Improving quality of logistics providers

Nguyen Duy Minh - Nguyen Tuong|15/11/2021 09:04

(VLR) The Decision 221/QD-TTg dated February 22, 2021 by the Prime Minister “Revising and supplementing the Decision No. 200/QD-TTg dated February 14, 2017 on approving the Action Plan To Improve Competition Abilities and To Develop Vietnam’s Logistics Services to 2025 has set out the Task (35): “promoting 3PL, 4PL logistics package services” to increase the number of enterprises providing package logistics services and applying modern technology for higher service quality. The task no.37: “forming strong logistics corporation, proceeding to investment abroad in exporting logistics services”.

Improving quality of logistics providers

Improving quality of logistics providers

Current situation of the Vietnam logistics sector

Currently, Vietnam has more than 4,000 enterprises providing international and domestic logistics services; about 97% of them are small, medium and micro-sized enterprises (SMEs), of which 500 are VLA’s members. The glaring weakness is that logistics costs are still high compared to developed countries; quality of service delivery is still limited: one of the reasons is that the size of enterprises is not strong enough to provide logistics services with high added value. Compared with enterprises providing transnational logistics services operating in the territory of Vietnam (3PL, 4PL), Vietnamese enterprises still have many limitations in terms of financial and administrative capacity, and abilities to understand customers’ supply chains, qualifications, prestige networks abroad, IT applications and human resources of high quality.

According to VLA’s survey in 2019, 80% of VLA’s 417 members are SMEs with 90% of the capital owned by Vietnamese enterprises and 10% of capital is foreign-owned one. They have provided from 1 to 17 types of logistics services. The most common are customs declaration- 88%, forwarding- 81%, domestic transport-79%, warehousing- 54%, and international transport-64%... In which, high tech-applied ones are customs declaration- 79% and forwarding management- 42%.

In export international market: 76% done with Southeast Asian countries, China 75%, EU 52%, US 51%; Imports: 82% with China, 74% Southeast Asia, 58% and the US 52%. Most businesses provide 3PL services in different forms, while 4PL services are almost nonexistent. Among the members of the Association, there are reputable logistics service providers, capable of competing with transnational logistics service enterprises as Gemadept, Saigon New Port, Transimex, Sotrans...

Requirements imposed

From the above situation, VLA needs to take a number of steps and measures to promote enterprises providing 3PL and 4PL logistics services to increase the number of enterprises providing package logistics service and applying modern logistics for higher service quality, forming strong logistics corporation and proceeding to investment abroad in logistics services.

Logistics services are the backbone of the goods supply chain. The model below shows the role of 3PL and 4 PL services that strong enterprises provide:

2PL services involve movement of goods from a specific shipping area of the supply chain as railroad, road, sea or air. Service providers are asset-based carriers and include carriers such as chartered vessels and airlines they have contracts with. It can be said they are mainly normal freight services.

3PL services is the outsourcing of logistics activities of a company. A 3rd party logistics service provider is a company that provides logistics services with the characteristics of a general contractor with strong features in subcontracting management, multiple stages of transport and logistics services as well as probably providing many solutions for customers. These companies will help facilitate flows of equipment and materials from suppliers to manufacturers, and end products from manufacturers to distributors and retailers.

These tactical services typically include transport, warehousing, express consolidation, inventory management, packaging or freight forwarding.

4PL service is different from 3rd party logistics service, basically it is an effective supply chain architect for a customer or a sector, which is a strategic cooperation with customers, not a tactical operations throughout the supply chain. 4PLs differ from 3PLs for the following reasons: Companies providing 4PL services are often a separate entity established as a joint venture or on the basis of long-term contracts between a primary customer and one or more other partners.

Famous 3PLs and 4PLs have been in Vietnam for a long time as Damco, APL Logistics, OOCL Logistics (developing from shipping lines), Schenker, DKSH, Nippon Express, Kuehne&Nagel, Samsung SDS… (developing from forwarding companies). These units are strategic logistics partners with major global shippers as Nike, Adidas, and Samsung… Recently, they have increased investment in expanding operations in Vietnam. Besides, domestic enterprises also have movements with specific 3PL strategic models as Vinafco, Saigon Newport Corporation, Bac Ky Investment Joint Stock Company, Transimex Saigon, ITL, Gemadept.

Logistics services are the backbone of the goods supply chain

Logistics services are the backbone of the goods supply chain

To be a 4PL, an enterprise should have a particular long-term direction

4PL is a professional chain logistics operator and consultant, providing 4th-party logistics services that manage the entire supply chain and act as a single point of contact with customers and logistics service providers-3PL. There are many things to do: to be able to do this there should be understanding of customers’ supply chain or sector, good technology beside the “ecosystem”. These are the perquisites. It includes all the necessary functions for business operations, from customer relationship management, personalized processes, finance, human resources, to the implementation of online features, e- business, for all logistics activities in the chain such as forwarding, transport, customs clearance, warehouse management, cross-border transport, global compliance systems, and accessing to state at all times.

Mastering the most advanced technology of logistics services that multinational companies, leading logistics companies are using as Cargowise technology solution - the most advanced platform for logistics operations. It is a cloud-based logistics service execution platform. The point is to choose the right technology, to have a long-term vision, and to consider technology as an investment, not simply a large initial cost.

Besides solving technology problems, the remaining digital transformation is a matter of high-quality logistics human resources and the vision and capacity of business leaders. They need to have the attitude and aspiration that “want to do and do”. High-quality human resources and full understanding of digital technology will help logistics service businesses deeply understand their customers’ supply chains to design a new, more efficient supply chain for customers. Embracing technology, following the path of digital transformation will help manage information in the supply chain effectively. This was very difficult in the past, but today, with the development of the industrial revolution 4.0, there are cloud computing technology, service delivery models SaaS (software as a service), PaaS (platform as a service), pay-asyou-go models, access to leading solutions has become easier. This solution meets the needs of small businesses but also meets the needs of global businesses with tens of thousands of employees.

Global connectivity is very important. As mentioned above, about 97% of enterprises in Vietnam’s logistics service industry are small and medium enterprises, many of which are micro enterprises, with a common staff of 10 - 20 employees. However, this is also quite common in the world, because one of the characteristics of logistics services is the business art of having customerpartner relationships, on the basis of personal relationships, participating in providing services with traditional markets, and especially boldly investing in new markets, providing services for cross-border e-commerce, confidently connecting customers’ systems with those of regional logistics partners and global- the wider the better.

Roles of VLA

The association plays an important role in increasing the number of enterprises providing 3PL and 4PL logistics services, forming strong logistics corporations, standing firmly in the domestic market with fierce competitions from cross-border logistics services enterprises and expanding service provision to the world.

First of all, focusing on developing more logistics services with high-added value as international transport, multimodal transport, inventory management business with high technology and management level, high capacity international end to end delivery, ability to manage service chains throughout… to develop into 3PLs. To become a 4PL, logistics service businesses should target large Vietnamese shippers who have needs and should pay special attention to the segments of domestic distribution logistics services, order fulfillment services for commercial customers serving agricultural products, seafood,... Vietnamese shippers are highly decisive in choosing logistics partners as well as having a need to cut costs logistics by solution. At the same time, VLA should actively propose to the Ministry of Industry and Trade and other industry associations to increase the rate of service outsourcing and create opportunities for 3PL and 4PL logistics service enterprises in Vietnam.

The Association supports member enterprises in the market and application of connection technology. For example, actively and effectively participating in the World Passport of Logistics (WLP), FIATA and AFFA activities with global and regional connectivity, accessing FIATA information, taking advantage of cooperation with businesses world logistics services through MOUs that VLA has signed such as with Barlona Seaport, or Peong Taek... connecting members with businesses that are domestic and foreign shippers...

The above tasks are part of the program of activities of the Vietnam Logistics Business Association (VLA) in the VIII term (2021 - 2024), bringing the logistics service industry to a breakthrough development: to increase contribution to the GDP ratio of the country and to realize the goals towards “Aspiration 2045” to make our country “become a developed, high-income country”.

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