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Real situation and Logistics applicability in freight forwarding of Haiphong Port – Recommendations to improve performance
Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE INTRODUCTION Freight forwarding plays an important role in international trade International trade refers to the transferring of goods’ possession right Freight forwarding is responsible for putting this transferring into practice After the open-door policy, Vietnam’s export turnover has continuously increased through years In 2000, export turnover of Vietnam was USD 30 billions, in 2003; this number is 60 USD billions The highly development of export and import activities stimulates the development of freight forwarding At present, freight forwarding services of Vietnam is rather diversified Many kinds of services are provided which meet the demand of the society However, in fact, freight forwarding industry of Vietnam still has many insufficiencies, in which the serious problem is the quality of services The main reason is inappropriate method of business operation We need to have an advanced method of freight forwarding in order to reduce the cost as much as possible In this case, logistics is an effective way, which is needed to apply in freight forwarding enterprises in Vietnam I chose the topic “Real situation and Logistics applicability in freight forwarding of Haiphong Port – Recommendations to improve performance” for my field study report Through the time of field study in Haiphong port, I conducted research on logistics in these following sectors: The overview of logistics and freight forwarding The current situation of logistics service in Haiphong port The recommendations for the logistics service in Haiphong port I hope that my field study report about logistics in Haiphong port will bring out the meaning of this new service in Vietnam, and will help the port to improve their logistics services in the near future III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE LIST OF ABBREVIATIONS EDI: Electronic Data Interchange ADSL: Asymmetric Digital Suberibers Lines LCL: Less than container load FCL: Full container load PL: Provider of logistics VIFFAS: Vietnam Freight Forwarding Association III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE CHAPTER 1: OVERVIEW OF FORWARDING AND LOGISTICS 1.1 Freight forwarding 1.1.1 Definition Freight forwarding is the process of moving cargo from one place to a destination, according to the demand of customers An international freight forwarder is an agent for the exporter in moving cargo to an overseas destination Freight forwarders assist exporters in preparing price quotations by advising on freight costs, port charges, consular fees, costs of special documentation, insurance costs, and their handling fees They recommend the packing methods that will protect the merchandise during transit or can arrange to have the merchandise packed at the port or containerized If the exporter prefers, freight forwarders can reserve the necessary space on a vessel, aircraft, train, or truck The cost for their services is a legitimate export cost that should be included in the price charged to the customer 1.1.2 Typical services of freight forwarding Since Vietnam opened the door to develop economy, especially with the entry in WTO in 2007, local and foreign shippers have concerns over just how competitive the country will be, given huge challenges to its freight forwarding industry Therefore, freight forwarding service has been highly developing A freight forwarder can offer a variety of services Advising on the best routes and relative shipping or airline Booking the necessary space with shipping or airline Arranging with the exporter for the packing and marketing of the goods Consolidating shipment from different exporters Handling customs clearance abroad Arranging marine insurance for the shipment Preparing the export documentation Translating correspondence in foreign language Scrutinizing and advertising on ability to comply with letter of credit III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE Once the order is ready for shipment, freight forwarders review all documents to ensure that everything is in order This is of particular importance with letter of credit payment terms They may also prepare the bill of lading and any special required documentation After shipment, they can route the documents to the seller, the buyer, or to a paying bank Freight forwarders can also make arrangements with customs brokers overseas to ensure that the goods comply with customs export documentation regulations A customs broker is an individual or company that is licensed to transact customs business on behalf of others Customs business is limited to those activities involving transactions related to the entry and admissibility of merchandise; its classification and valuation; the payment of duties, taxes, or other charges assessed or collected; or the refund, rebate, or drawback thereof According to its size, number of branches overseas, a freight forwarder will offer all or some of these services 1.2 Logistics 1.2.1 Definition Logistics refers to the management of the physical flow of products from the point of original as raw materials to end users as finished product Logistics wed production activities to the activities needed of transportation, storage, and distribution According to definition of Logistics, the process is described in the below chart: Raw materials→Raw materials →Manufacturing→Finished goods→Market Supply point Storage 1.2.2 Logistics flow Logistics deals with geography, time and value Moving from source to destination, freight and transportation connects buyer to seller and make the final delivery In this process, there are number of stages involved Freight and transportation alone encompasses many modes including truck, sea, rail, and air, all with varying issues, costs and levels of service The flow chart below illustrates the process, which involves the input of these services providers in the movement of a III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE particular product from the point it leaves the plant to end consumer in a retail outlet Figure 1.1 Logistics flow (Source: Hausman, Warren H 2004 “Supply Chain Performance Measures.” In Corey Billington, Terry Harrison, Hau Lee, and John Neale, eds., The Practice of Supply Chain Management.) Businesses and organizations address their logistics requirements by assigning staff to perform logistics activities by outsourcing one or several functions to third – party providers In house logistics department usually manned by full- time logisticians who perform logistics- related functions Their positions include purchasing managers, transportation managers, custom brokers, shippers and receivers In the absence of outsourcing options, companies have dealt with moving and storing of goods in a disparate ways Although outsourcing of logistics services is a fairly emerging trend, there are a large number of firms that maintain their own in- house logistics or III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE distribution departments This is largely prevalent in the manufacturing, commodity sectors, wholesaling and retailing 1.2.3 Fundamental elements of logistics Logistics includes such fundamental elements: Transportation: This is the most important element of logistics In order to reduce the cost of logistics, it is necessary to reduce the cost of transportation from the manufacturing places to different markets Transporting process must be done smoothly to make the delivery of goods or supply required materials on time, minimize the inventory cost Marketing: Logistics includes making plans, implementing it and controlling the delivery of goods from the point of original as raw materials to end users as finished products Therefore, it is clear that all the services focus on customers and meet the demand of customers Effective marketing strategies help managers to have good customer services, deliver right products to right places and right customers Distribution: An effective distribution channel can reduce the cost of logistics It is necessary for managers to combine two factors: right place and right time to create an optimal distribution channel Management: It also plays an important role in logistics Lack of management factor, logistics services cannot meet the requirements of the customers as well as the objectives of the firms Therefore, logisticians must have expertise or thorough understanding about transport modals, transport cost, and warehouse Beside such important elements above, logistics also include following elements, which is not less important: Warehouses, factories Technical document Supporting and supervising equipment Human resources and staff training III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE 1.2.4 Benefits from improved logistics 1.2.4.1 Reduces the cost for consumer and producer Logistics is “the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related information from point of origin to point of consumption for the purpose of conforming to customers’ requirement” So, logistics reduces the cost of transferring goods between markets and of course it will reduce the prices paid by consumers On the consumers’ side, this effect can be seen most clearly by examining the price of goods at the port relatived to the price of goods inland Producers will not ship goods inland unless the prices they receive, net of shipping, is at least as high as prices at the port This means that inland consumers bear the full burden of shipping costs for goods that is not produced locally This burden can be substantial A similar logic applies to exports International markets will not pay more for goods produced in inland regions, and so the ex- factory or ex- farm prices are reduced by the full inland logistics costs of access to the port 1.2.4.2 Insurance against regional price fluctuations When agricultural output varies because of unpredictable weather, one region may experience drought and food shortages while another enjoys sufficient rainfall and ample harvests If the regions are separated by poor logistics and transport systems, consumers in the shortfall region face very high prices for food, while producers in the surplus region face a market glut Regional variations in agricultural prices are especially pronounced within country like Vietnam, in which interior regions are poorly connected or inaccessible Good internal logistics facilitates surplus commodity shipments from surplus to shortfall regions, smoothing prices variations between them and providing a kind of insurance against shortage and glut Better market access appears to dampen price volatility for a broad range of products Validity in goods prices between city pairs riser with the distance between the cities, and is especially large for city pairs across national borders III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE Essentially, arbitrage is necessary to narrow price differentials across locations, and this is much harder to achieve when logistics are poor 1.2.4.3 Reduced inventory costs Better transport and logistics system not only lower the costs of delivery, but also make the timing of delivery more reliable Producers cannot manufacture goods without the inputs they need, and retailers cannot sell goods they not have in stock, so if delivery times are uncertain, firms must hold large inventories of goods The first reason for long and uncertain delivery times is poor infrastructure – roads may be impassable, and railways nonexistent, or roads may cause damage to trucks that involve high costs and long delays Another reason is peak load congestion – a severe problem in areas where population and manufacturing intensity have grown faster than infrastructure capacity In Ho Chi Minh City, for example, the government bans trucks heavier than tons in the inner city between a.m and p.m to combat growing traffic congestion, and thus manufacturers must hold large inventories all day rather than delivery midday shipments, and trucks sit idle during the day This contrasts with modern just- in - time techniques, in which deliveries are continuous, and the transport capital stock is in constant use Leaner production techniques require a substantial flow of information Manufacturing firms can only run with small inventories of inputs if they are certain where and when the next shipment will arrive In turn, this requires sophisticated electronic data interchange 1.2.4.4 More developed markets Well-developed logistics increase consumers’ choice and producers’ sources of supply, and bring more markets within producers’ reach According to the statistics of International Exhibition Logistics Associates, 40% of trade growth in East Asia arises from offering new product lines and extending exports of existing product lines to new trading partners Products diversification benefits both agricultural- and industrial- based economies, since for both specialization in narrow range of products can be dangerous because of prices volatility According to the Global Competitiveness Report 2005-2006 III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE (World Economic Forum), most of the differences in trade levels between small and large economies can be attributed to differences in the range of goods that are traded, and that much of the growth in imports that results from lowering trade costs come through expansions in the set of products available The welfare benefits from expended product variety can dwarf those from standard calculations of the gains from trade Better logistics allow variety expansion in several ways First, they may directly lower the fixed cost of expansion There are significant scale advantages to providing transport hubs, warehousing, and logistics services that many firms can share Second, by lowering the marginal costs of serving markets, it is possible to increase sales and spread entry costs over more units The diversification argument also applies across markets, as reliance on single export destinations leaves firms subject to significant business cycle risks CHAPTER 2: HAIPHONG PORT AND LOGISTICS SERVICES III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE 2.1 Overview of Haiphong port 2.1.1 Establishment and development Haiphong ports was founded in 1876, with original name is Ben Sau Kho Over 121 years of existence and development, port of Haiphong has always played the most important role of the “Border gate” interface in the North of Vietnam Import and export cargoes to and from North of Laos and South of China, have been transferred via Haiphong Port to the markets of many countries and vice versa Haiphong port has the biggest cargoes throughput among the ports in the North of Vietnam The port is equipped with modern facilities and equipments and has safe, sufficient infrastructure which meets all international modes of transport and trade The estimated cargo throughput of Haiphong Port in the 2005- 2010 period is from 12.000.000 tons to 18.000.000 ton per year The Head Quater is at number 8A Tran Phu Street, Ngo Quyen district, Haiphong city 2.1.2 Scope of business activities In Haiphong port, handling operation areas are located based on the infrastructure advantages such as railway, high way, and inland waterway These areas are installed and equipped with modern and advanced handling equipments which are suitable to every kind of cargoes, meeting the demand for different models of transport Main services of Haiphong port: Cargo handling, forwarding and logistics Ship towage and assistance International container transshipment Forwarding and transporting agent Transporting containers from Haiphong to Laocai and vice versa by railway Bagging, packing, and transporting cargoes by sea, highway, and inland waterways Ship agent and marine brokerage III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE Haiphong port has been providing rail carriers services for decades However, they only transport containers form Haiphong to Lao Cai and vice versa by railway With the rapid growth in neighboring ports as domestics and cross-border trade, rail carrier service in Haiphong port has gained popularity among shippers, importers as an invaluable alternative for freight services The containers rail service has seen a remarkable growth in Haiphong port Total rail cargo handled in Haiphong port recorded a growth of 15.5% , equivalent to 463,889 tons in 2006 In Haiphong port, coastal and ocean freight services play an important role in International shipment of goods International shipments handled in Haiphong port are more than 75% of marine tonnage In July 2007, the port has signed an agreement to cooperate with KaoShung port in China So, in the next years, Haiphong port will provide containerized freight services, conventional freight services (for bulk carriers) to Kunming and KaoShung in China With the advantage of material conditions such as large warehouse, yard, berth and modern equipment, Haiphong port is extending their services In other words, Haiphong port is trying to apply logistics services in freight forwarding Haiphong port is one of the few enterprises in Vietnam is equipped Electronic Data Interchange (EDI) system The time delivery of goods is reliant on the smooth flow of documents Documents can and get held up at several intersections in the transport process EDI system enables the directly exchange data and expedite the clearance of goods In order to realize the full benefits from EDI, all the key players in the logistics channels must be integrated electronically into the system However full integration has not taken place yet in Vietnam Many logistics companies in Vietnam not have this system because the cost for applying EDI system is expensive, which obviously increases their logistics cost So, it is very difficult for Haiphong port to coordinate with other logistics companies At present, Haiphong port provides logistics services in 2nd Providers Logistics (PL) Meanwhile, in the world, professional logisticians are called 4th PL logistics providers who manage the “supply chain process” - the process of planning, III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE implementing and controlling the efficient cost, effective flow and storage of raw materials, in process inventory, finished goods, and related information form point of origin to point of consumption for the purpose of conforming to customer’s requirement It shows that logistics services in Haiphong port are at the first stage of development However, by applying logistics services in freight forwarding, Haiphong port has reduced the cost of transport and increased the trade Therefore, the total cargoes delivered by the port has continuously increased through years Figure 2.4 Container Volume (TEU) from 1995 to 2006 (Source: Haiphong port’s business department -2007) Haiphong port is trying to improve its logistics service in order to meet the international standards At present, Haiphong port is using the loan from Japanese ODA Fund ( through the Japanese bank for International Cooperation) to invest in building a new access channel which has depth of 7.3m, building more new berths at Chuave Terminal, one enterprise of Haiphong port and buying handling III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE equipments Therefore, in the near future, it is hopeful the logistics service of the port will develop and meet the international standards III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE CHAPTER 3: RECOMMENDATIONS TO IMPROVE PERFORMANCE OF FREIGHT FORWARDING SERVICES IN HAIPHONG PORT 3.1 Some comments on difficulties of Haiphong Port and some possible causes Logistics services of Haiphong port is at the first stage of development It is desultory, lack of integration Like many logistics providers in Vietnam, Haiphong port acts as 2PL logistics provider We cannot compare PL logistics providers with PL or PL logistics providers like APL logistics This show that the underdevelopment of Haiphong port in the term of scale of activities and logistics experiences Besides that, Haiphong port does not have cooperation with other firm in logistics sector Meanwhile, the logistics service requires a lot of capital for training and high tech equipment Haiphong port has not really attracted many customers in using logistics service of the port 3.1.1 Transportation infrastructure of Vietnam Infrastructure is one of the most important key to support logistics development At present, the transportation infrastructure of Vietnam is underdeveloped in comparison with other Asian countries Table 3.1:Availability of transport infrastructure Country Total roads % roads that Railways (1000 km2) are paved Number of airport (km/1000km2) with paved runways longer than 1523m/ Vietnam 283.1 25.1 Malaysia 196.1 75.3 Korea 888.9 74.7 Thailand 125.7 97.5 Indonesia 178.5 46.3 (Source: Policy research Corporation (2005)) 9.5 5.5 31.7 7.9 3.4 1000km2 45.5 63.7 375.7 75.9 32.8 The table above shows that, transportation infrastructure of Vietnam is poorly integrated The number of total roads of Vietnamese is not a small number, but the percentage of paved roads is rather small This is a really challenge to transporting III Nguyen Thi Minh Thanh – A1K42BBE A1K42BBE Highway no.5A built in 1998 which links Haiphong city to Hanoi has no longer suitable for container transportation or multimodal transport This highway is only used for containers less than 30 tons Meanwhile, international standard TEU (ISO 668) is 20 tons for 20-foot containers and 30.5 tons for 40-foot containers Haiphong port is equipped with modern technique, computer system However, the intermodal transport system of mostly other neighboring districts are poorly integrated, with no streamline procedures to support the seamless movement of containers between coastal and inland areas Many of them lack containers freight stations, yards, and trucks in their inland regions 3.1.2 Legal framework The law dealing with logistics service in Vietnam is plentiful However, logistics activities are stipulated in the Commercial Law 2005, from article 233 to article 240 But the articles lack stability, consistency Therefore, it creates many additional problems for logistics firms They are not clearly about their rights and obligations as well as their scope of activities 3.1.3 Capital Logistics service requires a lot a capital for training and equipments Now, Haiphong port has cranes: Gantry cranes (with lifting capacity is 40 tons), Rubber Tyred Gantry Crave 40 tons, floating cranes 10 – 80 tons Each crane costs 4.5 to 6.5 millions USD Meanwhile, Singapore port has 100 cranes, which cost 8.5 to 11 million per each EDI system has been used in Haiphong port However, many users in the port complain that the EDI system in Haiphong port is not consistent with international EDI system, resulting in double logging It does not only incur cost but also impose unnecessary delays for the efficient movement of cargo If equiping a new EDI system, the port has to spend a huge amount of money Meanwhile, Haiphong port is mobilizing capital on the Port rehabilitation project This project will be finished in 2010 Therefore, at present, Haiphong port lacks capital for developing logistics service III ... Haiphong port: Cargo handling, forwarding and logistics Ship towage and assistance International container transshipment Forwarding and transporting agent Transporting containers from Haiphong. .. Haiphong port 2.2 Freight forwarding and logistics services in Haiphong port 2.2.1 Advanced condition of Haiphong port for logistics applicability in freight forwarding 2.2.1.1 Geography Haiphong port. .. requirements of logistics services Because logistics service requires many staff, who understand about transportation and forwarding 2.2.2 Applying logistics in freight forwarding in Haiphong port Haiphong