Vietnam : Lack of logistics infrastructure = higher logistics costs

Or another title might be “Why stories of China’s demise as a major sourcing country are overblown”. Anybody who has been reading our blog since its inception knows that we’ve always cautioned against “rushing” into China and evaluating the pros and cons for going in carefully before making that decision. We’ve never advocated avoiding China, simply that people should think twice and consider carefully before making that jump - for some companies, it just might not make sense.

As China moves to higher-end manufacturing and costs in general have continued to rise, some companies have been tripping over themselves in their rush to move production to even-lower-cost Vietnam. I wish I could say I was puzzled at the frenzy of activity in Vietnam or that I was surprised by the subsequent port congestion issues that slammed Ho Chi Minh City earlier this year, but I can’t. It’s interesting to note that the same advice we have advocated in the past in regards to China - and still do - are similarly being ignored by countless firms now rushing headlong into the next “hot sourcing country”, Vietnam.

It’s been pointed out before, but I’ll point it out again: Vietnam is not China. And one of the largest differences between the two countries is the level of port and logistics infrastructure. Vietnam simply can’t compare to China’s port infrastructure:

Nguyen Tuan Hoa, deputy director of the Development Study Center under the HCMC government, said total throughput at Vietnam ports amounted to about 178 million tons, including 4.3 million TEUs.
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He said logistics expenses in the United States made up 9.5% of GDP, 11% in Japan, 16% in South Korea, 21.6% in China and 25% of GDP in Vietnam.
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There are 800-900 businesses active in the logistics field but a majority of them are in HCMC where the logistics market has a yearly value of US$12 billion, 60% of the country’s total, while 70% of import and export shipments transit through HCMC.
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“We are lacking deep-water ports serving as international transshipment points, so Vietnam’s exports are transshipped to Hong Kong or Singapore before heading for foreign markets,” said Hoa.

Emphasis ours. Virtually all the trade and industry going on is through one city and one port, Ho Chi Minh City. That’s not an ideal situation, and it’s going to take an investment of time and money to improve it. That’s not to say companies shouldn’t avoid Vietnam - just that they need to consider the higher logistics costs, congestion issues, longer transit times, etc. before making the leap.

Hat tip to China Logistics News.