Vietnam’s GDP is around USD 366 billion, with an annual growth rate of 4.6%. Vietnam’s logistics sector is growing even faster, fuelled by a range of factors, and poised to ensure the country becomes a significant logistics hub for Southeast Asia. Pietro Karjalainen, Asian Insiders partner for Vietnam discusses how Vietnam’s logistics sector is contributing to the country’s growth and attractiveness to international business.

Vietnam has been one of the main beneficiaries of increased trading tensions between China and the US, where a significant number of international and Chinese manufacturers have shifted all or part of their manufacturing south, below the Chinese-Vietnam border. Vietnam offers cheaper labour rates along with a youthful working population, and despite the pandemic, production volumes are sharply rising. The upturn in inwards raw materials as well as outwards trade volumes has led to considerable pressure on Vietnam’s logistics sector.

In the first year following the pandemic, Vietnam’s import-export volumes reached almost USD 390 billion with the government working towards an annual logistics growth rate of 20% over the next two years. A major factor contributing towards this is the large number of e-commerce startups, focusing especially on last-mile delivery and creating pressure for a more efficient bulk services network. Further, the recently inaugurated Regional Comprehensive Economic Partnership Agreement significantly widens the scope for trade growth over coming years for Vietnam.

As a part of the ASEAN Economic Community and the ASEAN Free Trade Area, Vietnam sits amongst 670 million consumers and just south of a billion and a half more – almost all with rising affluence. The country has been successful in attracting a significant amount of foreign direct investment, averaging USD 7.4 billion since 1991, reaching a high in 2022 of USD 22.4 billion. Nearly 70% of this is towards the manufacturing and processing industry. Meanwhile domestic demand for consumer goods is rising while the e-commerce sector is the fastest growing in Southeast Asia. Increasing urbanisation and stronger demand for healthcare and pharmaceuticals all lead to greater demand for specialised logistical services.

At present, Vietnam spends around 6% of its GDP on infrastructure, compared to other countries in the region spending on average less than half that. This supports the governments aspirations to make Vietnam a fast-growing economy, however this strains government budgets, leading to an increased focus on private partnerships and foreign direct investment.

Vietnam’s 3,300 km coastline holds 45 seaports of various senior grades and classes as well as many more along rivers taking the total to around 320 ports throughout the country. The largest, Cat Lai Port in Ho Chin Minh City hosts three terminals with 15 main berths and supporting a thriving, expanding maritime sector. The government is actively supporting the sea freight industry to increase its contribution to 10% of the country’s GDP by 2030, thereby reducing dependence on its stretched road and rail network.

The country currently has 1,300 km of national highways, but plans to increase this to 5,000 km by 2030 while also improving quality of surfaces and increasing connections to ports, airports and railway stations. The ambitious 1,800 km Ho Chi Minh City to Hanoi highway is currently under construction.

In contrast, Vietnam’s airfreight sector is projected to reach USD 5.8 billion by end of 2023, with an annual growth rate of 10.7%, resulting in a projected market volume of USD 8.8 billion by 2027. The country currently has six airlines operating domestically. Its 22 airports are for civil use, of which 12 are rated for international, however only five of these are of world class standards. The government has plans to increase this total number to 26 by 2030 and 30 by 2050.

Vietnam’s rail infrastructure however is lagging behind the other sectors in that it remains inefficient and underutilised. According to a 2021 report, the system only handled around 0.24% of trafficked goods and this is declining. Work has now commenced on the first high-speed rail link directly with China, although a planned Vientiane-Vung Ang direct rail link with Laos has been beset with delays and has yet to start construction. In 2021, the government announced their vision for improved rail infrastructure including their 2021-2030 rail strategy of nine new lines across the country with an additional 2,600 km at USD 10.3 billion. This is intended to carry 12 million tonnes of freight, or 0.27% of total market.

Vietnam’s logistics sector is dominated by around 30 multinationals, controlling around 75% of net revenues, however this is starting to face some degree of challenge from the rising small and mid-sized local players that can offer specialised and regionally oriented services. Most of these smaller players have a market cap of less than half a million, meaning they need to specialise in order to compete against the likes of Maersk, FedEx and DHL.

Meanwhile other recent government driven innovations in Vietnam’s logistics sector include encouraging increased digitisation, streamlining of customs and clearance protocols and integration of these within warehousing and supply chain ERP systems. This supports Vietnam’s position as a transhipper of goods, taking advantage of its proximity to China, and its easy cross border access to and from the Southeast Asian hinterland.

Vietnam’s logistics sector is going through major investment, development and upgrade, in response to the opportunities becoming available through technical innovation and Vietnam’s availability as an alternative manufacturing centre to China. As Southeast Asia continues to grow and as modern logistics technology rapidly improves, Vietnam is well positioned to take major advantage of these trends. Foreign investment is pouring in, and the country is open for business.

Asian Insiders offers expertise in foreign market entry and supporting global market entry strategies in Vietnam. To discuss investment and partnership opportunities in Vietnam’s logistics sector, please contact Jari Hietala, Managing Partner: jari.hietala(at)asianinsider.com or Pietro Karjalainen, Vietnam Partner: pietro.karjalainen(at)asianinsiders.com