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Vietnam logistics firms efficiency how to improve?

Relatively efficiency of major logistics companies in Vietnam is evaluated. Only haft of the sample companies considered efficient but most of them experienced efficiency progress, reflecting the great potential to grow of the industry in the future, even though improvements are still slow and insecure. In comparison with global firms, the average efficiency of logistics firms in Vietnam is much lower, but the distance is reduced and co- operation might be the key.

VIETNAM LOGISTICS INDUSTRY: AN OVERVIEW

The logistics industry in Vietnam is in tough yet promising stage of development. Favorable geographical location, political stability, young population with rising purchasing power and a booming modern retail market, the logistics industry in Vietnam is projected to record substantial growth thanks to the increasing goods trade demands. The requirement for international shipping, inland transport, and distribution services is created during the process of importing raw materials and spare parts, re-exporting products after manufacturing them and then distributing them domestically. The bright future of the Vietnamese manufacturing and exporting economy is influencing a high growth potential and good opportunities for Vietnam’s logistics industry. In the Logistics Performance Index 2018 report, the World Bank ranked Vietnam 39th among 160 countries in the world and third in ASEAN, up 35 places from 2016. However, together with weak transport infrastructure, high logistics costs are likely to undermine Vietnam’s attractiveness as an investment destination, especially as the world moves towards Industry 4.0 and sustainability initiatives. This implies a higher demand for cost-effective and efficient logistics services in Vietnam.

PROBLEMS

Analysis results showed that the Vietnamese logistics industry is highly insecured. The average efficiency score slightly increased but still remained below 1 throughout the years, reflect the logistics industry did not make use the most of their capacity. The fluctuation in efficiency implied that the efforts of government and the companies in efficiency improvement showed effective influence to some extent, these approach still might not be stable to actually enhance competitiveness of the industry. The problems such as stiff regulations, inappropriate resource allocation and insufficient technical innovation are the reasons for increasing logistics costs and obstructing the development.

The graph above showed the annual efficiency of different categories of logistics services being provided in Vietnam logistics industry. Not only the most efficient sector, transportation is also the sole sector achieving the efficient level in term of average efficiency. For port operations sector, most of the major port in the regions have been promoted to accommodate vessels with capacity of up to 30,000 deadweight tonnage (DWT). This might led to the witnessed improvement in efficiency score of port operational firms. However, the problem comes from transport infrastructure around ports, which remains undevelopped and lacks of connections with ports. This led to congestions and delays in major ports whereas smaller ports rarely had customers.

More importantly, efficiency of warehousing services providers decreased during the seven years of examination. This implied that enhancing the efficiency of warehousing companies might be the key to increase the whole efficiency level of the logistics industry. As a matter of fact, with the trading demand increasing, demand for warehousing services will also increase. It is forecasted that the 4.0 Industrial Revolution will also affect greatly to the warehouse market since more quality supply such as logistics robots and automated storage technology will come to the market in the next few year. Hence, it would be better for the companies to enhance and invest for new infrastructure in order not to lose their competitiveness in the regions.

The analysis results also showed that there is an undeniable gap between foreign and local players in the market. Foreign firms did have a higher average efficiency score and remained above the efficient level in the seven-year period of examination. This is predictable since foreign players have a larger financial capacity, better technology, experience and relationship with large production corporations; so it is understandable that they captured a major part in the market. In fact, large foreign logistics companies often operate as the lead service providers or the integrator so they are not

limited in services offerings, which is different from local logistics firms in Vietnam who tend to focus on offering one traditional logistics service only. This not only affects their sale and revenue growth opportunities but also make the whole industry becoming more vulnerable to the slump of a particular sector in the logistics field.

SOLUTIONS FOR EFFICIENCY IMPROVEMENT

The breadth of diverse 3PL services might indirectly correlated to the efficiency of logistics company, as global logistics firms who often act as the lead service integrator always show higher efficiency score in compared with local firms who only offer specific traditional services. Therefore, suggested strategies are diversify their market segments especially ones with high profitability potentials (cross border e-commerce, 4PL services with consulting capabilities, etc.), consider or improve leasing fixed assets plan to increase the cash flow, control cost and expenses by better managing human resources and eliminate unnecessary waste in service activities.

The invasion of foreign players could also be the chance for Vietnamese logistics firms. If foreign firms have advantages in experience and resources, then local firms can also attract customers with lower costs of services. Although the foreign competitors in the market is an undenied threat to the thriving of local companies, with adequate strategies and suitable investments, this is the opportunity for local businesses to call for capital from multinational companies, to co-operate and learn from them to improve their own competitiveness in the market.

The collaboration between local companies, such as mergers or joint ventures could help to increase competitiveness of local industry by promoting a rational integration in the supply network. Since each companies have their own strengths and advantages, mutual benefits can be gained through co-operations of logistics companies. Shared resources, technology transfer, linkage of services, information exchange, widen geographical coverage, etc. are promising prosperities coming from integration between enterprises. However such alliances requires great efforts from not only the companies but also the authorities.

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