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| Thomas Cassuto, Vice President, Head of Asia at Flexport |
With continued investment in infrastructure and technology, Việt Nam can strengthen its position to become a global leader in logistics amid global supply chain disruptions. Việt Nam News speaks to Thomas Cassuto, Vice President, Head of Asia at Flexport, about factors contributing to the sector’s growth. Bồ Xuân Hiệp reports.
How have the recent global supply chain disruptions affected logistics firms in Việt Nam?
The past three years have undoubtedly been disruptive to global supply chains, and Việt Nam has been particularly impacted by these disruptions. The pandemic hit the world hard, sending extreme shocks to both supply and demand from 2020 to 2022.
At the beginning of the pandemic, there was a surge in demand for Vietnamese exports in Europe and North America. This increased demand provided a much-needed boost to the country’s economy.
However, Việt Nam’s factories faced numerous challenges in maintaining productivity due to the health crisis and subsequent lockdown measures implemented in 2021. These difficulties resulted in a significant drop in demand in 2022, reminiscent of pre-2019 levels.
Overseas buyers halted their orders as inventory levels reached maximum capacity in the US and EU markets, and concerns about a global recession loomed.
As a result, logistic firms in Việt Nam suffered greatly, with tens of thousands of workers being laid off and bankruptcies becoming more prevalent, particularly in sectors such as furniture, apparel, and footwear.
Despite these challenges, there are signs of hope for Việt Nam’s manufacturing sector. In the first half of 2023, mixed results were seen across industries, but certain sectors higher up the value chain, such as electronics, experienced sustained growth. The electronics sector witnessed a robust increase in demand, both in business-to-business and consumer categories.
Foreign direct investments from countries like China, South Korea, Japan, and Singapore have played a crucial role in transforming the country’s manufacturing sector, enabling it to transition from producing low-value goods to high-value ones, propelling its manufacturing industry forward.
Looking ahead, we are optimistic about the future of Việt Nam’s manufacturing sector and the logistics industry that supports it.
Despite the challenges posed by the prevailing global demand situation, Việt Nam’s significant investments in infrastructure and manufacturing capabilities position it to strengthen it as a global leader in manufacturing in the years to come.
What are the key factors contributing to the growth of Việt Nam’s freight forwarding and logistics market?
Việt Nam has favourable demographics (large, young, growing population), competitive labour costs, a strong FDI environment, and strong infrastructure investment relative to the region.
Its location in Southeast Asia provides strategic advantages for businesses in terms of proximity to major regional markets such as China, India, and ASEAN countries.
The freight forwarding and logistics market in Việt Nam is steadily expanding; in the next five years, it could reach a CAGR (Compound Annual Growth Rate) of over 5.5 per cent.
Even after the pandemic, the country has shown impressive growth in its commercial and manufacturing sectors.
The logistics industry has greatly benefited from the rise of e-commerce, which is experiencing the fastest growth in all of Southeast Asia. Its e-commerce market hit $14 billion in 2022 and may reach as high as $32 billion by 2025.
It has also benefited from various free trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU-Vietnam Free Trade Agreement (EVFTA), and UK-Vietnam Free Trade Agreement (UKVFTA).
These agreements provide favourable trade conditions, improved market access, and reduced tariffs for businesses operating in Việt Nam.
The rise in consumer demand within the country has also resulted in a greater flow of goods.
In addition, the country’s booming healthcare and pharmaceutical market has pushed up demand for specialised logistics services.
Due to the country’s export-driven economy, there is a need to import raw materials, and export finished products, which has led to increased demand for the logistics industry.
What are the challenges facing Việt Nam’s logistics industry? How have innovations disrupted or transformed the industry?
One of the challenges is the inadequate infrastructure, including roads, railways, airports, and ports, which results in a slower flow of goods, increased transit time, and added costs to logistics operations.
There is also a lack of connectivity among different transportation modes, preventing seamless movement of goods between roads, railways, and waterways.
Many logistics service providers in Việt Nam have limited capabilities, particularly in terms of technology, expertise, and value-added services.
The industry heavily relies on manual and paper-based processes, leading to inefficiencies, errors, and delays. Customs operations also lack automation and transparency, adding complexity to logistics activities.
However, innovations in the logistics industry have disrupted and transformed the landscape in Việt Nam.
With its cutting-edge technology, advanced data analysis capabilities, and secure, dependable cloud software platform, Flexport offers freight process services that facilitate efficient supply chain management and elevate Việt Nam’s intelligent logistics services to a modernised level.
By embracing technology and automation best practices, Việt Nam has the opportunity to enhance its logistics capabilities and create a more efficient and effective industry.
What factors influenced Flexport’s decision to open an office in Việt Nam?
The decision to open an office in Việt Nam is a strategic move by Flexport, driven by factors such as the country’s economic growth, advantageous location, participation in trade agreements, manufacturing hub status, e-commerce growth, infrastructure development, and availability of labour.
Logistics is one of the fastest growing industries in Việt Nam, with an average growth rate of 14 – 16 per cent a year and a scale of $40 billion to $42 billion per year.
Việt Nam is also an important market for many customers looking for sourcing options in Southeast Asia.
With these factors in play, Flexport can capitalise on the growing logistics industry in Việt Nam and further expand its presence in the region. — VNS
This article was first posted on Vietnam News