With Vietnam's accession to the Trans-Pacific Partnership (TPP), the Vietnamese logistics industry has many opportunities to develop and participate more deeply in the world's transportation trading centers.

This is a market that is considered to have great potential, a "tasty pie" that needs the coordination and cooperation of ministries, departments and businesses to develop. With the projected growth rate from now until 2020 of 12% per year and a trade value of USD 623 billion in 2020 (source World Bank), Vietnam is becoming a destination for investors.

In the face of the actual requirements and challenges from integration, Vietnamese businesses, especially logistics businesses, are required to improve the quality of their services and increase their competitiveness. According to statistics from the Vietnam Logistics Association (VLA), Vietnam's logistics costs account for about 25% of GDP each year, much higher than countries like the United States, China or Thailand.

In the coming time, when TPP is officially signed with many tariff lines down to 0%, it promises the vibrant development of import and export activities in Vietnam. This is considered a great opportunity for the logistics industry to "explode".

Losing on the home field

However, in recent years, Vietnamese logistics service enterprises have not really found a common voice with export and import enterprises. The majority of Vietnamese logistics service enterprises are small enterprises with little capital and lack of infrastructure such as warehouses, wharves, information technology, and transportation vehicles.

As an important link in the economy, logistics activities help goods reach the hands of consumers and ensure timely supply of raw materials for the production process.

However, the competitiveness and business efficiency of Vietnamese logistics enterprises, under the impact of both internal and external factors, are currently not high.

It can be seen that the majority of domestic logistics enterprises are operating due to their small scale, so their financial capacity and management level are limited, mainly still stopping at providing 2PL logistics services, specifically freight transportation services.

Meanwhile, foreign-invested enterprises in Vietnam often seek integrated logistics packages (commonly 3PL) which are not simply freight transportation but also come with many other value-added services (customs procedures, storage, packaging and product distribution).

Objective external factors also hinder the development of the Vietnamese logistics industry. First, the transportation infrastructure, especially roads, has not developed in line with the pace of industrialization, leading to congestion and congestion.

Second, customs procedures still have many overlaps and rigidity, slowing down the speed of goods turnover.

Third, domestic maritime transport has not been fully exploited to reduce the burden on road transport.

Fourth, the development of ports and post-port services such as warehouses, yards, and logistics centers is lacking in planning and lack of connectivity.

And fifth, the lack of linkages between logistics enterprises with each other. These are the reasons that hinder the sustainable development of domestic logistics enterprises and push up logistics costs in Vietnam.

Comparing the logistics/GDP freight costs of many countries, many experts believe that the United States accounts for about 9%, Europe for about 13%, Mexico is 14% and the world average is 15%. However, Vietnam's is up to 25%, this is a very high figure making it difficult for Vietnamese enterprises to integrate and enhance competitiveness.

According to Mr. Le Phước Vũ, Chairman of Hoa Sen Group, there are many factors that hinder the development of logistics, reduce the competitiveness of Vietnamese enterprises. These are the irrationality in the operation of the port system in Vietnam, leading to freight costs increasing by nearly three times; infrastructure shortcomings, international transportation and international transportation surcharges in peak season are often increased by shipping companies.

The above shortcomings have partly explained why foreign logistics companies are winning even in the domestic market. Statistics from VLA show that Vietnam currently has about 1,300 logistics enterprises operating, including foreign-invested enterprises.

Among them, only about 25 foreign logistics companies operate but account for 80% of the market share. The remaining nearly 1,300 domestic logistics enterprises in Vietnam only account for about 20% of the market share.

Domestic companies mostly operate in a small segment of the industry such as freight forwarding services, warehouse rental, customs clearance, and consolidation of small shipments.

Mr. Đỗ Xuân Quang, Chairman of the VLA, said that each year logistics costs (including transportation costs, storage, warehousing, customs clearance, other paperwork...) in Vietnam are about 37-40 billion USD.

“However, 30-35 billion USD of this has belonged to foreign enterprises, so the best part of the logistics “pie” in Vietnam is in the hands of foreign enterprises,” Quang said.

This leads to the fact that most Vietnamese enterprises only act as agents of the second, third, or even fourth tier for global companies. To date, Vietnamese enterprises have only met 25% of domestic demand and only focus on a few service industries in the logistics service value chain.

The reason was explained by Mr. Trần Chí Dũng, Director of the Vietnam Logistics Research Center (VLI), that Vietnam lacks logistics human resources and most of them have not been trained so the level of professionalism is still poor.

In addition, a major obstacle to the Vietnamese logistics industry today is technology. Vietnam's information technology is still poor and clumsy, both on the part of service providers and users. Therefore, costs are still high and inefficient. In addition, the legal basis is not clear to develop the logistics service industry.

How to win back market share?

According to Mr. Dũng, the division of logistics market share is inevitable, as it is a global connection. Transportation costs account for a large proportion of operating costs of businesses, especially international transportation costs.

Therefore, in the context of integration, the issue is, what market share for Vietnamese enterprises to occupy, and what market share should belong to foreign enterprises?

“The current market share picture has honestly reflected the balance with the capacity and investment capital that Vietnamese enterprises have invested. To regain the market share, Vietnamese logistics enterprises need to increase investment, and at the same time need timely support policies from the government,” Mr. Dũng emphasized.

Despite facing strong competition from foreign rivals, many experts still highly appreciate the future prospects of domestic logistics enterprises, especially in the context of free trade agreements (FTAs, TPP) that strongly promote FDI flows into Vietnam's manufacturing industry.

On the other hand, the increasingly improved infrastructure will increase the connectivity between logistics facilities and production areas; planning and industry support factors from the government along with customs procedures are gradually being improved in a positive direction.

In the past two years, a series of key infrastructure projects have been started and completed, such as the Long Thành - Dầu Giây, Nội Bài - Lào Cai, Hà Nội - Hải Phòng, Bến Lức - Long Thành highways and National Highway 51 connecting industrial parks with ports and dredging works of the Soài Rạp Channel (to the Hiệp Phước port) and the Thị Vải - Cái Mép channel...

These are important infrastructures for the development of logistics. In addition, the Government and the Ministry of Transport have issued many policies to guide, support and stimulate the sustainable development of the domestic logistics industry, such as: weight control policy on highways, policy to prioritize Vietnamese ships on domestic routes, draft establishment of port authorities to develop ports and post-port services, Decision No. 1037/QD-TTg on the planning for the development of seaports until 2020...

According to Mr. Hoàng Việt Cường, Deputy Director General, General Department of Customs of Vietnam, Vietnam is also actively building and implementing the ASEAN single window mechanism.

Implementing this will bring many practical benefits to the business community, including logistics enterprises, such as reducing the time for administrative procedures and reducing costs.

In the coming time, Vietnam will actively cooperate with Indonesia, Malaysia, Singapore, and Thailand to complete technical connectivity in 2015 to soon officially implement the ASEAN single window mechanism.

In particular, the Government has recently decided to establish a drafting committee to improve the competitiveness of the Vietnamese logistics industry and is expected to come up with this action program by June 2016, which will be a great opportunity for Vietnam to develop the logistics industry.

However, these efforts are still not enough. For the logistics service industry to develop and develop sustainably, experts all agree that the government needs to build and improve the legal framework, standardize service procedures, upgrade infrastructure and quality of human resources for the logistics sector.

The government also needs to have measures to guide and promote logistics enterprises to link with each other, forming companies with sufficient capacity to compete with foreign companies.

With the above subjective and objective factors, many experts believe that the Vietnamese logistics industry still has a lot of potential to develop and first of all, there will be many conditions to reach the level of parity with logistics enterprises in the region.