WorldBank Recommends Vietnam to Speed up Investment in Marine Logistics

Diep Nguyen

08:13 03/04/2019

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According to World Bank’s review, the inland waterways sector received a mere 2-3% of annual transport sector budget over the period of 2011-15 but decreased to only 1.2% as planned for the period of 2016-20.

WorldBank Recommends Vietnam to Speed up Investment in Marine Logistics
Vietnam is one of the most open economies in the world, with its trade-to-GDP ratio at above 200%. As tariffs on international trade have been sharply reducedand manufacturing costs have increased, Vietnam’s export competitiveness is increasingly dependent on factors such as quality, productivity, efficient supply chains, and especially lower transport and logistics costs. At the same time, Vietnam’s middle classis expanding, andtheir consumption is rising, especially in rapidly urbanizing areas, and will continue to demand ever increasing goods movement.
Since 2000, traffic volume in terms of freight ton-km has increased at an annual rate of almost 10%, much faster than the GDP, which grew at an average rate of 6.4% per annum. This rapid growth of traffic, whichis the result of Vietnam’s economic growth, also puts animmense pressure to further develop and maintain quality infrastructure, and to meet the increasing and sophisticating demand for reliable transport and logistics services.
How can Vietnam ensure efficient and reliable transport and logistics, in support of its current and future economic growth model? Let World Bank consider 3 factors: Adequate backbone infrastructure;efficient and reliabletransport and logisticsservices; andseamless multi-modal network for lower transport costs and sustainability. 
First, backbone infrastructure needs to be further improved for enhanced competitiveness.
The Government of Vietnamhas made remarkable progress in transport infrastructure development over the past decades. Vietnam’s road network now extends to nearly 400,000 km, with almost all commune centers connected by all-weather roads.Notwithstanding this impressive improvement in rural access, development in critical backbone, interurban connectivity has been relatively modest. 
During 2000-16, for instance, the length of critical national transport infrastructure, national highways and national inland waterways, have grown at modest annual rates of 2.9% and 0.3%, respectively.The density of the expressway network in Vietnam is at 3km per every 1,000km2, compared to 8km in India and 13km in China. The Government is rightly putting priority on developing the North-South Expressway to address this gap. 
Inland waterways network, which plays a critical role and carries a significant traffic volume, nearly 20% of total freight ton-km in 2016, has been severely underinvested. According to World Bank’s review, the inland waterways sector received a mere 2-3% of annual transport sector budget over the period of 2011-15 but decreasedto only 1.2% as planned for the period of 2016-20, inadequate to support necessary capacity expansion and maintenance.After decades of development, thenetwork lengththat can handle barges larger than 300-ton capacity remains less than 30%of thetotal 7,000 kilometers of national waterways, a very low proportion compared to most successful commercial waterways in the world. 
This points to a need for continued and significant investments in critical backbone infrastructures, which coincide with the key trade corridors.Such high-level of investment needs would have to be addressed through strategic allocation of scarce public resources as well as mobilization of private sector participation in financing and service delivery. 
Second, an enabling environment needs to be created in support of efficient and reliable transport and logistics services.
The supply of transport services has increased significantly over the pasttwo decadesas well. Vietnam is rapidly motorizing, and the number of registered trucks reached over 1.1 million.Liner Shipping Connectivity Index has grown from 12.9 in 2004 to 68.8 in 2018. Despite the growth in quantity, our surveys and analysis suggest that there might be quality issues. 
An average truck operator employs 3 people and has an annual turnover of less than half a million dollars, or 11 billion dongs; the current truck fleet is dominated by small, less than 5-ton vehicles. Such limitation to scale in the industry causes inefficiency, in terms of high shares of empty backhaul and high transport costs per ton-km. 
Intermediary logistics service sector, such as truck brokerage, is underdeveloped in Vietnam. Inland waterway operators typically rely on small-sized vessel of about 100-300 tons, constrained by waterway capacity bottlenecks due to narrow channels and low clearance bridgesas well as limited cargo handling capacity in river ports. 
This suggests that, while much of development in transport and logistics services will be led by the private sector, let it be a truck operator or warehousing operator, the government needs to create an enabling environment for their development. Such efforts could include providing access to financing for growth of well-performing operators, removing infrastructure bottlenecks to induce private sector investments in their fleets, and encouraging international service providers with new technologies to cooperate with local operators. 
This will allow such critical services to increase and improve in standards, with lower logistics costs and emissions. The two reports that we will present today will suggest policy options that could help create such a conducive environment for the private sector.
A seamless multimodal transport network should be created to lower transport costs and enhance sustainability.
Based on 2018 tonnage figures, inland waterways transport accounts for about 17 percent of the national freight transportation share, while trucking and coastal shipping account for about 77 percent and 5 percent respectively. 
Besides a growing road network, Vietnam is fortunate to have 26,500 km of navigable waterways and a 3,000km coastline, which should be leveraged further. International experience has shown that waterways and coastal shipping can lead to lower logistics and environmental costs compared to individual trucking. 
Economies of scale from increased consolidation reduces logistics costs. A 40-foot container’s cost can be about as low as 10 percent of road transport’s, if the consolidation brings about adequate economies of scale. Road transport emits 2-3 times the emissions of waterways.
For example, to shift freight load from roads (particularly to coastal shipping), the European Commission has focused on “Short Sea Shipping”. Shortsea promotion centers have been established in nearly all coastal EU member states. 
By 2050, Short Sea Shipping is expected to play a key role in reaching the EU transport goal of reducing 60 percent of greenhouse gas emissions generated by transport, and by 2030, shifting 30 percent of road freight over 300 km to other modes.
Together with improving the quality of the trucking sector itself, our two reports today make the case for improving multi-modality, and a balanced transport network of roads, inlandwaterwaytransport and coastal shipping. 
The government budget should aim towards an optimal allocation between the various modes in terms of capital and maintenance expenditures. Multi-modality will increase connectivity and network resilience as well as contribute to less greenhouse gas emissions at a national level. Indeed, World Bank would like to see Vietnam as the next Australia or Netherlands in Southeast Asia! Besides a robust road network, there should be strong waterways, rail, sea and air connections.

DIEP NGUYEN

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