International free trade agreements, stable political conditions as well as a favorable geographical location and comparatively low wage and production costs characterize Vietnam as an attractive production location in Asia. Nevertheless, as in almost all foreign markets, German and other European companies initially face challenges. In order to leverage the potential and counteract possible risks in a targeted manner, it is advisable to work with experienced partners in close interaction with intelligent supply chain management.
- Vietnam: Infrastructure at a glance
- Logistics: Mastering challenges with local expertise
- Monitoring and limiting risks
- Growing awareness of sustainability
- Labor force and wage development
1. Vietnam: Infrastructure at a glance
In order to be able to smoothly handle the increasing flows of goods logistically, the existing infrastructure is being successively optimized. To this end, the master plan for the transport infrastructure adopted by the Vietnamese government in 2021 provides for investments of 65 billion U.S. dollars by 2030. Plans include the construction of 5,000 kilometers of highway along economic corridors, the modernization of outdated rail lines and a majority of existing airports, as well as the construction of several new routes and a deep-water port near Haiphong.
Vietnam’s favorable geographic location in the heart of Southeast Asia and 3,000 kilometers of coastline make it one of Southeast Asia’s most important port transshipment hubs featuring 44 seaports and seven container ports. In 2019, it handled more than 19.35 million twenty foot equivalent units (TEUs), or 654.6 million tons of cargo – a 14 percent increase compared to 2018.
“The Master Plan on the Development of Vietnam’s Seaport System” envisions seaports handling 1.5 billion tons of cargo by 2030, including 38 to 47 million standard containers (Twenty-Foot Equivalent Unit, TEU). The estimated cost of $13.8 billion for the expansion of the seaports by 2030 is to be financed mainly by private investors.
Far-reaching expansion plans are envisioned for the Lach Huyen deepwater port in northern Haiphong, the Cai Mep-Thi Vai deepwater port cluster in Ba Ria-Vung Tau province, and the port of Van Phong in the central Vietnamese province of Khanh Hoa. The Mekong Delta, which so far does not have its own connection to international shipping routes, is to get its own seaport in the form of Soc Trang Port. The latter is supposed to function as a logistics hub, especially for agricultural products and seafood produced in the Mekong Delta.
Vietnam has twelve international and ten domestic airports. However, so far only two of the international airports, Tan Son Nhat and Noi Bai, have international cargo storage centers.
According to a logistics report issued by Vietnam’s Ministry of Industry and Trade in 2020, air transport has so far accounted for only a small share of the total volume of goods transported in Vietnam, yet 25 percent of the country’s total export value.
Market experts believe that air transport will gain in importance in view of limited train connections and the vast size of the country. According to the Ministry of Transportation, the investment capital needed in order to develop Vietnam’s airport infrastructure from 2021 to 2030 amounts to around 12 billion U.S. dollars.
Road expansion is a high priority for Vietnam’s further economic development. A large number of expressway, bridge and tunnel projects are in the planning stage across the country, with a focus on the expansion of the North-South Expressway. The paved road network totaled 594,898 kilometers in 2019.
Currently, despite the comparatively high costs, road freight transport is still the most popular form of transport due to its flexibility and independence from weather conditions and accounts for a large share of domestic freight traffic.
The expansion of the railroad network (3,143 kilometers in 2019), on the other hand, is progressing more slowly. Currently, Vietnam has only four international stations for transporting agricultural products: Lao Cai, Yen Vien, Dong Dang and Hai Phong. All of these stations are located in the north, leaving the center and south of the country barely connected to the rail network. Substantial investments of around 10 billion U.S. dollars are planned for the rail sector by 2030.
2. Logistics: Mastering challenges with regional expertise
With an investment volume of 65 billion U.S. dollars, the 2030 Transport Infrastructure Master Plan sets the course for the development of Vietnam’s transport infrastructure. This is required in order to meet the growing flows of goods generated by the high growth that is driven by investment, production and exports. Nonetheless, the local infrastructure does not yet fully meet modern standards.
To master related challenges and ensure a smooth processing, foreign companies can rely on logistics service providers such as Hermes International and SEKO. As part of a strategic cooperation, the two companies jointly offer their customers comprehensive expertise in the international movement of goods as well as in-depth regional know-how. As experienced partners, they provide individual transport solutions for the entire supply chain – sea, air (consol), rail, truck and a combination of several modes of transportation – as well as value-added services such as customs services or warehousing. In addition, SCM tools and reporting services can contribute to an increased transparency along the entire supply chain.
3. Monitoring and limiting risks
Severe weather events and the consequences of climate change, such as flooding, are proving to be a permanent uncertainty factor for Vietnam as a business location. It is therefore advisable to implement an effective risk mapping and to monitor supply chains as seamlessly as possible, for example via smart and digital freight management.
4. Growing awareness of sustainability
In Vietnam, there is a growing awareness of sustainability, occupational health and safety, and social responsibility topics. The Southeast Asian country has a comprehensive legal framework that sets out relevant labor standards as well as the responsibility of employers to comply with them along their supply chains. Great efforts have also been made recently to meet social and environmental requirements with regard to the European Supply Chain Sourcing Obligations Act. Nevertheless, before entering into new supplier relationships, it is advisable to set out specific requirements for mandatory social and sustainable standards in a code of conduct and have them signed by new suppliers.
To ensure compliance with the required standards in Vietnam, U.S. and European companies in particular tend to set up local compliance teams that monitor the implementation of the requirements.
5. Labor force and wage development
Vietnam has a growing and well-educated labor force with versatile skills in production and high technical competencies. In 2022, the population amounted to approximately 98.18 million people, more than half of whom are female. In addition, the population is young and tends to continue growing. Currently, female employees account for 47.3 percent of the total workforce, making Vietnam one of the 15 countries with the highest percentage of employed women in the world. Women’s employment is fiscally encouraged. Hence today, around eight out of ten women in the 15-64 age group are employed. More women than men are employed in logistics and freight forwarding in particular.
Compared to China, labor wages in Vietnam are relatively low – with average hourly wages in factories being about 50 percent less. However, since wages are about to rise in the future, it is advisable to design production and logistics from the outset with a focus on high efficiency. Growing competition for skilled workers also makes it advisable to invest in the training and further education of local staff on one’s own initiative and to develop supplier companies in this respect.
“Vietnam offers great potential for foreign investors”
“As an emerging market, Vietnam offers great potential in Southeast Asia for European companies wishing to tap into new procurement markets or pursue a China +1 strategy. When entering the market, a large number of country-specific regulations need to be taken into account. Therefore, the individual approach should always be planned in detail. With our many years of experience in the logistics business, our profound local know-how, our established network of local partners, as well as our strategic partnership with Hermes International, we contribute to the smooth handling of the flow of goods and support companies in optimizing their supply chain performance.”
SEKO Logistics Vietnam is the strategic partner of Hermes International to successfully handle goods movements to and from Vietnam. You can read more about the cooperation in a joint interview featured on the Hermes Supply Chain Blog shortly.
Further facts, figures and information on Vietnam can be found in our current market overview