High Logistics Costs Engulf Vietnams Businesses

VietNamNet Bridge - Logistics fees in Vietnam account for 20.9 percent of the country’s GDP, of which transport costs account for 60 percent, twice as much as developed economies such as Japan (11 percent) and EU countries (10 percent), according to the World Bank.

Businesses complain about high logistics costs

The problem is that the transport system cannot be exploited in the best way. The cost of transporting 40-feet containers by land from Hanoi to HCMC is VND40 million, 9.7 times higher than shipping by sea, and 2.5 times higher than rail.

For inland shipping on the north-south route, the freight rate from warehouse to warehouse is equal to 40-50 percent of land transport freight, but the transport time needed is 3-5 times longer. 

The shipping fee on international routes is still high because imports/exports have to be transhipped at foreign ports, which bear additional costs.

According to the Ministry of Transport (MOT), direct costs amount to 60-80 percent of total transportation costs, while indirect costs are 20-40 percent.

MOT’s Deputy Minister Nguyen Van Cong believes that one of the reasons behind the transportation cost increase is the unbalanced investment levels in modes of transport. 

The investments in inland waterways, railways, airways and maritime are modest if compared with road transport.

“The investment on road transport is high because of the high prices of vehicles. As for railway, the trains’ locomotives are old and fuel-consuming. Meanwhile, waterway transport is not equipped with advanced technology.”

In such circumstances, reducing the logistics costs to 16-20 percent of GDP by 2025 as stated by PM Nguyen Xuan Phuc is a very difficult mission.

According to MOT, four major solutions would be implemented to reach that goal.

First, stepping up the restructuring of the domestic transport market by reducing the land transport’s market share, and strengthening railway and inland waterway transport. It is expected that by 2020, land transport would amount to 54.4 percent of inter-provincial cargo transport, while railways would be 4.3 percent and waterways 32.4 percent.

Second, Vietnam needs to make investments to upgrade the logistics infrastructure to connect Vietnam’s ports with neighboring countries, and build transport works, storehouses and logistics centers on the routes and corridors connecting Vietnam’s ports with Laos, Cambodia, Thailand and the southern part of China.

Third, strengthening facilities, loading equipment and warehouse systems. Fourth, upgrading the maritime shipping capacity and adjusting the seaport system development program so as to take full advantage of localities’ strong points.

Tran Thi Lan Anh, deputy secretary general of the Vietnam Chamber of Commerce and Industry, believes that logistics firms encounter obstacles because of unreasonable requirements which deeply intervene in their business.

“A lot of requirements are putting a burden on logistics firms,” Anh commented.

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