Fueled by rapid economic and trade growth, Vietnam has emerged as a significant player in the logistics arena, demonstrating an impressive upwards trajectory over recent years. The country entered the top 10 of Agility’s Emerging Markets Logistics Index in 2022, highlighting its robust supply chain development and readiness for global manufacturing shifts. The 2023 World Bank Logistics Performance Index (LPI) ranked it fourth in ASEAN, tied with the Philippines and trailing only Singapore, Malaysia, and Thailand.Additionally, Vietnam leads ASEAN in licensed logistics providers recognized by the US Federal Maritime Commission.

However, while the outlook for Vietnam’s logistics sector is promising, significant challenges remain. High logistics costs stemming from inconsistent connectivity, unscientific planning, and a shortage of skilled workers are key hurdles. Addressing these issues won’t happen overnight, and delays in solutions will exacerbate the challenges.

The sector also faces pressure from geopolitical tensions, inflationary impacts on consumer demand, the “green” commitments of major corporations, rapid technological advancements, and the rise of e-commerce, which are all reshaping the traditional logistics landscape. Importantly, delays in tackling bottlenecks and adapting to new trends will impede Vietnam’s logistics industry from strengthening its position and seizing future opportunities.

Pressure from competition

At the Vietnam Logistics Summit 2024, with the theme “Transformation to Breakthrough”, held on October 31 in Ho Chi Minh City, Mr. Le Tuan Anh, Director of the Department of Industrial Economics and Services at the Ministry of Planning and Investment, discussed how China’s logistics network outshines others in the region.

He pointed out that construction permits in China are issued much faster than in Vietnam. For example, it took only eleven months to complete a Tesla factory in China and less than three months to build a large-scale commercial center like an AEON Mall. In contrast, constructing an automotive plant in Vietnam can take several years.

Though China began developing its expressway network later than many countries, it now has the world’s longest network, efficiently linking economic regions and facilitating logistics. Meanwhile, Vietnam’s highways and infrastructure are still being developed, aiming for 5,000 km of highways by 2030. Despite policy improvements, bottlenecks remain that require prompt resolution.

Recently, e-commerce platforms like Temu, Shein, and Taobao have rapidly delivered Chinese goods to Vietnam at surprisingly low prices, prompting questions from consumers and businesses alike.

Mr. Tran Thanh Hai, Deputy Director of the Import-Export Department at the Ministry of Industry and Trade, attributed China’s success to a comprehensive strategy and strong State support, which has given Chinese companies a competitive edge globally. As a result, these companies enter Vietnam with significant advantages, effectively capturing the market.

Many cross-border e-commerce items that Vietnamese consumers purchase from China could be made domestically but are imported at lower cost due to China’s cheaper logistics. Narrowing this gap has become essential for Vietnamese companies, as local manufacturers may struggle if they fail to compete.

Mr. Hai also emphasized the role of logistics centers, which connect crucial transport infrastructure like seaports, airports, and highways. Vietnam’s logistics centers, however, remain fragmented and largely serve the domestic market. The country still lacks large-scale, specialized logistics hubs, such as cold storage for agricultural products, which could enhance export value. “While local companies aren’t fully equipped yet, we have seen some foreign-invested models upgrading Vietnam’s logistics centers,” he said. “We hope to see more large, multi-functional, modern centers in the future to help Vietnamese enterprises learn and adopt these improvements.”

Sustainability and green initiatives

In the rapidly-evolving logistics landscape, sustainability has emerged as a crucial focus, particularly for Vietnam, which aims to position itself as a leader in green logistics. Dr. Yap Kwong Weng, CEO of Vietnam SuperPort, emphasized that sustainability is fundamental to the future of logistics in Vietnam, asserting that sustainability is here to stay. He believes that talent development is crucial in advancing green logistics initiatives, and advocates for the training of professionals in areas such as energy transition and renewable resource management. He noted the importance of building a skilled workforce, particularly among Vietnam’s young demographic, stating that with the right training, this group can become a formidable force in the logistics sector.

He introduced SuperPort’s “park within a park” model, which relies heavily on integrating net-zero principles. “Our goal is to employ different green energy sources to fuel this strategy, and that’s the plan we’re pursuing,” Dr. Yap explained. He also highlighted the need for technology transfer and the co-creation of new solutions to improve logistics operations. “We need to co-create new technologies and establish new marketplaces for logistics growth by bringing in stakeholders, small and medium-sized enterprises (SMEs), financial institutions, and banks to support this entire ecosystem,” he emphasized. “This will create a new logistics marketplace, which in turn brings in more business, boosts investor confidence, and allows us to be as sustainable as possible to make the world a better place to live in.”

Mr. Eric Herding, Managing Director of DSV Air & Sea, Vietnam, underlined the increasing significance of green logistics as a global trend, emphasizing that Vietnam is at a different phase of development compared to more advanced countries like Denmark, where its parent company was founded and is headquartered. He pointed out that while Denmark has a high level of renewable energy infrastructure, Vietnam is still in the early stages of integrating sustainable practices within its logistics sector.

In green logistics, he added, it is essential to collect data early on to create a baseline and benchmark for emissions. “If Vietnam can develop industries that support sustainable logistics, like increasing the production of sustainable aviation fuel to bring costs down, then we will see more adoption and use of these products,” he said.

It is also essential to create more connectivity across the industry. This requires cooperation from the government and authorities, as well as collaboration from logistics associations, universities with expertise in this area, asset owners, ports, and customers themselves. “I believe there is a team effort needed to identify the unique aspects of this issue in Vietnam and to bring together smart minds to develop a plan for the future.”

Unlocking Vietnam’s potential

Smart logistics networks and its potential as a regional hub are central to Vietnam’s vision of establishing itself as a leader in Southeast Asian logistics. With a coordinated focus on technology and infrastructure, Vietnam can overcome logistical challenges and harness its strategic position to become a major player in global supply chains.

According to Dr. Yap, Vietnam is in a position of strength and growth. “Geographically and strategically, it is positioned close to China and the rest of ASEAN,” he said. “These are significant partners for establishing connectivity and creating a robust supply chain network.”

However, achieving a smart logistics network that positions Vietnam as a logistics leader requires a collaborative approach involving government support, private sector investment, and public infrastructure development. Dr. Yap emphasized that inter-government cooperation and agency support are required to effectively connect Vietnam’s transportation networks with those of neighboring countries.

Mr. Herding agreed, highlighting that Vietnam’s logistics infrastructure is assessed compared to other countries in the region through the LPI. The index provides insight into Vietnam’s performance relative to its peers, including Malaysia and Thailand, indicating areas of strength as well as opportunities for improvement. “Vietnam has a unique opportunity, especially with its geographical proximity to China, which continues to drive investment into the country,” he believes. “The idea of establishing a regional logistics hub here in Vietnam is absolutely feasible.”

Despite this potential, he emphasized the need for enhanced connectivity between various logistical components: “There is still room to enhance links between industrial parks, logistics hubs, ports, seaports, airports, and even road, rail, and inland waterway networks,” he said. Indeed, inland waterways could emerge as one of Vietnam’s greatest strengths, particularly in the context of sustainable supply chains. Furthermore, he suggested that the creation of additional free trade zones or similar systems could facilitate operations, lower transaction costs, and enable the more efficient movement of goods, ultimately fostering an ideal environment for regional distribution centers alongside Vietnam’s robust manufacturing sector.