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Local firms lag behind on logostics front


October 5, 2008

Vietnam: Local firms lag behind on logostics front
Demand for logistics services has been rising rapidly, thanks to robust export and import growth, however, the industry accounts for only 4.4 percent of Vietnam's total GDP, state news agency VNA reported, quoting industry insiders.

Vietnam has roughly 800 logistics companies, a similar number to Thailand and Singapore, but the logistics sector earns almost 15 per cent of the GDP in those countries.

According to a report from the Spire construction consultation company, Vietnamese logistics companies can only meet 25 per cent of domestic demand, with the greater part of market share held by foreign firms including Maersk Logistics and APL Logistics.

The Vietnam Freight Forwarders Association (VIFFAS) attributes the failure of domestic logistics companies to their smaller size and limited ability, as 80 per cent of Vietnamese logistics firms have registered capital of less than 1.5 billion dong ($90,000).

The association also notes that domestic logistic companies have failed to build a global supply network hampering their efforts to acquire market share.

General Director of Gemadept - Vietnam's largest logistics company with an annual turnover of 1 trillion dong ($60.2 million) - Do Van Minh, admits that even his company cannot provide a complete chain of services, as technology and global connections proved difficult to acquire.

Minh cites the sportswear company Nike as an example, "As Nike has clients worldwide, local connections are not enough," says Minh, "Nike uses Schenker Logistics as they have a global network, domestic firms dont have that kind of reach," he says.

To improve their network, Gemadept has entered negotiations with Schenker - the world's number two logistics company - to set up a 15,000sq.m logistics centre that meets international standards in southern Binh Duong Province.

General director of Cartridge World Vietnam, Eckhart Dutz, forecasts there will be more logistics companies setting up joint ventures here in the next few years, as firms look to combine the best aspects of local and foreign firms - local knowledge and global reach.

The logistics industry is also expected to receive a boost from planned government investment of $17.5 billion to develop infrastructure.

According to the World Bank, Vietnam's airport, roadway, port and telecommunications services - the infrastructure required for a logistics network - rank fourth in the region behind Singapore, Malaysia, and Thailand.

Due to infrastructure constraints, freight costs are disproportionately high in Vietnam, running at around 30-40 per cent of total costs, compared to around 15 percent in other countries.

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