Vietnam’s e-commerce companies face logistics and price challenges

“The challenge for commerce in Southeast Asia in general, and Vietnam in particular, is logistics,” said Vu Duc Thinh, country manager for the logistics arm of Lazada, a Singapore-based e-commerce company which also operates in Vietnam.

Vietnam’s logistics costs accounted for 20.9 percent of GDP in 2016, according to the World Bank, and were higher than regional peers China, Thailand and Japan.

Inflated logistics costs are putting a strain on local businesses and need to be cut in order to make firms more competitive, said Prime Minister Nguyen Xuan Phuc during a conference held by the Ministry of Industry and Trade in Hanoi earlier this month.

The reason for this is the cost of transporting goods via land, Phuc said. In Vietnam, transportation via land accounts for 59 percent of all logistics costs, which is 9.7 times more than via water and 2.5 times more than by train, said Deputy Minister Nguyen Van Cong during the conference.

Insufficient infrastructure development is to blame for the disparity, with rail links lacking connections to storage depots, and waterway transport taking from 3-5 times longer than by land, according to experts.

Another factor hindering the advancement of Vietnamese e-commerce companies is consumer price-sensitivity, which is proving to be a challenge when it comes to taking into account shipping fees when companies set their prices.

“If Vietnamese e-commerce companies want to win customers here, they have to come up with the best prices,” Huynh Mai, 25, a Vietnamese online shopper.

Online sales in Vietnam have expanded rapidly in recent years, currently accounting for 3.39 percent of the country’s retail market. The total retail market grew 10.9 percent last year to $173.27 billion, as reported by local media.

The World Bank forecasts that Vietnam’s $200 billion economy is likely to grow to a trillion dollars by 2035. More than half of its population, compared with only 11 percent today, is expected to join the ranks of the global middle class with consumption of $15 a day or more.

According to one estimate, about 30 percent of the population will be buying goods and services over the internet in 2020, with each shopper spending an average of $350 per year.