Some recommendations to reduce national logistics costs in Viet Nam

36
Tạp chí Khoa học & Đào tạo Ngân hàng
Số 229- Tháng 6. 2021
© Học viện Ngân hàng
ISSN 1859 - 011X 
Some recommendations to reduce national logistics 
costs in Vietnam
Tran, Nguyen Hop Chau1 - Luong, Van Dat1
1 International Business Faculty, Banking Academy of Vietnam
Ngày nhận: 30/03/2021 
Ngày nhận bản sửa: 25/05/2021 
Ngày duyệt đăng: 09/06/2021
Abstract: Logistics is an important service sector in the overall structure of the 
national economy, playing the role of supporting, connecting and promoting socio-
economic development of the country as well as each locality. By using the method 
of analysis and synthesis, this paper examines the logistics costs in Vietnam during 
the period from 2014 to 2020, based on the data obtained from literature in the 
past and some international reports on logistics costs. According to several World 
Bank’s reports on logistics costs and the Logistics Report of the Ministry of Industry 
and Trade (MOIT, 2020), logistics costs as a percentage of GDP in Vietnam is still 
high compared to many countries in the world. Reducing logistics costs becomes 
a strategic solution to reduce business costs and increase competitiveness for the 
Giảm chi phí logistics tại Việt Nam 
Tóm tắt: Logistics là một ngành dịch vụ quan trọng trong cơ cấu tổng thể của nền kinh tế quốc dân, 
có vai trò hỗ trợ, kết nối và thúc đẩy phát triển kinh tế - xã hội của đất nước cũng như của từng địa 
phương. Bằng việc sử dụng phương pháp phân tích và tổng hợp, bài báo nghiên cứu chi phí logistics ở 
Việt Nam trong giai đoạn 2014-2020, dựa trên số liệu thu được từ các nghiên cứu trước đây và một số 
báo cáo quốc tế về chi phí logistics. Theo một số báo cáo của Ngân hàng Thế giới về chi phí logistics 
và Báo cáo Logistics của Bộ Công Thương (MOIT, 2020), chi phí logistics tính theo phần trăm GDP ở 
Việt Nam vẫn còn cao so với nhiều nước trên thế giới. Giảm chi phí logistics trở thành giải pháp chiến 
lược nhằm giảm chi phí kinh doanh và tăng khả năng cạnh tranh cho quốc gia nói chung và doanh 
nghiệp nói riêng (United Nations, ESCAP, 2002); và đây là cơ sở để hoạch định các chính sách quốc gia, 
phát triển và xây dựng cơ sở hạ tầng (Farahani et al. 2009, 58). Tuy nhiên, việc giảm chi phí logistics có 
thể ảnh hưởng đến doanh thu của các doanh nghiệp logistics Việt Nam, do đó, bài báo đưa ra một số 
giải pháp nhằm giảm chi phí logistics tại Việt Nam theo hướng nâng cao hiệu quả hoạt động logistics.
Từ khóa: chi phí, logistics, LPI, Việt Nam
Trần Nguyễn Hợp Châu
Email: chautnh@hnvh.edu.vn
Lương Văn Đạt
Email: datlv@hvnh.edu.vn
Khoa Kinh doanh quốc tế, Học viện Ngân hàng
TRẦN NGUYỄN HỢP CHÂU - LƯƠNG VĂN ĐẠT
37Số 229- Tháng 6. 2021- Tạp chí Khoa học & Đào tạo Ngân hàng
country in general and businesses in particular (United Nations, ESCAP, 2002); and 
this is the basis for making national policies, developing and building infrastructure 
(Farahani et al. 2009, 58). However, reducing logistics costs can affect the revenue 
of Vietnamese logistics enterprises, so this paper provides some solutions to reduce 
logistics costs in Vietnam in the direction of improving efficiency of logistics 
activities.
Keywords: Costs, Logistics, LPI, Vietnam
1. Introduction
Logistics is an important service sec-
tor in the overall structure of the national 
economy, playing the role of supporting, 
connecting and promoting socio-economic 
development of the whole country as well 
as each locality. Nowadays, the scope of lo-
gistics has extended beyond the traditional 
framework of logistics operations, which 
not only includes warehousing and freight 
forwarding, but also covers production 
planning, supply chain management of raw 
materials/semi-products/finished products 
from the point of suppliers to the point of 
end users. Logistics creates the connection 
in the whole society by introducing opti-
mal solutions, reducing transportation and 
storage costs. The development of special-
ization and globalization in production and 
consumption is promoting international 
logistics. The ability to provide logistics 
services effectively is not merely an evalu-
ation criterion among enterprises, but is 
leveraged to become one of the factors of 
assessing national competitiveness. Reduc-
ing logistics costs becomes a strategic solu-
tion to reduce business costs and increase 
competitiveness for the country in general 
(United Nations, ESCAP, 2002); and this 
is the basis for making national policies, 
developing and building infrastructure 
(Farahani et al. 2009, 58). 
According to the 2020 Vietnam Logistics 
Report, the logistics costs in 2018 com-
prise of 16.8% in Vietnam and of 12.7% 
in the Asia-Pacific region (MOIT, 2020). 
This rate of Vietnam is higher than the 
region, showing that the logistics costs 
incurred by Vietnamese enterprises are 
higher than the average logistics costs that 
counterparts in the region have to spend. 
 ... o Ngân hàng
time of customs clearance and probably 
an increase in informal fees. While time 
to export related to border compliance 
of Vietnamese enterprises is shorter than 
those from East Asia & Pacific (exclud-
ing high income countries), it takes much 
more time for Vietnamese companies to 
comply with import documentary (76 
hours of Vietnam and 55.3 hours of East 
Asia & Pacific) (Table 4). Furthermore, 
in comparison with East Asia & Pacific, 
Vietnam has significantly high cost to 
import and cost to export. When consider-
ing all of these indicators of developed 
countries such as European Union, the 
performance of Vietnam is far below in 
comparison with European countries’ 
performances.
4. Conclusions and Recommendations
4.1. Conclusions
Logistics costs in Vietnam comprise of 3 
main types of costs: Transportation costs, 
Inventory costs, and Administration costs. 
This study shows that logistics costs in 
Vietnam are still high compared with 
other countries in the region and in the 
world. This is due to a number of follow-
ing reasons: high toll and informal costs in 
road transportation, lack of connectivity in 
multimodal transport, international trans-
portation depending on foreign enterpris-
es, lack of logistics centers, and high cost 
to import and export. 
From the above analysis, some recomme-
dations are given below.
4.2. Recommendations
Firstly, Vietnam’ s LPI needs to be im-
proved, which can lead to a decrease in 
logistics costs. Based on the above analy-
sis, logistics costs in Vietnam are still 
high due to the high costs of transporta-
tion, storage and administration. But that 
doesn’t mean the lower the logistics costs, 
the better the logistics performance is. 
Logistics costs have a close relationship 
with the turnover of Vietnam’s logistics 
businesses. Reducing logistics costs may 
lead to a decline in the revenue of Viet-
namese businesses operating in this sector. 
Therefore, the issue of reducing logistics 
costs needs to be improved in the way 
of increasing the efficiency of logistics 
activities to optimize resources in society. 
Table 4. Time and cost to import and export in 2019
Series Name Vietnam East Asia & Pacific 
(excluding high income 
countries)
European 
Union
Time to export, border compliance (hours) 55.0 59.6 7.5
Time to export, documentary compliance (hours) 50.0 57.8 1.7
Time to import, border compliance (hours) 56.0 74.0 1.6
Time to import, documentary compliance (hours) 76.0 55.3 0.6
Cost to import, border compliance (US $) 373.0 437.2 30.3
Cost to export, border compliance (US $) 290.0 400.6 79.6
Cost to export, documentary compliance (US $) 139.2 120.6 16.7
Cost to import, documentary compliance (US $) 182.5 119.9 4.6
Source: World Development Indicators, World Bank
Giảm chi phí logistics tại Việt Nam
46 Tạp chí Khoa học & Đào tạo Ngân hàng- Số 229- Tháng 6. 2021
Currently, the performance of logistics op-
erations is often assessed by the logistics 
performance index (LPI). This is an index 
given by the World Bank to rank the effi-
ciency and capacity of logistics operations 
of countries. This index is published every 
two years. There have been 6 LPI rat-
ings in 2007, 2010, 2012, 2014, 2016 and 
2018. Although it is just an index given 
by an organization, the World Bank’s LPI 
has been recognized by a large number of 
countries as a reliable indicator evaluating 
the performance of the logistics service 
industry in each country. The LPI indexes 
have six components (Figure 5):
- The efficiency of customs and border 
management clearance.
- The quality of trade and transport infra-
structure.
- The ease of arranging competitively 
priced shipments.
- The competence and quality of logistics 
services.
- The ability to track and trace consign-
ments.
The frequency with which shipments 
reach consignees within scheduled or ex-
pected delivery times.
According to Karri Rantasila and Lauri 
Ojala (2012), there is a relationship be-
tween a country’s LPI ranking and its 
level of logistics costs: countries with a 
low LPI score tend to have high costs. In 
particular, induced costs (related to non-
delivery or the avoidance of non-delivery 
and storage) tend to be low in countries 
with a high LPI score, and direct costs 
(freight and other shipment-related costs) 
tend to decrease until the LPI score reach-
es a value of around 3.3 (Figure 6).
Figure 5. Input and Outcome LPI Indicators
Source: WTO, 2012
Figure 6. The Relationship between the LPI 
and the Level of Logistics Costs
Source: Arvis, Mustra, Panzer, Ojala & Naula (2007)
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LPI of Vietnam has been improved 
through years, from 2.89 in 2007 rising to 
3.27 in 2018. Especially, Vietnam’s global 
ranking jumped from 64th in 2016 to 39th 
in 2018. Among the lower-middle-income 
economies, Vietnam led the global rank-
ings in 2018 followed by India, Indonesia, 
Côte d’Ivoire, Philippines, and Ukraine 
(Koushan Das, 2018). However, in com-
parison with developed countries, Viet-
nam’s logistics performance is far below 
(Figure 7).
Thus, in order to reduce logistics costs in 
the direction of improving logistics ef-
ficiency, it is necessary to pay attention 
to improve LPI. The improvement of 
LPI can be achieved by improving LPI 
components such as reforming customs 
procedures, improving the quality of infra-
structure, utilizing advanced information 
technologies...
Secondly, Vietnamese companies should 
get the right to transport goods interna-
tionally by negotiating proper Incoterms. 
In the study of Pohlen, T. Klammer, T. 
Cokins, G. (2009), the application of inter-
national commercial terms (Incoterms) is 
closely related to logistics costs. One way 
of identifying the company’s share of the 
costs is to scrutinize the terms of deliv-
ery. For example, if a company purchases 
its raw material Ex-Works (EXW) and 
delivers its products duty paid (DDP), it 
may seem to incur higher logistics costs 
than a company that arranges its deliveries 
differently. But on the positive side, busi-
nesses will buy goods with the cheapest 
price and sell goods with the highest price. 
Vietnamese enterprises should choose the 
commercial terms in which they have the 
right to charter transportation vehicles. 
In international transactions, businesses 
should build strategic relationships with 
a number of shipping lines, and take the 
initiative in negotiating with partners on 
chartering rights. As a result, there is a 
basis to negotiate with a foreign partner to 
win the right to transport, thereby control-
ling shipping costs and avoiding pressure 
of high freight costs.
The third recommendation is that there 
is a strong need for Vietnam’s logistics 
enterprises to coordinate and support each 
other to implement full logistics services 
in a supply chain to improve efficiency 
and reduce costs for logistics operations. 
Currently, Vietnam has more than 3,000 
enterprises registered to operate in the 
Figure 7. Logistics performance index
Source: World Development Indicators, World Bank
Giảm chi phí logistics tại Việt Nam
48 Tạp chí Khoa học & Đào tạo Ngân hàng- Số 229- Tháng 6. 2021
logistics sector, of which 89% are domes-
tic enterprises, 10% are joint ventures, 
and 1% are foreign enterprises. Domestic 
enterprises are mostly small and only ac-
count for about 20% of the total market 
revenue (Cao Cam Linh, 2021). Domestics 
logistics companies only provide frag-
mented logistics services in the territory 
of Vietnam such as forwarding services, 
packaging services, warehouse rental, 
customs services... At the same time, there 
is a lack of synchronous linkage between 
logistics businesses participating in the 
whole supply chain. Meanwhile, integrat-
ed and international intermodal services 
are provided by foreign owned enterprises. 
Therefore, the Vietnamese government 
should have a strategic plan to coordi-
nate logistics activities of Vietnamese 
companies in an integrated supply chain 
to improve performance of the logistics 
industry.
Fourthly, applying information technolo-
gies to logistics activities is an inevitable 
trend, advanced technologies in manage-
ment and administration should be used 
in all stages of supply chains, including 
logistics activities. Logistics infrastructure 
systems include physical infrastructure 
such as transportation systems, wharf... 
and soft infrastructure such as human 
resources, system of policies and laws, 
procedures... These systems cannot be 
controlled and managed effectively and 
efficiently unless information technologies 
are integrated and applied in the systems. 
The ability of container ships to load or 
unload cargo quickly or slowly depends 
heavily on the technology used by ship-
owners and port operators in their man-
agement. Technology can help shipowners 
plan the whole process, how to load and 
unload goods, moving goods to or from 
the yard, even how to load containers in an 
optimal way. Meanwhile, port authorities 
rely on technology to monitor the safety of 
the waters and process paperwork so that 
ships can get in and out of ports effectively 
and in a timely manner.
4.3. Limitations and Future research
In some parts of the paper, the data has 
not been up-to-dated. This is because the 
fact that data on logistics costs in Vietnam 
has not been official collected and there 
are no authoritative agencies responsible 
for doing this. Moreover, secondary data, 
e.g. World Bank’s data on logistics costs, 
are publicized every 2 years, and the lat-
est available data is investigated in 2018. 
There is an immediate and urgent need 
for research in the future on the method 
to calculate the logistics costs in Vietnam, 
and the results should be evaluated and 
audited before and after the time when the 
project is conducted. This should be an 
important and reliable source to inform 
governments and private sectors in the 
process of decision-making ■
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