Further discussion on logistics cost-cutting solutions in Vietnam

Logistics costs is the actual costs incurred in the process of supplying goods and the national economy

Elements of logistics costs

Logistics costs is the actual costs incurred in the process of supplying goods and the national economy. They, thus, need to be calculated correctly and fully in a certain period of time. We cannot estimate (they can be estimated before the planning period) or rely on typical calculation methods from a few supply chains out of thousands of chains and then attribute it to the entire national economy. Policies and solutions based on such bases are improper. The correct and sufficient calculations as mentioned includes logistics costs of logistics service providers, logistics costs of manufacturing enterprieses and logistics costs of the national economy.

For logistics service providers, total logistics cost in a period is calculated by summing up costs of transportation, storage, forwading, administration management and loss… Logistics costs in enterprise level are managed according to 4 criteria: total logistics costs, logistics fee rate (logistics assisting services in wholesale, retail and logistics services providing should be taken into account), logistics fee reduction and logistics fee reduction rate.

For manufacturing enterprises, logistics costs are calculated for input and output logistics and always included in product selling price structures of manufacturing enterprises. According to calculations from economists, they normally account for about 21%.

For the total logistics cost in the national economy, it is calculated by summing up logistics costs from all enterprises in the economy (locality, city or region…), and then compared with GDP to know the ratio fee. Unfortunately, we have not calculated this way. Each logistics enterprise or manufacturing enterprise calculates the cost in their own way, while the national economy relies on a case study of 12 chains (for example, logistics cost in comparison to Vietnam’s GDP in 2015: 10% - 12%; in 2016: 21% - 25%; in 2017: 18% - 20%; in 2018: 20.9% - 25% and 2020: 16.8%. And the world’s average is 10.7%- data based on the author’s synthesis).

It is obvious that it is not very persuasive and it is difficult to reflect the reality of Vietnam’s logistics cost and enterprises’ logistictics costs. In the Instruction no.21/CT-TTg dated July 18, 2018 on ‘promoting the implementations of solutions to reduce logistics costs and to connect effectively transport infrastructure system’, the PM assigned the Ministry of Planning- Investment to build a system of statistic indicators and collect statistical data on logistics. And in fact, we have not had such a system of indicators for enterprises to collect and report annual logistics statistics. Therefore, it is expected that Vietnam’s logistics will soon have a unified system of statistics indicators and statistical data collection for management and evaluation of the sector’sactivities and management agencies of various levels from enterprises, sector and national economy are able to synthesize more accurate logistics satistics reports.

Need of appropriate cost-cutting solutions

However, when it comes to logistics costs and cost-cutting measures, we often do not clearly separate the logistics costs of logistics service providers or the logistics costs of manufacturing enterprises, or that of the national economy. As Vietnam still does not have a unified set of statistical indicators and statistical data collection on logistics, we cannot accurately calculate and evaluate these costs from businesses to aggregate for the sector and the economy. Here are some possible solutions.

Need of appropriate cost-cutting solutions

To logistics enterprises

These are enterprises specializing in providing logistics services for remuneration (discount) in return- their main source of income. To have the remuneration or revenue from their supply activities, the enterprises themselves should spend or pay necessary expenses and after deducting expenses and taxes, the rest is the profit of logistics enterprises. The remuneration or discount is the service price in supply and it must follow rules of the market. Therefore, if logistics costs are high or logistics service providers themselves push the costs up to increase their income, they will lose customers, lose markets and ultimately reduce their competition abilitis in the market. For example, the price for passenger rail transport service is too high, sometimes it is even higher than airfare on the same route, and the accompanying service is weak, resulting in passenters turning away from raiways and change their means of travel into car or plane. Therefore, logistics businesses must also strive to reduce costs to reduce service prices to attract customers and increase profits for businesses. Therefore, the view that reducing logistics costs is reducing the income of logistics enterprises, the revenue and contribution of the logistics industry is incorrect? Reducing logistics costs in the logistics service business is to expand the logistics market, attract customers, improve competitiveness, and increase efficiency at scale for logistics businesses. Measures to reduce logistics costs for logistics service providers is to focus on reducing each item of costs related to serives of transport, preservation, forwading, administration managements and losses… especially on reducing transport cost- for they account for 60% - 70% by using optimizing solutions- mztching supply points and cargo receiving points to ensure the shortest distance traveled and the average smallest transport route for enterprises.

To logistics costs of manufacturing to logistics enterprises enterprises

This is the monetary cost incurred from enterprises’ logistics activities for the process of providing product inputs and output. As an important part that makes up the product’s selling price, the higher cost will make the higher product price, making enteprises difficult to compete with products of the kind. According to research in other countries, the cost usually about 21% of the selling price (no statistics or studies of the data have been published in Vietnam). This ration should be clearly and specifically calculated by Vietnamese enterprises in order to have appropriate solutions to reduce input and output costs. Enterprises should have research on solutions to mangage progress of providing input elements, technology and technical solutions and human resource… especially logistics outsource service has been considered an important solution to have better reduction of logistics costs for manufacturing enterprises.

To national total logistics cost and logistics fee on GDP

These indicators completely depend on logistics costs from logistics service providers in the economy. The higher logistics costs from logistics service providers endure; the higher national total logistics costs will be and the higer logistics fee on GDP. So the matter of reducing national and local logistics costs will depend on the reduction of logistics costs from enterprises and on logistics environment improvements. The logistics sector is an interdisciplinary economic-technical sector associated with a chains of services related to various sectors, fields and localities. Therefore, reducing logistics costs should come from helping hands of various sectors, fields and localities. There should be short-term and long term synchronous appropriate solutions in the three aspects of managements, science-technology and human resource…

Prof.PhD. Dang Dinh Dao - PhD. Dang Thi Thuy Hong