Paradox of Vietnam’s logistics: High costs but low quality

According to Ousmane Dione, Country Director of World Bank in Vietnam, Vietnam has emerged as a global manufacturing hub and one of the world’s leading foreign direct investment (FDI) destinations.

Despite highly appreciating the potential of Vietnam’s logistics with export revenue growth being robust, Ousmane Dione said that Vietnam still often carries out the lowest value-added segment of production in global value chains. Moreover, Vietnam’s trade costs are higher than the ASEAN average. As a proportion of GDP, logistics costs in Vietnam stand at about 18 per cent of Gross Domestic Product (GDP), almost double that of advanced economies and higher than the global average of 14 per cent.

Vietnam’s ranking in the Logistics Performance Index dropped from 48 in 2014 to 64 in 2016. During the same period, other economies improved their performance much faster than Vietnam, meaning it is losing competitiveness.

Vietnam's growth potential is severely constrained by the weakness of the corridor linking key growth centers with large international gateways, high transport costs, poor quality of transportation and logistics.

In order to solve these problems, World Bank recommends the strategy including four key aspects, especially related to the development of transportation infrastructure and the simplification of logistics procedures.

Currently, investments in Vietnam remain unbalanced, focusing more on roads than other modes of transport, appropriate multimodal transport and logistics centers. The over-reliance on public investment, which is clearly unaffordable and unsustainable should be also revisited. Therefore, World Bank recommends to shift to private sector financing and establish clear priority for essential investments, creating a better connectivity.

Besides, there should be solutions to simplify customs procedures which take up to 76 per cent of the import time in order to reduce costs for enterprises.

Ousmane Dione said that Vietnam needs to work more to have a strategy in order to enhance trade competitiveness in complementarity to trade liberalization. He also highlighted the importance of leadership at the highest levels of government and the involvement of the private sector as the majority of logistics services are provided by private enterprises, especially in the context of the 4.0 Industrial Revolution.

Minister of Industry and Trade Tran Tuan Anh highly appreciated the development of the logistics sector in Vietnam over the years, significantly contributing to the overall economic growth, expanding and outreaching the overall markets, providing more benefits to consumers, and helping transform the national economy.

The Minister said that logistics has the huge potential to become the key economic sector of Vietnam; however, its quality is still low while the logistics costs are very high, hindering the development of this sector. After 40 years of development, it is still seen as a fledgling service industry. Vietnam’s logistics business still has the limited capability when the 1,000 plus domestic logistics companies in operation only accounts for 20 per cent of the market share, while the remaining 80 per cent belongs to just 25 foreign companies.

These weaknesses are due to various persistent gaps and challenges including the disconnected planning work among relevant sectors; poor transport, trade and information technology infrastructure; lack of connection with other countries in the region and low-qualified human resource.

Minister Tran Tuan Anh also affirmed that the government would continue striving to create a more laissez-faire and enabling environment for logistics operations in Vietnam by improving regulatory frameworks, policies and administrative procedures.