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Recently, VietnamReport - a local research institute - had listed the top 10 leading companies in the transportation & logistics sector. The rankings were based on the following 3 indicators:
- Financial capacity of the assessed companies
- Brand awareness of the assessed companies; and
- Independent surveys conducted by VietnamReport.
VietnamReport further segmented the transportation & logistics sector into 3 sub-sectors, which were Delivery & Warehousing, Freight forwarding, and Passenger Transportation.
Viettel Post climbed 3 places up, surpassed Germadept, and topped the delivery & warehousing’s ranking. In the first 3 quarters of 2019, Viettel Post announced it had earned a total of VND5,073 billion in revenue.
Petro Transportation won the top spot in freight forwarding’s. Besides, 2019 marked the second consecutive year that it entered Forbes Vietnam's top 50 listed companies.
Vietnam Airlines headed the Passenger Transportation’s group, followed up close by Vietjet Air.
In addition to the rankings, VietnamReport also published its study on the current state of the industry.
The findings showed that Vietnam is presently housing more than 4,000 transportation & logistics companies, of which 88% are domestic firms, 10% are joint ventures, and the rest 2% are international groups. Most reside in 2 major cities, Hanoi and Ho Chi Minh city. They center on building a diverse array of services to meet customers' rising needs.
Throughout 2019, FDI inflows played a dominant role in both logistics and transportation. Foreign-funded companies accounted for up to 70% to 80% of market share, although they were far outnumbered by the domestic ones. This wide disparity could be attributed to numerous causes, but mainly because domestic companies focused mostly on offering basic services and because they competed mostly on price, with little or no added value in the service offered.
In 2018, Vietnam ranked 39th in the World Bank’s LPT (Logistics Performance Index), up 25 places since 2016. This encouraging progress could be seen as the result of the substantial efforts going into employing new technologies, into modernizing infrastructures, and into facilitating customs procedures.
It was predicted that Vietnam would continue to see profound shifts in its transportation & logistics sector. The reign of E-commerce platforms, the rise of automation technologies, the growing number of FTAs, and the renovation of infrastructure are viewed as the core drivers that fostered this sector’s development.
Furthermore, the China-US trade war would open up plenty of opportunities for Vietnam. To take one example, a growing body of reports had suggested that Chinese companies were planning to build their plants in Vietnam and Southeast Asia.
91% of businesses believed the sector’s growth rate would rise north of 10% by 2020. However, according to experts and their estimations based on recent years’ averages, the rate could be slightly more than that, from 14% to 15%.
4 prevailing trends in the transportation & logistics sector
4 prevailing trends in transportation and logistics
Applying technology 4.0
The fourth industrial revolution - better known as industry 4.0 - had radically altered transportation & logistics. In developed economies, industry 4.0 had opened doors to E-logistics, Green logistics, and E-documents. Likewise, innovating countries also were working on cloud computing, blockchain, artificial intelligence (AI), and other technologies alike to optimize or, better still, automate their operations.
Despite that, Vietnam remained behind this curve. At present, most domestic companies have yet to take full advantage of modern technologies.
Nevertheless, 80% of experts in the survey believed that, in a time when digital transformation has become an imperative, local companies would be left with no choice but to change and adapt. These experts expected more and more innovative technologies will be adopted and applied, enabling local companies to standardize processes, lower costs, optimize resources, modify management strategies, and improve customer loyalty.
Online shopping and E-commerce
It is estimated that up to 70% of Vietnamese citizens are active internet users. Such widespread Internet usage had set the stage for the phenomenal growth of E-commerce. According to a report by E-commerce and Digital Economy Agency, the E-commerce market was valued at USD 8 billion, growing at a rate of 30% during the forecast period 2017-2018, and was projected to reach USD 10 billion by 2020.
The proliferation of E-commerce platforms had 2 major implications. First, it drove people to switch to online shopping, which, in the meantime, is favored over traditional ways of shopping. Second, it prompted logistics companies to build new delivery models, offering customers on-demand services such as next-day or same-day delivery.
In an effort to cope with the fluctuating nature of customer demand, many E-commerce platforms also poured their funds into revamping IT systems, streamlining supply chains, and building more distribution points.
New waves of M&A
The experts in VietnamReport’s survey predicted that, in the upcoming 2 - 3 years, there would be several more M&A negotiations being concluded. These waves of mergers and acquisitions could have arisen out of the increasing fierceness of economic competition, the ongoing advancement of technologies, and the determining impact of Industry 4.0.
Having noticed the untapped potential of the Vietnam market that domestic companies fail to exploit, international corporations entered by means of mergers and acquisitions. As is suggested by the above-mentioned findings, they turned out well thanks to the established reputation, broad customer base, and collective expertise.
2019 has seen many mergers and acquisitions worth millions of USD. For example, Symphony International Holdings just acquired 28.57% of ITL Corp’s shares for USD 42,6 million, or SSK spent USD 40 million in exchange for 10% of voting shares of Germadept.
The growing number of mergers and acquisitions posed several challenges to domestic companies since they have to innovate, lest they fail to compete and, as a result, keep losing market shares to FDI-funded competitors. Notwithstanding, some viewed this trend as an advantage since they had the chance to adopt and experiment with different approaches from global corporations.
Investing in advanced warehouses, logistics centers, and cold chain
Local companies would not cease to invest in building modern warehouses and logistics systems for a long time to come. This is a part of a wider trend reinforced by the overriding need for expansion and the ample opportunities that E-commerce had come to offer.
Recently, cold chain logistics began to expand dramatically, which is thanks to the expansion of food and pharmaceutical manufacturing, together with the increasing number of refrigerated warehouses. According to Allied Market Research, the cold chain market was valued at USD 159,9 billion in 2018 and was forecast to reach USD 590 billion as of 2026.
5 challenges facing transportation and logistics sector
5 major challenges facing the sector
The surveyed businesses cited the following 5 are the major challenges they are facing: underdeveloped infrastructure, lack of skilled workforce, unclear policies, complex formalities, and high operating expenses.
81,82% of the respondents judged poor infrastructure as the most serious impediment and believed the present state of infrastructure stifled the growth of their businesses. Specifically, the construction of the 3 long-awaited logistics centers is still underway. Failing to encourage the adoption of modern technologies, these centers also are at a stage where only imports and exports are facilitated, which greatly hindered the sector’s further progress.
The logistics workforce - in terms of its quantity and quality - is substandard. Local companies are grappling with the lack of skilled specialists and management-level staff who are well-read in international trade law and well-versed in logistics planning. 93% to 95% of the labor force are ill-prepared for logistics professions, most of whom concern mainly with day-to-day operations. This flaw was the second-biggest challenge, as claimed by 63.64% of respondents.
Even though the government has recently been working on a number of incentives to support logistics and transportation, over 54,55% of respondents remained discontent. They regarded the current policies as rather strict and inconsistent.
6 factors directly influencing transportation-logistics sector
6 determining factors
There are 6 key factors that determine how well a transportation & logistics company functions and performs, which are (1) the quality of labor force and management, (2) inflationary impact of oil price hike, (3) trade agreements that Vietnam has concluded, (4) the overall influence of macroeconomic environment, (5) the development of import-export, and (6) the decisive impact of industry 4.0.
Limitations in business scope, capital, expertise, technologies, and labor skills inevitably restrain businesses from making further strides. In this business environment, companies that manage to remedy these shortcomings would compete better, improve service quality, enhance workforce efficiency and lower costs.
A survey by VATA in October 2018 noted that fuel price is the key determinant of logistics expenditure, which directly influenced the profitability of the sector. Typically, the costs of fuel account for up to 40% of transportation costs.
Companies expected the Trade agreements (ranked 3rd) would not only improve demand for logistics but also lower the operating expenses. Moreover, they believed that a strong international trade network (ranked 4th) coupled with stable economic growth (ranked 5th) will directly drive the sector’s profitability.
8 key areas to focus on
8 critical areas to pay attention to
VietnamReport also pointed out factors that companies need to consider to improve their profitability and competitive advantage. 72,73% suggest that companies should prioritize improving their service quality, employing more technologies, and building viable pricing strategies. Moreover, businesses have to be more reliable and accountable (63,63%), improve the timeliness of value delivery (45,45%), have prompt responsiveness (45,45%), promote customer support and brand building (36,36%) and enhance workforce quality (18,18%).
Recommendations for the transportation and logistics sector
Key recommendations
VietnamReport also put forward recommendation for promoting the sector, which are: (1) reframing policies with regard to logistics, (2) simplifying administrative procedures, (3) offsetting fees and charges; (4) Improving infrastructure: transportation, telecommunications, and technology; and (4) Further training workforce.