New focus for logistics firms
2018 marked an important change in the Vietnamese logistics industry, when international and domestic logistics businesses made significant investments in technology innovation to boost their networks in anticipation of growing trade from the upcoming enforcement of landmark free trade agreements.
Having a break at noon, Le Thi Phuong, a 35-year-old officer, had a little time to shop for clothes for her children. Without crossing crowded streets to get to the shops, she swipes away by a single finger on her mobile phone to online shopping sites.
“I prefer to shop online now. It can help save time while buying products that fit my requirements. With on-demand delivery service, customers receive notifications of when the shipment will arrive and can even communicate when and where they want it to be delivered,” Phuong said. “Not only me, my friends also prefer to shop online. In the digital age, online shopping is far cheaper and more convenient.”
Technology – a new focus
By investing heavily in technology, logistics businesses have been contributing to the development of e-commerce and trade, and serving individual customers like Phuong.
Unlike in the past, when physical investment was the main focus of investments, logistics businesses now also pay due attention to innovation.
Lazada E-logistics Vietnam (LEL), one of the biggest players in the local logistics market, wrapped up 2018 after heavy investment in infrastructure and technology, showing a clear new focus in its development strategy.
“We have invested into auto-sorting systems in both Ho Chi Minh City and Hanoi, opened a great number of new last mile hubs in key cities and economic zones, and set up more fulfilment centres, including the one in Danang,” Vu Duc Thinh, country manager of LEL, told VIR.
LEL operates dozens of e-bicycles for delivery and are planning to expand the use of this kind of vehicle. It is also studying investment in electrically-run three- and four-wheeler vehicles for distribution centres.
“Our fleets include thousands of motorbikes and we would like to replace them by electric tricycles. Tricycles are used in developed countries and focus on green technology and safety. We are currently seeking the government’s approval to pilot these vehicles,” Thinh elaborated.
Like LEL, DHL and other logistics giants, as well as domestic players are jumping on the innovation train. DHL, a global leader in the logistics industry, is trying to go green and electric by looking into machine learning, Big Data, and automation.
“We have highly-automated processes and use a lot of IT and technologies in our systems. We produce electric vehicles and we are looking at setting up an Asia-Pacific manufacturing plant,” said Raymond Yee, vice president of Customs & Regulatory Affairs Asia-Pacific of DHL Express (Singapore) Pte., Ltd. “We now also have innovation centres: one in Europe and one in Singapore to serve the region. We are constantly trying to enhance our system in order to be in the forefront of these changes.”
Spearheading the application of technology among Vietnamese players, Bee Logistics and state-owned ship giant Vinalines are also trying to digitalise their operations.
“We are applying technologies to increase labour productivity and force down operation costs, while utilising equipment featuring new technologies to save energy and protect the environment,” said Dinh Huu Thanh, CEO of Bee Logistics, which is one of the biggest Vietnamese providers of international logistics services.
“With technology innovations, our representative offices abroad all reported double-digit growth last year, contributing to increasing our consolidated revenues from $65 million in 2017 to around $80 million in 2018," Thanh said.
Industry insiders said that the newfound focus on technology innovations is aimed to increase operational efficiency in anticipation of growing trade from the EU-Vietnam FTA (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
“The EVFTA and CPTPP are a very good opportunity for Vietnam to lift up both exports and imports, particularly in traditional trade and logistics. The domestic market itself is already a very big opportunity for e-commerce and logistics to grow. We invest into our core business, but of course if an opportunity arises, we will try to seize it,” Thinh of LEL said.
In a similar move, Bee Logistics has been preparing for the new period by forging new partnerships, drawing up plans to open more representative offices in the EU and some member countries of the CPTPP, and investing more in people and technology.
“We are planning to focus on the member markets of the CPTPP and the EVFTA to tap into the growing demand among domestic and foreign-invested enterprises,” said Thanh.
DHL and UPS Vietnam also forecast that the various FTAs bode well for the country’s economy. With an increase in trade, the logistics industry will benefit from an increased need to move goods into and out of Vietnam, including customs brokerage services. They have also been making preparations for these rising needs.
“Our focus will be on maximising the increased bandwidth with signatory countries that are already close trading partners of Vietnam, such as Japan, while helping businesses to identify prospects in less explored markets such as New Zealand or Chile,” said Daryl Tay, managing director of UPS Vietnam.
New plans – new opportunities
At present, Vietnam has many incentive policies to elicit foreign investment in the logistics industry, which grows at 16-20 per cent per annum on average. These policies include financial and land incentives, among others.
Recent government decisions and plans to develop logistics would bring in business and investment opportunities for investors. They include Decision No.1012/QD-TTg on the development of logistics centres nationwide by 2020 with a vision to 2030, Decision No.200/QD-TTg on action plans to increase the competitiveness of logistics and the development of logistics services in Vietnam by 2025, and Decision No.2072/QD-TTg on the adjustment of the development planning on national inland container depots (ICDs) by 2020 with a vision to 2030.
Specifically, based on Decision 2072, the Ministry of Transport (MoT) is working on the detailed development planning for ICDs nationwide, with a focus on forecasting goods transportation demand and the location, scale, and capacity of ICDs in each region and economic corridor, as well as solutions to connect ICDs with the national transport network.
What is more, in March 2018, the MoT signed Decision No.465/QD-BGTVT, announcing plans on logistics development in the Mekong Delta region. Also, the country will develop roads linking seaports, economic corridors, and belts, while developing railway routes connecting the national seaport network, in particular to seaports in the northerrn city of Haiphong and the southern province of Ba Ria-Vung Tau.
“Enhancing international co-operation is also important to strengthen the connectivity of logistics infrastructure in Vietnam with Southeast Asia, North-Eastern Asia, and other regions across the world – particularly corridors to connect Vietnamese seaports with Laos, Cambodia, China, and Thailand,” said Deputy Minister of Transport Nguyen Van Cong.
M&A remains hot
Vietnam is home to around 1,600 logistics service providers. There are around 30 trans-national logistics companies, such as Damco, DHL, and DB Schenker. Although they make up only 4-5 per cent of the number, foreign players hold 75 per cent of the market.
Seeing the huge growth potential, international logistics players are seeking to expand to and in Vietnam, with mergers and acquisitions (M&A) and the establishment of joint ventures (JVs) as attractive channels.
“Foreign logistics businesses choose JVs and M&A because it helps lower costs – as local partners have already developed extensive business networks and have experience in the market – while giving foreign owners an opportunity to own 100 per cent of the venture at a future date. Logistics investors from Japan, Hong Kong, South Korea, and Singapore are the most interested in such deals,” said Nguyen Tuong, former deputy general secretary of the Vietnam Logistics Business Association. “The rapid growth of the export-oriented manufacturing sector has also boosted the demand for logistics services, thus making Vietnam an appealing spot for international logistics businesses.”
In late December 2018, Airport Service Group and ALS Thai Nguyen joined hands with South Korean partner ULP to establish ASGU Vietnam JV, with the former holding a 49 per cent of the charter capital. ULP is one of the biggest logistics companies in South Korea, with a wide network of customers, including Samsung, Hyundai, LG, Sony, Canon, Foxconn, Lotte, and others.
Tuong forecast that Vietnam will witness more logistics M&A deals and JVs in the coming months.
“In this way, M&A is an opportunity for businesses to further apply high technology to benefit themselves, the whole economy, and dozens of millions of customers like officier Phuong from Hanoi,” Tuong said.