Real situation and Logistics applicability in freight forwarding of Haiphong Port – Recommendations to improve performance.doc

Real situation and Logistics applicability in freight forwarding of Haiphong Port – Recommendations to improve performance

Freight forwarding plays an important role in international trade Internationaltrade refers to the transferring of goods’ possession right Freight forwarding isresponsible for putting this transferring into practice After the open-door policy,Vietnam’s export turnover has continuously increased through years In 2000, exportturnover of Vietnam was USD 30 billions, in 2003; this number is 60 USD billions.The highly development of export and import activities stimulates the developmentof freight forwarding At present, freight forwarding services of Vietnam is ratherdiversified Many kinds of services are provided which meet the demand of thesociety However, in fact, freight forwarding industry of Vietnam still has manyinsufficiencies, in which the serious problem is the quality of services The mainreason is inappropriate method of business operation We need to have an advancedmethod of freight forwarding in order to reduce the cost as much as possible In thiscase, logistics is an effective way, which is needed to apply in freight forwardingenterprises in Vietnam I chose the topic “Real situation and Logistics applicabilityin freight forwarding of Haiphong Port – Recommendations to improveperformance” for my field study report Through the time of field study inHaiphong port, I conducted research on logistics in these following sectors:

 The overview of logistics and freight forwarding

 The current situation of logistics service in Haiphong port

 The recommendations for the logistics service in Haiphong port.

I hope that my field study report about logistics in Haiphong port will bring outthe meaning of this new service in Vietnam, and will help the port to improve theirlogistics services in the near future.

LIST OF ABBREVIATIONS

EDI: Electronic Data Interchange

ADSL: Asymmetric Digital Suberibers LinesLCL: Less than container load

FCL: Full container loadPL: Provider of logistics

VIFFAS: Vietnam Freight Forwarding Association

CHAPTER 1: OVERVIEW OF FORWARDING AND LOGISTICS1.1 Freight forwarding

1.1.2 Typical services of freight forwarding

Since Vietnam opened the door to develop economy, especially with the entry inWTO in 2007, local and foreign shippers have concerns over just how competitivethe country will be, given huge challenges to its freight forwarding industry.Therefore, freight forwarding service has been highly developing.

A freight forwarder can offer a variety of services

 Advising on the best routes and relative shipping or airline. Booking the necessary space with shipping or airline.

 Arranging with the exporter for the packing and marketing of the goods. Consolidating shipment from different exporters.

 Handling customs clearance abroad.

 Arranging marine insurance for the shipment. Preparing the export documentation.

 Translating correspondence in foreign language

 Scrutinizing and advertising on ability to comply with letter of credit.

Once the order is ready for shipment, freight forwarders review all documents to ensurethat everything is in order This is of particular importance with letter of credit paymentterms They may also prepare the bill of lading and any special required documentation.After shipment, they can route the documents to the seller, the buyer, or to a paying bank.Freight forwarders can also make arrangements with customs brokers overseas to ensurethat the goods comply with customs export documentation regulations A customs broker isan individual or company that is licensed to transact customs business on behalf of others.Customs business is limited to those activities involving transactions related to the entryand admissibility of merchandise; its classification and valuation; the payment of duties,taxes, or other charges assessed or collected; or the refund, rebate, or drawback thereof.According to its size, number of branches overseas, a freight forwarder will offer all or

some of these services.

1.2.Logistics.1.2.1 Definition.

Logistics refers to the management of the physical flow of products from thepoint of original as raw materials to end users as finished product Logistics wedproduction activities to the activities needed of transportation, storage, anddistribution According to definition of Logistics, the process is described in thebelow chart:

Raw materials→Raw materials →Manufacturing→Finished goods→Market Supply point Storage

1.2.2 Logistics flow.

Logistics deals with geography, time and value Moving from source todestination, freight and transportation connects buyer to seller and make the finaldelivery In this process, there are number of stages involved Freight andtransportation alone encompasses many modes including truck, sea, rail, and air, allwith varying issues, costs and levels of service The flow chart below illustrates theprocess, which involves the input of these services providers in the movement of a

particular product from the point it leaves the plant to end consumer in a retailoutlet.

Figure 1.1 Logistics flow

(Source:Hausman, Warren H 2004 “Supply Chain Performance Measures.” In Corey Billington, Terry Harrison, Hau Lee, and John Neale, eds., The Practice of Supply Chain Management.)

Businesses and organizations address their logistics requirements by assigningstaff to perform logistics activities by outsourcing one or several functions to third –party providers.

In house logistics department usually manned by full- time logisticians who performlogistics- related functions Their positions include purchasing managers,transportation managers, custom brokers, shippers and receivers In the absence ofoutsourcing options, companies have dealt with moving and storing of goods in adisparate ways Although outsourcing of logistics services is a fairly emerging trend,there are a large number of firms that maintain their own in- house logistics or

distribution departments This is largely prevalent in the manufacturing, commoditysectors, wholesaling and retailing.

1.2.3 Fundamental elements of logistics

Logistics includes such fundamental elements:

 Transportation: This is the most important element of logistics In order toreduce the cost of logistics, it is necessary to reduce the cost of transportationfrom the manufacturing places to different markets Transporting processmust be done smoothly to make the delivery of goods or supply requiredmaterials on time, minimize the inventory cost.

 Marketing: Logistics includes making plans, implementing it and controllingthe delivery of goods from the point of original as raw materials to end usersas finished products Therefore, it is clear that all the services focus oncustomers and meet the demand of customers Effective marketing strategieshelp managers to have good customer services, deliver right products to rightplaces and right customers

 Distribution: An effective distribution channel can reduce the cost oflogistics It is necessary for managers to combine two factors: right place andright time to create an optimal distribution channel.

 Management: It also plays an important role in logistics Lack ofmanagement factor, logistics services cannot meet the requirements of thecustomers as well as the objectives of the firms Therefore, logisticians musthave expertise or thorough understanding about transport modals, transportcost, and warehouse.

Beside such important elements above, logistics also include following elements,which is not less important:

 Warehouses, factories Technical document

 Supporting and supervising equipment Human resources and staff training

1.2.4 Benefits from improved logistics

1.2.4.1 Reduces the cost for consumer and producer

Logistics is“the process of planning, implementing and controlling the efficient,cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related information from point of origin to point of consumption for the purpose of conforming to customers’ requirement” So, logistics reduces the cost of transferring goods between markets and of course it will reduce the prices paid by consumers On the consumers’ side, this effect can be seen most clearly by

examining the price of goods at the port relatived to the price of goods inland Producers will not ship goods inland unless the prices they receive, net of shipping, is at least as high as prices at the port This means that inland consumers bear the full burden of shipping costs for goods that is not produced locally This burden can be substantial.

A similar logic applies to exports International markets will not pay more forgoods produced in inland regions, and so the ex- factory or ex- farm prices arereduced by the full inland logistics costs of access to the port.

1.2.4.2 Insurance against regional price fluctuations.

When agricultural output varies because of unpredictable weather, one regionmay experience drought and food shortages while another enjoys sufficient rainfalland ample harvests If the regions are separated by poor logistics and transportsystems, consumers in the shortfall region face very high prices for food, whileproducers in the surplus region face a market glut Regional variations inagricultural prices are especially pronounced within country like Vietnam, in whichinterior regions are poorly connected or inaccessible Good internal logisticsfacilitates surplus commodity shipments from surplus to shortfall regions, smoothingprices variations between them and providing a kind of insurance against shortageand glut Better market access appears to dampen price volatility for a broad rangeof products Validity in goods prices between city pairs riser with the distancebetween the cities, and is especially large for city pairs across national borders.

Essentially, arbitrage is necessary to narrow price differentials across locations, andthis is much harder to achieve when logistics are poor.

1.2.4.3 Reduced inventory costs.

Better transport and logistics system not only lower the costs of delivery, but alsomake the timing of delivery more reliable Producers cannot manufacture goodswithout the inputs they need, and retailers cannot sell goods they do not have instock, so if delivery times are uncertain, firms must hold large inventories of goods.The first reason for long and uncertain delivery times is poor infrastructure – roadsmay be impassable, and railways nonexistent, or roads may cause damage to trucksthat involve high costs and long delays Another reason is peak load congestion – asevere problem in areas where population and manufacturing intensity have grownfaster than infrastructure capacity In Ho Chi Minh City, for example, thegovernment bans trucks heavier than 2 tons in the inner city between 6 a.m and 6p.m to combat growing traffic congestion, and thus manufacturers must hold largeinventories all day rather than delivery midday shipments, and trucks sit idle duringthe day This contrasts with modern just- in - time techniques, in which deliveriesare continuous, and the transport capital stock is in constant use Leaner productiontechniques require a substantial flow of information Manufacturing firms can onlyrun with small inventories of inputs if they are certain where and when the nextshipment will arrive In turn, this requires sophisticated electronic data interchange.

1.2.4.4 More developed markets.

Well-developed logistics increase consumers’ choice and producers’ sources ofsupply, and bring more markets within producers’ reach According to the statisticsof International Exhibition Logistics Associates, 40% of trade growth in East Asiaarises from offering new product lines and extending exports of existing productlines to new trading partners.

Products diversification benefits both agricultural- and industrial- based economies,since for both specialization in narrow range of products can be dangerous becauseof prices volatility According to the Global Competitiveness Report 2005-2006

(World Economic Forum), most of the differences in trade levels between small andlarge economies can be attributed to differences in the range of goods that aretraded, and that much of the growth in imports that results from lowering trade costscome through expansions in the set of products available The welfare benefits fromexpended product variety can dwarf those from standard calculations of the gainsfrom trade.

Better logistics allow variety expansion in several ways First, they may directlylower the fixed cost of expansion There are significant scale advantages toproviding transport hubs, warehousing, and logistics services that many firms canshare Second, by lowering the marginal costs of serving markets, it is possible toincrease sales and spread entry costs over more units.

The diversification argument also applies across markets, as reliance on singleexport destinations leaves firms subject to significant business cycle risks.

CHAPTER 2: HAIPHONG PORT AND LOGISTICS SERVICES

2.1 Overview of Haiphong port

2.1.1 Establishment and development

Haiphong ports was founded in 1876, with original name is Ben Sau Kho Over121 years of existence and development, port of Haiphong has always played themost important role of the “Border gate” interface in the North of Vietnam Importand export cargoes to and from North of Laos and South of China, have beentransferred via Haiphong Port to the markets of many countries and vice versa.Haiphong port has the biggest cargoes throughput among the ports in the North ofVietnam The port is equipped with modern facilities and equipments and has safe,sufficient infrastructure which meets all international modes of transport and trade.The estimated cargo throughput of Haiphong Port in the 2005- 2010 period is from12.000.000 tons to 18.000.000 ton per year.

The Head Quater is at number 8A Tran Phu Street, Ngo Quyen district, Haiphongcity.

2.1.2 Scope of business activities

In Haiphong port, handling operation areas are located based on the infrastructureadvantages such as railway, high way, and inland waterway These areas areinstalled and equipped with modern and advanced handling equipments which aresuitable to every kind of cargoes, meeting the demand for different models oftransport.

Main services of Haiphong port:

 Cargo handling, forwarding and logistics. Ship towage and assistance

 International container transshipment Forwarding and transporting agent

 Transporting containers from Haiphong to Laocai and vice versa by railway Bagging, packing, and transporting cargoes by sea, highway, and inland

 Ship agent and marine brokerage

2.1.3 Organizational structure

Haiphong port is operated like a big state-owned company The leader ofHaiphong port is General Director who is responsible for all activities in theHaiphong port There are four Deputy General Directors who support GeneralDirector in four sectors: business, operation, engineering, and port rehabilitationproject Separating to the General Director and Deputy General Directors arefunctional departments For example, Business department, Accounting department,Technical department, Agent shipping and brokerage department, Human resourcesdepartment, etc Besides these functional departments, Haiphong port has fiveenterprises which mostly responsible for cargo handling services They are: HoangDieu, Le Thanh Tong, Chua Ve and Bach Dang Stevedoring Enterprise Eachfunctional department is controlled by a manager

2.1.4 Situation of business activities

Haiphong port continuously improves its methods of providing services tocustomers, increases handling productivity, cuts short procedures of cargo deliveryand receipt as well as applies advanced methods of management in order to enhancethe quality of services, minimize cost and time for customers Therefore, Haiphongport’s throughput has increased through years.

Table 2.1 Haiphong port throughput from 2001-2006

1,336,393 1,365,476 1,757,845 1,792,446 2,349,119 2,925,092Import

4,357,606 5,266,554 5,401,516 5,365,624 5,196,931 5,198,669Domestic

2,881,513 3,669,293 3,358,601 3,325,623 2,965,007 3,127,601

(Source:Annual report of Haiphong port’s business department -unit:billion tons)

Haiphong port throughput from 2001- 1006

From 2004, Haiphong port faced some difficulties and more fierce competitiondue to the appearance of several ports in the North of Vietnam, such as Transivina,Greenport, Quangninh port Although these ports are smaller than Haiphong port,market share of Haiphong port has reduced Haiphong port also suffers severaldamaged due to natural calamities through the year of 2007

Table 2.2 Market share of Haiphong port from 2001- 2006

Haiphong port ensures to provide all clients with services of high quality throughthe effective application, maintenance and operation of the Quality Managementsystem acclaimed the standards of ISO 9001- 2000 At the same time, the portcontinuously improves and upgrades the infrastructure and invests in modernfacilities to enhance the quality of services to meet all requirements of clients withthe motto:

“Productivity- Quality- Safety- Effectiveness”

Fully exploiting the advanced equipment, Haiphong port try to offer a widerrange of services to its customers Besides the every effort of Haiphong port, thedevelopment of Vietnam in the stage 2001- 2006 brings Haiphong port moreopportunities to push forward its services, especially forwarding services Handlingcargoes and forwarding are traditional services of Haiphong port, while logistics is anew service applied in freight forwarding; However, this type of service has beencontinuously developing in Haiphong port.

2.2 Freight forwarding and logistics services in Haiphong port.

2.2.1 Advanced condition of Haiphong port for logistics applicability in freightforwarding.

2.2.1.1 Geography.

Haiphong port embraces a lot of advanced condition for logistics applicability.Firstly, it is the geographical condition Haiphong port has always plays animportant role of the “Border Gate” interface in the North of the country It locateson the International maritime road From Haiphong port, we can easily andconveniently transport or have cargoes transported to other ports on the world by searout, or to main economic zones by sea rout or to main economic zones of Vietnamor to the South of China by inland waterway, railway and national highways withthe shortest time and in the most efficient manner.

Table 2.3 Distance from Port of Haiphong to some main seaports.

(Source: Agent shipping and brokerage department- 2006)

Further more Haiphong port is located in Haiphong city, one of the most highlydeveloped cities of Vietnam Haiphong city is linked to other cities by theconvenient transport systems: road, railway, water and airline Therefore, Haiphongcity is central transportation of the North; link other cities of the North to worldmarket by Haiphong port.

2.2.1.2 Material condition.

Haiphong port has the biggest cargo throughput among the ports in the North ofVietnam The port is equipped with modern facilities and equipments and has safesufficient infrastructure which meets all international modes of transport and trade.Haiphong port has total 14 safe berths with 2215m in length, having depth alongsidefrom -8.5m to -8.7m with total area of 36550 m2 The warehouses are divided intospecialized areas, which are suitable for storage, handling, and transportation of eachkind of cargo Of these warehouses, there is a standard Container Freight Station(CFS) Haiphong port has 7500 m2 warehouse with, which are used for cargoconsolidation and distribution of LCL containers and a storage yard with total areaof 394000 m2 includes 223000 m2 of container yard, used for container stackingand storage and 171000 m2 for steel, equipments, bulk, cargoes and other cargoes.

2.2.1.3 IT system and equipment.

Haiphong port is equipped with modern technology These technology andequipment are very necessary for developing logistics service in Haiphong port InHaiphong port, the Management Information System (MIS) has officially been putinto operation at all departments, divisions and sections like: operation, cargo receiptand delivery, equipment protection and maintenance, operational and financialaccounting MIS is applied at 3 main areas of Haiphong port, 18 buildings and morethan 50 functioning departments Furthermore, Haiphong port has applied the CusterSever HP TC 4100, which operates 24 hours a day

Beside 3 other servers are in reserve at affiliate enterprises, 233 affiliatedcomputers are linked together and they are also linked to the Head quarter where itis used by more than 400 officers on the local area network 100 Mps ( fiber opticscable/ UIP) and WAN 2 Mps (bonze cable is used to link between ChuaVe terminaland Management Building at No 8A Tranphu street)

2.2.1.4 Abundant human resources.

Logistics is a new kind of service in Haiphong port Although Haiphong portlacks thorough knowledge about Logistics as well as professional logisticians, staffof Haiphong port is over 400 people, mostly graduated from Maritime University.These staff are knowledgeable about transport, shipping and etc; they can meet therequirements of logistics services Because logistics service requires many staff,who understand about transportation and forwarding

2.2.2 Applying logistics in freight forwarding in Haiphong port.

Haiphong port is not the first company supplying logistics services in freightforwarding in Vietnam However, Haiphong port is trying their best to make full-advantage of its advanced conditions to develop logistics service Because Haiphongport is aware of the huge benefits from logistics services At present, logisticsproviders in Haiphong port receive the cargoes from other shipper in the port.Moreover, after that, they will bag, pack and transport the cargoes on demand It isdifferent from in the past, Haiphong port just handled the cargoes and gave it to theshippers