Foreign investors eye Vietnam’s logistics on infrastructure development

Gemadept sold 84.66% stake in Nam Hai Dinh Vu Port to a group of investors at the end of May. The deal attracted attention from the market because it made Viconship the largest port company in Hai Phong, accounting for 30% of share. At the same time, PSA Cargo Solutions Vietnam Investments (Singapore) spent nearly VND1,300 billion to buy 24.46 million STG shares, equivalent to 24.9% of the charter capital of Southern Logistics JSC.

Speedy growth

New M&A deals continue to show the heat of the logistics industry in Vietnam. In the 2018-2019 period, the market also witnessed many notable M&A deals. For example, in 2018, two financial groups Mirae Financial Group and Naver, based in Seoul, bought two goods supply centers in Vietnam for $47 million.

“Currently, several large logistics enterprises have been entering Vietnam in many ways such as buying shares of companies, even acquiring weak units in the country”, said Mr. Le Manh Cuong, Chairman of Lokaport Port Operations and Logistics JSC.

This wave comes at a time when Vietnam is trying to promote capital mobilization from the private sector for infrastructure investment through the transfer of the right to exploit a number of projects, thereby attracting many investors. with deals estimated at billions of dollars.

“Vietnam is one of the countries with the fastest growing logistics service industry in the world. However, this industry \is still fragmented and fragmented. This presents an attractive opportunity for private equity funds and other investors who are able to help local businesses grow in revenue and profitability by applying the international best practice”, said Mr. Michael Kokalari, CFA, Director of Macroeconomic Analysis and Market Research Department of VinaCapital.

According to VinaCapital, this industry has risen 14-16% in recent years and the total cost of logistics services in Vietnam is more than 20%/GDP, among the highest in the world due to logistics inefficiencies. logistics process (three-quarters of Vietnam's freight travels via six of its 75 seaports). High-tech products and a growing middle class in Vietnam drive the logistics industry's rapid growth.

According to Agility's annual ranking in 2023, the growth rate of Vietnam's logistics market in the period 2022-2023 is forecast to reach 5.5%/year. Many foreign investors also affirmed that Vietnam is facing many opportunities to develop logistics services.

3 potential investment strategies

In Vietnam's logistics market, Orbis Research counts around 30,000 domestic companies and 25 multinational forwarding corporations. 69 major and medium-sized logistics centers serve almost 5,000 worldwide companies. DHL, FedEx, Maersk Logistics, APL Logistics, CJ Logistics, KMTC Logistics, and over 30 more international logistics service companies operate in Vietnam.

Vietnam's logistics companies, especially those in fragmented markets, need to invest the most. Transport companies make up two-thirds of the market, while over 80% of trucking companies in Vietnam have fewer than five vehicles, and an estimated 70% of trucks return to station empty. Trucking businesses also pay intermediaries 30% of service fees. Foreign-invested enterprises dominate cold storage transportation, one of Vietnam's most promising logistics sectors, with 70% owning fewer than 10 vehicles.

To analyze investment opportunities in this field, VinaCapital has divided into: segments requiring high investment capital; the segment requiring low investment capital; centralized and distributed arrays. “In our view, the very attractive opportunity for local companies stems from the fact that foreign customers are willing to pay high prices for reliable logistics service and the demand of middle-class customers for with products and services requiring high-quality logistics is increasing rapidly.

In addition, the long-term investment returns generated from these companies will increase as companies in the logistics sector are sufficiently sized and professionally managed will benefit from reduced costs over time due to infrastructure in Vietnam and other issues will be improved," said VinaCapital's leader.