Some strategic solutions to develop logistics services at Sotrans logistics in the period 2006 to 2010

ABBREVIATIONS AFTA : ASEAN Free Trade Area CIF : Cost, Insurance and Freight Incoterm DDP : Delivery Duty Paid Intercom DDU : Delivery Duty Unpaid Intercom EDI : Electronic Data Intercha

PROGRAM ON MASTER OF MANAGEMENT (MMVCFB6)

-

NGUYEÃN VAÊN VINH

SOME STRATEGIC SOLUTIONS TO DEVELOP LOGISTICS SERVICES AT

“SOTRANS LOGISTICS” IN THE

PERIOD 2006 -2010

THESIS OF MASTER OF MANAGEMENT

Advisor: Dr Nguyen Van Son

HOCHIMINH CITY

(2007)

“I confirm that this is my work Any data, result

or quote in the thesis are clearly identified”

Nguyen Van Vinh

ABSTRACT

The trend of internationalization in economic activities has more rapidly increased, trade relations among countries have continuously developed in all fields Serving these relations, many services industries appear accompany to the development of international trade activities including forwarding and logistics services

Although forwarding activity has appeared for long time, but the concept of Logistics service has just appeared in recent years, a forwarding company with large or small size has some problems to be considered Because the development is accompanied to fierce competition, always has customers with higher and higher demands, always asks for something new How are these problems solved? and how the company can be survived in this competition ? That is the reason why it is necessary to study this theme

Form that point of view, an understanding about the logistics services in Viet Nam , using SOTRANS LOGISTICS as an example, is necessary This research investigates logistics services service at SOTRANS LOGISTICS and some strategic solutions to push up this services are then presented in order to improve the company ‘s performance in further

In this paper, some recommendations for the government and concerned authorities are suggested with the hope that logistics services will be more developed and get more profits for the country in the further

ACKNOWLEDGEMENT

This Master thesis represents the essence of our achievements during two years in studying at MMVCFB6 During this period there have been many peoples who has inspired and guided us through the works with the thesis

We would first like to express my profound gratitude to Dr Nguyen Van Son - Research advisor - for his precious guidance, constructive comments, explicit direction and encouragement and everlasting enthusiastic support throughout the research period

My acknowledgements are due to MMVCFB – the Vietnamese and Belgium Master Program, Vietnamese Professors and Belgium Professors of the program from Solvay Business School and who gave me a great chance to obtain valuable knowledge and long term relations

My sincere thanks are also extended to SOTRANS LOGISTICS and our colleagues who accompanied us during our works, and made this time memorable

Thank all MMVCFB6 members and the faculty of the Hochiminh City Open University for their help

Last, but no least, Thanks to all our family, my parents, my lovely wife,

my daughter for their love and understanding during my study wherever we are you are always with us

COMMENTS OF THE ADVISOR

Commentator : PhD Nguyen Van Son, study consultant This is the comment on the thesis of the student as Mr.Nguyen Van Vinh – Major: Master of Management Thesis title :” Some strategic solutions to develop logistics services at “Sotrans Logistics” in the period 2006-2010”

As per the appraisement, the writer suggests persuadable and feasible solutions that may be applied to Sotrans Logistics in particular and any logistics services enterprises in Vietnam in general

However, the thesis has not avoid some weak points as some unclear and non-detailed solutions For example, some solutions of co-working

between subsidiaries of Sotrans Company to develop its strength are not

concretized for immediate application

Generally, this thesis may be considered as meeting well requirements

about format and contents of an MBA thesis

2 Comments about the students :

The student – Nguy n V n Vinh shows his devoted in studying, his creative

abilities on the scientific research and to be recognized as Master of

Management degree

I agreed to allow the student - Nguy n V n Vinh to represent this thesis on

Examining Panel at Ho Chi Minh Open University and Solvay Business School

/ University Libre of Bruxelles

Ho Chi Minh city, Febuary 12 th 2007

THE ADVISOR

COMMENT OF CRITICAL PROFESSOR 1

COMMENT OF CRITICAL PROFESSOR 2

TABLE OF CONTENTS

ABSTRACT i

ACKNOWLEDGMENT ii

INTRODUCTION iii

TABLE OF CONTENT VI LIST OF CHARTS XII LIST OF FIGURES XIII CHAPTER 1 BASIS AND REALITY ON LOGISTICS OVERVIEW 1.1 General view about Logistics 1

1.1.1 Concepts and roll of Logistics 1

1.1.1.1 Overview developing situation about modern Logistics 1

1.1.1.2 Logistics concepts 7

1.1.1.3 Logistics concept according to the author 8

1.1.1.4 The role of Logistics 9

1.1.2 Overview about operations of Logistics Services Provider (LSP) 10

1.1.2.1 Logistics Services Provider (LSP) 10

1.1.2.2 Services provided by LSP 10

1.1.3 Classification of Logistics companies 13

1.1.4 Tendency to use Logistics service in the world 15

1.1.4.1 Tendency to rent outside Logistics services 15

1.1.4.2 Customer tendency to control orders on-line 17

1.1.4.3 Customer’s tendency about Logistic solution 17

1.1.5 Experience in development of Logistic service in the region and 18

Development tendency of outsourcing Logistics service in Vietnam 1.1.5.1 Experience in development of Logistics service in the region 18

1.1.5.2 Development tendency outsourcing Logistics activity in Vietnam 20

1.2 Real situation in developing Logistics service in Vietnam 21

1.2.1 Legal basis in doing logistics service in Vietnam 21

1.2.1.1 The trading condition of Logistics service 22

1.2.1.2 Rights and Liabilities of Logistics traders 22

1.2.1.3 Rights and Liabilities of customers 23

1.2.1.4 Exempt responsibility cases for Logistics trader 23

1.2.1.5 Logistics trader’s liabilities once holding goods 24

1.2.2 Some logistics services applied in Vietnam 24

1.2.2.1 Supply Chain Management 25

1.2.2.2 Forwarding and co-loading service 27

1.2.2.3 Airfreight service 28

1.2.2.4 Warehousing – Distribution service 29

1.2.3 Opportunities and Challenges 31

1.2.3.1 Opportunities 31

1.2.3.2 Challenges 32

CONCLUSION OF CHAPTER 1 34

CHAPTER 2 THE REAL SITUATION IN LOGISTICS DEVELOPMENT AT “SOTRANS LOGISITCS) 2.1 Sotrans’ overview 36

2.1.1 Sotrans’ history 36

2.1.2 Business activities 37

2.1.3 Acitivities network 38

2.1.3.1 Member direct under controlled by Sotrans Corporation 38

2.2 General description of Sotrans Logistics 2.2.1 Sotrans Logistics’ overview 40

2.2.2 Functions and Mission 41

2.2.3 Structure 41

2.3 Analysis of business activities and logistics services in Sotrans Logistics 42

2.3.1 Analysis of Sotrans’ business activities 2003-2006 42

2.3.1.1 By turnover 42

2.3.1.2 By profit 46

2.3.2 Analysis of Sotrans’s Logistics services 48

2.3.2.1 By services structure 48

2.3.2.2 By character and complexity of services 52

2.3.3 Sotrans Logistics’ Agency Network 56

2.3.3.1 Overview of oversea agency network 56

2.3.3.2 Policy of Sotrans Logistics on relationship with oversea partner 59

2.3.4 Information System 61

2.3.5 Customer service 63

2.3.5.1 Strength – Advantages 64

2.3.5.2 Weaknesses – Disadvantages 65

2.3.5.3 Chances 66

2.3.5.4 Challenges 66

CHAPTER 3 SOME STRATEGIC SOLUTIONS TO DEVELOP LOGISTICS SERVICES

AT “SOTRANS LOGISTICS” IN THE PERIOD 2006-2010

3.1 The orientation of developing the goals of Logistics service in Sotrans 68

Logistics in the period of 2006-2010 3.1.1 Orientations 68

3.1.2 The objectives of development for period 2006-2010 68

3.2 Strategic solution Systems to develop Logistics service in Sotrans 69

3.2.1 Solution group of developing products and services 69

3.2.1.1 Focusing on developing International Transportation 69

3.2.1.2 Developing consolidation cargo 71

3.2.1.3 Developing the model of cargo delivery service under DDP term 71

3.2.1.4 Improving operating effects of warehouse and cargo distribution 73

3.2.1.5 Improving customer services 74

3.2.2 Solutions of developing the agent network and joint venture partner 76

3.2.2.1 Developing of agent network 76

3.2.2.2 Solutions to push up co-working among subsidiaries of .80

Sotrans Corporation 3.2.2.3 Solution for choosing and developing supplier 82

Logistics company 3.2.3 Group of solutions to performing 83

3.2.3.1 Developing the information system 83

3.2.3.2 Human resource developing and training program 86

3.2.3.3 Deploying the Customer oriented Sales & Marketing program 89

3.2.4 Solutions for re-structuring & reforming the management 90

3.3 Recommendation 94

3.3.1 For the Head of company Sotrans 94

3.3.2 For forwarding Association 95

3.3.3 For other industries 96

3.3.4 For the Government 96

3.3.5 Some recommendations to general customs 97

CONCLUSION 101

REFERENCE DOCUMENTS 102

ABBREVIATIONS

AFTA : ASEAN Free Trade Area

CIF : Cost, Insurance and Freight (Incoterm)

DDP : Delivery Duty Paid (Intercom)

DDU : Delivery Duty Unpaid (Intercom)

EDI : Electronic Data Interchange

Exw : Ex works (Intercom)

FOB : Free On Board (Incoterm)

IATA : International Air Transport Association

JIT : Just in Time

KPI : Key Performance Indicators

LSP : Logistics Service Provider

SCM : Supply Chain Management

SOTRANS : South Transportation Warehousing Company

SKU : Store Keeping Units

USD : Currency of the United States

VND : Currency of Vietnam

VIFFAS : Viet Nam International Freight Forwarding Association WTO : The World Trade Organization

LIST OF CHART

Chart 1 : Forwarding department of turnover period 2003-2006 43

Chart 2 : Airfreight services of turnover period 2003-2006 44

Chart 3: sea freight services of turnover period 2003-2006 44

Chart 4: Sotrans Logistics of profit period 2003-2006 46

Chart 5 : Forwarding services profits period 2003-2006 47

Chart 6: Airfreight services of profit period 2003-2006 47

Chart 7 : Sea freight services of profit period 2003-2006 47

Chart 8 : Sotrans Logistics of revenues by market sector 52

Chart 9: Standard Operating Procedures – DDP – JIT for Client “Scavi Europe” 54

Chart 10 :Sotrans Logistics services by the agent 59

LIST OF FIGURES :

Figure 1 : Material Management / Inbound Logistics 2

Figure 2 : Product distribution / Outbound Logistics 3

Figure 3 : Logistics Systems (Trading Logistics) 4

Figure 4 : Logistics and Supply Chain 6

Figure 5 : Scale and Augmentation speed of Vietnamese and World .20

Logistics Market in year 2005 Figure 6 : Main sub-division of Vietnamese logistics market 2005 21

Figure 7 : Relationship between parties in supply chain Management/ Logistics 25

Figure 8 : Structure of Sotrans Logistics 42

Figure 9 : Sotrans Logistics of Turnover report .42

Figure 10 : Sotrans Logistics of profit report 46

Figure 11 : Advantages of EDI systems .62

Figure 12 : The adjusted structure of company 92

INTRODUCTION

1 Reason to choose the subject:

The more economy, science and technology develop, the more “supply” and

“demand“ about goods, services on the market becomes diversified Consumers desire to be satisfied their needs rapidly, conveniently In the mean time, the suppliers always find all possibilities to launch their products into the market at earliest time, to meet all customers’ needs Logistics is just the effective tool that the suppliers take advantage to achieve their purpose

Nowadays, the notion of logistics has become very familiar with almost all businessmen Many enterprises employ professional logistics companies effectively In recent years, number of logistics companies has increased considerably in Vietnam (There is currently about 900 companies Average increasing speed is 10% per year That means this quantity will be approximately 1,300 companies within the next 5 years) However, the operations of many logistics companies is nothing difference with normal forwarders Forwarding market is very rag, almost forwarding companies are medium and small

In this context, the studying of logistics and developing logistics service in forwarding companies are very essential, especially when there is few authors research on this subject in Vietnam, reference documents are limited Besides, when Vietnam became official member of the World Trade Organization (WTO), we need to intensify more on movement of economy mechanism in direction of developing services This can reduce the dangers that foreign companies exploit service activities in general and forwarding activities in particular

With above-mentioned reasons, I have decided to choose the subject “ Some

Strategic solutions to develop Logistics service at “Sotrans Logistics” in the period 2006 - 2010” as the thesis of the graduation composition

2 Research’s purpose

Know thoroughly the notion of Logistics, the nature of Logistics

Investigate levels of development in Logistics company, evaluate actual level of Vietnamese Logistics companies

Bring out the development orient and typical solutions of development in order to upgrade the operations at Sotrans Logistics

3 Object and scope of the research

Research object: Services in Logistics Supply Chain

Research scope: Sotrans Logistics

4 The new point and application value of the thesis:

This thesis is the result for my studying about Logistics matter at some companies in the world, within process of working and studying The thesis summarizes and mentions about basic logistics matters and the application of logistics into real situation in our company

Application value of the thesis is giving real solutions to develop logistics service

at Sotrans Logistics in period 2006 – 2010

5 Structure of the thesis:

Including 3 chapters:

Chapter 1: The basis and reality on Logistics Overview

Chapter 2: Real situation in Logistics services development at “Sotrans Logistics”

Chapter 3: Some Solutions to developing logistics services at “Sotrans Logistics”

in period 2006-2010

CHAPTER 1

BASIS AND REALITY ON LOGISTICS OVERVIEW

1.1 General view about Logistics:

1.1.1 Concepts and role of Logistics

1.1.1.1 Overview developing situation about modern Logistics

Nowadays, our modern world develops strongly with advances in technology which happen every day, every hour In these advances, the launch and development of information technology has contributed greatly to expand of business activities The quantity of transaction goods has increased many times than before which hastens the process of specialization, liberalization and globalization of the world economy

science-The development of information technology creates good conditions to the information network is expanded Information is transmitted rapidly, accurately This is one of the premises for modern Logistics create and develop with great progresses

After the seconds World War, the new economy was formed with two poles: United States - Western Europe Along with miraculous achievement, Japan gradually appears on World Map as the Third pole, walking abreast with the two giants United States and Western Europe Almost all business innovations are raised from this enormous economy As a result, Logistics grow up powerfully there This development represents clearly over every decade

to customers It includes the functions as transportation, warehousing, packaging, order executing, demand forecast, inventory control and customer service

Material supplying

point

Transport Transport Material

Warehousing

Figure 1: Materials management/ Inbound Logistics

Figure 2: Product distribution/ Outbound Logistics

Before 1960, managers are inclined to consider distribution activities is common and trivial and do not pay attention on This leads to accelerating and irrational This cost mixes into indirect cost, general cost of the company and make people determine hardly the actual level of transportation expenditures in order to administer goods effectively

Decade 1970:

Until years 1970, the operating cost of companies increase highly Severe inflation has reached until two numerals As a result, labor cost, workshop, Capital cost has increased remarkably and make the distribution cost raises On the other hand, petrol and oil prices escalate since OPEC claims to cut down on the supply in the market This forces managers to find out new methods to connect distribution functions The liberalization in transport industry also gives the managers new options to reduce costs, put up operations effect Therefore, until the end of years 1970, Material Management and Product Distribution have considered to be an organic overall process from material inputs until the finished products will be on the market and the terms Trading Logistics has been more expanded (Figure 3)

Figure 3: Logistics system (Trading Logistics) Decade 1980:

In decade 1980, the development of Logistics is marked obviously The taking

off obstacles in regulations, the expanding of Logistics services makes the

relationship between the carrier and the shipper changed The carriers

concentrate all possibilities to reduce the freight rate in order to save transport

cost In the mean while, shipper concentrate goods into few carriers that they

highly appreciate in order to have better negotiation result for their goods

distribution job That’s why the numbers of shippers seems to be fewer but the

business jobs of a certain carrier grow much Therefore, carriers have to try their

utmost in order to be into the contractor list that shipper choose Successful

contractors are the ones who have prominent customer service, attractive value

added service and reasonable price Series of normal practices have come when

carriers and shippers want to cut down costs improve service, including issuing

invoices and control freight automatically, using Data Exchange System EDI

(Electronic Date Interchange) to assist the use of electronic invoices without

paper, tracing cargo, self-apply and calculate the freight cost, follow complaints,

freight payment,…

Also in decade 1980, many companies have changed their mechanism to enhance competitive capacity and avoid to be merged by other companies World trading develops strongly, service industry breaks out rapidly Logistics service providers much more appear, “Just in time” system (JIT) of Japan also

comes out in this period Basic principle of this system is, do not manufacture or

transport goods once haven’t received order. In other words, JIT system wish to achieve the purpose of material, goods supplying according to actual needs of customers in shorted time, minimize storage cost In order to obtain this, the matter of settling and transferring information is very important Timely and precise information replace for the production based on forecast and product inventory JIT system will react swiftly under “drawbridge” form, that is, actual demand will be informed timely and the system only create a corresponding supplying amount

Decade 1990:

Until decade 1990, when the activity of many companies has been saturated in national market, they have to cut down their costs in order to be more effective and penetrate into oversea market The matters to shorten the time that goods are put into the market and improve quality service are other important elements

in order to enhance competitive advantage of the enterprise Collecting all strict requirements about costs, time and quality service, managers have to find out new effective tools to improve, develop continuously their businesses This tool

is improving Logistics activities However, obtaining this effective tools is not simple, since the companies have to invest new technology, especially information technology, expand their system worldwide, develop human

resource,….Therefore, in order to cut down cost, goods distribution time, improve

quality activity but do not have to invest with high expenditure, as well as the risks

of these investments, many enterprise have rent professional Logistics service providers implementing their whole Logistics activities

Also in this period, while the system of these companies more and more expand with the establishment of multinational companies operating all over the world, the policy of these companies has transferred to specialization tendency one of some products at manufacturing regions having advantages about material and manpower After that, assembling factories will associate the units of the product together accordingly each stage The factories can be located far away, from this country to another country, from this continent to another continent This brings about many subjects participating into supply chain and Logistics activity has been more expanded The concept “Supply Chain” has appeared in this period as

an extended term of Logistics (Figure 4)

Figure 4: Logistics and Supply Chain

According to the Council of Logistics Management (1991): “ Logistics is the

process of planning, implementing and controlling the efficient, effective flow and storage of goods and services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirement “

As analyzing at 1.1.1, we can see the main features in developing process of modern business Logistics concept Simultaneously, through above definitions,

we can see Logistics is a process covering the whole system, from material purchasing for production, inventory and transport semi finished product via different manufacturing stages, inventory and transport finished product to distribution points, to final consumers For each stage in the chain, Logistics has

to response below basic questions:

What - How much? (For example: Material type? Which product? Quantity? Quality?)

Where - To where? (For example: Goods are rotating from which point to which point? Where is warehouse?)

When – How long? (When to transport, warehousing? How long?)

Who (Who will carry out?)

How? (Transport by which mode? How to reserve?)

Particularly, Logistics is an overall process so all questions should be collected and responded comprehensively in order to gain a final optimal result for the system After analysis, we can see that Logistics is the development at high stage

of forwarding activities, using achievement of information technology, in order

to dispatch goods from production phase to final consumer, via stages: transport, storage and distribution If considering the beginning point of supplying chain is

A, the end point is Z, Logistics is the goods rotating chain from A to Z and ensure

optimal quantity, in time manner, with minimum cost However, the biggest

difference between Logistics activity and traditional transportation activity is that, Logistics envelop more activities through all supplying process; simultaneously, information chain about goods is also parallel rotating with visible goods movement

1.1.1.3 Logistics concept according to the author:

Collecting all above concepts and analysis, according to the author, the nature of logistics is the goods movement process from A to Z in order to optimize goods movement strain in location, time and most possible saving cost

Among them:

A and Z: The beginning and end point of the supplying chain

Goods: Including visible goods and accompanied information and service

According to the author, this definition can general all prior concepts about Logistics In decades 1960-1970, point A is the end of finished-product manufacture phase and point Z is the market In decade 1980, point A is expanded from material providing point for manufacturing and point Z is the end consumer In decade 1990, point A and Z are unchanged but between A and Z is

the compound supplying chain with many subjects and inside Logistics stages; in the mean time, information JIT is obligatory going abreast with above-mentioned goods movement

1.1.1.4 The role of Logistics

From above mentioned, directly or indirectly, Logistics has influenced on all aspects of human life Nowadays, we wish for perfect services and will be able

to get this once developing Logistics service Indeed, what will happen if we buy one product but it is out of stock? We order a favorable book for a relative but it

is finally delivered late, we wait for bus to work but it come late 30 minutes than regulation? All such above things, even small or big, still influence and make life become interrupted In summary, how to satisfy the biggest customer’s need with minimum cost? This can be solved by Logistics

In business, Logistics play an important role for enterprises Logistics is the major tool that creates competitive capacity of the enterprise and the difference between the enterprise and other competitors Logistics is also the basic element for enterprise to consider which operation aspect can bring profit Moreover, Logistics support effectively for marketing activity, enhance customer service quality, help to expand the market

For the economy, Logistics assist to raise social-economic effect, as well as help economic transaction jets co-ordinate harmoniously and synchronously Since then, resources are changed to products, services satisfying the needs and enhancing living standards of all classes in the society

1.1.2 Overview about operations of Logistics Services Provider (LSP)

1.1.2.1 Logistics Services Provider (LSP)

Once multimodal transport come, some subjects have participated actively in this new field These are subjects of the transport chain, such as shipping line, ports… Similarly, in Logistics development period, the group of subjects assist the companies executing Logistics and Supplying chain management effectively, especially in forwarding companies In developed countries, forwarders more and more expand their operations covering all Logistics activities and they are called Logistics Service Providers

1.1.2.2 Services provided by LSP

1) Consulting service:

Consulting services usually concern to below decisions:

Decision on location of warehouse –workshop system

Locating workshop, warehouse, materials is the first and very important step when establishing a supplying chain These decisions influence on regulating sources for a long-term development plan The chosen locations will effect on market penetrating policy, turnover, cost and service level that the company can serve customers There are current many specialized software to find the optimal location solution

Decision on goods reserving system:

The first purpose of reserving decisions is minimizing the secure reserving goods

in the system because the storage charge is very high Logistics service provider

holds an important role in this step, because their decisions will influence on using storage level, size and cost

Decision about transport

The very important point on this step is choosing the transport mode in order to balance suitably between direct cost (transport cost) and indirect cost (reserving cost for an amount of necessary goods when executing that transport mode) For example, the air freight is very costly but the reserving expenditure will be reduced It depends on service level required by customer, as well as geographic location of the departure and destination points, in order to make decision In reality, transport cost occupies averagely 30% of Logistics cost of a company so transport policy is essential in assuring the competitiveness and accurate time in business

2) Distribution, Implement Logistics chain

Once raising Logistics decisions, LSP can participate and carry one or many functions as follows:

Warehousing service

Warehouse system is not necessary to belong to manufacturer or goods providers but can be provided by LSP who can provide warehouse service with inventory management system in order to manage closely in/ out goods Warehouse is belonged to service provider and goods is belonged to manufacturer

Transport and distribute goods

LSP can participate directly into goods transport process or sign sub-contracts with other transporters The direct carrying transport help LSP control cost initiatively and manage distribution process

Inventory control

Based on information from links of supplying chain, LSP will manage and adjust continuously reserving goods in the warehouse

Other value added services

Those are services such as completing packaging for products, labeling, doing unit price, selling goods, financial services, … These services are different according to each customer In fact, when operating, LSP usually has opportunities to carry out one or many above value added services

3) Information service

Information system is considered to be “the heart” of Logistics The services are mentioned in above parts cannot be implemented well if lacking of strong management tools, in which computer and specialized software are most important The software can be purchased or rent professional software companies, or established and developed by LSP themselves The software will help LSP conduct their tasks (both under reproducing and under service implementing in reality, develop more “Intelligent” service for customers Two below services are typical in Logistics:

Tracking/ Tracing

These services are normally called on-line service to customers Information About cargo and orders become through All subjects in the supplying chain know real status of particular order

Order/ Receive order/ Follow order progress

Once sales information is available, order is placed immediately If LSP is assigned to control the goods selling out, or receive necessary information about goods, who will be the most capable partner in booking and transporting raw material to plant, and moving goods from plant to distribution points and consumers

1.1.3 Classification of Logistics companies

According to classification research of many organizations, Logistics companies are divided into 4 different levels, in which Logistics Service Providers at Level

4 is at highest development The terms Logistics Service Provider at Level 4 has been registered copyright by Andersen Consulting Company Following the classification based on service level that LSP provide to customers

First Party Logistics Provider (1PL)

Goods owners arrange and perform Logistics activities by themselves, in order to satisfy their needs According to this type, goods owners have to invest in transportation means, warehouses, information system, man power to manage and operate Logistics activities 1PL makes enterprise scale become large and usually makes business effect lower, because the enterprise have efficient scale, experience and professional skill to administer and operate Logistics activity Almost Logistics companies in Vietnam are now at this level

Second Party Logistics Provider (2PL)

Second Party Logistics Providers supplies service for a separate activity in Logistics chain (transport, warehousing, customs procedure, payment,…) to satisfy the client’s need This type includes: sea carriers, road transport carriers, air carriers, warehousing trading companies, payment brokers, But they are not able to provide Integrated logistics services

Third Party Logistics Provider (3PL)

On behalf of the shipper, The Third Party Logistics Provider will organize, to manage and implementing all Logistics services for each functions section For examples, on behalf of shipper to implement export procedure and local transport, or on behalf of the importer to clear customs and transport cargo to stipulated location Therefore, 3PL includes different services, co ordinate closely the cargoes rotating, inventory, information treatment,… and integrate with supplying chain of customer Almost 3PL companies in Vietnam are joint

venture companies or Oversea Logistics

Fourth Party Logistics Provider (4PL)

This is Integrator – the party who unify all resources, potentiality and material, science, technology facilities with other organizations to design, construct and operate Logistics chain solutions 4PL is responsible for controlling goods circulation line, provide supplying chain solution, plan, consult Logistics, manage transportation,… 4PL orients to control the whole Logistics process, such as receive goods from production place, import, take goods to end consuming point

In Vietnam, there are nowadays only joint venture companies or agent for Logistics companies at oversea can provide services at this level, such as: APL

Logistics, Maersk Logistics, Schenker Logistics, NYK Logistics, Kuehne & Nagel

1.1.4 Tendency to use Logistics service in the world

One general trend of this epoch is globalizing the world economy Any country

or profession, not distinguish big or small, new or old, has to accept participating into this trend in order to exist and develop Globalization makes the business between countries, areas in the world develop strongly and of course bring about new general trends about transport, warehousing, auxiliary service The new general trend of this epoch brings about indispensable development of Logistics – Global Logistics The process of globalization is changing the company’s nature; change from a local company to become international groups with global offices in the world These companies serve different markets at various countries so they have to establish global Logistics network to provide products and services according to customers’ requirement Logistics systems at different areas, different countries may not similar absolutely, but all Logistics systems have one common point, that is the skillful, scientific and professional combination the chain of activities such as: Marketing, production, finance, transport, purchasing, reservation, distribution,… in order to gain maximum serving purpose with minimum cost

1.1.4.1 Tendency to rent outside Logistics services

Using Logistics Service Provider is a quite an in vogue and popular trend LSP is only the provider of multimodal transport but also the organizer for other services, such as: Warehousing management, preserve goods in warehouse, implement orders, create added value for the goods by assembling, inspecting goods quality before dispatching, packaging, marking, labeling, distributing to

distribution points, doing export/ import procedures, Even, LSP can be a reliable consultant

Multi- National Corporations (MNC) have tendency to merge each other or they purchase other multinational companied to be bigger and stronger in the world The more company scale is big, the more operations scope is large, the more Logistics activity is complicated This requires more and more high investment cost and professional characteristics Self-organize logistics operations by self-contained type in internal company demands big expenditure, lead to low effect especially in material supplying and product distribution That’s why, there are more and more multinational companies transfer from self-organizing Logistics job to outsourcing Logistics service from professional Logistics companies For small and medium companies, using Logistics service is indispensable need Some research at American Logistics Council show that Logistics market is developing at 20% per year Other research also reveal that, at almost current companies, the cost for renting outside Logistics service occupies about 50% or more their total distribution cost, in which, Europe is considered to be one of the most saturated 3PL service providing markets Accordingly, around 76% European companies use 3PL providers for at least some their Logistics’ needs, while this number in USA is 58% With current globalization tendency, the trend

of renting outside Logistics service exists not only in Europe but also at all other areas, including Asia-Pacific that Vietnam is a member

Reality shows that the using of Logistics Service Providers brings about big source of income for enterprise, thanks to reducing investment cost for Logistics activity Enterprises can decrease cost price, be more competitive in local and international market

1.1.4.2 Customer tendency to control orders on-line

Another tendency, goods owner has more and more high requirement on about visible capacity and control on-line their orders Goods owners are more and more interested in finding a Logistics service partner to provide them visible capacity and controlling their whole resources (material, goods,…) in whole distribution chain in stead of separate partner at each step of the chain Good owner also want to find partner with worldwide service scope, because their distribution chain is expanded all over the world

1.1.4.3 Customer’s tendency about Logistics solutions

Another trend, customer more and more require transport companies to provide service pack and overall, integrated Logistics solutions Previously, once logistics is understood as transport goods, the usage of big or small logistics companies is not a problem, because anyone deliver goods in due time with best prices all has contract Nowadays, this mechanism has been much different LSP provide many types of services, from inventory management to spare part assembling, finished-products distribution, treat in stock goods and returning goods Besides that, the supplying of “one stop service” is providing one overall logistics service pack and transport ahs become an assistant product Goods owners nowadays require much more than merely transport that forwarding companies are working on This increasing needs leads to some implication Firstly, goods owner will have tendency to choose fewer service providers, even just only one logistic company that can provide them overall and integrated logistics service pack Secondly, service price has more and more become a less important matter, because goods owner will be interested much in the value that what they can receive from that cost This is the time to introduce the concept of

total logistics cost and balancing Total logistics cost includes the costs of all logistics services, for example: transport cost, storage charge, capital cost of in stock goods, If goods owner pay high prepaid freight for faster service, they can save storage cost as well as capital cost in storage process The result is, total logistics cost will be lower and this is the matter that goods owner more and more requires

Through above analysis, Logistics has been developed rapidly to satisfy more and more high demand of customers The needs to rent outside Logistics service has become indispensable tendency The studying of experiences from LSP to apply into Vietnamese enterprises is very important

1.1.5 Experience in development of Logistics service in the region and

development tendency of outsourcing Logistics service in Vietnam 1.1.5.1 Experience in development of Logistics service in the region

Experience of Singapore:

Singapore has strategic location in international marine route Recognizing the importance of Logistics activity to marine service industry as the strength, Singapore has developed to become marine center and biggest transshipment port in the area This help Singapore become the important clue in the world The Leading Logistics companies in the world have offices in Singapore, such as: Maersk Logistics, APL Logistics, Danzas – DHL logistics, Excel logistics, UPS Logistics, ABX Logistics,… Together with continuous improving the management system through regulations, policies such as: customs procedure according to modern orientation, simple and clear Singapore Government attaches special importance to infrastructure, information technology in order to

assist strongly for logistics activity, especially E-Logistics Nowadays, Singapore

is evaluated as the most attractive seaport and airport in the world Besides, with the role of supporting and developing logistics activity, Singapore Logistics Association speed up training program to develop in professional orientation the labor team for logistics industry This is considered to be one of the main purpose with very important signification in the strategy of promoting and developing logistics service in Singapore

Experience of China:

Although not strong as Singapore, China recently has significant progress in logistics activity development Manufacturers have paid attention to outsourcing activity in order to maximize the Third party operation effect In order to ensure the development of logistics, China concentrates on building infrastructure, transportation for all roadway, railway, waterway, airway, seaway, warehouse and information system China has constructed 45 big and modern logistics centers in which are headed by Shanghai, Beijing, Shenzhen There are almost all logistics companies are operating here, such as: Maersk, UPS, ABX Logistics, Schenker, K&N, SDV,…

Within the next 10 years, China continues to push up developing logistics by encouraging cooperation between foreign logistics companies with high financial potential and much experience, and local companies with good relationship with manufacturers and local market insight Two parties will joint venture, co-ordinate, taking advantage absolutely of the strength of each party, make the Chinese logistics industry continues to develop strongly and effectively

1.1.5.2 Development tendency outsourcing logistics activity in Vietnam

Through analyzing development experience logistics service of countries in the world, reviewing Vietnamese logistics market under 3PL businessman’s point of view, we see development tendency of outsourcing market in the near future as follows:

The size of 3PL market is small but at high growing speed Logistics cost in Vietnam is estimated at about 15-20% of GDP, in which inventory value is essential 3Pl service market is forecasted at total value of 0.16 billion USD in

2005, hold at 0.3% of GDP, mainly is transportation service (Source: Seminar report about logistics service development organized by VIFFAS) Although logistics market has small scale in comparison with Asia-Pacific countries but its growing speed is forecasted at 20-25% per year and achieve the value of 0.35 billion

USD in 2009 (Figure 5)

Figure 5 : Scale and augmentation speed of Vietnamese and World logistics

market in year 2005 Market Value (Billion USD) Augmentation speed

Retailing market – FMCG (Fast Moving Consuming Goods): Automotive equipment and pharmaceuticals market is potential and develops quickly These are industries which have high demand about logistics service in future with growing speed over 10% per year in period 2005-2015 (Figure 6)

Figure 6: Main sub-division of Vietnamese logistics market 2005

Retail 90%

Electronic consumer goods 6%

Automotive equipment 3%

Pharmaceuticals – Health-care products 1%

Source: Summarize and estimate according to the similarity of China Logistics Market in 2005

Key driver to push up the development of Vietnamese logistics market is the fast augmentation of retail market, with increasing speed 14.72%/ year

in period 2005-2009 and import – export activities is estimated to increase 14.72%/ year in period 2006-2010 One another objective is the augmentation of outsourcing in multinational groups once Vietnam joins WTO

1.2 Real situation in developing Logistics service in Vietnam

1.1.1 Legal basis in doing logistics service in Vietnam

According to the Code of Commerce approved on 14/06/2005 and effective on 01/01/2006: Logistics service is a trading activity, in which businessmen implement one of many jobs, including: Receive goods, transportation, warehousing, storage, customs clearance, other documentary procedures,