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Vietnam’s explosive e-commerce growth is providing big opportunities – and headaches – for online retailers and their logistics service providers.
Yesterday, speakers at the Global Supply Chain Council’s eLog Forum in Ho Chi Minh City described the huge growth taking place and the challenges in last-mile operations.
According to Amanda Rasmussen, chief operating officer at Indo Trans Logistics (ITL), online retail in Vietnam is growing at 25-35% a year, with the current US$4bn market value expected to more than double by 2020.
“We see an even higher growth rate for e-commerce logistics within our business,” she explained, noting that ITL, a large Vietnamese 3PL that boasts SingPost as a shareholder, has a dedicated last-mile logistics unit named Speedlink.
She estimates 500,000 e-commerce orders are placed every day, with 75% of the activity taking place within and between the two major metropolitan areas: Hanoi and Ho Chi Minh City.
The two cities are home to 16m people, roughly 17% of the population, but are some 2,000 km apart. This creates significant transport headaches and adds to the high logistics cost of e-commerce, which sits at around 28% of product value.
“A big challenge for Vietnam right now is air cargo,” noted Song Van Huynh, vice president for transportation at Lazada, South-east Asia’s largest e-commerce platform.
“Air cargo isn’t really supporting e-commerce deliveries. We have commercial airlines, but they’re forbidden from shipping dangerous goods such as batteries, or even toy guns.”
Indeed, Vietnam has three domestic airlines, but none operate freighters.
“Air cargo line haul is a critical transportation mode we need to have in Vietnam,” added Mr Song.
Thinh Vu, Vietnam country manager for Lazada Express, noted that road and rail transport presented their own problems.
“The fastest truck service between Hanoi and Ho Chi Minh City takes 48 hours, with very limited and congested highway coverage,” he explained. “The fastest train takes 32 hours on a single-track railway with hundred-year-old technology and no tracking during transit.”
Trucking efficiency is exacerbated by the limited hours in which large vehicles are allowed to enter metro areas. One speaker said some companies had more leeway than others, “depending on how well they can network with government officials.”
For the last-mile, Vietnam’s huge preference for cash-on-delivery presents additional challenges. Around 90% of consumers pay this way, compared with just 40% in Malaysia and 20% in Thailand. Furthermore, most retailers offer an ‘open box’ service, meaning customers can view the product before deciding whether to complete a purchase. As a result, 12-14% of all orders result in failed deliveries.
However, for Mr Thinh, while cash on delivery presents “trouble for logistics”, it has also been a key growth driver for online retail, since ultimately it increases trust and therefore sales.
DHL eCommerce (Vietnam) managing director Thomas Harris said consumers were increasingly requiring in-app customer service and the ability to rate drivers.
“Driver rating is actually one of the key elements in e-logistics,” he said. “It’s the moment of truth, as it’s the only time any merchant selling online has direct contact with a customer.”
Mr Harris was optimistic about the potential of Ho Chi Minh City, which he noted would be host the second-fastest growing economy in all Asia by 2021.
“But with 45 million vehicles roaming the streets, and 8,000 new motorbikes and 750 cars added every day across Vietnam, we have to think about new ways of logistics in these mega cities,” he added.
He explained that, for DHL, e-commerce tied together the 3PL’s global forwarding, supply chain, express and last-mile delivery units. DHL has invested heavily in e-commerce in recent years, especially into its domestic networks in South-east Asia.
“If you can do cross-border, and do it well, you can offer any online merchant a complete logistics package and lock-in their volume,” Mr Harris said.
He said e-commerce in Vietnam only represented 2% of total retail sales, and predicted this could grow faster than expected to 4% by 2022.
“The increasing performance of e-logistics firms is boosting consumer’s trust in buying online,” Mr Harris noted.