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Logistics must grow for e-commerce

Released at: 09:26, 16/08/2018

Logistics must grow for e-commerce

Photo: JLL Vietnam

Sector's development key to success of e-commerce in Vietnam, according to JLL report.

by Ngoc Lan

The logistics sector is a crucial factor in Vietnam’s e-commerce market succeeding and reaching its full potential, according to the latest report from JLL released on August 15.

Many foreign logistics providers and e-commerce operators are making efforts to seize the opportunity to offer e-logistics and meet rapidly growing demand.

According to an international survey by KPMG, “The Truth about Online Consumers”, Vietnamese consumers are leaning towards online shopping as they can easily compare prices, find online sales, or get better deals from online retailers such as Amazon, Lazada and Tiki.

Many e-commerce enterprises are picking up the pace to stay abreast of demand. Vietnam’s e-commerce market has witnessed significant events, such as Mr. Jack Ma, founder of Alibaba, cooperating with Alipay and the National Payment Corporation of Vietnam (NAPAS), and local e-commerce portal Tiki receiving $44 million in funding from JD.com - Alibaba’s competitor. In 2016, the Central Group bought Zalora Vietnam and officially changed its name to Robins Vietnam.

The launch of the BW Industrial Development JSC in Vietnam, a joint venture between leading global private equity firm Warburg Pincus and the sizeable State-owned developer Becamex IDC Corp, in January 2018, demonstrates the huge potential of the market.

Compared to its regional peers, however, Vietnam’s logistics market is still in its infancy, marked by low-specification premises in remote locations. The JLL report therefore also identifies the challenges for Vietnam’s logistics sector.

While Vietnam’s overall spending on infrastructure is relatively high compared to its neighbors, there is still a long way to go. Many infrastructure projects face delays due to land compensation, funding, and limited success with public-private partnerships (PPPs).

According to the Doing Business 2018 report from the World Bank Group, it currently takes 105 hours in Vietnam to export a product of comparative advantage and 132 hours to import auto parts. This is significantly longer than only 62 hours for export and 54 hours for import in Singapore. Although the withdrawal of the US from the Trans-Pacific Partnership (TPP) in early 2017 eliminated significant trade opportunities, the country’s growth is nonetheless projected to remain robust from strong exports.
 
The cross-border trading cost, consisting of documentary compliance and border compliance costs, in Vietnam is less competitive than most of its regional peers. Of the total, the cost of documentary compliance accounts for more than 30 per cent compared with just 10-15 per cent in developed countries such as Singapore. The remarkable variance in the cost structure suggests more improvement is required in the documentary compliance area.

With the potential growth in the e-commerce and manufacturing sectors, Vietnam’s logistics market is expected to move to the next level, evolving in the same way witnessed in other markets.

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