Joining TPP : Opportunities & challenges for Vietnam logistics

(VLR) (Vietnam Logistics Review) Vietnam is under the negotiation of joining Trans-Pacific Partnership (TPP) – anagreement on free trade with range and grade that has strong effect on Vietnam. It will create a “playground” which will contribute 40% GDP and 30% global trade exchange. It can be said that joining TPP will bring Vietnam more opportunities but no less challenges.

(Vietnam Logistics Review) Vietnam is under the negotiation of joining Trans-Pacific Partnership (TPP) – anagreement on free trade with range and grade that has strong effect on Vietnam. It will create a “playground” which will contribute 40% GDP and 30% global trade exchange. It can be said that joining TPP will bring Vietnam more opportunities but no less challenges.

BRIEF DESCRIPTION OF TPP

At the end of 2005, countries as Brunei, Chile, New Zealand and Singapore signed a free trade agreement (FTA) named TTP. In September, 2008, the U.S joined and with other sides reached an FTA with completely new content, but still called TPP. Then, Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan joined TPP respectively, bringing TPP members to 12.

Since March, 2010, the process of TPP negotiation has gone through 19 official sessions and many other inter-sessional ones. TPP is expected to be a new model of regional economic cooperation which facilitates trade, investment and will become a nuclear to form an FTA for the whole Asia-Pacific region.

TTP will help Vietnam make good use of international cooperation opportunities, balance relationships with key markets, approach larger markets including the U.S, Japan, Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, TTP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and improve administrative reforms. However, joining TTP will also lead to challenges, especially pressure to market opening, competitions and other non-commercial requirements as law, environments, labor, union.

OPPORTUNITIES

Experts said 20 groups will endure an impact of 4 degrees when Vietnam joins TPP. Car manufacturing, animal husbandry, and sugar cane farming will suffer negative impacts: car manufacturing will suffer from immediate impacts while the two others will suffer from middle and long-term impacts. Other sectors suffering from high impacts includes insurance, banking, stock business, retail delivery and consuming goods. Those that endure little impacts include property, pharmaceutical and oil industry. 9 others that enjoy positive impacts include garment industry, footwear, foot processing, seafood, agriculture, logistics, supporting industries, and construction. Those as garment, footwear, wood processing, seafood, agricultural enjoy immediate benefit from tax reduction; others as seaport, logistics, supporting industry and contraction will enjoy middle-term and long-term benefit: trade improvement.

In middle-term and long-term, logistics belongs the group that enjoys positive impact. In other word, VN’s joining TPP is an opportunity for the sector. It can be explained that the opening of a free market is a must-have for the needs of extending requirements for transporting, supplying and warehousing and will lead to the development of logistics services, investments in warehouses at large ports... Opportunities to develop Vietnam logistics include approaching larger logistic market with trade incentives to boost up the consuming and the using of products and services, and make good use of geographical-political advantages in developing logistics infrastructures as deep-water ports, international airports, trans-Asia railway, logistics centers...

In the past few years, some enterprises in the logistics sector as sea transport ones have faced difficulties, and some have suffered great loss. On the contrary, some others have still made profit. According to DauTu Chung Khoan magazine, recorded incomes of warehousing enterprises in the first six months of this year are satisfactory. Gemadept reported after-tax profit of VND 549.985 bn, Vietnam Container JS VND 112.7 bn, Dinh Vu Port JS Co., VND 106.1bn, many others reported profit of dozen billion, only Portserco reported a moderate after-tax profit of VND 704 bn.

Profit of enterprises in seaport and warehousing sector is predicted to be promising in the time to come. According to recent analysis from Bao Viet insurance company, the sector will enjoy middle and long-term benefit when Vietnam joins TPP. In situation of economic downturn, enterprises should make good use of their own advantages to approach new opportunities.

CHALLENGES

Limitations of the logistics sector in Vietnam have been mentioned for a long time: weak and non-synchronous infrastructure; higher logistic cost; small-sized enterprises operating unprofessionally; inadequate legal environment; lack of qualified human resources; differences in legal system, cargo clearance, and administrative procedures... Therefore it can be said that VN’s preparation for TTP challenges is inadequate.

The greatest challenge Vietnam logistics enterprises has been facing is losing the market share and being “losers” right at their own playground. Most of them are small enterprises with weak capital and facilities as warehouses, means of transportations, IT... Moreover, they have not had more cooperation with import-exporters to increase competition ability. They currently account for 80% of the totalLogistics enterprises account for only 25% of the market. And more and morelarge corporations with large capital, qualified human resources have come to Vietnam as APL Logistics, Maersk Logistics, NYK Logistics, Schenker, BirKart, BJ, Errmey, Sunil Mezario, Hapag, Lloyd, Zim, TWT, Sun Express... And they account for the rest of 75%.

Everyone knows when foreign enterprises dominate Vietnam’s logistics market, local logistics enterprises will mainly supply services to certain stages of supply chains and they will still be agencies for foreign ones. Moreover, many Vietnam’s import-exporters outsourcing or exporting for big customers have had long-term contracts with global logistics enterprises. Thus, in the case of having increasing trade opportunities, the needs for logistics service will increase, if there is no master plan or appropriate development plan, Vietnam’s enterprises will face great difficulties.

WHAT SHOULD VIETNAM’S LOGISTICS ENTERPRISES PREPARE?

Vietnam’s logistics should have knowledge of TPP, so that they can be aware of opportunities and challenges ahead. Besides, they should follow the roadmap and regulations on market opening for better investment plan, business and competition ability.

Facing higher degree of competitions in the future, enterprises have to find solutions for appropriate development and accept “play rules” in the process of integration. It is advisable to cooperate with each other and maintain their prestige to their customers. It is also advisable to invest in process of specialization and apply scientific technical achievements to improve products and services, thus improving competition ability. Besides, they have to train and improve their human resources and make good use cooperation opportunities with foreign enterprises to benefit from their capital, human resources and technology.

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