Facts of Vietnam Freight forwarding industry and the role of Vietnam Freight Forwarders Association (VIFFAS) to the industry in international economic integration processhelpful to Oristar.doc

Facts of Vietnam Freight forwarding industry and the role of Vietnam Freight Forwarders Association (VIFFAS) to the industry in international economic integration processhelpful to Oristar

CHAPTER 1: FACTS OF VIETNAM FREIGHTFORWARDING INDUSTRY

1.1.Definition of “Freight Forwarder”

1.2.The importance of Freight Forwarding industry1.2.1 To the national economy

1.2.2 To enterprises1.3.Facts of the industry

1.3.1 Advantages to the development of the industry1.3.2 Pressures on Vietnam freight forwardingindustry

1.4.Comments on the facts of Vietnam freightforwarding industry

CHAPTER 2: VIETNAM FREIGHT FORWARDERSASSOCIATION (VIFFAS)

2.1 Introduction of VIFFAS2.1.1 History of VIFFAS

2.1.2 Management Board of VIFFAS

2.1.3 Statues and Standard Trading Conditions ofVIFFAS

2.2.Functions & Main Activities of VIFFAS

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2.3 Activities of VIFFAS during the past term

2.3.1 VIFFAS with the role of member’s representatives 2.3.2 External activities

2.3.3 Actions for members’ benefits

2.4 Roles of VIFFAS to Vietnam Freight forwarding industry in internationaleconomic integration process

2.4.1 Achievements of VIFFAS

2.4.2 Some weaknesses of the Association in the past terms

CHAPTER 3: RECOMMENDATIONS

3.1.Macro scale 3.2.Micro scale

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Freight forwarding industry plays a significant role in expanding trade byprocuring efficient and economic modes of transport It creates necessaryconditions to ensure that import and export products may timely reach theirdestinations and helps to deliver efficiently goods from sellers to end users Thisnational industry is still young in Vietnam, but it has gradually contributed to theimprovement of the country’s balance of payment by assisting export promotionand giving support to the national Carrier & Insurers Vietnam FreightForwarding industry has played, to somewhat extent, an active role in facilitatingtrade by simplifying and rationalizing trade and documentary procedures, therebyreducing transport cost

Vietnam went through a lot of hindrances and difficulties to reach thesplendid achievements over the past years In international economic integrationprocess, challenges remain considerable but there are always opportunities forthe development of national economy Freight forwarding industry also finds itsopportunities to grow up, contributing to the national development strategy ofrestructuring the economy, intensifying the industrialization & modernizationprocess and laying the foundation for rapid & sustainable development ofnational economy

During my internship at Vietnam Freight Forwarders Association(VIFFAS) in Ho Chi Minh City, I have learnt a lot about the facts of Vietnamfreight forwarding industry and the Association’s importance to the industry,especially in today’s economic integration process Therefore, I chose the topic

“Facts of Vietnam Freight forwarding industry and the role of VietnamFreight Forwarders Association (VIFFAS) to the industry in internationaleconomic integration process” for my Field Study Report

My Field Study Report is divided into three chapters.

In the first chapter, I will describe the facts of Vietnam FreightForwarding industry and then analyze the opportunities as well as challenges toVietnam freight forwarders in the international economic integration process.

In chapter 2, I want to introduce about Vietnam Freight ForwardersAssociation (VIFFAS) and then emphasize on the role of the Association(VIFFAS) to Vietnam freight forwarding industry in international economicintegration process, summarize the achievements of the Association and analyzeits weaknesses during the past time

Finally, in chapter 3, I would like to make some recommendations forimproving the efficiency of the Association in the future.

I hope my Field Study Report will help the Association see what strengthsthey need to promote and what weakness they need to overcome to gain moreefficiencies and successes

CHAPTER 1: FACTS OF VIETNAM FREIGHT FORWARDINGINDUSTRY

1.5.Definition of “Freight Forwarder”

According to the definition from Wikipedia, the free encyclopedia, a

freight forwarder is an individual or company that dispatches shipments via

asset based carriers and books or otherwise arranges space for those shipments.Common carrier types could include waterborne vessels, airplanes, trucks orrailroads.

Acting as a link of logistic series, freight forwarders typically arrange

cargo movement to an international destination Also referred to as internationalfreight forwarders, they have the expertise that allows them to prepare andprocess the documentation and perform related activities pertaining tointernational shipments Some of the typical information reviewed by a freightforwarder is the commercial invoice, shipper's export declaration, and otherdocuments required by the carrier or country of export, import, or transshipment.As an analogy, freight forwarders have been called travel agents for freight.

1.6.The importance of Freight Forwarding industry1.6.1 To the national economy

Freight forwarding activities plays an essential role in producing,circulating and distributing import & export goods Around the world, theaverage cost of freight forwarding service for imports and exports equals about15 percent of the value of import or export goods, the highest rate accounts for 40percent and the lowest around 10 percent Experts predict that Vietnam exportsand imports together could come to US$200 billion per year by 2017, and thusfreight-forwarding services could earn Vietnam about 30 billion USD in 2016.Accordingly, the development of freight forwarding industry will naturallycontribute to the improvement of national economy as well as Vietnam freightforwarders if they know the tips to do their business and catch their ownopportunities in the international economic integration process today.

1.6.2 To enterprises

Freight forwarding in particular and Logistics in general are the keys forenterprises to deal the input and output problems They help to change the inputmaterial and maximize the flow processes of material, goods and services andtherefore reduce the cost and enhance enterprises’ competition Without freightforwarding or logistic services, enterprises’ business activities would meet hugetroubles and may come to a deadlock.

1.7.Facts of the industry

1.7.1 Advantages to the development of the industry

Freight-forwarding industry is still young in Vietnam, but it has rapidlybecome a developing field and played a significant role in the national economy.Now Vietnam has become a member of WTO, favorable conditions would becreated for Vietnam freight forwarders According to Vietnam FreightForwarders Association (VIFFAS), there are four reasons to do freight-forwarding/logistic services in Vietnam

Firstly, the Government policies have strongly encouraged enterprises topenetrate deeper and wider into international market For example:

 Vietnamese Government Decree No 55/1998/ND-CP of July22, 1998 dealing with cargoes that are retained by sea carriers.

 Decree No 10/2001/ND-CP of March 19, 2001 regardingbusiness conditions for maritime service provision the Government.

 Decree No 125/2003/NDCP of October 29, 2003 oninternational multi-modal transportation the Government.

 Vietnam Commercial Law Provisions on FreightForwarding Services

Furthermore, Vietnam is speeding up the integration process in both scopeand rate by amending structure, policies, bureaucracy and building the law ofeconomic & financial system to make it more suitable to international rules.

Secondly, Vietnam has a strategic location in South-East Asia with a morethan 2000km of coastline, deep-water ports, international airports, trans-nationalrailways and a rather developing road network, which are good backgrounds fordeveloping freight-forwarding services Moreover, borderlines with China, Laosand Cambodia can bring favorable conditions for providing transport services,especially the multi-modal transport, an important factor in logistics servicechains With such advantages, Vietnam import-export turnover will increaseaccordingly The table below shows the data and estimate of the amount ofmerchandise carried via Vietnamese ports:

Figure: Estimate of Amount of Merchandise Carried Via Vietnamese Ports

Vietnamese imports andexports

Transit cargo (of Laos,Thailand, Cambodia,South China)

many industries and services, including freight-forwarding industry There aremore and more money from ODA projects, non-governmental organizations andforeign investors pouring into Vietnam to raise infrastructure Many deep-waterports and airports have been upgraded to attract customers Land route system aswell as railway system have been repaired and renewed to serve in transportation.The fourth, freight forwarding and logistics activities have drawn theattentions of Governmental institutions as well as local and foreign freightforwarding enterprises As a result, many container ports and airports have beentaken into long-term investment projects and development programs In addition,land routes and railway systems are being upgraded and expanded Therefore,there are 25 leading international logistic services providers (LSP) establishedtheir branches in Vietnam to exploit this abundant source of income

Finally, the strong development of Information technology hassignificantly contributed to modernize freight forwarding industry Since July2005, Electric custom-clearance procedure has been applied in some ports andwill be deployed widely in 2007 In some recent years, General department ofCustoms has invested more than 10 billions VND to develop Informationtechnology and upgrade Local Area Network (LAN) and Wide Area Network(WAN) Moreover, some enterprises have tried to use “tracking & tracking”network and “booking through the net”

The five advantages above are the keys for Vietnam freight forwardingindustry to open the door of development now and in the future How do they usethose keys properly to open the door? It depends on other factors, which includetroubles and their own capability.

1.7.2 Pressures on Vietnam freight forwarding industry

In spite of many advantages to develop freight forwarding services, it stillexist many problems, which set obstacles to the industry’s development Mr.Nguyen Hung, deputy director of Sotransn gave his comment: “FreightForwarding industry in Vietnam is still small, fragmentary, mugging and alwaysready to dumping to struggle for customers.”

+ The pressure of reducing cost

+ The development of Information technology+ The pressure of globalization tendency

Those pressures set many hindrances to Vietnam freight forwardingenterprises Once they cannot make some reform or changes to catch up with thedevelopment of the industry, they may be kicked out of the field.

b/ Inside pressures

Vietnamese businesses in the freight forwarding industry are facingvarious difficulties now According to Mr Nguyen Tham, Deputy President ofVietnam Freight Forwarders Association (VIFFAS), freight-forwardingenterprises are held back by their small size, lack of skilled employees, andminimal cooperation among businesses in the field General Secretary ofVIFFAS, Mr Vu Xuan Phong also stressed that poor transport infrastructure,small financial scales, unskillful employees, low technological capacity,insufficiency of Government laws & regulations as well as poor understanding ofinternational laws and marine transport procedures & policies and loose co-ordination are the inner problems that Vietnam Freight Forwarding industryneeds to get over

The first problem is poor infrastructure Many ports in Vietnam Port

System are very old and out-of-date They are shallow in draft and their yard &warehousing systems are insufficient for accommodating containers and cargo.Today, there are only a few ports with modern handling facilities and equipmentto serve big ships Accordingly, freight-forwarding activities are conductedmainly in big cities and their suburban areas such as Ho Chi Minh City, Hanoi,Hai Phong, Da Nang, and Qui Nhon

Airports and airlines are also undeveloped There are about 100 airportsthroughout Vietnam, but only three serve international routes Those threeinternational airports are known as Tan Son Nhat, Noi Bai and Da Nang.Moreover, there are only two national airlines, Vietnam Airline (state-owned)and Pacific Airline (joint stock), which are basically passenger carriers.Vietnamese freight forwarders use these two lines for approximately 20% of theircargo volume, whereas the other 80% is contracted to the foreign airlines market.

Land transportation system is uncompleted The road system of Vietnamis about 106,000 km long Land transport accounts for about 65% of domesticpassenger and cargo transport While pre-export and post-import legs for door-to-door shipments require land transport, roads in Vietnam are still limited inquantity and bad in quality, resulting in traffic congestion and posited negativeimpact to logistics activities On the other hand, the railway system in Vietnamwith about 2,600 km long is not absolutely exploited Container transport by railin Vietnam is still at primitive stage and operated only by the state-ownedVietnamese Railway Company.

While land transport is very limited as mentioned above, inland waterwaytransport is very advantageous in serving transport in the Mekong Delta linkingto Cambodia The total length of the inland waterway (IW) system is about40,998 km, mainly in the Red River Delta and the Mekong Delta In the past fewyears, inland waterway transport accounts for about 30% of the domestic cargotransport volume, but in fact, inland waterway has not been optimized enough toget expected results.

The second problem is financial scale According to official statistics of

VIFFAS (Vietnam Freight Forwarder Association), there are more than 800freight forwarders in Vietnam at present, 18% of them owned by the state, 70%privately owned, 10% non-registered and about 2% made up of foreign logisticscompanies Privately owned companies now account for 80% of total logisticscompanies, most of which are very small with the capital of VND300-500million (US$18,750-31,250) for each Several joint stock companies have beenset up on the foundation of equities parts of state owned enterprises These newlyset up companies have the total capital of 5 billions VND or 312,500 USD, withwhich they cannot meet the requirements for joining the world’s logisticscompanies.

With such very small financial scales, Vietnam freight forwarders justhave the ability to provide simple logistic services such as customs declaration,trucking, and warehousing About 80% of them have to outsource warehousingand trucking services Today, only 10% of Vietnamese freight forwardingenterprises has ability to provide consolidated service at their own warehouses(or their contractors’ warehouses) They issue House B/L but only some of thembuy Civil Liability Insurance for transport operators

In addition, many companies have 3-5 staffs only, including managers.With such modest capital and few staffs, the companies just can fulfill simpleworks for separate clients In other words, Vietnam still lacks “full-package” or“door to door” logistic providers, who can provide logistics or freight forwardingservices sufficiently and completely Moreover, while logistics are goingglobally, most Vietnamese logistics companies do not have overseasrepresentative offices That creates the risk of losing international market shareand being lagged behind.

One more problem to freight forwarding enterprises is human resource,

whose poor quality and professional skills do not satisfy the demand of logisticactivities Professional training in logistics/freight forwarding business isunavailable in Vietnam, and employees who are working in this field have to get

their training with simple theories and unfulfilled reality As a result, most ofthem do their work basing on experiences without total knowledge and skills.

Lacking of modern technology is also a big trouble for Vietnam freightforwarders Applying modern technology in freight forwarding activities is oneof efficient measure to reduce inconvenient procedures and minimize cost forenterprises However, many of them do not pay much attention to this problem.Some Vietnam freight forwarding enterprises have cooperated with foreignMTOs (Multimodal Transport Operators) at ports of discharge under a sub-contract to arrange transport to the final destination by a single B/L, but that isjust “a grain of sand on the seaside” while inadequate of information technology,international networks as well as information and experience in logistics; locallogistics companies still hold back enterprises from entering wider and deeperinto international market For this reason, they will let big foreign companieswith global networks share most of this market.

Insufficiency of Government laws & regulations and poor understanding

of international laws as well as marine transport procedures & policies are alsoobstacles to Vietnam freight forwarding enterprises on the way of internationaleconomic integration process For example, Decrees on Logistics have not beengiven into Commercial Law system yet Maritime law, Investment law orcompetition law are in the same situation Financial, custom clearance, customprocedures at airport and seaport are not unified and thus making troubles tologistic actions

Due to lack of regulations and an incomplete legal framework onactivities of freight forwarders, the quality of services has not met therequirements of the industry's development yet A lack of decrees stipulatingactivities of air and inland waterway freight forwarding services has put obstaclesand created gaps for enterprises to take advantages, resulting in negative impactsin business activities While the National Assembly discussed anti-monopoly andanti-dumping draft laws, only TSC Company has power to do business inwarehouse services in the Tan Son Nhat international airport Cases of unfair

competition have occurred and the irresponsibility of some enterprises hasopened up smuggling opportunities Moreover, companies do not have necessaryunderstanding of international laws and the laws of the nations that Vietnam’sfreight forwarding services may concern Misunderstanding of international lawsand cases may put Vietnam freight forwarding enterprises into troubles Thoseproblems need to be overcome so that enterprises can follow up the developmentof logistic industry.

Finally, the willingness to cooperate with each other is something that

Vietnam freight forwarding enterprises lack and they even compete unhealthilywith each other, making them less competitive in the eyes of internationalpartners and clients.

It can be easily seen that the port management system in Vietnam is muchdiversified VINAMARINE, which is under the direct control and managementof the Ministry of Transport, manages three ports - Nghe Tinh Port, Qui NhonPort and Nha Trang Port VINALINES (Vietnam National Shipping Lines),which is also under the direct control and management of the Ministry ofTransport, is the state-owned company responsible for shipping activities inVietnam It manages Hai Phong Port and Quang Ninh Port in the north, Da NangPort in central Vietnam, and Sai Gon Port and Can Tho Port in the south Localgovernments, such as cities and provinces, also take part in port management.For instance, Ben Nghe Port is directly under the supervision and management ofthe Department of Transport and Public Works of Ho Chi Minh City State-owned corporations under other central government ministries are also anothertype of port management body in Vietnam Some state-owned corporations,which are under control of provinces and cities, also manage ports For example,Hon Khoi Port is managed by a salt company under the control of the People’sCommittee of Khanh Hoa province The participation of the private sector in portmanagement in Vietnam is still very limited There are only two ports withprivate sector participation so far It is the discrimination in the industry that mustbe removed to create healthy business environment for all enterprises.

The problem can partly create gaps among enterprises, especially intoday’s violent competition The separation should be replaced by the co-ordination, because it is the key to gather all sources of the industry to competeagainst foreign companies, who are experienced in delivering high qualityservice at the most competitive price and opening offices next door Most foreigncompanies with large amount of capital have reach to that point after starting outrelatively small and growing, learning and expanding With their experiences,they have learned the value of offering quality services In the way of growing,they have also open branches to establish a worldwide presence Thesecompanies are reliable and reasonably priced and naturally, they get lots ofbusiness As a result, Vietnamese freight forwarding enterprises could even losetheir Vietnamese customers if they do not associate with each other in enhancingand expanding their business

1.8.Comments on the fact of Vietnam freight forwarding industry

Now that Vietnam is a WTO (World Trade Organization) member,Vietnamese enterprises, including freight forwarders, will have the opportunity toexpanding their business oversea However, poor infrastructure, small size,undeveloped Information technology, improper laws & policies and minimalcooperation between businesses are keeping logistic businesses from growingwell For this reason, Vietnamese freight forwarders are recommended tocooperate with each other to create a big joint strength to enhance theircompetition Obviously, they need a common association, which takes charge ofmanaging actions, assisting and giving the way for the development of allmembers, and Vietnam Freight Forwarder Association (VIFFAS) was establishedto satisfy the demand of improving Vietnam freight forwarding industry.