Contract Logistics

Logistics in Vietnam, the “Mecca” of the Manufacturing Industry

This part of the white paper looks into the current status of Vietnam’s manufacturing industry and the relevant characteristics of its logistics market and overviews the advanced logistics services provided by SDS in the country.

Vietnam’s rise as the mecca of manufacturing came with the outstanding growth of its trading and logistics industries. However, the infrastructure and productivity of the country’s logistics market are not nearly enough to catch up with the surge of freight volume. This part of the white paper looks into the current status of Vietnam’s manufacturing industry and the relevant characteristics of its logistics market and overviews the advanced logistics services provided by SDS in the country.

Vietnam, the “Mecca” of Global Manufacturing Businesses

 Manufacturing Industry: Current Status and Outlook

In the World Bank’s Doing Business in 2017 list, Vietnam was ranked 68th among the 190 countries. Also, the factors discussed above, combined with active investments in the country, have greatly spurred the growth of the Vietnamese manufacturing industry. As of 2016, Vietnam’s manufacturing industry is worth around USD 28 billion, which accounts for 14 percent of the country’s total GDP.

Its main products include textiles, clothing, footwear, mobile phones and computers and other high-tech devices. Being an export-driven economy, Vietnam exports most of its products overseas.
Textiles and clothing have been the country’s main exports since its industrialization. It currently comprises 10 percent of the total production of the country’s manufacturing industry. Most of the products are exported to the United States, Europe and Japan. Footwear is one of the main manufacturing items along with textiles, clothing, and electronic devices, most of which are exported to the United States and Europe. Lastly, high-tech electronic devices have seen the most rapid growth in both manufacturing and export. The growth trajectory shot up starting in 2011 as global electronic companies built one production site after another in the country. In particular, mobile phones and mobile phone parts take up the largest portion of the total value of exports from the country in 2017 at 21 percent.

Export Value by Major Products

Growth in the manufacturing industry and exports have a more substantial impact on the growth of demand for logistics services than other factors. Demands for international transport, inland transport, and distribution services are generated in the course of importing materials and parts, re-exporting the products after manufacturing them, and distributing them within the country. The bright future of the manufacturing/export-driven Vietnamese economy is expected to result in the high potential for growth and good opportunities for the Vietnamese logistics industry as well.

Vietnam’s Booming Manufacturing and Its Logistics Market

Logistics Market: Current Status and Outlook

Spurred by the rapid growth of the manufacturing industry, the Vietnamese logistics market is expected to record substantial growth. It is expected to record an annual growth rate of 16.6 percent between 2018 and 2023, and its expected total worth in 2023 stands at USD 113.3 billion.

In 2016, Vietnam’s total freight volume was 238.1 billion tons/kilometers. By ton/kilometer, sea transport makes up 75 percent of the total volume, while land transport accounts for 24 percent.

Freight Volume by mode of Transport

Challenges in the Vietnamese Logistics Market

The biggest challenge faced by the Vietnamese logistics market is its deteriorated and insufficient infrastructure.

Take sea transport for example. Despite the advantage offered by its long coastlines and 128 ports, the country surprisingly lacks large ports. The only ports capable of accommodating 14,000 TEU vessels are the Cai Mep Port in the south and the Lach Huyen Port in the north, which recently went through an expansion.
Also, the market suffers from a lack of balance among infrastructure for different modes of transport. Other than sea and air transport, the country offers a wide range of transport options such as roads and railroads. However, the infrastructure for the latter options is even more underdeveloped. For example, despite the significant share of road transport in Vietnam’s transport services, only around 20 percent of its roads have been paved with asphalt. Road infrastructure has a great impact on the connectivity between ports/airports and key industrial areas. Poor road conditions constitute one of the serious challenges that logistics service providers are bound to face in Vietnam.

To make matters worse, most logistics service providers in Vietnam are SMEs with insufficient capital to secure warehouses, automated facilities, and means of transport, not to mention IT capabilities.

Vietnam’s Logistics Infra. Expansion Plan

Conclusion

Vietnam holds great promises for manufacturers and logistics companies. The country has been attracting manufacturers and logistics companies with low labor cost, business-friendly government policies, growing infrastructure, its geographic advantage for export to major consumer countries, and the rapid growth of its freight volume.

However, the low quality of logistics services and the lack of logistics infrastructure pose considerable challenges for manufacturers that operate in Vietnam. Because of frequent congestion at seaports, the low visibility of freight makes it difficult to respond to these situations promptly. Many of the local transporters and vendors do not have proper solutions to accumulate the relevant data in a systemic way, which often prevents them from delivering the required amount of materials at the required time. The high percentage of small-time transporters also contributes to low efficiency.

Overcoming these challenges and efficiently carrying out logistics processes require sophisticated solutions. Samsung SDS holds the know-how and years of experience in managing the production/sales logistics for global electronic manufacturers and offers specialized end-to-end logistics solutions based on its strength in its logistics IT capabilities. Thus, the company is well-equipped to provide smart solutions to its customers challenged by the issues scattered across the logistics processes in Vietnam.

Samsung SDS offers integrated logistics management for vendors across the world for reduced logistics costs. The company’s Cello WMS (Warehouse Management System) ensures precise execution of the highly complicated task of managing inventory and warehouses involving tens of thousands of different materials and parts. The company is actively engaged in providing logistics services to global manufacturing companies, from its branches in Hanoi and Ho Chi Minh City, which allows Samsung SDS to secure spaces for shippers having difficulties finding means of transport due to insufficient infrastructure. Samsung SDS also offers 24/7 control for all customer freight, which provides visibility for transhipping and transport processes and allows for timely transport by ensuring proper responses to emergencies. The company also manages its logistics services using its integrated logistics platform, Cello, which accumulates data generated from each process and uses the data to inform various logistics innovation activities.

For businesses experiencing difficulties with logistics in Vietnam, the “mecca” of the manufacturing industry with infinite possibilities for growth, Samsung SDS will be a reliable partner to help them improve their efficiency in logistics, focus on their core capabilities, and identify new business opportunities.

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To find out more about logistics of Samsung SDS, visit Cellologistics.com and download the white paper.

 

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