Vietnam’s supply chain reform agenda

Vietnam is one of the world’s fastest-growing sourcing and manufacturing locations – with an average export growth rate that was the highest in the region during the last decade.

With its increasing international focus, the booming economy of Vietnam has become a focal point for offshore production by global manufacturers looking for even lower-cost locations than previously offered in China.

However, as the labour and transport costs of its neighbours have risen quickly over the past few years, weaknesses in Vietnam’s supply chain and logistics infrastructure are still leading to high costs of production and transport, which in turn is hindering international competitiveness.

Infrastructure (airports, seaports, roads, bridges, etc) are all important to a country in terms of attracting investment and business and to a company when it is time to decide where to locate an investment, build a factory or establish a regional office.

In terms of competitiveness,Vietnam does not have much more time to improve logistics services to prepare for the stiff competition that will occur once it starts to meet WTO commitments to open its borders and logistics market to foreign companies.

Even though segments of Vietnam’s retail and wholesale industry are growing rapidly, there are still many challenges (such as inadequate infrastructure and rising fuel costs) that obstruct the flow of goods from suppliers through retail distribution centres to nationally dispersed stores.

As manufacturers of foods, beverages and packaged goods struggle to meet increasing demand they all face relatively high costs to distribute products nationally.

New fresh food sourcing platforms and distribution channels are just being introduced to ensure safe and hygienic handling, but still have to compete on price with traditional markets relaying on rudimentary quality standards and basic handling methods.

In an effort to keep pace with these demands, as well as cater to the needs of the world’s 13th largest population, the Vietnamese government has invested heavily in upgrading its transport and logistics infrastructure.

However, according to a recent USAid report, its record of success can best be described as mixed.

Upgrading infrastructure:

While Vietnam’s vast network of inland waterways can transport goods efficiently, an inadequate road network (fewer than 20% of roads are paved) and limited railway capacity have prevented it from meeting its full transport potential.

Even though many national highways have been upgraded and magnificent new bridges completed, there are still problems of making the interfaces between them smooth enough to traverse at speed, which slows long-haul transport.

Ports and shipping:

Port congestion slows the supply chain, increases transaction costs for importers and exporters and foreign and local producers, chokes economic growth and steers investment to other countries.

Containers often require three to seven days to clear Customs, with delays of up to 30 days reported.

Further port infrastructure issues in Vietnam include:

Haphazard and irrational planning and resource allocation;

Too many small ports with inefficient economies of scale;

Potentially low investment returns that limit investment in new port construction and management;

And delays in delivery of master plan milestones such as dredging and road/bridge construction, further exacerbating congestion.

Need for integration:

Vietnam’s rapid growth has outpaced its infrastructure, creating major bottlenecks in ports and a major constraint to continued export-led growth and investment.

Infrastructure planning must be fully integrated to include seaports, roads, and air logistics to ensure efficiency and competitiveness for investors, service providers, manufacturers and exporters.

According to USAid, an estimated $200 billion in new roads, bridges, ports, water sanitation, power, and other infrastructure is still required to sustain growth.

But Vietnam cannot finance or coordinate this investment through internal government channels alone and will need to utilise public-private partnerships.

It will also be necessary to set up a national logistics committee that connects ministries, branches and enterprises.

If no such committee is established, there will be no mechanism for a common voice in the development of transport infrastructure and industrial zones.

Developing Vietnam’s transport and communication capabilities will play a very important role in developing national logistics services.

Meanwhile, the transport system in Vietnam remains weak, regardless of whether it is overland, railway, airway, waterway or seaway.

This will lead to high logistics fees, thus affecting the development and international competitiveness of Vietnam.

This of course provides a marvellous career opportunity for experienced logisticians looking for a challenge.

Source: Bangkok Post



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