, waterways, airways, pipeline transport
- Based on the object of transport: passenger transport, freight transport, mixed transport
- Based on the way the transport process is organized: unimodal transport, multimodal transport, segmented transport
Transportation is crucial for a nation's economic development, comprising essential infrastructure like roadways, railways, airways, and vehicles such as ships and automobiles A country's transportation system reflects its overall development level and supports all social activities, as these would be unfeasible without efficient transport In the production sector, transportation is vital for moving raw materials, fuels, and finished goods, facilitating the production process and enabling product distribution to consumers, thereby enhancing the utility value of goods.
OVERVIEW OF THE COMPETITIVENESS OF LOGISTICS
Competitiveness is the capacity to succeed in competition among similar goods and enterprises within the same industry and consumer market This concept encompasses a wide range of interpretations, as it can be viewed from different angles Competing entities may include organizations, sectors, product lines, or countries, influenced by various factors such as market efficiency, policies, market structure, and business functions related to trade, investment, and regulatory frameworks.
Michael Porter defines competitiveness through productivity, emphasizing the microeconomic foundations of competitive advantage that enhance productivity at national, regional, and cluster levels However, this definition primarily addresses national competitiveness, neglecting the competitiveness of individual enterprises and industries.
The Trade Policy Glossary (2003) defines competitiveness as the ability of an enterprise, industry, or country to maintain economic superiority over others While this definition addresses competitiveness at multiple levels, it falls short of comprehensively defining "competition."
The Organization for Economic Cooperation and Development (OECD) defines competitiveness as the capacity of businesses, industries, nations, or regions to create increased employment and income while facing international competition.
Competitiveness can be categorized into various levels, such as national, industry, enterprise, and product competitiveness While these levels are relative, they are interconnected and significantly influence one another.
1.2.2.1 The competitiveness at the National Level
The United States President's Commission on Industrial Competitiveness defines a nation's competitiveness as its capacity to produce goods and services that meet international market standards This ability must occur under conditions of free and fair trade, all while ensuring the maintenance and growth of real income for its citizens.
The Global Competitiveness Report by the World Economic Forum in 1997 defines a nation's competitiveness as its capacity to maintain and enhance living standards, which is evidenced by a rise in GDP per capita.
In summary, a nation's competitiveness refers to its ability to penetrate international markets with goods and achieve macro-level goals such as GDP growth, income, and citizens' living standards
1.2.2.2 Competitiveness at the Industry Level
The Organization for Economic Cooperation and Development (OECD) defines industry-level competitiveness as the capacity of an industry to create higher employment and income amid international competition This concept is closely tied to international competitiveness, especially relevant in today's globalized economy Industry-level competitiveness reflects the collective abilities of businesses within an industry and their interconnections Ultimately, the competitiveness of a business or industry relies on its capability to deliver goods or services that are of equal or superior quality and price compared to market standards, without relying on subsidies.
The United Nations assesses industry competitiveness by analyzing business profitability, trade balance, foreign investment dynamics, and direct measurements of costs and quality at the industry level Additionally, it considers market share, structural elements, internal competitiveness, supporting industries, and the integration of these factors.
1.2.2.3 Competitiveness at the Enterprise Level
A business's competitiveness indicates its long-term viability and is defined by its capacity to deliver superior results compared to industry averages Essentially, competitiveness involves the ability to offer products and services more efficiently than rivals, ensuring sustained success in the marketplace.
Business competitiveness is evaluated through both price and non-price factors, including market share, product quality, and productivity For companies involved in international trade, key metrics for assessing competitiveness include profit margins, the percentage of export revenue relative to total revenue, and regional or global market share.
A business's market position on the international stage serves as a key indicator of its competitiveness, which is defined by the ability to sustain success in global markets without relying on protection or subsidies While transportation costs may enhance competition in domestic markets, true competitiveness is fundamentally rooted in the advantages gained from higher productivity.
In non-commercial sectors, competitiveness refers to the ability to match or surpass the best businesses in terms of product or service cost and quality
Product competitiveness is defined by its ability to satisfy customer needs in terms of quality, price, features, design, uniqueness, brand, and packaging, significantly outperforming similar offerings This competitiveness is inherently linked to the overall competitiveness of the business behind the product; if the business is weak, so too will be its products To boost product competitiveness, businesses must focus on enhancing quality, lowering production costs, and adopting effective marketing strategies, while also expanding product markets to stimulate consumer demand.
Assessing competitiveness in non-commercial sectors is complex, often focusing on business profitability, costs, and quality In industries with foreign direct investment, key indicators of competitiveness may include the proportion of foreign revenue and market share within regional or global markets.
1.2.3 Determinants of competitiveness of logistics sector
The competitiveness of the logistics sector is influenced by several key factors, including production costs, particularly wage expenses in labor-intensive industries Essential elements encompass management quality, service pricing and quality, exchange rates, government policies, political stability, and investments in both human and physical infrastructure These components collectively enhance a country's competitive advantage in the logistics sector, which can be categorized into macro and micro factors.
CRITERIA FOR EVALUATING COMPETITIVENESS OF THE
1.3 CRITERIA FOR EVALUATING COMPETITIVENESS OF THE LOGISTICS SECTOR
The competitiveness of the logistics sector mirrors that of the overall industry and can be evaluated through various factors, including business profitability, trade balance, and foreign investment levels This thesis will specifically analyze the logistics sector's competitiveness using criteria derived from the Porter Diamond Model, focusing on industry costs and quality metrics.
(Source: https://www.investopedia.com/terms/p/porter-diamond.asp)
Michael Porter explained 4 points of his Diamond Model:
Firm strategy, structure, and rivalry
Firm strategy, structure, and rivalry play a crucial role in fostering competition, which in turn boosts production and drives technological innovation Key factors such as market power concentration, competition levels, and the capacity of rival firms to penetrate a country's market significantly influence this dynamic.
Related supporting industries consider the upstream and downstream industries that facilitate innovation through exchanging ideas These can spur innovation depending on the degree of transparency and knowledge transfer
Demand conditions encompass the size and characteristics of the customer base for products, playing a crucial role in driving innovation and product enhancement A larger consumer market fosters the necessity for differentiation and innovation, ultimately expanding market opportunities for businesses.
Factor conditions, as defined by Porter, encompass the essential elements that a nation's economy can cultivate, including a skilled labor force, technological advancements, robust infrastructure, and access to capital To foster these conditions, governments can enhance domestic competition by implementing and enforcing anti-trust laws.
Based on the Porter Diamond Model, I will analyze four points of diamond model adapted for this thesis to analyze the competitiveness of a country’ s logistics sector:
Firm strategy, structure, and rivalry: Capacity of logistics businesses
Related supporting industries: Legal policy and state management of logistics sector
Demand conditions: Demand and development potential of logistics services
Factor conditions: Logistics infrastructure development, Human resources in the logistics sector and Logistics costs
1.3.1 Demand and development potential of logistics services
The demand for logistics services is a key factor driving the growth of the sector, fueled by the dynamic and complex nature of global economic, manufacturing, and commercial activities As goods are produced and consumed internationally, the need for efficient transportation and circulation becomes crucial Logistics plays a vital role in addressing this demand, facilitating smooth and effective supply chain operations.
The booming demand from economic and commercial activities is driving a significant market for logistics services, prompting businesses to invest in this sector This surge in demand is enhancing the scale, quality, and diversity of logistics solutions available With current needs and substantial future growth potential, the logistics sector stands to benefit greatly from global economic integration and the rise of e-commerce, which will further elevate the demand for freight transportation and create ample opportunities for industry expansion.
High demand and significant growth potential are essential factors drawing investors to the logistics sector With ample investment capital, logistics companies can enhance infrastructure, implement advanced technologies, elevate service quality, and broaden their market reach This, in turn, boosts the competitiveness of the logistics industry, solidifying its position in the global market.
The logistics infrastructure is crucial for advancing the logistics sector and boosting national competitiveness A well-rounded transportation network—encompassing roads, railways, airways, and seaports—coupled with modern warehouses and logistics centers, ensures efficient, cost-effective, and swift goods movement This enhancement not only improves logistics service quality and meets growing customer demands but also attracts both domestic and foreign investments, ultimately contributing to socioeconomic development.
The advancement of modern logistics infrastructure is essential for the logistics sector's survival amid increasing international economic integration To address the rising demand for logistics services, enhance competitiveness, and achieve global integration, logistics companies must invest in contemporary infrastructure Such investments are not only crucial for immediate needs but also serve as a foundation for the sustainable growth of Vietnam's logistics sector.
Logistics infrastructure is crucial for advancing the logistics sector and boosting its competitiveness It significantly affects logistics costs, time, and service quality, which in turn influences the overall efficiency of logistics operations Enhancing infrastructure not only improves the quality of logistics services but also addresses growing customer demands, attracts both domestic and foreign investment, and supports socio-economic development.
Upgrading transportation infrastructure, including modern seaports and airports, is crucial for reducing delivery times and ensuring timely goods transportation Additionally, implementing advanced warehouse systems with effective temperature and humidity control, along with stringent security measures, will safeguard products and minimize damage risks.
Infrastructure enhancements promote the integration of transportation modes, enabling smooth intermodal freight transfers Modern logistics centers will act as training hubs for developing skilled professionals, thereby boosting expertise in the industry Additionally, the use of digital technology and advanced transport monitoring systems significantly improves the management and control of transportation processes.
A well-integrated and modern logistics infrastructure plays a crucial role in streamlining logistics costs, including fuel, labor, and insurance expenses By optimizing these costs, logistics enterprises can significantly enhance their competitiveness, ultimately meeting the escalating demand for high-quality logistics services in both domestic and international markets.
The advancement of modern logistics infrastructure is essential for the logistics sector's survival amid increasing international economic integration To address the rising demand for logistics services and boost competitiveness, logistics companies must invest in contemporary infrastructure This investment not only prepares businesses for future challenges but also supports the sustainable development of Vietnam's logistics industry.
1.3.3 Legal policy and state management of logistics sector
A stable and transparent legal environment is essential for fostering the growth of the logistics sector Clear and consistent policies significantly reduce legal risks for logistics companies, creating a favorable business climate In contrast, a legal system that lacks transparency and undergoes frequent changes raises compliance costs and introduces instability, posing challenges to logistics operations.
THE CURRENT SITUATION OF THE COMPETITIVENESS
THE SITUATION OF VIETNAMESE LOGISTICS SECTOR
Over the past decade, Vietnam's logistics sector has transformed significantly, becoming a vital component of the nation's economy This growth is fueled by robust economic expansion, increasing international trade, and considerable investments in infrastructure development.
Vietnam's logistics sector has experienced remarkable growth, averaging 14-16% annually and reaching a scale of $40-42 billion The increase in logistics businesses and service quality has played a crucial role in achieving record import-export figures, totaling $732.5 billion in 2022 and $681 billion in 2023 This growth has garnered attention from both domestic and international stakeholders, with the Agility Emerging Markets Logistics Index 2024 ranking Vietnam 8th among 50 emerging logistics markets, a rise of two positions from the previous year.
Figure 2.1 The Agility Emerging Market Logistics Index 2024 -
(Source: Agility https://www.agility.com/en/)
However, according to the World Bank's Logistics Performance Index (LPI) report 2023, Vietnam ranked 43 rd , dropping 4 places from the 39 th position in 2018
Table 2.1 Vietnam's LPI index through the last 5 rankings
(Source: LPI Dataset Sections from the World Bank)
Vietnam's decline in the LPI 2023 ranking highlights the challenges faced by its logistics sector due to the COVID-19 pandemic, which resulted in prolonged lockdowns that disrupted supply chains and affected production and consumption Notably, scores for logistics competence, tracking and tracing, and timeliness decreased Despite this, Vietnam's overall LPI score rose to 3.3 points from 3.27 in 2018, positioning the country among the top five ASEAN nations, alongside Singapore, Malaysia, Thailand, and the Philippines This reflects gradual improvements in customs efficiency and infrastructure quality, although Vietnam's logistics sector still has significant opportunities for enhancing operational efficiency and competitiveness on the global stage.
THE CURRENT SITUATION OF THE COMPETITIVENESS OF
2.2.1 Demand and development potential of logistics services
Vietnam's robust economic growth and integration into the global market are driving a rising demand for logistics services to facilitate commercial activities This presents a significant opportunity for the country’s logistics sector to evolve into a vital logistics hub in the region.
Figure 2.2 Value of Freight and Logistics Market by logistics function, USD,
The transportation and logistics market in Vietnam is anticipated to grow significantly, with an estimated size of $45.19 billion USD in 2023, projected to reach $48.38 billion USD in 2024, and $65.34 billion USD by 2029 This growth reflects a compound annual growth rate (CAGR) of 6.19% during the forecast period from 2024 to 2029, highlighting the sector's robust expansion potential.
2029) This demonstrates the scale and economic importance of the logistics sector in Vietnam
Vietnam's transportation and warehousing sector has become a compelling investment opportunity within the ASEAN region, contributing 5-6% to the country's GDP, which was valued at $357.77 billion in 2023 That year, the sector experienced significant growth, with around 5,622 new businesses established, contributing to a total of 116,342 new companies launched across the nation.
The continuing rise in demand for logistics services in Vietnam
The growing demand for logistics services in Vietnam is primarily fueled by a significant rise in import and export activities, with the General Department of Customs reporting a total turnover of $681 billion USD in 2023 This includes exports valued at $354.67 billion USD and imports at $326 billion USD, figures that are projected to increase as Vietnam engages more deeply in free trade agreements like CPTPP, EVFTA, and RCEP Consequently, there will be a heightened need for various logistics services, including sea, road, and air transportation, as well as warehousing and delivery solutions to facilitate these import-export operations.
The expansion of industrial parks and export processing zones significantly boosts logistics demand in Vietnam As reported by the Ministry of Planning and Investment, Vietnam is set to have 414 industrial parks and 4 export processing zones by the end of 2023, attracting substantial investment capital.
The manufacturing sector in industrial zones generates a significant economic impact, valued at $180 billion USD, necessitating efficient transportation services, raw material supply, and nationwide product distribution for both domestic and export markets Furthermore, the recent trend of relocating supply chains to Vietnam is driving an increased demand for logistics services.
The rapid expansion of e-commerce in Vietnam is a key driver of logistics demand, with the retail e-commerce market reaching $20.5 billion USD in 2023, a $4 billion USD increase from 2022 This growth positions Vietnam among the top 10 countries worldwide for e-commerce expansion As a result, there is a heightened demand for efficient delivery services, particularly last-mile delivery, to guarantee the swift and secure transportation of goods to consumers.
The potential for strong development of Vietnam's logistics services
In addition to the increasing demand, Vietnam possesses significant potential for the strong development of the logistics sector in the future
Vietnam's strategic geographical location along vital international maritime routes, combined with its extensive 3,260-kilometer coastline, positions the country favorably for developing a robust network of approximately 300 commercial seaports Major ports such as Hai Phong, Vung Tau, and Dung Quat are equipped to efficiently handle sea freight operations The government is focused on boosting the economic importance of 28 coastal provinces and cities, aiming for these areas to contribute 65% to 70% of Vietnam's total GDP.
Vietnam boasts a rich pool of human resources and competitive labor costs, with around 54.7 million workers aged 15-64 as reported by the International Labor Organization (ILO) in 2020 This abundant labor supply is well-suited to meet the growing demands of the logistics sector Additionally, various studies indicate that the average wage for labor in this industry remains attractive, further enhancing Vietnam's appeal as a logistics hub.
$300-350 USD per month, which is competitive compared to other countries in the region
Vietnam's logistics sector benefits from an increasingly open and favorable investment environment, making it an attractive destination for investors As per the World Bank's 2020 assessment, Vietnam ranks 70th out of 190 economies for its business environment The government has implemented various policies, including Decision 221/QĐ-TTg, which approves the Strategy for the Development of Vietnam's Logistics Services by 2025 and outlines a vision for 2030, alongside tax and investment incentives aimed at fostering logistics growth.
Vietnam's logistics potential is underscored by robust investment in transportation infrastructure, which, despite being fragmented, has seen significant growth in recent years The Vietnam Logistics Report 2023 highlights that investments from both public and private sectors in this area have reached 5.7% of GDP, making it the highest in Southeast Asia and the second highest in Asia, following China at 6.8% of GDP.
Modern concentrated logistics zones and distribution centers are emerging in key locations such as Hai Phong, Ba Ria-Vung Tau, and Binh Duong These projects aim to create professional and efficient logistics areas, fully equipped with essential infrastructure, including seaports, warehouses, and logistics service areas This development is vital for improving the national logistics capacity and streamlining the consolidation and distribution of goods.
Vietnam's logistics sector has immense potential but faces challenges such as incomplete infrastructure and inadequate connectivity, which need to be addressed The limited quantity and quality of the workforce also hinder development Despite these obstacles, Vietnam's strategic geographical location, coupled with economic and trade growth, presents significant opportunities for the logistics sector to emerge as a key and efficient hub in the region.
Vietnam's infrastructure investment has reached 5.7% of GDP, the highest in Southeast Asia and second only to China in Asia This development not only meets the needs of investment projects but also stimulates economic growth and creates job opportunities Additionally, the rapid urbanization in Vietnam significantly drives transportation development.
Vietnam's total road network spans 595,201 km, with national roads, including highways, accounting for 25,560 km Recently, the government has added 730 km of highways, bringing the total to nearly 1,900 km With an additional 1,700 km currently under construction, projections indicate that Vietnam will reach 3,000 km of highways by 2025 and over 5,000 km by 2030.
EVALUATION OF THE COMPETITIVENESS OF VIETNAMESE
Vietnam's LPI continues to increase
Vietnam's Logistics Performance Index (LPI) according to the 2023 World Bank report is 3.3, placing it among the top 5 ASEAN countries Despite ranking
In 2021, the country ranked 43rd in the Logistics Performance Index (LPI), a drop from 39th in 2018 However, its LPI score improved from 3.27 to 3.3, reflecting significant potential for growth in the logistics sector, driven by its unique advantages.
Several major domestic logistics companies in Vietnam are making substantial investments in 3PL (integrated logistics) services, covering nearly all stages of their clients' supply chains This strategy has created significant value for the logistics sector and enhanced credibility with both domestic and international partners According to the World Bank, Vietnam's logistics industry is experiencing impressive growth, expanding at an annual rate of 14-16%, with a market value of approximately 40-42 billion USD per year.
Vietnam boasts exceptional natural conditions and a strategic geographic location that are ideal for logistics development With a coastline stretching 3,260 km and 4,639 km of borders in the Southeast Asia region, the country offers significant advantages for logistics companies Additionally, Vietnam features numerous deep-water ports and a growing network of logistics centers, enhancing regional connectivity and supporting infrastructure planning and warehouse construction crucial for the logistics sector.
Increasing infrastructure investment meeting logistics sector needs
Vietnam has established a partially sufficient transportation infrastructure to support its logistics sector, featuring 22 airports (10 international), 3,143 km of national railways, approximately 1,900 km of highways, and 34 ports with 296 wharfs The government has prioritized investment in transportation infrastructure to enhance cargo transport and logistics services Collaborative efforts among government agencies and localities focus on developing maritime, air, rail, and road transportation while expanding the nationwide warehouse and logistics market With appropriate investments, Vietnam's infrastructure can modernize and align with global standards, significantly reducing logistics costs.
Rapid growth in the number and quality of logistics businesses
The logistics sector in Vietnam is thriving, with around 30,000 enterprises, including state-owned, private, joint-stock, joint ventures, and wholly foreign-owned companies This growth is bolstered by the presence of leading multinational logistics firms, offering domestic companies valuable opportunities to gain insights from global best practices As a result, Vietnam's logistics industry is poised for significant development and the establishment of strong international brands.
In Vietnam, the government is increasingly recognizing the significance of digital transformation in logistics operations, which facilitates the adoption of new technologies and advanced global processes by Vietnamese logistics firms to enhance their business services.
The logistics sector in Vietnam is rapidly evolving, becoming a crucial component of the country's economic development With the rise of the commodity economy and increased trade exchanges, logistics services have significantly contributed to Vietnam's economic growth This high-growth sector enhances the production and circulation of goods, improves competitiveness, creates job opportunities, and raises income for workers, ultimately boosting state budget revenues.
The Vietnamese logistics sector faces significant challenges due to high logistics costs, primarily driven by inadequate transportation infrastructure, including poorly maintained roads and congested highways, which result in delays and increased fuel consumption Additionally, insufficient investment in modern logistics facilities, such as warehouses and storage units, further escalates operational expenses Compounding these issues are complex regulations and excessive paperwork requirements at ports and borders, which impose additional financial burdens on businesses Collectively, these factors undermine the cost competitiveness of supply chains operating within Vietnam.
Single and uncompetitive logistics service
Vietnamese logistics companies currently face significant competitiveness challenges compared to foreign firms due to limitations in scale, capital, and experience While they excel in understanding local business customs and customer preferences, their offerings are primarily restricted to individual domestic services such as transportation, warehousing, and customs procedures This lack of integration into end-to-end logistics solutions hinders their ability to meet the evolving demands of customers, making it essential for them to develop a more cohesive approach to logistics services.
Vietnam's logistics sector is hindered by incomplete infrastructure, which fails to meet the growing demand for efficient goods transportation Despite recent investments, the quality and connectivity of roads, railways, airways, waterways, and seaways remain inadequate, causing delays and complications in the movement of goods The lack of integration among different transportation methods and routes further disrupts the flow of logistics, resulting in higher costs due to extended transportation times If these infrastructure challenges are not swiftly addressed, Vietnam's logistics competitiveness will suffer, as costs continue to exceed those of neighboring countries.
Legal system constraints in Vietnam's Logistics sector
Vietnam is actively refining its regulatory framework and legal system to align with market economy standards and meet international trade agreements Recent legislative updates have significantly enhanced the legal landscape, particularly focusing on the development strategy for logistics services through 2020 and beyond.
As of 2030, the logistics sector faces a critical challenge due to an incomplete legal framework, resulting in ambiguity and inconsistent regulation interpretation This uncertainty not only confuses businesses but also heightens the risk of conflicts and disputes The absence of clear guidelines and effective enforcement mechanisms hampers logistics operations, escalates compliance costs, and deters investment in the industry.
Despite the issuance of numerous documents, there remains a lack of specific policies and detailed implementation of these directives, resulting in bureaucratic inefficiencies and administrative burdens Logistics companies often encounter redundant compliance requirements, which can lead to increased costs and operational delays.
Limited human resources, lack of systematic training
The logistics sector in Vietnam faces significant challenges due to resource constraints and a lack of skilled labor, which hampers its competitiveness in the international market The insufficient labor force fails to meet the rising demands of the industry, impacting logistics companies' service capabilities and their ability to adapt to new technologies and international standards This skilled labor shortage not only leads to operational inefficiencies but also diminishes the overall competitiveness of the logistics sector on a global scale.
Vietnamese logistics companies lags behind regional and global peers
Currently, many Vietnamese logistics companies are small and financially limited, which hinders their ability to adopt advanced technology and skilled labor As a result, these firms often provide only partial logistics services within the supply chain rather than comprehensive solutions Furthermore, inadequate infrastructure and subpar service quality restrict their operations to the domestic market, making international expansion challenging.
RECOMMENDATIONS TO IMPROVE THE
DEVELOPMENT ORIENTATION OF VIETNAMESE LOGISTICS
On January 24, 2024, in Hanoi, the Ministry of Industry and Trade organized a workshop to solicit feedback on the draft Vietnam Logistics Development Strategy towards 2030 and vision towards 2050
The viewpoint on logistics sector development
The strategy clarifies factors related to the development of the national logistics service sector:
First, to develop logistics services into a vital economic sector connecting territorial regions, considering logistics services as a driving force and essential infrastructure to propel socio-economic development
To achieve efficient and sustainable logistics services that are economically, socially, and environmentally sound, it is essential to enhance business capacity and service quality This approach will help meet the demands of international economic integration, as well as support the industrialization and modernization efforts of the country.
To ensure national defense and security while fostering socio-economic development, it is crucial to prioritize investments in a modern, synchronized logistics infrastructure system This approach will facilitate swift and sustainable progress in building a robust foundation for the nation’s growth.
Fourth, to develop logistics services into a high value-added economic sector with many competitive advantages involving various economic components
Fifth, to integrate logistics service development maximally with leveraging geographical advantages and natural conditions of the country, especially maritime economic potential
To enhance logistics service development, it is essential to leverage science and technology, embrace digital and green transformations, and foster international integration, thereby achieving significant advancements and a deeper integration into the global value chain.
Seventh, to build a high-quality human resource team, considering this a key factor to drive sustainable development of logistics services
The orientation of logistics sector development
The strategy identifies specific directions for developing the logistics sector as follows:
Firstly, to perfect the legal framework, improve the investment and business environment, and encourage various economic entities to participate in developing logistics services
Secondly, to innovate planning, intensify investment in constructing modern, synchronized logistics service infrastructure in Vietnam
To foster the logistics market and boost business competitiveness, it is essential to promote economic linkages among economic zones, corridors, and regions while enhancing international connections This approach will ensure sustainable growth and improve the quality of logistics services, emphasizing environmentally friendly practices through the use of digital platforms.
Fourthly, to intensify research and application of scientific and technological achievements, digital transformation, and green transformation in the logistics service sector
Fifthly, to develop high-quality logistics human resources and professional service supply styles
Sixthly, to enhance information dissemination, raise awareness, foster determination to implement synchronized logistics development solutions at both central and local levels
To strengthen the logistics service sector, it is essential to empower associations and core businesses, facilitate the development of modern supply chains, and diversify value-added logistics services to cater to both domestic and international demands.
RECOMMENDATIONS CONTRIBUTE TO IMPROVE THE
Reducing logistics costs in Vietnam is essential for enhancing revenue growth and driving economic development With current high logistics expenses and freight rates, there is a pressing need for adaptable, efficient, and cost-effective solutions in the sector.
The Vietnamese government must focus on enhancing transportation infrastructure to lower logistics costs and boost the nation's competitiveness in international trade Upgrading logistics infrastructure can alleviate bottlenecks, shorten transit times, and improve connectivity between production centers and export hubs Furthermore, simplifying customs clearance processes and reducing paperwork can effectively minimize delays and costs related to border clearance.
Simplifying regulatory procedures can enhance efficiency and create a business-friendly environment for logistics operations Additionally, establishing special economic zones or free trade zones with streamlined regulations and tax incentives can attract foreign investment, foster the growth of the logistics sector, and ultimately lead to reduced logistics costs.
Logistics associations are vital for promoting collaboration and knowledge sharing among logistics companies, resulting in substantial cost savings They facilitate information exchange and coordination, which helps identify resource optimization opportunities, route consolidation, and redundancy elimination Additionally, by organizing training programs and workshops, these associations enhance the skills of the logistics workforce, boosting productivity and operational efficiency They also advocate for regulatory reforms and infrastructure development to support the growth of the logistics sector.
Logistics companies in Vietnam can enhance competitiveness and reduce costs by implementing advanced technologies like transportation and warehouse management systems, as well as real-time tracking to optimize operations Additionally, opportunities for consolidation, route optimization, and collaboration with other logistics firms can lead to significant savings Investing in employee training and development is crucial for improving operational expertise and productivity while minimizing errors Furthermore, leveraging Vietnam's strategic location and free trade agreements enables companies to establish regional logistics hubs and distribution centers, facilitating international trade and lowering transportation expenses.
3.3.2 Improve the quality of logistics services
The logistics sector's internal competitiveness is the key factor driving competition and growth To thrive, businesses must establish a clear development strategy that leverages their internal strengths, with a strong focus on enhancing service quality, while also benefiting from government support and comprehensive sector development guidance.
Vietnam's logistics market is currently led by financially robust and technologically advanced foreign companies These firms consistently innovate and implement cutting-edge global technologies to improve service quality To boost their competitiveness, Vietnamese businesses must recognize existing challenges, leverage their strengths, and stay informed about global technological trends for practical application, ultimately achieving a competitive advantage.
Logistics companies should prioritize enhancing their capabilities by aligning with government policies that focus on improving services and fostering collaborative linkages to develop value-added service chains To achieve this, they must invest in or collaborate on capital and information technology, enabling them to become financially robust organizations with superior information infrastructure and service quality, ultimately allowing them to offer integrated logistics services.
When choosing logistics service providers and restructuring supply chains, it's essential to prioritize customer needs and boost competitiveness against foreign companies Logistics and transport firms should collaborate closely with import-export businesses to offer reliable, optimal solutions that ensure efficient supply chains, ultimately enhancing the competitiveness of Vietnamese goods and services.
To thrive in the logistics sector, businesses must prioritize customer relationships and communicate effectively about any service delays Providing valuable insights on international law, potential markets, and foreign competitors can enhance customer operations and create a competitive edge Despite having certain advantages, many Vietnamese logistics companies overlook value-added services and supply chain management advice, leading to inadequate service quality that fails to meet customer expectations To improve, these companies should focus on expanding and diversifying their logistics offerings, as efficient logistics can significantly reduce costs related to warehouse space, manpower, and transportation during the supply chain process.
3.3.3 Upgrade infrastructure to serve the logistics sector
To address the rising demands of logistics and lower costs for businesses, the state must enhance its infrastructure Although government investment in development has increased, logistics infrastructure still lacks synchronization and efficiency Therefore, it is crucial for the state to strengthen its management role and attract foreign capital to invest in the logistics sector.
The government needs to establish investment policies aimed at developing logistics centers in strategic economic areas to enhance the consolidation of export goods and the distribution of imported or finished products By expanding seaports and airports, upgrading roads and railways, and constructing additional logistics facilities, we can improve domestic and international transportation, thereby facilitating the growth of multimodal transport systems.
The government should explore the implementation of a city logistics system in major cities like Hanoi, Ho Chi Minh City, Hai Phong, and Da Nang This innovative solution aims to coordinate existing resources to tackle challenges posed by rapid population growth and increased private vehicle usage By integrating diverse transport modes, terminal networks, cargo handling facilities, modern vehicles, and advanced logistics management technologies, a city logistics system can significantly enhance the quality of life in these urban areas.
Furthermore, the state should prioritize upgrading transportation infrastructure to serve the logistics sector, specifically:
To enhance road transport efficiency, it is essential to prioritize the upgrade and construction of expressways tailored for specialized freight vehicles Significant investment is required to develop advanced container transport vehicles and expand the fleet dedicated to both domestic and international cargo transport, ensuring a seamless flow of goods.
Efforts in rail transport should focus on refurbishing and upgrading railway lines, while also expanding the network and acquiring specialized freight cars Investment is crucial for enhancing existing lines, particularly the North-South route, to increase train speeds and extend branch lines to industrial zones, export processing areas, and key ports such as Hai Phong, Saigon, and Vung Tau to effectively meet growing transport demands.