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The impending ratification of the EU Vietnam FTA is expected to foster rapid development of the logistics sector because of the forecast increase in trade due to the significant tariff reductions for Vietnamese goods entering the EU. The Ministry of Planning and Investment has forecast an increase in Vietnamese exports to the EU of 20% in 2020 and 42% by 2025 and 44% by 2030.
The pending changes are not only in the area of tariffs as the FTA contains provisions to enhance transparency, stability and predictability for businesses. Vietnam has committed to improve administrative procedures and remove existing business conditions in the area of customs and inspection, which is expected to promote further development of the sector.
These anticipated changes will certainly increase competition in the sector with EU member states holding the top 4 places in the World Bank Logistics Performance index, those being Germany, Sweden, Belgium and Austria. It is expected that the increased competition will drive better cooperation and more partnerships between local companies and foreign logistics companies, which aligns with the Government wishes to see more development of Vietnamese companies in the global supply chain through working partnerships.
Some European logistics companies like FM logistics are also investing in warehousing and distribution centres, in anticipation of the increased trade volumes with the EU both in imports and exports, as Vietnam has committed to reduce tariffs on 65% of the value of EU imports.
However, it is not just the EU Vietnam FTA and the CPTPP and other FTA’s that are driving the development of the sector as other factors such as strong GDP growth, the population dynamics and the increase in the middle class and disposable income plus the growing modern retail market.
Other areas that are benefiting from foreign investment are in infrastructure and deep seaports in particular with the aim of reducing the need for transshipment and providing direct services to Europe cutting the transit time by about 25% or 7 days.
Kenneth M Atkinson
Founder & Senior Board Adviser
Grant Thornton Vietnam