Vietnam’s logistics sector offers attractive investment opportunities for private equity firms and other well capitalised investors, who could help the industry accelerate earnings by adopting international best practices.(Photo: VNA) This presents attractive investment opportunities for private equity firms andother well capitalised investors, who could help the industry accelerateearnings by adopting best international practices, Michael Kokalari, chiefeconomist at VinaCapital Fund Management JSC, said.
The sector had grown at 14-16% annually in recent years, but logistics costsaccounted for over 20% of GDP, among the highest in the world because of theindustry’s innumerable inefficiencies.
Kokalari said the rapid growth of Vietnam’s logistics sector growth wassustainable because of the ongoing expansion of the country’s manufacturingsector driven by high-tech products, and the continued growth of its middleclass, which also presented numerous investment opportunities, especially inniches such as cold-chain logistics because of a greater demand for fresh food,certain perishable pharmaceutical products and in ecommerce such as last-miledelivery.
E-commerce was growing at more than 25% annually, and the Government targeted amuch bigger role for e-commerce going forward, which was likely to lead to aregulatory environment especially favourable for “last mile” and otherlogistics firms, he added.
Vietnam’s logistics industry comprised of foreign and local firms, but thelatter were essentially absent from the international shipping business withthe exception of the handling and delivery of goods overland across thenorthern border with China.
The industry’s biggest challenge was improving the quality and reliability ofits services, and these could be addressed by replicating best practices inother logistics markets.
The logistics businesses most in need of investments were capital intensiveones and in segments that were highly fragmented, he said.
For instance, transportation firms accounted for around two-thirds of theindustry, but over 80% of trucking firms in Vietnam had a fleet size of fewerthan five, and after an estimated 70% of deliveries, trucks returned to itshome base empty.
Middlemen got nearly 30% of trucking companies’ final service fees ascommission.
Even in cold storage transport, considered to be one of the most promisingsegments in the logistics industry and dominated by foreign-invested firms, anestimated 70% of firms had less than 10 trucks.
“In our view, some very compelling opportunities for local firms stem from thefact that sophisticated foreign customers are willing to pay premium prices forreliable logistics services, and that middle-class customers’ demand forproducts and services that entail high-quality logistics, such as onlineshopping with home delivery and demand for perishable foods and medicines, issoaring.”
But logistics operators with sufficient scale and professional management wouldexperience falling costs over time as bottlenecks stemming from Vietnam’sinfrastructure and other issues were eventually addressed.
“We also expect attractive investment returns for logistics firms that arebeneficiaries of increased high-tech manufacturing in Vietnam, and from theongoing growth of its emerging middle class.
“Finally, we see three potential investment strategies: invest into leadinglogistics companies to aggressively grow their assets into an integratedplatform which offers clients economies of scale; identify particular assetswhich need capital for upgrading or can be re-purposed, and drive new businessby increasing efficiencies and M&A or consolidation.
“One attractive niche in Vietnam’s logistics industry is the customs clearancebusiness, in which brokers with good relationships with the proper officialscan expedite the clearance of goods in and out of the country by assuringcompliance with the complex regulations entailed.”
Most of Vietnam’s 800 freight forwarding companies provided customs clearanceservices, according to the Vietnam Logistics Business Association, but firmswhich could bundle customs clearance services as part of a “core carrier”relationship, capable of satisfying all of the shipping and logistics needs ofhigh tech manufacturing firms could enjoy enhanced pricing power in exchangefor providing premium logistics services to those firms./.
VNA
