Việt Nam’s competitiveness stems from reliable logistics

April 16, 2019 - 08:01
Việt Nam’s recent growth has been driven by increased participation in trade. In 2017, Việt Nam’s trade as a percentage of GDP was close to 200 per cent, which made it the sixth highest in the world. Improving the efficiency and reliability of transport and logistics, which plays a critical role in supporting Vietnam’s export-oriented economy, will be vital to future economic competitiveness.

Ousmane Dione*

Việt Nam is a success story of rapid economic growth and development, rising from one of the poorest countries in the world to now ranking among the most dynamic emerging countries in East Asia.  With this rapid transformation comes immense pressure to further develop and maintain quality infrastructure that supports reliable transport and logistics services, and ultimately drives Việt Nam’s export-oriented economy.

Since 2000, Việt Nam’s traffic volume by Freight Ton Kilometres (FTK) has increased at an annual rate of almost 10 percent, much faster than the GDP growth rate, requiring investment in the national road network. River, sea and airport trade activities have also witnessed significantly increased volumes.

So, how can Việt Nam ensure an efficient and reliable transport and logistics system that supports economic growth? Our new reports “Strengthening Việt Nam’s Trucking Sector” and “Sustainable Development of Inland Waterways Transport Sector” lead us to consider three factors: backbone infrastructure; transport and logistics services; and investment in alternatives to road transportation.

First, backbone infrastructure needs to be further improved for enhanced competitiveness.

The Government of Việt Nam has made significant progress in transport infrastructure development over the past decades, growing the road network to nearly 400,000 kilometres, with most commune centres now connected by all-weather roads. However, development of critical backbone inter-urban connectivity, including national highways and inland waterways, has been modest.

According to our research, inland waterways received just 1.2 percent of the transport budget for the 2016-20 period – inadequate to support necessary capacity expansion and maintenance. In fact, the network that can handle barges larger than a 300-tonne capacity remains less than 30 per cent of the total 7,000 kilometres of national waterways, a very low proportion compared to other successful commercial networks in the world.

This points to a need for continued and significant investments in critical backbone infrastructure in key trade corridors, much like the work underway to develop the North-South Expressway. This will require strategic allocation of scarce public resources and the mobilisation of private sector participation in financing and service delivery.

Second, an enabling environment needs to be created in support of efficient and reliable transport and logistics services.

Based on 2018 figures, inland waterways transport accounted  for about 17 percent of the national freight share, while trucking accounted for about 77 per cent. All operators were from the private sector. However, a typical operator of one of Việt Nam’s 1.1 million trucks employed three people and had an annual turnover of less than US$500,000 (VNĐ11 billion), while the current truck fleet was dominated by small vehicles of less than five tonnes. These scale limitations caused inefficiency in terms of high shares of empty backhaul and high transport costs per FTK. An underdeveloped intermediary logistics service sector, such as truck brokerage, was exacerbating the situation.

On the water, inland waterway operators typically relied on small vessel of about 100-300 tonnes, constrained by waterway capacity bottlenecks due to narrow channels and low clearance bridges as well as limited cargo handling capacity in river ports.

These issues suggest that, while much of development in transport and logistics services will be led by the private sector, the government needs to create an enabling environment to facilitate this investment. Such policy efforts could include inducing private sector investments in fleets, encouraging enhanced supply and demand, and promoting smoother transit processes.

Third, a seamless multi-modal transport network should be created to lower transport costs and enhance sustainability.

In addition to a growing road network, Việt Nam is fortunate to have 26,500 km of navigable waterways and 3,000 kilometres of coastline, which have the potential to be leveraged further. International experience has shown that waterways and coastal shipping can lead to lower logistics and environmental costs compared to trucking, while economies of scale from increased consolidation reduce logistics costs. For example, the cost of a 40-foot container carried via barge can be up to 90 percent less than one trucked. Further, road transport emits two to three times the emissions of waterways.

To shift freight from roads, the European Commission has focused on “short sea shipping”, with the new method expected to play a key role in reaching the EU transport goal of reducing 60 percent of greenhouse gas emissions generated by transport by 2050, and shifting 30 per cent of road freight over 300 kilometres to other modes by 2030.

Our new reports make the case for public and private investment in a balanced transport network of roads, inland waterways transport, and coastal shipping. Diversifying transportation across all modalities as well as enhancing inter-modal links will increase network connectivity and resilience while reducing greenhouse gas emissions at a national level.

To this end, the World Bank is working closely with the governments of Việt Nam and Australia to address the above three strategic issues. The key findings and policy recommendations in our two reports will guide further joint actions that will deliver significant improvements to Việt Nam’s crucial transport sector. We are committed to providing further support, including policy advisory and financing for inland waterways and highway development, to advance Việt Nam’s competitiveness in a changing global context.

The two reports Strengthening Việt Nam’s Trucking Sector and Sustainable Development of Inland Waterways Transport Sector can be accessed at World Bank website

*Ousmane Dione is the Country Director for the World Bank in Việt Nam