Vietnam Economy 2011 Update

High logistics costs are responsible for holding back the development of the Vietnamese economy. This is just one of the conclusions of the latest market research report from Transport Intelligence, Vietnam Logistics 2009.

At the same time as Vietnam is seeking to terms with the global economic slowdown, weak infrastructure and high inventory levels are proving to be a significant drag on its economic development.

Logistics costs in the market are estimated to be 20-25 percent of Vietnam’s GDP, a ratio far higher than that in developed economies such as the US and higher even than in other developing economies such as China. These high costs have hindered Vietnam’s efforts to take advantage of its cheap labour resource and develop the national export economy.

The report puts this down to a combination of over-stretched and ageing transport infrastructure, including ports, airports, road and rail; inefficient bureaucracies, customs clearance delays; and the unwillingness of Vietnamese manufacturers to outsource to foreign 3PLs (third party logistics providers).

The report additionally finds that a substantial proportion of Vietnam’s logistics costs can be attributed to high inventory holdings.

However, the report also finds that this situation is gradually changing.

The Vietnamese government has invested billions of dollars in the country’s infrastructure and this investment is slowly beginning to pay dividends.

In addition, the government is encouraging foreign direct investment in projects such as the Cai Mep Container Port near Ho Chi Minh City in the Mekong River delta. An estimated $628m is being invested in the construction of that facility which will have an annual handling capacity of 1.7m TEUs (twenty-foot equivalent units) on completion. The new Long Thanh airport, near Ho Chi Minh City, should also improve supply chain efficiency when it is finally constructed, although this won’t be until 2015.

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