Mr. Pham Hong Hai, General Director of the Gemadept Logistics Company, a subsidiary of the Gemadept Corporation, tells VET about the potential and limitations of the logistics sector in Vietnam.
Gemadept Corporation recently cooperated with the Minh Phu Seafood Corporation to build a VND670 billion ($30.8 million) logistics center on 15 ha in the Mekong Delta’s Hau Giang province. Can you tell us more about the project and why Gemadept chose to invest in it?
The Mekong Delta has potential for economic development but it has not been exploited fully, especially in regards to logistics infrastructure. Although the road network has received major investment from the government over recent years the country’s port network remains fragmented and disjointed and cold storage facilities are still limited, of small scale, and not connected to each other. We need a logistics center that can utilize the potential of the area. The concept of logistics centers is still new in Vietnam but this model has been successful in many countries, such as the Netherlands, China, in Shanghai, and Singapore. It integrates all logistics services, provides convenience, and optimizes the supply chain for customers while reducing total logistics costs.
Gemadept and Minh Phu therefore agreed to develop the Mekong Logistics Center, with total investment of VND670 billion ($30.8 million), to provide integrated logistics services to clients in the Mekong Delta region connected to other logistics centers in Vietnam, in Ho Chi Minh City, Hai Phong, and Da Nang, and 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.
We expect the project will contribute significantly to economic development in the region. The cooperation aims to develop logistics centers in the key economic regions of the country, including the southeast, the Delta, the northeast, and the central region.
The proportion of small and medium-sized enterprises (SMEs) in Vietnam participating in global supply chains is lower than in many other regional countries. What are your comments on this and why is it the case?
In my opinion the main reason is the limited technology of SMEs, unstable product quality, high costs, and support industries lacking assistance from the government. I believe the situation will be improved shortly because more global companies will shift their production centers to Vietnam and the local SMEs have a necessary role to play in supplying inputs and materials.
Why are logistics costs higher in Vietnam than in other countries?
We are obsessed about logistics costs accounting for 20-25 per cent of GDP, which is higher than in developed countries. The fact is, however, that our GDP is low compared with these countries. Transport infrastructure is still being developed, the speed of cargo traffic is not high, and roads remain the major transport link while sea and waterway links, which have lower costs, are not fully exploited. Technology in the logistics sector is also outdated and leads to low productivity. Despite planning for industrial parks, ports, and logistics centers, they are not synchronized and lack concentration, which creates unnecessary waste. Logistics costs in Vietnam therefore remain high.
What pressure will come from free trade agreements (FTAs) on the domestic logistics sector? What should local companies do to improve their competitiveness?
After the successful negotiation of the TPP and FTAs, the logistics sector is expected to benefit from serving the increasing flow of goods between countries and regions. Vietnam’s logistics sector was opened up in 2014 under commitments made when the country joined the WTO, and competition has been fierce between domestic and foreign enterprises. The opportunities are shared equally, so enterprises with careful preparations can leverage these opportunities to gain a competitive advantage.
I think that a change in mindset to adapt to the new era is very important. Previously, logistics enterprises mostly invested in property and infrastructure. In the new context, logistics services need to meet the demands of customers. Competition is now based on human resources, technology, and the effective exploitation of logistics infrastructure. We understand that one business cannot meet all requirements, so logistic enterprises need to cooperate with each other to improve overall competitiveness.