The frailties in Vietnam's logistics sector need to be addressed as demand will only grow as integration continues.
Vietnam’s logistics sector has largely failed to match the potential it’s considered to possess nor fully meet demand. Many enterprises are now looking for the opportunities to join the sector, with Panasonic Vietnam recently setting up a Global Procurement Division in charge of all purchasing activities to cut costs by purchasing large quantities and better utilizing transport modes.
“We have set up new function of buying and selling so that our division can directly import and export or act as a trading company instead of functioning as a representative office as previously,” General Manager of the Global Procurement Division at Panasonic Vietnam, Mr. TabuchiTeppei, said: “Our establishment contributes to further cost reductions at Panasonic factories.”
According to a recent report from the Vietnam Logistics Association (VLA), the sector is recording average growth of 20 to 24 per cent each year despite the outsourcing logistics market only accounting for 3 to 4 per cent of total GDP.
In 2014 and 2015, 80 per cent of enterprises in the sector reached or exceeded their annual plans. Seventy per cent of logistics enterprises recorded profits while only 1 per cent went bankrupt; much less than in other industries. A number of large firms, such as SNP, Gemadept, Vinafco, Transimex Saigon, Vinafreight, Viconship, Vietfracht, and Sotrans are viewed as operating in a very professional manner.
“Many enterprises in the processing industry have independent logistics departments or subsidiaries that work effectively and professionally,” according to Mr. Tran Du Lich, a member of the National Assembly Economic Committee.
In July, the Gemadept Corporation and the Minh Phu Hau Giang Port Company, an affiliate of the Minh Phu Seafood Corporation, agreed to build a VND670 billion ($30.8 million), 15 ha logistics center in the Mekong Delta province of Hau Giang. Gemadept will provide 51 per cent of the investment capital.
Mr. Pham Hong Hai, General Director of the Gemadept Logistics Company, a subsidiary of the Gemadept Corporation, said that the project will be connected with other logistics centers in Ho Chi Minh City, Hai Phong, Da Nang and elsewhere in Vietnam, together with other countries in the Asia-Pacific region.
“The project will help to cut logistics costs by up to 30 per cent for exporters in the Mekong Delta and by up to 20 per cent for companies producing consumer goods for distribution in the region,” Mr. Hai said.
Figures from VLA show that the average charter capital of logistics companies is about VND4-6 billion ($180,000- $270,000); three or four times higher than in 2007. The number of small and medium-sized enterprises account for 72 per cent, while the remainder are large enterprises with charter capital of more than VND20 billion ($890,000). The number of enterprises using integrated logistics services providers or a third-party logistics provider (3PL) has grown over recent years and now account for 15 to 20 per cent.
The sector has continued to embrace information technology, with 10 per cent of enterprises being equipped with Enterprise Resource Planning systems, 17 per cent using Electronic Data Interchange, and most using customs and accounting software. In transport, 19 per cent of enterprises use transportation management systems and 29 per cent use GPS. Meanwhile, in warehousing, nearly 17 per cent used bar code systems and warehouse management software.
“Overall, the operational capacity of logistics enterprises has developed and exhibits stability,” according to VLA Chairman Do Xuan Quang. “Many businesses have plans to develop transport, warehousing, and integrated logistics services providers, or 3PL.”
Mr. Quang also noted that Vietnam’s logistics industry has built trust with not only domestic but also international customers, leveraging local advantages and cooperating with foreign firms to integrate logistics activities.
Limitations to address
Despite the positives, the facts show that only a small number of domestic logistics enterprises have the capacity to join international logistic chains or supply foreign corporations. “Vietnamese enterprises account for about 11 per cent in quantity and 5 per cent of the value in the total supply system of Panasonic factories in Vietnam,” Mr. Teppei said. “Panasonic evaluates suppliers by certain criteria, such as quality assurance, appropriate scale, and technology.”
He added, however, that this could be regarded as a good sign for Vietnamese enterprises who wish to become a Panasonic supplier in the future because domestic supply is currently quite limited.
VLA is unhappy that of the 1,300 enterpris