The status quo of Vietnam
’s logistics, the
opportunities and challenges to become the
regional transshipment hubs

Table of Contents
Abstract …………………………………………………………………………………………………………………… i
Acknowledgements …………………………………………………………………………………………………. iv
List of tables …………………………………………………………………………………………………………… vi
List of figures ………………………………………………………………………………………………………….. vi
Chapter 1: Introduction……………………………………………………………………………………………… 1
Research background …………………………………………………………………………………………… 1
Research area ……………………………………………………………………………………………………… 2
Research questions, aims and objectives ………………………………………………………………… 3
Brief description of methodology …………………………………………………………………………….. 4
Dissertation structure…………………………………………………………………………………………….. 4
Chapter 2: Literature review ……………………………………………………………………………………… 6
Definition of logistics……………………………………………………………………………………………… 8
Upcoming trends ………………………………………………………………………………………………….. 8
The role of logistics……………………………………………………………………………………………… 10
The benefits of logistics ……………………………………………………………………………………….. 11
Chapter 3: Overview about Vietnam’s logistics and competitiveness …………………………….. 14
Overview……………………………………………………………………………………………………………. 14
The Strength…………………………………………………………………………………………………… 14
The weakness ………………………………………………………………………………………………… 15
The status of logistics in Vietnam ………………………………………………………………………….. 16
Assessment of logistics’ components…………………………………………………………………….. 18
Chapter 4: Limitations, recommendations and possible challenges ………………………………. 31
Chapter 5: Comparison with other countries of the region about logistics development strategy
…………………………………………………………………………………………………………………………….. 51
Conclusion…………………………………………………………………………………………………………….. 58
Bibliography…………………………………………………………………………………………………………… 59
Appendix ………………………………………………………………………………………………………………. 64
vi
List of tables
Table 1: Logistics cost of developed countries……………………………………………………………. 16
Table 2: Estimated Vietnam’s import and export cost ………………………………………………….. 17
Table 3: Global logistics costs and third-party logistics revenues ………………………………….. 25
Table 4: Average days for customs clearance ……………………………………………………………. 28
Table 5: Savings from transshipment, pt. 1………………………………………………………………… 34
Table 6: Savings from transshipment, pt. 2………………………………………………………………… 35
Table 7: Cost-benefit analysis details………………………………………………………………………… 40
Table 8: Road fatalities rates of several Asian countries ……………………………………………… 43
Table 9: Minimum wage of several Asian countries …………………………………………………….. 52
Table 10: Hanoi – Haiphong Express investment ………………………………………………………… 64
Table 11: HCMC – Cai Mep Thi Vai Highway investment……………………………………………… 65
Table 12: Percentage of inventory cost on inventory value…………………………………………… 65
Table 13: Estimation of overstock cost………………………………………………………………………. 66
Table 14: Calculation of saved value from overstock…………………………………………………… 67
Table 15: Traffic estimation ……………………………………………………………………………………… 67
Table 16: Trucking cost of congestion……………………………………………………………………….. 68
Table 17: The cost and benefit – quantified ………………………………………………………………… 69
Table 18: IRR and NPV of the project ……………………………………………………………………….. 71
Table 19: Savings from transit at foreign port …………………………………………………………….. 72
Table 20: Savings from domestic transshipment ………………………………………………………… 73
List of figures
Figure 1: Vietnam’s ports performance vs. others……………………………………………………….. 19
1
Chapter 1: Introduction
Globalization has enabled humanity to accomplish such achievements which were seen as
impossible just a few decades ago. For example, it is common now to have merchandise to
be manufactured on one side of the global and to be distributed on the other side in just a
matter of a few days. We have developed a very sophisticated and complex system to move
the goods from one place to another. But that system is also very fragile. Just like a chain,
when the flow of goods is disrupted, it will immediately affect the whole system, as a domino
effect. In a worst case scenario, that sophisticated and complex mechanic may crumble due
to disruption at the up stream of production flow. Therefore, the flow of materials and goods
is crucial to every business. Logistics was born to maintain and strengthen the links between
every stage of production.
Research background
Mobility and logistics activities have been fundamental to economic development and social
well-being for centuries, but it is only over the past 50 years that this has received interest as
a major field of academic study (Macharis, Sustainable Logistics, 2014). Since then, many
studies have been conducted before to point out the relationship between an efficient logistics
system and a successful business. One of many strategies to gain competitive edge in the
market is to embrace the Economies of scale theory. However, having larger production plants
is not enough, but the advantages must also come from more efficient logistics networks. By
combining both, Honda, one of the biggest automobiles manufacturers, is able to lower the
production and transportation cost, hence, increase the total profit. (Hout, Porter, & Rudden,
1982) The flow of goods, according to Christopher et. al., if disrupted, will directly affect the
exchange of commodity and lead to profit reduction (Jüttner, Peck, & Christopher, 2003). This
is because logistics controls the movement of raw materials from different suppliers, though
operative activities within a company, and the flow of finished products to end users
(Christopher M. , 1986). These activities are linked together in an integrated system from the
beginning to the end. Any component of the system, therefore, requires proper function from
prior stage in order to process. For example, the customer in the United States can not receive
his ordered packet if the shipper in Vietnam failed to deliver in time. As a chain reaction, that
person in the United States also can not fulfil his client’s requirement due to delay of the supply
from Vietnam. That said, the world economy is a sophisticated and complex system, but also
a fragile system. Therefore, logistics can be seen as the oil that keeps any business running
smoothly. Without logistics, materials can not be delivered at the right time to the right place;
2
goods transportation becomes unreliable. More costs will incur due to waste of time and
money for transporting, storing and distributing commodities. In other words, efficient logistics
will reduce the wait time as well as the cost for storage and shipping and ultimately, generate
surplus and increase profit.
Moreover, efficient logistics is also the key for the overall development of national economy.
In a recent research conducted by Armstrong & Associates Inc., a common ground between
developed countries such as United States, Germany, Hong Kong, Japan or Singapore is
discovered. The logistics costs in these countries only account for less than 9% of total Gross
Domestic Production (GDP) whereas in case of developing countries, it is close to 15%
(Armstrong & Associates Inc., 2016). Even though just a tiny gap in the proportion, it created
a huge difference in the level of development. Logistics, therefore, is an essential element of
all economic activities. Better understanding of logistics systems will be a major benefit for all
stakeholders in the market.
Research area
As economies continue to expand and develop, we can no longer ignore essential values
logistics created. In fact, logistics has become a popular theme not only in developed countries
but as a world wide discussion. Until now, it is roughly estimated that there are over 550,000
researches, journals and academic articles about logistics and supply chain. It proved one
thing that logistics is an important aspect of every business, every economy regardless of size,
scale, natural conditions and starting point. However, in Vietnam, logistics is a relatively new
concept and as yet there is no official authority with total responsibility over logistics.
(Banomyong, Thai, & Yuen, 2015) Moreover, Vietnam also lacks of a comprehensive
legislative policy and strategy to promote the development of logistics industry. As a
consequence, many foreign firms when investing in Vietnam encountered many obstacles,
and majority of them are on the legal side.
Vietnam has been favored with strategic geographical location, especially for trading. South
China Sea has been recognized as an important gateway between arising economies of Asia
and the world. In particular, it links the Indian and Pacific Oceans and carries approximately
25% of all traded goods. (The Asia Maritime Transparency Initiative, 2016) With over 3,200
km of coast line, maritime transport has been a key component of Vietnam’s economy. On the
other hand, land transport is also note worthy since Vietnam is located on the Trans-Asia
route. This is a very busy 5,000 km route that connects China with Vietnam, Laos, Cambodia
and Thailand. It has enabled trucks, by now, to pass through border without transshipment,
thus, reducing wasted time and cut transshipment cost.
3
Since 2007, Vietnam became the 150th member of the World Trade Organization. Just in
February 2016, Vietnam has signed to become one of twelve members of Trans-Pacific
Partnership Agreement (TPP). They are widely seen as major drivers to stimulate economic
growth; enhance productivity and competitiveness; raise living standards; as well as promote
transparency and environmental protections. (United States Trade Reprensentative, 2015)
This comes with opportunities but also challenges, and pressure upon logistics system is one
among them.
South East Asia is a troublesome region. Except Singapore, all other ten state members are
still in developing stage. With a population of nearly 620 million condensed in an area of 4.5
million km square, it creates a huge pressure up on the infrastructures. Even though GDP
growth, industrial output, and consumption plummeted, the power, water, and the most
importantly, transport systems still remain as a problem. (Lord, 2011) As a result, these
shortcomings limit the true potential of the whole region.
Being the third most populated country in the South East Asia, however, Vietnam only ranked
eighth among eleven in term of GDP per capita (IMF, 2015). Despite low ranking, the gaps
between Vietnam and higher rankers such as the Philippines, Indonesia and Thailand are
margin. On the other hand, Cambodia, Laos and Myanmar are very close behind. In other
words, it is these countries which are the main competitors of Vietnam in the region. The
content of the dissertation mostly will focus on Vietnam and how it will compete against such
countries in medium and long term.
Research questions, aims and objectives
a) Research questions
• How important is the logistics in Vietnam’s economy?
• What is the current situation of Vietnam’s logistics system compared with
neighboring countries?
• What are the opportunities in the upcoming years for Vietnam?
• Can the current logistics system take advantage of those opportunities?
• What are the challenges and limitations for Vietnam’s logistics system?
• How can these challenges and limitations be addressed within contemporary
human and physical resources?
4
b) Aims and objectives
• Clarifying the role of logistics and its importance and contribution toward
Vietnam’s economy.
• Indicating the status quo of the logistics and supply chain industry in Vietnam,
including all the opportunities, challenges and limitations.
• Proposing possible solutions to take advantage of these opportunities,
addressing remaining limitations as well as mitigating any probable negative
impacts.
• Comparatively analyzing Vietnam’s logistics development with other countries
within South East Asia region.
• Recommend a possible roadmap of better implementation into practice.
Brief description of methodology
To improve the productivity, efficiency and competitiveness of Vietnam’s logistics system,
initial investment is necessary. In order to measure the effectiveness of the investment, the
author will use Cost-benefit analysis to see whether the benefits justify the costs. In particular,
highway projects linking industrial and consumer area to key ports such as Lach Huyen and
Cai Mep – Thi Vai is capital intensive and require huge investments. The money is paid for
site acquisition and clearance, construction cost as well as capital cost and many other costs.
This is the initial investment, but there is also maintenance cost to be paid on a periodical
timeframe. The benefits, on the other hand, can be easily measured such as revenue from
road tolls, but more often, they are very hard to quantify. The benefits from high quality
expressway are faster transit time, congestion reduction, fuel saving, etc. With faster transit
time and no congestion, cargo delivery will be more reliable, and thus, cutting the cost of
holding extra inventories. Capital cost is also reduced because cargo would spend less wasted
time on road which generates no money at all. Then, it can be assumed that the project has
stable cash flow with a huge investment at year one but starts to profit years after. Next, tools
such as Net Present Value (NPV) and Internal Rate of Return (IRR) will be used to calculate
and based on that result, to determine whether the project is effective or not.
Dissertation structure
This dissertation begins with an abstract then followed by six chapters. The first one is the
introduction that provides research background, area of study, research questions, along with
aims and objectives. Chapter two includes the literature review while the next one is the main
5
part of the dissertation. It will give some insights about the current situation, strengths,
weaknesses as well as opportunities and challenges for Vietnam’s logistics industry.
Suggestions and recommendations will be given in the fourth chapter. A few case studies will
be analyzed in the fifth and the last chapter offers conclusions. Supporting documentation may
be found in the appendix after the References list.
6
Chapter 2: Literature review
As mentioned in the first chapter, logistics is a common topic for many scholars. This is due
to the fact that logistics has an irreplaceable role in any economy, which, according to Porter,
(2004), is an indispensable complementary sector for the other business activities. Logistics
develops, facilitates and optimize the flow of material, goods and information through many
nodes of transportation, production and distribution. Efficient, reliable and responsive logistics
systems are the sign of a healthy economy. Improvement of logistics system, therefore, is very
important. It is not just a mission for any company, but government should consider this as a
national plan of development.
After Doi Moi, the economic reforms initiated in Vietnam in 1986, Vietnam started to transform,
from a primarily agriculture-based economy to an industry-focused and export-oriented
country. Since then, Vietnam has achieved many successes in terms of economic and social
development. GDP growth has been steady at 6–8% over the past 20 years, making Vietnam
one of the world’s fastest growing economies. The growth, however, was stalled by massive
inflation in December 2010 of 11.8%. At the same time, real GDP growth has decelerated,
going from 6.8% in 2010 to 5.9% in 2011, and further to 5.0% in 2012. (The World Bank, 2014)
Why can Vietnam not be able to maintain that impressive economic growth? As a country
dependent heavily on low labor costs and abundant natural resources, it is pointed out that
Vietnam’s growth can be “easily lost through inefficient logistics” (The World Bank, 2014). In
addition, Blancas et al. believe that within-sector productivity improvements play the key role
to sustain its economic growth (Blancas, Isbell, Isbell, Tan, & Tao, Efficient logistics: A key to
Vietnam’s competitiveness. Directions in development; Countries and regions., 2013). To be
more specific, remarkable development of Vietnam in the last 20 years is supported by
numerous investment from the both the government and foreign direct investment (FDI) into
infrastructure and system. Custom operations are also improved and innovated to reduce redtape and wait time. These are low-hanging fruits that low-developed countries could employ
to create a foundation for growing. However, at the moment, Vietnam is on transition between
low and mid-level of development. The stagnant in economic growth proved that. Therefore,
Vietnam needs to step up to the next stage. According to Banomyong and his colleagues,
better performing logistics is decisive factor to increase productivity, and at the same time,
prepare an attractive investment environment for both international and domestic
stakeholders. Ultimately, logistics is the tool Vietnam needs to gain competitive advantage,
especially in global market. (Banomyong, Thai, & Yuen, 2015)
7
So, the important question is: how good is the logistics system in Vietnam right now? In order
to assess and measure the performance and efficiency of a country’s economy, in general,
and its logistics sector, in particular, several indexes were developed, notably the Global
Competitiveness Index (GCI), the Competitive Industrial Performance Index (CIP), the
Logistics Performance Index (LPI).
Starting in 2005, the World Economic Forum has come up with a comprehensive tool that
measures the microeconomic and macroeconomic foundations of national competitiveness
and they named it the Global Competitiveness Index (GCI). According to WEF’s Global
Competitive Report 2014-2015, Vietnam scored 4.23/7 ranked 68th above India, Cambodia
and Bangladesh, below Philippines, Indonesia, Thailand, China and Malaysia. Also, Vietnam
is considered to be at the factor-driven stage which depends largely on unskilled labor and
natural resources. Companies compete on the basis of price and sell basic products or
commodities, with their low productivity reflected in low wages. Compared with other countries
in the South East Asia region, in all 12 criteria, Vietnam was below Indonesia and Thailand,
except health and primary education and labor market efficiency (Schwab, 2014).
Meanwhile, the Competitive Industrial Performance Index (CIP 2013), developed by the
United Nations Industrial Development Organization (UNIDO), aims to assess and benchmark
industrial competitiveness, to emphasize countries’ manufacturing development and to imply
that industrial competitiveness is multidimensional. Vietnam ranked 50 with 0.071 point
(2013), below India, Indonesia, Thailand and Malaysia (UNIDO, 2015).
Since 2007, the World Bank has published the Logistics Performance Index (LPI) every two
year. In 2014, LPI ranked Vietnam 48th among 160 with 3.15/5 points in 2014, above
Indonesia, India and the Philippines, below Malaysia, China and Thailand. It also categorized
Vietnam into group of consistent performer (The World Bank, 2014).
In all of those assessments, Vietnam is recognized for having a base infrastructure and legal
framework for international trading. However, challenges are still ahead since all the lowhanging fruits have already been harvest. The next target to aim for is to innovate and
eliminate the existing flaws in the system in order to increase the efficiency of the logistics
services.
8
Definition of logistics
In order to have a holistic and comprehensive view about logistics, first of all, we need to
understand what logistics is and the history behind. It is believed that the logistics activities
originated from military field in such ancient wars. Thousands of year ago, logistics has been
seen as the basis of military strategy and tactics, the decisive factor for the rapid march of
Alexander the Great and his Macedonia army (Engels, 1980). Hence, in the Merriam-Webster
Online Dictionary, logistics is defined as “the aspect of military science dealing with the
procurement, maintenance, and transportation of military material, facilities, and personnel”
(Merriam-Webster Dictionary, 2016). However, in this dissertation, logistics is treated from the
aspect of economic and civil subject.
According to the Council of Logistics Management (1985), now the Council of Supply Chain
Management Professionals, logistics is “the process of planning, implementing and controlling
the efficient flow and storage of raw materials, in-process inventory, finished goods, services,
and related information from point of origin to point of consumption (including inbound,
outbound, internal and external movements) for the purpose of conforming to customer
requirements.” (Council of Supply Chain Management Professionals, 2013) Christopher also
argued that logistics is “a planning orientation and framework that seeks to create a single
plan for the flow of products and information through a business”. (Christopher M. , 2005). Or
another definition from Kotler that considers logistics as the activity of “planning, implementing,
and controlling the physical flows of materials and finished goods from the point of origin to
the point of use to meet customer’s need at a profit” (Kotler, 2001). All of these definitions
have a common ground that highlights the importance of efficient physical and information
flow within the system. The seamless flow is the key to determining the efficiency and the
reliability of the logistics system. Whether it is in inventory, transporting, warehousing,
manufacturing, packaging or distributing phase, a capable logistics system ensures that the
material, semi-finished or finished product would be delivered safely to the end node at
shortest time and lowest cost. As a result, efficient and reliable logistics enhances the
productivity and competitiveness by reducing cost and wasted time. And thus, it does not only
benefit the one at the end of the supply chain but for the whole system.
Upcoming trends
The world economy is exceptionally complex and dynamic; it is almost impossible to forecast
precisely. However, there are two major trends that are also reflected in logistics business.
The first one is the increasingly adaption of information technology and e-commerce into
9
business. There are many business models but the most successful following this trend is
Amazon.com, Inc. Founded in 1994 as an online book store, now Amazon has expanded its
services into various fields, notably online shopping, web hosting and content distribution such
as e-book, music and movie in digital form. In fact, almost all of its services take advantage of
the Internet to arrange, fulfil and deliver order. The advantages, from a logistics aspect can be
listed as reducing labor and administrative cost, lowering human-error risk as well as instant
order fulfilment. In 2015, Amazon became the most valuable retailer of the United States,
surpassed even giants like Walmart or Costco (Kantor & Streitfeld, 2015).
The second trend is outsourcing. Competitiveness now has become an international
battlefront due to globalization. To meet the increasing demands of customers as well as
threats from competitors, logistics service providers have to maintain higher quality service
but with affordable cost. Outsourcing is the answer. By outsourcing the logistics services to a
third party, firms can focus on their core competencies without tasking their employees with
non-expertise in logistics area, which may reduce their performance. In fact, outsourcing freesup your staff to concentrate on what they are good at, to maximize their talents. On the other
hand, specialists in third party companies are well-trained and dedicated to their specific field
of expertise, which, here, is logistics. They can, as a result, handle the logistics tasks more
proficiently and efficiently, with better quality and still be able to save time and costs for the
parent firms. Outsourcing in logistics is a sign of strong logistics performance and of a mature
logistics market, and is often a direct marker of logistics sophistication. In developed logistics
markets, shippers and other 3PL users generally outsource some 60% of their freight
forwarding, 70% of their warehousing, and 80% of their transport services. The remainder is
provided in house (The World Bank, 2014).
The last factor but not least is green logistics. This third trend had its origin in the mid-1980s
but emerging quickly as a decisive factor in many industries. As the global economy develops
and societies become more civilized, harmful impacts towards the environment are gradually
receiving more and more attention from the public. Social, political and economic demands
for sustainable development have given birth to green logistics. Green logistics essentially
focuses on ways to reduce the environmental effects of logistics (Macharis, Sustainable
Logistics. , 2014). It aims to create a sustainable development strategy by the balancing of
economic and environmental objectives. Green logistics in Vietnam is a very new concept. It
has not been widely practiced due to additional cost it applies on top of value chain. Higher
cost lowers the competitiveness of Vietnam logistics service in particular and the whole
economy in general.
10
The role of logistics
Better performing logistics can play a significant role in increasing productivity, as well as
provide international and domestic investors with an favorable export environment which
results in lower total export costs than what they incur in other countries. National logistics
systems focus on developing and providing infrastructures whereas business logistics
systems focus on optimizing supply chain decisions based on the infrastructures provided by
national logistics systems (Banomyong, Thai, & Yuen, 2015). Logistics is always a significant
factor, a backbone of any economy. First, logistics is one of the major expenditures for
businesses, thereby affecting and being affected by other economic activities. Second,
logistics supports the movement of many economic transactions; it is an important aspect of
facilitating the sale of all goods and services (Ellram, Stock, Lambert, & Grant, 2006).
Transportation and especially logistics have a close relationship with globalization. According
to Hesse and Rodrigue (2006), they are fundamental to the emergence and operation of the
development of networks, material flows and interconnectedness which, in turn, are essential
foundation for globalization. In other words, logistics is necessary tool to develop an efficient
global value chain of supply, production and distribution. This is true for small business to
multi-national corporations and even for the national economy.
Regarding the national economy, logistics plays an irreplaceable part in every country. It can
be seen as a facilitator, a coordinator connecting a number of different and separate industries
together resembling a supply chain. These different and separate industries now are linked as
a chain, sharing the same goals and targets, thus, making it easier for managers to control
and adjust to satisfy the market’s demand. Moreover, logistics is also an optimizer; it enhances
the proficiency of every stage of the chain by reducing the wait time and wasted expenditures.
As a result, it will help shrink the overall cost as well as increase investment effectiveness and
value of national resources. It is impossible to become cost leader in the market without an
efficient logistics system behind.
Logistics, from Lambert and his colleagues’ point of view, is an important source of
differentiation (Lambert, García-Dastugue, & Croxton, 2008). This implies that logistics service
can be tailor-made to suit market’s demand. Dima et al shared the same view point when they
also believe logistics service “integrated various operational functions”, “becoming the
manufacturer of the offer of services suggested by the client” (Dima, Grabara, & Modrak ,
2010). Excel logistics system will ensure the availability, accessibility, reliability and operating
11
range of product or service. It will help producer or service provider targets on the market
segment which has better profitability.
And finally, as pointed out by World Bank (2014), the core of economic growth and
competitiveness depends on logistics performance. In fact, seamless and sustainable logistics
is an engine of growth and of integration with global value chains. Without it, trading costs
would be much higher as well as global integration severely affected.
The benefits of logistics
Carruthers, Bajpai and Hummels listed down five major advantages of having an advance
logistics system (Carruthers, Bajpai, & Hummels, 2003). First of all, a good logistics provider
can help reduce the cost of moving goods between seller and buyer, especially cross-country.
The customers, therefore, pay less while the producers receive more profit. Secondly, logistics
can make the timing of the delivery more reliable. It means that producers and retailers no
longer need to overstock, saving money because large inventory can cost up to 55% of the
inventory’s value itself (Richardson, 1995). This is actually a hot topic in developing country
due to poor infrastructure and urban congestion. In addition, a seamless flow of goods can
smooth out the price fluctuation between market-caused supply and demand differences. This
is especially true in agriculture market when one region may enjoy surplus output while other
may suffer from shortage. Moreover, well-developed logistics has potential to expand the
market reach of the producers as well as providing consumers with a wider range of selection.
In fact, global logistics system is the reason why multi-national corporations can establish their
business all over the world. And last but not least, logistics capabilities are the requirement for
the country to move up the value chain from resource extraction to sophisticated
manufacturing. For example, electronic devices and other types of cargo that require timely
delivery, careful cargo handling and standardization demand better logistics and transport
service rather than iron ore and bulk grain. This is a challenge but also an opportunity to
become a competitive exporter of the region.
National logistics systems focus on developing and providing infrastructures whereas
business logistics systems focus on optimizing supply chain decisions based on the
infrastructures provided by national logistics systems (Banomyong, Thai, & Yuen, 2015). The
benefits of logistics, as seen from different perspectives, are analyzed as below:
12
From the company’s point of view:
The benefits of logistics can be recognized in many respects. Towards transportation
business, logistics may help improve the quality of service. Quality, here, means shorter transit
time, lower cost for shipment of goods along the corridor, and the reliability and flexibility of
the transport services offered on multimodal routes. To be more specific, logistics ensures the
goods is delivered to the right place, at the right time with the right quantity and quality. For
that, there is no need to stock more than necessary and thus, reduce inventory cost. It also
improves the utilization of container and other asset by professional planning and organizing,
therefore, reduces the cost for empty-container moves within the supply chain.
Moreover, transportation activities do not stop at just moving cargo from one place to another
as many other value added services are included. Effective logistics system requires
supporting services such as consolidation, deconsolidation, packaging, labelling, light
assembling and trans-loading. Apart from intermodal freight charges, these value-added
services can be major sources of income, boosting profitability for transport companies, either
in shipping or trucking business.
From the government and society’s point of view:
In general, logistics activities contribute to economic development, employment and added
value. First of all, logistics offers a favorable environment for business activities. Obviously,
no one would run a company in a country which has expensive cost for transport with low
quality and unreliable service. In other words, a good logistics environment is the key element
to sustain economic growth, increase the national competitiveness, makes it become an
attractive destination of foreign investment. This is the stepping stone Vietnam needs in order
to expand the market into international territory.
Secondly, logistics, as mentioned above, comes with many support services. In a logistics
park, for example, not only traditional cargo-handling services are provided, but also many
related and value-added services, such as distribution centers, shipping agents, trucking
companies, forwarders, and packing firms are attracted to the area. This cluster of services
can offer hundreds of employment opportunities from low to high skilled. A diversified and
sophisticated logistics service market strengthens local expertise and creates jobs. In addition,
it can be a considerable source of fiscal income via taxes and rent for the government.
An often-neglected dimension of freight distribution, according to Rodrigue, concerns the array
of goods moving within metropolitan areas (Rodrigue, 2012). Even though urban transport is
13
a short distance and mostly involves a local carrier, it still poses a lot of unique challenges for
logistics and supply chain management, especially in developing countries like Vietnam.
Rodrigue argued that an effective logistics plan can improve the efficiency of urban freight
transportation, reducing traffic congestion, and mitigating environmental impacts.
Regarding environmental impacts, the carbon footprint of the supply chain has become the
target of public attention. Green logistics, therefore, was born to promote environmental
sustainability among actors within the chain. By utilizing the use of input material and
effectively disposing and recycling of waste, green logistics hopes to mitigate the harmful
effect of industrialization.
14
Chapter 3: Overview about Vietnam’s logistics and competitiveness
Overview
The Strength
Vietnam is situated in a favorable geographic location. With over 2100 km of coast line and
situated between two major shipping hubs, Singapore and Hong Kong, it is a right decision of
Vietnam’s government to pursue an ambitious shipping strategy. Realizing the potential, the
Vietnamese government has heavily invested in the shipping industry. Since 1995, hundreds
of millions of US dollars have been spent to build and expand ports from the northern to
southern regions. After almost ten years, the number of seaports in Vietnam have reached 44,
in 2014. Highway and railway systems were also upgraded in order to support transportation
activities. Overall, investment into the infrastructures of Vietnam recently is impressive
compared with other more advanced economies in the same region. For example, Vietnam’s
national budget for infrastructure development increased gradually and now is maintained at
12% of GDP. Other countries such as Taiwan or Korea, in the 1970s, spent on average around
9.5% and 8.7% of GDP, respectively (Nguyen T. X., 2010).
The shipping-focused strategy was also supported by a huge young labor pool with
competitive wage. Among a population of over 94 million (2015), over 66 million is of working
age (CIA, 2016). On top of that, the average wage is about US$200 per month, which is able
to compete with other cheap sources of labor within the region. To illustrate, the average
monthly wage in Vietnam in 2013 was US$197, slightly below the Philippines and India at
US$215, while, it was roughly half of Thailand and a third of China average wage (ILO, 2014).
As a result, Vietnam is always one of the most attractive countries for foreign direct investment
(FDI), among top ten recipients of FDI flows in Asia (UNCTAD, 2014). The FDI poured into
Vietnam in 2015 was the highest ever, reaching a record number of US$ 9.65 billion and rising
by 8.4% from 2014 (Ho, 2015).
And last but not least, a stable political regime can be considered as a plus point for the
development of Vietnam’s economy. It is true that no economic engine can operate smoothly
within an unstable state apparatus. A lesson can be learnt from a neighboring country –
Thailand. Multiple political crises in the period of 2008-2014 severely affected the Thai
economy. GDP growth dropped significantly to 0.6% while consumption expenditure and
15
national credit rating also declined. (Sethapramote, 2014). At the same time, Vietnam has still
been able to keep its GDP growth above 6%, thanks to a stable political regime.
The weakness
A major flaw of Vietnam’s economy is that it heavily relies on imported inputs. It means a large
proportion of retail price breakdown is to compensate for importing costs. It is due to a weak,
small scale manufacturing sector with obsolete technology. It is reported that Vietnam is
unable to produce simple components such as screws and bolts that have to be imported
(Vietnamnet, 2015). And as a consequence, profit margins are shrunken for manufacturers.
For example, imported raw materials used in the manufacturing of apparel exports account
for 70–80% of the value of the end product. The equivalent number for footwear exports stands
at around 50% (The World Bank, 2014). On the other hand, it also affects the trade balance
and makes the whole economy become more exposed to international market fluctuation. The
reasons for this heavy reliance on importing are the lack of supply cluster and integrated
supply chain. There were, however, many policy and capital supports from the government to
develop sophisticated supply clusters and supply chain. Even though, due to the inefficient
use of investment as well as complex and inconsistent regulations, many of those are just in
primitive stage of development.
Vietnam’s economy still suffers from inflation. Especially from the period between 2007 and
2011, double digit inflation haunted the country with an annual average of 14%. Consumer
prices, therefore, increased by 23% in 2008 until 2011 when it started to decrease to 19% in
2011. As a result, it led to the reduction of purchasing power and the national credit rating as
well as increases in borrowing costs of capital that lowered the performance of the whole
economy. In the situation, in February 2012, the government of Vietnam passed Resolution
11 to switch its policy stance from primarily supporting growth to primarily taming inflation and
bolstering market confidence (Banomyong, Thai, & Yuen, 2015). It proved effective by halting
the inflation and dragged it down to 0.6% in 2005 (World Bank, 2015).
There are issues in the regulation and administration system that also need tackling. Most of
them are produced as a result of red-tape and cumbersome bureaucracy. On top of that,
regulatory uncertainty adds to the administrative burden of freight stakeholders, who are
subject to monitoring over 5,700 administrative procedures and 9,000 legal documents
(EuroCham, 2012). Moreover, according to the US-ASEAN Business Council (2012),
“Vietnam does not implement regulations consistently … the government may start down a
good path, but then special interest groups pressure the government for special favors, which
16
throws the government off-course.” The inconsistency in legislation also created a lot of
interpretations that can be a challenges for firms when communicating with government
officials. It also created loopholes, or in other words, opportunities to abuse the law for
personal interests. An ineffective law system limited a lot of development potential. In one of
the World Bank’s surveys, according to logistics service providers, their operating costs are
generally lower in Vietnam compared with their operations in China, India, Malaysia, and
Thailand. However, 70% of respondents noted that regulations negatively impact their
business operations and cited inflation as a recurrent concern for them and their customers
(The World Bank, 2014).
The status of logistics in Vietnam
Logistics costs
Cost can be a key performance indicator of logistics activities. Logistics costs relate to the
charges for the movement of goods using various transportation methods such as railway,
road, airway and ocean transport, including fuel and passage costs. Additional logistics costs
include warehousing space, packaging, security, materials handling, tariffs and duties.
Vietnam’s logistics costs are relatively high. It was estimated to be approximately 25% of GDP
(Vietnam Chamber of Commerce and Industry, 2012) in which shipping costs took a large
share of up to 50-60% (Vietnam Chamber of Commerce and Industry, 2012). Some studies,
however, have also stated that Vietnam’s logistics costs as a percentage of GDP are lower,
around 20% or even closer to 15% (Meyrick and Associates, Transport Development and
Strategy Institute, 2006). Nevertheless, the logistics cost is still at higher level compared with
other developed countries.
Country Logistics cost (% GDP)
United States 10.5%
France 11.1%
Hong Kong 13.7%
Singapore 13.9%
Table 1: Logistics cost of developed countries (Donald & Roger, 1998)
So, is logistics costs more expensive or cheaper in Vietnam compared with other countries
within the region? For example, in order to import from the U.S., it costs $8 per FEU higher in
17
Vietnam than the equivalent cost for Yantian, China, and $280 lower than that for Jakarta,
Indonesia. Regarding export: without destination duty, Vietnam’s logistics cost is $92 less
expensive than a shipment from Yantian, China, to Los Angeles and $205 less than a
shipment from Jakarta, Indonesia, to Los Angeles (Blancas, Isbell, Isbell, & Tan, Efficient
Logistics: A Key to Vietnam’s Competitiveness, 2014). The above results suggest that
Vietnam’s logistics costs are about on-par with China’s and below those of Indonesia. On the
other hand, it is reported that the inland transport in China may take up to two-thirds of the
total export costs to oversea markets (Carruthers, Bajpai, & Hummels, Trade and Logistics:
An East Asian Perspective, 2003). Excessive cost in the logistics activities and customs
clearance are the main culprits and it may be expected to be the same in Vietnam.
Table 2: Estimated Vietnam’s import and export cost (Efficient Logistics – World Bank, 2014)
Vietnam’s logistics costs, compared with others in the Southeast Asia region, are on the
middle level. Even though below some countries, they are, however, on-par or even above
some key competitors of the region. This is the result of the heavy investment into these
“lower-hanging fruits” in the logistics performance, namely basic transport infrastructure,
sufficient electricity supply along with custom modernization. It pushes Vietnam to become a
capable competitor in the market as well as claims a new position as a lower middle income
country. But when all these “lower-hanging fruits” have been harvested, it is time for a new
stage of development, focusing on improving efficiency, innovation and sophistication of the
logistics system in particular and the whole national economy in general. In other words,
productivity-boosting, well-coordinated performance, effective investments and institutional
reforms have now become a priority for Vietnam’s government in the upcoming years.
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Assessment of logistics’ components
As mentioned in chapter two, logistics is an essential tool to enhance the productivity and
competitiveness of a country. How efficient a country’s economic activities are largely depends
on the logistics performance. In order to assess the logistics performance, it needs to be
recognized as a system with multiple components. Therefore, the logistics system in Vietnam
will be broken into seven aspects, which are port and terminal, airport, cargo-handling
facilities, land infrastructure, trucking industry, custom and regulations and finally human
resources. All of them are key nodes in the whole supply chain and play important roles in
determining whether the logistics system is efficient and productive or not. They will be
assessed thoroughly below.
Port and terminal
The Liner Shipping Connectivity Index (LSCI) is another indicator established by United
Nations Commerce, Trade and Development (UNCTAD) in 2004 to quantify and to rank each
coastal country’s accessibility to the global container shipping network. The LSCI is largely
determined by the position within the global network, not by trade volume of a nation. The
most recent statistics have shown that Vietnam achieved 46.4 points, surpassed other
neighboring countries like Cambodia (6.7 points), Indonesia (27.0 points), the Philippines
(18.3 points) and on par with Thailand (44 points). It is, however, still far behind other shipping
powerhouses like China and Singapore. From the results, it can be seen that there is a lot of
room for improvement to start becoming an attractive location for liner vessels to call
(UNCTAD, 2015).
To begin with, Vietnam’s shipping industry is highly concentrated in two major shipping
centers: Haiphong in the North and Ho Chi Minh city (HCMC) in the South, along with several
satellite ports, namely Cai Mep – Thi Vai and Cai Lan. Besides that, there are a lot of smaller
and regional ports scattered from north to south, even though most of them are incapable of
handling international shipments with obsolete facilities, shallow water channels and poor
support services. In total, there are 44 seaports that handle a total throughput of over nine
million TEUs in 2013 (UNCTAD, 2015).
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Figure 1: Vietnam’s ports performance vs. others
Despite the fact that Vietnam’s nationwide container volume is projected to grow at an average
annual rate of 8–9% through 2020, (Blancas, Isbell, Isbell, & Tan, Efficient Logistics: A Key to
Vietnam’s Competitiveness, 2014) there is a sign of structural deficiencies in port
development. Vietnam’s government wants to emphasize a “quantity over quality” port
development strategy. The fact that there are 44 sea ports in Vietnam but the majority are
unable to receive vessels above 3,000 TEU proved this statement. By building more ports is
an ambitious plan to directly compete with maritime powerhouses of the region such as China,
Hong Kong and Singapore. It has become a “port race” to some extent that “almost every
province along the coast of Vietnam managed to have a port project,” Vu Tu Thanh, chief
Vietnam representative of the U.S.-ASEAN Business Council, said in an interview in Hanoi
(Bloomberg, 2014). That plan, however, may backfire due to overcapacity. Insufficient port
demand and incapability of port service are the main reasons.
Such spreading investment is a waste of capital, drives the market to the verge of over-supply
and fragment, damages the economies of scale and causes additional costs for the users of
services. Besides, overcapacity may weaken Vietnam’s ability to attract more higher-value
manufacturing that demands efficient transportation systems. Scattered port and terminal
projects also created challenges to provide sufficient landside and supporting infrastructure,
namely roads, bridges, warehouses, in-land container depot (ICD) … A fragmented terminal
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market also distinguished economy of scale effects. The promotion of multiple small ports
causes the lost of $1.5 billion just in Cai Mep alone due to oversupply. However, Deputy
Transport Minister Nguyen Hong Truong believed the other way when he blamed the global
economic slowdown and insisted that Vietnam still needs more ports from now until 2020
(Bloomberg, 2014).
On top of that, port congestion still exists, it would increase service users’ inventory carrying
costs, especially for time-sensitive cargo because they now have to stock more cargo in order
to compensate the unreliable delivery. The congestion in the port is not caused by large
number of vessels berthed at the same time; however, it is due to time-consuming cargo
handling coped with slow and redundant custom clearance process. Handling equipment in
most of the port, especially regional ports, are obsoleted, some of them cannot handle
containership. Port area are often small without enough space for warehousing and storage.
Access to the port mostly depends on land connections such as highway or railway, and again,
this is another source of bottleneck. The congestion situation confirms the above point:
specialized, deep port facilities are in shortage while inefficient, small regional ports are
excessive.
The southern region is the most developed, handling around 70% of Vietnam’s foreign trade.
Saigon New Port, along with Cai Mep – Thi Vai, are considered to be of the best operated port
facilities in the country with the fastest vessel turnaround time thanks to new quay cranes of
Super-post Panamax class with an average of 30 moves/crane/hour. However, Saigon New
Port actually is just a river port which limits its maximum capacity to only 20,000 DWT. Apart
from Cai Mep – Thi Vai, which are able to receive ships up to 14,000 TEU or 160,000 DWT,
the majority ports in Vietnam are small and incapable for ship above 3,000 TEU to call. (The
World Bank, 2014) Moreover, southern terminals lack of frequency of vessel calls because of
the oversupply that has been explained above. For example, Cai Mep – Thi Vai is only running
at 30% of capacity according to one Maersk’s report, while four of the terminals have no
container ship customers and have to rely on business such as bulk and cruise liners
(Bloomberg, 2014).
Regarding the operation limit, the government set up a cap for Cai Mep – Thi Vai port at 80,000
DWT but, in fact, ships calls already exceeded that number. On 19th December 2011, Cai Mep
International Terminal (CMIT) welcomed the CMA CGM LAPEROUSE to the Cai Mep – Thi
Vai Port Complex in Ba Ria – Vung Tau Province. Belonging to CMA CGM, the world’s third
largest container shipping company, and with a nominal capacity of 13,830 TEU and DWT of
157,092, CMA CGM LAPEROUSE was the largest container vessel to ever call a Vietnamese
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port at that time. On 29th October 2015, it also received a 160,000 DWT CSCL Star container
ship to berth at one of its four quays. (Cai Mep International Terminal, 2011) This “soft” limit,
in the near future, may constrain Cai Mep – Thi Vai’s operation development.
Cat Lai is another efficient operating terminal that is also located within the HCMC region.
With the advantage of being close to major manufacturers. Cat Lai service users can enjoy
having closer cutoff times to vessel departures and lower drayage rates. Transport time and
cost to Cat Lai, because of the same reason, is relatively cheaper than other ports of the
region. However, along with Cai Mep – Thi Vai, Cat Lai also has to share the market with
many other smaller ports in the area. Vietnam’s government, therefore, should focus on
developing and modernizing a few key ports, rather than all ports across Vietnam.
Meanwhile, most of the seaports in the North are considered outdated with swallow water
depth of approaching channels and crippled by inefficient container handling terminals
(Banomyong, Thai, & Yuen, 2015). Cargo owners already reported several connectivity
challenges facing Haiphong port in Northern Vietnam including dredging, outdate handling
facilities and congestion (The World Bank, 2014). Located at the mount of a river that
constantly affected by sedimentation, Haiphong port cannot welcome bigger than 10,000 DWT
vessel. Also, almost all container services are served by feeder vessels due to the fact that
there is no deep-water terminal. By using less efficient vessels of below 1,200 TEUs that would
rise the cost, shipments from Haiphong are more expensive than HCMC. The only deep-water
port in the north are Lach Huyen, however, it is not fully utilized to operate at 100% potential,
the same problem as Cai Mep – Thi Vai.
The quality of the investment projects is also questionable. Many of them were made by
Vietnam National Shipping Lines (Vinalines) – a state-owned company established in 1995.
Vinalines has been criticized for inefficient investment and corruption among top managers.
According to Vietnam Government Inspection Committee, in the period of 2007-2010, the
irrecoverable debt upon Vinalines is over 23,000 billion Vietnam Dong (approximately
US$1.03 billion). The inefficiency of their financing framework might delay port and terminal
development and renovation, especially in the northern region of Vietnam.
Airport
Despite having up to 45 airports, 38 among them with paved runways across the country (CIA,
2016), only two, Tan Son Nhat (HCMC) airport and Noi Bai airport (Hanoi) can handle
international cargo and both are state-owned. Cargo throughput via theses airports grows with
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an average rate of 15%, reached up to 467,000 tonnes in the first half of 2015. (Airports
Corporation of Vietnam, 2015) Even though, Vietnam’s air fleet has to depend mostly on
chartered planes without any professional freighters yet. The quality of service, however,
compared with other international airports within the region, is left behind. In a survey
conducted by World Bank, service users ranked these airports as delivering substandard
service relative to other Asian countries. The terminals offer small + noun that do not have
enough space for cargo storage, but, on the bright side, they do have cold storage facilities
and separated areas for dangerous cargo. On top of that, airport operators and workers lack
adequate skill level and training together with poor work ethnic which results in delays, cargo
damage, and increased costs for customers. Security is also lax making cargo theft another
concern. Several logistics service providers also reported that there is also a high degree of
corruption at tally stations. If the airports are owned and operated by private companies, they
would be more competitive and cut the cost about 50% (The World Bank, 2014).
Logistics service providers
1. Cargo-handling facilities
Cargo-handling facilities, as one of those links in the supply chain, greatly contribute to the
efficiency of the whole system. These facilities could range from a warehouse, cross-docking
center, consolidation center to an in-land container depot (ICD). They provide essential and
basic services such as storage, preservation and transportation to more complex tasks such
as consolidating, packaging, labelling, transshipment and distributing. Some can even offer
inspection and custom clearance services, as well as recycling and reserve logistics. These
are value added services, a great source of income for any logistics provider if they are able
to seize the opportunity. These are estimated to account for around 20% of total origin of costs
before export, without ocean freight.
Most cargo-handling facilities are substandard. General criterions such as fire protection and
security, even though they do so, only exist at a minimum just to satisfy regulations. It is
reported that many cargo-handling facilities lack full concrete floors and are built with bricks
over sand that settles, resulting in uneven floors that can lead to cargo damage. Ventilation is
limited, which impacts product quality when cargo is stored for any length of time (The World
Bank, 2014). The skill level as well as the work ethic of employees also needs to improve to
understand and respect handling instructions, which causes damage to the cargo while in
transport or storage. All these unprofessional factors reduce efficiency, increase risks to the
goods and also operating costs of logistics service provider.
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Another weak point of cargo-handling facilities in Vietnam is that not so many are located near
highway connections, ports or production areas. Many logistics service providers had to admit
that it is difficult to locate cargo-handling facilities in Vietnam of the quality adequate to satisfy
their customers (The World Bank, 2014). On top of that, all 17 ICDs across the country are
accessible by roads, or in-land waterway in the South but not railway (Banomyong, Thai, &
Yuen, 2015). The reason behind this phenomenon is because most of warehouses are built
spontaneously by the private sector solely to meet their demand. There is almost no strategy
coming from the government to create efficient, well-placed logistics parks. And attempts to
establish logistics facilities by the private sector are also hindered by complex and difficult to
navigate regulations.
For that reason, logistics support facilities in Vietnam lack the co-ordination and connection of
a network. According to Banomyong et al. (2015), logistics parks and cargo-handling facilities,
instead, should be treated as an integral elements of end-to-end supply chains and, therefore,
integrated into the transportation infrastructure network (Banomyong, Thai, & Yuen, 2015).
Accessibility to logistics and cargo-handling facilities must be maintained at maximum level,
for example, to avoid congestion at peak time, fly-overs might be considered. Railroad
systems should be utilized to share land cargo capacity by connecting with logistics parks so
that they can enable boxcar loading within the facilities. In short, cargo handling facilities must
be modernized and established as a part of the supply chain, near production clusters and
have better access to other transport modals such as highways, railways or ports.
2. Trucking industry
The trucking industry is fragmented by many small companies without any attempt to
consolidate from both government and the private sector. Most of the land transport
companies only own one to two container tractors. And for that reason, cargo owners or
logistics service providers often have to sign the transportation contract with multiple trucking
companies for their shipment. Even so, the reliability of delivery sometimes is not guaranteed.
Most logistics service providers consider trucking costs to be higher in Vietnam than in China,
India, Malaysia, and Thailand. This might due to the differences in labor wages, fuel cost,
exchange rate and more importantly, facilitation payment, which will be discussed later. At the
same time, trucking service delivery is considered to be substandard compared with India and
Thailand, and similar to China and Malaysia. Trucking companies generally are small, with old
and obsoleted trucks, which, in turn, will increase expenses for fuel consumption and
maintenance. Also, driver attitudes are reflected to be poor and unprofessionalism. Estimating
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about 20-30% of trucks are overloaded. Cargo is often loosely-loaded without pallets and
might lead to accidents or damage as the cargo can easily shift. In addition, there are no
trucking companies providing cargo tracking services. If a service user desires reliable, quality
service, it has to pay higher rates, up to 40% higher (The World Bank, 2014). However, since
there is little to no strict sanctions for delivering substandard trucking services, those
companies will still try to compete by getting the price as low as possible. This, undeniably,
will damage the overall quality of the logistics service in general.
With most of the trucking companies in Vietnam not meeting international standards, one of
the four international ocean carriers interviewed in a World Bank report described having to
invest in its own fleet of trucks to maintain the high service level demanded by its customers
(The World Bank, 2014). The damage by this action is not only in the increasing in logistics
cost, but also stealing market share from domestic trucking companies. This can be seen as
a wake-up call for domestic trucking companies to improve their services otherwise being
excreted off their homeland.
3. Third party logistics service provider (3PL)
It is common in Vietnam for large exporters to have a dedicated in-house department for import
and export process. The reason is because the trade documentation and custom clearance
are often time-consuming, costly and cumbersome. But moreover, Tongzon and Cheong have
indicated the fatal weakness of Vietnam’s logistics industry or rather most of the ASEAN
countries is that the domestic providers are “at their infancy stage”. This is due to the
protectionist policies and poor governance that over protect domestic firms but turn out
spoiling the healthy competitive environment. (Tongzon & Cheong, 2014) Most of them are,
the same with trucking industry, highly fragmented and, therefore, significantly reduce the
competitiveness, especially in the international market. It is not until January 2014 when
Vietnam government started to allow fully foreign-invested enterprises to enter the logistics
market and since then, foreign logistics firms, such as Maersk Logistics, APL Logistics, NYK
Logistics and MOL Logistics, are dominating Vietnam’s market, holding 80% of the market
share which worth up to US$48 billion (Vietnam Briefing, 2014). They mostly target on Cold
Chain (storage and cold transportation) because that is the new, uncharted market fragment
that have not received much attention from domestic logistics companies. This new
opportunity requires intensive capital investment coupled with sophisticated and efficient
management – these are also elements that domestics firms are lacking of. It is reported that
DHL invested US$13 million in a total of 141,000m2 of storage with roughly 100 trucking
vehicles in 2015. Meanwhile, Maersk Line, has also expressed their expansion ambition with
25
four new storage facilities in the same year. The rapid expansion of major foreign retailers in
Vietnam and the ever increasing in export quantity of farming and seafood products are the
main driver for the expansion (Vietnam Briefing, 2014). Third-party logistics (3PL) in Vietnam
showed positive signs with an estimated revenue of US$ 1.5 billion in 2014, accounting for
7.4% of GDP.
Country 2014 GDP Logistics
(GDP %)
Logistics
cost – 2014
3PL
Revenue %
2014 3PL
Revenue
China 10,360.0 18.0% 1,864.8 8.0% 149.1
Indonesia 856.1 10.7% 91.6 7.2% 6.6
Malaysia 336.9 10.7% 36.1 7.1% 2.6
Philippines 289.7 10.7% 31.0 7.1% 2.2
Singapore 307.1 8.5% 26.1 11.5% 3.0
Thailand 380.5 10.7% 40.7 7.2% 2.9
Vietnam 187.8 10.7% 20.1 7.4% 1.5
Table 3: Global logistics costs and third-party logistics revenues (US$ Billions) (Armstrong &
Associates, Inc., 2016)
Land connections
Land connections play an important and irreplaceable role by connecting different nodes and
maintaining a seamless flow of goods within the supply chain. The government has been
spending an enormous amount of money to improve traffic infrastructure over the last decade.
Until 2014, Vietnam has 2,600 km of railways, 195,468 km of roadways in which over 75% are
paved and up to 47,130 km of waterways (CIA, 2016). Even though the road density (km of
road per 100 square km of land area) is relatively high, surpasses even Thailand and Malaysia
(Nation Master, 2016), nevertheless, major highways in Vietnam have not been paid adequate
attention. This is expressed through the lack of proper highway and peak time congestion
problem.
In the same survey conducted by World Bank (2014), highway congestion in Vietnam, as said
among service users, is worse than in China, Malaysia, and Thailand, but similar or better
than in India and Indonesia. For instance, road conditions and congestion between Cai Mep
and HCMC are terrible. Three hour delays are common during the peak season. The same
situation can be witnessed in National Highway No. 5 connecting Hanoi and Haiphong where
120 kilometers takes more than four hours to commute because of congestion. This, in turn,
26
makes cargo delivery becomes unreliable. Thus, it drives the shipper to overstock which will
increase the overall logistics cost.
The root-cause of this problem has been identified as the rapidly expanding urbanization,
increasing levels of car ownership, higher volumes of freight, a shortage of road capacity, and
poorly designed highway and road intersections. The government has tried to combat the
congestion problem by make-shift measurements such as banning trucks operate within urban
area while limiting maximum weight load on bridges and roads. It may fix one problem but
also rises the others, for example, increasing land cost and the delivery time of transportation.
For that reason, increasing highway and road capacity is critical and top-priority for the
government.
The cost of congestion when all motor vehicle highway users are included (i.e., beyond freight
trucks), has an estimated cost of US$1.7 billion on the Vietnamese economy. Annual savings
in trucking costs can reach US$121 million by 2020 if more truck trips per truck per day can
be generated through better highway and road designs (The World Bank, 2014).
Due to narrow, low quality roads and their adjacency to residential areas, the speed limits on
highways in Vietnam is exceptionally low, only 80 km per hour and some areas could be
lowered to 60 km per hour. Recently, Vietnam’s government increased the speed limit by 10
km per hour more but the effect is marginal. For a 100 km long way from Hanoi to Haiphong
still takes two hours to travel. New projects to build “proper highways” with much higher speed
limits were introduced. By 2020, 2,500 km of highways will be completed and open to traffic,
connecting North and South region, but more importantly, linking Hanoi and HCMC to
international seaports and border gates. The total amount invested in these projects are over
US$7.7 billion (Le, 2016).
There are problems with railways as well. Rail service is rated as substandard without cargo
tracking and takes seven days for a consignee in HCMC to receive the cargo that shipped
from Hanoi. Among 2,600 km of railways, only 178 km are in standard gauge where it connects
bordering provinces with China, the majority are one-meter gauge (CIA, 2016). The railway
system and its terminals, all were built 20-30 years ago, which now, are old and outdated.
Most of them are unable to load and unload containers; meanwhile, there are only 500 flat
beds cars designed to carry containers (Banomyong, Thai, & Yuen, 2015). The one-meter
gauge is cheap to build, however, it lacks the physical space to grow. In other words, it is not
suitable for larger, faster and heavier trains to run. On top of that, the railway system is still
mostly in single track, even in some important routes like between Hanoi and Haiphong, which
27
severely limits rail service’s total capacity and delivery time. That may explain why a rail modal
only shares 7-8% of total freight transport (Banomyong, Thai, & Yuen, 2015).
Inland waterways in Vietnam, at the moment, are not suitable for container transport. The
reason is only about 40% of the river system in Vietnam is regularly dredged and,
consequently, navigable all year round (Banomyong, Thai, & Yuen, 2015). In fact, only 200-
1700 tonnes barges are widely used to carry construction materials such as sand, gravel and
cement on small rivers across the country. Small boats are utilized to transport agriculture
products, especially tropical fruit in the Mekong River Delta. This region also has considerable
water level difference between the rainy and the dry season, making cargo transport a difficult
task. On one hand, inland waterways can be developed to share the pressure and reduce
congestion on highways, but, on the other hand, the cost might be too high for an acceptable
result.
To sum up, despite all the above shortcomings, the logistics costs in Vietnam are still able to
compete with most neighboring countries mainly because of the low labor wages. The average
wages of Vietnam, which are only one third of China helps keep the overall transportation
costs down to competitive level. More specifically, the consolidation fee and terminal handling
cost for exporting from Vietnam’s ports are only 60% and 43% of China’s, respectively, while
trucking and ocean freight are about the same (The World Bank, 2014). Vietnam’s
government, however, cannot rely on this as a long-term strategy. Instead, improving the
efficiency and productivity of the logistics system can be the key to open up more opportunities
to become a powerhouse in exporting.
Customs and Regulations
Customs decisions, policies, and directions are arbitrary and inconsistent, and also vary
between regions with a cumbersome nature of working. According to logistics service
providers, regulations are vaguely defined and ever-changing, creating confusion among
stakeholders. Moreover, loopholes from a loose law system are exploited by corrupted State
officials causing millions of U.S. dollars in terms of damage. And from the cargo owners’
perspective, the functional areas of clearing customs in Vietnam is only better than Cambodia
and Indonesia and is less competitive than in other Asian countries and needs to be simplified
and universally applied by reducing the number of required certificates and licenses. To be
more specific, more than half of respondents consider Vietnam’s customs requirements to be
more stringent and expensive to comply with compared with other Asian countries where they
operate (The World Bank, 2014). For example, less-than-container load cargo can be cleared
28
in Malaysia in three days compared to six days in Vietnam. Full-container loads shipments are
cleared in one day in Malaysia compared to three to four days in Vietnam. In addition,
facilitation payments are common and accepted to be an “other fee” in many logistics
contracts. These illegal payments are mostly given to custom officers by cargo owners or the
logistics provider in order to accelerate the custom clearance process. It is also handed to
police officers on highway outposts to allow overloaded or speeding container trucks. If
operations were transparent and solicitation of facilitation was curbed, service users’ costs for
activities relating to customs clearance could be reduced by up to 20% (The World Bank,
2014).
Table 4: Average days for customs clearance (Carruthers, Bajpai, & Hummels, Trade and
Logistics: An East Asian Perspective, 2003)
On the bright side, however, the automation and modernization of the customs clearance
process has been partly implemented, and it has already yielded some positive results at
simplifying and expediting clearance processes. Custom documents now can be created,
decleared and submitted via Internet within an hour. Single-door administrative policy on
customs declaration saves logistics service providers considerable amount of time and efforts.
29
At the same time, they also can clear their goods for import or export at the warehouses or
ICDs far away from the borders and seaports.
After being an official member of WTO, Vietnam has committed to remove obstacles and
barriers for international companies to operate and compete on an equal footing with domestic
companies. However, there are still many to improve. For international ocean carriers, it is a
complex and costly process to file the necessary documents to avoid double taxation.
Moreover, there is strict rule to prevent foreign flag carriers from carrying internationally
destined containers from northern and central Vietnam to Cai Mep-Thi Vai to connect with
mother vessels. All the limitations definitely not only reduce the competitiveness but also the
performance of the shipping and logistics sector.
One of the first obstacles that needs to be removed is the restriction on transshipment volumes
and cabotage. There is a strict rule from Vietnam government to prevent foreign flag carriers
from carrying internationally destined containers from Northern and Central Vietnam to Cai
Mep – Thi Vai to connect with mother vessels. In addition, foreign logistic providers and
maritime carriers, they can only operate under joint venture with a domestic counterparty, in
which the foreign investor’s authorities and responsibilities is limited. The purpose is to protect
domestic operators but at the same time, spoiling the competitive environment. In other words,
overprotecting policy from the government indirectly reduces operational efficiency and
competitiveness of the transportation and logistics industry. However, all these restrictions
should have been removed in 2014 to comply with the Vietnam’s commitment to becoming a
member of the WTO.
So far, Vietnam has positively abided by its commitments to open the logistics service market.
Bilateral agreements such as Cross Border Transport Agreement grant traffic rights and permit
foreign trucks and containers to cross the border to deliver or collect export and import goods
without wasting time for transshipment at the border. Along with positive internal changes in
regulations and policy from Vietnam government, this further reduces the cost, cuts down the
time of transportation, and, ultimately, increases the completive ability of Vietnam’s logistics
system in the global market.
Human resources
With 54 million of total population of working age, a huge labor pool is, indeed, an advantage
to the Vietnamese. The quality of labor force, however, is another problem. Even though
general work force is plenty with the literacy rate above 90% (CIA, 2015), Vietnam still lacks
30
skilled and highly qualified employees such as experienced executive level managers and
directors who have sufficient supply chain and logistics experience. Not only Vietnam but other
developing countries of the Southeast Asia region, for example, Indonesia or the Philippines,
are facing the same problem (Tongzon, Liberalisation of logistics services: the case of
ASEAN, 2011). Tongzon, in his research, also pointed out the reason for this phenomenon.
First of all, it is because of inadequate training opportunities available and the lack of academic
institutions that provide logistics as an area of specialization. And secondly, there is no
common standards for logistics education, thus, further limiting the development of logistics
professionals within Southeast Asia. Though there are efforts such as multiple short-term
courses on freight forwarding and logistics operations held by the International Federation of
Freight Forwarders, UNESCAP or Japan International Cooperation Agency (JICA). Positive
results have been yielded, but, on the other hand, they are just limited in scale and insufficient
to create a strong push for the whole region.
31
Chapter 4: Limitations, recommendations and possible challenges
Vietnam is a developing country. In order to reduce the gap with other more economically
developed nations, there are a number of tasks Vietnam needs to undertake and improving
logistics performance is one of them. Reports showed that improving logistics performance is
the “core policies to bolster competitiveness and boost trade integration” and is “the most
potential” for a developing country like Vietnam (The World Bank, 2014). The reason for that
conclusion is derived from the fact that high cost of logistics in national GDP does not stem
from the transport side but primarily from the warehousing and inventory carrying cost side.
As mentioned in the previous chapter, Vietnam’s logistics system is rated to be on lowermiddle level of both performance and competitiveness. According to the WEF, Vietnam is at
the “factor-driven stage” and mostly depends on “unskilled labor and natural resources”.
(World Economic Forum, 2015) As a consequence, competition in both domestic and
international market is mostly based on cheap materials and basic commodities. Companies
often compete by bringing down the price for products and services as low as possible and
that is reflected in the barely sustainable level of wages for labor with a little to no added value.
With an inefficient and underperforming logistics system, it can easily wash out the
competitiveness that is built upon low labor costs or abundant natural resources. As previously
pointed out, Vietnam is recognized by having impressive development in term of infrastructure.
This is important as a solid foundation to improve the quality of the logistics service. It still,
however, needs a lot of efforts in order to catch up. Because it is the driving factor in logistics
performance in emerging and richer economies, (The World Bank, 2014) quality of logistics
must be in main agenda of Vietnam’s government in order to compete with other countries of
region, to move up in the value chain.
To sum up, there are five striking drawbacks of Vietnam logistics system that require
immediate attention from the government. Its impacts as well as recommendation are also
included in order to provide a better strategy to improve the efficiency and quality of the
logistics services in Vietnam.
1. Inappropriate investment into port planning
As mentioned in the previous chapter, the investments into basic infrastructure such as
motorways, bridges, electric or water system are impressive. It is on par or even surpasses
many countries in the region with up to 12% of GDP. The problem is, however, these
investments are often widely spread, while some key projects are invested inefficiently. The
32
reason behind the spreading investment initially came from the government policies and
guidelines to eliminate the gap between the urban and other poorer regions. At first, lower
developed provinces were provided preferential capital from the national budget or the FDI to
establish start-up industrial projects, for example, sugar mills, cements or steel plants. Despite
the fact that not all of these projects ended up fruition, a new wave of preferential capital for
infrastructure development was disbursed as Vietnam committed to join WTO. (Thanh &
Dapice, 2009) The outcome has both strengths and weaknesses. On one hand, road, bridge
and other basic infrastructures building in poorer areas has achieved remarked results, rising
the living standards and shortening the wealth disparity. On the other hand, however, allowing
every coastal province to have expensive yet under-utilized ports is wasteful and counterproductive. The government policy had its good intention at first, but then was inappropriately
modified and deviated due to political decisions involving group and personal interests.
On the other hand, that money should be invested into other supportive services for shipping
activities. Vietnam currently has more than 100 ports but most of them only meet the needs
of smaller vessels. In the last ten years, demand for transportation is switched to larger
capacity container vessels and Vietnam’s port system soon revealed its weaknesses. Port
planners still pursuit outdated port design of 200-300 meters berth, while the latest
containership generation requires up to 400 meters long. (Sa Huynh, 2016) Meanwhile, Cai
Mep – Thi Vai has berths that is 600 meters long, which is more than enough for one big
vessel but inadequate for two. Due to the lack of ancillary infrastructure, the potential
performance of each port project can not fully be utilized. For instance Cai Lan port has a
depth of 12 meters with extra capacity but receives only about 4% cargo throughput of the
country, while Haiphong port has a depth of 8m and can only handle little less than 10,000
DWT container vessels, but has five times bigger in term of operation capacity. The same
situation can be witnessed in the Southern area as Cai Mep – Thi Vai only reaches 20% of
designed capacity. (Dong Ha, 2016)
Some regulations are obsolate and no longer appropriate. For example, the existing master
plan limits Cai Mep-Thi Vai to receive container ships up to 8,000 TEUs or 100,000 DWT
although 14,000 TEUs have already berthed. The cabotage restriction, which came into force
in 2013 forbids foreign carriers to carry empty containers between Vietnam’s ports. This
created an unhealthy competitive environment, spoiling Vietnamese-flagged carriers, which is
already in bad shape compared with other international competitors. Feeder service users
now have to rely on higher operating cost domestic fleets, which is unable to provide a reliable
fixture.
33
Impacts: Transportation infrastructure planning, especially port and terminal planning at the
central and provincial government levels is not based on an integrated and holistic point of
view. Instead, the rampant growth of regional port and terminal diverted the limited state
budget from more critically needed projects. These regional port projects, without proper
orientation and planning in the beginning often suffer from relatively low returns on invested
capital, or in other words, inefficient investment. Take the case of deep-water terminals such
as Lach Huyen and Cai Mep – Thi Vai for example. They are not able to fully utilize at 100%
for the fact that smaller ports of the same region are siphoning off business from them. To be
more specific, Lach Huyen and Cai Mep – Thi Vai have to compete for not only just shipping
demand but also other supportive services with up to 12 and 14 other domestic ports
respectively. (Vietnam Maritime Administration, 2008) Although, license for new port is still
being granted despite the fact that there is sign of oversupply around Cai Mep – Thi Vai area.
For that reason, it is really hard to develop a port-centric plan due to the fact that there is no
specific investment strategy involving key international deep-water ports and terminals. In
reality, as one of Vietnam’s representative of the U.S.-ASEAN Business Council had to admit,
almost every coastal province races to have its own port, even though there is no real shipping
demand. It is estimated to cost from 18 to 22 billion U.S. dollar for the port and terminal
development plan until 2020 (Nguyen S. , 2013). However, investment into key international
deep-water ports and terminals such as Lach Huyen and Cai Mep – Thi Vai are only taken up
US$1.2 billion and US$2 billion respectively (Vietnam Port Construction Consultant Jsc, 2013)
(Xuan Tuyen, 2016). It means that more than US$10 billion will be wasted into small and
inefficient regional ports that have no capability to handle international shipment. The
development and suspension of Van Phong port could be a lesson for the policy makers. More
than US$7.3 million has been wasted in an attempt to build regional transshipment hub even
though there was no real demand for that port (The World Bank, 2014).
In addition, Da Nang and Tien Sa port development could be another good illustration. They
were heavily invested in order to become one of the first class port like Haiphong and Sai Gon
port. But one thing they did not take into account is that the low volumes of exports made
ships call less frequently and thus, rising the shipping cost. Shippers, for that reason, often
transported their cargo to Sai Gon port instead to enjoy an one-week faster service and $300
cheaper in shipping cost, which were more than enough to compensate an extra cost of $385
from moving container by truck (Thanh & Dapice, 2009). The big investment, in the end, did
not meet the projected cost-benefit and was soon labeled as ineffective.
34
If deep water ports such as Cai Mep – Thi Vai and Lach Huyen are utilized at maximum
potential, they could become medium size hub ports connecting Vietnam with North America
and Europe market. The benefits are huge. As interviewed by World Bank, if export cargo no
longer needs to transship at foreign ports, it could save shippers US$100 – US$200 per TEU
and up to three days of transit. That will result in over US$250 million of saving and could
reach above US$900 million at full capacity. Specific saving amounts are calculated as below.
Saving if international cargo no longer need
transshipment at foreign ports
Saving from not doing the transshipment
(average) 150 USD/TEU
Percentage of export cargo 45%
Cai Mep – Thi Vai 2015 throughput 1,468,613 TEU
Cai Mep – Thi Vai 2020 throughput
(projected) 2,157,874 TEU
(Assuming that 8%
annually increase in
throughput)
Lach Huyen 2020 throughput (projected) 1,100,000 TEU (Projected by World
Bank)
Cai Mep – Thi Vai at maximum capacity 7,100,000 TEU
Lach Huyen at maximum capacity 6,000,000 TEU
Save from transshipment at Cai Mep – Thi
Vai in 2020 145,656,516 USD (Saving per TEU x
projected 2020
throughput x
percentage of export
cargo)
Save from transshipment at Lach Huyen in
2020 74,250,000 USD
Total 219,906,516 USD
Save from transshipment at full capacity
Cai Mep – Thi Vai 479,250,000 USD (Saving per TEU x
maximum throughput
x percentage of
export cargo) Save from transshipment at full capacity
Lach Huyen 405,000,000 USD
Total 884,250,000 USD
Table 5: Savings from transshipment, pt. 1 (source: author)
35
Saving from 3 days of transit at foreign port
Average FEU export
value 90000 USD/FEU
Cai Mep – Thi Vai 2020
throughput (projected) 2,157,874 TEU
Lach Huyen 2020
throughput (projected) 1,100,000 TEU
Percentage of export
cargo
45%
Interest rates per year 8%
Saving at Cai Mep – Thi
Vai 28,732,244.30 USD (Total throughput x
export percentage x
3 days x interest rates
per year/365)
Saving at Lach Huyen 14,646,575.34 USD
Total saving 43,378,819.64 USD
Table 6: Savings from transshipment, pt. 2 (source: author)
Furthermore, without key international deep water terminals with high handling rate and little
wait time, the competitiveness of Vietnam is diminished even though owing more ports than
other neighbors. Bigger and more efficient ports, for example, Cai Mep – Thi Vai or Lach
Huyen have to share the potential market with other smaller port. Since the cargo is dispersed
from key gateway terminal, economies of scale becomes more difficult to achieve, and as a
result, increases the cost not only to shipper but also to ocean carriers. Too many small ports
but inadequate deep-water ones, as a consequence, drives most seaborne exports from
Vietnam to the E.U. or the U.S. have to be transshipped by feeder vessel to bigger hubs like
Singapore or Hong Kong and then, from that, the shipments were actually carried to the final
destination by larger, more economical vessel because it is much cheaper. In fact, according
to World Bank, it only cost $460 to ship a container from Singapore, $590 from Hong Kong
compared with $610 if it was exported from Vietnam (The World Bank, 2014).
Recommendation: The problem for Vietnam is that too many ports spoil the whole business.
Therefore, the Vietnamese government should identify only a few important ports,
emphasizing ones that have access to deep-water terminals, generous space to expand and
36
close to key transshipment hubs such as Hong Kong or Singapore. Giving that criteria, Lach
Huyen, Cai Lan in the North and Cai Mep – Thi Vai in the South should have higher
development priority. Cargo from other smaller ports sharing the same hinterland area should
be gradually shifted to these key ports and eventually, small and inefficient ports can be
closed. It is calculated that if Lach Huyen can utilize all of its potential to become a medium
size hub port, up to $74 million U.S. dollar can be saved from transshipping cargo to foreign
port (The World Bank, 2014). Haiphong city are currently pursuing this strategy as it started
to close several terminals inside the city that have too swallow draft. The space, instead, will
be used for new housing complex, department store, entertainment center as well as other
public infrastructures such as school and hospital (Haiphong Information Portal, 2013).
The same strategy should be followed by HCMC governor. By relocating cargo volume from
inner city ports along side Saigon river to Cai Mep – Thi Vai, it helps fix the problem of
overcapacity, and at the same time, free up space for the city to expand. More over, 80,000
Deadweight limitation also needs to be lifted as the master plan it belongs to is no longer up
to date.
The cabotage restriction, on the other hand, should be thoroughly considered before
abolishing. As it helps port industry to develop by attracting more foreign carriers, it will kill the
domestic fleet since there is no way for them to compete.
Another solution could be privatization. It is proven fact that private investment often harvests
better result with lower cost than state-funded project. And it seems like Vietnamese
government started doing so in the hope to increase the performance of the both the
investment and the port itself. Vietnam Maritime Administration will announce 19 seaports that
are open for private investment, according to Do Duc Tien, Deputy Chief of the Vietnam
Maritime Administration. At the same time, Minister of Transport, Dinh La Thang, state that
the planned Lach Huyen deep-water port in the northern city of Haiphong would be the last
maritime project to be state-funded. State-owned enterprises are also the target for
privatization to combat against mismanagement and corruption, which, in turn, leads to heavily
loss of state budget. Vinalines, the biggest stated-owned shipping corporation of Vietnam, for
example, has been the focus of criticism due to the the loss of over US$76.4 million in 2014
and US$330.95 million in 2013 (Vietnam Briefing, 2015). If taking in account member
companies and subsidiaries, the total debts could be up to three billion U.S. dollar. This is
massive given the fact that the GDP per capita of Vietnam was about $1,900 in 2013.
2. Bottleneck on road while railroad is underutilized
37
Road capacity in the urban areas, especially Hanoi and HCMC is in the situation of overload.
Rapid urbanization, increasing car ownership, ever rising in volumes of freight as Vietnam
entered WTO and other international market, failure in traffic planning and poorly design
intersections are the main reasons for this phenomenon (The World Bank, 2014). More
specifically, highways are often based on outdated design and not constructed to handle
today’s larger sized, 45-foot containers. Together with low construction quality, it leads to the
rapid deterioration of the road and hence, higher maintenance cost. Moreover, urban planning
did not forecast road and highway capacity properly to meet the future demand. For example,
the national highway no. 14 connecting Hanoi and Haiphong, a strategic corridor of freight
transport, only has four lanes in most parts. Even worse, the road to Dinh Vu terminal in
Haiphong is constantly in congested state because it is too small, only has two lanes and
some parts are still under construction. Motorbikes are allowed in the highway only makes the
situation worse as it increases the risk of accidence. Highway congestion between Cai Mep –
Thi Vai and HCMC is also terrible as three hour delays are frequent in the peak time. (The
World Bank, 2014) Meanwhile, several Mekong Delta provinces banned container truck
because of bridge limitations and poor road conditions. (Banomyong, Thai, & Yuen, 2015)
World Bank rated Vietnam highway congestion is worse than in China, Malaysia, and
Thailand, but similar or better than in India and Indonesia. Normal from Hanoi to Haiphong is
about two hours, and between HCMC and Cai Mep – Thi Vai is less than four hours. If
congestion happens, however, the expected time of delivery may double (The World Bank,
2014). It is the unreliability in delivery that subsequently raises the transportation time and
cost for every party. For the trucking company, higher travel time means lower asset rotation
which will lower the profitability. Cargo owner, on the other hand, has to maintain higher than
necessary stockpile to compensate the unreliable delivery time and it costs them to hold extra
inventory.
It is completely opposite in term of railroad usage. Even though most of the ports are
connected by railway, very few shippers actually use it. It is because the railway system was
built more than 20 years ago which is outdated at the moment. The one-meter gauge only
supports small and low speed boxcars. In fact, as the railway crosses many residence area,
the average speed of the train is under 40km per hour. There is a plan to increase the train
speed but only to 50km per hour, which is trivial (Doan, 2015). Important route, such as Hanoi
– Haiphong is only in single track, almost impossible to high amount and frequent freight. But
the most important problem is rail terminals in Vietnam are unable to handle container cargo
effectively as they lack proper equipment, vehicle and infrastructure such as gantry crane,
38
lifter and consolidation warehouse. That is why road transport is still the dominant factor and
the first choice of domestic consignors in Vietnam mostly thanks to its flexibility.
Impacts: Having a very efficient port and terminal is just not enough, other supportive services
and infrastructure must be on par in order to utilize and not waste the port resources. Land
connection in Vietnam incurred in a same problem as port development: without proper
orientation and integrated multimodal transport planning. The government is not proactive in
identifying and meeting the near future demand of land transportation. In fact, the
administrator acts passively by just repairing and maintaining damaged roads and bridges.
However, as they fix one, another bottleneck occurs. The halts still exist in the logistics system,
causing unnecessary cost and time to be pressured on the service users. Since the transport
time is unreliable and very frequently disrupted by traffic jams, more buffer time is needed to
add when scheduling the shipping, and thus, increase the inventory carrying cost. It is
estimated that highway congestion costs Vietnam economy up to $1.7 billion each year. (The
World Bank, 2014)
Moreover, the highway quality is substandard, therefore, truckers are very limited in term of
weight and maximum speed, along with congestion, raising the total cost of freight shipment.
In order to remain competitive, however, service quality is compromised by lower price. And
this is not a good strategy for Vietnam to follow any time longer. According to the World Bank,
it is not price but quality is the driving logistics performance in emerging and richer economies.
As a country that just moved up from lower income group, improving the service quality is the
strategy Vietnam should pursuit (The World Bank, 2014).
Recommendations: Since there is not any strategic corridor development so far, it should be
one of the first things Vietnamese government implements. Most of the import and export
throughput are concentrate in Haiphong and Sai Gon – Vung Tau area. The majority of
industrial parks, manufacturers and processing plants also located around these areas as well.
Therefore, it is rational to develop a transport corridor to foster trading activities. To be more
specific, in the Northern area, the corridor could start from Hanoi and surrounding areas such
as Bac Ninh, Phu Tho and end up in Haiphong and Quang Ninh. The southern corridor may
consist of HCMC, Binh Duong and Vung Tau. In these corridors, cargo-handling facilities and
other means of transport such as highway, railway, in-land water way belong to an integrated
plan that support each other. Warehouses and consolidation centers should be able to utilize
multimodal transport and located near key traffic routes to save the transit time. However, the
current highway system is overloaded and, thus, needs to expand to avoid further congestion.
Haiphong – Hanoi express is a newly constructed highway to replace outdated and out-
39
standard national highway no. 14. This project is expected to reduce the transit time between
two cities to one hour. But more importantly, it directly connects Dinh Vu container terminal
with Hanoi and other neighboring provinces while allowing heavier container to traffic. Cargo
owners, truckers and logistics service providers are the beneficiaries thanks to significant
decrease in transit time without worrying about unexpected delay due to congestion.
The highway construction and upgrading costs of key connections such as Hanoi – Haiphong
and Ho Chi Minh City – Cai Mep Thi Vai are estimated to reach above US$4 billion – a huge
amount considering the 2015 Vietnam GDP is just little over US$193 billion. Most of the capital
comes from foreign preferential loans and Vietnam government provides the counterpart funds
of 40%-50%. The benefits, however, are significant. Firms can expect to cut the costs for
overstocking their inventory, which may account about 2.5% of total inventory value. Given
that high container traffic through Haiphong and Cai Mep – Thi Vai ports, that 2.5% could be
translated into more than US$1.8 billion of saving. On the trucking company’s perspective,
traffic jam also causes a damage of about US$3.8 million annually. On another report from
World Bank, it is estimated to cost Vietnam about US$1.7 billion due to congestion.
Considering that cost and the benefit of the congestion-elimination project, even at 70%
effective, it still rips fruitful result after 10 years. Details of the calculation will be given at the
appendix.
40
Cost-benefit analysis of improving Vietnam’s logistics
by eliminating road congestion
The cost
Highway investment cost 19.6
million
USD/km
Hanoi – Haiphong highway 2070 million USD
Long Thanh – Dau Giay highway 938 million USD
Highway 51 upgrade 1356 million USD
Total initial investment 4364 million USD
Custom modernization cost 6.35 million USD JICA’s grant
Hanoi – Haiphong highway maintenance cost 2.27 million USD
Long Thanh – Dau Giay maintenance cost 9.38 million USD estimated 1% of
Highway 51 estimated maintenance cost investment cost 13.56 million USD
Total maintenance cost 25.21 million USD
The benefit
Estimated inventory cost saved 2.5%
Saved value from overstock inventory 1830 million USD
Saved value from wasted fuel 3.84 million USD
Total 1833.84 million USD
Total (at 70% effective) 1283.688 million USD
Total (at 50% effective) 916.92 million USD
Table 7: Cost-benefit analysis details (source: author)
The government should avoid political reasons to influence infrastructure development
decision. The Ho Chi Minh highway could be a perfect example. It was started in 2000 and
planned as a highway that follows the path of the the famous wartime Ho Chi Minh Trail. The
problem is, the new highway had to construct through the mountainous area of central
Vietnam, therefore, it is much more expensive as the first stage already costs more than two
billion U.S. dollar. (Thanh & Dapice, 2009) Due to the nature of the highland it goes through,
the highway also exposes to the higher risk of damage caused by flood and land slide than
normal. After completion, however, the Ho Chi Minh highway does not have much traffic.
Cargo does not go on this highway because it only connects poor and mountainous area
without much trade demand. To boost the economic opportunities in these areas, the
government, instead, could develop smaller roads to connect poorer areas in the highlands to
the richer ones in the coast, rather than linking all underdeveloped provinces together.
41
To handle cargo, especially containers, first of all, railway needs to be upgraded to bigger
gauge system in order to support larger, higher speed train. Several cities and provinces have
already updated to 1.4-meter gauges but the rest needs to adopt the new standard. Secondly,
upgrading to 1.4-meter gauges means the locomotives and the boxcars also need to be
updated accordingly. Thirdly, rail terminals require tools and vehicles to handle cargo
effectively. That would be several billions of dollars investment that cannot be decided over a
night. Right now, the Vietnamese government just focuses to improve the passenger carriage
service quality as a new Hanoi – HCMC high speed rail is under consideration. With the total
cost of over $33 billion, it is one of the most expensive railway project in the world, with the
cost per kilometer up to $38 million, double than that of the Beijing – Shanghai route (Thanh
& Dapice, 2009). Moreover, right now airline services between Hanoi and HCMC are more
than enough for the passenger transport demand and also much more convenient. Therefore,
the effectiveness of the project is in question, giving the absurd amount of required capital.
3. Unprofessionalism of the domestic logistics service providers
The biggest problem with Vietnam logistics practitioners is the unprofessionalism. This is
reflected through numerous complains from the service users. Both cargo-handling facilities
and trucking companies are substandard, lacking basic such as cargo tracking. General
standards in warehouses, for example, fire prevention and protection as well as the ability to
handle cold storage are poor. Trucks and lorries are often outdated and secondhand bought,
not only less safe on the road but also with higher fuel consumption rate and maintenance
costs. Moreover, the unprofessionalism also lies in the work ethnic of the logistics employees.
They often ignore, or probably, do not understand handling instructions printed on the cargo
boxes. Truck drivers frequently overload and over speed his carriage in order to meet tight
schedule and overcome ever rising fuel cost. As a consequence, the unappropriated work
ethnic, in turn, badly affects the overall quality of the delivered goods. All of these problems
are reflected in a well-documented report from World Bank in 2014.
Two reasons might be the root of this phenomenon. First of all, as pointed out by many reports,
the domestic logistics service is highly fragmented. This is especially true in the trucking
industry where there are over 100 small size but less than ten big trucking companies. The
market is dominated by private sector, however, majority of the truck owners only own one or
two container tractors. And on top of that, it is not rare to see in Vietnam where the private
truck owners compete on each other by bringing the total cost as low as possible in order to
attract more customer. This, in turn, further drags down the quality of the service they offer.
Without a wind of change coming from a big land transport corporation, the trucking industry
in Vietnam still lags behind other countries in the region. In fact, some exporters have to
42
develop their own trucks to handle their shipment. It means the trucking companies in Vietnam
are not reliable enough to handle sophisticated shipment that requires high quality and timely
delivery. And secondly, the missing of developmental direction from the government could be
the other reason. This is yet to have a specific logistics department in the government. All the
logistics activities are often spontaneous without guidance from the policy maker. In fact,
World Bank mentioned that the concept of logistics parks where many logistics service
provider distribution and warehouse facilities are co-located is not well-understood in Vietnam
(The World Bank, 2014). These facilities are usually standalone, near factories, ports, or
airports to meet the storage demand of the company itself, rather than being developed under
a sophisticate and integrated planning. Therefore, they are more often loosely connected with
major highways between key ports and manufacturers, increasing the transit time. Even
though, there are some efforts to improve the quality of the land transportation by limiting the
weight and increase the maximum speed on the highway, the punishment for law violator is
still meager and not enough deterrence. In addition, there is still no sign from the government
to consolidate the trucking industry, which is highly fragmented.
Impacts: Unprofessionalism, especially in the trucking industry, causes huge damage to
Vietnam’s logistics reputation. It is known that even though with very competitive trucking
rates, logistics service users are dissatisfied by the poor quality. In order to cut the cost,
overloading container becomes familiar, which not only damages the road but is potential risk
of accident. Driver often lacks training along with appropriate work ethnic, and as a
consequence, traffic accident is at alarming rate in Vietnam. According to World Health
Organization (WHO), road fatalities rate per 100,000 inhabitants per year in Vietnam is 24.5,
much higher than most other countries in the region except Thailand. (World Health
Organization, 2015) Therefore, it is not for cutting but rather rising the trucking companies’
cost of doing business, which will, in turn, pass to logistics service users. The lack of cargo
tracking when transiting also makes Vietnam truck company less appeal before the eyes of
cargo owners who ship high value, time-sensitive type of commodity. And last but not least,
improper and outdated trucks in the traffic not only exhaust more air pollution but also reduce
road safety.
43
Countries Road fatalities per 100,000
inhabitants per year
Cambodia 17.4
China 18.8
Indonesia 15.3
Malaysia 24.0
Myanmar 20.3
Philippines 10.5
Thailand 36.2
Vietnam 24.5
Table 8: Road fatalities rates of several Asian countries (WHO, 2015)
Recommendations: In order to improve work ethic of truck driver, there is nothing better than
enforcing stricter driving license requirement. For example, to apply for truck, lorry or container
hauler type of driving license, or C class driving license, it requires the applier to be at least
24 years of age; however, the exam can be taken directly without any pre-requisitions. In other
words, a man has not driven a car before can take the exam and becomes a truck driver. This
is very dangerous and probably the main reason for very high traffic accident in Vietnam.
Because the truck driver lacks necessary experience to handle tricky situation encountered
on the road, the risk of accident, therefore, is much higher. Instead, Vietnam’s government
should rise the requirement for truck driving license to at least D class. At D class driving
license, an exam taker is required to be at least 27 years of age, but, more importantly, the
exam taker cannot apply for it directly before having B or C class driving license. It means
prior driving experience is compulsory. The exam taker is also required to finish the high
school curriculum program. At the same, the penalty framework should be more punishment
for inappropriate or missing driving license. Audit program as well as random check need to
be implement to prevent tests from being compromised by bribery.
Trucks should be frequently monitored in several aspects such as: vehicle and chassis
condition (head and tail light, tires and brake working status, emission exhausting condition,
etc.) Right now there is no periodically roadability inspection, that is why the truck is
substandard in comparison with other countries. The government should enforce the
inspection to be done annually and maybe consider authorizing a third party to conduct and
give certificates, the same as the traffic insurance system.
44
Surveillance cameras, speed traps and weighting stations should be planted at important
highways connecting to the port, so that they can identify and prevent overloaded and over
speed trucker. Not only the driver but the trucking company are also being fined for violation.
Consistent violator after a certain threshold, probably two or three times a year should be
stripped the driving license or even business permit.
To improve the quality of storage service, in particular, a national standard about warehousing
should be developed. There is a need to standardized cargo-handling facilities in Vietnam so
that the cargo owner can inherit a better service base. The standard should lay out several
criterions that a warehouse has to meet before giving operation permit, such as adequate fire
protection and evacuation, security and theft detection, proper ventilation, cooling and lighting,
etc. Warehouse design should be optimized, for example, by using ramps and lifts so that the
truck can berth at the warehouse gate and forklift can go directly inside the container to work.
By doing so, it would save a lot handling time, and the cargo will not be exposed to the raining
or other unfavorable weather.
Electronic management also needs impact from the government to be one of the compulsory
requirements. By using barcodes and scanners, along with databases analyzed by computer,
it will ease the job of the tally and reduce the risk of human mistake. Sensors placed around
the warehouse can help monitor temperature, humidity or even movement, improve the
storage quality as well as security.
Lastly, incentives have to come from the policy makers to encourage logistics business in
Vietnam. Encouraging loans, for example, may be given to small trucking operators and
warehouse owner so that they have the required capital to renovate their assets, comply with
newly adopted or amended regulations or even to expanse the business. Joint venture with
foreigners is another way to improve service quality without a sacrifice to market share.
Therefore, policies to attract foreign investment is necessary to level up the logistics service
quality.
4. Institutional framework is cumbersome, red tape and inconsistent
First of all, Vietnam’s government has remarkable efforts to renovate custom clearance and
foster trade activities in the last five years. Electronic custom clearance and single-window
policy has saved shippers and freight forwarders tremendous amount of time and money. Just
a few years ago, required import and export documents had to be submitted by physical
papers to relevant government authorities, which located at different places. Since there was
no shared database between these government authorities, it took a lot of unnecessary time
45
and money from the businesses to send repetitive information. Huge amount of paperwork
also poses more risk of human error. But now, custom declarers no longer need to go to
separated agencies but instead, when submitting the documents online, it would be distributed
to relevant authorities accordingly, which is not only “more precise and efficient, but also
saving time and resources for the Ministries and branches”, said Deputy Minister of Industry
and Trade Nguyen Cam Tu (Vietnam Briefing, 2014). The Ministry also aims by 2015 to 100%
e-custom procedures implementation in key areas and until 2020, 80% of enterprises will
apply e-customs procedures. Physical goods inspection will be reduced to 7% while national
custom single-window permits will be granted for 90% of the cargo in 2020. The target is to
cut the clearance time to be equal with other developed countries of the region such as
Singapore and Hong Kong in the next five years (Vietnam Customs, 2012).
So far, it has gained positive result as the clearance time, which used to take seven days in
2003 (Carruthers, Bajpai, & Hummels, 2003) down to just three days in the case of exporting
nonagricultural or food products (The World Bank, 2014). However, it still takes an average of
six days in case of importing. Savings from custom digitalization and simplification are
estimated to reach US$3.1 million at the end of 2015 (Hai Ha, 2015). The success of the ecustom project owned a big thank to the Japan International Cooperation Agency (JICA).
Since 2012, JICA has provided US$5.88 million in grants of US$6.35 million worth project.
The other was funded by Vietnamese government (Vietnam Customs, 2015).
Secondly, Vietnam has actively taken part in bilateral and international trade agreement within
ASEAN group or even joined the World Trade Organization (WTO) in 2007 and the most
recently, signed the Trans-Pacific Partnership (TPP) with other developed nations such as the
United States, Japan and Canada. By doing so, trade barrier such as imported tax and quota
are contracted to be remove, clear the way for Vietnam goods to invade these promising yet
challenging market.
Despite all those signs of flourish, the cumbersome regulations and red tape still persist in the
legal framework. Inconsistency is the serious problem in the legislation system, according to
World Bank (2014). It is common to have a regulation to be amended or even abolished after
just a few months coming into the force due to its impractical. The regulation is not always
clear in the wording and loopholes still exist. Because it is not easy to understand, it poses a
great risk for anyone when making business decisions. Unintentional noncompliance is often
paid by unexpected cost and unnecessary delay in custom clearance. As a result, it created
a lot of room for multiple interpretations and even worse, chances for corrupted government
officers to exploit. This is reflected most clearly in the facilitation payments that shipper and
46
freight forwarder to pay custom officer or highway police in exchange to some privileges, for
example, quicker process time or to avoid being stripped driving license. These
undocumented fees or, in other words, bribery, which service users sometimes accepted as
necessary, could account for up to 50% of the customs clearance costs. More specifically,
these additional costs may take up to US$78 per FEU which can translate into US$261 million
in 2012 and shoot up to nearly US$500 million in 2020 just for facilitation payment (The World
Bank, 2014). Transparency is what Vietnam customary regulations lacks and it is essential to
reduce the uncertainty in doing business, decrease lead time and extra payments, and
improve the reliability of the logistics service as a whole.
Even after joining WTO almost ten years ago, many domestic rules and regulations, especially
in the case of import and export law, are still inconsistent with WTO commitments Vietnam
has made. For example, the Circular No. 9 enacted by Vietnam government in 2007 posed
some inconsistencies with the bilateral trade agreement with the U.S. and WTO commitments,
as pointed out by the American Chamber of Commerce in Vietnam (AmCham). First of all, by
restricting foreign invested importers to sell their goods to only one single domestic distributor,
it is clearly a violation with one of the WTO commitments and also the National Treatment
principle. Secondly, the “economic needs test” concept was misunderstood in the Circular,
and unlike the WTO definition, it was used by the government as a protection barrier. This act
is considered illegal as it can be abused to prevent foreign investors to further expand his
retail outlets. In addition, Circular No. 122 on price stabilization in 2010 also rose some
question as it allows government intervention in setting prices of products and services. There
is a doubt that whether the Circular aims to control foreign companies pricing policy, which
would break the discrimination prohibition commitment with WTO. Furthermore, over 100
consumer goods such as alcohol, cosmetics and mobile phones is under a restriction to be
imported into Vietnam by the Ministry of Industry and Trade. Except duties, taxes or other
charges, quotas or licenses, other kinds of restriction will violate the agreement with WTO, or
to be precise, Articles XI.1, III.1, III.4 in General Agreement on Tariffs & Trade (Nguyen H. T.,
2012). In general, these consistencies is a real challenge for those who already invested into
Vietnam, while poses a great obstacle, discouraging anyone who intends to do so.
Bureaucracy, on the other hand, also creates a lot of frustrations. The chain of command from
the central to provincial administration is a lengthy and costly process for the shipper, requires
number of licenses and certificates in order to export or import. There are eight compulsory
documents for shipment to import in comparison with five in Thailand or even three in
Singapore (The World Bank, 2016). Even though e-customs has already been implemented,
however, hard copy documents still need to be submitted. Partial implementation incurs more
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unnecessary administrative work for both custom officers as well exporters and importers.
Simplifying documentation requirement is essential for an efficient logistics system to be
consist with other ASEAN countries and international standards.
Recommendations: First of all, the movement of changes must come from the government. It
is their duty to promote transparency in custom clearance in particular or in other rules and
regulations in general. The goal is to establish a solid base ground for consistent
implementation, interpretation, and enforcement. In order to reduce to minimum any
differentiations in interpretation, the draft of any new rule or regulation should be widely
publicized to survey and collect comments and suggestions. For example, new regulations
regarding custom clearance, before coming into force, should be made public so that
practitioners like freight forwarder, shipping agent, shipper or even custom officer could rise
their idea.
Furthermore, after the implementation stage, in order to measure how the new regulation
performs, periodical surveys should be conducted annually or every two years. By doing so,
the law makers could identify the existing and the desired outcome as well as the gap between
them. From that, the could develop a better, more effective strategy to tackle problems the
current regulation facing.
Transparency could be achieved through strict measurements such as, establishing a
surveillance camera system in the custom office to prevent bribery, developing a 24/7 hot line
to report any corrupted activities of the state employee. Petty corruption, even under $100
should have more serious punishment such as discharging from the force or even pressing
charge at the court. However, at first, doctoral thesis writing service
the government should ensure the living standard of the
state employee by making appropriate adjustment in the salary system so that they do not
need to rely on facilitation payment to make a living.
The e-custom implementation process, on the other hand, should be accelerated to be fully
applied in every province in 2020. Partial implementation still causes troubles for the shipper.
With 100% electronic control, the importer and exporter can enjoy less wait time with lower
cost, but more importantly, there is no interpretation differentiation among the custom officers
because there is no human element involving. Paperless customs no longer needs printed
documents also helps in reduce human error and the risk of missing or lost. Besides, the
custom declarer can seek help from the automated system almost 24/7.
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Vietnam can look into other logistics developed countries such as Hong Kong or Singapore to
find a suitable model in order to reduce bureaucracy and red tape. The number of required
documents for import and export are two times higher than Singapore, for example, some of
them could be consolidated into one single certificate or complete be removed if no longer upto-date with modern transportation. Or, in another case, it should be allowed for truck driver
to carry only the House Bill of Lading rather than carry the whole set of documentation when
transport. One less set of papers is one less problem for the shipper.
Furthermore, by developing a “trusted shipper” program in which fully complied shippers with
good backgrounds and history of doing business can enjoy much faster clear time. Frequent
shippers, thus, can benefit from timely customs clearance without lead time. Meanwhile,
suspected shipment is still being checked as usual. Random inspection must be done to avoid
abusing the privilege nevertheless.
It may be really challenging to renovate an obsolete apparatus and resistance may be
expected to come from even the customs force. The government should be the pioneer to
promote the benefits of a transparent and consistent system. E-custom and single window
policy are the key to achieve this goal.
5. Insufficient experienced and qualified human resources in logistics field
To begin with, Vietnam’s workforce is considered not only young but also well-educated.
According to one article in The Economist (2016), the median age of Vietnam’s population is
even younger than China, 30.7 compared with 37, respectively, while up to 6.3% of GDP is
spent on education, higher than most low- and middle- income countries. In fact, in the WEF
Global Competitive Report, the highest point among twelve competitiveness pillars is actually
“health and primary education” (Schwab, 2014). This will come in handy in an industrialized
country where machine operators are able to handle complex instructions.
The common labor pool is well-educated, but it is not the case in the logistics industry. Even
though being highly rated in “health and primary education”, in that same report of WEF, one
of the top three problematic factors for doing business is “Inadequately educated workforce”.
It looks contradictory at the first sight, however, the current sources of labor force can only
supply about 30% of the demand of logistics specialized operators for approximately 1,200
freight forwarders in Vietnam (Banomyong, Thai, & Yuen, 2015). But more importantly, it is
the lack of experienced and qualified of top level logistics manager that hurts Vietnam in a
long run. Right now, most of top level logistics managers in Vietnam are foreigners, even in
some domestic companies. It is very hard to recruit, as well as expensive to train a qualified
49
domestic manager in the logistics field, therefore, it is more cost effective for a company to
staff an experienced expatriate employee instead. As explained by Tongzon (2011), the lack
of logistics training and education institutions not only in Vietnam but the whole region limited
the development of the logistics industry. Furthermore, there is yet to have a standard on
logistics teaching or whatsoever, in the region could be another serious drawback.
In addition, working attitude is another aspect that needs to improve in the common labor
force. As mentioned previously, cargo is often being handled inappropriately especially at the
port, airport or warehouse by stevedores, truck drivers or warehouse worker. This may greatly
damage the quality of the goods after being delivered and, overall, affect the reliability of the
service, which is seen as one of the principal elements of the logistics industry.
Recommendations: In order to improve quality of logistics staff, there is no other way than
educating and training. So far, people have been sent to other strong logistics backbone
countries for education, both full time curriculum and short course training. Government, on
the other hand, also needs to encourage foreign educated and experienced managers to
come back and work for the country by providing satisfied salary, reward and privilege.
Nevertheless, the main priority is to establish an education center for logistics. Haiphong is
taking the first step in 2014 to open the Japan – Mekong Regional Logistics Training Center,
one of the first logistics centers in Vietnam. Thanks to the support from Japan International
Cooperation Agency (JICA) and Japan Ministry of Land, Infrastructure, Transport and Tourism
for the required capital, equipment, knowledge and experiences, the center earned early
accomplishment. As of 2016, the center has trained 2000 graduates from Vietnam and other
countries of the Mekong sub-regional such as Laos, Cambodia and Myanmar (Japan –
Mekong Regional Logistics Training Center, 2016). The center also serves as a field training
for Vietnam Maritime University students. This is critical for the development of logistics
human resources because right now, Vietnam lacks more than 18,000 logistics-capable
labors. (Tran Quy & The Anh, 2015)
For now, most high level logistics managers are foreigners. However, domestic employees
need to prepare to receive that position when the transition time comes. Recently, the
government, in the requirement for expatriate work visa requests in Vietnam, entails an
employee development plan so that domestic workforce can undertake that work position after
the expatriate contract stops. It is for a smooth transition so that there will be no wide gap
between domestic and foreign manager in term of proficiency and competence.
50
A national logistics capability certificate is necessary, as it provides a standard in logistics field
and service providers have to commit to deliver. Since there is no such thing yet in Vietnam,
the quality of the logistics service varies a lot among providers. Enforcing a national logistics
capability certificate will help eliminate the difference in the service quality. However, as it
renders low performers out of the business, the market may face the shortage in supply.
Therefore, a preparation time window, probably one or two years, must be initiated before full
adoption.
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Chapter 5: Comparison with other countries of the region about
logistics development strategy
As mentioned in the previous chapter, the port development strategy Vietnam’s government
has pursued is to ensure that every coastal province will have a sea port. This is a part of a
larger grand plan to establish essential public infrastructure in underdeveloped provinces, so
that it can shorten the economic gap between rich and poor areas (Thanh & Dapice, 2009).
However, these investments have been proven to be inefficient. Instead of focusing on a few
key deep water ports and terminals, huge amounts of capital has been wasted in low shipping
demand provinces. Moreover, while other key ports did not receive enough investment to
reach its full potential, shipping throughput in these ports will be siphoned by smaller regional
ports. The shipping market in Vietnam, as a consequence, will be further fragmented. The
economics of scale cannot be exploited and shippers in Vietnam still have to rely on the feeder
services with higher prices to continue their trading activities.
Nevertheless, when compared with other neighboring countries, Vietnam still holds some
competitive edges. While China’s manufacturing labor costs are growing at double-digit rates,
Vietnam’s labor costs remain attractive throughout developing Asia with a workforce of over
52 million. As in a report conducted by Japan External Trade Organization (JETRO), the
wages have been increased by 72.2% especially in China and Indonesia. Cambodia is even
worse with the rate of more than 80% (JETRO, 2014). Other seven countries which also have
double-digit increase rate but Vietnam is not in the list. This might explain for the fact that firms
with intention to expand business in China drop by 7.7 points to 46.5%, at the same time,
business would “remain the same” increased. Meanwhile in ASEAN 60.3% of firms answered
with “expansion” (JETRO, 2014). Besides the low labor cost, other expenditures for
production facilities are cheaper than in other countries, according to 31% of respondents in
the ASEAN-BAC survey (Wong & Wirjo, 2013). In the same survey, however, the most
appealing reason to invest in Vietnam is the growth of the new and promising consumer
market as agreed by 79% of respondents. 52% among them chose Vietnam because it is
better there to supply main or leading customers.
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Table 9: Minimum wage of several Asian countries (Zhang, Loh, & Thai, 2015)
57% of businesses that had internationalized or planned to do so over the next three years
selected an ASEAN country as offering the best prospects worldwide for their organization’s
OFDI over a three-year horizon (2013-2015). While interest in China fell from 28% to 17%,
over 40% of businesses intended to invest in Singapore, Malaysia, Indonesia or Thailand. This
is followed by Myanmar (38%) and Vietnam (36%). Thailand received the highest average
rating of attractiveness with 6.25, followed by Singapore (5.97), Indonesia (5.92), Vietnam
(5.87), Malaysia (5.67) and Myanmar (5.65). (Wong & Wirjo, 2013)
Another report in the Financial Times proved the same trend. One third of manufacturers in
China’s Pearl River delta plan to shift to cheaper locations. Reason for the movement is the
same. In 2015, the average wages in China increased by 8.4% higher wages, making an
annually increasing of 7.8%. Higher wages also come along with pressures for more generous
social welfare payments. Therefore, 11% chose to move overseas and obviously, ASEAN
countries benefit from the lower cost but abundant labor supply. Among them, 36% favored
moving into VN, 25% to Cambodia, 10% to Bangladesh or Indonesia (Kynge, 2015). Total
FDI in China’s Pearl River delta is 12 times bigger than in Vietnam. So, if only 10% of that
investment flows into Vietnam’s territory, it would be a huge boost for the economy.
The question is: how could the Vietnamese utilize these opportunities, especially with fierce
competition from Cambodia, Bangladesh and Indonesia? The answer is: through overall
improvement and renovation, from the legal framework to the physical infrastructures and
facilities, and, among them, port development should receive the highest priority. However,
the strategy Vietnam’s government has been chasing is controversial and does not prove its
effectiveness. Below are some cases about port development, in particular and logistics
improvement, in general from some both developed and developing countries of the region.
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Hong Kong Port on the rise of global manufacturing
Hong Kong Port has risen to be one of the busiest container ports since the 1990s. Despite
the fact that it locates next to the workshop of the world – China with enormous trade demand,
the right tactics is the most important factor that makes Hong Kong port as successful as of
today. Recently, as manufacturers started moving out of Chinese Pearl River Delta to other
less developed areas, such as Guangdong, or even oversea countries like Vietnam, Hong
Kong Port faces many challenges. As it loses its proximity advantage, Hong Kong port
becomes less attractive as a gateway for manufacturers in the Pearl River Delta. At the same
time, it also encounters fierce competition from Shenzhen and Guangzhou ports.
Hong Kong, in the effort to take advantage of the rapid rise in global manufacturing, aimed to
become the largest, most efficient shipping hub of the region. Instead of open more port to
regain market share, its target is to clear the bottleneck in the border between mainland China
and Hong Kong as well as enhancing port service levels. To be more specific, Hong Kong
government believed that logistics infrastructure is a key factor. The Hong Kong-ZhuhaiMacau Bridge, which will be completed in 2016, will play an important role in fostering the flow
of cargo between the industrial delta and Hong Kong port. In addition, policy makers are also
considering abolishing the regulation that prevent mainland Chinese trucks from conducting
cargo business in Hong Kong. Because of this limitation, it increases the cost as well as the
lead transport time because the cargo now has to be transshipped from a Chinese company
to a Hong Kong company at the border. The elimination of this regulation will certainly make
Hong Kong more attractive for shippers from the mainland. At the same time, in order to
ensure seamless border crossing, Radio Frequency Identification (RFID) and electronic
customs clearance must be implemented. Moreover, Hong Kong port needs to resolve the
congestion and inefficiency in the handling of river cargoes. Kwai Tsing terminals, where the
majority of river cargoes are received from mainland has inadequate handling facilities. It leads
to huge wait time for berth and it may reach two days. Meanwhile, River Trade Terminal at
Tuen Mun is under-utilized because is not legally allowed to handle ocean-going vessels.
Other measurements are mentioned by Zhang et. al. including: having preferential land lease
policy to reduce terminal handling charges, improving transparency in service fees,
establishing a cross-jurisdictional port authority to govern and eradicate unhealthy competition
between regional ports (Zhang, Loh, & Thai, 2015).
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Port of Tanjung Pelepas (Malaysia) on the strategy to directly compete with the giant –
Port Singapore Authority
Constructed from mid nineteenth but only until late twentieth centuries, Singapore Port started
dominating the shipping industry in the South East Asia and, soon after that, became renown
as the busiest port in the world. It turned out to be the main economic driver of Singapore, a
tiny country with very limited land and other natural resources. It was, however, fortunate to
have a strategic geographic location in the Malacca Strait, connecting the Pacific Ocean and
the Indian Ocean.
The success of Singapore can be explained by a few key components. First of all, Port of
Singapore Authority focus on the technology advancement in order to improve efficiency and,
thus, be able to deliver higher quality service. In fact, it was one of the first to utilize remotecontrolled yard cranes and automated guided vehicles to take care of the container movement
within the port. It also features a computer-integrated terminal operation system (CITOS). The
CITOS is an enterprise resource planning system that coordinates and integrates the port’s
multiple assets, ranging from container movers, cranes to container haulers and drivers. With
the help of CITOS, containers can be moved and stacked in a very logical and optimized way.
On top of that, Port of Singapore also implemented a fully automated system that identifies,
security-clears and providing drop-off location to container trucks that entered of left the port
by remote pagers and proximity cards – all within 25 seconds (PSA Singapore, 2016). As a
result, shippers and logistics service providers can benefit from integrated communications
and more importantly, paperless clearance systems. This is the fundamental reason to explain
why Port of Singapore can handle and transfer twice as many containers than other ports in
the world. Secondly, its network connectivity is one of the most comprehensive, offers the
shippers the choice of 248 shipping lines with connections to 600 ports in 123 countries
(Portnet, 2016). To support its complex shipping network, PORTNET was born as the world’s
first collaborative port community solution. It connects almost anyone involving in the shipping
industry such as liners, truckers, freight forwarders and government agencies, helping them
to manage and synchronize information and operational activities. PORTNET provides a wide
range of services and information, which now becomes essentials including online ordering of
port services, container track and trace, vessel location, and even reefer container
temperature, … Therefore, shippers can enjoy the flexibility in planning and shorter dwell time
as fast as possible. And last but not least, the Keppel Distripack enables the Port of Singapore
to expand its reach to cover integrated logistics services.
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Port of Singapore has maintained its first-choice for “hub and spoke” liner shipping for a long
time until Malaysia began to challenge Singapore’s well-established position on the map of
international shipping. The battle between the two countries can be traced back as early as in
the early 1990s. Taking the advantage of the vast availability of land resource and labor pool
as well as much more affordable cost of living, the Malaysian government decided to turn Port
Klang into a national load center as a part of an aggressive ports upgrading in mid 1990s. Port
Klang was located along the Eastern shore of the Malacca Straits, which is only 64 km from
the capital Kuala Lumpur. By 1997, the port was able to handle a maximum of 7.6 million
TEUs annually with very competitive rates, only 1/3rd or even 1/4th of the similar ones in
Singapore’s port (Leong & Chen, 2004). However, at the end of 1990s, Port of Singapore
managed to grow to 17 million TEUs of annually throughput, meanwhile Port Klang struggled
at 3 million TEUs despite of much lower terminal handling rates. So, what is the reason?
It turned out that many port users still favored the superior efficiency and network connectivity
of Singapore. Their strategy to provide the highest quality service at premium prices showed
no weaknesses at that time, and, thus, they continued to perfect its operations to achieve even
higher levels of efficiency. It has been proven that providing the necessary infrastructures with
cheaper rates are not enough, as shippers also need to ship their cargo as quickly as possible,
an aspect that Port Klang was still way behind the Port of Singapore. This is the same pitfall
Vietnamese port planners are falling into at the moment. Moreover, located at the midpoint of
the straits made Port Klang only second choice because Port of Singapore, at a better position,
can catch most of transshipment volumes in the South East Asia region.
Realizing the shortcomings of Port Klang, the Malaysian government prepared for the second
round almost immediately with the opening of Tanjung Pelepas. Situated right at the entrance
to the Malacca Straits, it is an ideal position to capture transshipment trade volumes. This
time, Port of Tanjung Pelepas (PTP) focused on developing an information-technology system
to help boost the container movement within the port. Similar to PSA’s CITOS, the system
connects all port users such as shipping liners, agents, forwarders, custom and other
authorities. It is also capable of providing paperless transaction. However, as a startup, PTP
lacked the depth of operational experience, something that PSA had acquired over the years.
But with appropriate policy, PTP was able to attract long-time partner of PSA, for example
Danish container giant Maersk Sealand (December 2000) or Taiwan-based shipping liner
Evergreen Marine (October 2001). Significantly lower rates and more flexible in term of
terminal ownership along with almost on par level of service quality are the reason behind the
huge shift of transshipment volumes to PTP. “In terms of technical expertise and services
offered, PSA is matchless. But lines, which are operating under smaller and smaller margins,
56
will go where the costs are less.”, said Patrick T.C. Poon, Evergreen Marine’s director of
shipping in Singapore (Leong & Chen, 2004).
The threat from PTP was stronger than ever and, consequently, leading to several changes
to retain customers and perhaps regain lost clients. Starting from June 2002, a series of price
reductions on the container-handling services was announced by PSA’s board of director in
order to compete with PTP’s ever growing force. Furthermore, on February 2003 PSA
continued to cut down more cost by laying off 13% of its 6,000 strong workforce. Even though,
the overall charges were still 10% to 15% higher than what PTP offered.
Interestingly, PTP did not respond with another price cut. Instead, according to PTP chief
executive officer Mohd Sidik Shaik Osman, the terminal rates played a part but were not the
sole determining factor. PTP’s strength resided in its agility, flexibility and productivity (Selva
& Xavier, 2002). As a retaliation, in May 2003, PTP opened the world’s first internal airport,
allowing seamless sea-air cargo transshipment, effectively broaden their reach even to
Australia and North America. At the same time, it established several regional distribution
centers with an ambition to capture logistics demand of the region. One of its first customers
was the German automobile manufacturer BMW.
A port is always considered as the most important node in the whole supply chain. A
tremendous amount of cargo is concentrated at the port means that if there is no effectively
way to ensure cargo is moved as fast as possible, congestion is inevitable and it will slow
down or even clog the entire system. Therefore, port efficiency is the key to improve Vietnam’s
logistics competitiveness. Two examples above can be a very good lesson for Vietnamese
port planners to implement regarding the current situation. To sum up, the strategy to open as
many ports as possible in coastal cities that Hanoi government are taking will only reap
negative impacts toward the economy in the near future. Policy makers should refocus the
investment priority into some few core deep-water ports and terminals and maintain a steady
flow of cargo in and out of the port without obstructions. And secondly, it is not lower rates but
productivity and efficiency which are the determining factors influencing liners’ choice. And the
more shipping liners call a port, the better connectivity and flexibility it becomes. This is the
key to establish a transshipment hub that Vietnam are dreaming of. Almost all the giant port
operators in the region have some kind of operation system that control, manage and optimize
every internal movement of cargo and information in the port, such as CITOS and PORTNET
(Port of Singapore), “Yes! U-Port” (Port of Busan), Marine Department Electronic Business
System – MDEBS (Port of Hong Kong). (Lee & Lam, 2015) Meanwhile, ports in Vietnam still
handle these tasks manually and largely on paperwork. Port planners, therefore, should have
57
a practical roadmap of gradually replacing outdated practices and implementing technology
advances to improve the ports’ productivity and efficiency. This is especially true in the case
of Lach Huyen or Cai Mep – Thi Vai becoming Vietnam-owned transshipment hubs.
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Conclusion
The logistics infrastructure of Vietnam, thanks to government priorities and foreign support,
has gradually improved and plays an important role in the outstanding development of
Vietnam’s trade and economy. in the last decade. Vietnam’s logistics system almost catches
up with China’s and Thailand’s but there is still a huge gap when comparing with that of
Malaysia or Singapore. With the movement of manufacturers out of Pearl River Delta lately in
search of more cost competitive locations, it is a good opportunity for Vietnam to become a
new major export nation on global stage. However, fierce competition is expected from other
countries, for instance, India, Bangladesh, the Philippines, Indonesia or even Cambodia and
Myanmar as a cheap source of labor and land. An efficient logistics system is believed to be
one of the keys to gain the competitive edge in the international market. In order to improve,
there are five most striking problems that Vietnam needs to address. They are: inappropriate
and ineffective port investment, highway congestion and consequent delays,
unprofessionalism of domestic logistics service providers, cumbersome and inconsistent
institutional framework, and, finally, insufficient experienced and qualified human resources.
While some of the strategies from the government proved effective such as modernization of
the customs process or upgrading the highway connections, others, such as the port
development plan, however, are not. By spreading investment to the building of multiple small
regional ports, Vietnam cannot take advantage of the few deep-water terminals such as Lach
Huyen or Cai Mep – Thi Vai to turn them into midsize transshipment hubs. The benefits of
such hubs are huge, which include saving billions in costs of import and export, which, in turn,
would lead to a massive boost to the economy but only when this issues are tackled, then the
opportunity may materialize.
59
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64
Appendix
1. The cost-benefit analysis of improving Vietnam logistics cost by eliminating
road congestion
The cost-benefit analysis can be broken into three parts: the cost part, the benefit part
following by the conclusion.
Highway construction cost
The cost of the project mainly consists of the highway construction cost, which are used to
connect industrial areas around Hanoi and Ho Chi Minh city with Haiphong and Cai Mep – Thi
Vai deep water port respectively. Customs modernization also plays an important role to clear
the bottleneck at the port. The main source of fund for the customs modernization project,
which are US$6.35 million, came from JICA’s grant. The highway construction cost breakdown
is below.
The new highway connects Hanoi – Haiphong
Category Value %
Construction cost 29,000,000,000,000 VND 1,318,181,818.18 USD 64%
Interests 7,900,000,000,000 VND 359,090,909.09 USD 17%
Land Acquisition and clearance 3,700,000,000,000 VND 168,181,818.18 USD 8%
Other: 4,922,000,000,000 VND 223,727,272.73 USD 11%
Total investment: 45,522,000,000,000 VND 2,069,181,818.18 USD 100%
Cost per km 19,613,097.80 USD
Table 10: Hanoi – Haiphong Express investment (Vietnam Banking Times, 2014)
65
Highway connects Cai Mep – Thi Vai and Ho Chi Minh City
Distance 58 km
Long Thanh – Dau Giay highway 24.5 km
Highway 51: 33.5 km
Investment:
Long Thanh – Dau Giay highway 55.7 km
Total investment value: 20,630,000,000,000 VND
937,727,272.73 USD
Cost per km: 16,835,319.08 USD/km
Upgrade
project:
Highway 51 81 km
Estimated: 1,356,179,440.25 USD
(average cost per km without land acquisition cost x total length)
Table 11: HCMC – Cai Mep Thi Vai Highway investment
Inventory cost calculation
Total inventory carrying cost
on inventory value
Category Min Max
Cost of money 6% 12%
Taxes 2% 6%
Insurance 1% 3%
Warehouse expenses 2% 5%
Physical Handling 2% 5%
Clerical & Inventory Control 3% 6%
Obsolescence 6% 12%
Deterioration & Pilferage 3% 6%
Total: 25% 55%
Table 12: Percentage of inventory cost on inventory value (Source: Richardson, 1995)
66
Assuming that a business needs around 20,000 input parts per month with the cost of
US$2.7 each. However, if the supply chain is unreliable, the company needs to stock more
than it actually needs to compensate the delay, and it costs more money. The calculation
below demonstrates how much it costs the company.
Scenario 1: supply chain is reliable, firm does not need to over
stock.
Inventory quantity
per month Inventory value
Carrying cost Total carrying cost
Min Max Min Max
20000 $2.70 25% 55% $33,750.00 $41,850.00
Annual demand
Inventory
quantity Cost per order
Order cost Total inventory cost
Min Max
240000 20000 $1,015.00 $12,180.00 $45,930.00 $54,030.00
Scenario 2: order is in the risk of being delayed, thus, firm need to overstock by 5%
Inventory quantity
per month Inventory value
Carrying cost Total carrying cost
Min Max Min Max
21000 $2.70 25% 55% $35,437.50 $43,942.50
Annual demand
Inventory
quantity Cost per order
Order cost Total inventory cost
Min Max
240000 21000 $1,015.00 $11,600.00 $47,037.50 $55,542.50
Increased by 2.41% 2.80%
Table 13: Estimation of overstock cost
In this simulated scenario, if the company decides to overstock by 5%, it would cost about
2.5% more than normal. The cost per order and import cost are based on World Bank
calculation.
67
Volume (2015) Average value
(USD) per FEU
Value
Saved value of
overstock inventory
CMTV import 403,869 FEU
54,000
21,808,903,050 USD 545,222,576 USD
HP + Dinh Vu import 952,011 FEU 51,408,606,150 USD 1,285,215,154 USD
Total volume 1,355,880 FEU 73,217,509,200 USD 1,830,437,730 USD
(Total import/export volume and value per FEU are based on World Bank’s calculation)
Table 14: Calculation of saved value from overstock
Trucking related cost calculation
Traffic estimation
Cai Mep – Thi Vai total throughput 1,468,613 TEU
Number of 20′ container 881,168 TEU
(Assume that 60% are 20′, 40% are 40″) Number of 40′ container 293,723 FEU
Haiphong + Dinh Vu total throughput 3,461,859 TEU
Number of 20′ container 2,077,115 TEU (Assume that 60% are 20′, 40% are 40″)
Number of 40′ container 692,372 FEU
Utilization rate 80% (Assume that 20% are empty hauling)
Average traffic per day to CMTV 4,024 truck/day
Average traffic per day to HP 9,485 truck/day
Table 15: Traffic estimation
68
Trucking cost of congestion
From HCMC to Cai Mep – Thi Vai 55 km
From Hanoi to Haiphong 105 km
On the trucking company perspective
Average congestion time in CMTV
0.5 h/day
7.60 day/year
Average congestion time in HP
0.5 h/day
7.60 day/year
Idle fuel consumption 2.5 l/h
Fuel cost
13700 VND/l
0.6227 USD/l
Average traffic to HP + Dinh Vu 9485 truck/day
Average traffic to CMTV 4024 truck/day
fuel cost due to congestion at CMTV 1,143,181.71 USD
fuel cost due to congestion at HP + Dinh Vu 2,694,742.52 USD
Total fuel cost due to congestion 3,837,924.23 USD
Table 16: Trucking cost of congestion
Idle fuel consumption rate (Office of Energy Efficiency & Renewable Energy, 2015)
Cost-benefit analysis
The benefit from having better highway connections is that import/export businesses and even
trucking companies can save a huge amount of money from wasted overstock and fuel. That
money can be seen as a stable cash flow which will be accumulated at the end of the year for
the sake of calculation. Because of the annually increase by 8% of total throughput, according
to World Bank, the saved money will rise by 8% each year. The investment, on the other hand,
is on the year 0. The calculations are made based on the benefits at 100% effective, 70%
effective and 50% effective alternatively. Projects, then, will be assessed by the Internal Rate
of Return (IRR) and the Net Present Value (NPV). The higher the IRR and NPV are, the more
effective project is.
69
Cost-benefit analysis of improving Vietnam logistics
by eliminating road congestion
The cost
Highway investment cost 19.6
million
USD/km
Hanoi – Haiphong highway 2070 million USD
Long Thanh – Dau Giay highway 938 million USD
Highway 51 upgrade 1356 million USD
Total initial investment 4364 million USD
Custom modernization cost 6.35 million USD JICA’s grant
Hanoi – Haiphong highway maintenance cost 2.27 million USD
estimated 1% of
investment cost Long Thanh – Dau Giay maintenance cost 9.38 million USD
Highway 51 estimated maintenance cost 13.56 million USD
Total maintenance cost 25.21 million USD
The benefit
Estimated inventory cost saved 2.5%
Saved value from overstock inventory 1830 million USD
Saved value from wasted fuel 3.84 million USD
Total 1833.84 million USD
Total (at 70% effective) 1283.68 million USD
Total (at 50% effective) 916.92 million USD
Table 17: The cost and benefit – quantified
70
Year 0 1 2 3 4 5 6 7 8 9 10
Cash flow
(million USD) -4364 1808.63 1955.33 2113.78 2284.90 2469.70 2669.30 2884.86 3117.66 3369.09 3640.64
Cash in
(million USD) 1833.84 1980.54 2138.99 2310.11 2494.92 2694.51 2910.07 3142.88 3394.31 3665.85
Cash out
(million USD) 4364 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21
IRR 48%
NPV $15,331.94 (assume the anticipated discount rate is 5%)
Year 0 1 2 3 4 5 6 7 8 9 10
Cash flow
(million USD) -4364 1258.478 1361.17 1472.08 1591.86 1721.23 1860.94 2011.84 2174.80 2350.80 2540.88
Cash in
(million USD) 1283.688 1386.38 1497.29 1617.08 1746.44 1886.16 2037.05 2200.02 2376.02 2566.10
Cash out
(million USD) 4364 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21
IRR 33%
NPV $9,364.76
71
Year 0 1 2 3 4 5 6 7 8 9 10
Cash flow
(million USD) -4364 891.71 965.06 1044.28 1129.84 1222.24 1322.04 1429.82 1546.22 1671.94 1807.71
Cash in
(million USD) 916.92 990.27 1069.50 1155.06 1247.46 1347.26 1455.04 1571.44 1697.15 1832.93
Cash out
(million USD) 4364 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21 25.21
IRR 23%
NPV $5,386.64
Table 18: IRR and NPV of the project
72
2. Transshipment cost
Scenario: port capacity is fully utilized and develop to become medium size hub port of the
region. Cargo of northern and southern area will be consolidated and shipped from Lach
Huyen and Cai Mep – Thi Vai respectively.
As interviewed by World Bank, by shifting the transshipment from international ports such as
Hong Kong and Singapore to domestic ports, the exporter may save US$100 – US$200 per
TEU and up to three days of transit. The saving will be quantified as below.
Saving from 3 days of transit at foreign port
Average FEU export
value 90000 USD/FEU
Cai Mep – Thi Vai 2020
throughput (projected) 2,157,874 TEU
Lach Huyen 2020
throughput (projected) 1,100,000 TEU
Percentage of export
cargo
45%
Interest rates per year 8%
Saving at Cai Mep – Thi
Vai 28,732,244.30 USD total throughput x
export percentage x
3 days x interest rates
per year/365
Saving at Lach Huyen 14,646,575.34 USD
Total saving 43,378,819.64 USD
Table 19: Savings from transit at foreign port
73
Saving if international cargo will no longer need transshipment
at foreign port
Saving from not doing the transshipment
(average) 150 USD per TEU
Percentage of export cargo 45%
(Assuming 45%
are export
container)
Cai Mep – Thi Vai 2015 throughput 1,468,613 TEU
Cai Mep – Thi Vai 2020 throughput (projected) 2,157,874 TEU
(Assuming that
8% annually
increase in
throughput)
Lach Huyen 2020 throughput (projected) 1,100,000 TEU Projected by
World Bank
Cai Mep – Thi Vai at maximum capacity 7,100,000 TEU
Lach Huyen at maximum capacity 6,000,000 TEU
Save from transshipment at Cai Mep – Thi Vai
in 2020 145,656,516 USD saving per TEU x
projected 2020
throughput x
percentage of
export cargo
Save from transshipment at Lach Huyen in
2020 74,250,000 USD
Total 219,906,516 USD
Save from transshipment at full capacity Cai
Mep – Thi Vai 479,250,000 USD saving per TEU x
maximum
throughput x
percentage of
export cargo
Save from transshipment at full capacity Lach
Huyen 405,000,000 USD
Total 884,250,000 USD
Table 20: Savings from domestic transshipment

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