The “OECD Competitive Assessment Reviews: Logistics Sector in Vietnam” report, recently released by the Organisation for Economic Co-operation and Development (OECD), outlines 36 recommendations identifying specific legal regulations that should be abolished or amended.

According to the OECD, these regulatory bottlenecks prevent the transport sector from reaching its full potential, driving up logistics costs and hindering business development. In 2017, Vietnam’s logistics costs as a percentage of GDP were estimated at 18%. While lower than the Philippines (27.2%), this figure is significantly higher than Thailand (8.5%) and other developed nations.

“Stakeholders also emphasized that transport costs account for approximately 30-40% of production costs, negatively impacting the competitiveness of Vietnamese goods and services,” the report stated.

Liberalization of Road and Waterway Transport

Among the numerous recommendations, the OECD focuses on calling for liberalization and further opening the market for foreign enterprises to participate in various transport modes, particularly road and inland waterways. Currently, foreign investors wishing to provide road or inland waterway transport services must enter into partnerships or joint ventures with Vietnamese entities, with foreign ownership capped at 51%.

The OECD argues that while these regulations aim to protect domestic firms, they restrict access for foreign companies and may lead to a limited number of providers, resulting in higher consumer prices and lower quality.

“Vietnam needs to focus on intensifying liberalization efforts in the transport sector, which remains partially restricted to foreign investors, limiting potential productivity gains across the economy,” the report noted. It recommended a gradual easing of foreign equity limits toward allowing up to 100% foreign ownership in the long term.

Eliminating Inefficient Road Transport Requirements

Several other regulations in road and waterway transport were identified as contributors to high shipping costs. For instance, in road transport, a regulation requires freight businesses operating routes of 300 km or more to own a minimum fleet: 10 vehicles for those headquartered in centrally-governed cities, 5 in other provinces, and 3 in poor districts.

While intended to control vehicle volume and mitigate environmental impacts, the OECD views this as a barrier to market entry for small and medium-sized operators, increasing operating costs and ultimately leading to higher fees for consumers. The OECD noted that in the United States, 55% of freight carriers own only one vehicle, and recommended abolishing this clause.

Unlocking Inland Waterway and Cabotage Potential

Regarding waterway transport, the OECD highlighted the potential of the inland waterway market. Vietnam possesses 41,900 km of navigable inland waterways, 224 river ports, and 8,000 wharves. Inland waterway transport accounts for 17.8% of total freight volume. Experts suggest this mode is more fuel-efficient and could be a key solution to rising transport demands.

Beyond the aforementioned foreign ownership caps, current regulations require vessels engaged in domestic transport to be registered in Vietnam and owned by entities with offices in Vietnam. The OECD stated this restricts foreign market access, reduces competition, and lowers service quality.

The North-South domestic sea shipping route remains underutilized due to a lack of providers, with VIMC being the primary player. To unlock this potential, the OECD suggests three policy options:

1. 1. Lifting the ban on foreign sea vessels providing transport services between Vietnamese ports.

   2. Allowing foreign vessels to carry their own domestic cargo, eventually progressing to carrying other domestic goods from the port of entry to the final destination if capacity permits.

   3. Permitting international vessels to operate on specific domestic shipping routes.

The report cited New Zealand as an example, which liberalized this sector in 1994. International vessels visiting New Zealand were allowed to deliver imports or pick up exports at different domestic ports, resulting in a 20-25% price reduction between 1994 and 2000.

Revising Port Fee Regulation

Another issue of significant concern to foreign investors is the floor and ceiling prices for port fees. Currently, port operators manage four types of fees regulated within a specific framework: container fees, pilotage fees, port dues, and towage fees.

The OECD argued that setting floor or ceiling prices instead of allowing them to adjust based on supply and demand can lead to inefficiencies. While intended to regulate prices in sectors lacking competitive alternatives, floor prices help operators raise enough capital to improve service quality.

In 2018, an increase in cargo handling fees was approved to keep pace with the region. However, industry insiders note that even after adjustments, Vietnam’s container handling fees remain around $30, significantly lower than Singapore ($111), making it difficult for investors to recover capital.

The OECD recommended that Vietnam consider eliminating floor prices and maintaining only ceiling prices for port charges. Ceiling prices should allow operators to recover costs, including a reasonable profit margin, and should be revised regularly to align with market dynamics and provide incentives for innovation and investment.

“In tandem, the government could conduct a comprehensive assessment of the national port strategy and existing port network. This review should consider the benefits of inter-port competition while recognizing the risks posed by excess capacity,” the report concluded.

(Source: VnExpress)