E-commerce Logistics: Emerging Opportunities in Vietnam
By: Trang Le
E-commerce in Vietnam is not a new concept as it was 5 years ago. The market has witnessed the entrance of many large players in recent years, with lotte.vn and aeoneshop.com joining in early 2017 alone. Boasting a projected annual growth rate of 30 percent over the next five years, the e-commerce sector is expected to reach US$10 billion by the early 2020s. Yet, e-commerce extends beyond sales and slick web design.
The speeded of product delivery is increasingly important as is the quality for both customers and merchants. As the market continues to grow, it becomes increasingly clear that the long-term prospects of Vietnamese e-commerce lie in the development of a good logistics system to facilitate the sector. At present, the major challenge is that companies involved in e-commerce cannot handle logistics alone. As a result, outsourcing e-commerce logistics functions to third-party logistics providers (3PLs) is an increasingly important trend.
According to the Vietnam Logistics Business Association (VLBA), logistics in Vietnam accounts for 20 to 25 percent of GDP with the sector projected to grow by roughly 12 percent per year in the near future. The high growth of the e-commerce industry offers more opportunities for logistics companies to tap into the market’s potential. In particular, express delivery and logistics services targeting e-commerce are fertile ground for investment.
In recent years, a number of notable companies have begun investing in logistics within Vietnam and help to showcase the success and opportunities which Vietnam can afford. DHL eCommerce – one of four divisions of Deutsche Post DHL Group, is currently raising its stakes in the e-commerce logistics battle. As of early January 2017, DHL eCommerce has successfully offered end-to-end domestic delivery service for e-commerce merchants in Thailand which pave the way for its ambitious plan to double its fleet and number of depots by 2017 to neighboring markets, including Vietnam.
With the goal of becoming a leading company in the field of e-commerce logistics, Indo Tran Logistics and Transport JSC (ITL Corp) is a new entrant to the field of express delivery in Vietnam. with its brand SpeedLink. Since 2016, the office network of SpeedLink has been present in 50 provinces and cities across the country.
Giao Hang Nhanh, an e-commerce delivery and logistics business, has emerged in the country vibrant online stores. Giao Hang Nhanh currently serves over 800 online merchants, 20 of which are larger scale B2C e-commerce sites such as Tiki.vn, and Project Lana. Its aim is to enable a better e-commerce experience for both consumers and merchants through efficient logistics service.
Giants join the battle
Lazada is the first e-commerce enterprise with its own delivery company called LEX. In its formation stage, LEX was built on a scale exclusively for Lazada. However, realizing the growing demand for e-commerce in the world and Vietnam, Lazada decided to split LEX into a separate company. Earlier this year, Lazada has also invested in three large warehouses in Ho Chi Minh City, Da Nang, and Hanoi with a total area of 22,000 square meters and a network of 34 distribution centers throughout the country. Even so, Lazada’s logistics network does face limitations. On a daily basis, LEX as well as Lazada must join forces with Giao Hang Nhanh, VNPost and Viettel Post to fulfill its orders.
“Uber for logistics” is another area that has already seen immense potential for profitability as a means of bridging existing gaps in Vietnamese logistics networks. Grab, the Uber rival in Southeast Asia, recently announced a rebranding alongside a few new services last year which included delivery service (GrabExpress). Known locally for its ability to set trends within the Vietnamese market, it is likely that this model of logistics will gain momentum in the years to come.
E-commerce logistics cost
Despite the influx of logistics providers, transport infrastructure and logistics facilities in Vietnam are still underdeveloped. As of 2017, Indian e-commerce retailers spent between 5 to 15 percent of their revenue on logistics while US logistics cost Amazon 11.7 percent of its revenue in 2015. The number in Vietnam is much higher, with some estimates pointing to 30 percent of revenues being used to cover logistics costs. According to a report from World Bank (WB), logistics costs in Vietnam are estimated to run at about 25 percent of annual GDP, significantly higher than 19 percent in Thailand and 8 percent in Singapore.
The main reason for this is Vietnamese logistics companies have weak capacity as well as a lack of modern information systems. Moreover, the legal framework and regulations covering the logistics sector remain difficult and complex. These issues become more pronounced as companies seek to gain footholds outside of Vietnam’s first-tier cities, such as Ho Chi Minh City, Hanoi, and Da Nang.
Despite facing major hurdles, many experts believe that there will be a positive future for logistics enterprises in Vietnam, especially since free trade agreements (FTA) have been negotiated and will promote foreign direct investment in Vietnam’s infrastructure and information system. On top trade, recent legislation looks set to improve regulatory hurdles faced by the industry. Decision No. 200/QD-TTg on enhancing competitiveness and development of logistics services in Vietnam by 2025 has seen recent passage and focuses on creating favorable conditions for an effective logistics sector as well as increasing cooperation and outsourcing rate.
With the conditions for investment improving and regulatory reform ongoing, it is anticipated that capital expenditure from current investors will continue to rise in the years ahead and that new entrants will continue to consider the Vietnamese market for investment. The key to success for existing and prospective investors in e-commerce logistics will ultimately remain in maintaining a firm understanding of the challenges inherent in the Vietnamese market and finding the most cost-effective ways to provide solutions to these challenges.
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