Efficient logistics: a key to Vietnam's Competitiveness

DIRECT

Countries and Regions

Q U Ỹ N G Â N H À N G T H Ẻ G IỚ I

T Ặ N G

Efficient Logistics

A Key to Vietnam's Competitiveness

Luis C. Blancas, John Isbell, Monica Isbell, Hua Joo Tan, Wendy Tao

THE WORLD BANK

D I R E C T I O N S IN D E V E L O P M E N T

Countries and Regions

Efficient Logistics

A Key to Vietnam's Competitiveness

Luis C. Blancas, John Isbell, Monica Isbell, Hua JooTan, Wendy Tao

THE WORLD BANK

Washington, D.C.

D I R E C T I O N S IN D E V E L O P M E N T

Countries and Regions

Efficient Logistics

A Key to Vietnam's Competitiveness

Luis C. Blancas, John Isbell, Monica Isbell, Hua JooTan, Wendy Tao

m

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Blancas, Luis C. Efficient logistics : a key to V ietnam 's com petitiveness / Luis C. Blancas, John Isbell, M onica

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1. Freight and freightage— V ietnam . 2. Business logistics— V ietnam . 3. Industrial policy— V ietnam .

4. Econom ic d evelopm ent— V ietnam . 5. V ietnam — Econom ic policy. I. W orld Bank. II. Tide.

H E 199.V 5

3 88 .04 4 0 9 5 9 7 — dc23 2013041631

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Contents

Foreword xi

Acknowledgements xiii

A bout the Authors xv

Abbreviations xvii

Overview 1

Chapter 1 Introduction 7

O bjective and Scope 7

A pproach and M ethodology 8

N ote 10

Chapter 2 Vietnam’s Current Situation 11

Econom ic Overview 11

Status ot Existing Infrastructure 23

Strategic Freight Corridors 49

N otes t»3

References 65

Chapter 3 Freight Stakeholder Challenges and Opportunities 69

M arine Terminal O perators 69

O cean Carriers 74

Logistics Service Providers 80

International BCOs 91

D om estic BCOs 108

Trucking Industry 110

N otes 111

Reference 112

Chapter 4 Issues Screening and List o f Actionable Recommendations 113

Freight Logistics Challenges 113

D evelopm ent of a M ulticriteria Evaluation M atrix 119

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Contents

Goals Assessment and R ecom m endations to

Improve Performance 120

Institutional M echanism s to Support Logistics Policy

Making 143

Notes 144

References 145

Appendix A Supporting Calculations 147

Appendix B Overweight Container Audit Process 159

M iniature C oncept of O perations for A utom ated W eight

Auditing and Fine Assessment 159

N ote 1 60

Appendix C Entities Interviewed 161

International and Domestic Beneficial Cargo Owners: 27 161

Factories: 4 161

Logistics Service Providers: 11 161

O cean Carriers: 5 161

Marine Terminal Operators: 15 162

Trucking Com panies: 4 162

Trade Associations: 4 162

G overnm ent Entities: 4 162

Appendix D Methodology for Calculating the Cost o f Congestion

on the Vietnamese Economy 163

References 166

Appendix E Customs Flow Charts 167

Appendix F Components o f Successful Public-Private Partnerships 171

Reference 173

Appendix G Organizational Structure o f the Ministry ofTransport

of Vietnam 175

Glossary 179

Boxes

3.1 CenterPoint Interm odal Center, Ellwood, Illinois 87

4.1 Ports o f Los Angeles and Long Beach Clean Truck Program 136

4.2 Global Logistic Properties Road Ports: China Test 138

F. 1 Florida State D epartm ent o f Transportation PPP for 1-595 172

F.2 Structuring Successful Public Private Partnerships 172

Efficient Logistics • http://dx.doi.org/10.1596/978-1 4648-0103-7

Contents

Figures

1.1 Analytical Approach 9

2.1 V ietnam G D P by Industry Sector, 1990-2011 12

2.2 Regional Origin ot V ietnam ’s Six Key Export C om m odities 13

2.3 Average W orker M onthly Base Salary in Select Cities of

D eveloping Asian C ountries, 2011 15

2.4 Structure o f G overnm ent Institutions in the Transport Sector 20

2.5 V ietnam : C ontainer Handling Volume by Region, 2000-11 25

2.6 Estim ated Terminal Utilization Levels at H C M C and

Cai M ep-Thi Vai Ports 30

2.7 V ietnam : D em and and Supply at S outhern Region

Ports, 2 0 0 0 -2 0 31

2.8 N um ber of Weekly Linehaul Services Calling at

Cai M ep-Thi Vai, 2 009-12 31

2.9 Vietnam : D em and-Supply at N orthern Ports w ithout Lach Huyen 34

2.10 Com parison o f Ocean Freight Rates to Japan and the

U nited States, 2006-11 35

2.11 H aiphong/C ai Lan Port U tilization Rates by Terminal, 2010-20 36

2.12 V ietnam : D em and and S upply at N orth ern Region

Ports, 2 0 0 0 -2 0 37

2.13 Average C ontainer Vessel Sizes Calling H aiphong and Cai Lan,

Septem ber 2012 37

3.1 Asia-N orth Europe Services: Average Vessel Size, O ctober 2012 71

3.2 O cean Carriers: Relative C ost o f O perations in Vietnam 75

3.3 C hallenges T h at Im pact O cean C arrier O p eratio n C osts

in V ietnam 76'

3.4 Q ualities o f the O cean C arrier Staff Functions for the Industry 76

3.5 Perceived Port O perations Performance 77

3.(i C o m p a r is o n o ! V i e t n a m O p e r a t i n g C o s t» to

O th e r Asian C ountries 81

3.7 V ietnam Trucking Costs C om pared w ith O th er Asian Countries 83

3.8 V ietnam Trucking Service Q uality C om pared with O ther Asian

C ountries 84

3.9 Average Rating o f the Perceived Business Im pacts of Inland

Trucking Factors 88

3.10 Type of Products E xported by Respondents 91

3.11 Types o f Products Im ported by Respondents 92

3.12 M arine Terminals Used by Respondents 93

3.13 Trucking C osts in V ietnam C o m p ared w ith O th e r

Asian C ountries 95

3.14 Trucking Service Q uality in V ietnam C om pared w ith O th er

Asian Countries 95

3.15 Perceived Level o f Highway Congestion in V ietnam Relative to

Regional Peers 97

3. lli Factors Im pacting A irfreight Logistics Costs 100

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vüi Contents

3.17 Adequacy o f W arehouse Facilities 101

3.18 Com parison of W arehousing in V ietnam w ith T h at of O ther

Asian Countries 102

E l Im port C ustom s Clearance: e-Declaration Process Flow 168

E.2 Export Custom s Clearance Process 169

G .l M oT Organization: 2012 176

Maps

2.1 Vietnam: Economic Geography 16'

2.2 Vietnam: Six Port G roups and Main C ontainer Ports (above

10,000 TEUs per annum ) 27

2.3 Vietnam: G reater H C M C Main C ontainer Terminals 42

2.4 Vietnam: Fragmentation o f the H aiphong Port System 44

2.5 Location of Van Phong in Vietnam 's M ain-Port N etw ork 46

2.6' Vietnam : Six Primary Freight Corridors 51

2.7 HCM C-Long Thanh-D au Giay Expressway 54

2.8 H CM C-Long T hanh-D au Giay Expressway Link to Can T ho 55

2.9 C ho Gao Canal 60

2.10 V ietnam National Railway System 62

B3.1.1 CenterPoint Interm odal Center, Ellwood, Illinois 87

Tables

2.1 V ietnam Average Annual G D P G row th by Sector 12

2.2 V ietnam ’s Top 12 Trading Partners, 2011 14

2.3 V ietn am ’s Freight Volum es by M ode, 2008 and Forecast

to 2030 19

2.4 Im port Cost Com parisons for 40-Foot C ontainer of General

M e r c h a n d is e 21

2.5 E xport Landed Cost Comparisons for 40-Foot C ontainer of

G eneral M erchandise 21

2.6 Vietnam: C ontainer Ports, Handling Volumes, 2007-11 24

2.7 Vietnam: C urrent Terminals at H o C hi M inh City and

Cai M ep-Thi Vai 29

2.8 Vietnam: New Terminals Planned at H o Chi M inh City and

Cai M ep-Thi Vai 30

2.9 L inehaul Services Calling at Cai M ep-T hi Vai as o f

S eptem ber 2012 32

2.10 C urrent and Expected Terminals in N orthern Vietnam :

H aiphong, D inh Vu, Cai Lan, and Lach Huyen 33

2.11 Vinalines’ Shareholdings of Main V ietnam ese Ports and

Planned Projects 41

2.12 Vietnam: Top 30 Global Container Ports in 2011 and

Fragmentation of V ietnam ese Ports 45

2.13 Distance from Main Southeast Asia G atew ay Ports to Van Phong 47

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Contents

2.14 Truck C ost Savings from D ecreasing C ongestion in the

H C M C Area 52

2.15 Estim ates for Costs of Truck-Related Congestion in Vietnamese

Cities and Regions (2010 Data) 53

2.16 Estim ates for Total Costs of Congestion (by All Vehicles) in

V ietnam ese Cities and Regions (2010 D ata) 53

2.17 Cai M ep-Thi Vai Terminals, Daily Truck Trips 56

2.18 Road and Coastal Containerized Cargo Flows on V ietnam ’s

N orth-South Trade Axis 61

3.1 Largest C ontainer Vessels at Cai M ep-T hi Vai Terminals

since 2009 70

3.2 D om estic Carriers Serving the H aiphong-Q uinhon￾D anang-H C M C Coastal Trades, Septem ber 2012 72

3.3 C om parison of Transshipment Costs at Cai M ep Relative to

Key Regional H ubs 73

3.4 C ontainerized O cean Carriers Calling V ietnam 74

3.5 Positive and Negative Aspects of ICDs 77

3.6 Trucking Industry: Perceptions o f O cean Carriers 78

3.7 LSPs’ O pinions about Vietnam C ustom s Processes 81

3.8 LSPs' O pinions about V ietnam ’s Trucking Industry 84

3.9 R espondents' O pinions about V ietnam 's Logistics Parks 85

3.10 Q uality of Tan Son N hat Airport 88

3.11 Q uality of Noi Bai Airport 88

3.12 Total 2011 A nnual Export Volumes R eported by Respondents 92

3.13 Total 2011 A nnual Im port Volumes R eported by Respondents 92

3.14 Trucking Industry Conditions 96

3.15 Q uality of Tan Son N hat Airport 99

3.16 Q uality of Noi Bai Airport 1 0 0

3 .1 7 C lia i a e tc i istu_s o l C u s t o m s a n d th e I m p o r t /E x p o r t P r o c e ss 1 0 3

4.1 M ost Significant Challenges Impacting Freight Logistics Costs

in V ietnam 114

4.2 M ulticriteria Evaluation Im pact Variables 1 2 0

4.3 Scoring System 1 2 0

4.4 Significant Challenges: W eighted Average Scores 121

4.5 Key G oals and Im pact on Freight Stakeholders 1 2 2

4.6 Interest Cost on Extra Inventory D ue to Im port-Export

C learance Delays 126

4.7 Im port and Export Origin Costs for G eneral Merchandise

Cargo in 40-Foot C ontainer (FEU) 127

4.8 E stim ated Cost o f Facilitation Payments in Clearing and

Transporting Im port and Export C ontainers 128

4.9 H ighway Congestion Cost Im pact on Trucking Costs 131

4.10 C ost of a N otional Truck R eplacem ent Program 139

4.11 Terminal Handling Charges for V ietnam and Neighboring

C ountries, 2012 142

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Contents

A .l Forecast Im port and Export C ontainer Volumes 148

A.2 V ietnam, China, and Indonesia Landed Cost Com parisons 150

A.3 Inventory Carrying Costs from Im port-Export Clearance Delays 152

A.4 Trucking Cost o f Congestion 153

A.5 Estimation of Facilitation Costs 155

A.6 Cost to Finance New Clean Diesel Trucks 157

D .l Estimates for Costs of Congestion in Various Sample Cities 164

D.2 Estimates for Truck Delay Costs o f Congestion in Vietnam ese

Cities and Regions, 2010 165

D.3 Estimates for Total Costs o f Congestion in V ietnam ese Cities

and Regions, 2010 165

Efficient Logistics • http://dx.doi.org/10.1596/978-1-4648-0103-7

Foreword

The old economic structure is no longer relevant: Vietnam needs to improve its competitive￾ness, facilitate stronger levels of creativity in economic production, and recognize that in a

Vietnamese economy that is increasingly open and integrated to the global economy the

low-hanging fruits have nearly been harvested.

— H.E. Bui Q uang Vinh, M inister of Planning and Investm ent, Socialist Republic ot

V ietnam , July 15, 2013

O ver the past 20 years Vietnam has achieved sustained econom ic growth primar￾ily driven by a rapidly expanding labor force and a shift in economic activity away

from low -productivity subsistence agriculture toward the higher-productivity

m anufacturing and services sectors. Crucially, supported by pro-poor social poli￾cies, strong grow th was accom panied by rem arkable poverty reduction outcomes.

V ietnam ’s continued m acroeconom ic stability, increasing econom ic liberaliza￾tion, and young, vast labor pool have increased the country’s attractiveness as a

destination for foreign direct investm ent— particularly as labor costs have

increased in key com peting markets, m ost notably China.

V ietnam ’s socioeconom ic success story, however, now faces both short- and

long-term challenges. Since the onset o f the global econom ic crisis of 2008-2009,

the Vietnam ese econom y has undergone a particularly challenging period of

declining foreign capital inflows and subdued, as well as m ore contested, export

markets. R ecent reductions in econom ic growth, seen for the first tim e since the

Asian econom ic crisis o f 1999, highlight the im portance of strengthening eco￾nomic resiliency.

O ver th e longer term , Vietnam is faced w ith the challenge that both its main

drivers o f past grow th— labor force growth and intersectoral shifts in economic

activity— are being depleted and need to be replaced by intrasectoral productiv￾ity im provements.

More efficient transport and logistics can play a significant role in increasing

productivity going forward. By making supply chains m ore predictable, better

transport and logistics allow m anufacturers, transportation carriers, logistics ser￾vice providers, and trade regulators to m inim ize avoidable delays, thereby

increasing o u tp u t per unit of tim e while reducing the cost of doing business.

Such com petitiveness enhancem ents can better position V ietnam to benefit

Efficient Logistics • http://dx.doi.org/10.l596/978-l-4648-0l03-7

Foreword

from global dem and, to better serve dom estic markets, to attract investm ent, and

to generate quality jobs.

This report makes the case that im provem ents in export, im port, and dom es￾tic logistics operations as a driver of future grow th for V ietnam are fully within

grasp. T he report highlights opportunities to m ake freight itineraries m ore reli￾able, to m ake roads safer and m ore conducive to high-volum e com m ercial use,

to increase port sector efficiencies, and to b etter integrate barges, trucks, w are￾houses, and gateways. It also proposes interventions and policies that can address

these challenges over the short term and following years.

I hope this report will contribute to a dialogue that can bring together public

and private sector stakeholders, including the World Bank, as we continue to

explore and support ways to make V ietnam ’s economy m ore com petitive and

dynamic going forward.

John A. Roome

Director

Sustainable Development

East A sia and the Pacific

World Bank

Efficient Logistics • http://dx.doi.org/l0.1596/978-1-4648-0103-7

Acknowledgements

T his diagnostic report was prepared by th e East Asia and Pacific Region of the

W orld B ank.The work was led by Luis C. Blancas (Transport Specialist, EASIN),

under th e overall guidance o f John Room e (Sector Director, EASSD), Victoria

Kwakwa (C ountry Director, EACVF), Jennifer Sara (Sector Manager, EASVS),

A bhas Jha (Sector Manager, EASIN), and Paul Vallely (SeniorTransport Specialist

and Transport C luster Leader, EASVS). T he report's co-authors are Luis C.

Blancas o f the World Bank; John Isbell, M onica Isbell, and W endy Tao of

Cam bridge Systematics, Inc.; and H ua Joo Tan, Consultant.

T he team is grateful for detailed com m ents provided by World Bank peer

reviewers A rturo Ardila G om ez (Senior Urban Transport Specialist, LCSTR),

Jam es Anderson (Senior G overnance Specialist, EASPV), Monica Alina Mustra

(Trade Specialist, PRMTR), Jordan Schw artz (Manager, TW ISI), Deepak Mishra

(Lead Econom ist, EASPR), and Myla Taylor W illiams (Country Program

Coordinator, E A CV Q ). C om m ents on earlier drafts were received from M.

Baher El-Hifhawi (Lead Transport Economist, ECSTR), Simon David Ellis

(Senior Transport Economist, SASDT), D ue Minh Pham (Senior Economist,

EASPV), Reynaldo Bench (Senior Port Specialist, TW ITR), D ung Anh Hoang

( S e n io r T r a n s p o r t S p e c ia lis t, E A S V S ) , a n d C h r i s t o p h e r O f S e r io ( O p e r a t i o n s

Analyst, EASIN). Thao Phuong Tuong (Team Assistant, EACVF), Carla Teresa

Sarm iento (Resource M anagem ent Assistant, EAPCA), Iris David (Program

Assistant, EASIN), Teresita O rtega (Program Assistant, EASW E), and Cristina

H ernandez (Program Assistant, EASW E) provided excellent production support

throughout.

T he inform ation and insight obtained from num erous private companies,

transport carriers, logistics service providers, trade groups, and governm ent offi￾cials in V ietnam and elsewhere are gratefully recognized.

Finally, th e team acknowledges th e generous support from the Australian

Agency for International D evelopm ent (AusAID) provided through the World

Bank East Asia and Pacific Infrastructure for G row th Trust Fund (EAAIG).

Efficient Logistics • http://dx.doi.org/10.! 596/978-1 -4648-0103-7 xiii