Advancing the competitive power of the warehousing services sector in Vietnam

The current situation of warehousing services in Vietnam

Revenue from warehousing services tends to increase over the period of 2015 –  2019. Revenue increased from VND 16,500 trillion in 2015 to nearly VND 33,400 trillion in 2018, followed by a slight decrease in 2019 with revenue reaching 31,700 trillion VND.

Source: VIRAC, GSO

The number of enterprises and workers in the sector tends to increase in the period 2015–2019. Specifically, the number of enterprises increased by more than 70% from more than 421 enterprises in 2015 to more than 740 enterprises in 2019. Besides, the number of employees increased sharply from 2015 to more than 19,000 employees. Only one year later, the figure continued to grow strongly, reaching more than 22,300 employees in 2019.

Source: VIRAC, GSO

Domestic logistics companies tend to invest in expanding warehouse sizes, improving service quality to compete with foreign businesses. Although domestic logistics enterprises still account for a larger proportion in quantity, the current logistics market has a clear differentiation in the market share of foreign logistics enterprises (about 70%-80%). Due to the demand for higher quality, goods diversity and faster delivery, foreign investment or M&A activities in this sector show the competitive race to capture the logistics market share. The warehousing and logistics services market in Vietnam will see many changes in the up-coming time.

The industry is fragmented with more than 95% SMEs serving warehousing services

Currently, the warehousing sector in Vietnam can be divided into two main segments including dry storage warehouse and cold storage. Warehousing system operation is quite simple, mainly preserving goods and optimizing storage costs. Some big names are currently leading players specializing in leasing and warehousing management such as BS Logistics, Sotrans, Transimex, Gemadept, U&I Logistics, Vinafco Draco Seaborne, BK Logistics, ALS, ITL…

Source: VIRAC

The size of the cold chain market in Vietnam is estimated at USD 169 million in 2019. Thanks to the  processing industry development in Vietnam as well as the booming in domestic consumption, the cold chain in Vietnam established new momentum of improvement. However, the operations scale of domestic firms has not been able to meet the high demand in this sector. International Finance Corporation (IFC), a member of the World Bank group, stated that over 95% of service providers are domestic SMEs with the limited scope of operation and low competitiveness.

It can be seen that the Logistics businesses in general and the warehousing service businesses in particular are mostly small and micro businesses. More than 53% of businesses are operating in warehousing services with a labor size of less than 5 people, 23% of businesses operating with only 10-49 people.

Source: VIRAC, GSO

According to a recent study by CEL – one of the first supply chain management consulting firms in Southeast Asia, only 14% of Vietnam manufacturers are connected to cold chain solutions, in which the industry Seafood accounts for 42.1% of the total number of producers. In addition, while the use of cold chain is 66.7% for exporters, cold chain is only applicable by 8.2% of manufacturers supplying the domestic market.

According to a latest report by CBRE Vietnam, recently the demand for warehouse rental continues to strongly increase thanks to the development of manufacturing industries and increased personal consumption expenditure. The demand for warehouse rental is increasing highly in some areas such as: HCMC, Binh Duong, Hanoi, Bac Ninh and Dong Nai.

Challenges to the development of Vietnam’s warehousing services sector

Challenges in service quality

Vietnam warehousing and logistics enterprises have not yet provided complete warehouse and logistics services. Most of them only play the alternative role for foreign companies, performing single operations of customs declaration, freight trading… Warehousing facilities and quality of warehousing and logistics services of Vietnamese enterprises are not really equal in comparison with those of foreign ones. Therefore, it is difficult to compete with foreign enterprises in the domestic market.

Challenges in technology application and e-commerce movement

Vietnamese businesses are mainly manually managed, and the application of information technology remains at a low level. The application of e-commerce (including EDI exchange and electronic bill of lading, electronic documents…) are weak among Vietnamese enterprises and inferior to competency of foreign enterprises

Challenges in human resources

In Vietnam, there is currently no professional training institution for warehousing and logistics services. Human resources of Vietnamese enterprises are mainly self-trained based on practical experience. In case of market booming, businesses will have to face the situation of good human resources shortage due to the attraction of foreign businesses.

Future outlook and development projections

Source: Vietnam Report

Technology application in logistics industries

Currently, the level of technology application of Vietnamese logistics service providers is still at a low level, mainly using electronic customs declaration software, vehicle positioning technology,… However, in the digital era, warehousing businesses in Vietnam gradually show adaptive signals by promoting research and application of technology in logistics activities. As a result, professional shipment, intelligent logistics services combined with IoT will help standardize operating processes, optimize costs and resources of businesses.

Online shopping trends open opportunities for transport and logistics businesses

With the rate of 70% of Vietnam’s population using the Internet, Vietnamese people spend about 28 hours on average per week, creating favorable conditions for the e-commerce industry to make a strong move. According to a report by the Vietnam E-Commerce and Digital Economy, the e-commerce market reached USD 8 billion in 2018, with a growth rate of 30% compared to 2017. By 2020, the Vietnam e-commerce market is forecast to grow continuously in the next few years, reaching 10 billion USD in particular.

Mergers and acquisitions (M&A) movement among active logistics enterprises

In 2019, there have been many million-dollar M&A deals. Symphony International Holdings (Singapore) bought Indo Tran Logistics and Transport Joint Stock Company (ITL Corp) shares from Singapore Post for 42.6 million USD. SSJ Consulting spent nearly 40 million USD to buy 10% of the total outstanding voting shares of Gemadept.

In the next 2-3 years, the M&A wave will continue to change rapidly in the logistics sectors due to fierce competition pressure in the context of global economic integration, along with the advancement of science and technology. One the one hand, M&A activities possess challenges for domestic enterprises to innovate and optimize their businesses. On the other hand, M&A movement creates a good opportunity for businesses to grow faster, lower logistics costs of experienced businesses.

Invest in warehouses, logistics centers and cold storage chains

According to a market research firm, Allied Market Research (2019), the size of the global cold storage chain in the logistics market is worth USD 159.9 billion in 2018, expected to reach around USD 590 billion USD. Vietnam’s cold supply chain in general and cold storage in particular are considered to be fragmented. However, the market is expanding, expected to witness new development in 2020.

With the sharp increase in the number of e-commerce businesses, along with the space for rental storage demand, classification of goods, many businesses have aligned with the line, starting to build warehouse systems, logistics centers with the function of providing high quality services.

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