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Ho Chi Minh City: Making logistics a spearhead economy

The project of developing the logistics sector in HCMC to 2025, orientation to 2030 ofthe Department of Industry Trade of HCMC was approved by the People’s Committeeof HCMC have paved the way to make the logistics sector a spearhead economy not only for the city but also for the whole area. With the project, HCM expects to raise its contribution proportion from the logistics sectors’ to 8%-10% of GDP, with the growth of 15%-20%. At the same time, they expect to have a professional logistics sector, helping to raise the logistics service outsourcing proportion to 50%-60% and to cut Vietnam’s logistics expense to 16% of GDP in the year of 2025.

Advantages

HCMC is not only the largest consuming market in the country but also the largest delivery and goods- supplying center in the South. Most of cargo flows among provinces and import-export goods in the South going through HCMC for it is located among road axis of East-West, North-South, together with the large systems of seaports as Cat Lai, Hiep Phuoc, Ben Nghe and Tan Thuan....

HCMC is located near important maritime routes in the East Sea, where there are over 140,000 vessels with capacity of over 100,000 tons going through, and it has convenient road transport system, enabling multimodal transport to other countries.

Logistics services is a trade activities, in which business people carry out one or many tasks including cargo receiving, shipping, warehousing, customs brokerage and other paper procedures, customer consulting, packaging, coding, delivery or other services relating to cargo in agreement with their customers for logistics fee .... Therefore, HCMC has all elements of “clement weather, favorable terrain, united people” to make a breakthrough to be a regional logistics point, boosting up the economy of the city’s and the whole country’s as well.

The modern economy has wide openness and opportunities given by series of FTAs to be carried out in the coming time. Experts said logistics activities are the same as “vessels” for the economy to grow. HCMC has a rather synchronous infrastructure which is able to attract strategic investors- a premise for a strong industrialization.

Barriers

However, in reality, although having a favorable geographical position and potentials, HCMC have not been able to make the best of them to be a leading city in logistics service development and to support Vietnam’s import-export enterprises.

HCMC’s logistics activity currently is shipping, taking cargo out of ports- a stage which creates the least value in a logistic service supply chain. Road transport has remained important; there is no specialized plane for air transport; waterway transport faces limits in navigation ways and inadequate investment.

Road transport service has been provided by hundreds of small and medium-sized enterprises in the city area, which resulted in inadequacies as unfair competitions and ineffective exploitation... Transport fee is high due to ineffective management (mostly by mean of road transport and one way transport); other things are ineffective forwarding activities, complicated administration procedures, warehousing service of low quality. And long consolidated time and other reasons increase transport cost as well.

Rather high logistics costs affects developments of the economy. Other reasons are BOT fees, fees and unreasonable extra fee from shipping companies, port fees, inconsistent fees from ICDs and depots.

Enterprises’ difficulties also come from macro - elements. For example, infrastructure development has not matched with the growth of logistics and cargo. Expressways is currently no longer expressway due to frequent congestions.

Besides, connections among enterprises are week. 80%-90% of enterprises have legal capital of only VND 1.5-2bn, therefore, they can provide scattered services. There is a few information exchanges among enterprises and there are a few integrated services resulted in weak competition abilities. In addition, unfair competitions in prices and commission increase Vietnam’s logistics costs.

Weak human resource both in term of quality and quantity, not very good services due to in-transparent information, non-standard progresses, frequent late delivery, the late use of software, AI, robot or cloud logistics are other reasons.

Moreover, logistics enterprises have to face many challenges. From the customers’ side, outsourcing proportion is low, around 30%-40% (it is 60%-70% in other countries). High logistics cost is the reason for enterprises prefer to carry out logistics services themselves instead of using outsourcing (72.2%). It is obvious that cost is the greatest barrier of the growth of logistics in Vietnam.

Solutions

To develop logistics services in the area of HCMC, the People’s Committee decided to approve the draft project of Developing the Logistics Sector in the City Area to 2025, orientation to 2030. According to the approved draft project, there are three core tasks. HCMC’s logistics sector will develop on the principle of regional connection. 3 logistics centers will be established based on factors of infrastructures, requirements and locations. They will satisfied the needs for transshipment, storing supplying for delivery chains in the city (supermarkets, retail stores) and transshipment and delivery among HCMC and other cities and provinces, import and export goods through the city gateways. Besides, the use of outsourcing services should be increased. Particularly, production enterprises should focus on production only, and transport, forwarding will be carried out by logistics service providers. Specialization will help reduce logistics costs and increase competition abilities for local products in both local consumption and export.

70% of containers in the country is at Cat Lai Port (HCMC). There are great numbers of containers trucks going in and out the port everyday (in average there are around 22,000 vehicles/day, or even 23,500 vehicles/ day at certain times). In the effort of innovating and improving transport system for logistics service developments, HCMC is carrying out the project of improving the navigation waterway of Saigon River in the section from Binh Loi Bridge to Ben Suc Port in form of waterway BOT (building Binh Loi Bridge and do dredging of Saigon River navigation way), which will have been completed in 2019. It is expected that when the work is finished the Saigon route from the center to Cu Chi and Binh Duong will be effectively exploited and it enables to develop ICD system in the areas, which help reduce road traffic congestions.

Besides, the waterway route through Tac River (connecting Saigon River and Dong Nai River) is being researched and the water route from Ong Nhieu Canal connecting Cat Lai Port to High Tech Zone will be dredged, which helps reduce traffic load in the East of the city. The port system in Hiep Phuoc (on Soai Rap River) in the total area of 384ha is being invested to be a potential port in the future. It is expected with active solutions both in land and in waterway, the logistics service sector will experience stable growth, being an economic spearhead for HCMC.

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