Vietnam's logistics industry has made remarkable progress, but logistics costs in the country are still higher than the world average, increasing business expenses and reducing competitiveness. Alexander Olsen, CEO of ITL Freight Management & VP Group Commercial of ITL Corporation, talks with The Investor about the industry landscape and how ITL reduces costs and makes a difference.
You have been in Vietnam for almost nine years. How do you see Vietnam changing, especially in the logistics field?
Vietnam has changed dramatically since I came here, especially in infrastructure. In the past 8-9 years, Ho Chi Minh City has sprouted many high-rise buildings, with more cars and fewer motorbikes circulating on the streets, creating more congested roads and cites.
Vietnam has opened trade with many countries, many foreign investors have entered Vietnam and many new brands have appeared. When I moved to Vietnam, the manufacturing industry was mainly footwear, textiles and furniture but now we see more and more high-tech, luxury items and higher quality products being manufactured in the country.
The logistics field has also developed strongly, logistics problems have been greatly improved and new industrial & logistics parks have been created. In the past 24 years, ITL Corporation has followed the same trend and have now developed becoming one of the largest private enterprises in the logistics field of Vietnam.
Many observers argue that logistics costs in Vietnam are too high and that could undermine Vietnamese businesses' competitiveness. Do you agree?
There are many reasons why logistics costs in Vietnam are still high. One of the key problems is infrastructure which causes low utilization of assets for the logistics providers.
Imagine moving a container from factory to port, in many developed countries one truck can move three or four containers/trip per day. In Vietnam, the capacity of a truck is less due to traffic congestions.
Do you have any suggestions for Vietnam to improve?
I think Vietnam has done a lot, but the road network really has problems. Without highways, trucks still travel on small roads, creating many problems such as traffic accidents, time-consuming travel due to traffic jams, and high costs.
I think the best thing to do now is to build more highways. Vietnam needs highways from industrial parks to ports, from North to South... Vietnam is actively building highways connecting big cities with provinces, North and South highways are being built, that is a first useful step.
In addition, Vietnam actually has very good river infrastructure, we should use more of it.
What does ITL Corporation do to make a difference and increase competitiveness when more and more international logistics companies come and given the above-mentioned context?
What ITL does is to invest heavily in infrastructure (warehouses, trucks and ports) to reduce costs. Our advantage compared to international logistics companies is that we are a Vietnamese company and can buy land and build our own warehouses. Therefore, if you look at international logistics companies, they often have to rent warehouses so their prices are a bit higher than ours. This is truly a difference and creates a competitive advantage for us compared to international competitors.
Domestically, we also face competitive pressure, but the group's strategy is very clear to become a part of the value chain. ITL focuses on its existing seaport network including four ports in the South and one port in the North. We have our own ports and barges and instead of transporting all volumes by road from the factory to the port through the city, we take advantage of the river route.
As I said, Vietnam has very good river infrastructure and we should take advantage of it. Accordingly, the truck only has to travel a very short distance to the nearest port, then the container gets on the river barge, at a much cheaper cost and lower CO2 emission.
ITL is always looking for partners with suitable assets for M&A. ITL targets companies that own ports, warehouses, or other assets that we feel we can utilize. We are also willing to invest more money into the assets to make them better. An example, we did a big M&A deal with Bac Ky in the North last year and now ITL is spending almost the same amount of money to do the renovation and infrastructure upgrades. ITL estimates to invest an additional $100 million in Vietnam this year.
What are ITL's goals in the next five years?
Currently, ITL is the largest private logistics company in Vietnam. Our focus is to maintain our position and continue to expand our network and invest more in Vietnam. ITL does not want to be distracted by having many offices around the world but only wants to focus on Vietnam. ITL's goal is to become a company with $1 billion in revenue in the coming years.
An irreversible trend today is "green". What is ITL's opinion on this matter and what has it done?
We are aware of this trend and believe that we need to adapt and join hands in implementing it. ITL has many warehouses, owns ports and has installed solar power to generate energy and convert clean energy.
Currently, we are investing in electric trucks, being one of the first logistics companies in Vietnam to do so.
Are investment costs high?
Of course it's a big expense. For the clean energy transition, we spent a large amount of money initially, but I believe it will benefit in the long term. ITL can see a big decrease in buying electricity from outside due to solar roof panels that helps to save costs in the future.
With electric trucks, ITL will have to spend a lot of money on that investment because electric trucks in Vietnam are still quite expensive and most customers today are not willing to pay more, regardless of gasoline or electric vehicles. But as a large enterprise in the industry, we feel we need to take the first step and show the market that we are willing to work together to change for the future.