StoxPlus: Big foreign players eyeing Vietnam logistics sector

International logistics giants, especially those from Asia, have been boosting their investments in Vietnam in recent years. StoxPlus’ database showed 8 recorded M&A deals in the first half of 2016.

Early Development Stage with High Logistics Cost
According to StoxPlus’s Vietnam Logistics Market 2016, total logistics cost reached US$38.85bn in 2015, equivalent to 20.8% of total GDP. In general, the proportion of total logistics cost in relation to a country’s GDP reveals the state of its logistics sector. The rate in China is 15.4%, in developed countries like the United States (US) and Singapore is about 8-9%.

The figure points out the early development stage of Vietnam logistics sector. Logistics experts at StoxPlus state that there are around 1,300 logistics firms. Of which, the majority are providing 1PL and 2PL services. Roughly 70% of these companies are small, family-run businesses, and are asset-based service providers (1PL) or contract logistics providers (2PL), providing low-value-added logistics services, e.g. customs clearance, warehousing, transportation by trucks or containers. 3PL logistics providers mainly serve FMCG goods including manufacturers such as Unilever, P&G, Massan; retailers and distributors such as Big C, Metro. Regarding this segment, foreign-invested companies dominate the market. Some local players including Gemadept, Vinafco are trying to tap on this segment
There are two main reasons that could explain the high proportion of logistics costs over GDP in 2015. Underdeveloped infrastructures (road, seaports) results in traffic jams and low productivity, in turn leading to high logistics cost. In addition, delay of transportation/ delivery due to traffic jam and clearance time in port for inspection also contribute to the fact.
In line with StoxPlus’s analysis, logistics sector in Vietnam can be segmented into three main categories namely Transportation, Forwarding and Warehousing. In the course of 2015, transportation accounted for approximately 60% of logistic market size.

Figure: Transported Freight Volume by Transportation Line, 2015
Source: StoxPlus

Road transport is the backbone of Vietnamese freight transport. Supply chains are exposed to an extensive but inadequate road network that makes transporting goods an arduous and often dangerous undertaking. Traffic volumes are growing rapidly, but the dangers on the major roads are due to inappropriate design and a diverse traffic mix, including cars, trucks, buses, motorcycles and even trains, causing serious congestion on major routes and heightened risk of delays to supply chains.


Rising demand
Analysis of StoxPlus on logistics sector in 2016 specifies opportunities for both domestic and foreign investors, especially for 3PL services.
Three main sources of logistics demand include export, industrial expansion and FMCG market. Of which, export and grocery retailers are expected to be drivers for logistics demand growth in the future thanks to a number of FTAs signed in 2015 such as Vietnam-Korean Free Trade Agreement (VKFTA), ASEAN Economic Community (AEC). Hence, logistics demands including cold storage for preserving the goods serving for importing and exporting purposes are expected to bound.
In recent years, Vietnam has become popular production bases for several Japanese and South Korean manufacturers, including Samsung, Panasonic and Bridgestone. A combination of a variety of tax incentives and lower labor costs than in other countries have made Vietnam more attractive to foreign manufacturers, as well as their associated suppliers and supporting industries. In turn, this has boosted the export of finished products and the import of parts and components.
Strong support from Vietnamese Government for foreign investors
Vietnamese Government is recorded to provide more supports for logistics sector, forming the backbone of domestic and international trade in any economy.
According to StoxPlus, during the five-year period of 2016-2020, Vietnam is expected to need almost US$176.6bn for infrastructure investment. This amount to US$35.3bn in annual investment needed for over 2016-2020. Of the total investment, approximately US$100.0bn is estimated to be needed for transport infrastructure, US$24.0bn for electricity, US$16.7bn for urban, big city and rural infrastructure, US$8.8bn for water supply & drainage, US$27.1 for other infrastructure projects.

In addition, the Government also open the logistics sector for foreign investors with loosened FOL for a number of subsectors including storage, freight forwarding services, distribution and express delivery with maximum of 100% foreign ownership.

CPC    Service Description    Max. Foreign Ownership       
742    Storage and Warehouse    100%       
748    Freight transport agency (incl. freight forwarding services)    100%       
No CPC    Container station and depot    100%       
7512    Courier (express delivery)    100%       
621, 622, 631, 632    Distribution (import/export, commission agents, wholesale, retail)    100%       
749    Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners    99%       
No CPC    Custom clearance    99%       
7212    Maritime transport (Freight; less cabotage)    51%       
7123    Road transport (Freight)    51%       
7411    Container handling (except at airports)    50%       
7222    Internal waterways transport (Freight)    49%       
7112    Rail transport (Freight)    49%     
Source: StoxPlus
Foreign investors are eyeing Vietnam Logistics Sector
International logistics giants, especially those from Asia, have been strengthening their investment in Vietnam in recent years. According to StoxPlus’ database, there were 8 recorded M&A deals in the period 1H2016. Big names eyeing Vietnam potential packaging sector included Shibusawa Warehouse (Japan), Aeroport de Paris (France) and DB Schenker (Germany). This sector is expected to be more buoyant in the next few years.
Figure 5: Major M&A Transaction in Vietnam Logistics Sector
 
No.    Acquirer    Country    Target company    Deal value    Year       
1    Aeroport de Paris    France    Airport Corporation of Vietnam (ACV)    US$97.4 mn    2016       
2    Shibusawa Warehouse     Japan    Vinafco Joint Stock Corp (VFC)     US$9.2mn    2014       
3    DB Schenker    Germany    Schenker Gemadept Logistics Vietnam Co., Ltd     Undisclosed    2014        
4    Bravia Capital Hong Kong Ltd    Hong Kong     Bac Ky Investment    Undisclosed     2016     
Source: StoxPlus