NOL report: Vietnam potential held back by outdated infrastructure
Vietnam's transition to a market economy and the fulfillment of its potential as a trading nation could be accelerated if it fast tracks the development of world-class transportation infrastructure and logistics systems, according to a new report released Wednesday by consulting company Frost & Sullivan and logistics group NOL.
A white paper, 'Vietnam Transportation and Logistics: Challenges and Opportunities,' developed jointly by the two companies examines various aspects of Vietnam's transportation and logistics environment and highlights the enormous potential of Vietnam as one of the world's fastest-growing sourcing and manufacturing locations.
Its economy is forecast to grow by about 8 percent annually for the next decade. Business-friendly government policies have led to increased inflows of foreign direct investment. Meanwhile, initiatives to further integrate with the world economy, including Vietnam's recently secured membership of the World Trade Organization, are likely to accelerate trade growth even more, the report said.
However, to cope with this expansion, Vietnam needs to address several major challenges such as improving its infrastructure and systems for transportation and logistics.
'We hope this paper contributes to a better global understanding of Vietnam, and helps our customers navigate their way to opportunities in this exciting country,' said Thomas Held, NOL Group president and chief executive officer. 'The success Vietnam has seen is just the beginning. It has the potential to become a global trading power and a leading Asian logistics and shipping hub. But with great opportunities come great challenges. Vietnam's development must be supported and facilitated by cargo handling facilities and related infrastructure of international standard. If it fails to do this, inefficiency, high costs and congestion could become a painful reality.'
The report specifically said that Vietnam's logistics industry is relatively underdeveloped, and suggests that the relative inefficiency of the air and ocean transportation system, as well as landside infrastructure such as warehouses and distribution facilities, is hampering the growth of efficient logistics practices in the country. Logistics outsourcing is nascent and highly fragmented, with about 800 operators, which are mainly small local operators with limited coverage, service ranges and information technology capabilities.
The report adds that the Vietnamese government is introducing measures to improve logistics infrastructure and the participation of international operators.
At the nation's ports, container volumes have increased by almost 20 percent the past decade, with the bulk of the growth occurring in intra-Asian trade. However, the ports are facing a number of critical challenges, including the lack of deepwater facilities that can receive ships of more than 1,600 TEUs, old and inefficient ports, and a congested and underdeveloped landside infrastructure.
The report suggests the key commercial gateway of Ho Chi Minh City, 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.
New roads are also urgently needed — particularly in major urban areas such as Ho Chi Minh City and Hanoi, which face increasing traffic congestion. And Vietnam's rail and air facilities and network also 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 and logistics sectors.
The executive summary of the report is available at http://www.nol.com.sg/newsroom/07news/070125_execsummary.pdf.