Đề tài Facts of Vietnam Freight forwarding industry and the role of Vietnam Freight Forwarders Association (VIFFAS) to the industry in international economic integration process

TABLE OF CONTENTS INTRODUCTION CHAPTER 1: FACTS OF VIETNAM FREIGHT FORWARDING INDUSTRY Definition of “Freight Forwarder” The importance of Freight Forwarding industry To the national economy To enterprises Facts of the industry Advantages to the development of the industry Pressures on Vietnam freight forwarding industry Comments on the facts of Vietnam freight forwarding industry CHAPTER 2: VIETNAM FREIGHT FORWARDERS ASSOCIATION (VIFFAS) 2.1. Introduction of VIFFAS 2.1.1. History of VIFFAS Management Board of VIFFAS 2.1.3. Statues and Standard Trading Conditions of VIFFAS Functions & Main Activities of VIFFAS PAGES 1 3 3 3 3 4 4 4 7 12 13 13 13 13 13 14 2.3. Activities of VIFFAS during the past term 2.3.1. VIFFAS with the role of member’s representatives 2.3.2. External activities 2.3.3. Actions for members’ benefits 2.4. Roles of VIFFAS to Vietnam Freight forwarding industry in international economic integration process 2.4.1. Achievements of VIFFAS 2.4.2. Some weaknesses of the Association in the past terms CHAPTER 3: RECOMMENDATIONS Macro scale Micro scale CONCLUSION REFERENCES 16 16 16 16 18 18 21 23 23 25 26 27 INTRODUCTION Freight forwarding industry plays a significant role in expanding trade by procuring efficient and economic modes of transport. It creates necessary conditions to ensure that import and export products may timely reach their destinations and helps to deliver efficiently goods from sellers to end users. This national industry is still young in Vietnam, but it has gradually contributed to the improvement of the country’s balance of payment by assisting export promotion and giving support to the national Carrier & Insurers. Vietnam Freight Forwarding industry has played, to somewhat extent, an active role in facilitating trade by simplifying and rationalizing trade and documentary procedures, thereby reducing transport cost. Vietnam went through a lot of hindrances and difficulties to reach the splendid achievements over the past years. In international economic integration process, challenges remain considerable but there are always opportunities for the development of national economy. Freight forwarding industry also finds its opportunities to grow up, contributing to the national development strategy of restructuring the economy, intensifying the industrialization & modernization process and laying the foundation for rapid & sustainable development of national economy. During my internship at Vietnam Freight Forwarders Association (VIFFAS) in Ho Chi Minh City, I have learnt a lot about the facts of Vietnam freight forwarding industry and the Association’s importance to the industry, especially in today’s economic integration process. Therefore, I chose the topic “Facts of Vietnam Freight forwarding industry and the role of Vietnam Freight Forwarders Association (VIFFAS) to the industry in international economic integration process” for my Field Study Report. My Field Study Report is divided into three chapters. In the first chapter, I will describe the facts of Vietnam Freight Forwarding industry and then analyze the opportunities as well as challenges to Vietnam freight forwarders in the international economic integration process. In chapter 2, I want to introduce about Vietnam Freight Forwarders Association (VIFFAS) and then emphasize on the role of the Association (VIFFAS) to Vietnam freight forwarding industry in international economic integration process, summarize the achievements of the Association and analyze its weaknesses during the past time. Finally, in chapter 3, I would like to make some recommendations for improving the efficiency of the Association in the future. I hope my Field Study Report will help the Association see what strengths they need to promote and what weakness they need to overcome to gain more efficiencies and successes. CHAPTER 1: FACTS OF VIETNAM FREIGHT FORWARDING INDUSTRY Definition of “Freight Forwarder” According to the definition from Wikipedia, the free encyclopedia, a freight forwarder is an individual or company that dispatches shipments via asset based carriers and books or otherwise arranges space for those shipments. Common carrier types could include waterborne vessels, airplanes, trucks or railroads. Acting as a link of logistic series, freight forwarders typically arrange cargo movement to an international destination. Also referred to as international freight forwarders, they have the expertise that allows them to prepare and process the documentation and perform related activities pertaining to international shipments. Some of the typical information reviewed by a freight forwarder is the commercial invoice, shipper's export declaration, and other documents required by the carrier or country of export, import, or transshipment. As an analogy, freight forwarders have been called travel agents for freight. The importance of Freight Forwarding industry To the national economy Freight forwarding activities plays an essential role in producing, circulating and distributing import & export goods. Around the world, the average cost of freight forwarding service for imports and exports equals about 15 percent of the value of import or export goods, the highest rate accounts for 40 percent and the lowest around 10 percent. Experts predict that Vietnam exports and imports together could come to US$200 billion per year by 2017, and thus freight-forwarding services could earn Vietnam about 30 billion USD in 2016. Accordingly, the development of freight forwarding industry will naturally contribute to the improvement of national economy as well as Vietnam freight forwarders if they know the tips to do their business and catch their own opportunities in the international economic integration process today. To enterprises Freight forwarding in particular and Logistics in general are the keys for enterprises to deal the input and output problems. They help to change the input material and maximize the flow processes of material, goods and services and therefore reduce the cost and enhance enterprises’ competition. Without freight forwarding or logistic services, enterprises’ business activities would meet huge troubles and may come to a deadlock. Facts of the industry Advantages to the development of the industry Freight-forwarding industry is still young in Vietnam, but it has rapidly become a developing field and played a significant role in the national economy. Now Vietnam has become a member of WTO, favorable conditions would be created for Vietnam freight forwarders. According to Vietnam Freight Forwarders Association (VIFFAS), there are four reasons to do freight-forwarding/logistic services in Vietnam. Firstly, the Government policies have strongly encouraged enterprises to penetrate deeper and wider into international market. For example: Vietnamese Government Decree No 55/1998/ND-CP of July 22, 1998 dealing with cargoes that are retained by sea carriers. Decree No. 10/2001/ND-CP of March 19, 2001 regarding business conditions for maritime service provision the Government. Decree No. 125/2003/NDCP of October 29, 2003 on international multi-modal transportation the Government. Vietnam Commercial Law Provisions on Freight Forwarding Services Furthermore, Vietnam is speeding up the integration process in both scope and rate by amending structure, policies, bureaucracy and building the law of economic & financial system to make it more suitable to international rules. Secondly, Vietnam has a strategic location in South-East Asia with a more than 2000km of coastline, deep-water ports, international airports, trans-national railways and a rather developing road network, which are good backgrounds for developing freight-forwarding services. Moreover, borderlines with China, Laos and Cambodia can bring favorable conditions for providing transport services, especially the multi-modal transport, an important factor in logistics service chains. With such advantages, Vietnam import-export turnover will increase accordingly. The table below shows the data and estimate of the amount of merchandise carried via Vietnamese ports: Figure: Estimate of Amount of Merchandise Carried Via Vietnamese Ports Lines  Unit  2000  2010   Seaway  mil. tones  86.20  227.80   Vietnamese imports and exports  mil. tones  73.51  169.49   Transit cargo (of Laos, Thailand, Cambodia, South China)  mil. tones  3.19  9.31   Goods transferred between foreign ships  mil. tones  9.50  49.00   Airway  tone  127.629  431.644   Source: Vietnam Maritime Department, Ministry of Planning and Investment, and Vietnam Airlines The third, joining WTO, ASEAN Free Trade Area and normalizing relationship with the U.S have created the best conditions for the development of many industries and services, including freight-forwarding industry. There are more and more money from ODA projects, non-governmental organizations and foreign investors pouring into Vietnam to raise infrastructure. Many deep-water ports and airports have been upgraded to attract customers. Land route system as well as railway system have been repaired and renewed to serve in transportation. The fourth, freight forwarding and logistics activities have drawn the attentions of Governmental institutions as well as local and foreign freight forwarding enterprises. As a result, many container ports and airports have been taken into long-term investment projects and development programs. In addition, land routes and railway systems are being upgraded and expanded. Therefore, there are 25 leading international logistic services providers (LSP) established their branches in Vietnam to exploit this abundant source of income. Finally, the strong development of Information technology has significantly contributed to modernize freight forwarding industry. Since July 2005, Electric custom-clearance procedure has been applied in some ports and will be deployed widely in 2007. In some recent years, General department of Customs has invested more than 10 billions VND to develop Information technology and upgrade Local Area Network (LAN) and Wide Area Network (WAN). Moreover, some enterprises have tried to use “tracking & tracking” network and “booking through the net”. The five advantages above are the keys for Vietnam freight forwarding industry to open the door of development now and in the future. How do they use those keys properly to open the door? It depends on other factors, which include troubles and their own capability. Pressures on Vietnam freight forwarding industry In spite of many advantages to develop freight forwarding services, it still exist many problems, which set obstacles to the industry’s development. Mr. Nguyen Hung, deputy director of Sotransn gave his comment: “Freight Forwarding industry in Vietnam is still small, fragmentary, mugging and always ready to dumping to struggle for customers.” a/ Outside pressure The development of material-distribution modal is the main outside pressure on the industry. It can be divided into 4 kinds: + The change of consumer-demand modal, market and the attitude to the availability and diversity of goods + The pressure of reducing cost + The development of Information technology + The pressure of globalization tendency Those pressures set many hindrances to Vietnam freight forwarding enterprises. Once they cannot make some reform or changes to catch up with the development of the industry, they may be kicked out of the field. b/ Inside pressures Vietnamese businesses in the freight forwarding industry are facing various difficulties now. According to Mr. Nguyen Tham, Deputy President of Vietnam Freight Forwarders Association (VIFFAS), freight-forwarding enterprises are held back by their small size, lack of skilled employees, and minimal cooperation among businesses in the field. General Secretary of VIFFAS, Mr. Vu Xuan Phong also stressed that poor transport infrastructure, small financial scales, unskillful employees, low technological capacity, insufficiency of Government laws & regulations as well as poor understanding of international laws and marine transport procedures & policies and loose co-ordination are the inner problems that Vietnam Freight Forwarding industry needs to get over. The first problem is poor infrastructure. Many ports in Vietnam Port System are very old and out-of-date. They are shallow in draft and their yard & warehousing systems are insufficient for accommodating containers and cargo. Today, there are only a few ports with modern handling facilities and equipment to serve big ships. Accordingly, freight-forwarding activities are conducted mainly in big cities and their suburban areas such as Ho Chi Minh City, Hanoi, Hai Phong, Da Nang, and Qui Nhon. Airports and airlines are also undeveloped. There are about 100 airports throughout Vietnam, but only three serve international routes. Those three international airports are known as Tan Son Nhat, Noi Bai and Da Nang. Moreover, there are only two national airlines, Vietnam Airline (state-owned) and Pacific Airline (joint stock), which are basically passenger carriers. Vietnamese freight forwarders use these two lines for approximately 20% of their cargo volume, whereas the other 80% is contracted to the foreign airlines market. Land transportation system is uncompleted. The road system of Vietnam is about 106,000 km long. Land transport accounts for about 65% of domestic passenger and cargo transport. While pre-export and post-import legs for door-to-door shipments require land transport, roads in Vietnam are still limited in quantity and bad in quality, resulting in traffic congestion and posited negative impact to logistics activities. On the other hand, the railway system in Vietnam with about 2,600 km long is not absolutely exploited. Container transport by rail in Vietnam is still at primitive stage and operated only by the state-owned Vietnamese Railway Company. While land transport is very limited as mentioned above, inland waterway transport is very advantageous in serving transport in the Mekong Delta linking to Cambodia. The total length of the inland waterway (IW) system is about 40,998 km, mainly in the Red River Delta and the Mekong Delta. In the past few years, inland waterway transport accounts for about 30% of the domestic cargo transport volume, but in fact, inland waterway has not been optimized enough to get expected results. The second problem is financial scale. According to official statistics of VIFFAS (Vietnam Freight Forwarder Association), there are more than 800 freight forwarders in Vietnam at present, 18% of them owned by the state, 70% privately owned, 10% non-registered and about 2% made up of foreign logistics companies. Privately owned companies now account for 80% of total logistics companies, most of which are very small with the capital of VND300-500 million (US$18,750-31,250) for each. Several joint stock companies have been set up on the foundation of equities parts of state owned enterprises. These newly set up companies have the total capital of 5 billions VND or 312,500 USD, with which they cannot meet the requirements for joining the world’s logistics companies. With such very small financial scales, Vietnam freight forwarders just have the ability to provide simple logistic services such as customs declaration, trucking, and warehousing. About 80% of them have to outsource warehousing and trucking services. Today, only 10% of Vietnamese freight forwarding enterprises has ability to provide consolidated service at their own warehouses (or their contractors’ warehouses). They issue House B/L but only some of them buy Civil Liability Insurance for transport operators. In addition, many companies have 3-5 staffs only, including managers. With such modest capital and few staffs, the companies just can fulfill simple works for separate clients. In other words, Vietnam still lacks “full-package” or “door to door” logistic providers, who can provide logistics or freight forwarding services sufficiently and completely. Moreover, while logistics are going globally, most Vietnamese logistics companies do not have overseas representative offices. That creates the risk of losing international market share and being lagged behind. One more problem to freight forwarding enterprises is human resource, whose poor quality and professional skills do not satisfy the demand of logistic activities. Professional training in logistics/freight forwarding business is unavailable in Vietnam, and employees who are working in this field have to get their training with simple theories and unfulfilled reality. As a result, most of them do their work basing on experiences without total knowledge and skills. Lacking of modern technology is also a big trouble for Vietnam freight forwarders. Applying modern technology in freight forwarding activities is one of efficient measure to reduce inconvenient procedures and minimize cost for enterprises. However, many of them do not pay much attention to this problem. Some Vietnam freight forwarding enterprises have cooperated with foreign MTOs (Multimodal Transport Operators) at ports of discharge under a sub-contract to arrange transport to the final destination by a single B/L, but that is just “a grain of sand on the seaside” while inadequate of information technology, international networks as well as information and experience in logistics; local logistics companies still hold back enterprises from entering wider and deeper into international market. For this reason, they will let big foreign companies with global networks share most of this market. Insufficiency of Government laws & regulations and poor understanding of international laws as well as marine transport procedures & policies are also obstacles to Vietnam freight forwarding enterprises on the way of international economic integration process. For example, Decrees on Logistics have not been given into Commercial Law system yet. Maritime law, Investment law or competition law are in the same situation. Financial, custom clearance, custom procedures at airport and seaport are not unified and thus making troubles to logistic actions. Due to lack of regulations and an incomplete legal framework on activities of freight forwarders, the quality of services has not met the requirements of the industry's development yet. A lack of decrees stipulating activities of air and inland waterway freight forwarding services has put obstacles and created gaps for enterprises to take advantages, resulting in negative impacts in business activities. While the National Assembly discussed anti-monopoly and anti-dumping draft laws, only TSC Company has power to do business in warehouse services in the Tan Son Nhat international airport. Cases of unfair competition have occurred and the irresponsibility of some enterprises has opened up smuggling opportunities. Moreover, companies do not have necessary understanding of international laws and the laws of the nations that Vietnam’s freight forwarding services may concern. Misunderstanding of international laws and cases may put Vietnam freight forwarding enterprises into troubles. Those problems need to be overcome so that enterprises can follow up the development of logistic industry. Finally, the willingness to cooperate with each other is something that Vietnam freight forwarding enterprises lack and they even compete unhealthily with each other, making them less competitive in the eyes of international partners and clients. It can be easily seen that the port management system in Vietnam is much diversified. VINAMARINE, which is under the direct control and