Logistics industry in Vietnam growing for e-commerce

HO CHI MINH CITY, 15 Aug 2018 – The logistics industry is now the hottest area for real estate investments in the Asia Pacific region, according to the latest annual real estate report from Urban Land Institute/PwC.

With considerable growth in smartphone penetration in major cities, the e-commerce market will be grow significantly as the shopping trend via smartphones keeps increasing every year, resulting in the resonant expansion of this market and more pressure on the logistics industry. According to KPMG's international survey 'The truth about online consumers', Vietnamese consumers are leaning towards online shopping for they can easily compare prices, find online sales or get better deals from online retailing platforms such as Amazon, Lazada and Tiki.

Notes by author: Insights derived from eShopWorld data, Statista, World Bank, OECD and other industry sources

Source:  www.eshopworld.com

Many e-Commerce firms are picking up the pace to keep up with the demand. The e-commerce market has witnessed some significant events such as Jack Ma- Alibaba's founder successful collaboration between Alipay and National Payment Corporation of Vietnam (NAPAS) whilst local e-commerce portal Tiki received USD 44 million funding from JD.com - Alibaba's competitor. In 2016, Central Group bought Zalora Vietnam and officially changed its name to Robins Vietnam.

Logistics is a crucial component of the Vietnamese e-commerce market to succeed and reach its full potential. Many foreign logistics providers and e-commerce operators are making efforts not to miss an opportunity to offer e-logistics and meet the rapidly growing demand. The launch of BW Industrial Development JSC in Vietnam, the joint venture between the leading global private equity firm Warburg Pincus and the sizeable state-owned developer Becamex IDC Corp, in January 2018 demonstrates the huge potential of this market.

Compared to regional peers, Vietnam's logistics market is still in its infancy, strongly feature by low-specification premises located in remote locations. Significant investment is needed to implement processes in technology, infrastructure and factories/warehouses to deal with the obstacles from traffic congestion to failed deliveries, as well as the higher logistical costs in rural areas. Driven mainly by potential growth in the e-commerce and manufacturing sectors, Vietnam logistics market will move to the next level, evolving in the same way we have witnessed in other markets.

Challenge for Logistics

While Vietnam's overall spending on infrastructure is relatively high when compared to neighbouring countries, there is still a long way to go. Many infrastructure projects face delays due to land compensation, funding and limited success in Public-Private Partnership (PPP).

According to Doing Business 2018 report by World Bank Group, it currently takes Vietnam 105 hours to export the product of comparative advantage and 132 hours import auto parts. This is significantly longer than only 62 hours for export and 54 hours for import in Singapore. Although the withdrawal of the United States from the Trans-Pacific Partnership (TPP) earlier in 2017 eliminated significant trade opportunities, the country's growth is nonetheless projected to remain robust from strong exports.

The cross-border trading cost, consisting of documentary compliance and border compliance costs, in Vietnam is less competitive than most of its regional peers. Of the total, cost of documentary compliance contributes more than 30% compared with just 10-15% in the developed nations such as Singapore. The remarkable variance in the cost structure suggests more improvement is required in the documentary compliance area.

Source: Doing Business 2018 by World Bank

According to the WEF Global Competitive Index 2017-18, Vietnam achieved a relatively modest increase in its overall score moving up five places to 55th, narrowly surpassing Philippines (56th). Significant improvements are necessary across all pillars, notably among the Basic requirement factors group (75th), especially higher education and training (84th), as the lack of an educated workforce constitutes a significant hurdle for doing business.