Transportation and logistics have been central to Vietnam’s development, but challenges remain says report

Staff -- Logistics Management, 1/26/2007

SINGAPORE, HO CHI MINH CITY—Vietnam has seen rapid economic growth with the adoption of economic reforms and the recent accession to the World Trade Organization (WTO). Transportation and logistics have played a key role in the development, but challenges such as reforming its regulatory environment and legal framework, and improving infrastructure for the transportation and logistics sector remain vital to further growth.

Vietnam Transportation and Logistics: Challenges and Opportunities, a report by consulting company Frost & Sullivan and global container shipping and logistics group Neptune Orient Lines (NOL) examines various aspects of Vietnam’s transportation and logistics environment.

According to the report, Vietnam’s economy is forecast to grow by around 8 percent annually for the next decade. To cope with expansion, however, Vietnam must address major challenges, including the improvement of infrastructure and systems for transportation and logistics. The report suggests that the relative inefficiency of the air and ocean transportation system, as well as landside infrastructure such as warehouses and distribution facilities, is impeding the growth of efficient logistics practices in the country.

Ports
Over the past 10 years, container volumes have increased by almost 20 percent. But, the ports face a number of challenges, including the lack of deepwater facilities that can receive ships of more than 1,600 TEU (twenty-foot equivalent unit), old and inefficient ports, and a congested and under-developed landside infrastructure.

According to the report, Ho Chi Minh City—the key commercial gateway which accounts for more than 70 percent of Vietnam’s container throughout—is facing serious congestion issues with existing port and landside infrastructure at near to full capacity, and planned new facilities not scheduled to be operational for several years.

Roads
Of Vietnam’s 138,000-plus miles of roads, only 19 percent are paved. According to the report, new roads are needed, particularly in major urban areas such as Ho Chi Minh City and Hanoi, which face increasing traffic congestion.

“An improved road network will also open up more suburban and rural areas to development and provide new opportunities for the rural population to share in Vietnam’s economic success,” the report says.

Air and Rail
Vietnam’s airports also face capacity constraints. The country’s 21 airports (including three international facilities) are operated by the Civil Aviation Administration of Vietnam (CAVV). To meet growing needs, the Government plans to develop a total of 18 domestic and six international airports by 2015, at an estimated cost of US$7.2 billion.

Currently, railways are the least utilized mode for transporting cargo within the country, mainly due to poor service quality and high costs. Transportation by rail is not set to play a crucial role in the near future.

Vietnam’s rail and air facilities and network lag behind international standards and account for a disproportionately low share of the overall transportation market, according to the report. The rapid development of these modes will enhance Vietnam’s “domestic and international connectivity,” which will support trade growth as well as the transportation, logistics, and tourism sectors.

Cold Chain
Vietnam’s produce—particularly seafood, rice and coffee—contribute around 30 percent of the country’s GDP. But, according to the report, Vietnam lacks an integrated cold chain. WTO accession will see new domestic and international markets opening and demand for specialized handling and transportation will rise significantly. The cold chain space is a major opportunity for international operators, many of whom have already begun to launch initiatives to improve facilities and infrastructure, the report concludes.

To access a PDF of the report’s Executive Summary, click here.