Vietnam Transport Knowledge Series AUSTRALIA–WORLD BANK GROUP STRATEGIC PARTNERSHIP IN VIETNAM

Strengthening Vietnam’s Trucking Sector

Towards Lower Logistics Costs and Greenhouse Gas Emissions

Yin Yin Lam, Kaushik Sriram, and Navdha Khera

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StrengtheningVietnam’sTruckingSector

TowardsLowerLogisticsCosts

andGreenhouseGasEmissions

StrengtheningVietnam’sTruckingSector

TowardsLowerLogisticsCosts

andGreenhouseGasEmissions

YinYinLam,KaushikSriram,andNavdhaKhera

Vietnam Transport Knowledge Series

AUSTRALIA–WORLD BANK GROUP STRATEGIC PARTNERSHIP IN VIETNAM

©2019TheWorldBank

1818HStreetNW,WashingtonDC20433

Telephone:202-473-1000;Internet:www.worldbank.org

This work is a product of the staff of The World Bank with external contributions. The findings,interpretations and conclusions expressed in this work do not necessarily reflect the views of TheWorldBankand itsBoardofExecutiveDirectors.TheWorldBankdonotguaranteetheaccuracyof

thedataincluedinthiswork.

Theboundaries,colors,denominationsandotherinformationshownonanymapinthisworkdonot

implyanyjudgementonthepartofTheWorldBankconcerningthelegalstatusofanyterritoryortheendorsementoracceptanceofsuchboundaries.

Nothingherein shall constituteorbeconsidered tobea limitationuponorwaiverof theprivilegesandimmunitiesofTheWorldBank,allofwhicharespecificallyreserved.

AllqueriesonrightsandlicensesshoudbeaddressedtothePublishingandKnowledgeDivision,TheWorld Bank, 1818 H Street NW, Washington DC 20433, USA; fax: 202-522-2625; email:pubrights@worldbank.org.

Coverphoto:A.T.KearneyPhotoLibrary

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Contents

FiguresandTables............................................................................................................. ix

Foreword .........................................................................................................................xiii

Acknowledgments.............................................................................................................xv

AbouttheAuthors...........................................................................................................xvii

Abbreviations...................................................................................................................xix

ExecutiveSummary .......................................................................................................... 21

Chapter1:Introduction .................................................................................................... 27

EconomicGrowthandtheRiseoftheTruckingSector ........................................................................ 27

TheNeedforThisStudy........................................................................................................................ 28

Methodology ........................................................................................................................................ 30

Chapter2:OperationalAssessment.................................................................................. 35

IntercityTrucking .................................................................................................................................. 35

Supplyfactors ................................................................................................................................... 35

OriginalequipmentmanufacturersinVietnam ................................................................................ 49

Demandfactors................................................................................................................................. 49

Infrastructurerelatedtoroadfreight ............................................................................................... 57

Existingregulations........................................................................................................................... 62

UrbanTrucking ..................................................................................................................................... 66

Casestudy1:Hanoi........................................................................................................................... 66

Casestudy2:HoChiMinhCity ......................................................................................................... 67

Chapter3:LogisticsCostsAssessment .............................................................................. 75

TruckOperatorCostAssessment.......................................................................................................... 77

Methodology..................................................................................................................................... 77

Costheads......................................................................................................................................... 78

Revenuecomputation ....................................................................................................................... 82

Analysisandmodeloutput ............................................................................................................... 82

Keyinferences ................................................................................................................................... 87

WayForward ........................................................................................................................................ 87

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Chapter4:GreenhouseGasAssessment........................................................................... 91

GovernmentofVietnam’sEffortstoReduceGHGEmissions............................................................... 93

GHGEmissionsModel........................................................................................................................... 94

Methodology..................................................................................................................................... 94

Inputs ................................................................................................................................................ 95

Analysisandkeyfindings .................................................................................................................. 99

WayForward ...................................................................................................................................... 101

Chapter5:PolicyandInvestmentOptions ...................................................................... 105

Infrastructure-RelatedPolicyandInvestmentOptions ...................................................................... 106

1.Reducetruckcongestionaroundports ....................................................................................... 106

2.Promote“containeronbarges”toboostIWTusage .................................................................. 110

3.Promotecoastalshippingonthenorth–southVietnamroute.................................................... 113

4.IntegratelogisticsandurbanconsolidationcentersintheICDmasterplan............................... 115

5.Prioritizeandupgraderoadinfrastructure ................................................................................. 120

Supply-SidePolicyandInvestmentOptions ....................................................................................... 121

6.Introduceafleetmodernizationprogram................................................................................... 121

7.Varytheroaduserchargewithtruckage................................................................................... 124

8.Strengthendrivertrainingandlicensingprocesses..................................................................... 127

9.Improvethefleetthroughagrowth-basedlendingprogram ..................................................... 130

10.Establishcooperativesfortruckowner-operators .................................................................... 132

Demand-SidePolicyandInvestmentOptions .................................................................................... 134

11.Promotebrokeragefirmsforbetterdemand-supplymatching ................................................ 134

12.Increaseinvestmentsindigitalfreightaggregatormodels ...................................................... 136

Process-RelatedPolicyandInvestmentOptions ................................................................................ 138

13.Launchanissueresolutionmobileapp ..................................................................................... 138

14.Rolloute-tollingandCCTVcamerasattollbooths.................................................................... 141

PolicyImpactAssessment................................................................................................................... 142

Reductionintransportationcosts ................................................................................................... 144

ReductioninGHGemissions ........................................................................................................... 145

Reductioninpollutants ................................................................................................................... 145

Reductioninroaddamage.............................................................................................................. 146

Reductioninroadaccidents ............................................................................................................ 147

ReductionintheGoV’sforexexpenditure....................................................................................... 147

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FiguresandTables

FIGURES

Figure1.1.AnnualGDPinVietnamSince1990,atCurrentPricesbyEconomicSector ....................... 27

Figure1.2.GlobalBenchmarksforLogisticsCostsandGHGEmissions................................................ 28

Figure1.3.VolumeofFreightCarriedbyModeofTransport,2006–2016........................................... 29Figure1.4.ComprehensiveFrameworktoAssesstheTruckingSectorinVietnam.............................. 32

Figure2.1.ValueChainintheRoadFreightTransportandRolesofEachPlayer ................................. 36

Figure2.2.FragmentationofRegion-LevelTruckingActivity ............................................................... 37

Figure2.3.Region-LevelTruckingActivity,byCompanySize ............................................................... 37

Figure2.4.DistributionofTruckingCompanies,byRevenue ............................................................... 38

Figure2.5.RespondentsinNationwideTruckingSurvey...................................................................... 39

Figure2.6.IndustryViews:KeyPerceivedChallenges.......................................................................... 40

Figure2.7.IndustryViews:PerceivedImpactofExistingRegulations.................................................. 41

Figure2.8.IndustryViews:OpiniononFuturePolicies ........................................................................ 41

Figure2.9.GlobalBenchmarkofFemaleRepresentationinTransportationSector ............................ 43

Figure2.10.NumberofTrucksinVietnam,2018 ................................................................................. 45

Figure2.11.AnnualTruckSalesinVietnamversusPeers,2014–2016................................................. 46

Figure2.12.DistributionofTruckFleetinVietnambyAge,2018 ........................................................ 47Figure2.13.AnnualTruckSalesinVietnam,byTonnage ..................................................................... 48

Figure2.14.GrossOutputinVietnamandKeyCities ........................................................................... 50

Figure2.15.AveragePopulationinVietnamandKeyCities ................................................................. 50

Figure2.16.FreightVolumeCarriedInandOutofProvincesbyRoadandIWT .................................. 51

Figure2.17.MethodologyforOrigin–DestinationMatrix .................................................................... 52

Figure2.18.Origin-DestinationModelOutput:FreightFlowsfor42ODPairs .................................... 53

Figure2.19.ODModelOutput:Commodity-LevelAnalysis ................................................................. 53

Figure2.20.ExportedValueofSelectedCommodities,AggregatedMonthly...................................... 55

Figure2.21.ExportedValueofAgriculturalProducts,AveragedMonthly ........................................... 56

Figure2.22.ExportedValueofManufacturedProducts,AveragedMonthly....................................... 56

Figure2.23.WEFGCIRoadQualityIndex,2016–2017.......................................................................... 58

Figure2.24.MaritimeCargoThroughputs,byPurposeofTransportation........................................... 59

Figure2.25.DomesticCargoThroughputs,byTypeofCargo............................................................... 60

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Figure2.26.FunctionsofInlandContainerDepots .............................................................................. 62

Figure2.27.GlobalBenchmarkofSpendonRoadInfrastructure ........................................................ 63

Figure2.28.TrafficDensityRepresentationinHanoiUsingCVTSData ................................................ 66

Figure2.29a.TrafficDensityRepresentationinHoChiMinhCityUsingCVTSData ............................ 68

Figure2.29b.TrafficDensityRepresentationinHCMCUsingCVTSData(Zoomed)............................. 69

Figure3.1.AnnualCostsperTruckforShortandLongHauls............................................................... 83

Figure3.2.VariationinTransportationCosts,byTruckSize................................................................. 85Figure3.3.VariationinNetMarginsbyFleetSizeofTruckOperators ................................................. 86

Figure3.4.VariationinROCEbyFleetSizeofTruckOperators ............................................................ 86

Figure4.1.CO2EmissionsinVietnam,2000–2014 ............................................................................... 91

Figure4.2.GHGEmissionsinVietnam’sTransportSector ................................................................... 93

Figure4.3.FrameworkforEstimatingGHGEmissions ......................................................................... 95

Figure4.4.InputstotheGreenhouseGasModel................................................................................. 96

Figure4.5.Flowchart:CalculatingFinalGHGEmissions ....................................................................... 98

Figure4.6.Flowchart:CalculatingMaximumSpeedofFreightMovement ......................................... 99

Figure5.1.SummaryofKeyPolicyOptionstoImproveTruckingSectorEfficiencyinVietnam ......... 105

Figure5.2.TruckFlowRecordedatDRVNManualCountingStationsnearPorts .............................. 106

Figure5.3.TrafficDensityRepresentationUsingCVTSData:DaNangPort....................................... 107

Figure5.4.TrafficDensityRepresentationUsingCVTSData:HoChiMinhPort ................................ 107

Figure5.5.TrafficDensityRepresentationUsingCVTSData:HaiPhongPort .................................... 108Figure5.6.ReducingRoadCongestionaroundPorts:Illustrative....................................................... 109

Figure5.7.UrbanConsolidationCentersatCityFringes:Illustrative ................................................. 118

Figure5.8.PurposesandTypesofUrbanConsolidationCenters ....................................................... 119

Figure5.9.OwnerIncentivesforScrappingOldVehicles ................................................................... 122

Figure5.10.VehicleScrappageProgramsinGermanyandChina ...................................................... 123

Figure5.11.RoadUserChargeVariationbyAge:Illustrative ............................................................. 125

Figure5.12.DriverTrainingandLicensing:ProposedPolicy .............................................................. 128

Figure5.13.DriverTrainingandLicensing:ProposedTrainingCurriculum ........................................ 128

Figure5.14.SampleAppInterfaceforTruckingIssueResolution ...................................................... 139

Figure5.15.IssueResolutionMobileAppDashboard:Illustrative ..................................................... 140

Figure5.16.Post-InterventionReductioninTransportationCosts .................................................... 144

Figure5.17.ReductioninGHGEmissionsEfficiency........................................................................... 145

Figure5.18.Post-InterventionReductioninPollutants...................................................................... 146Figure5.19.Post-InterventionReductioninRoadDamage................................................................ 146

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Figure5.20.Post-InterventionReductioninRoadAccidents,inCostperYear .................................. 147

Figure5.21.Post-InterventionReductioninForexExpenditure......................................................... 148

TABLES

Table2.1.AutomobileProductionCapacityofOEMsinASEAN,2014 ................................................. 47

Table2.2.ComparativeAnalysisofRoadDensity:Expresswayvs.Highway ........................................ 57

Table3.1.DifferencebetweenShort-HaulandLong-HaulOperators .................................................. 77

Table3.2.KeyCostHeadsforTruckOperators .................................................................................... 79

Table3.3.FuelConsumptionbyTruckWeight ..................................................................................... 80

Table4.1GHGEmissionsinEnergy(FuelCombustionandProduction)Sector ................................... 92

Table4.2.Supply-SideInputstoGHGModel:FleetCharacteristics ..................................................... 97

Table4.3.FuelEfficiencyVariationbyTruckSize ................................................................................. 97

Table4.4.FuelEfficiencyVariationbyTruckAge ................................................................................. 97

Table4.5.GHGEmissionsModel:OutputbyPollutantType................................................................ 99

Table4.6.GHGEmissionsModel:SummaryofCalculations .............................................................. 100

Table5.1.KeyCharacteristicsofProposedLogisticsCentersintheNorth......................................... 116

Table5.2.KeyCharacteristicsofProposedLogisticsCentersintheSouth......................................... 116

Table5.3.ICDsProposedforUpgradingtoUrbanConsolidationCenters.......................................... 117

Table5.4.CommodityFlowAnalysisonKeyOrigin–DestinationRoutes ........................................... 121

Table5.5.RoadUserChargeVariationbyAge:ProposedPolicy........................................................ 124

Table5.6.RoadTaxSurchargeStructureinSingapore ....................................................................... 126

Table5.7.VehicleTaxVariationbyPollutantClassinGermany......................................................... 126

Table5.8.PrioritySectorLendingRegimesinAsia ............................................................................. 131

Table5.9.ImpactandCostAssessmentofPolicies ............................................................................ 148

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Foreword

Overthepastdecades,VietnamhasexperiencedoneofthehighestsustainedGDPgrowthratesintheworld,between5and8percentannually.Throughthisstrongeconomicgrowth,Vietnamhas liftedmillionsfrompoverty:whilein1993halfthepopulationstilllivedonlessthanUS$1.90/day,by2016

thiswasdowntolessthanthreepercent.However,theroadleadingVietnamoutofpovertystretchesahead,withapproximately9millionVietnamesestilllivinginextremepoverty.

Vietnam’sstrongtradegrowthunderpinsthecountry’seconomicdevelopment.Indeed,Vietnamhasearned the reputation as one of the key manufacturing locations in Southeast Asia. However,increased competition for manufacturing locations has sparked debates over global supply chains,

free-tradeagreements,andon-shoring.Justasmanyothercountrieshave,Vietnamhasdependedonlower manufacturing costs to provide a competitive advantage; now, in order to compete in theglobalmarket,Vietnammustseekgrowthopportunitiesinsupply-chainefficiencies.Alltradedepends

on the supply chains linking production and consumption locations within Vietnam and beyond.Bolstering those supply chains—by improving logistics efficiency, a backbone of trade—can helpVietnam secure a competitive position in the global marketplace and ensure continued economic

development.

Truckingcarriesimportantimplicationsforlogisticscostsandgreenhousegas(GHG)emissions.Asthe

dominantmode of goods transport in Vietnam, trucking accounts for 77 percent of domestic tonstransported.Vietnam'slogisticscoststotaledanestimated21percentofGDP,arelativelyhighfigure.In addition, the transport sector contributes 10 percent of Vietnam's national GHG emissions.

Consequently,beforeVietnamcanlowerlogisticscostsandreduceGHGemissions,thecountrymustbetterunderstandandstrengthenitstruckingsector.

Trucking isanunderstudiedsector,both inVietnamandworldwide.This first-ever trucking-focusedstudy in Vietnam hopes to shed light on this often-opaque sector. Based on extensive primary

interviewswith trucking-relatedpublic andprivate stakeholders, companies, anddrivers, this studyhasbuiltmodelstoprovideinsightsintokeyintercityfreightflows,aswellasdriversofcostsandGHGemissions. The study conducted a comprehensive operational assessment of Vietnam’s trucking

sector,alongthedimensionsofinfrastructure,processes,andsupplyanddemand.

Withpolicy-orientedanalysis,thereportrecommendspoliciesthatcouldbeembracedbythepublic

sectortopromotepositiveactionsbytheprivatesector,themainsourceofinvestmentsintrucking.The report proposes policies that could encourage increased and better-quality

investments by the private sector—at the levels of trucking and logistics

companies, fleets, and drivers. The report also makes the case for publicinfrastructure and processes that could improve trucking as a

transport mode. Shifting Vietnam to a multimodal

transport system that takes advantage of inland

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waterways and coastal shipping options represents a holistic solution; in recognition of this, thereport promotes intermodal as well as consolidated infrastructure and processes. Furthermore, to

leveragetechnology,thereportencouragesthesectortousedigitizationandappstohelptransformthelandscapeoftruckingcargodemand-supplymatching.

WehopethisreportpreparedbytheWorldBanklaysthefoundationforanationaltruckingstrategyforVietnam,whichwould, in turn,contribute toenhanced tradecompetitivenessanddevelopmentforVietnam'scitizens.

FranzR.Drees-Gross OusmaneDioneDirector CountryDirector

TransportGlobalPractice Vietnam

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Acknowledgments

ThisreportwaspreparedbytheTransportGlobalPracticeandtheEastAsiaandPacificRegionoftheWorldBank.

Theteam, ledbyYinYinLam, includedJenJungEunOh,HoangDungAnh,LuisBlancas,NguyenChiKien, Kaushik Sriram, and Navdha Khera. The team extends its appreciation for the guidance ofGuangzhe Chen (Senior Director, Transport Practice), Franz R. Drees-Gross, (Director, Transport

Practice), Ousmane Dione (Vietnam Country Director), Almud Weitz (Transport Practice Manager,Southeast Asia and the Pacific), Achim Fock (VietnamOperationsManager) andMadhu Raghunath(VietnamInfrastructureProgramLeader).Inaddition,theteamacknowledgestheexcellentresearch

andsurveysconductedbyA.T.KearneyandCELConsulting.TheteamconductedthestudyincollaborationwiththeGovernmentofVietnam,andappreciatesthe

strongsupportandadvicegenerouslyprovidedbyMr. LeDinhTho,ViceMinisterofTransport.Mr.NgyenCongBang,DeputyDirector,DepartmentofTransport,MinistryofTransport(MoT)andMr.LeDo Muoi, Deputy Director, Transport and Development Strategy Institute (TDSI), along with their

respectiveteammembers,alsoprovidedimportantresearchcollaboration.OthergovernmententitiesandorganizationsthatprovidedvitalinputsincludedthePlanningandInvestmentDepartment,MoT;International Cooperation Department, MoT; Directorate for Roads of Vietnam (DRVN); Vietnam

Inland Waterways Administration (VIWA); Vietnam Maritime Administration (VINAMARINE); CivilAviation Authority of Vietnam (CAAV); Vietnam Railway Authority (VRA); Vietnam Register (VR);VietnamLogisticsBusinessAssociation(VLA);VietnamAutomobileTransportationAssociation(VATA);

VietnamShippers’Council(VSC);andAirCargoServicesofVietnam(ACSV).Thereportrecognizestheinsights provided by the numerous government entities, private sector companies, associations,

transportstakeholders,andtruckdrivers.The work benefitted from the suggestions provided by the following peer reviewers: Arnab

Bandyopadhyay, Cecilia M. Briceno-Garmendia, Olivier Hartmann, Matias Herrera Dappe, RobinBednall,andDuc-CongVu.

TheteamalsoappreciatestheexcellentproductionsupportprovidedbyNguyenThanhHang,NguyenMaiTrang, IraChairaniTriasdewi (Administration),DangThiQuynhNga (Operations),NguyenHong

Ngan(Communications),andKaraS.Watkins(Copyediting).

Theteamthankfullyacknowledgesthegeneroussupportfrom

theAustralia—WorldBankGroupPartnershipProgram—

Phase2(ABP2).

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AbouttheAuthors

Yin Yin Lam, a Senior Trade Logistics Specialist in theWorld Bank,manages andworks on logisticsprojectsacrossAsia.HerprofessionalexperienceincludesworkontransportinfrastructureandpolicyadvisoryinVietnam,China,India,Indonesia,Philippines,Singapore,andsomecountriesinEuropeand

Africa.WhileworkingforglobalportoperatorPSA,YinYinworkedonpublic-privatepartnershipsandinvestments in emerging economies. She served on the logistics sector development team at theEconomicDevelopmentBoardof Singapore, a leading trade logistics hub.As aRegionalDirector at

InternationalEnterpriseSingapore(formerlytheTradeDevelopmentBoard),shemanagedteamsandfacilitated Singapore-based companies to increase trade and investments in Southeast Asia andEurope.SheservedasaBoardDirector’sAdvisorintheAsianDevelopmentBank.Sheholdsamaster’s

degree in economics for development from the University of Oxford, a post-graduate diploma infinancial sectormanagement from theUniversity of London, and a bachelor’s degree in economicsfromtheNationalUniversityofSingapore.

Kaushik Sriram, a Senior Principal at A.T.Kearney in the Singapore office, leads projects in thetransportation and automotive sector across Asia. His professional experience includes work intransportation, automotive, and policy advisory across Southeast Asia and India, includingmultiple

projects related to commercial vehicles and trucking. Having worked across automotive OEMs,suppliers,andindustryassociations,Kaushikhasdeepexpertiseinthecommercialvehiclesector.Hehasalsoworkedextensivelyresearchingtheimpactofdigitalizationonseveralsectors,bothfromthe

standpointofpolicymakingandstrategy.Heholdsamaster’sdegreeinbusinessadministrationfromthe Indian Institute of Management Bangalore, and a bachelor’s degree in technology from theNationalInstituteofTechnology,Trichy.

NavdhaKhera,aconsultantatA.T.Kearney,lendstothisstudyherexperienceintransportationandlogisticsprojects in thepublicandprivatesector.Shehasworkedon transport infrastructurepolicy

projectsinAsia,includingtruckingsectorpolicyforIndia.Navdhaholdsamaster’sdegreeinbusinessadministration from the Indian Institute of Management Bangalore, and a bachelor’s degree intechnologyfromtheIndianInstituteofTechnology,Delhi.

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Abbreviations

3PL Third-PartyLogistics

ASEAN AssociationofSoutheastAsianNations

CAAV CivilAviationAuthorityofVietnam

CAGR CompoundAnnualGrowthRate

CBU CompletelyBuiltUp

CKD CompletelyKnockedDown

CO2 CarbonDioxide

CVTS CommercialVehicleTrackingSystem

DRVN DirectorateforRoadsofVietnam

FDI ForeignDirectInvestment

FEU Forty-FootEquivalentUnit

FTL FullTruckload

GDP GrossDomesticProduct

GHG GreenhouseGas

GoV GovernmentofVietnam

GVW GrossVehicleWeight

HCMC HoChiMinhCity

ICD InlandContainerDepot

ISO InternationalOrganizationforStandardization

IWT InlandWaterwayTransport

JICA JapanInternationalCooperationAgency

Km Kilometer

LSP LogisticsServiceProvider

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LTL LessThanTruckload

MoIT MinistryofIndustryandTrade

MoT MinistryofTransportation

MtCO2e MillionMetricTonsofCarbonDioxideEquivalent

OD Origin-Destination

OEM OriginalEquipmentManufacturer

RFID RadioFrequencyIdentification

RO-RO Roll-On/Roll-Off

ROCE ReturnonCapitalEmployed

SME SmallandMedium-SizedEnterprises

SOE State-OwnedEntity

SDR SpecialDrawingRights

TCO TotalCostofOwnership

TDSI TransportDevelopmentandStrategyInstitute

TEU Twenty-FootEquivalentUnit

UCC UrbanConsolidationCenter

VAMA VietnamAutomobilesManufacturersAssociation

VEC VietnamExpresswayCorporation

VINAMARINE VietnamMaritimeAdministration

VIWA VietnamInlandWaterwaysAdministration

VLA VietnamLogisticsBusinessAssociation

VND VietnameseDong

VR VietnamRegister

VRA VietnamRailwayAuthority

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ExecutiveSummary

Roads form the backbone of freight transportation in Vietnam. In 2016, roads accounted for 77percentofthefreightvolumetransportedinthecountry.LogisticscostsinVietnamaccountfornearly21percentoftheVietnam’sGDP,higherthanmostofitspeersintheAssociationofSoutheastAsian

Nations (ASEAN), which affects the competitiveness of exports and adds to the cost of goods forproducers and consumers. Further, the Government of Vietnam (GoV) has signedmultiple climatetreatiesandhasbeenfocusingonreducingthegreenhousegas(GHG)emissionsinthecountry.The

truckingsectorcontributestonearly4percentofthecountry’semissions,whilethetransportsectorasawholecontributesabout10percent.Yet,theVietnamtruckingsectorisunderstudied.Thisstudytakesa first-evercomprehensive lookat thetruckingsector todefinepoliciesaimedat (a) reducing

logisticscosts,greenhousegasemissions,andtheemissionof localpollutants in truck-basedsupplychains;(b)improvingthefunctioningandattractivenessofthetruckingsectorasanindustrytoattractqualityprivatesectorinvestments;and(c)improvingtheregulatory,planning,andoversightpractices

bythepublicinstitutionsresponsibleforthetruckingindustryatthenationalandsub-nationallevels.

Methodology

The study encapsulates the findings of a nationwide trucking survey with more than 1,400 truckdriversandmorethan150companiesfromthetruckingindustry,tounderstandthecommodityflows,

logisticscosts,andGHGemissions.Thestudybuilt threeoriginalground-upmodels toestimate themain intercity trucking flows, the key drivers of transport costs, and GHG emissions. To form adetailedoperationalassessment,apartfromthequantitativemodelingdone,thestudyalsoincludes

insights into truck operations through extensive surveys and structured interviews with truckoperators,shippers,andlogisticscompaniesoperatingonintercityaswellasintra-cityroutes.Basedonthevariousassessments, thestudyproposes14policyoptionstostrengthenthetruckingsector,

and to lower logistics costs and GHG emissions. The policy interventions are divided across fourcategoriesrelatedtotrucking:infrastructure-related,supplyside,demandside,andprocess-related.

Intercityoperationalassessment

Theoperational assessmentof the trucking industryhighlights thekey challenges facedby industryplayers.Oneofthemajorissuesisthehighcompetitioninthemarketduetoexcessivefragmentation,whichdrivesdownthemarginsandsustainabilityofthetruckingsector.Theaveragenumberoftrucks

per company is around five,with thehighest fragmentation seen in theNorthwest,Northeast, andRedRiverDeltaregions.FleetmixinVietnamisextremelyskewedtowardssmalltrucks(68percentofthecountry’struckfleetislessthan5Tinsize),whichaddstothecongestiononroads.Thenational

truckingsurvey indicatesthe industrywelcomespoliciesaimedatprovidingasaferenvironmentfortruck drivers, highlighting the importance of road safety for policy making in future. Other keyconcerns found by the study include the expense of informal fees (about 10 percent of a truck

operator’scost)andlimitedplatformsforefficientsupply-demandmatching(about50to70percentemptybackhaulforsomeoperators).

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Thedemandassessmentindicateseightmajorroutes,from/toHanoi–HaiPhong,Hanoi–HoChiMinhCity (HCMC), HCMC–Da Lat, and HCMC–Can Tho, as the key routes for commodity flows and

accountingfornearly30percentoftheoverallintercityflowsinthecountry.Thestudyalsohighlightsthestatusofroadinfrastructureandanalyzesthegovernmentexpenditureonoverallinfrastructureinthe country. While the GoV spends 8 percent of the GDP on infrastructure, only 1.2 percent is

dedicated to road infrastructure. Thisproportionof spendon road infrastructure to total spendoninfrastructureinthecountryislowerforVietnamascomparedtoitspeers.Thestudyalsocoverstwoother potential modes—coastal shipping and inland waterways—to divert the traffic from roads.

Thesemodes currently account for 5percent and17percentof thedomestic freight flow (in tons)respectively.1 With a coastline of 3,200 kilometers and approximately 19,000 kilometers of inlandwaterways,Vietnamhasthepotentialtoincreasemulti-modalityinthetransportationofgoodswithin

thecountry,whichcouldbebeneficialtologisticscostsandGHGemissions.

This reportdiscussesthespecificgaps in thecurrent infrastructureof theportsandwaterways, the

cargo handling equipment available at landing stages, market structure in terms of availability ofcoastal shipping lines, the size and design of the vessel fleet, and the supporting infrastructure atinlandcontainerdepots(ICDs).

Urbantruckingoperationalassessment

The study also discusses the urban itineraries, which are the first- and last-mile deliveries for theintercityroutesandthedrayagetoandfromports.Thestudycoverscasestudiesoftwomaincities—HanoiandHoChiMinhCity(HCMC)—andaimstounderstandtheimpactofurbanfactors,including

restricted truck entry timings and passenger traffic congestion on roads.Many logistics companieshaveofficessetupinHanoi;consequently,thecityactsasatransitstopforgoodsbroughtfromand

sent toHai Phongport.On theotherhand, thepresenceofHoChiMinhport near the city centerleadstohightrucktrafficwithinthecity.Servingasaccessroadsconnectingtheportstothenearesthighway, the city roads—already highly congestedwith passenger vehicles—also add to the traffic

volume. The study indicates limited separation of industrial and residential zones via land useplanninginthesecitiesaswellas lackofconsolidationviaurbanconsolidationcenters.This impactstheproductivityofthelogisticscompaniesduetotheirsub-optimalrouteplanning,heavycitytraffic

congestion,andlackofdedicatedcity-portroads.

LogisticscostsandGHGassessments

Thecostassessmentmodeltalksaboutthekeydriversforcontrollingthetransportationcostsforthetruck operators.With transportation costs accounting for nearly 60 percent of the overall logistics

costs, the study covers this significant cost aspect. The transportation costs are estimated (inVietnamesedong)atVND2,775perton-kmandVND952perton-kmforashort-haulandlong-hauloperator, respectively, withmargins ranging from 3 to 5 percent for small truck operators owning

fewer than 10 trucks. The top five cost heads for the truck operators are fuel costs, tolls, informalfees, interest costs, anddriver salaries,whichaccount for 80percentof the total costs. Themodelindicatesthatthelogisticscostsperton-kmreduceswithanincreaseinthenumberoftrucksowned,

increaseintonnageoftrucks,andbettertruckutilizationrates.

Further,theGHGemissionefficiencyforVietnamisestimatedat143gofCO2perton-km.Themodel

identifiesthreeareas,whichdirectlyaffecttheGHGemissionefficiencyandformthecornerstoneofpolicyimperatives—fleetmix,backhauling,androadinfrastructure.

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Policyoptions

Thestudyculminateswithadiscussionofpolicyoptionsaimedatstrengtheningthetruckingsectorand reducing logistics costs and GHG emissions in the country—based on the key challenges andissues identified in the study—along with the key drivers identified for logistics costs and GHG

emissions.Thepolicy interventionsaredividedacross fourcategories: infrastructure-related, supplyside,demand side, andprocess-related.Thekeypolicy recommendations foreach category includethefollowing:

! Infrastructure-relatedpolicyoptions

! Reduce congestion around ports through the provision of centralized parking bays and

consolidationyardsnearports(short-term)andwideningofroads,strengtheningofroads

tohandleheaviertrucks,lanereservation,anddedicatedtruckcorridors(medium-term).

! Promote “container-on barges” to boost inland waterway transport (IWT) usage by

adopting fleet sizes/designs/waterways suitable for containerization, allocating berthing

windows at maritime ports for IWT barges, along with improving container handling

facilitiesatriverports.

! Promote coastal shipping on the North Vietnam–South Vietnam route by encouraging

more coastal shipping lines, domestic shipping centers, reducedport handling costs for

domesticcargo,andincreasedRO-ROvesselsthatpromotetrucking–coastalitineraries.

! Integrate logistics centers and urban consolidation centers (UCCs) in the existing ICD

master plan,with logistics centers prioritized at ICD locations closer to industrial zones

andUCCsprioritizedatthecityfringesofHanoiandHCMC.

! Prioritizeandupgradetheroadinfrastructureoftheeightkeyroutes,takingintoaccount

themajorshareofintercitytruckingtraffic.Elevatedroads,overpasses,additionallanes,

andlanereservationscanbeexplored.

! Supply-sidepolicyoptions

! Introduceatruckfleetmodernizationprogramwithincentivesfortruckownerstoscrap

their older vehicles. This could includeoffering registration taxwaivers and scrap value

rebates,andencouragingOEMdiscounts.

! Varyexistingroaduserchargeswithfleetagetodisincentivizetheuseofoldertrucks.

! Strengthendrivertrainingbyaddingpersonalhealthandsafetycomponentsandphysical

tests.Enhancethelicensingprocessthroughperiodictrainingsfortherenewaloflicenses.

Making a registry of licensed drivers and their driving records available to trucking

companiescouldalsoincreasethequalityoftruckdrivers.

24

! Improve Vietnam’s fleet through a growth-based lending scheme aimed at preferential

lending rates for the purchase ofmore fuel efficient and larger-sized trucks, subject to

companygrowth,toreduceexcessivetruckingsectorfragmentation.

! Establishcooperativesforowner-operatorstoallowthesmallerplayerstopoolresources

and help them achieve scale efficiencies. Simplify the implementation of regulations

specifyingminimumassetspertruckingcompany.

! Demand-sidepolicyoptions

! Promote brokerage firms through defining regulations for the registration of brokers,

providing incentives forbrokeragefirms,allowing100percent foreigndirect investment

(FDI) for successful foreign brokerage firms to set up branches in Vietnam and

encouragingcooperativestocreatepan-Vietnambrokerages.

! Increase investments in digital freight aggregator models through government policies

promoting fundraising, research and development, FDI, mentorship, and open data

sharing.

! Process-relatedpolicyoptions

! Launchanissueresolutionmobileapptoreportissuesfacedbyatruckdriverduringhis

trip,suchasaccidentsandinformalpayments,alongwithanissueresolutioncommittee

toresolvetheissues.

! Roll out e-tolling and CCTV cameras at tollbooths along key routes to avoid the

unnecessaryandunauthorizedstoppingoftrucks,whichincreasescostsandemissions.

Thesepolicyinterventionsareexpectedtodrivethefollowingchangesinthesector:

! Reductioninroadfreightshare

! Improvementintruckutilizationrates

! Reductioninvehicleages

! Increaseintheaveragecarryingcapacityoffleet

! Reductionintransittimes

! Improvementindrivingethicsandgovernance

The study estimates the successful implementation of these recommended policies could reducetransportationcostsbyapproximately16percent,whileloweringGHGbyapproximately7percent.

Otherpositiveimpactsoftherecommendedpolicyoptionsincludereducedpollutants(byabout14to16 percent per ton-km), reduced road damage (by approximately 5 percent), reduced number of

accidents (by about 10 percent), and reduced forex expenditure (by approximately 7 percent)resultingfromlowerrequiredfuelimportsduetotheyoungerfleetandhighercapacityutilization.

25

ThisreporthopestoprovideanenhancedunderstandingoftheVietnamtruckingsectorbyprovidinga first-ever comprehensive and trucking-focused study of the sector. In turn, the greater

understanding of this dominant transport mode could form the foundation of a national truckingstrategytoimprovethesector’simpactonlogisticscosts,theclimate,andeconomiccompetitiveness.

Note

1.Railway’sshareislessthan1percent.

26

27

Chapter1:Introduction

EconomicGrowthandtheRiseoftheTruckingSector

SincetheadoptionofĐổiMớiin1986,theeconomyofTheSocialistRepublicofVietnam(henceforth

referredtoasVietnam)has transformedtoamarket-orientedmodel.This transitionhas fueled thecountry’seconomicgrowth.TheGrossDomesticProduct(GDP)ofVietnamhasshownsteadygrowthoverthelastdecade,especiallyintheindustrialgoods,construction,andservicesectors,withaGDP

annualgrowthrateof6to8percent(figure1.1).

Figure1.1.AnnualGDPinVietnamSince1990,atCurrentPricesbyEconomicSector

Source:GeneralStatisticsOfficeofVietnam.Note:CurrentpricesshownintrillionVietnamesedong(VND)

Thisgrowthisexpectedtocontinueasthecountryaimstoachieveannualaverageeconomicgrowthof7percentthrough2020(VietnamNews2016a).Thecountryhasalsolaidoutamasterplanthrough

2035todeveloptheindustrialsector,withanationalgoaltoachievea13percentannualgrowthrateofindustrialproductionvaluethrough2020,12.5percentfrom2021to2025,and11.0percentfrom2026to2035(GoV2014).

28

Astheeconomyhasgrown,threekeytrendshaveemerged,eachexertingan impactonthenatureandflowoffreightonroads:

• Increasedimportingandexportingactivities

• Increasedurbanizationandhouseholdconsumption

• Concentrationoflogisticsinfrastructuresineconomiczones

ForVietnam tobeeffectively transformed into a globalmanufacturinghuband to satisfy domestic

consumption and export needs, the country will need to be equipped with highly developed andsystematiclogisticsservicestoensurethatproductsaredistributedacross—aswellasintoandfrom—thecountryinatimelyandcost-effectiveway.

TheNeedforThisStudy

In2016,anestimated20.8percentofVietnam’sGDPwenttowarditsnationallogistics(VoV2017),arelatively high figure when compared globally. In recent years, Vietnam has shown significantimprovement in its logistics services, jumping 25 ranks from 64th in 2016 to 39th, as listed in the

LogisticsPerformanceIndex2018,publishedbytheWorldBank(figure1.2).However,thereisstillaneedtostrengthenVietnam’slogisticssectorandreducelogisticscostsatthenationallevel.Reducinglogistics costs will improve the cost of doing business in Vietnam and eventually contribute to

economic growth. Transportation costs account for approximately 60 percent of the total logisticscostsinVietnam.

Inaddition,greenhousegas(GHG)emissionsfromtheroadfreightsectorcontributeanestimated4percentoftheoverallGHGemissionsinthecountry(BlancasandEl-Hifnawi2014),whilethetransportsector contributes approximately 10 percent of the country’s emissions (Li, Lu, et al 2015). As a

signatoryoftheParisClimateAgreementsince2016andtheUNFrameworkConventiononClimateChange(UNFCCC)since1992,theVietnamgovernmenthassetatargetfor2030toreducethestatedGHGemissionsby8percent.Consideringthistarget,thetruckingsector’ssignificantcontributionto

Vietnam’soverallemissionscallsforanin-depthstudyandanalysisoftheroadfreightsector.

With roads forming thebackboneofVietnam’s freight transport, the shareof road freight (in tons)

hasgrownsignificantlyovertheyears(figure1.3),from66percentin2006to77percentin2016.Interms of freight traffic, road transportation has grown from 20.5 trillion tons-km in 2006 to 56.6trillion tons-km in 2016, which translates to a compound annual growth rate (CAGR) of nearly 11

percent—highestamongallmodesoftransport.1

29

Figure1.2.GlobalBenchmarksforLogisticsCostsandGHGEmissions

Country LPIrankaLogisticscosts

aspercentageofGDPbGHGemissions

(gramsofCO2/GDP)c

Germany 1 8.5% 200

Japan 5 9.0% 190

Singapore 7 9.5% 155

UnitedStates 14 8.5% 300

Korea 25 9.5% 460

Vietnam 39 20.8% 1,090

India 44 13.0% 900

Brazil 56 12.0% 200

a.WorldBank2018.WorldBankLogisticsPerformanceIndexrankingfor2018:https://lpi.worldbank.org/.b.ADB(AsianDevelopmentBank)2012.c.GHGemissionsstatisticstakenfromtheInternationalEnergyAgency(IEA)andOrganisationforEconomicCo-operationandDevelopment(OECD)database2015,availablehere:https://webstore.iea.org/co2-emissions-from-fuel-combustion-2018-highlights.GDPin2010USdollars;GHGemissionsrefertototalemissionsinthecountry.

Yet,with limitedresearchandanalysison thecostsandGHGemissionscontributedby the truckingsector, the sector is understudied. Therefore, this study aims to develop a strong quantitative andqualitativeunderstandingofthetruckingindustrystructure,roadfreightdemand,andsupplyacross

keyorigin-destination(OD)pairs,withaviewtoassesstheefficiencyofthetrucking industryacrossoperational,financial,andenvironmentaldimensions.

For the first time, this study comprehensivelybrings togetheranalyticalmodels forOD flows, truckoperator profitability, and GHG emissions to understand the trucking sector. The study’s finalobjective seeks to define contextualized and actionable policy recommendations. These

recommendations include public, public-private, or purely private interventions that (a) reducelogisticscostsandemissionsofpollutantsintruck-basedsupplychains(b)improvethefunctioningofthe trucking sector, and therefore promote private investments in the sector, and (c) improve the

regulatory,planning,andoversightpracticesbypublicinstitutions.

30

Figure1.3.VolumeofFreightCarriedbyModeofTransport,2006–2016

Inmilliontonsandpercentageoftotal

Source:ChartdatageneratedviaGeneralStatisticsOfficeofVietnamstatisticsathttp://www.gso.gov.vn/default_en.aspx?tabid=781.

Methodology

Thestudybringstogetherinformationfromprimarysources,suchasinterviewswithindustryplayersandfieldsurveysaswellassecondarysources, includingpublishedliteratureandreports.Aspartof

thisstudy, in-depth interviewshavebeenconductedwithvariousstakeholdersoperatingacross thevalue chain to better understand their operational challenges. Interviewees ranged from largetransportersanddriver-owners,toorganizedintermediaries,suchasfreightexchangesandshippers.

Interviews have also been conductedwith staff from government organizations to understand theperspectiveontheVietnamlogisticssectorfromtheviewpointofpolicymakers.

Further, to access firm-level information normally not disclosed publicly, more than 150 truckingcompaniescompletedasurvey,includingassetandnon-assetbasedlogisticsserviceproviders(LSPs)as well as shippers with and without private fleet and truck operators. Information from these

interviewsandsurveys,combinedwithsecondaryresources,helpedtodevelopanunderstandingofthe overall value chain of the transportation sector, covering supply factors, demand factors,infrastructure,andregulations.

Moreover, to understand the demand aspect, more than 1,400 truck drivers participated in anationwide survey todevelopamodel for intercity flowsof commodities.Data inputs fromvarious

governmentagencies,includingtheDirectorateforRoadsofVietnam(DRVN),VietnamRegister(VR),andTransportDevelopmentandStrategyInstitute(TDSI)havebeenincorporatedintothisstudy.

Toensurestrongpolicyformulationbasedoncomprehensivedatacollectionandanalysis,thestudydeveloped a robust framework (figure 1.4) that encompasses the four key factors thatcomprehensivelycoverandshapethetruckingindustry:demand,supply,infrastructure,andexisting

8%

2% 2%

6%

2011

24%

2006 2012

66%

73%

5%

8%

1,240 5%

23%

75%

1%

2009 2007

1%

72%

9% 20%

70%

2008

1%

17%

8% 8%

19%

1%

18% 18%

1%

18%

2010

1% 7%

74%

18%

2013

6%

0%

886 18%

76% 77%

1%

76%

18%

5%

2014

68%

1%

2015

77%

2016

514 597

653 716

801

961 1,010

1,079 1,147

Aviation transport Inland waterways Railways Maritime transport Road

31

regulations.Thestudyviewsthesefactorsthroughthelensofintercityandurbantrucking.WiththeaimofreducinglogisticscostsandGHGemissions,thestudyproposesapolicyroadmap.

To arrive at the final policy roadmap for the trucking sector, the study conducted a deep-diveoperational assessmentof the intercity trucking aswell as urban trucking, to understand the value

chain of the road freight transportation and identify the key challenges. Chapter 2 covers thisoperational assessment in detail, which includes an understanding of the supply market, demandassessment,andthecurrentinfrastructuralandregulatoryenablerssupportingthetruckingindustry.

Forthedemandassessment,thestudybuiltagrounduporigin-destination(OD)modelforkeycitiesinVietnam.TheODmodelgivesthetrafficflowsatacommoditylevelonmajorroutesinthecountry.Chapter2alsodetails focused case studiesof twomajormetropolitangateways,Hanoi andHoChi

MinhCity(HCMC),tounderstandtruckingoperationswithinacity.

Chapter3coversanin-depthanalysisofthelogisticscostsbydevelopingacostmodelatthefirmlevel

for truck operators. The model builds on the various focused in-depth interviews as well as thenationwidetruckingsurveytohighlightthekeycostdriversfortransportationcompanies.

Further, the GHGmodel developed and discussed in Chapter 4 uses the ODmodel truck flows toestimate the GHG emission levels in the country and understand the key parameters influencingemissions.

ThesechapterslaythefoundationforthepolicyroadmapinChapter5,whichbuildsonthekeyissueshighlightedfromthepreviouschapters.ThechapteridentifieskeyleversinloweringGHGemissions,

alongwithfirmlevel logisticscosts,whicharethentranslatedand linkedtothefinal industrypolicyroadmap.

32

Figure1.4.ComprehensiveFrameworktoAssesstheTruckingSectorinVietnam

Summary

! The logistics industry is integral to the economic development in Vietnam, leading to

increasedtradecompetitivenessandhigherproductionandconsumptionlevels.

! Roadsformthebackboneof freighttransportation inVietnam,accountingfor77percentof

the freight volume transported in the country. In 2016, Vietnam’s national logistics costs

totaledanestimated21percentof itsGDP.Transportationcostsaccount forapproximately

60percentofthetotallogisticscostsinVietnam.

! Further,thetruckingsectorcontributestonearly4percentofthecountry’semissions,while

transportsectorcontributesabout10percent.

! This study takes a first-ever comprehensive look at the trucking sector to define policies

aimed at improving the efficiency of the sector and reducing logistics costs and GHG

emissionscontributedbythetruckingindustry.

33

! The study encapsulates the findings of a nationwide trucking surveywithmore than 1,400

truck drivers across the country,more than 150 companies from the industry, and focused

interviewswithpublicandprivatestakeholdersdirectlyrelatedtothesector.

! Thestudybuiltthreeoriginal,ground-upmodelstoestimatethekeyintercitytruckingflows

onacommoditylevelacrossthecountry,thekeydriversofcostsfortruckoperators,andkey

driversofGHGemissionsofthetruckfleetinVietnam.

! Chapter2detailsacomprehensiveoperationalassessmentofthetruckingsector.Chapters3

and4examinethekeydriversof logisticscostsandGHGemissions,basedontherespective

models.Chapter5proposespolicyoptions,tostrengthenthetruckingsector,toreducecosts

andemissions.

Note

1.AccordingtotheGeneralStatisticsOfficeofVietnam:

https://www.gso.gov.vn/default_en.aspx?tabid=781.

References

ADB(AsianDevelopmentBank).2012.TransportEfficiencythroughLogisticsDevelopment.PolicyStudy.Manila:AsianDevelopmentBank.https://www.adb.org/sites/default/files/publication/30031/transport-efficiency-logistics-development-study.pdf.

BlancasMendivil,LuisC.andM.BaherEl-Hifnawi.2013.FacilitatingTradethroughCompetitive,Low-

CarbonTransport:TheCaseforVietnam'sInlandandCoastalWaterways.DirectionsinDevelopment;CountriesandRegions.WashingtonDC;WorldBankGroup.http://hdl.handle.net/10986/16321.

GoV(GovernmentofVietnam).2014.IndustrialDevelopmentStrategythrough2025,visiontoward

2035.PrimeMinisterNguyenTanDungsignedDecisionNo.879/QD-TTgtoapprovethestrategyonJune9,2014.http://www.vietnam.gov.vn/portal/page/portal/English/strategies/strategiesdetails?categoryId=30&articleId=10054959.

Li,Jin,QihuiLu,andPeihuaFu.2015.“CarbonFootprintManagementofRoadFreightTransport

undertheCarbonEmissionTradingMechanism.”MathematicalProblemsinEngineering.DOI:10.1155/2015/814527.

VietnamNews.2016a.“VNTargetsHighGrowthto2020.”VietnamNews,February1,2016.

https://vietnamnews.vn/economy/281918/vn-targets-high-growth-to-2020.html.

34

VoV(VoiceofVietnam).2017.“Vietnam’sLogisticsCostsMakeUp20.8%ofGDP.”VoiceofVietnam,December15,2017.https://english.vov.vn/economy/vietnams-logistics-costs-make-up-208-of-gdp-364750.vov.

WorldBank.2018.LogisticsPerformanceIndex2018.Washington,DC:WorldBank.

https://lpi.worldbank.org/.

35

Chapter2:OperationalAssessment

The trucking sector serves as the backbone of freight transportation in Vietnam with nearly 77percentoffreighttransportedbyroads.Thisstudyassessesthestructureandoperationsofthetruck

industry,drawing insights from the supply side (transportation companies, truck fleet, anddrivers),demandside(shippersandcommodityflows),currentinfrastructuresupportingthetruckingindustry,andexistingregulationsimpactingthetruckingsector.Thekeychallengesineachoftheseareashave

been identified and used to propose policy recommendations. This chapter explains the roadtransportationvaluechain inVietnamandthekeystakeholders inthatvaluechain,andprovidesanoperationalassessmentofthesestakeholders.

This chapter also explores various factors influencing the efficiency and emissions of intercity andurban trucking. Intercity trucking involves haulage of freight fromone city to another, typically for

distancesmore than200km.Urban trucking serves first-and last-mile logisticsneeds,handling thedrayage of containers/goods from ports to the nearest industrial hinterland. In Vietnam, truckingcompaniesgenerallyspecializeinonlyoneofthetwomodesoftrucking.However,anefficientroad

logistics network requires close links between intercity and urban trucking to facilitate seamlesshandoveratconsolidationcentersandpairedschedulingaswellasmatchingsupplyanddemand.

IntercityTrucking

Supplyfactors

Thesupplysideincludestwoimportantconstituents:thedifferenttypesoftransportationcompanies(orthesupplyplayersinthemarket),andthesupplyoftruckfleetsintothemarketthroughoriginalequipmentmanufacturers(OEMs),distributors,anddealers.Thissectiondiscussesthestructureand

operationsinthesupplysideofthetruckingindustry.

i. Supplyplayers

As illustrated in figure 2.1, the road logistics value chain includes four stakeholders. Carriers andaggregators provide the link between the firms sending goods (shippers) and the firms receivinggoods(receivers).Thissectioncoverscarriersandaggregators.

a.Carriers

Acarrier refers toan individualorenterprise in the road transportation sector thatownsa fleetof

trucks.ThreetypesofcarriersoperateinVietnam:

• Shippers with private fleets—enterprises that own and transport goods through their own

fleets

36

• Truck operators—individuals or companies whose main business is to provide or operate

trucksasapaidservice

• Asset-based logistics service providers (3PL)—companies that provide several logistics

servicesincludingdeliveringroadlogisticsservicesthroughtheirownedfleets

CompanysizeThe set-up of a trucking business is regulated under the Decree No. 86/2014/ND-CP. With norestrictionsontheminimumcapitalrequirementforsettingupabusiness,Vietnamhasexperienced

an increase in small andmediumenterprises that owna small numberof trucks aswell as owner-operators who drive a single truck. This fragmentation is seen across regions in Vietnam, with anaverageownershipofaroundfivetruckspercompany(figure2.2).

Trucking activity is concentrated in the Red River Delta and Southeast regions, which respectivelycover Hanoi andHo ChiMinh City (HCMC). These two regions boast the highest numbers of truck

transportationcompaniesandregisteredtrucks(figure2.3).

Figure2.1.ValueChainintheRoadFreightTransportandRolesofEachPlayer

37

Figure2.2.FragmentationofRegion-LevelTruckingActivity

Source:UnpublisheddataprovidedbytheDirectorateforRoadsofVietnam(DRVN).Note:Datafor>1TtrucksandtruckcompaniesuntilMarch2018a.Majoreconomichub

Figure2.3.Region-LevelTruckingActivity,byCompanySize

Source:UnpublisheddataprovidedbyDRVN.Note:Datafor>1TtrucksandtruckcompaniesuntilMarch2018a.Numberoftruckswithgrossvehicleweight(GVW)>1Tb.CompaniesowningtruckswithGVW>1Tc.Majoreconomichub

Region Number of trucks

per company

1 Northwest 1.9

2 Northeast 2.6

3 Red River Deltaa 3.4

4 North Central Coast 5.8

5 South Central Coast 4.4

6 Central Highlands 12.8

7 Southeasta 9.8

8 Mekong River Deltaa 16.3

Vietnam Average 5.3

Region Number of >1T trucksa

Number of >1T truck companiesb

1 Northwest 1,834 957

2 Northeast 14,117 5,368

3 Red River Deltac 58,636 17,325

4 North Central Coast 14,607 2,534

5 South Central Coast 21,793 4,958

6 Central Highlands 10,610 826

7 Southeastc 68,479 6,976

8 Mekong River Deltac 26,127 1,604

Total 432,406 81,096

38

AlargeproportionoflowrevenuetruckingcompaniesoperateinVietnam,withabout50percentofcompaniesgeneratinglessthanUS$500,000inrevenue,asshowninfigure2.4.1Inadditiontoleading

to heavy and unsustainable competition, this fragmentation and the lack of scale hamper servicequalityandoperationsefficiency.

Tounderstandtheoperationalcircumstancesfacedbythesecompanies,anationaltruckingsurveyofmorethan150companiesidentifiedkeyfleetcharacteristics,operationalmetrics,financingandothercosts, and regulatory views for various carriers, including logistics service providers, shippers, and

truckoperators.Truckoperatorscompriseapproximately70percentofrespondents,reflectiveofthedistributionofdifferenttypesofcarriers inthetruckingmarket.Thecharacteristicsofthesecarriers(figure2.5)aresummarizedinthefollowingsection.

Figure2.4.DistributionofTruckingCompanies,byRevenue

Source:Avention,2018data.

39

Figure2.5.RespondentsinNationwideTruckingSurvey

Note:Dottedboxesindicatetheplayersinterviewedforthesurvey.

FleetcharacteristicsThesurveyresultsindicatethatlogisticsserviceproviders(LSPs)havelargerfleets,withthenumberoftrucks owned or leased nearly double those of truck operators. Since LSPs are larger in scale and

breadth of services, they typically have newer truck fleets compared to the other two types ofcarriers.Higher cash reserves andbetter access to financing lowers theproportionof second-handtrucks owned by LSPs to 20 percent, compared to truck operators,where 65 percent of fleets are

second-handtrucks.

OperationsBackhaulratesarehighacrosscarriersinVietnam,drivenbyalackoffreightconsolidationcentersaswellaslimiteddemandaggregationandinformationflowtocarriers.Emptybackhaulratesarehigherfortruckoperators(upto70percentattimes)andlowerforLSPsandshippers(upto50percentat

times).LSPsandshipperstypicallyhaveamorestablesourceofdemandthroughlong-termcontractsand can optimize their trips through planning. Truck operators, however, have limited long-termcontractsand therefore tend tohavehigheremptybackhauls.Chapter3provides furtherdetailsof

theoperationalefficiencyoftrucksandutilizationsrates.

RegulatoryinfluenceFortheroad-truckingsector,akeyperceivedchallengeisthehighcostoftollsandinformalroadfees(figure2.6).Toavoidtheseexpenses,truckdriversoftenusethedistrictroadstobypassthetollsonhighways.Thefragmentationofsupplyrepresentsanotherchallengefacedbytheindustry,leadingto

intensepricecompetitionandlowunsustainablemargins.Carriersdonotconsideraccesstofinancialsupport as a major challenge, since vehicle loans are available at standard industry rates of 10percent.However, suchhigher-interest loansareaccessedmostlywhencompaniesneed to replace

agingvehicles.

40

Whenaskedabouttheviewsonexistingregulations,surveyrespondentschosetruckdriverlicensingasthepolicywiththehighestpositiveperceivedimpact(figure2.7).Otherpolicieswithahighpositive

perceivedimpactincludeloadlimitation,speedlimitation,andmaximumhoursofcontinuousserviceforthedrivers,indicatingthattheindustrywelcomespoliciesaimedatprovidingbettersafetyoftruckdrivers,andhighlightingsafetyinfuturepolicymaking.

The surveyelicited viewsof the various carriers—LSPs, shippers, and truckoperators—onpotentialfuturepoliciesdesignedto improvetheefficiencyandcompetitivenessofthetruckingsector(figure

2.8).Threetoppolicyareasemergedfromtheanalysisofsurveyresponses:

1. Roadandtruckinfrastructurefacilities:upgradationofhighways,truckinglanes,etc.

2. Seamlessmovementofgoodsacrossborders:simplifieddocumentationande-tolling

3. Fleetmodernization:accesstonewandmoderntrucksforbetterefficiency

Figure2.6.IndustryViews:KeyPerceivedChallenges

Note:Opinionstakenonascaleof1=StronglyDisagreeto5=StronglyAgree

41

Figure2.7.IndustryViews:PerceivedImpactofExistingRegulations

Note:Opinionstakenonascaleof1=Highlynegativeimpactto5=Highlypositiveimpact

Figure2.8.IndustryViews:OpiniononFuturePolicies

Note:Opinionstakenonascaleof1=StronglyDisagreeto5=StronglyAgree

42

b.Aggregators

Giventhefragmentationofthesupplybase,themarketbetweentheshippersandthetruckownersexhibitsanexpectedasymmetry,orgap,ininformation.Typically,aggregatorsplayakeyroleinfillingthis information gap by connecting the demand side (shippers) and supply side (truck owners) to

facilitate transportation activities. These aggregators can operate through the following businessmodels:

• Contract-based commission: The intermediary does not own assets andmay offer various

logisticsservicestoshipperswhileoutsourcingthetransportationitselftotruckoperatorsor

asset-basedLSPs,guaranteeingtheservice.InVietnam,theseindirectplayersmostlyoperate

only regionally or locally and work on a commission-level basis—ranging from 7 to 10

percent—dependingonthecontractvalue.Thedemand-supplymatchisusuallydonethrough

personal contacts. The non-asset-based logistics service providers can offer a variety of

services,whileaphysicalbrokeroragentprimarilyservesasthemiddlemanonly.

• Freight marketplace: The indirect player uses technology applications for instant online

bookings and transactions to provide algorithmic real-time, supply-demand matching. The

playerchargesthecustomeratransactionservicefee.

• Freightexchangeorloadboards:Theintermediaryplayerprovidessubscription-basedonline

servicesforhaulagecompanies,LSPs,freightforwarders,andtransportcompaniestotransact

business. The online service is usually awebsite portal or an online listing platformwhere

transportation companies can post fleet information and availability, allowing shippers to

bookwith a company based on their preferences.Users complete subsequent transactions

offline;theloadboardownerearnsincomethroughasubscriptionmodel.

Afewon-demandserviceprovidershaveemergedinVietnaminrecentyears.However,onlyalimitednumber of vehicle owners, shippers, and assisting transport service providers have subscribed,

resultinginlowratesofactiveparticipants,registeredfreightvolume,andsuccessfultransactionsontheplatforms.Thevolumeshareoffreighttransportedthroughtheseon-demandplatformswaslessthan 1 percent of themarket in 2017 (Biinform 2017). Based on primary and published interviews

with start-up founders, the key challenges faced by these disruptive logistics start-ups include thefollowing:2

• Inaccuratedataontheplatformsandfrequentdowntime,whichdetersshippers fromusing

theportal

• Insufficient data sources on road conditions and time restrictions on road access, which

restrictsusers’abilitytodeterminecorrectratesforfreighttransportation

• Lowacceptance levels fromshippersandtruckowners,whoprefer tradingthroughface-to-

facemeetingsoroverthephone,ratherthanpostingorclickingonwebboards

43

• Transactions not converting to actual service; for example, VinaTrucking, the first Vietnam

Transport Trading Floor, logged 225 transactions in 2016, but only 40 of those successfully

convertedintoservicecontracts(VietnamNews2016)

• Time-consumingregistrationprocedurescouldleadtoasmallnumberofregisteredmembers

andsuccessfultransactions.

• Lackofstandardizationinpriceschargedbytruckdriversfordifferentgoodsindifferentareas

Thedevelopmentofaggregatorsinfragmentedmarkets,suchasVietnam,canfundamentallychange

the efficiency of inter- and intra-city trucking through better pan-Vietnam coverage, matching ofsupplytodemand,andgreatertransparency.EmergingcompanieslikeVinaTruckingandEcoTruckarefollowing the freight exchange model, while start-up Ahamove has looked to disrupt prevalent

business models through its marketplace model. Chapter 5 discusses in detail the policy reformsaimedattacklingthegrowthofaggregators—includingscalingupoftheexistingbrokersinVietnamaswellaspromotingotherdigitalmodelsofaggregation.

c.Workforcecharacteristicsandfemaleparticipation

According to the 2011 labor force survey conducted by General Statistics Office of Vietnam,

transportationandstorageaccountsfor5.5percentofthetotalemployedpopulationinurbanareas.However, the sector witnesses one of the lowest levels of female representation, with only 9.3percentparticipationofwomeninthetotalsectorworkforce(figure2.9).

Figure2.9.GlobalBenchmarkofFemaleRepresentationinTransportationSector

Percentageofparticipation

Source:Nathan,Inc.2015.

44

Thekeyissuesassociatedwiththelowerpercentageoffemaleworkforceinthetransportationsectorincludethefollowing:

• Theperceptionthat industryjobsarephysicallyarduous,remote,anddemanding,withover

10hoursofworkrequiredperday,whichhasdeterredwomenfromapplying

• Thelownumberofwomenservinginleadershippositionshasresultedinalackofrolemodels

toencouragefemaleparticipationintheworkforce

• Alackofawarenessoftransportationasacareeroptionforwomen, largelyduetothepre-

conceivedstereotypesofmalesectorworkers

• Theapproximate5percentwagegapbetweenmenandwomen

Initiatives across four key areas could help increase female representation in the transportationsector:

1. Education: Create awareness of transportation professions at tertiary education levels

throughexperttalksandincreasefemaleparticipationinnon-traditionalvocationalprograms

byprovidingincentives—forexample,reducedfees.

2. Recruitment: Provide fair jobopportunities towomen via state-supported recruitment fairs

organizedtochannelhiringofwomeninspecificroles,suchastransportationplanning,etc.In

addition,givegovernmentrecognitiontofirmshavinghighgenderratios.

3. Retention:Encouragegovernmentstipulatedpoliciesinfavorofworkingwomen,suchaspaid

maternityleave,childcarefacilities,andmaternityinsurancecoverage.

4. Mentorship: Encourage government-sponsored women’s leadership seminars to facilitate

networkingofwomenatseniormanagementpositions.

ii. Truckfleetprofileandsupply

Thecharacteristicsofthetruckfleetinacountryaredefinedbytwokeyparameters,namelytheageofthefleetandthecarryingcapacityofthefleet.Tounderstandtherootcausesoffleetmixandfleet

age in Vietnam, the original sources of these trucks—for example, imported or domesticallymanufacturedandmajorsupplyingOEMs—alsoneedtobeidentifiedandanalyzed.

ThekeycharacteristicsoftheVietnamfleetareasfollows:

1. Skewed towards trucks with lower carrying capacity—A higher number of trucks

requiredpertonoffreightresultsinhighercostsandemissions

2. Skewedtowardsoldtrucks—Oldervehiclesarelessefficientandeco-friendly

3. Lowdomesticproductionanddependencyonimports—Resultingindelayedtechnology

adoptionanddomesticinnovation,withoperationalchallengesinsparepartsandservice

levels

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FleetmixThe fleet mix in Vietnam has been defined based on the carrying capacity of trucks under use. AhigherproportionofsmallercapacitytrucksoperateinVietnam.Asof2018,approximately1.1million

trucks have been officially registered in Vietnam (figure 2.10). Of these, 68 percent have a GrossVehicleWeight (GVW) of less than 5 tons, 11 percent are between 5 and 10 tons, 14 percent arebetween10and20tons,and7percentareheavytruckswithaGVWofmorethan20tons.3

Developed countries with strong roadway networks (United States, Germany) are more reliant on

heavytrucksforfreightmovement.ComparedtootherASEANpeers(e.g.,MalaysiaandThailand)andAsian peers (e.g., China and India), Vietnam also has a relatively higher proportion of small-sizedtrucks,accordingtoannualsalesstatistics(figure2.11).

The low proportion of heavy trucks sold in Vietnam leads to a requirement of a higher number oftrucks to move the same quantity of freight. This, in turn, leads to higher congestion, costs, and

emissions.

Figure2.10.NumberofTrucksinVietnam,2018

Inʹ000units

Source:UnpublisheddataprovidedbyVietnamRegisterNote:Truckfleetincludestrucks,tractors,trailers,andsemi-trailers

68%

11%

14%

7%

Small (<5T)

Medium (10-20T)

Number of trucks (ʹ000 units)

Heavy (>20T)

Light (5-10T)

1,170

46

Figure2.11.AnnualTruckSalesinVietnamversusPeers,2014–2016

Inʹ000units,percentageoftotal

Source:IHSMarkit;datafor2018accessedviaadatabaseavailabletoIHSMarkitclients.

FleetageTheaverageageofthefleetinVietnamis7.5years.Asshowninfigure2.12,94percentofthetruck

fleet is more than five years old, with a large proportion lying in the 8 to 12 years age category.Developedcountries, suchasGermanyand theUK,haveamuchhigherproportionof trucks in thezerotofiveyearsagecategory—nearly41percentand37percentrespectively.4Theolderfleetleads

tohigher logisticscostsandGHGemissions,drivenbyhighertotalcostofoperationsanddecreasedfuelefficiency,makingayounger,moreefficientfleetmoredesirable.Asfigure2.12also illustrates,Vietnamcouldpotentiallytargetarequiredfleetmodernizationoftrucksolderthaneightyears.

ImportedfleetImportedtrucksaccountformorethan30percentofalltruckssalesinVietnam.Akeyreasonisthe

low production capacity of major OEMs in Vietnam compared to ASEAN peers, such as Thailand,Indonesia, andMalaysia,due inpart to the comparatively lateopeningof theautomobile sector inVietnam(table2.1).

47

Figure2.12.DistributionofTruckFleetinVietnambyAge,2018

Inʹ000units

Source:UnpublisheddataprovidedbyVietnamRegisterNote:Truckfleetincludestrucks,tractors,trailers,andsemi-trailers

Table2.1.AutomobileProductionCapacityofOEMsinASEAN,2014

Inʹ000units

OEM Vietnam Indonesia Thailand Malaysia

Suzuki 5 200 100 30

Isuzu 5 52 346 12

Toyota 35 256 770 80

Source:EconomicResearchInstituteforASEANandEastAsia(ERIA):http://www.eria.org.Note:Includesproductionofallautomobiles

0.4%

Number of trucks (ʹ000 units)

1,170

30%

0.6%

63%

6%

>15 years 12-15 years

5-8 years 8-12 years

0-5 years

48

Forbuildinglightertrucks,OEMstypicallyprefercompletelyknockeddown(CKD)imports,wheretheyimportthepartsandassemblevehiclesinVietnam.However,forheavytrucks,OEMsprefertoimport

completely built up (CBU) units—importing the entire truck as a complete unit. These importpreferences stem from the lowCKD tariffs for lighter trucks and lowCBU tariffs for heavier trucks.Annualsalesfiguressupportthesepreferences;asshowninfigure2.13,importactivitydominatesthe

heavytrucksegment,andalsoclaimsalargeshareofthesmalltrucksegment.

Figure2.13.AnnualTruckSalesinVietnam,byTonnage

Inʹ000units,percentageoftotal

Source:UnpublisheddataprovidedbyVietnamAutomobileManufacturersAssociation(VAMA);UnitedNationsComtradeDatabase:https://comtrade.un.org/.

Vietnam’ssignificantdependenceonimportedtrucksbringsassociatedchallenges,forinstance:

• Theprofile and typeof truckshavenotbeen customized forVietnam’sneeds,withmodels

importedfromtheglobalportfoliooftruckOEMs.

• BecauseVietnamlagsbehindtheusualcountriesoforigin(e.g.,ChinaandJapan)onemission

norms,onlyoldergenerationtruckmodelscanbeimported.

• Limited on-ground presence of foreign truck OEMs has resulted in insufficient coverage of

originalsparesandafter-salessupport(SaigonOnline2016).

Regulations,effectiveJanuary1,2018,havetightenedimportregulationstoensurethequalityofallautomobiles.Forexample,vehicletypeapprovals(VTA)mustbeissuedforeachvehiclebyauthorities

of the exporting countries. Without the VTA the importer must provide a separate certificate ofquality, technical safety, and environmental protection of the automobile or engine, along with

49

variousotherdocuments.Suchtightenedimportregulationscouldaddresslowlocalizationratesandspur domestic production capabilities as well as modify vehicle features and specifications to

Vietnam’sneeds.

OriginalequipmentmanufacturersinVietnam

OEMs are the original producers of the truck body, along with its parts and other supporting

equipment. InVietnam, domesticOEMshave limited capabilities to completelymanufacturewholetrucksduetoalimitedmanufacturingpresenceandsupplyecosystem.Mosttruckssoldinthecountryareassembled from importedparts (knownascompletelyknockeddown,orCKD)or importedasa

complete unit (known as completely built up, or CBU). Reliance on imported parts for vehicleproductioninVietnam(nearly60to80percentofcomponentsareimported)resultsincostsaround20percenthigherthanvehiclesproducedinotherASEANcountries(DezanShira&Associates2017).

The recent elimination of tariffs on CBUs imported from ASEAN member countries has furtherboosted the trend toward vehicle importation. Lower import tariffs on ASEAN-produced vehiclescouldhavealsoincreasedtheaccessibilityofnewtrucksinVietnam,fromafinancialperspective.

OEMsfromJapan(e.g.,Isuzu,Suzuki,andHino),China(Foton)andtheKorea(Hyundai)havestartedtomanufacture locally inpartnershipwithdomestic companies.OEMs, suchasHyundai andFoton,

have achieved this through partnerships with THACO, Vietnam’s leading automobile manufactureranddistributor.Others,suchasIsuzu,Suzuki,andHino,haveexpandedintotheVietnamautomobilemarketthroughjointventuresorsubsidiaries.Thoughtheseunitshandledomesticassemblyoftrucks,

theydonotusuallyventureintocomponentmanufacturing.

Two key Vietnamese domestic truck assemblers and producers, THACO and VEAM, have formed

partnerships with Hyundai, Foton, and Maz, among others, enabling technology exchange andenhanced manufacturing ability. However, most of the current capability is limited to simplecomponentmanufacturingandfinalassemblyofnewandusedtrucks(Schröder2017).

Demandfactors

Itisimportanttoanalyzethecurrentfreightflowsatthecommodityandrouteleveltobetterpredictthe future road freight demand. This section describes a ground-up model built to analyze the

commodityflowsinthecountry.Thestudycreatedanorigin–destination(OD)commodityfreightflowmodel for intercitymovement tohelpunderstand the key routes for road freight transportation atpresent and in the future, which will facilitate the proposal of more effective policies and

infrastructure interventions. Further, the section on seasonality, later in this chapter discusses theelement of seasonality, which must be considered while analyzing the commodity flows in thecountry.

ForthisODmodel,sevenkeyeconomiccities:Hanoi,HaiPhong,Vinh,DaNang,DaLat,HCMC,andCan Tho have been selected based on their GDP, population, and growth trends in inbound and

outboundfreightmovement.Together, thesesevencitiescontributeto54percentofthetotalGDPforVietnam(figure2.14)and37percentofthecountry’stotalpopulation(figure2.15).

In addition, these seven cities showahighdependenceon roads for intercitymovementof goods,with somemodal shareof inlandwaterway transport (IWT) in thedelta regions, resulting in42ODflowsinthemodel(figure2.16).

50

Figure2.14.GrossOutputinVietnamandKeyCities

IntrillionVND,2014and2016

Source:GeneralStatisticsOfficeofVietnam:https://www.gso.gov.vn/Default_en.aspx?tabid=766.

Figure2.15.AveragePopulationinVietnamandKeyCities

Inʹ000units,2010and2016

Source:GeneralStatisticsOfficeofVietnam:https://www.gso.gov.vn/Default_en.aspx?tabid=766.

1.7% 1.1% 1.1% 1.0% 2.1% 1.1% 2.1% 0.8%

9,860

1,858 2,934923 1,204

13,032

1,198

10,905

1,963 3,1061,046 1,273

14,748

1,258

Can Tho Nghe An (Vinh)

Ha Noi Cluster

Hai Phong Da Nang Lam Dong (Da Lat)

HCMC Cluster

86,947 92,695

Vietnam

2010 2016 % CAGR

51

Figure2.16.FreightVolumeCarriedInandOutofProvincesbyRoadandIWT

Inmilliontons,2010and2015

Source:GeneralStatisticsOfficeofVietnam:https://www.gso.gov.vn/Default_en.aspx?tabid=766.Note:Basedondatacontributionfromothermodes,theshareofairwaysandrailwaysislessthan0.1percent

i. Origin–destinationmodel:Methodology

TogeneratetheODmatrixatthenationallevel,thestudyanalyzedthedataofactivetrucksineachprovincereceivedfromtheDirectorateforRoadsofVietnam(DRVN)todefinethesamplingnecessary

forconductingtruckdriversurveys.Theprovincialdataprovidestheactivetruckfleetregisteredinaprovince. Interviews were conducted with approximately 1,400 truck drivers in these key cities todetermine the origins and destinations of their journeys, along with volumes and types of

commoditiesbeingtransported.ResearchersthencompiledthisinformationtoobtaintheODmatrixsample.

Toapportionflowsforthe42keyODpairsresearchersuseda10-daydataoftrafficflowcollectedbythecommercialvehicletrackingsystem(CVTS)in2017—sharedbytheDRVN.TheCVTSdatawasusedtocalibratethemodelbydeterminingthetrafficdensityondifferentroutes.Forroutesmergingata

countingstation,theCVTSdataprovidedtheprobabilityofusageforan individualroute.TheDRVNroadsidemanualflowcountcollectedatstationsacrossVietnamprovidedestimatesfortrafficflowsat each station and helped calculate the sampling rate of truck drivers interviewed at each station

(figure2.17).TheODmatrixsample,combinedwiththesamplingrateandtheprobabilitiesofusageofagivenroute(usingtheCVTSdata),wasusedtocalculatetheestimatedODmatrixforthe42ODpairs.

ii. Origin–destinationmodel:Keyresults

TheODmodelestimatesnearly10,000truckscarrygoodseverydaybetweenthesevenkeycitieswith

afreightflowofapproximately111,000tonsperday(figure2.18),accountingfornearly40percentoftheoverallintercityfreightflowsinthecountry(JICA2010).5

52

The study model identified HCMC, Da Nang, and Da Lat as the key production centers with netnegativevolumeflows,whileHaNoi,CanTho,andVinhserveasthekeyconsumptioncenterswith

netpositiveflows.Inaddition,themodelhighlightseightODroutes,whichaccountfor77percentoftheflowsinthisODmodeland30percentoftheflowsatthenationallevel.Theseeightroutesformthepriorityroutesforpolicyrecommendationsinfurtherchaptersandincludethefollowing:

• Hanoi<–>HaiPhong(125km)

• Hanoi<–>HCMC(1,600km)

• HCMC<–>CanTho(200km)

• HCMC<–>DaLat(300km)

Further, at a commodity level, food products and beverages has the highest share of commodity

flows,whiletherestisfragmented.Ingeneral,industrialproductsaccountfor79percentoftheflows,whileagriculturalproductsmakeuptheremaining21percent.Figure2.19illustratesthebreakupoffreightflowsatthecommoditylevel.

HanoiandHCMCalsoactastransitstopsfortheexportandimportcommoditiesfromHaiPhongPortand the Mekong Delta region, thereby leading to high density traffic flows in these two major

metropolitangateways.Thesectiononurbantruckingwilldiscussthesetwocities,providingfurtherinsightsonurbantrafficflows.

Figure2.17.MethodologyforOrigin–DestinationMatrix

Source:CELConsultingandA.T.Kearneyanalysis,conductedaspartofthestudy.

53

Figure2.18.Origin-DestinationModelOutput:FreightFlowsfor42ODPairs

Source:CELConsultingandA.T.Kearneyanalysis,conductedaspartofthestudy.Note:Projected2017flowsbasedonJICA2010,andextrapolatedto2017values.Intercityroutesassumedtobe>100km

Figure2.19.ODModelOutput:Commodity-LevelAnalysis

Source:CELConsultingandA.T.Kearneyanalysis,conductedaspartofthestudy.

54

GiventhestrongeconomicgrowthinVietnam,thefutureprojectedfreightflowsareexpectedtoriseoverall, resulting from increases in production and consumption. The key factors leading to the

increasearesummarizedbelow:

• Surge in FDI and local investments: Increased investments are expected to generate higher

production levels through improvements in technological capabilities and manufacturing

techniques.

• Governmental policies supporting productive sectors: The government has been heavily

investing in theagriculturaland industrial sectors.Thegovernmenthasalsosignedmultiple

tradeagreementstoboostitseconomy.

• Increasing population and income per capita: The increasing population and enhanced

disposableincomesareexpectedtoaugmenthouseholdconsumption.

• Growth of exporting demand: Competitive labor costs relative to productivity, has made

Vietnamanattractivemarketforexports

• Increasingurbanization:An increase inurbanizationhasaugmented theavailableworkforce

for industrial production—which has been growing annually by 1.5 million (Mah 2018)—

leadingtomorehumancapitalforproduction.

iii.Seasonality

The commodity flows in the OD model are subject to the seasonal nature of the commodities.Seasonality(asrepresentedbytheaveragemonthlyexportsinthisstudy)representsakeytrendthat

ifnotadequatelyplannedfor,willresult insupply-demandimbalancesandcreatestress intheroadlogisticssystem.Generally,apeakinnetexportedvaluesoccursinJulytoNovemberbecauseofhighagriculturalproductivity,witha steepdrop inFebruary,due to theTetholiday inVietnamwhenall

factoriesstopoperatingandeconomicactivitystagnates(figure2.20).

Thisseasonalitymeansthedemandoftransportationfluctuates,whilefleetnumbersdonotfacean

abrupt increase or reduction within a year, creating fluctuating periods of overdemand andoversupply.Theexistenceofhighand lowseasons foreachcommoditypresentsanopportunity fortheaggregatortoconsolidatedemandandmatch itwiththesupply,toprovideanappropriatespot

pricing system.Consolidationof demand and information flows through an aggregator reduces theeffectofoversupplying,whichcausespricingwarsandreductionsinservicequality.

55

Whenconsideringeachcommodity individually,diversetrendsemerge.Agriculturalproductshaveasimilar low season from January to February, and a high season in the middle of the year. This

seasonality inVietnam,especiallyforrice, isprimarilydependentontherainyseason.Thecountry’srainyseasonoccursduringthesouthmonsoonseason(MaytoSeptember),withhighlevelsofrainfallandmoreprecipitationalongtheeastcoast—inDaNang,forinstance—followedbyadryseasonwith

alowlevelofprecipitationduringDecembertoFebruary(figure2.21).

Manufacturedgoodsalsohaveseasonalmovements.Historicalstatisticsrevealthatthetextilesector

has lessexportdemandduringthesummerperiod.Electronicsgoodsreflectstabledemandallyearround,withadipduringtheyear-endandyear-beginning.Thedipisgenerallyseenaftertheseasonalholidays,whichisreflectiveofconsumerbehavior.Inthefirstquarter,highdemandforcementisdue

to the adequate weather conditions for the transportation and storage of cement and relatedproducts. The diverse patterns of various products emphasize the need for more pan-Vietnamaggregatorstoavoidtruckingdemand-supplymismatches(figure2.22).Figure2.20.ExportedValueofSelectedCommodities,AggregatedMonthly

InbillionUSD,averagedvaluefrom2014to2016

Source:GeneralStatisticsOfficeofVietnam:https://www.gso.gov.vn/Default_en.aspx?tabid=766.

56

Figure2.21.ExportedValueofAgriculturalProducts,AveragedMonthly

InbillionUSD,averagedvaluefrom2014to2016

Source:GeneralStatisticsOfficeofVietnam:https://www.gso.gov.vn/Default_en.aspx?tabid=766.

Figure2.22.ExportedValueofManufacturedProducts,AveragedMonthly

InbillionUSD,averagedvaluefrom2014to2016

Source:GeneralStatisticsOfficeofVietnam:https://www.gso.gov.vn/Default_en.aspx?tabid=766.

57

Infrastructurerelatedtoroadfreight

Infrastructure plays an important role in determining the cost and efficiency of road logistics. Tooperate their daily business, truck operators in Vietnam rely on road infrastructure and other

infrastructure-related road logistics (e.g., inland container depots or ICDs), and interfaceinfrastructure with other transport modes. Therefore, understanding the situation and challengesfromtheperspectiveofthetruckingsectorwillhelp inaddressinggapsbetweencurrentandfuture

scenarios,andassistincreatingeffectivepolicyinterventionstostrengthenthesector.

i. Roadinfrastructure

Vietnamboastsanextensive roadnetworkdensity.However,more than50percentof these roadsare commune or rural roads. National highways and expressways, crucial for freight movement,account foronly7percentof the total roadsnetworks.Vietnam’shighwayandexpresswaydensity

(km/sq.km) is lowcomparedto its internationalpeers, indicatingtheneedtoexpandthecountry’shighwayandexpresswaynetwork(table2.2).

Due to its high percentage of unpaved roads (nearly 25 percent as of 2013, according to CentralIntelligenceAgencydata6),poormaintenance,andconstructionquality,VietnamalsorankslowintheGlobalCompetitivenessIndexonRoadQuality,releasedbytheWorldEconomicForum(figure2.23).

Table2.2.ComparativeAnalysisofRoadDensity:Expresswayvs.Highway

Inkilometerspersquarekilometerarea

Roaddensity India Japan Malaysia Thailand Vietnam

Highway 0.08 0.15 0.06 0.01 0.05

Expressway 0.03 0.02 0.01 0.001 0.002

Source:CentralIntelligenceAgency’sTheWorldFactbook:https://www.cia.gov/library/publications/the-world-factbook/.

58

Figure2.23.WEFGCIRoadQualityIndex,2016–2017

Roadinfrastructureratedonascalefrom1(extremelypoor)to7(extremelygood)

Source:WorldEconomicForum(http://reports.weforum.org/pdf/gci-2016-2017-scorecard/WEF_GCI_2016_2017_Scorecard_EOSQ057.pdf);VietnamMinistryofTransport.Note:WEFGGI=WorldEconomicForumGlobalCompetitivenessIndex

Takingstepstoimproveinfrastructure,VietnamdirectsasignificantportionofGDP,approximately8

percent)intoinfrastructureprojects.Additionalgovernmentefforts,suchasestablishingtheNationalRoad Maintenance Fund under Decree 18/2012, aim to deliver better quality roads across thenetwork through more adequate, predictable, and transparent road maintenance expenditures.

However,accordingtothefund’smanagement,thefundonlymeetsabout45percentofthedemandforrepairandmaintenanceofroads(Quy2018).

ii. Multimodalinfrastructure

Roads form the backbone of the freight transportation in Vietnam. However, as discussed above,given the high economic growth and growth rates of commodities, the traffic load on roads—

particularlyonhighways—isexpectedtorise.Thus,itisequallyimportanttodevelopothermodesoftransport,namelycoastalwaterwaysandtheIWTnetwork,alongwithportandICDinfrastructure,toshift some freight load from roads onto other modes. The increased use of alternate modes of

transportcanalsoassistinconsolidatingmorefreightandloweringlogisticscostsandGHGemissions.

Coastalshipping

Although themajority of throughput at seaports is for import-export, about 39 percent of cargo is

transporteddomestically.Overthepastseveralyears, thevolumeofdomestic freighthas increasedrapidly,experiencinga13.4percentgrowthrate(figure2.24).

59

Figure2.24.MaritimeCargoThroughputs,byPurposeofTransportation

Inmilliontonsandpercentageoftotal,2010-2016

Source:VINAMARINE(http://www.vinamarine.gov.vn/Index.aspx)2015data.Note:Excludingtransshipment

Analysis of contributions by seaport groups to the total maritime cargo shows seaports in thenorthern and southeast regions contribute 75 percent of the total throughput.7 Thus, this study

focusesondevelopingthetwomajorseaportsinHaiPhongandHoChiMinh.DevelopingthecoastalshippingrouteofNorthVietnam–SouthVietnamcouldalsopotentiallydivertroadtrafficfromHanoi–HCMC,oneofthelongestandmostsignificantroutesforfreightflow.

Dry bulk cargo comprises themajority of domestic cargo currently transported via coastal shipping

(figure 2.25). However, an increase in the containerization rates of cargo could encouragemultimodality, which is dependent on standard dimensions of cargo. This would also promote thetransportation ofmore commodities from short distances by trucks to longer distances by coastal

shipping or IWT. Promoting containerization requires the development of infrastructure, such asgantry cranes and forklifts, to handle containers at ports. This enablesmultimodality, as goods aretransferred in standard ISO containers (manufactured according to the specifications of the

International Organization for Standardization, or ISO), which can be loaded and unloaded easilybetweentrucksandships.

60

Figure2.25.DomesticCargoThroughputs,byTypeofCargo

Inmilliontonsandpercentageoftotal,2010-2016

Source:VINAMARINE(http://www.vinamarine.gov.vn/Index.aspx),2015data.

Heavily dependenton imports andexports, theVietnameconomy renders the seaports an integral

componentforthetransportationofimportedandexportedcommodities.Currently,onlytwodeep-water ports—Da Nang and Cai Mep—can be used without the need for transshipment. The mostheavilyusedterminalsofHaiPhong,HoChiMinh,andCatLairequiretransshipmentatforeigndeep-

seaports,whichincreasescostsby30percent(AsiaTimes2018).Thus,divertinginternationalcargotothedeep-waterVietnamports,whileusingtheremainingportsfordomesticcargo,iscrucial.

Inlandwaterways

With 224 river ports and 8,800 landing stages, Vietnam’s IWT constitutes 17 percent of all freighttransport. Vietnam’s coastline spans 3,200 kilometers, with over 19,000 kilometers of inland

waterways and 45main routes used for transporting primarily bulk goods. Almost all cargomovedthrough IWTportsremains inVietnam;only3percentofcargo is transported internationally (VIWA2017).

Withtheriversinfluencedbyfloodseasonsandhighlevelsofsettlement,particularlyintheMekongDeltaregion(VIWA2017),theIWTinfrastructurerequiressignificantimprovementtoitsfleet,cargo

landingstages(port facilities),andadequatedredgingandchannelexpansiontomaintainwaterwayandcanaldepths.

61

The typical cargovessel size is about100deadweight tonnage (DWT), compared toa typical vesselsize of over 2,000DWT found in countrieswithwell-established IWTnetworks. Asmore industries

locate next to riverbanks, smaller landing stages andwharfs have proliferated. Reports indicate 15percentofthecargolandingstagesdonothaveoperationalpermitsandareunsafe.Inaddition,manyaccessroadsleadingtoIWTportsaresmallandhaveahandlingcapacityof10–15Ttrucks,limitingthe

useoflargertrucksforlast-miledeliveryofgoodscarriedthroughtheIWTnetwork.

Anotherkeyissuewiththeinlandwaterwaysnetworkisthelowclearanceofbridges.Mostbridges,

onthetwomainriversofVietnam(MekongandRedRiver),duetotheirlowheights,donotallowthepassageofbigbarges.ManywaterwaysintheMekongRiverinthesouthandRedRiverinthenorthcanaccommodateamaximumbargesizeof96twenty-footequivalentunit (TEU),half thesize limit

onEuropeanrivers(WardandPham2011). Inaddition,criticalandbusywaterwaysections,suchasCho Gao canal in the Mekong Delta region—an artery connecting HCMC to the Mekong Delta—requiretrafficmanagement.

Inlandcontainerdepots

Aninlandcontainerdepot,orICD,isaninland,intermodaltransportationfacilityorareathatprovides

the services of handling, temporary storage, and customs clearance for containerized cargoesenteringandleavingseaports.Figure2.26illustratesthevariousfunctionsofanICD.

Forming the interface between roads and the ports, ICDs play an integral role in road freighttransportation.Also,giventhehighfragmentationoffreight, ICDsserveaspotentialsitesforfreightconsolidation,whichcanreducethetrafficbydecreasingthenumberoftrucksrequiredtocarrythe

same amount of freight. Furthermore, as the global trend moves toward increasing cargocontainerization,developing ICDs tohandle thehigher container trafficbecomesmore important—throughmodernizingthecargohandlingequipment(e.g.,cranes,forklifts,timerracks,palletracks,lift

trucks,etc.).

Interviews with truck operators and logistics companies reveal many shippers use their own

warehouses for packaging and storing, going directly to the ports for clearance to avoid the highcongestionaroundICDs’longprocessingtime.TheinconvenientlocationsofICDs—oftensituatedfarfromindustrialzones—isanotherreasongivenforavoidingICDs.TheICDDevelopmentMasterPlan

2020(TDSI2016)addressessomeofthekeyissues,layingdownrestrictionsontheminimumareaofanICDandprioritizingICDslocatednearindustrialparksandwithrailandwaterwaysconnections.

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Figure2.26.FunctionsofInlandContainerDepots

Source:TDSI2016.

Existingregulations

This section discusses the existing regulations in Vietnamhaving a direct or indirect impact on thetruckingsector.Theregulationshavebeendividedintofourkeyareas:

1. Planninginfrastructure

2. Managingsupplyplayersandsupplyfleet

3. Aggregatingdemand

4. Streamliningtrucking-relatedprocesses

i. Planninginfrastructure

AccordingtotheWorldEconomicForum’sGlobalCompetitivenessReport2016–2017,Vietnamranks79thoutof138 inoverall qualityof infrastructure,89thonqualityof roads, and77thonqualityof

portinfrastructure.TheGoViscurrentlyworkingtoincreasetheefficiencyandscopeofinfrastructureprojects, through foreign and private investment, public-private partnerships, and equitization. Forthecountrytomaintainitsstatusasamanufacturinghub,thegovernmentisemphasizingtransport

projects in industrialzones.Todecreasethetrafficcongestion in largecitiessuchHanoiandHCMC,majorpublictransportationprojectsarealsobeingundertaken(DezanShira&Associates2017).

According to data generated via the Global Infrastructure Hub’s Global Infrastructure Outlookplatform(availableathttps://outlook.gihub.org),theinfrastructureinvestmentforecastfortheperiod2016–2040indicatesthatroadinfrastructureisexpectedtohavethelargestgapbetweeninvestment

demandandcurrentinvestment,andwouldrequireanadditional70percentinfunding.Furthermore,Vietnam spends a relatively low proportion of its total infrastructural spend on road projects,comparedtoothercountries(figure2.27).

63

Figure2.27.GlobalBenchmarkofSpendonRoadInfrastructure

Inpercentageoftotalinfrastructuralspend

Source:GlobalInfrastructureOutlookplatform(database):https://outlook.gihub.org.

ii. Managingsupplyplayersandsupplyfleet

Withthis studyhighlighting themajor issueofexcessive industry fragmentationandtheskewingofthetruckfleettowardsmallerandoldertrucks,theexistingregulationsonsupplymanagementcarry

ahighimportance.

BusinesspermitissuanceandFDI

Decree86/2014/ND-CPisoneofthemainregulationsdescribingthebusinessconditionsandgrantingof permits for automobile transportation business. Currently, the paid-up capital for setting up abusiness is not restricted, which could result in the unsustainable fragmentation of the trucking

sector.Neither is therea separate law toencouragebrokerage firms,whichwouldallow forbettercargosupply-demandmatching.

However, the decree contains a clause placing a minimum restriction on the number of vehiclestransporting goods over 300 km of distance, from 10 autos for companies in central cities, to 3–5autos for companies in other localities. However, this is not strictly enforced in the sector, in part

drivenbyregulatorycomplexitiesandpracticalon-groundenforcementchallenges.Decree163/2017,whichcameintoeffectinFebruary2018,hasincreasedforeigninvestmentlimitsinVietnam’slogisticssector,boostingforeigninvestmentinserviceslikeloadingandunloading,warehousing—withfreight

forwarding increasing to 100percent as perWorld TradeOrganization commitments.However, forroad freight transportation, foreign investors can set up their companies as a joint venturewith amaximumof51percentofequity,providedalldriversareVietnamesecitizens(SaigonTimes2018).

Accesstofinancingfortruckfleets

Dependingonthecredithistoryof the individual transporter,banksoffercommercialvehicle loans,

with the vehicle (a truck, in this case) actingas the collateral and the loan-to-value rationohigherthan80percent.Onemajordrawback:asignificantportionoftheloansareusedtopurchasesmall,

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oftensecond-handtrucks.Thiscreatesaneedto link loandisbursementstothesizeandageof thetruck, encouraging the trucking industry tomove toward a younger and larger-sized fleet and the

resultinglowertransportationcostsandemissions.

Roadsafetyfortruckdrivers

Both theGovernmentofVietnamand key industry stakeholdersplace anemphasis on road safety,andconsiderdriverhealthandbehavioran importantelementof roadtransportation.TheNationalRoadSafetyStrategy2020andaVisionto2030,isagovernmentinitiativewiththesemajorgoals:

• Roadsafetymanagement

• Educationandawarenessamongpassengersandpedestrians

• Roadinfrastructureimprovement

• Vehicleanddrivertraining

• Trafficlawenforcement

• Provisionofrescueandmedicalaidforpost-accidentimmediateresponse

Traffic safety committees established at commune, district, provincial, and national levels aim to

reducethenumberofroadaccidentsinthecountry.Further,drivertrainingandlicensingproceduresincludedinDecreeNo.46/2012/TT-BGTVTregulatethecurrenttraining,examination,andgrantingoflicensesformotorizedvehicles.

Withtruckdriversformingthebackboneoffreightflowbyroads,driversafetyandbehaviorrepresentan important aspect of the road transportation. Road accidents account for nearly 98 percent of

transportation-related accidents, with 67 percent caused bymotorbikes and 27 percent caused byautomobiles(VietnamNews2017).Thus,focusingondrivertrainingandlicensingprocedureswillhelpensure drivers are qualified and following safe operating procedures, which will boost pedestrian

safetyaswell.

iii. Aggregatingdemand

While the section on urban trucking (below), discusses regulations controlling city-level demandmanagement,suchastimerestrictions,congestionpricing, land-usemanagement,etc.,streamliningtruckdemandfor intercity freight flow involvesthedevelopmentofaggregatorstohelpconsolidate

freightandincreasetruckuse.

Recently, Vietnam has witnessed the emergence of on-demand logistics players, though freight

volumesand registeredmembers remain low (the sectiononSupply Factors inChapter2discussesthecontributingreasons).Intermsofpolicy,currentlynolegalframeworkexiststoregulateandguidetheoperationsof these start-upaggregators. Inaddition, industryplayersoffer limited fundingand

mentorshipstosupportdigitallogisticsstart-ups.

Asa furtherhindrance to thegrowthofon-demandaggregators,whileVietnamesebrokerage firms

workingwiththeshippingindustrydooperateregionallyorlocally,theinternationalbrokeragefirms(C.H.RobinsonandTransplace,forexample)havethusfarnotexpandedintoVietnam.

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Thus,promotingtheuseofstart-updigitalandphysicalaggregatorsandbrokeragecompaniescouldmore effectively pool the capacity of numerous small operators and increase the information flow

betweenshippersandtruckoperators.

iv. Streamliningtrucking-relatedprocesses

Complex, time-consuming trucking-transitprocesses increasecosts.Trucking-relatedprocesses refertotheoperationalprocessesthatoccurduringthejourneyofthetruckdriver,frompickingupgoodsfrom the shipper to unloading goods at the delivery station, along with processes involving road

accidents, unauthorized stoppages for informal fees, and unnecessary waiting at toll and customsclearances.The trucking surveyconductedaspartof this study revealed that truckdriversperceivefuturepoliciesonsimplifiedandpaperlessdocumentationinapositivelight.

Accordingly, over the past several years, the GoV has been increasing the use of technology toimproveaccesstoinformationandreducethedocumentationrequiredforfreighttransportation.E-

tollingande-custom,discussedbelow,representtwopilotprogramswiththepotentialtosignificantlyimproveVietnam’struckingefficiency.

Electronictollcollection

Withaviewtoexpandtoallnationalhighways,Vietnamhaslaunchedpilotprojectsfortheelectronictollcollection(ETC)systeminHCMC.Thenewsystemisexpectedtoreducethelogisticscosts—with

fewertollboothpersonnel—andpreventtollboothdelays,leadingtobetterfleetefficiency.

In 2011, VietinBank and the DRVN piloted the ETC at six tollbooths on national roads. After the

success of the pilot program, the government laid plans to install ETC systemnationwide, andwillintroducebarrier-freeETCsystemsthatlinkdrivers’bankaccountstoETCaccounts.OnceETCisfullyequippedandimplemented,thesystemisexpectedtoreduceannualtolloperatingcostsbyVND3.4

trillion.

E-customs

In 2014, Vietnam implemented a rules-based e-customs system known as VNACCS/VCIS (VietnamAutomatedCargoandPortConsolidatedSystem/VietnamCustomsInformationSystem)toreplacethepaper-based clearance system reportedly prone to delays and subject to informal payments. As a

resultofe-customs,thepreparationtimeforimportandexportdossiershasdecreasedbynearly30percentand40percent respectively. In addition, theaverage time for import andexport clearance(fromregistrationdeclarationthroughclearancepermission)hasbeenreducedby18percentand58

percent respectively (JICA 2015). However, reports indicate the e-customs system can be less thanuser-friendly,withinterruptionsinthesystemoccurringduringinstallationordeclaration.Moreover,lowInternetspeeds inthecountryoftenhinderonlinedeclarationforbothmerchantsandcustoms

departments.

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UrbanTrucking

Withtherapidgrowthofcities,suchasHCMCandHanoi,itisimportanttostudythenatureofurban

tripsunder100km,thekeychallengesfaced,performancebottlenecks,andtheopportunitiesthereinforimprovingoperationalefficiencyandlinkswithintercityfreightmovement.Companiesinvolvedin

urban trucking are often the first- and last-mile delivery partners of the intercity transportationcompanies.Someoftheshortertripsunder100kmincludethe“drayage”ofISOcontainersbetweenamaritimeorriverportanditsimmediateurbanandindustrialhinterland.

This section discusses the key challenges in the urban trucking operations through analyzing caseexamplesofthetwomajormetropolitangateways,HanoiandHCMC.Forthesetwocities,thecurrent

trafficcongestion,city regulationsaffectingthetraffic flows,andtheupcoming infrastructuralplansarediscussedindetail.

Casestudy1:Hanoi

ThepopulationdensityofHanoiisashighas2,300peoplepersq.km,comparedtonearly300people

persq.kmforVietnamasawhole.Therefore,urbantruckingcompaniesfacehighlevelsofpassengertrafficwhenrunninglogisticsserviceswithinthecity,withnearly80percentoftheroadusersridingmopeds (Petsko 2016). In addition, the car ownership is also expected to rise, due to increasing

disposableincomes.Together,thepassengerandcargotrafficleadtohighlevelsofcongestioninthecity.GovernmentstudiescalculatethattrafficjamsinHanoicauseVND12.6trillion(US$600million)ineconomic losseseveryyear (Saigoneer2017).Analysisof theDRVN’scommercialvehicletracking

system,orCVTS,showhighcongestionpatches,particularlyinthecitycenter(figure2.28).

Hanoi also acts as a transit stop for importers and exporters operating out of theHai Phong port.

Hanoi offers office space, andmany logistics companies and distributors have opened offices andwarehouses in the city center. Goods from Hai Phong Port are brought to the Hanoi-basedwarehouses and then dispatched throughout Vietnam, adding to the city’s traffic congestion.

However, building warehouses and consolidation centers in the city’s outskirts would prevent thisimport-exporttrafficfrommovingintoandoutofthecity,reducingcongestion.

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Figure2.28.TrafficDensityRepresentationinHanoiUsingCVTSData

Source:Unpublisheddatafromthecommercialvehicletrackingsystem(CVTS)data,providedbyDRVN.

Anothermajorsourceofcargotrafficderivesfromthelogisticsoperationsofe-commercecompaniesaswellas thedailydeliveriesof restaurants,grocerystores,andothersmallenterprises. Interviews

with logistics companies indicate inefficient intra-city road structures, insufficient overpasses,underpasses, and bridges, which all lead to high levels of congestion. In such circumstances, cityplanningand zoning takeonagreater importance, clarifying theneed for the cleardemarcationof

commercial, industrial, and residential zones.However, residentialneighborhoods around industrialareascreatechallengessurroundingthecombinationofcargoandpassengertraffic.

TheGoVhastakensomeinitiativestostreamlinethetrafficinthecity.Cargotruckmovementinthecityisonlyallowedduringoff-peakhoursfrom9:00p.m.to9:00a.m.,whichreducespeak-hourtrafficcongestion. However, the restricted timings also lead to congestion at city entry points during the

restrictedhours.Urbanconsolidationcenters(UCCs)locatedatthecityfringesserveaspotentialsitesfor freight consolidation for goods moving out of the city as well as freight deconsolidation intosmaller trucks for goods moving into the city. In addition, UCCs could provide organized parking

spacesforthelargertrucks.Chapter5discussestheadvantagesofestablishingUCCsatcityfringes.

Casestudy2:HoChiMinhCity

HCMCisoneofthedensestcitiesinVietnamwithapproximately4,000peoplepersq.kmofarea.TheCVTSdataanalysisoftheprovinceshowshighcongestioninthecentralcity(figure2.29a).

Factors attracting industries include the geographical advantages of HCMCwith seaports and riverports and the availability of good quality human resources. While the population growth rate is

modest at 1.46 percent, the migration rate is relatively high, at 3.8 percent per annum. BecauseHCMC is an economic hub for Vietnam, a huge number of vehicle users come to the city, piling

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pressure onto the traffic infrastructure. Due to the presence of rivers, the region is also prone toseasonalflooding,whichfurtheraddstothetrafficproblemsinthecity.

AuniquefeatureofHCMC,distinguishing its trafficmanagementfromHanoi, is thepresenceoftheHoChiMinhportnearthecenterofthecity(figure2.29b).TheHoChiMinhportisoneofthemost

importantportsforexportsandimportsinthecountryandservesasthemaingatewayfortheregion,accountingfor67percentofthetotalthroughputofallportsinVietnam.Trucksusedforthefirst-orlast-miledeliveryofcontainersandbulkgoodsfromcityportsintocitycenterscontributetothehigh

levelsofcongestion.

With container terminals located in the city center, city roads—already highly congested with

passenger vehicles—serve as access roads connecting the ports to the nearest highway, whichaccounts inpart for the longdelays inmoving trucksbetweenports and ICDs.Consequently, theseportaccessroadscouldbenefitfromadditional lanesdedicatedtomovingcargotraffic.Further,the

CaiMep–ThiViaPort, anunderutilizeddeep-waterport locatedaround80kmsouthofHCMC, canhandlemorethroughputfromHoChiMinhport.

Figure2.29a.TrafficDensityRepresentationinHoChiMinhCityUsingCVTSData

Source:Unpublisheddatafromthecommercialvehicletrackingsystem(CVTS)data,providedbyDRVN.

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Figure2.29b.TrafficDensityRepresentationinHCMCUsingCVTSData(Zoomed)

Source:Unpublisheddatafromthecommercialvehicletrackingsystem(CVTS)data,providedbyDRVN.

Truck traffic inHCMC isalso subject to timing restrictions. Laws recentlyput inplaceby theHCMCPeople’sCommitteerestrict light trucks fromentering thecity’surbanareaduringpeakhours from

6:00a.m.to9:00a.m.andfrom4:00p.m.to10:00p.m.Inaddition,heavytrucksandcontainertrucksarenotallowedinurbanareasfrom6:00a.m.to10:00p.m.TheHCMCPeople’sCommittee,however,is considering granting licenses to allow certain vehicles to operate during these hours. Approved

vehicles would include rescue trucks, dump trucks, trucks needed for repair work on electricalequipment,andheavytrucksneededforkeyconstructionprojects.Inaddition,lighttrucksandheavytruckscanoperateonringroadswithnotimerestriction.AsdiscussedintheHanoicasestudy,UCCs

couldpotentiallyofferorganizedspaceforparkingtrucksandconsolidatingfreight.

TosummarizethecasesofbothHanoiandHCMCtogether,thekeyrecommendationsforimproving

urbantruckingincludethefollowing:

• ConstructUCCsintheoutskirtsofHanoiandHCMCtoconsolidateanddeconsolidatecargo.

• Integratelanduseandmultimodaltransportplanningtobetterseparatepassengerandcargo

traffic

• Dedicatetrucklanesforport–cityroads

• Shiftinternationalcargotothedeep-seaportswhileusingriverportsforIWT

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Summary

! Thefirstpartoftheassessmentfocusedon intercitytrucking,which involveshaulageof

freightfromonecitytoanother,typicallyfordistancesover200km.

! Onthesupplyside,keyissuesincludetheunsustainablefragmentationofthemarketand

thehighly skewed truck fleet towards smaller andolder trucks. Theaveragenumberof

trucksownedpercompanyisfive,while68percentofthetrucksarelessthan5Tinsize.

Around 94 percent of trucks are more than five years old. The majority of trucks are

imported,withmanyoldertruckmodelsnotadaptedtotheVietnamcontext.According

tothenationwidesurvey,thetruckingindustryholdsfavorableviewsonpotentialpolicies

toimprovedriversafety.

! Related to the demand-side, demand-supply matching suffers from the lack of pan-

Vietnam brokerages and digital aggregators. Empty backhauls range from 50 to 70

percent for transport operators, compounded by the seasonality of the products

analyzed. The development of aggregators could potentially improve the efficiency of

inter- and intra-city trucking through improved pan-Vietnam coverage, balanced supply

anddemand,andgreatertransparency.

! Intermsofroadinfrastructure,thedemandassessmenthighlightseightmajorroutesas

theimportanteconomiccorridorsforVietnam,whichshouldbeprioritizedforfutureroad

upgradationproposedby theGoV. These routes include fromand toHanoi–Hai Phong,

Hanoi–HCMC,HCMC–CanTho,andHCMC–DaLat.

! To optimize the transport system as a whole and to reduce costs and GHG emissions,

multimodality via inland waterways and coastal shipping should also be promoted.

Chapter 5 explores the specific gaps in the current infrastructure and proposals to

mitigatesuchgapsintheportsandwaterways,marketstructureintermsofavailabilityof

coastal shipping lines, the size and design of the vessel fleet, and the supporting

infrastructureatinlandcontainerdepots(ICDs).

! Intermsoftrucking-relatedprocesses,e-tollingande-customshavethemost impacton

improving efficiencies. These should be accelerated and augmentedwith other policies

thatcouldsupportunexpectedincidents,suchasaccidentsandunauthorizedstoppages.

! The nationwide survey conducted by this study supports the study’s key findings,

revealing that the industry viewed the following potential policies could have themost

beneficial impact: (a) road and truck-related infrastructure facilities, (b) seamless

processesformovementofgoods,and(c)fleetmodernization.

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! ThesecondpartoftheoperationalassessmentincludescasestudiesonHanoiandHCMC

tobetterunderstandtruckingcharacteristicswithincities.Urbantruckingservesthefirst-

mileandlast-milelogisticsneeds,and/orthedrayageofcontainersorgoodsfromportsto

thenearestindustrialhinterland.Thetwocitiesbothwitnesshighcongestionlevelswith

highpopulationdensities,andbothregionsserveasmajoreconomichubsandimportant

productionandconsumptioncentersforVietnam.

! Both cities have been combating high traffic levels through time restrictions on truck

travel within the city. However, congestion persists. Hanoi acts as a transit stop for

importersandexporterswhooperateattheHaiPhongport,whichaddstounnecessary

cargotrafficinthecity.

! Constructionofurbanconsolidationcenters(UCCs)intheoutskirtsofHanoiandHCMCis

a viable option to streamline the traffic in the city. The UCCs could reduce traffic

congestionbyprovidingspacestoconsolidatesmallertruckscomingfromthecitiesonto

thehighways,whilebreakingdownthecargoenteringthecitiestoincreaseroadsafety.

The UCCs could also potentially serve as parking spaces for trucks waiting outside the

citiesduetotimerestrictionsontrucktravel.

! HCMC, on the other hand, has a seaport and terminals in the city center,which cause

congestion.Dedicatedtrucklanesforport-cityroadscouldpotentiallyreducecongestion,

particularlyinHCMC.Internationalcargoshouldalsobeencouragedatthedeep-seaports

outsidethecity,whilereservingcityriverportsforinlandwaterwaystransport.

Notes

1.Datafor2018,accessedviaafinancialdatabaseoftruckingandlogisticscompaniesinVietnam,

availabletoAventionclients.

2.Primaryandpublishedinterviewswithfoundersofdisruptivelogisticsstart-ups.

3.Statisticsbasedon2018data(unpublished)fromtheVietnamRegister:http://www.vr.org.vn/en-

us.

4.DatafromtheEuropeanAutomobileManufacturersAssociation(ACEA)statisticsdatabase

(https://www.acea.be/statistics).Germanydataincludestrucksandbusesclassifiedasmediumandheavycommercialvehicles(MHCVs).

5.Dataextrapolatedto2017values.

6.CIAonlinestatistics(2013)forVietnamroadways:https://www.cia.gov/library/publications/the-

world-factbook/geos/vm.html#field-anchor-transportation-roadways.

7.VINAMARINE(http://www.vinamarine.gov.vn/Index.aspx),2015data.

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2018.”VietnamBriefing,December22,2017.https://www.vietnam-briefing.com/news/vietnam-reduced-import-tariffs-automobiles-asean-2018.html/

Mah,Kyssha.2018.“AnintroductiontoVietnam’simportandexportindustries.”VietnamBriefing,

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Petsko,Emily.2016.“TransformingaMotorcycleCity:TheLongWaitforHanoi’sMetro.”The

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Quy,Bao.2018.“FindEffectiveManagementMechanismofRoadMaintenanceFund“(in

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Saigoneer.2017.“TrafficJamsAreCostingHanoi$600mnAnnually:Studies.”Saigoneer,July10,2017.

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SaigonOnline.2016.“After-SalesServiceforImportedCommercialVehicles?”(inVietnamese).Saigon

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SaigonTimes.2018.“VietnamOpensupLogisticsSectortoForeignCompanies.”VoiceofVietnam,

January14,2018.https://english.vov.vn/economy/vietnam-opens-up-logistics-sector-to-foreign-companies-366655.vov.

Schröder,Martin.2017.“VietNam’sAutomotiveSupplierIndustry:DevelopmentProspectsunder

ConditionsofFreeTradeandGlobalProductionNetworks.”ERIADiscussionPaper,EconomicResearchInstituteforASEANandEastAsia(ERIA),Jakarta.http://www.eria.org/research/viet-nams-automotive-supplier-industry-development-prospects-under-conditions-for-free-trade-and-global-production-networks/.

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TDSI(TransportDevelopmentandStrategyInstitute).2016.“TheProjectofDetailedPlanningfortheDevelopmentofVietnamICDSystemto2020,Visionto2030.”UnpublishedsummaryreportproducedfortheVietnamMinistryofTransport,Hanoi,inJuly2016.MicrosoftWordfile.

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Chapter3:LogisticsCostsAssessment

TheGovernmentofVietnam(GoV)hasselectedasadevelopmentgoal tomakeVietnamamodern

industrializedcountryby2020.Transportandlogisticsservicesplayamajorrole,integraltoboostingthe value chain from production to sales and in enhancing the competitiveness of Vietnam in the

internationalmarket.AccordingtotheVietnamLogisticsBusinessAssociation(VLA),thegrowthrateofthelogisticsindustryinVietnaminrecentyearshasreachedaround14to16percent,withascaleof approximatelyUS$40–42billion per year (MoIT 2017). Though still relatively young, the logistics

business in Vietnam is growing rapidly,mostly from traditional operations, such as transportation,warehousing,andbydevelopingintegratedserviceswithhigheraddedvalue.

Vietnam has shown significant improvement in its logistics services by improving 25 places in theLogisticsPerformanceIndex(LPI)(WorldBank2018)from64in2016to39in2018.AllindicatorsontheLPIhaveimproved,withthehighest increaseinqualityofservice(ranked33,up29places),and

abilitytotrackandtracegoods(ranked34,up41places).However,thelogisticscostsinthecountryremainshighat21percentoftheGDP(VoV2017),whichaffectsthecompetitivenessofexportsandaddstothecostofconsumedgoods.Thetypicalcomponentsoflogisticscostsarelistedbelow(Zeng

andRossetti2003):

1. Transportation

• Freightcharge:Costincurredduringdeliveryusingvarioustransportationmodes

• Consolidation:Thefeeforcombiningsmallshipmentstoformlargershipments

• Transferfee:Costincurredduringtransferofgoodsbetweendifferentmodes

• Pickupanddelivery:Transportationchargesincurredbetweenshipper’swarehouseand

air,rail,orseaconsolidator’sterminal

2. Inventoryholding

• Pipelineholding:Holdingcostduringthetransfer

• Safetystock:Holdingcostofsafetystock

3. Administration

• Orderprocessing:Salariesofemployeesresponsibleforpurchasingandorder

management

• Communication:Telephone,fax,andinformationtransfer-relatedcostsassociatedwith

internationallogistics

• Overhead:Rentpaidbytheinternationallogisticsgroup

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4. Customs

• Customsclearance:Feeimposedbylocalcustomstocleargoods

• Brokeragefee:Chargeleviedbyanagentactingonbehalfoftheshipperorthereceiver,

dependingonthedeliveryterms

• Allocationfee:Perhousebill

5. Riskanddamage

• Damage/loss/delay:Percentageofthevalueofeachunitshippedthatwillbelost,

damaged,ordelayed

• Insurance:Cargoandvehicleinsurancecosts

6. Handlingandpackaging

• Terminalhandling:Materialhandlingfeechargedbythetransportationcompanyatthe

air,rail,orseaterminals

• Materialhandling:Costoflaborandequipmentusedtomovegoodswithintheshipper’s

orreceiver’swarehouse

• In/outhandling:Materialhandlingchargeleviedbythefreightforwarderforuseofits

facilities

• Disposalcharge:Feefortakingawayanemptycontainerfromthereceiver’swarehouse

• Packagingandsuppliesmaterials:Costofpreparinggoodsforshipment

• Storage:Rentalfeeofthewarehousespace

Worldwide,transportationcostsaccountforthemajorityoflogisticscosts.InVietnam,transportation

accountsfornearly60percentofthetotallogisticscosts(MoIT2017).Thus,itisimportanttoframepoliciesthatcanenablereductionoftransportationcosts,whichinturnwillhaveasignificantimpacton the country’s overall logistics costs. Transport costs would include the fixed aswell as variable

costs. Since roads form themajority of freight transportation (about 77 percent of the total), it isimportanttounderstandthecoststructureoftruckingcompaniesinVietnam.Thischapterdiscussesthe transportation costs for truck operators to better understand the key cost considerations for

carriersinvolvedintheroadfreighttransportvaluechain.

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TruckOperatorCostAssessment

The profitability-cost assessment for truck operators involves developing a bottom-upmodel for atruck operatorwhoseprimary service is pure transportation.According toDirectorate for Roads of

Vietnam (DRVN) statistics 2017, the average truck operator owns five trucks. Hence, this modelanalyzestheprofitsfortruckoperatorswhoownupto30trucks,assumingthatitsoperationswould

lie solely in transportation. Further, this profitabilitymodel divides truck operators into two types:shorthauloperatorsand long-hauloperators.Theprofitabilityanalysis forthetwooperatorsdifferssignificantlybecauseofthehighvariationintheoverallcosts incurred.Table3.1showsthetwokey

parametersdifferentiatingshort-haulandlong-hauloperators.

Table3.1.DifferencebetweenShort-HaulandLong-HaulOperators

Parameter Short-hauloperator Long-hauloperator

Routelength 100–200km >1000km

Trucktype(ideally) 5–10T >20T

Source:Primaryinterviewsconductedwithtruckoperators.

Typically, use of larger-sized trucks for long haul operators leads to higher fixed costs and fuelconsumption. Furthermore, the annual distance travelled by a truck of a long-haul operator is

approximately 2.5 times the distance travelled by a truck of a short haul operator, which leads tohighervariablecosts.

Methodology

As discussed above, the model classifies truck operators into two types: short haul and long-hauloperators.Toassesstheoverallcostdrivers,themodelusedresponsesfromthenationwidetruckingsurveyofmorethan110operatorsandcompanies.Inaddition,tofindtheexactvaluesforcostand

revenue inputs and gain a deeper understanding of trucking operations, themodel focused on in-depth interviews frommore than20 truckoperators and logistics companieswith a transportationarm.

Themodeldividesthecostcomponentintofixedandvariablecosts.Table3.2liststhekeycostheads,alongwithbriefdescriptionsofeach.

Therevenue,ontheotherhand,iscomputedbycalculatingthefreightton-kmtravelledbythetruck,multiplied by the ton-km tariff rates. The model computes the number of trips for each kind of

operator based on the utilization of the truck. Again, this is significantly different for a long-hauloperatorascomparedtoashorthauloperator,sincethe lattermakes fourto fivetimesmoretrips

perannumduetotheshorterdurationofeachtrip.Thetariffratesaremarketdrivenwithdifferentrateschargedfordifferenttrucksizesonspecificroutes.Longerrouteswillcarryahighertariffratethan a shorter route for the same truck size. Tariff rates used in thismodel are taken from truck

operatorinterviews.

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Costheads

i. Fuelcosts

Fuel costs are dependent on the fuel efficiency of the trucks and the kilometers travelled by the

truck.A truckplyingona shorthaul (say,along theHanoi–HaiPhong route) roughly travelsaround5,000kmamonth,whileatruckonalongerhaul—suchasHanoi–HoChiMinhCity(HCMC)—wouldtravel10,000kminamonth.Fuelefficiencyvariesaccordingtothesizeofthetruckinthefollowing

manner,asshownintable3.3.

InVietnam, congestionon roads and the resulting idlewaiting time represent a key contributor toreduced fuel efficiency. Smaller truck operators usually purchase older, second-hand trucks, whichalsodeterioratestheirfuelefficiencyandindirectlyaddstothecostoftheirtrip.Additionally,arisein

dieselpricesoverthe lasttwotothreeyearshasfurthersqueezeddowntruckoperatormargins,astheyareunabletoincreasetariffratesduetohighmarketcompetition.

ii. Tollcosts

Toll charges vary proportionally according to the size of the truck. Truck drivers often skip thehighwaysandexpresswaystoavoidtollcharges;anytimesavedbyusinghighwaysandexpresswaysisoftenoffsetbyextensivetrafficjamsatcityentrypoints.

ThemodelcalculatestollfeesusingDRVNtolldatafortollfeescollected,accordingtotruckpayloadsandthecurrentnumberofhighwaytolls.Becauselong-hauloperatorsuselargertrucksandpaymore

tolls,theyhavehighertollcostsascomparedtoshort-hauloperators.

iii. Informalfee

Informal fees refer to theunauthorizedpayments to trafficorborderpolice toprevent tripdelays.Non-complianceisakeyreasonfordetentionbytrafficpolice,suchasoverloading,violationofroadlaws, etc.; however, truck operator interviews show drivers sometimes pay even when in full

compliancetoavoidfurtherdelays.Informalpaymentsareindependentoftrucksizeandareusuallypaiduponenteringanewprovince,typicallyatbordercrossings.Asaresult,longertripsoftenleadtomoreinformalfees.1

iv. Driversalary(fixedandvariable)

Adriver’ssalaryhastwocomponents—abasicfixedsalaryandaper-tripremuneration,toincentivize

thedrivertocompletemoretrips.Inordertomakemoremoney,driverswilloftendrivemorethanthegovernment-mandatedlimitof10drivinghoursperday.2

Forboth fixedaswellasvariablecomponents,driversalary fora long-hauldriver ishigher (1.5–2.5times)thanashort-hauldriver;longerhaulsinvolvemorerisksandkeepthedriverawayfromhomefor longerdurations,andthusrequirehigherremuneration.Basedonthetruckoperator interviews,

theannualvaluesfordriversalaryrangefromVND75milliontoVND250million.3

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Table3.2.KeyCostHeadsforTruckOperators

Costtype Costhead Description

Fuelcosts Costoffuelconsumed

Tollcosts Tollfeepaidatthebooth

InformalfeeInformalpaymentsmadeonthewaytopreventvehicledetention

Variablecosts

VariabledriversalaryDriversalarycomponentpaidonapertripbasis

InspectionfeesFeespaidtoVRforperiodicinspectionandgrantofcertificate

Roadmaintenancefee/roadusercharges

Feepaidfortheusageoftrucksonroads

FixeddriversalaryDriversalarycomponent,whichisfixedirrespectiveofdriverproductivity

Administrativestaffsalary

Fixedsalarypaidtotheadministrationdepartment

OfficerentRentforofficespace,irrespectiveoftruckfleetsizeandefficiency

InsurancecostsInsurancepremiumsforcargoandtruck

Fixedcosts

MaintenancecostsAnnualservicingcostsoftrucksaswellason-roadmaintenance

Interestcosts Interestpaidonthevehicleloans

Depreciation Depreciatedasset(truck)costs

OpportunitycostsCostofopportunityfordownpaymentofvehicleloan

Postearningsbeforeinterest,tax,depreciationandamortization(EBITDA)

Tax Corporatetaxes,asapplicable

Source:Primaryinterviewsconductedwithtruckoperators.

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Table3.3.FuelConsumptionbyTruckWeight

Trucksize Fuelefficiency(L/100km)

0–5T 11

5–10T 13

10–20T 20

>20T 27Source:Primaryinterviewsconductedwithtruckoperators.

Anotherimportantpointofdifferencehereisthatashort-hauloperatoronlyemploysonedriverpertriponashorterroute,typicallycoveredinaday.Along-hauloperator,however,employstwodrivers

pertrip,witheachdrivernormallyoperatingafull10hoursperday.Forexample,atruckcancovertheHanoi–HCMCroute inapproximately48hours(one-way)withtwodriverscollectivelydriving20

hoursperday.

Alsoimportanttonote:theaveragetruckspeedinthisroute(roughly1,600km)comesoutto40–50

kmph,despitetheuseofhighways,indicatingthesignificantimpactcongestionhasontransitspeeds.

v. Inspectionfeesandroadusercharges

Inspection fees and road user charges comprise fixed costs that do not depend on the distance

covered. Charged annually or semi-annually on a per-truck basis via inspection centers, inspectionfees are paid to the government. The inspection centers, under the supervision of the VietnamRegister(VR),issuecertificatesindicatingtrucksaresuitabletoplytheroads.Trafficpolicecancheck

certificates at any time. The inspection cost is governed by Decision No. 138/1999/QĐ/BVGCP,showingsmallertruckspaylowerfeesascomparedtolargertrucks.Toencouragetruckstoundergo

regularinspection,thefeeiskeptreasonablylow(VND230,000–460,000).Evenso,approximately10percentoftrucksinoperationdonotreturnforannualinspection.

Roadusercharges,governedbyCircular293/2016/TT-BTC,arepaidbasedonthetruck’suseofroads.Typically, the owner, operator, or manager of the vehicle is responsible for paying the road usercharges. The road user fee varies according to truck size: smaller trucks pay less; larger trucks pay

more,tocompensateforthegreaterdemandslargertrucks(withlargerpayloads)placeontransportinfrastructure.

vi. Administrativesalaryandofficerents4

Expensessuchassalaryforadministrativestaffandofficerentalcostsareindependentofthesizeofthetruckandthedistancetravelledbythetrucks.Theseexpensesareusuallylinkedtothenumberof

trucksownedbytheoperator,sinceoperatingacompanyrequiresaminimumamountofofficespaceand administrative personnel. In general, this cost is spread acrossmore trucks as the scale of thecompanyincreases.

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InVietnam,companiestypicallyhavearatioofoneadministrativepersonforeveryfourtrucks.Ifthecompaniesofferadditional servicesapart frompure transportation, the fixedcostofadministrative

staffisdividedacrossallservices,therebygivingscaleeconomies.Officerents,ontheotherhand,aredependent on the location of the office and property rate differential. Truck companies in primeindustrialareasofHanoiandHoChiMinhCity(HCMC)payhigherrentsthancompaniesoperatingin

smallerprovincesofVietnam.

vii. Insurancecosts

Truckoperatorspaytwokindsofinsurancepremiums—themandatorycivilliabilityinsurancetocoverthird-partydamageand theoptional vehicle insurance to coverdamage to the truck itself. For thisstudy, the model assumed the operator has purchased both insurances. Based on the focused

interviews,mandatoryinsurancepremiumstotalanestimated1to2percentofthetruckcosts,whiletheoptionalinsurancepremiumstotalapproximately3percentofthetruckcosts.

While Decree 103/2008/ND-CP mandates the purchase of insurance for civil liability for all motorvehicleowners(includingtrucks),nolawmandatesthepurchaseofinsurancefordamagetothetruckorcargo.Whilecompaniesusuallybuyoptionalvehicleinsurancetocovertruckdamageincaseofan

accident, they often do without cargo insurance. In contrast, shippers will generally opt for cargoinsurance,toinsureexpensivegoods.However,ifgoodsaredamagedintransitduetoaccident,theft,etc., and the driver is proven to be at fault, the truck company is liable to pay its customer. The

generaltrendisforcompaniestopayoffthedamagecostsonacase-by-casebasis,ratherthanbuyingthecargoinsuranceupfront.

viii.Maintenancecosts

Althoughmaintenancecostswillvaryaccordingtotheageof thetrucks,operators report that theyusuallysendalltrucksintheirfleetstoathirdpartyformaintenanceonceortwiceayearandthusdo

notdifferentiatebasedontheageofthetruck.Themaintenancecostsinthismodelaredividedintotwoparts:1)theannualorsemi-annualservicecharges,and2)thetirecosts,whichincludeson-roadmaintenancecostscausedbytheeverydaywearandtear.

Theannualservicechargeswillvaryaccordingtothesizeofthetruck,andrangefromVND4millionfora<5TtrucktoVND40millionfora31Ttrailer.Thetirecost,ontheotherhand,isalsodependent

on the truck size since larger trucks requiremore expensive tires. Since tires have a fixed lifetime(around60,000kmpertire),thetirecostalsodependsonthekilometerstravelledbythetruck,withlong-hauloperatorsfacingmorewearandtearandon-roadmaintenancecosts.

ix. Interest,opportunitycost,depreciationandtax

The fixed and variable costs discussed above give us the grossmargins of an operator. Chapter 3

includes a section (Revenue Computation) discussing how themodel computes netmargins for anoperator.ThismodelalsoassessesthefourcostheadsappearingafterEarningsBeforeInterest,Tax,DepreciationandAmortization(EBITDA)inanoperator’sProfitandLoss(P&L):interest,depreciation,

opportunitycost,andtax.

Interestcost:Interestcostreferstothefinancingcostsforthepurchaseofthetrucks.Trucksaremost

often purchased on loans with a 10 percent interest rate. Truck operator interviews indicate thatgetting a loan is easy, but the interest costs arequitehigh. In general, truckpurchases require, on

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average,a40percentdownpayment,withtherest financedthrough loans, thoughthisratiovariesaccordingtothesizeof thecompany.Largecompaniesoftenhaveenoughcashreservestomakea

higher down payment than small truck operators (as high as 70 percent). The interest costs, asmodeledhere,dependonthepriceofthetruck,andthusareusuallyhigherforalargertruck.

Depreciation: Truck asset depreciation is an important component used to calculate the return oncapital employed (ROCE) of the trucks. Based on truck operator interviews aswell as other similarstudies,thedepreciatedtruckvalueiscalculatedbydecreasing10percentfromthelastyear’svalue.

Theaveragevalueoftheasset(truckvalue)atthebeginningandendoftheyearcontributestothecapitalemploymentofthecompany.

Opportunitycost:Thedownpaymentdiscussedabovecouldbeusedbytheoperatorto investbackinto thebusiness,and thusaccounts for theopportunitycostof theoperator.Thecostofcapital isgenerallyestimatedat15percent—theaveragereturnonequity(RoE)inVietnam—andthisamount

isusedtocalculatetheopportunitycostoftheoperator.

Tax: In this model, the standard corporate tax rate (20 percent) is used for the truck operator.

Althoughthegovernmentoffersspecialtaxratesandotherincentivestoforeignanddomesticsmallandmedium-sizedenterprises(SMEs),themodeldoesnotdistinguishbetweentypesofbusiness,andinsteadcalculatesthetaxbasedonnetmargins.

Revenuecomputation

Tariffsforfreighttransportaredefinedonaper-truckbasis,basedonthetrucktypesavailable.Whentranslatedintoaperton-kmbasis,long-haultariffsaremuchlowerthanshort-haultariffs.Anaverage

ofVND1.5millionischargedforasmall5TtruckplyingashortroutelikeHanoi–HaiPhong,whileanaverageofVND35million ischargedfora25TtruckplyingtheHanoi–HCMCroute.Tariffscanvarysignificantly fromone company to another based on the services that they offer. Some companies

offercustomclearances,etc.,whichwilladdtotheirprices.Becausetruckoperatorsareresponsibleforfindingshippingordersonthereturntrip(andemptybackhaulscanrangefrom50to70percent),tariffpricesaregenerally listed forone-way trips.Thecost incurredwhile returningwithno load is

directlybornebytheoperator,nottheshipper.

Themodeltakesthetruckavailabilityrateas80percent,whichgivesthenetnumberofoperational

daysforthetruckinayear.Thisisbasedonthenationwidetruckingsurvey.Triptimeisinclusiveoftherunningtime,asisidletimespentonthetrip.Usingthenumberofoperationaldaysandthetriptime,themodelcomputestheannualnumberoftripscompletedbybothlong-andshort-haultruck

operators,whichthengivesthetotalannualrevenueforeachoperator.

Analysisandmodeloutput

Basedonthecostandrevenueassumptionsdiscussedintheabovesections,themodelbuildsaP&L

statementforthetruckoperators,whichprovidesthemajorcostdriversbyestimatingtheproportionofeachcosthead(discussedearlier)intheoverallcosts.ThecostsandrevenuesareindicatedinVNDperton-kmtopointouttheeffectivenessofalargertruckversusasmallertruck.And,asthenumber

of trucks owned by the operator increases, scale economies can be realized,while the netmarginimprovessignificantlytoo.

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Thefollowingsectiondiscussesthreekeyareas(forbothtypesoftruckoperators):

1. Keycostsdrivers

2. Variationincostswithtrucksize

3. Scaleeconomies

i. Keycostdrivers

Theannualcostspertruck(inVNDperton-km)forshortandlonghaulsareshowninfigure3.1.

Figure3.1.AnnualCostsperTruckforShortandLongHauls

InVietnamesedong(VND)perton-km

Source:Primaryinterviews,A.T.Kearneyanalysisconductedaspartofthisstudy.Note:5-10Ttruckusedforshorthauls,>20Ttruckusedforlonghaulsa.Includesfixedandvariablesalaryb.Includesroadmaintenancefeec.Includescostofcapital

Asseeninthefigureabove,variablecostsforashort-hauloperatoraccountfor52percentofthetotalcosts, while for a long-haul operator, variable costs could account for up to 66 percent of annual

costs. Thus, a long-haul operatormight showamore consistent per-km cost and therefore amoreconsistent gross margin, operating margin, and profit margin.A short-haul operator, on the otherhand,mayachievehighermarginsasthedistancetravelledbyitstrucksincreases,sincerevenueswill

increasebutcostswillnot;however,thiscanalsoresultinextremelylowmarginsifthedemandfortrucksfalls.

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Thetopfivecostheadsfortheoperatorsarefuelcosts,tolls,informalfees,interestcosts,anddriversalaries.Thedifferenceintheproportionofcostsforthetwooperatortypesisdeterminedbytruck

size and kilometers travelled. Fuel cost is the most critical cost element for truck operators,representingthehigherproportionofoverallcosts.Sincefuelcostsareadirectfunctionofthetrucktype, it is important to focus on improving future truck engine designs to make them more fuel

efficient. Other areas of improvement would be reducing congestion and wait time on roads toreduce the amount of fuel wasted during idling. Toll fees and interest costs are the next highestcontributortooverallcosts(togethertheyaccountforapproximately30percentoftotalcosts).Tolls

and interest costs are regulated by government and can be lowered only through governmentinterventions,where appropriate. Informal fees hurt the operators themost, and this unnecessarycostburdenneedstobetackledthroughimprovedoperatorcomplianceandgovernmentalreformsto

makethetransportationprocessmoretransparent.

Policy interventions aimed at reducing thesemajor costs will be beneficial in reducing the overall

transportationcosts,andconsequently,thelogisticscostsforVietnam.

ii. Variationincostwithtrucksize

Thecostsper ton-kmdecreasesas trucksize increases.Themajorcostheads,however, remain thesame,asdiscussedintheabovesection.Costsindependentofthetrucksize,suchasdriversalaries,informal fees, administrative expenses, and office costs, are spread across higher freight tonnage.

Costsdependentontrucksize,suchasfuel,tolls,maintenance,etc.,alsoreducetoalowercostperton-km,thankstothegreaterfreightcarryingcapacityoflargertrucks.Thecostvariationforalong-hauloperatorshowninfigure3.2clearlyindicateslargertrucksaremoreefficientandleadtogreater

freighthaulagewithlowereffectivecosts.Forexample,shiftingfroma5Ttrucktoa>20Ttrailer(forbothshort-andlong-hauloperators)reducescostsbyapproximately76percent.

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Figure3.2.VariationinTransportationCosts,byTruckSize

InVietnamesedong(VND)perton-km

Source:Primaryinterviews,A.T.Kearneyanalysisconductedaspartofthisstudy.Note:Freightcostpertruckperton-kmfora1,500kmtripa.Includesfixedandvariablesalaryb.Includesroadmaintenancefeec.Includescostofcapital

iii. Scaleeconomies

Atruckingcompany’sscaleismeasuredintermsofthenumberoftrucksownedbythecompany.Inthismodel, theprofitabilityofa truckoperator isexpressed in termsofnetmarginsand theROCE.

While netmargins are purely dependent on profitsmade by the truck using the cost and revenueparametersdiscussedabove,ROCEalsoincludesacomponentofworkingandfixedcapital.Foratruckoperator, the asset (truck), functions as the fixed capital,while theworking capital is earned from

revenues.

Profitabilityoftruckoperatorstypicallyincreaseswiththenumberoftrucksowned.Scaleeconomies

isachievedasthefixedcostsarespreadacrossmoretrucks,leadingtohigherprofitspertruck,whichthentranslatestohighermarginsandROCE.Theprofitabilityvariationwithcompanyscaleisshownin

figure3.3andfigure3.4.GiventhattruckcompaniesinVietnamownanaverageoffivetruckseach,we see lowmargins for these companies, in the range of 3 to 5 percent, which can affect sectorsustainability.

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Figure3.3.VariationinNetMarginsbyFleetSizeofTruckOperators

Note:Netmargin=profitaftertax÷totalrevenue.Profitaftertax=totalrevenue–(fixedcosts+variablecosts+interest+depreciation+opportunitycost+tax).

Figure3.4.VariationinROCEbyFleetSizeofTruckOperators

Note:ROCEcomputedasthenetreturn(excludinginterestandopportunitycost)dividedbythecapitalemployed,whichincludesfixedcapital(assetvalue)andworkingcapital(accountreceivables).

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Short-hauloperatorsmakehighermarginsthanlong-hauloperators(forthosewith>10trucks).Policyimperatives could improve the profitability of long-haul operators through better infrastructure,

controlofinformalfees,etc.,whilelookingforalternativemodesoftransportforlonghaulageinthelongerterm.

Keyinferences

Throughthecostmodelanalysis,thekeyimprovementleversofprofitabilityincludethefollowing:

i. Fleetsize:Anincreaseinthenumberofoperationaltrucksyieldsscaleeconomiesinfixedcost

headslikeadministrativesalaries,officerentspace,etc.,whichleadstohighermargins.Asthe

scaleincreases,thecompanycanalsoinvestinotherlogisticsservices,therebycreatingscope

economies.

ii. Trucksizeandtonnage:Themajorityofcostheads—fuel,tolls,maintenance,inspection,road

usercharges, insurance,and interestcosts—aredependentonthesizeofthetruck.Though

these absolute costs increase with truck size, the effective cost per ton-km reduces

significantlyduetoincreaseinfreightcarried.

iii. Route characteristics: Long-haul trucks crossing a higher number of checkpoints facemore

informalandtollfees.Ingeneral,longhaulsalwaysinvolvemoreriskthanshorthauls,suchas

theneedfortwohigher-paiddrivers,whichcanlowerprofits.

iv. Utilizationrates:Emptybackhaulshaveamajorimpactonprofitability,sincetheyreducethe

remunerateddistance for theoperator.Due to thehigh variable costs incurredper trip for

runningemptytrucks,long-hauloperatorsfaceahighercostburden.

These four key drivers of profitability provide the basis for the development of policyrecommendationsonanoperatorlevel.Chapter5discussesthedetailedpolicyrecommendations.

WayForward

TransportationcostsareextremelycrucialintheoveralllogisticscostsinVietnam.However,inorderto increase Vietnam’s trade competitiveness, transportation costs must be lowered. The resulting

improvedprofitabilitywillalsohelptheoperatorsinvestintheirownbusinessesandofferadditionalservices,suchaswarehousing,packaging,customsclearance,freightforwarding,etc.Keycostdrivershighlightedinthischapterincludethefollowing:

1. Theconsolidationofsmallertruckoperators

2. Theuseofappropriatesizetrucksforspecificroutes(e.g.,largertrucksforlong-haulroutes)

3. Theaggregationoffreight

4. Anincreaseinutilizationrates

5. Anincreaseinfuelefficiencies

6. Adecreaseinunnecessaryfees,e.g.,informalfees

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ThesekeycostdriverswillbestudiedinmoredetailinChapter5,dealingwithpolicyoptions.

Summary

! Transportationcostsaccountfornearly60percentofoverall logisticscosts.Theprofitability

model,builtforthisstudyandbasedonfocusin-depthinterviews,assessesthecoststructure

ofthetruckoperators.

! ThetransportationcostsareestimatedatVND2,775perton-kmandVND952perton-km

for a short-haul and long-haul operator, respectively,withmargins ranging from3 to 5

percent for small truck operators (owning less than 10 trucks). The variable costs for a

shorthaulrepresentnearly50percentofthetotalcost,andupto65percentforalong

haul.ThemarginsandtheROCEincreasewiththefleetsize,indicatingscaleeconomies.

! Thetopfivecostheadsforthetruckoperatorsarefuelcosts,tolls,informalfees,interest

costs,anddriversalaries,whichaccountfor80percentoftotalcosts.

! Themodelindicatesthelogisticscostsperton-kmreduceswithanincreaseinthenumber

oftrucksowned,anincreaseintrucktonnage,andbettertruckutilizationrates.

! Thekeytakeawaysfromthischapter,whichformthebasisofpotentialpolicyoptions,include

consolidation of small truck operators, use of larger-sized trucks (particularly on longer

routes),andfreightaggregation.

Notes

1.Basedontheinterviews,foratripof300km,anaverageofVND600,000isspentoninformalpayments

2.SeeArticle65ofLawNo.23/2008/QH12,onroadtraffic,approvedNovember13,2008,bytheNationalAssemblyofVietnam.https://thuvienphapluat.vn/van-ban/EN/Giao-thong-Van-tai/Law-No-23-2008-QH12-of-November-13-2008-on-road-traffic/88512/tieng-anh.aspx.

3.Forshorthaul,fixedsalaryaveragesVND4.5millionpermonthandthevariablecomponentaveragesVND115,000pertrip.Forlonghaul,fixedsalaryaveragesVND10millionpermonthandthevariablecomponentaveragesVND200,000pertrip.

4.Themodelusesthevaluesobtainedfromthetruckoperatorinterviews.TheadministrativestaffsalaryisreportedtobeonanaverageofVND6millionpermonth,whiletheofficerentfora35-truckcompanyinHoChiMinhCityistakentobeUS$2,000.

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References

WorldBank.2018.LogisticsPerformanceIndex2018.Washington,DC:WorldBank.https://lpi.worldbank.org/.

MoIT(MinistryofIndustryandTrade,Vietnam).2017.LogisticsViệtNam2017(inVietnamese).Hanoi:

MoIT.http://www.moit.gov.vn/documents/36315/0/Bao+cao+Logistics+Viet+Nam+2017.pdf/5b311ed4-c00b-4f8d-9dde-b9ece86f0b75.

VoV(VoiceofVietnam).2017.“Vietnam’sLogisticsCostsMakeUp20.8%ofGDP.”VoiceofVietnam,

December15,2017.https://english.vov.vn/economy/vietnams-logistics-costs-make-up-208-of-gdp-364750.vov.

Zeng,AmyZ.andChristianRossetti.2003.“DevelopingaFrameworkforEvaluatingLogisticsCostsin

GlobalSourcingProcesses.”InternationalJournalofPhysicalDistribution&LogisticsManagement33(9):785-803.DOI:10.1108/09600030310503334.

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Chapter4:GreenhouseGasAssessment

With unprecedented success, Vietnam has transitioned from a centrally planned economy to a

market-orientedsystem.Now,thecountryfacesthekeychallengeofmanagingitsrapidlydevelopingeconomyinasustainablemannerwhilepreventingtheadverseimpactsofenvironmentaldegradationandclimatechange.Leadingtoincreasedgreenhousegas(GHG)emissionsandreducedresilienceto

climatechange,theharmfuleffectstoair, land,andwatercausedby industrialization,urbanization,and agricultural intensification have far-reaching implications for Vietnam’s energy and transportsectors.

Over the past decade, the emission rate per capita in Vietnam has steadily increased; specifically,emissionshaveincreasedbynearly6times,from0.3tonscarbondioxide(CO2)perpersonin1990to

1.51 tons CO2 per person in 2010 (figure 4.1). In comparison, over the same time period, China'semissionsincreasedby3times,Korea'sincreasedby2.5times,andThailand'sincreasedby2times.

Figure4.1.CO2EmissionsinVietnam,2000–2014

Intonspercapita

Source:OrganisationforEconomicCo-operationandDevelopment(OECD)dataonairandGHGemissions(database):https://data.oecd.org/air/air-and-ghg-emissions.htm.

In2017,Vietnamsubmitteditssecondbiennialupdatereport(BUR)totheUnitedNationsFrameworkConvention on Climate Change (UNFCCC) (MNRE 2017, 29). As discussed in the report, the GHGinventory indicates theenergysectoremitteda totalof151.4millionmetric tonsofcarbondioxide

equivalent (MtCO2e), equal to 151,402 thousand metric tons (kT), from fuel combustion and fuelproduction. Of this, the transport sector produced 29.7 MtCO2e (equal to 29,698 kT). Within thetransportsector, roadtransport (passengerandfreight)accounts for the largestshareofemissions,

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followedbymaritime transport. Lookingatemissionsby fuel type, the report showsdiesel, at42.7percent, makes up the dominant source of emissions in the transport sector, closely followed by

gasoline.

Heavy-dutydieselenginesandequipment,usedtotransportmaterials,goods,andpeople,represent

significant sources of black carbon, toxins, and greenhouse gases.With rapid industrialization andgrowingtrade,particularlyinAsiancountries,forecastsestimateemissionshavingadirectimpactonthe environment and public health will continue to increase. Though the Government of Vietnam

(GoV)hasimplementedprojectsandprogramstoimprovetheefficiencyandenvironmentalimpactoffreightmovements,muchworkremains.

The energy (fuel combustion and production) sector represents the largest contributor to GHGemissions.Table4.1breaksdowntheemissionsbyenergysectorsubdivisions:

Table4.1GHGEmissionsinEnergy(FuelCombustionandProduction)Sector

Inthousandmetrictons(kT)

GasesCategories

CO2 CH4 N2O TotalCO2e

Total 126,914.63 935.91 3.66 151,402.52

1.A.Fuelcombustionactivities

125,364.91 154.77 3.65 130,320.41

1.A.1.Energyindustry 43,527.92 0.71 0.41 43,669.38

1.A.2.Manufacturingindustriesandconstruction

40,233.16 8.31 1.12 40,773.46

1.A.3.Transport 29,492.65 4.97 0.27 29,698.24

1.A.4.Othersectors 11,346.81 140.7 1.82 15,405.32

1.A.5.Other(non-energyuse)

764.36 0.08 0.03 774.00

1.B.Fugitiveemissionsfromfuels

1,549.72 781.14 0.01 21,082.12

1.B.1.Solidfuels 92.76 2,319.11

1.B.2.Oilandnaturalgas 1,549.72 688.38 0.01 18,763.01

Source:MNRE2017.

Similarly,thetransportindustrycanberoughlydividedintofoursubcategories:airway,road,rail,andseaway,withroadwaysproducingthehighestlevels(morethan27,000kT),ofGHGemissions(figure4.2).

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Figure4.2.GHGEmissionsinVietnam’sTransportSector

Inthousandmetrictons(kT)

Source:MNRE2017.

Factorscontributingtotheemissionsimpactofmotorvehiclesincludevehicleclass,weight,ageandcondition, fuel type,andtheterraintraveled. Ingeneral,oldervehiclescontributehigheremissions,

whilenewervehiclesrunningoncleanerfuelscontributeloweremissions.

Other contributing factors to increasing pollutant levels include low quality of roads, absence of

comprehensive andeffective transport planning andpolicies, relianceonhigher-emissionmodesoftransport (e.g., roads),andtrafficcongestion,especially inurbanclusters,suchasHanoiandHoChiMinhCity.

Withoutactive interventionstoreduceandcontrolemissions levels,GHGandothertoxicpollutantswill further aggravate the effects of climate change on ecosystems and communities, which could

ultimatelyresultinsignificantsocialandeconomiclosses.

GovernmentofVietnam’sEffortstoReduceGHGEmissions

Overthelastfewyears,theGoVhasdevelopedandissuedseveralpoliciesrelatedtothemitigationofGHGemissions.Forexample,theNationallyDeterminedContribution(NDC)ofVietnam,submittedtotheUNFCCC, defines a roadmap through 2030 to reduceGHG emissions at a national level. In the

document,VietnamhascommittedtoreduceGHGemissionsby8percentby2030—comparedtothebusiness-as-usual(BAU)scenariorelyingondomesticresources—andupto25percentby2030withinternationalsupport.

ThepoliciesoutlinedintheNDCroadmapincludethefollowing:

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• Decision No. 403/QD-TTg, dated March 20, 2014, of the Prime Minister approving the

NationalGreenGrowthActionPlanfortheperiodof2014–2020.Theplancovers12activity

groups and 66 specific action missions, along with four key themes: local institutional

developmentandgreengrowthplanning;greenhousegasemissionreductionandpromotion

of the use of clean energy and renewable energy; green production; and green living and

sustainableconsumption.

• DecisionNo. 2359/QD-TTg, datedDecember 22, 2015, of the PrimeMinister approving the

National Greenhouse Gas Inventory System. The main objectives of the system include

conducting biennial GHG inventories and developing national climate change reports

(submitted to the UNFCCC), and contributing to the achievement of low carbon economy,

greengrowth,andGHGreductiontargetsasdetailedintheNDCofVietnam.

GHGEmissionsModel

Asexplained in thesectionabove,a largeproportionof theGHGemissions inVietnamcomes fromtheroadtransportsector.TheGHGemissionsmodelwillhelpunderstandthekeyleversforimproving

GHG emissions produced by road freight transportation and make possible policy suggestions toreducetheemissions.

Methodology

Buildingontheorigin–destination(OD)studyforsevenkeycities,theODmodel,explainedinChapter2, tracks thedaily flowof trucksbetweenkeyODcities.Then,usinga seasonality index, themodelconvertsthedatatoanannualflowoftrucks.

Onacommoditylevel,theproportionoffilledbackhaulsforeachrouteisestimatedbycomparingtheODanddestination–origin(DO)flowsforagivencommodity.Thishelpsdeterminethepotentialfilled

backhaulsontheseroutes,whichhelps identify theproportionof loadedversusemptytrucks.Bothtypes of trips are factored for the total distance travelled. The total distance travelled by trucks(vehiclekm)multipliedbythefuelefficiencyofthetrucksgivesthevolumeoffuel(diesel)consumed

inliters,thenmultipliedbyafactorof2.64togivekilogramofCO2produced.1

Fuelefficiency, a critical factor in thismodel, is computedusing fleet characteristics—suchas truckage and truck size—as well as road infrastructure. A general trend shows an increase in the fuelconsumedwithanincreaseintruckageandsize.Roadinfrastucture,ontheotherhand,hasadirect

impactonthenetspeedoffrieghtmovement,whichinturnaffectsthefueleconomyofthetrucks.

Thefollowingsectiondiscussthedetailedassumptionsandinputsusedforthemodelling;Figure4.3,

below,summarizestheGHGmodeldevelopment.

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Figure4.3.FrameworkforEstimatingGHGEmissions

Source:A.T.Kearneyanalysisconductedaspartofthisstudy.

Inputs

ThissectiondiscussesthevariousinputstotheGHGmodel,whicharedividedintothreetypes:

1. Demand-side inputs: OD freight flow data gathered from daily truck flows, alongwith the

conversionofthatdatatoannualfreightflowsintonnageandnumberoftrucks

2. Supply-sideinputs:Fleetcharacteristicssuchasdifferenttrucksizes,theirrespectiveagesand

speedsaswellasthefleetmixatanationallevel

3. Infrastructure-side inputs:Road infrastructure on key routes, alongwith congestion points

duetocityinteractions,tolling,andthecorrespondingwaitingtimesinfluencingthenetspeed

offreightmovement

Figure4.4showsasummaryofthekeyinputsforthemodel.

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Figure4.4.InputstotheGreenhouseGasModel

Source:ODmodeloutputsforsevenkeycities;unpublisheddataprovidedbytheVietnamRegister(VR)andtheDirectorateforRoadsofVietnam(DRVN);andGeneralStatisticsOfficeofVietnam:https://www.gso.gov.vn/Default_en.aspx?tabid=766.

i. Demand-sideinputs

TheODfreightflowmodelgivesthedailytruckflowsbetweenthefollowingkeysevencities:Hanoi,HaiPhong,Vinh,DaNang,DaLat,HoChiMinhCity,andCanTho.

Thesesevencitiesaccountfornearly40percentofthetotalpopulationandnearly55percentofthetotalGDP.TheODmodelgivesfreightflowpatternsfor42ODflows.Thesefreightflowsaccountfor

approximately40percentoftheoverallintercityfreightflowsatthenationallevel,andthusprovidesafairsampletoestimatetheGHGemissionefficiencyofthetruckingsectoracrossthecountry.These

dailyflowsareconvertedintoannualflowsusingaseasonalityindex,calculatedusingtheexportvalueofgoodsinmonthsacrosstheyear.Oneachroute,commoditiesarecomparedwiththeirODandDOvalues to find thepotential filledbackhaulson these routes,whichhelps identify theproportionof

backhaul trucks. Thus, the model computes the total distance trucks travel annually along the 42routes.

ii. Supply-sideinputs

Because truck fuel consumption increaseswith an increase in truck size and truck age, supply-sideinputsarecrucialindeterminingthefuelconsumptionoftrucks.Table4.2liststhesupply-sideinputs.Theassumptionsforthevariationinfuelefficiencywithtrucksizeandageareshownintable4.3and

table4.4respectively.Inthisstudy,fleetmix(theproportionoftrucksofeachsize)istakenfromtheVietnamRegister (VR),while the truck age for each typeof truck is taken from theDirectorate for

RoadsofVietnam(DRVN).

Thefuelefficiencyoftrucksdependsontruckspeed.Generally,vehicleshaveaneconomyspeedfor

optimalfuelconsumption.BasedonA.T.Kearneyresearch,thestudymodeluses35kmphasthefuel

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economy speed, with a 2.5 percent drop in fuel efficiency for every 5 kmph deviation from theeconomyspeed.

Figure4.5 illustratesthecalculationof finalCO2emissionsusingvehicle-kilometer travelledandfuelefficiencyvalues.

Table4.2.Supply-SideInputstoGHGModel:FleetCharacteristics

Trucktype Truckage(years) Marketsize(%)

0–5T 7.68 68%

5–10T 5.91 11%

10–20T 8.83 14%

>20T 5.82 7%

Source:UnpublisheddataprovidedbyVRandDRVN.

Table4.3.FuelEfficiencyVariationbyTruckSize

Trucktype Fuelefficiency(L/100km)

0–5T 11

5–10T 18

10–20T 28

>20T 34Source:Primaryinterviewswithtruckoperators.

Table4.4.FuelEfficiencyVariationbyTruckAge

TruckagePercentdrop

infuelefficiency

<5years 0%

5–10years 1%

10–15years 2%

>15years 3.5%

Source:Primaryinterviewswithtruckoperators.

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Figure4.5.Flowchart:CalculatingFinalGHGEmissions

Source:A.TKearneyanalysisconductedaspartofthisstudy.

iii. Infrastructure-sideinputs

Calculatedastheminimumofthemaximumspeedallowedbyinfrastructureandtheaveragespeedoftrucks, infrastructural inputsestimatethespeedoffreightmovementonroads. It is importanttounderstandinfrastructuralfactors,sincetheydirectlyimpactthespeedoffreightmovement,whichin

turn affects fuel efficiency. In addition, higher speeds allow formore trips per truck, resulting in ahighervehicle-kmandfreightton-kmtravelled.

The maximum speed allowed by infrastructure depends on the road quality (e.g., percentage ofexpresswaysandhighways),congestionfromcityinteractionsontherouteaswellasthewaitingtimeatthetollbooths(seefigure4.6).Themodelcurrentlyassumeshighwayscomprise100percentofthe

routes,withamaximumallowedspeedof80kmph.However,waitingtimesatcityinteractionpointsandhighwaytollboothssignificantlyreducemaximumspeed.ThestudyusestollinformationprovidedbyDRVN,withanassumedaveragewaitingtimeof30minutespertollbooth,basedonpaststudies.

The speed of the trucks, dependent on truck size and age, has also been taken from previousreferencestudiesproducedbyA.T.Kearney(unpublished)andtheWorldBank(Blancasetal2014).

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Figure4.6.Flowchart:CalculatingMaximumSpeedofFreightMovement

Source:A.TKearneyanalysisconductedaspartofthisstudy.

Analysisandkeyfindings

TheGHGmodelcomputes theemissions fromtheroad freight transportsectorat143gofCO2perton-km.Assuming3percent salesof commercial vehicleswithEuro4norms, the carbonmonoxide(CO),hydrocarbon(HC)+nitrousoxides(NOx)andfineparticulatematter(PM2.5)emissionsstandat

0.35,0.25,and0.03g/ton-kmrespectively.Table4.5showsthefinal,tabulatedresults:

Table4.5.GHGEmissionsModel:OutputbyPollutantType

Pollutanttype Value(g/ton-km)

CO2/GHG 143

CO 0.35

HC+NOx 0.25

PM 0.03

Source:A.TKearneyanalysisconductedaspartofthisstudy.

Table4.6describesasummaryoftheGHGmodelcalculations,basedontheODfreightflowmodel.

ThemodelcapturesGHGemissionsfromintercityfreightflowsaccountingfor40percentofthetotalintercityroadfreightmovementinVietnam(JICA2010),2andisthereforesuitablyrepresentative,onaperton-kmlevel,oftheoverallintercitytruckingsectorGHGemissions.

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Table4.6.GHGEmissionsModel:SummaryofCalculations

Parameter Unit Modeloutput

Vehiclekms kms(E+06) 3,800

Freightton-kms kms(E+06) 11,407

Fuelconsumed L(E+06) 616

GHGemissions Gg 1,626

Source:A.TKearneyanalysisconductedaspartofthisstudy.

In addition, themodel identifies three areas that directly impact the GHG emission efficiency and

form the cornerstoneofpolicy imperatives. These threekey improvement leversofGHGemissions(fleetmix,backhauling,androadinfrastructure)arediscussedbelow.

i. Fleetmix

Fleetmix includestwocomponents:themarketsizeofdifferenttrucktypesandtheoperationsandfeaturesof theexisting truck fleeton roads.With the largenumberof lower tonnage trucksplying

intercityroutes,theneedformoretruckstocarrythesamequantumoffreightincreases,whichleadsto greater GHG emissions. Though higher capacity trucks consume more fuel and produce moreemissions, they have effectively better GHG emission efficiency, as the ton-km travelled increases

substantially.

Inaddition,foratruckoperatingonahighway,nearly60percentofthepowerproducedislostwithin

theengine,withaerodynamiclossesandrollingresistancecontributingtotheremaining40percent.Retrofit devices can help tackle these energy loss areas; examples include air dams, truck shapemodificationslikerooftapering,cabextension,etc.,forreducingaerodynamiclosses,greentires,and

maintaining optimal tire pressure for lower rolling resistance. At the national level, modernizingenginestoimproveemissioncontrolsystemscouldalsopotentiallyreduceGHGemissions.TherecentadoptionofEuro4norms isonesuchgovernment initiativeto loweremissions;progressiontoward

higherEuronorms(e.g.,Euro5orEuro6)canfurtherleadtobetterengineemissionefficiencies.

ii. Backhauling

Empty backhauls and less than truckloads (LTLs) result in lower GHG emission efficiency since thetrucksmoveonroadwithno-orsub-optimalloads,therebyaddingtoemissions.InVietnam,limitedeffectivefreightconsolidation,duetohighfragmentationofthemarket,isakeyfactorcontributingto

thehighemptybackhaul ratesacross thecountry.Recently,anumberof freightaggregatorplayershaveentered the industry, targeting freight consolidation. These innovativemodels use technologyfor an algorithmic, real-timematching of supply–demand, route optimization, etc., and can help in

reducing backhauls as well as improving the efficiency of the truck sector in general. Freight

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consolidationcouldalsopotentiallyfindwork-aroundsforseasonality,andotherunavoidablefactorscontributingtoemptybackhaulsandlightertruckloadsduringcertainmonthsoftheyear.

Another potential reason for empty backhauls is “load specificity,”where certain trucks carry onlycertain commodity goods. For example, trucks that carry cementor agricultural products areoften

notused foranyothercommodity type.Theuseof standard truckbody types inVietnam(typicallyflatbed, box-type containers and special purpose trucks) can remove restrictions around trucksuitability for certain commodities (specifically within break bulk commodity groups), thereby

improving backhaul rates. Promoting the containerization of goods could also improve the truckutilizationrates,sincedifferentcommoditytypescanbeplacedadjacenttoeachotherinatruck.

iii. Roadinfrastructure

Currently, the longwaiting timeathighway tollboothseffectively reduces theaveragespeedof thetrip. Similarly, the large number of small trucks contributes significantly to traffic congestion. Both

factorsaddtothetotaltriptime,ultimatelylimitingtheamountoffreighttruckscancarryinayear.

Betterroadqualityandlesstrafficcongestioncanenablethetruckstocompletethetripinlesstime,

andeventually increasethenumberofannualtripsandthetotalton-kms.Dedicatedtruck lanesonhighways, electronic tolls on key highways, and other infrastructural upgrades, could not only helpreducethetransittime,butalsohelptrucksmaintainanoptimalspeedforlowerGHGemissions.

WayForward

In comingyears, freight flow inVietnam isexpected togrow; the top threecommodities in theODmodel,accountingfornearly40percentoftheflows,arealreadyexperiencinganannualgrowthrateofabout10percent.Roads,asthebackboneoffreighttransport,willbethekeycontributorstoGHG

emissions by the transport sector, with the trucking sector currently estimated to contribute 4percentofVietnam’stotalGHGemissions.

Formulatingpolicies to introduce investments in green transport technologieswill be important, aswill innovating ideas to modernize and adapt trucks to be more efficient and eco-friendly. Thisrequires establishing logistics innovation centers and revising the driver-training curriculum.

Additionally,acountry-wide fleetmodernizationprogramtoreplacetheaging fleetwithayounger,morefuel-efficientfleetcouldbeamajorstepforward.

According to statistics from the Vietnam Register, the number of environmentally friendly vehiclesoperating in Vietnam is limited and most are imported. Records show that from 2010 to 2017,approximately1,229hybridcarsandsevenelectriccarsenteredtheVietnamesemarket.Government

policies topromote the adoptionof environmentally friendly vehicles couldhelpboostmarket andconsumerinterestingreenervehicles.

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Summary

! AsasignatoryoftheParisClimateAgreementsince2016,andtheUNFrameworkConvention

on Climate Change (UNFCCC) since 1992, the Vietnam government targets an 8 percent

reduction in the stated GHG emissions by 2030. The GHG emissions from the road freight

sectorcontributeanestimated4percentofoverallGHGemissionsproducedinthecountry.

! Building on the origin–destination (OD) model explained in Chapter 2, the study’s GHG

emissionsmodelaidsunderstandingofthekeyimprovementleversofGHGemissionsinroad

freighttransportation.

! TheGHGmodelincludesdemand-side,supply-side,andinfrastructure-sideinputs:

! Demand-sideinputs:ODfreightflowdatagatheredfromdailytruckflows,alongwith

theconversionofthatdatatoannualfreightflows,intonnageandnumberoftrucks

! Supply-sideinputs:Fleetcharacteristicssuchastrucksizesandtheirrespectiveages

andspeedsaswellasthefleetmixatanationallevel

! Infrastructure-side inputs:Road infrastructureonkey routes,alongwithcongestion

points due to city interactions, tolling, and the corresponding waiting times

influencingthenetspeedoffreightmovement

! TheGHGmodel computes theemissions from the road freight transport sector at143gof

CO2perton-km.Assumingthe3percentsalesofcommercialvehicleswithEuro4norms,the

CO,HC+NOxandPM2.5emissionsstandat0.35,0.25,and0.03g/ton-kmrespectively.

! The key improvement levers with a direct impact on the GHG emissions include truck

tonnage, the country’s fleetmix, backhaulings, and road infrastructure (e.g., the impact of

truckspeedonroads).

Notes

1.Calculatedbasedoncombustionofcarbonindieselfuel.

2.Valuesextrapolatedto2017usingcommoditygrowthrates.

References

A.T.KearneyConsulting.2017.“EstimationofChangesinTruckingSectorGreenhouseGasesAssociatedwithRoadSectorPolicyandInvestmentInterventions.”Unpublishedstudy.

Blancas,LuisC.,JohnIsbell,MonicaIsbell,HuaJooTanandWendyTao.2014.EfficientLogistics:AKeytoVietnam’sCompetitiveness.DirectionsinDevelopment:CountriesandRegions.Washington,DC:WorldBank.http://hdl.handle.net/10986/16320.

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JICA(JapanInternationalCooperationAgency).2010.TheComprehensiveStudyontheSustainableDevelopmentofTransportSysteminVietnam(VITRANSS2).Tokyo:ALMECCorporation.

MNRE(MinistryofNaturalResourcesandEnvironment,Vietnam).2017.TheSecondBiennialUpdated

ReportofVietnamtoUnitedNationsFrameworkConventiononClimateChange.Hanoi:GovernmentofVietnam,MinistryofNaturalResourcesandEnvironment.https://unfccc.int/sites/default/files/resource/97620135_Viet%20Nam-BUR2-1-Viet%20Nam%20-%20BUR2.pdf.

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Chapter5:PolicyandInvestmentOptions

Policy interventionsare importanttosupportthetruckingsectordueto itsstrategic importancefor

Vietnam;theGovernmentofVietnam(GoV)hasalreadybeenworkingtowardreducinglogisticscostsand emissions through various initiatives, including the ICD Master Plan 2020 to develop inlandcontainer depots, the Seaport Development Plan 2020–2030, and formation of special economic

zones(SEZs)andindustrialparks,etc.

Based on a comprehensive operational assessment of the Vietnam trucking sector, including a

ground-up OD freight flowmodel, trucker cost build-up, and the GHG emissionsmodel, the studydefinedpolicyimperativestoimprovetheefficiencyofthetruckingsectoralongfourkeydimensions:infrastructure,supply,demand,andprocesses(figure5.1).

• Infrastructure: Policies in this area aim to improve core and supporting infrastructure for

intercitytruckingandreducetheloadonroadsbyencouragingintegrationwithothermodes

offreighttransport.

• Supply:Policiesinthisareafocusonthesupplysideoftheindustry,includingthetruckfleet,

truckoperators,truckdrivers,andlogisticscompanies.

• Demand: Policies in this area focus on improving the supply-demand match for truck

operatorsintheindustry,whichleadstohighertruckutilizationandenhancedorganizationof

thedemand.

• Processes:Policies in thisareaaimtostreamlinetheentire transportationprocess for truck

operatorsorlogisticscompanies.

Figure5.1.SummaryofKeyPolicyOptionstoImproveTruckingSectorEfficiencyinVietnam

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Infrastructure-RelatedPolicyandInvestmentOptions

Infrastructure policy options focus on ports and road infrastructure as well as the supportinginfrastructure, such as logistics centers, for a seamless multimodal transportation of goods in

Vietnam.TotallogisticscostsandGHGemissionscanbereducedbytakingaholisticview—ofnotonlydirectly improving the trucking sector, but also of promoting multimodal transport and a moresustainabletransportnetwork.Withafocusoncoastalshipping,inlandwaterways,roadupgradation,

and consolidation centers, the policy proposals aim to reduce congestion around ports and on keyroads.

1.Reducetruckcongestionaroundports

i. Currentchallenge

AccordingtotheDirectorateforRoadsofVietnam(DRVN)manualtruck-countingstations,small-andmedium-sized trucksmakeup50 to60percentof trucksmoving inandoutof thekeyportsofHai

Phong,HoChiMinh,DaNang,andCanTho(figure5.2).Truckingcompaniesreportrelativelylowroadcapacity in the immediate vicinity of someports,which, in some instances, can handle only 10–15tonsofload.Asaconsequence,truckoperatorstendtousesmallertrucksforlast-mileconnectivityto

ports. Unsurprisingly, the larger proportion of smaller trucks results in more trucks on roads andincreasedtrafficcongestionintoandoutoftheseports—locatedincity interiors—compoundingthedelays in transit time, especially for intracity deliveries. The suggested policy interventions aim to

reduce the transit time for the trucks by improving the road infrastructure around the ports. Forexample, targeted interventions to reduce transit timebyanestimated5percentcould lead toa2percent reduction in the overall transportation costs1 for truck operators (keeping other factors

constant).Figures5.3,5.4,and5.5,illustratethecongestionlevels,intermsoftruckvolumeflowsandcommercialvehicletrackingsystem(CVTS)trafficdensityaroundmajorports.

Figure5.2.TruckFlowRecordedatDRVNManualCountingStationsnearPorts

Source:UnpublisheddataprovidedbytheDirectorateforRoadsofVietnam(DRVN).

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Figure5.3.TrafficDensityRepresentationUsingCVTSData:DaNangPort

Source:Unpublisheddatafromthecommercialvehicletrackingsystem(CVTS),providedbyDRVN.

Figure5.4.TrafficDensityRepresentationUsingCVTSData:HoChiMinhPort

Source:UnpublisheddatafromtheCVTS,providedbyDRVN.

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Figure5.5.TrafficDensityRepresentationUsingCVTSData:HaiPhongPort

Source:UnpublisheddatafromtheCVTS,providedbyDRVN.

ii. Proposedpolicy

Due to the high truck volumes near ports, expanding road capacity of port access roads aswell as

providing dedicated areas for freight consolidation and parking near the ports could potentiallyreduce the traffic near ports. The proposed policy describes various short- and medium-termmeasures to improve road connectivity to ports. Theproposed short-term initiatives focus on road

congestionintheimmediatevicinityofports:

• Provisionofacentralizedtruckparkingbayneartheportsforidletrucksawaitinggoods/clearance

• Construction of cargo consolidation yards to reduce less-than-truckload (LTL) trucks and

consolidatefreight,therebyreducingthenumberoftrucks

Accordingtoa2018surveyconductedbytheGeneralDepartmentofCustomsinHaiPhong,mostoftheenterprisesinvolvedintheexport-importtradehavetoquarantinetheirproducts.Therefore,the

goodsarenotallowedtoclearimmediatelyandmustwaittobeinspectedbyspecializedagencies.Inaddition,thePortofHoChiMinhCity(HCMC)hasreportedthousandsofcargo loadsawaitingtheirconsignees,whichaddstoportcongestion.AccordingtotheHCMCcustomsdata,somegoodsawait

clearancesformorethan90daysfromthedateofarrival,highlightedtheneedtoaugmentparkingspacesintheportvicinity.Theproposedparkingbayscouldbeusedtostorethetruckinventory,thusreducingtraffic.Movingsomecargoconsolidationyards(currentlylocatedindistantICDs)tostrategic

locations nearer to ports could potentially aggregate outgoing freight, and lead to fewer trucks onportaccessroads.

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Medium-termpolicysuggestionstargetthetrafficreduction,ontypicallylongerstretchesofport-to-cityroadsthatrequiremorefundsandplanningforconstructionand implementation.Themedium-

termrecommendationsincludethefollowing:

• Wideningroadsandaddingaseparateexpresscustomslaneforcross-bordergoods

• Upgradingportaccessroadstohandleheavierloadsandlargertrucks

• Reservinglanesformediumandheavycommercialvehiclesonexistingroadsconnectingports

tothenearestcity

• Constructingnewdedicatedtruckcorridorsonportaccessroads

Figure5.6providesanillustrativeexampleofthesuggestedpolicydesign.

Figure5.6.ReducingRoadCongestionaroundPorts:Illustrative

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iii. Internationalexamples

In countries around theworld, dedicated truck lanes have successfully reduced road congestion. Afewcaseexamples:

• United States: The 50 km New Jersey Turnpike has been expanded into two separate

roadways, resulting in a dual-dual facility where large trucks are restricted to the outer

roadway. Other dedicated truck lanes under planning and construction include Clarence

Henry Truckway in New Orleans, Louisiana; the South Boston Bypass Road; and the Los

Angeles I-5 truck bypass lanes. A feasibility study on the I-70 corridor—spanning

approximately 1,300 km across the states ofMissouri, Illinois, Indiana, and Ohio—projects

travelefficienciesworthUS$12,000millionin15yearspostconstruction(U.S.DOTandFHWA

2010).

• China:The“GreenLane”project,across-boundarytruckinginitiative, isdesignedtosimplify

the customs clearing between Hong Kong and South China, and to reduce cross-boundary

truckingcosts.TheShenzhen–HongKongLogisticsGreenLaneruns51kmfromHongKong’s

Kwai Chung Container Terminal to the South China International Logistics Center (SILC) in

Shenzhen.Cross-boundarytrucksusethededicated“greenlane”attheHuanggangboundary

checkpoint,equippedwithreal-timeGPStracking,thuseliminatinglengthystopsforcustoms

documentation procedures. The dedicated lane has increased the number of trips per day,

pertruck,betweenHongKongandSILCbyanestimated50percent,withanaveragesavings

ofHK$500forDongguan-basedcompanies(HKSC2006).

2.Promote“containeronbarges”toboostIWTusage

i. Currentchallenge

Currently,only50percentofthetotalinlandwaterwaytransport(IWT)network,inkm,isnavigableinVietnam (VIWA 2017), with many shippers preferring the point-to-point flexibility of trucking.However, standardized containerization, which encourages inter-modal transfers, could promote

greater multimodal transport. Traditionally, IWT usage in Vietnam has been limited to bulkcommodities, suchas coal, constructionmaterials, fertilizers, andcement.Othermajor road freightcommoditiescouldpotentiallybecontainerizedandtransportedthroughIWT.Riceoffersanexample

of a commodity with significant potential for containerization; currently, only 4 percent of riceproductionintheMekongDeltaregioniscontainerized.

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Containerizedbargeservicesofferthefollowingpotentialbenefits:

• Easierwarehousing,duetostandardstackingproperties

• Faster transshipment, and therefore lower terminal turnaround times, due to equipment

standardization

• Lessspoilageanddamagetocargo,duetosaferpackagingincontainers

• Better future multimodal integration with container trucks and the largely containerized

maritimeshipping

• Easierfreightconsolidation,sincedifferentcargotypescanbepackedincontainerunits.Bulk

cargo,ontheotherhand,requiressimilarcargotobepackedtogether

RecentcontainerservicesstartedintheMekongDeltaregionhaveshownpositiveresults.TanCangSaigon General Company, established by the Saigon Newport Corporation, reports that cargotransported by barge from the Mekong Delta ports to Cat Lai port in HCMC reduces costs by

approximately 7 percent for each 40-feet container; for each 30-foot container, costs reduce byabout20percent.2

Ingeneral,IWTportsinVietnamdonothaveadequatecontainer-handlingfacilities;approximately15percentofcargolandingstagesdonothaveoperationalpermitsandareunsafe(VIWA2017).Becausethenorthhasnoinlandcontainerportforloadingandunloadingcontainersatriverports,container

cargoismainlytransportedbyroadtoindustrialparksandexportprocessingzones(MoT2018).Asaresult, IWTmovesonly15percentofcargofromHaiPhongportandabout35percentofcontainerflowsintheMekongDeltaregion(CHP2017;UNESCAP2017).

ii. Proposedpolicy

ThispolicyproposalaimstopromotecontainertrafficonbargesontheIWTnetworksintheRedRiver

DeltaandtheMekongDeltaregionstoreducethefreightloadonroads.Currently,thetransportationof containerizedgoodsonbarges remains low,due to limitedwaterways,whichareable tohandleonlysmallvessels.Morethan50percentofnationalwaterwaysareClass3,whichcanhandle100–

300 DWT vessels. This, in turn, limits private sector investments in improved local barge designs,largercontainercapacitiesofvessels,andthe lownumberofcontainerterminalsatriverportswithadequatecargo-handlingequipment.Thispolicyproposes:

• ToimproveIWTfleetsizeanddesign:Withanaverageageofmorethan30years,thecurrent

fleet in Vietnam is rapidly aging. Further, the typical cargo vessel size, around 100DWT, is

much smaller to the average 2,400DWT vessel size of countrieswithwell-established IWT

networks,suchastheNetherlands,Germany,andBelgium(BlancasandEl-Hifnawi2014).The

lowheight of bridges represents amajor hindrance to theuseof larger bargeswithhigher

container capacity. Improvements to the waterway infrastructure to increase vertical

clearances of bridges, particularly on the Duong bridge in the north for the Viet-Tri to Hai

Phongroute(Loan2017)andonbridgesalongtheAnGiangtoHCMCroute,couldencourage

privatecompaniestoestablishcontainerservices.Further,theolderbarges,designedfordry

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bulk cargo, are not optimized for container traffic. The designs of European barges, which

have much lower water drafts than Vietnamese barges, could be adopted for routes with

infrastructuralconstraints,suchastheMekongDeltaregion.

• Toimprovecontainerhandlingfacilitiesatriverports:Currently,mostriverports inMekong

Deltaregionarenotequippedforcontainerhandling(Duc2018).Inaddition,thelackoflast-

mileconnectivityalsodiscouragestransportcompaniesfromusingIWTnetworks.Inorderto

move containers from vessels onto trucks, ports require terminals and container handling

equipment,suchasgantrycranesandforklifttrucks,toensurethesmoothtransferofgoods.

Priority ports and channels for the implementation of this proposed policy include the Hanoi–Hai

Phong route and the Can Tho–HCMC route, thanks to the high traffic flows on these routes (15percentand5percent,respectively,ofoverallintercityfreightflowsinthecountry).

iii. Internationalexamples

The ports of Germany, Netherlands, and Belgium are well known for their world-class logisticsfacilities and the IWT network around the Rhine and Danube rivers is one of the best developed

waterways in theworld. In fact, ships or bargeswith sea-gauge capacities of 800–1500T can easilynavigate the river waterways, stacking up to three containers abeam and carrying up to 100containers.Pushboats,pushinguptofourbarges(ina2×2combination),increasetransportcapacity

to500twenty-footequivalentunits(TEUs).Equipmentforcontainerhandlinginriverportterminalsconsistsofquaysidecontainercranesforservicingshipsandotherstoragefacilities,suchasmanuallycontrolledgantrycranes(RailMountedGantrycrane,orRMG,servicingtherailwayterminal),mobile

cranes (Rubber Tire Gantry crane, or RTG, a straddle carrier), fork-lifters, and reach-stackers(GeorgijevićandZrnić2006).

Germany,aconstantinnovatorinportandfleetmodernization,hasrecentlypatentedthePortFeederBarge,aself-propelledcontainerpontoonwithacapacityof168TEU.Thepontooncomesequippedwithitsownstate-of-the-artcontainercranemountedonahighcolumn.Thisnewtypeofvesselcan

shuttlecontainerswithinportsandcanalsohandlecontainersfrominlandbargesindependentlyfromquaysideequipment(Malchow2014).

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3.Promotecoastalshippingonthenorth–southVietnamroute

i. CurrentChallenge

Today,domesticcargo transportation throughcoastal shipping is limited inVietnam,accounting for

only39percentofthetotalcoastalcargothroughput,3inpartduetotheabsenceofarobustsupplyecosystemaswellasinfrastructuralconstraintsinandaroundtheports.Onthesupplyside,veryfewshippingservicesoffercoastal shipping,passing theadditionalcosts,e.g., terminalhandlingcharges

(which account for 50 percent of the total coastal shipping costs), along to the client. Currently,terminalhandlingchargesareuniformforbothinternationalanddomesticcargo.

Ports have traditionally preferred international cargo over domestic cargo, in terms of turnaroundtimeandberth allocation. Lower terminal charges and the allocationof specific berth capacity and

timeslotsfordomesticcoastalshippingwouldencouragemoredomesticshippingviacoastalroutes.VINALINESisamongthefewoperatorscurrentlyofferingscheduledservicesforNorthVietnam–SouthVietnam(N–S)coastalshipping(WorldBank2014).

A shipping exchangeplatform tomatch demand and supply andpublicize information on shippers’demandandshippingrateswouldfacilitateandencourageoperatorstoprovidemorecoastalshipping

services.

On the infrastructural end,while themajor export-import orientedports arebeingdevelopedwith

latestfacilitiesforcargohandling,additionalpolicysupportcouldbeusedtopromoteRollon/Rolloff(RO-RO)vesselswithbuilt-inor shore-based ramps.Thiswouldenable loaded trucks to rolldirectlyontoships, transfer throughthesea,andthenrolloff fromtheships totheports.Thesetruckscan

then directly proceed to delivery, reducing dependencies on port handling services and dedicatedshort-haul truck services. Currently, RO-RO ships account for 0.04 percent of the cargo throughputfromtheHCMCPort(JICA2010a).

ii. Proposedpolicy

Thisproposedpolicyaimstopromotedomesticshippingservices,andfacilitatetheestablishmentof

necessary port infrastructure, to increase the use of coastal shipping on the north–south route,thereby reducing the traffic flow onNational HighwayNo. 1 andNational HighwayNo. 5. The keyfeaturesoftheproposedpolicyareoutlinedbelow:

• MarketRegulation:

o Reducedomesticcargohandlingcharges,ascomparedtothecurrentstandardcharges

forallcargofreight(acommonpracticeinothercountries)andallocateberthing

windowsinkeyportsfordomesticshippinglines.

Thepolicyalsorecommendssettingupdomesticshippingcenters inthekeyprovincesofHaiPhong

andHCMCtosupportcoastalshippingfordomesticcargo.Thesecenterscouldincludethefollowingkeyfunctions:

i. Increaseawarenessofdomesticcoastalshippingamongshippers,forwardingagents,and

shippingagents

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ii. Createawarenessofgovernmentprogramsthatmayassistprivatecompaniesin

developingdomesticshippinglines

iii. Analyzetheproblemsandbottlenecksindomesticcoastalshippingandactasathinktank

fordevelopingsolutionstocombatthoseissues

iv. Establishashippingexchangeplatformthatcanhelpmatchdemandandsupply,and

publicizeinformationonshippers’demandandshippingrates.

v. Encouragegreatercooperationatanationallevelbetweenprovincialadministrationsand

privateenterprisestospurdevelopmentofsustainabledomesticshipping

• Infrastructureupgradation:

o EstablishamaritimedevelopmentfundforthefinancingandpurchasingofRO-ROand

smallercontainershipsmoresuitedtomovingdomesticcargo

Currently used for import-export, the shallower ports of Hai Phong and Cat Lai ports place arestriction on the size of vessels that can be handled. Every year, about 1.2 million TEUs are

transshippedinotheroverseasports,resultinginanopportunitylossfortheVietnamportindustryofuptoUS$13million(JICA2013).Whilethesetwoportsareappropriatefordomesticcargooperations,theinternationalcargohandlingcouldgraduallymovetothedeep-waterportsofLachHuyenandCai

Mep.

The implementationofRO-RO facilities canbe integratedaspartof theVietnamMasterPlan2020

(Circular2190/QD-TTg),withHaiPhongandCatLaimarkedaspriorityports,whosesupportingroadinfrastructurealsoneedstobestrengthened,asmentionedinthesectiononSupplyFactors,foundinChapter2.

iii. Internationalexamples

Toshift freight load fromroads (particularly tosea), theEuropeanCommission (EC)has focusedon

“ShortSeaShipping”(SSS)forintra-Europeantrade.TheEuropeanUnion(EU)hasinvestedheavilyinRO-RO shipping units,which account for about 13 percent of the total SSS freight transport (ECSA2016).

WithaviewtopromotingSSS,shortseapromotioncenters(SPC)havebeenestablished innearlyallcoastalEUmemberstates.TheECencouragesthecoordinationoftheSPCsatapan-Europeanlevel,

withinaEuropeanShortseaNetwork(ESN).In2003,theEUincludedtheconceptofMotorwaysoftheSea(orMoS)intheTran-EuropeanNetwork(TEN-T),makingitsdevelopmentapriorityprojectintheEUtransportpolicy.Asacaseexample,inSpain,RealDecretoLegislativo2/2011ofportsanalyzesthe

specialconditionsofregularSSSservices,givingafavorabletarifftreatmenttoSSSandMoS.Thislawhasresultedin41shippingcompaniesoperating61regularservicesinSpainwithafrequencyof1.34departuresperweekandhasexpandedtonearly100ports,directlyorindirectly.4

By2050,SSSisexpectedtoplayakeyroleinreachingtheEUtransportgoalofreducing60percentofgreenhouse gas emissions generatedby transport, andby 2030, shifting 30percent of road freight

over 300 km to othermodes. The European Commissionwill focus on threemain priority areas inordertoenhancethefurtherdevelopmentofShortSeaShipping:

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i. Simplifyadministration

ii. Supporttheindustryinadoptingnewtechnologiesforcomplyingwithnewandstricter

environmentallegislation

iii. IntegrateSSSinfulllogisticschains

4.IntegratelogisticsandurbanconsolidationcentersintheICDmasterplan

i. Currentchallenge

Logistics centers, integral for supporting logistics activities as they assist to consolidate and

deconsolidate cargo, can also offer value-added services. Services such as simplewarehousing andstorage essentially mirror the basic services offered by an ICD in Vietnam, along with additionalservices.Asreportedbytransporters,thevalueaddfromICDsisverylimited;withcustomsclearance

centersalreadyestablishedwithinindustrialzones,transportoperatorsoftenbypasstheICDstoavoidthe high fees and congestion. Because land acquisition is often a key challenge to setting up new

infrastructuralfacilities,upgradingthekeyexistingICDsintologisticscenters—withtheirstate-of-the-artwarehousingfacilitiesandothervalue-addedservices—wouldattracttruckoperatorsandpromoteconsolidationofcargoandhigherefficiencies.Thissuggestionisfurtherdetailedinthenextsection.

Urbanconsolidationcenters(UCCs)—dedicatedareaswheretruckscanparkandre-arrangecargofordistribution inthecity—aremorefocusedonurbanandintracitydeliveries.Typicallysituatedinthe

cityoutskirts,UCCscanenableconsolidationorbreakdownofcargomovingintooroutofthecity.

Apartfrommanagingtheurbantraffic,UCCs,particularlyaroundHanoi,canalsoactas distribution

centers for goods imported from Hai Phong. Since many importers have their office and storagespaces in theHanoicitycenter, the importedgoodsare firstbroughttoHanoi fromHaiPhong,andthenshippedtovariousretailersacrossVietnam.Understandably,thiscausestrafficcongestionwithin

Hanoi. However, UCCs could allow trucking companies to bypass the city, with the storing andpackagingdoneinlesscongestedareas.HanoiandHCMChavebeentappedasthetopprioritycitiesforestablishingUCCs,duetothehighconcentrationofeconomicactivityintheseareas(45percentof

theGDP),andapproximately60percentof the freightmovingwithin the region.As thenumberofprivatevehiclesincreasesduetopopulationgrowthandgreateraffluence,UCCscanalsohelpcontroland streamline freight traffic and reduce congestion. With a majority of online consumers

concentrated intheseregions,UCCswouldalsosupporte-commerce logistics,agrowing industry inVietnam.

ThecurrentICDmasterplanlists31inlandcargodepots.SincelandacquisitionisusuallyachallengeforattractingnewinvestmentsinlogisticscentersandUCCs,proposedplansshouldhighlightthekeyICD locationsthatcouldservethe functionsof logisticscentersandUCCs,andthushelpreducethe

logisticscostsandcongestiononroads.

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ii. Proposedpolicy

AccordingtoDecisionNo.2223/QD-TTg,themasterplanforthedevelopmentofVietnam’sdryports

system to2020,developmentwilloptimize the transportationofgoodson themain transportationcorridors,especiallycontainerizedcargotransporttoandfromtheseaportsinHaiPhong,HCMC,andVung Tau (CaiMep-Thi Vai port). Theproposedpolicy alignswith themaster plan, highlighting the

upgradeofICDsaslogisticscenters/UCCs,accordingtoregionaldemands.Asperthemasterplan,31ICDswillbeupgradedorestablished(14innorth,12insouth,andfiveinthecentralregion).Withthehigh number of industrial zones (IZs) in the north and south, table 5.1 and table 5.2 list the ICDs

holdingthemostpotentialasstate-of-the-art logisticscenters (offeringvalue-addedservices),alongwiththeirkeycharacteristics.

Table5.1.KeyCharacteristicsofProposedLogisticsCentersintheNorth

ICDname NearestportNearestroadconnection

RiverconnectionNumberofindustrialzonesinprovince

HươngCanhICD HaiPhong Expresswayconnectivityat700m

Hongriver 26

PhucLocICD HaiPhong Highwayconnectivityat900m

Dayriver 21

HaiDuongICD HaiPhong Highwayconnectivityat100m

– 20

Source:TDSI2016.

Table5.2.KeyCharacteristicsofProposedLogisticsCentersintheSouth

ICDname NearestportNearestroadconnection

RiverconnectionNumberofindustrialzonesinprovince

BenLucICD CaiMep Highwayconnectivityat2km

VamCoDongRiver

42

LongBinhnewICD(knownasTânCảngICD)

CatLai Highwayconnectivityat300m

DongNai 35

TinNghiaICD CatLai Highwayconnectivityat100m

None,butrailwayat500m

35

Source:TDSI2016.

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InadditiontobasicICDservicesofferedinlogisticscenters,thevalue-addedservicescouldincludethefollowing:

• Warehousing(differenttypesofwarehouses—forexample,generalwarehousesforstorage,

warehouseswithraiseddockingbays,andair-conditionedwarehouses)

• Commodity-specificstorageconditions(regulatedtemperature,indoor/outdoor)

• Equipmenthandling(crane,forklift,timerracks,palletracks,lifttruck,etc.)

• Intermodalterminals,tofacilitatetransfersbetweentrucksandIWT

• Areasforparkingandloading/unloadingoperations

• Clearancesbycustomsandothercargoapprovalagencies

• Publicfacilities,suchaspostoffices/publictelephones/busservices

• Restaurantsandcafés

• Petrolstationwithvehiclewashingfacilities

• Repairworkshopsfortrucks,containers,andotherequipment

• Informationsystemstofacilitateintermodaltransfersanddemand-supplymatchingfor

transportservices

Withthesevalue-addedservices,theproposedlogisticscenterscanattracttruckscurrentlybypassing

ICDs. The centerswould act as a converging place for the less than truckload (LTL) trucks carryinggoods produced by the industrial zones, and consolidate the goods into larger trucks to bemovedoverlongdistancesthroughroads,rail,andwaterways.

Urban consolidation centers (UCCs), on the other hand, focus on urban deliveries to reduce citycongestion. As listed in table 5.3, the following ICDs—located closer to city centers of Hanoi and

HCMC—makegoodcandidatesforupgradingintoUCCs:

Table5.3.ICDsProposedforUpgradingtoUrbanConsolidationCenters

ICDname NearestcityDistancefromcitycenter(km)

Nearestroadnumber(distanceinkm)

HoàiĐứcICD Hanoi 16 NH32(0.2km)

PhùĐổngICD Hanoi 20 NH1(0.8km)

TiênSơnICD Hanoi 35 NH1(0.1km)

LongBinhICD HCMC 30 NH1(1.5km)

SongThan(newICD) HCMC 25 Provinceroad743(0.1km)

Source:TDSI2016.

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IntegratingtheUCCsintotheICDsimplieskeepingaseparatestorageareafordeliveriesintothecity.ThekeyfunctionsoftheUCCswouldbeto:

• Breakdownthebulkcargointosmallertrucksbetterabletoenterthecity

• Consolidatemovementofoutgoingsmalltrucksonhighways

• Coordinateandconsolidatecargogoingtothesamedestinationsinthecities,toreducecity

traffic

• ConsolidateLTLtrucksintofulltruckload(FTL)truckstoreducethenumberoftrucksonroads

• Provideparkingareasfortrucksarrivingduringthecities’restrictedtruck-travelhours

AnillustrationoftheproposedpolicyforUCCsisshowninfigure5.7.

AcombinationofUCCsand logisticscenterswillhelpconsolidateroadfreightonto larger trucks forlong-haultripsandstreamlineshort-haultripsintosmallertrucks,toreducecongestioninandaround

key economic nodes in Vietnam. Overall, this infrastructure can help improve the efficiency oftrucking operations in Vietnam. Figure 5.8 illustrates the different types of UCCs that can bedevelopeddependingonthesitesizeanddistancetotheclient.

Figure5.7.UrbanConsolidationCentersatCityFringes:Illustrative

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Figure5.8.PurposesandTypesofUrbanConsolidationCenters

iii. Internationalexamples

ThissectiondiscussesafewcaseexamplesofUCCs,arelativelynewconceptinVietnam.

• Japan: Joint delivery systems with UCCs have been established near cities such as Tokyo,

Osaka,andFukuoka.Thecenters,locatedinspecificdistrictsorwardsontheoutskirtsofthe

city, serve various purposes. For instance, the UCC at Tenjin, near Fukuoka, focuses on

deliverytoconveniencestorechains,whiletheUCCatMotomachi,nearTokyo,deliversgoods

toretail shoppingdistricts.TheestablishmentofUCCshashelped inreducingdeliverytime,

deliverycost,congestion,andnegativeenvironmentalimpacts.TheUCCownershipislargely

privatebutthegovernmentprovidessupportsuchasprovidingdedicatedparkingspaces,etc.

• UnitedKingdom:TheBristolCityCouncil,inpartnershipwithDHLExel,hasbeensuccessfully

operatinga consolidationcenter, tohelp reducepollutionandcongestion in centralBristol.

TheschemefocusesonBristol’scoreretailareaBroadmeadandtheUCC,locatedsevenmiles

fromthetargetcitycenterarea,offersapproximately5,000sq.ftofwarehousingspace.

• Singapore: The government is collaborating with logistics operators to provide offsite

consolidation centers (OCCs), similar to UCCs. OCCs are designed to boost efficiencies by

consolidating last-mile deliveries going to the same (or nearby) shopping malls or other

delivery destinations. After retail delivery trucks with LTL drop off their cargo, the OCC

operator sorts and consolidates the merchandise before delivering the goods to their

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destinations. In this way, goods can be delivered in full truckloads within the stipulated

deliveryperiod,reducingthenumberoftrucksgoingtothesamedestinationandimproving

truckloadutilization.

5.Prioritizeandupgraderoadinfrastructure

i. Currentchallenge

BasedontheODmodelillustratedinChapter2,eightkeyrouteshavebeenidentifiedwhichaccountforapproximately30percentofintercityfreightflowsinthecountry:

• Hanoi<–>HaiPhong(125km)

• Hanoi<–>HCMC(1,600km)

• HCMC<–>CanTho(200km)

• HCMC<–>DaLat(300km)

TrucksaccessthekeyroutesviaNationalHighwayNos.1,5,and20.Thoughexpresswayconnectivity

existsbetweenHanoiandHaiPhong,tollchargeshaveresultedinlimitedusage.Theremainingroutesareconnectedbymorehighways—highwaytollsareapproximately50percentlessthanexpresswaytolls—however,expresswayprojectsforthese,too,areinthepipeline.

TheCVTSdataalsoshowshighcongestionareasalongtheeightroutes.Asreportedbytransporters,atripbetweenHCMCandHanoitakesnearlytwodays,travelingatanaveragespeedof35-40kmph,

with delays caused by bottlenecks at tollbooths, congestion in urban hubs, and traffic on keystretches.Thesekeyroutestransportsignificantvolumesofcommodities(seetable5.4),whichhaveanaveragegrowthrateof6to13percent.Thus,itisimportanttoprioritizeandupgradetheroutesto

accommodatethehighervolumesexpectedinfuture.Constructionofmultilevelroadsandremovalofcongestionpointsonthecorridornetworkareexpectedtoimprovetheaverageroadspeedand,asaresult,improvethefleetutilizationinVietnam.

ii. Proposedpolicy

SinceroadinfrastructureformsthebackboneofthefreighttransportationinVietnam,theproposed

policy recommends the following infrastructural upgradation for theeight key routesmentioned intheabovesection,whichcouldbeprioritizedinthemasterplansforinfrastructure:

• Elevatedroadstoimprovefreighttransport

• Overpassorelevatedroadsport-accessroutestoavoidtrafficjams

• Additionallanesonhighwaystoreducecongestion

• Reservedlanestosegregatecommercialandpassengertraffic

• ActivetrafficmanagementusingCVTSdata

• Acceleratedroll-outofe-tollingtoreducetransittime

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Table5.4.CommodityFlowAnalysisonKeyOrigin–DestinationRoutes

RouteTwo-way

truckvolumeflow

Topthreecommodities(percentoftotalflowonroute)

Wood,paper,andfurniture(20%)

Foodproductsandbeverages(18%)Hanoi<–>HaiPhong 44kT/day

Clothing,textile,andfootwear(12%)

Foodproductsandbeverages(31%)

Electronicsandelectricequipment(10%)Hanoi<–>HCMC 17kT/day

Fruitsandvegetables(9%)

Riceandcrops(28%)

Ironandsteel(14%)HCMC<–>CanTho 15kT/day

Foodproductsandbeverages(14%)

Foodproductsandbeverages(36%)

Fruitsandvegetables(25%)HCMC<–>DaLat 10kT/day

Otheragriculturalproducts(12%)

Supply-SidePolicyandInvestmentOptions

Supply-sidepolicyoptionsfocuson improvingtheageandfuelefficiencyofthenationaltruckfleet,truck driver behavior, and sector organization in the industry, thereby impacting the supply

componentsof road freight transportation—namely, the truck fleet,drivers, and the transportationcompanies.

6.Introduceafleetmodernizationprogram

i. Currentchallenge

AccordingtotheVietnamRegister’sdatabase(accessedonMay31,2018),inVietnam,95percentof

thetruckfleetisolderthanfiveyears,with31percentofitsfleetolderthaneightyears.Whileoldertrucksaddtooperatortransportationcosts,newertrucksare1to2percentmorefuelefficientandrequire lesson-roadmaintenance, thanksto fewerbreakdowns (comparedtoa five-year-oldtruck).

Additionally, due to the higher fuel consumption by older fleet, GHG emissions have a directcorrelationwithtruckage.

Implementinganationwide fleetmodernizationprogramcouldencouragereplacementof theolderfleetwithnewertrucks,whichwilllowertransportationcostsandGHGemissions.Euro4rolledoutinVietnamin2018,andamodernizationprogramcouldacceleratetheadoptionofEuro4inthetruck

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fleet.Anestimated20percentshift in the fleet fromEuro2 toEuro4wouldproducea14percentreduction in carbon monoxide (CO), a 16 percent reduction in hydrocarbon (HC) + nitrous oxides

(NOx),anda14percentreductioninparticulatematter(PM),ing/km.

Given that75percentof truckingcompaniesgeneralannual revenue less thanUS$1million,5many

preferolder, second-hand trucks,up to50percent less thananewtruck in thesameclass.This, inturn,leadstoapropagationofolder,lessfuel-efficienttrucksinVietnam.

ii. Proposedpolicy

AsaninitiativetocontroltheGHGemissions,afleetmodernizationprogramencouragestruckownersto replace older vehicles with new trucks. As per the proposed policy, truck owners with fleets

complyingtoEuro2standards(orolder)mayreceivemonetarybenefitstoscraptheiroldervehiclesand incentives for purchasing replacement vehicles, which would conform to the current Euro 4norms. TheVietnamRegister (VR) database could be used tomonitor progress of the program.As

illustratedinfigure5.9,theincentivesfortruckownersproposedinthispolicyincludethefollowing:

• Incentivesfromthegovernment:Afixedproportionoftheregistrationtaxwouldbewaived

onthepurchaseofanewtruck

• Rebates for scrappingolder vehicles:Anadditional fixedpercentageof the valueof a truck

scrappedatanauthorizedrecyclingcenterwouldbepaidtothecustomerasarebateupon

purchaseofanewtruck

• OEM discounts: The government would promote discount deals from original equipment

manufacturersonpurchasesofnewtrucksboughtunderthefleetmodernizationprogram

Figure5.9.OwnerIncentivesforScrappingOldVehicles

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iii. Internationalexamples

Fleetmodernizationprograms,wheregovernmentsincentivizescrappageofoldervehicles,havebeenimplemented inmany countries. Twoexamples include scrappageprograms inGermany andChina

(seefigure5.10):

• Vehicle scrappage program (Germany): The German program targeted light duty vehicles,

composed of both passenger vehicles (PVs) and light commercial vehicles (LCVs = maximum

weight of 3,500 kg, designed for transportation of goods (Mock 2014)) at least nine years old.

Moreover,theprogrammandatedthereplacementvehicleshouldbelessthanoneyearoldand

compliantwithEuro4emissionstandards.TheprogramofferedparticipantsaEUR2,500financial

incentive (approximately10percentof theaveragepriceofastandard-sizedcar,approximately

20percentforasmallcar) (Posada,etal2015). Inaddition,participantsalsoreceivedthescrap

value for their old vehicles. The scrappage program successfully retired around two million

vehiclesinoneyear(Kauletal2012).Inaddition,theaveragecarbondioxide(CO2)valuefornew

cars (in g/km) purchased under the programwas 8 percent below the average value for non-

incentivizednewcarpurchases(ECCC2011).

• Beijing scrappage program (China): In 2008, Beijing, China, implemented a scrappage program

with the primary objective of improving the city’s air quality. The program in Beijing targeted

yellow-labelvehicles—forexample,Euro0gasolinevehicles(pre-2000),andEuro0,1and2diesel

vehicles (pre-2008). The program offered incentives for scrapping to ensure sufficient

participation, and in 2009 and 2010, the government successfully scrapped approximately

150,000 yellow-label vehicles.6 Thanks to the scrappage program and other complementary

policies, such as setting mandatory vehicle age limits, from 2008 to 2009, Beijing saw NOx

emissionsreducedbyalmost32tonsperday,COemissionsby245tonsperday,HCemissionsby

35tonsperday,andPMemissionsby3tonsperday(Posadaetal2015).

Figure5.10.VehicleScrappageProgramsinGermanyandChina

Source:Posadaetal2015.

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7.Varytheroaduserchargewithtruckage

i. Currentchallenge

Nearly31percentofthenationaltruckfleetisabove8yearsofage,while95percentofthefleetismorethan5yearsold.7Currently,thegovernmentoffersnoincentivetodiscouragetheuseofoldervehicles. Interviews with truck operators and transportation companies have shown that driver-

ownerswithlimitedaccesstocapitaltypicallyuseoldertrucksforalongperiod.Inaddition,toreducetheir capital investments, operators of smaller trucks often purchase used trucks from largeroperators. As discussed in Chapter 3, small-truck operators and owner-operators earn very low

margins,from3to5percent.Asaresult,theyhavelimitedcashreservesandthereforeoptforolder,cheaper trucks. The following proposed policy could help dissuade truck operators from using anolderfleetandoptforamorefuel-efficientfleet.

ii. Proposedpolicy

InordertolowertheGHGemissions,truckoperatorsmustreplacetheoldertrucksintheirfleets.This

proposedpolicyspecifiesthatoldervehiclespaysurchargeontheroadusercharges.Thesurchargewould be considered the additional “cost to the environment” caused by older trucks. Table 5.5detailstheproposedpolicy:

Table5.5.RoadUserChargeVariationbyAge:ProposedPolicy

Ageofvehicle Incrementfactor(illustrative)

<5years0%ofroaduserchargeincrease

yearonyear(YoY)

>5yearsold 10%+1%increaseYoY

>10yearsold 20%+1%increaseYoY

>15yearsold 30%+1%increaseYoY

>20yearsold 40%+1%increaseYoY

Figure5.11illustratestheproposedpolicy,usingtheexampleofanannualroaduserchargesfora20T

truck.

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Figure5.11.RoadUserChargeVariationbyAge:Illustrative

ThecurrentCircular293/2016/TT-BTC,issuedbytheMinistryofFinanceandimplementedbytheVR,regulates the road user charges for operators. If adopted, this policy could be integrated to the

circular,linkingtheroaduserfeeswiththevehicleage.Toincentivizenewervehicles,theschemecandesign charges to be cost neutral or lower than currently charged rates, while still providingdisincentivesfordrivingoldervehicles.

iii. Internationalexamples

Variouscountriesacrosstheglobehaveaddressedtheenvironmentalissuesfromoldervehiclefleetsby implementing a systematic road tax structure. This study discusses two cases of Singapore and

Germany,wheretheroadtaxstructuredependsontruckageandemissionsstandards.

• Singapore:InSingapore,thestatutorylifespanofagoodsvehicleis20years—thatis,atruckolder

than 20 yearsmust be deregistered or scrapped. To penalize owners for driving vehiclesmore

than10yearsold,theGovernmentofSingaporeappliesasurchargeontotheannualroadtax,ata

pre-determinedrate.Thetaxhasshapedthenation’struckfleetsothatapproximately35percent

oftrucksarelessthanfiveyearsoldage;only6percentofthefleetiscomprisedoftrucksolder

than17years.TheroadtaxstructureinSingaporeisexplainedintable5.6,below:

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Table5.6.RoadTaxSurchargeStructureinSingapore

Forvehiclesover10years

Ageofvehicle Annualroadtaxsurcharge

>10yearsold 10%ofRoadTax

>11yearsold 20%ofRoadTax

>12yearsold 30%ofRoadTax

>13yearsold 40%ofRoadTax

>14yearsold 50%ofRoadTax

Source:SingaporeLandTransportAuthority:https://www.lta.gov.sg/content/ltaweb/en/roads-and-motoring/owning-a-vehicle/costs-of-owning-a-vehicle/tax-structure-for-cars.html.

• Germany:InGermany,vehiclespayanannualroadtaxbasedonthepollutantclasstowhichthe

truckbelongs,witheachpollutionclasscorrespondingtoaEuroEmissionStandard.EuroEmission

Standards are updated regularly, which discourages people from owning and operating older

vehicles.Dependingonthesizeofthevehicle,operatorsowningvehicleswithEURO1orbelow

payonetothreetimeshigherthanvehicles inotherpollutantclasses.Table5.7 liststhevehicle

taxvariation(inEurosperton)bypollutantclass.

Table5.7.VehicleTaxVariationbyPollutantClassinGermany

InEurosperton

Grossvehicleweight(GVW)

PollutantclassS2~EURO2andhigher

PollutantclassS1~EURO1

16T 51 9625T 59 12735T 62 14244T 64 15049T 65 153

Source:GermanCentralCustomsAuthority.

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8.Strengthendrivertrainingandlicensingprocesses

i. Currentchallenge

Truckdrivers,throughtheirdrivingbehaviorandadherencetotrafficlaws,contributetotheefficiencyof trucking operations. Periodic driver training ensures continuous coaching of the driver about

advancementsintechnologyandenhancesroadsafety,aprimaryconcernamongcarriersintheroadfreight transport value chain. The nationwide trucking survey conducted as part of this study,8 asdiscussedinChapter2,highlightspositiveviewsheldbycarriersonregulationsrelatedtosafety.The

top four policies having themost positive impact, as reported in the survey, relate to truck driverlicensing, maximum hours of continuous service for drivers, overloading limitations, and speedlimitations.

Currently, the renewal of licenses does not require additional training. Licenses to operate smallertrucks(upto3.5T)—themajorityofthetruckfleet—arevalidforaperiodof10years.Withinthistime

period,driversshouldbetrainedregularlytokeepupwithtechnologicaladvancements,suchaseco-driving,enginemodernization,infrastructuralupgradation,etc.

However, companies report a lack of experienced and well-trained drivers. According to a surveyconducted in 2016 by Asia Injury Prevention,9 79 percent of drivers reported driving non-stop formore than four hours, which violates existing regulations.10 Key findings of this survey are listed

below:

• 91 percent of the drivers did not clearly understand the regulation about keeping a safe

distancefromanothervehiclewhiledriving

• 86 percent of them provided inexact answers about how or when to make way for other

vehicles

• Morethan80percentoftherespondentsdidnotcloselyobservetheroadwhiledriving

• 69percentofthedriversdidnotconsiderrunningstopsignsunsafe

Theresults listedaboveindicateaneedforenhanceddrivertraining,aswellasperiodicroadsafetytraining.More than 30 percent of the road accidents occur on highways (Pham2013), highlightingsafetyissuesfortruckdriversrunninglonghauls.Withapproximately3percentoftheVietnamGDP

lostduetoroadaccidents(WHO2015),drivertrainingandsafetyonroads iscrucialtothetruckingsectorandVietnam’soveralldevelopment.

ii. Proposedpolicy

InlinewithVietnam’sNationalRoadSafetyGoals2020andaVisionto2030,thisproposedpolicyaimstopromotesafetyonroadsthroughanextensivetruckdriver-trainingprocess.Thepolicyoutlinestheprocessofobtainingacommercialdriver licenseaswellasdrivertraining,withspecial focusonthe

periodictrainingsessions.ThepolicycanbeconsideredasanamendmenttothecurrentCircularNo.46/2012/TT-BGTVT, which regulates driver training, examination, and granting of licenses for

motorizedvehicles.Figure5.12outlinestheprocedureforobtainingandretainingthe licenseunderthisproposedpolicy:

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Figure5.12.DriverTrainingandLicensing:ProposedPolicy

While the circular already covers the training and written test, the proposed policy suggests theadditionofaphysicalexamination(includingphysicalfitness,vision,anddrugtests),tobeconductedasapartofthequalifyingexamination.Further,theproposedpolicysuggestsafour-moduletraining

program that could be incorporated into training sessions. The proposed curriculum has beenbenchmarkedacrossdifferentcountries.Thecurrenttrainingprogram(classBandClicenses)focuseson driving techniques, traffic rules, truck repairs, vehicle knowledge, and transport techniques.11

However, theprogramcontainsgapsonsofteraspects suchascustomer relationshipmanagement,andmoreimportantly,thevalueofgoodpersonalhealth.Thus,theproposedtrainingmodules(figure5.13) comprehensively cover all practical, theoretical, and management aspects related to truck

driving.

Figure5.13.DriverTrainingandLicensing:ProposedTrainingCurriculum

Inaddition,thepolicyrecommendscreatinganonlineregistrylistingdrivers’professionalbackgroundinformation and driving/traffic records to help trucking companies recruit highly trained, safe, and

experienceddrivers.ThisdatabasecouldbemaintainedbytheVR,usingitstechnologicalleverageinmaintainingthetruckfleetdatabase.

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iii. Internationalexamples

As shown in Chapter 2, theUnited States andGermany have over 50 percent of commercial trucksales in themore than 15T segment. These countries have addressed safety concerns about large

sized trucks throughanextensiveprogramfor truckdriver traininganda strict licensingprocedure,discussed in this section. Even in developing countries such as India, governments increasinglyrecognizetheimportanceofperiodicdrivertrainingfortruck,bus,andtaxidrivers.

• United States: The U.S. regulates the trucking industry through the Federal Motor Carrier

Safety Administration (FMCSA), an agency under the Department of Transportation. The

primarymissionoftheFMCSAistoreducecrashes,injuries,andfatalitiesinvolvinglargetrucks

and buses. The commercial driver’s license training (or CDL training) is an extensive

standardized program across the country, required before a driver can obtain a license to

operate any commercial motor vehicle. Driversmust also pass exams testing their ability to

drivehazardousmaterials,tankvehicles,andtrailers.Threetypesoftruckdrivingschoolsoffer

CDLtraining:programsofferedthroughcommunitycolleges,privatetruckdrivingschools,and

schoolsoperatedbytruckingcompanies.TheCDLrequiresaphysicalfitnesscheckeveryyear.

Newly hired truck drivers typically participate inworkshops and seminars sponsoredby their

employers, which cover transportation regulations, safety procedures, and federal trucking

ordinances. In addition, the American Trucking Association (ATA) holds onlineworkshops for

truck drivers in all areas of business, such as legal, financial, and operational areas of truck

driving.

• Germany: The Federal Motor Transport Authority (Kraftfahrt-Bundesamt, or KBA) manages

road safety-related issues in Germany, including maintaining the central register of driving

licensesandvehicleworthiness.Toobtainatruckinglicense,adrivermustfirsthavealicense

tooperateacar.Toobtainatruckinglicenseforcorporatepurposes,driversmustcompletean

additionaltraineeship,oraspecialcertificationcanbeobtainedconsistingofadditionalexams

anddriving tests.Aspartof thenewProfessionalDriverQualificationLaw (Berufskraftfahrer-

Qualifikations-Gesetz),thedrivermustattendmandatorytrainingseminarseveryfiveyearsto

continueworkingasaprofessionallyemployeddriver.

• India: Applicants for a commercial vehicle license must undergo training either from the

government-run motor driving school or private motor driving schools authorized by state

governments.Theapplicantmustalsohaveavalidlearner’slicenseatthetimeofapplication.

Somestategovernmentshaveintroduced“refreshercourses”fordriverstohonetheirskillsas

needed.Forexample,Karnatakastategovernmentmandatestheserefreshercourses,taughtin

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the state-run Driver Training and Research Institute, for drivers of autorickshaws, lorries,

tractors, andmaxi cabs (Jagadeesh 2012). Recently, Uttarakhand Transport Corporation, the

state-run bus agency, has launched a six-month program (a collaboration between the state

governmentandMarutiSuzuki),underwhichbusdriversmustcompleteathree-dayrefresher

trainingcourseatthelocaltraininginstitute(Talwar2015).

9.Improvethefleetthroughagrowth-basedlendingprogram

i. Currentchallenge

Larger-sizedtruckshavehigherefficienciesinbothcostsandGHGemissions.Comparedtoa5Ttruck,a31Ttrailerhasapproximately75percentlowertransportationcostsperton-kmandGHGemissionefficiencyintermsofgofCO2perton-km.12However,thehighwaytrafficinVietnam,asobservedby

the ODmodel in the study, shows the average truck size is less than 10T, which has a significantimpactoncostsandGHGemissionsacross the sector. Inaddition to thecostburden, smaller trucksize leads to more trucks on roads, and the resulting increase in congestion and pollution. To

complement thispolicy, truckdriver trainingwouldhaveto incorporatesafety trainingoperatorsoflargervehicles.

Cost usually represents the biggest hindrance for a truck operator to buy new, larger-sized truck.Giventhat75percentoftruckoperatorsinVietnamgeneratelessthanUS$1millioninrevenues,theneed for cheaper financing alternatives and incentives to encourage operators to purchase larger,

newertrucksandscale-upfleets.

ii. Proposedpolicy

Theproposedlendingschemeaimstogivesmalleroperatorsaccesstocheaperloanswithwhichtheycan upgrade their fleet and grow their business. The State Bank of Vietnam (SBV) has listed thefollowingbusinessesinprioritysectorsforfinancing:agriculture,smallandmedium-sizedenterprises

(SMEs), firms producing goods for export, and hi-tech technology enterprises. The current rates oflending to priority sectors have been lowered to 6 percent per annum.13 Including trucking andlogistics companies on the list of priority sectors could help the transportation sector achieve

significantimprovements.

The proposed lending scheme also suggests key performance indicators (KPIs) for these affordable

vehicleloans,whichdirectthebank’sfinancingoftruckstowardalarger-sizedandyoungertruckfleetwhile successfully growing companies to promote more sector organization and lessen excessivefragmentation. According to this proposal, banks may provide truck loans, at the defined priority

sectorlendingrates,forthepurchaseofnewandtrucksmorethan10T.LoanswouldbebasedontheKPIsgivenbelow:

• Growthoffleetsizeandemployeesizeinthepastthreeyears

• Growthofrevenueinthepastthreeyears

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Fortheschemetosucceed,SBVwouldneedtoexplicitlyrecognizethetruckoperatorbusinessasa“priority sector.” For this priority sector, the SBV could also consider shifting from the current

implementationmethodofan interestratecapforprioritysector lendingto loanquotas,keepingafixedpercentageofassetsallocatedtoprioritysector loans.Similarshifts in financingdone inotherdevelopingcountries likeIndia,Thailand,Philippines,andIndonesia,haveensuredafixedamount is

disbursedforthedevelopmentofbusinessesinthecountry’sprioritysectors.

iii. Internationalexamples

Truck financing is typicallydonethroughbalancesheetborrowingandasset financing,withmostofthe lendingplayersusingtrucksascollateral.ThissectiondiscussesseveralAsiancountries thatusestate-directedprioritysectorlendingasapolicytooltoprovideunderservedsectorsaccesstocredit.

Prioritysectorlending(PSL)bytheReserveBankofIndia(RBI)helpsbyincentivizingcommercialbankstoprovideloanstofinancesmalltruckingcompanies.Accordingtothisscheme,domesticcommercial

banks(andforeignbankswithmorethan20branches)mustprovide40percentoftheiradjustednetbank credit (ANBC) to priority sectors, such as agriculture and SMEs across industries, at RBI rateslowerthanstandardbankrates.14Transportoperatorswithfewerthan10vehicles fall intotheSME

category,andthushaveaccessto7.5percentofANBC.ThisschemeincentivizesbankstolendmorethroughPSL,astheseloansprovideabettersourceofinterestincomethancompulsorycontributionstonationalfundsearningnointerest.

A comparative analysis of priority sector lending schemes in various Asian countries are tabulatedbelow,intable5.8.

Table5.8.PrioritySectorLendingRegimesinAsia

Country Preferentiallending Prioritysectors

Loanquotas

India 40%Agriculture(18%),SMEs,export,microfinance

Indonesia 20% SMEs

Philippines 8%SMEs

(6%small;2%medium)

Thailand 20%ofdepositsAgriculture(14%)and

small-scaleindustries(6%)

Interestratecap

Vietnam200basispointsabovedeposit

ceilingAgriculture,SMEs,export,

technology

Malaysia200basispointsabovebase

lendingrateSMEs

Source:FederalReserveBankofSanFrancisco,CountryAnalysisUnit(AsiaFocus,September2014):https://www.frbsf.org/banking/files/Asia-Focus-Priority-Sector-Lending-in-Asia-September-2014.pdf.

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10.Establishcooperativesfortruckowner-operators

i. Currentchallenge

AsdiscussedinChapter2,two-thirdsoftheregisteredcompanieshaveemployeestrengthoflessthan50. Due to their extremely small scale and limited cash reserves, these companies are not able toinvest in their fleetoroperations.Areported2 to3percentof registeredtruckingcompanieswent

outofbusinessin2017duetocontinuedlosses.Cooperativescouldserveasatoolforthesub-scalebusinessestopooltheirresourcesandachievehigherprofitsasagroup.

Currently,Decree86/2014/ND-CP regulates thebusiness conditionsandgrantingofpermits for theautomobile transportation business, a major step taken by the GoV to tackle fragmentation.

AccordingtotheDecree,enterprisesandcooperatives involvedingoodstransportviacontainers

andbusinessunitsusingtrailers,semi-trailertractors,orautostotransportgoodson itinerariestotaling300kmormore,musthaveaminimumnumberofautos:10forunitswithheadofficesincentralcites,and3to5autosforunitsinotherlocalities.Ambiguityinthepolicystatementanddifficultyintrackingdistancestravelledbytrucks,whichvarybasedontheroutetravelled,makes

this law difficult to enforce. As a result, the policy has achieved limited success in curbingfragmentation. Similarly, Decree 144/2018/ND-CP regulates multimodal business by providing a

clauseformaintainingaminimumassetbaseequivalenttoSDR80,000.15

Decree 86 could be strengthened by explicitly requiring any trucking business operating long-distance routes to own a minimum number of trucks. The requirement would be assessedthrough an intercity license and defined procedures for license renewal. With these changes,

Decree86couldbemoreeasily implementedtohelptackleexcessivetruckingfragmentationinVietnam,asintendedbythegovernment.

Furthermore, a transport cooperative could potentially address the challenges of excessive

fragmentationinthetruckingsectorandthereforeimprovesectorefficiencies.MostcooperativesinVietnam (approximately 55 percent) operate in the agricultural and fishing sectors. Transportcooperatives, in comparison, account for a very small proportion (approximately 5 percent) of the

totalcooperativesinexistencetoday(NguyenandNgo2015).

ii. Proposedpolicy

Thepolicyproposestodevelopthetransportationcooperativemarket,wherethecooperativesocietypoolstheinterestsofsmallertruckingbusinessandencouragesthemtooperatemoreefficiently.TheVietnam Cooperative Alliance (VCA), in associationwith the Vietnam Logistics Business Association

(VLA),couldpromotethesettingupofsuchacooperativethrough:

• Providingeasycreditfortheinitialsetup

• Providingtaxrebatesfortheinitialyears

• Supportingtechnologytransfer

• Training

ThepolicywouldfocusonestablishingcooperativesinprovincesintheNortheast,Northwest,SouthCentral and Red River Delta regions, where the fragmentation is extremely high, with the average

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truck fleet size lower than the national average of fewer than five trucks per company. Thecooperatives are expected to consolidate the smaller players by providing them scale and scope

economies. In addition, by representing smaller, individual players collectively, cooperatives cannegotiatebetterpricesandtruckuse.Insummary,transportcooperativescouldhelptheindustryinthefollowingareas:

• Matchdemandandsupplybetter

• Allowforhighertruckutilization

• Poolassets

• Avoidinformationasymmetries

• Contactlargershippersasalargerentitygroup

• Poolresourcesfortraining,maintenance,etc.

For implementation of this policy, Decree 163/2017/ND-CP, defining the guidelines to set up a

business in Vietnam, could include cooperatives as a separate business entity with operatingguidelines.

iii. Internationalexamples

ThissectiontalksaboutotherAsiancountrieswiththrivingtransportcooperatives,supportedbythegovernment.

• Philippines:Establishedin1983,theOfficeofTransportCooperatives(OTC)isagovernment

agency in the Philippines responsible for the implementation of rules and regulations that

governs the promotion, organization, regulation, supervision, registration through

accreditation, and development of transportation cooperatives, which are subject to the

approval of theDepartment of Transportation. In order to be recognized as an official

cooperative, cooperativepay the initial registration fee—either1percentof theauthorized

capital or a flat fee (range US$10-60).16 The OTCmonitors the cooperative operations and

recommends the issuance of certificates of compliance. The OTC offers the following key

programsandservices:

i. Capacity-building programs: These programs include seminars for transport service

cooperatives (TSCs) designed to provide basic orientation and appreciation on how

TSCsshouldoperateasbusinessenterprisesandserviceproviders.Theyalsohighlight

thesignificanceofthemembers’participationandinvolvementaskeytorealizingthe

cooperative’ssocio-economicobjectives.

ii. Assessandassistprogram:Withtheprimarygoalofinstitutingappropriatetechnical

guidance, assistance, and coaching, this program assesses the transport service

cooperatives’ administrative andoperational records, conducts interviews to gather

diagnosticinputs,andperformsvariousotherobservationsandverificationactivities.

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iii. Technicaldevelopmentassistanceservices:TheOTCprovidesassistancebyvalidating

and then recommending TSC applications and proposals to franchise-related

governingpartneragencies,alongwithfacilitatingothertransportoperations,suchas

applications for certificates of public convenience (CPC), CPC extension of validity,

franchiseconsolidation,routeopeningandmodification,changeofmotororchassis,

etc.

• Malaysia:Incorporatedin2008,thecooperativecommissionofMalaysia(SKM)istaskedwith

encouraging the stability of the cooperatives sector. The SKM offers five major services:

registeringcooperatives,financingcapitalfunds,providingassistancegrants,offeringservice

accounts,andprovidingauditingandlegaladvisoryservices.17

Demand-SidePolicyandInvestmentOptions

Demand-side policy options focus on improving the demand-supplymatch in the industry through

promotionofbrokeragefirmsandinnovativedigitalaggregatormodelsinthelogisticsspace,leadingtoimprovedtruckutilizationandsectororganization.

11.Promotebrokeragefirmsforbetterdemand-supplymatching

i. Currentchallenge

Vietnamfacesakeyissueofmarketfragmentation,whichhindersfreightconsolidation.Onaverage,each company operates five trucks, and hence, a shippermoving high volumes of freight needs to

contactmultiple transport companies to handle the cargo. The lack of information flows results ininefficient matching of supply-demand, which then leads tomore empty backhauls, higher overalltransportation costs, and compounds the sector fragmentation. According to the national survey

conductedwithinthestudy,Vietnamexperiencesemptybackhaulsratesashighas50to70percent.

A brokerage firms acts as a middle platform between the shippers (demand) and the trucking

companies (supply). Using personal connections and networks tomatch supply and demand,mostbrokersinVietnamcurrentlyoperateprovinciallyorregionallyonly,andnotpan-Vietnam,whichleadstoinformationandtransportinefficiencies.

ii. Proposedpolicy

Thisproposedpolicyaimstoorganizeandpromotethebrokeragesector,encouragingpan-Vietnam

companies to operate as registered broker firms. By leveraging systematic databases, these pan-Vietnamcompaniescouldmatchsupply-demandmoreefficientlythanthoseoperatinglocallythroughpersonalnetworks.Thepolicyinvolvesnewregulationsforregisteringbrokers,promotingtheuseof

broker firms, and providing incentives for successful international brokerage firms to establishbranchesinVietnam.

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Suggestedregulationsfortheregistrationofabrokeragefirm:

• TheindividualorfirmmustapplyforthepermitwithMinistryofTransport,asperDecree

86/2014/ND-CP,toregisterasabrokerageentity

• Thetraditionalbusinesspermit issuedbytheauthorityshouldbesupportedbyabroker

license,renewableuponpaymentofanannualfee

• Assecurity,thebrokermustdepositaminimumsumofmoneyinasuretybondortrust

fund,intheeventeitherparty(e.g.,shippersortruckers)defaults

• Thebrokermustoccupyaregisteredofficespace

Thesuggestedconditionsofrequiringasecuritydepositandregisteredofficespaceshouldhelpfilterthesub-scalecompaniesandsingle-personbrokerservicescurrentlywidespread inVietnamthatdonothavetheeconomiesofscale.

Suggestedincentivestoencouragepan-Vietnambrokerageservice:

• Providecorporatetaxincentivestobrokeragefirms

• Allow100percentFDI inthefreightbrokeragespacetoencourage investmentbywholly-

owned subsidiaries or branches of internationally successful players in freight brokerage

space

• Encouragecooperativesofsmallerbrokerstoachieveefficienciesfromscale

iii. Internationalexamples

• UnitedStates: TheU.S.hasoneof the strongest road freightbrokeragenetworks in theworld;

basedon2018revenueinUS$,thetopfivebrokeragefirmsareheadquarteredinUnitedStates.

BrokerregistrationfallsunderthejurisdictionoftheFederalMotorCarrierSafetyAdministration

(FMCSA). The brokerage registration process involves obtaining an operating authority from

FMCSA,designatingaprocessagent,arrangingforatrustfund,payinganannualfee,andsetting

up of office. To raise the standard for freight brokers, in 2013, the government increased the

requiredfreightbrokerbondamountfromUS$10,000toUS$75,000.Thoughtheincreaseforced

smaller brokers out of business, the remaining brokers emerged with a strong reputation

throughoutthe industryofhavinggoodcreditandreliability.This, inturn,raisedoveralltrust in

freightbrokers,withthenumberofbrokerssteadilyincreasingsince2013.Infact,theoverallhigh

leveloftrustintheindustryisamajorreasonforthecountry’ssuccessfulbrokeragemarket.

• Thailand:Thailand’s logistics industry includesanumberofestablished foreigncompanies,with

its major players—including DHL, DB Schenker, Yusen Logistics, and Kerry Logistics—offering a

wide range of freight forwarding, brokering, and supply chain services. In Thailand, several

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logisticsmultinationalsoftenoutsource transportationand logistics activities to local3PLs,with

logistics parties or agents handling the various customs and declaration procedures inmultiple

marketswithinASEAN (Yuen2015).Many foreign companies entering the Thai logisticsmarket

opttoformjointventureswith localpartnerswhohavewell-establishedbusinessnetworksand

marketknowledge.Alternatively,formarketingandnetworkingpurposes,aforeigncompanymay

choosetoopena representativeoffice inThailand.TheThaigovernmentalsooffersvarious tax

andnon-tax incentives to foreigncompanies looking to invest in logisticsactivitiesand facilities

(BoI2015).TheBoardofInvestmentoffersthefollowingtaxincentives,uponapproval:

o Aneight-yearexemptionfromcorporateincometax

o A50percenttaxreductionforfiveyearsaftertheeight-yeartaxholiday

o Doubledeductionsfortransport,electricity,andwatersupplycosts

o A25percentdeductiononfacilityinstallationorconstructionaswellasexemptionfrom

importdutyonraworessentialmaterialsimportedforuseinexportproduction

12.Increaseinvestmentsindigitalfreightaggregatormodels

i. Currentchallenge

Asexplainedinthepreviouspolicy,efficientsupply-demandmatchingisessentialtocurbtheproblemofhighemptybackhauls inVietnam.Alongwith the increase inbrokeragecompanies,anemerging

global trend is the increasinguseof technologyplatformstomatchcargodemandandsupply.Suchlogistics technology platforms use algorithmic, real-timematching for instant online transactions—

with value-added features, such as dynamic lane rates, end-to-end tracking, and dynamic pricingoptionsbasedongoodstype(apart fromsizeandweight). Increased investmentsandpromotionofsuchinnovativelogisticssolutionscouldpotentiallydisrupttheindustry.

With Vietnam experiencing a rapid growth in startups, funding remains sub-scale; 61 percent ofprojectsreceiveinvestmentsoflessthanUS$1million(Das2018).Approximately80to90percentof

start-upsfailintheearlystagesbecausetheydon’thavesufficientfundingtoexpand(Nguyen2018).Therefore,amorenurturingecosystemthatoffersmorefundingandresourcesforlogisticsstart-upsand technology platforms could encourage the growthof digital aggregators. In theU.S.News and

WorldReport2018rankingsof“BestCountriesforStartingaBusiness,”Vietnamranked52ndbehindotherAsiancountries,includingJapan(2nd),Singapore(8th),SouthKorea(12th),Malaysia(34th),andThailand(38th).

Thedisruptivemodelsthathave improvedtruckingsectorefficiencies invariouscountriesare listedbelow:

• Transfix (USA); asset-light model: Started in 2013, the Transfix mobile app and web platform

caters to interstate freight shipping. The platform has reduced the time taken to match a

shipment and truck driver to 15 minutes, compared to approximately four hours required to

matchmanually.Theapphashelpedreducetransactiontimesby50percentandemptymilesby

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85percent(Jaffe2015).Transfixalsofeaturesanonlinemarketplaceplatformthatallowscarriers

selectloadsbasedontheirpreferredpricepoint,ratherthananapp-decidedmatch.

• Rivigo (India); asset-heavy model: The Rivigo platform facilitates better truck utilization and

improves working conditions for drivers. As the owner of the truck assets, Rivigo uses a relay

systemthatallowsdriverstoendshiftsandhandofftruckswithoutinterruptingits24-hourroute

operations, a system that provides a better quality of life for the drivers. Rivigo’s technology-

enabledfleethasledtoa50to70percentreductionintransittimes.

• YunManMan (China); asset-light model: Founded in 2013, YunManMan operates a mobile

platform thathelps truckdrivers tomoreeffectively andefficiently locate, secure, finance, and

manage their cargo inventory. In less than five years, the platformhas registeredmore than 4

millionheavy-dutytruckdrivers(approximately78percentofChina’stotaltrucks)andmorethan

1millioncargoowners.Byimprovingdrivingmileageandshorteningtriptimes,theYunManMan

platform has saved truck drivers nearly CNY 130 billion on diesel costs and 70million tons of

greenhousegas(GHG)emissions.

Vietnam can increase sector efficiency by providing an ecosystem where these types of logisticstechnologyplatformscanthrive.

ii. ProposedPolicy

This proposedpolicy aims to solve the issueof supply-demandmatching through increasedprivateand public sector investments in the digital freight aggregator models. The policy includes the

followingfeatures:

• AllowbrokersandaggregatorstousegovernmentCVTSdataforefficientanalysisofdemand

flows

• Allocate a fixed percent of National Agency for Technology, Entrepreneurship, and

Commercial Development (NATECD) funding for start-ups in the logistics space, and

streamlinethedisbursementprocess

• Promote FDI investments by explicitly including logistics technology start-ups and freight

brokeragebusinessesintheFDIpolicy

• Organizeindustryseminarsandstartupfairstoattractfinancingfromseniorindustryplayers

andfunds

• Establishadedicated,government-fundedboardtosupportresearchanddevelopmentinthe

urbansolutionsspace

• Providementorshipandtrainingtologisticstechnologystart-ups

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Topromotedisruptiveinnovationsanddirectfundsintothelogisticstechnologyspace,thissubsectorcould be included in themedium- and long-term investment plans of theMinistry of Planning and

Investment.

iii. Internationalexamples

• Singapore: “Start-upSG”providesSingapore-basedstart-upswithaccess to fundingsources

andmentorshipprograms,therebyhelpingtransforminnovativebusiness ideas intothriving

companies.Qualifyingstart-upscanaccesscashgrants,equityfinancing,andbusiness loans.

Underthe“equity”scheme,thegovernmentco-invests,withprivate investmentpartners,in

start-ups that require significant capital expenditure. The “tech” grant provides project

fundingforlocalSingaporecompaniesdevelopingbreakthroughtechnologythatcouldeither

disrupt current markets or create new markets. In addition, A*STAR (Agency for Science,

Technology and Research), a statutory board under the Ministry of Trade and Industry in

Singapore,supportsresearchanddevelopmentalignedtothenationalneedsofSingapore.

• India:The“Start-upIndiaHub,”avirtualonlineplatformconnectingvariousstakeholderssuch

asstart-ups, investors,etc.,was launchedbytheGovernmentof India in2016.Thelearning

anddevelopmentmoduleoftheStart-upIndiaprogramoffersfreeentrepreneurshipcourses.

In 2017, the FDI policy mentioned start-ups for the first time, allowing start-ups to issue

equity, equity linked instruments, or debt instruments to foreign venture capital investors

againstreceiptofforeignremittance.Start-upscanalsoissueconvertiblenotestoindividuals

residingoutsideIndia.

Process-RelatedPolicyandInvestmentOptions

The process-related policy options address key issues in the overall process performed by atransportationcompany,fromcargopickuptocargodrop-off,includingthetruckdriver’sentireroad

journey.

13.Launchanissueresolutionmobileapp

i. Currentchallenge

Duringtheirtransportationruns,truckdriversexperienceproblemsfirsthand,problemssuchasroadcongestion, accidents, unauthorized vehicle stoppages, etc., with no platform available for truckdriverstoflagissuesfacedwhileontheroad.

A government-run app developed for truck drivers to report issues could be extremely useful,

providingauthoritieswitha real-timestatusof transportation-relatedproblems. It couldpotentiallylead to better governance, and policy makers could use app-collected data to prioritize long-term

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plans.Theappdatacouldalsoidentifychokepointsinroadinfrastructure.Inaddition,informationonaccidentsandinformalfeescouldimproveaccidentrecoveryandenhancegovernance.

ii. Proposedpolicy

The proposed issue-resolution mobile app allows trucks drivers to report transportation journey-

related issues. Further, geo-tagging of the issue could help local authorities monitor and addressproblems.Commonissuesthatdriverscouldreportviatheappincludethefollowing:

• Congestion

• Informalfeepayments

• Accidentsandotherdriving-relatedissues

Figure5.14illustratestheappinterface.

Figure5.14.SampleAppInterfaceforTruckingIssueResolution

Figure 5.15 illustrates a sample app dashboard, which would be available to the concernedauthorities.

Theappcouldalsofeaturearedressalmechanismwherebyadedicatedcommitteeorworkinggroupcomposedofvariousauthoritieswoulddevelop,inatimelymanner,solutionstothemostcommonlyreportedproblems.Forexample,theDRVNandVRworkunderthejurisdictionoftheMOT,whilethe

trafficpolicefallunderthejurisdictionoftheMinistryofPublicSecurityandpublicworksisoverseen

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the jurisdiction of theMinistry of Construction. A committee or dedicated team composed of keystakeholdersfromthevariousministrieswouldprovideaholisticperspectiveontheroadsectorand

offerintegratedsolutionstoroad-relatedissues.

Figure5.15.IssueResolutionMobileAppDashboard:Illustrative

iii. Internationalexamples

Variouscountrieshavebeenusingmobileapplicationsasaplatformtoraisethepublic’sconcernstotheappropriate authorities. Someof thewell-received, government-supportedmobile apps include

thefollowing:

• ColabApp(Brazil):Anappdevelopedintheprivatesector,thegeneralpubliccanuseColabApp

toreportissues,suggestimprovements,andratepublicservices.Overthepastfiveyears,theapp

haspartneredwith cityhallsofmore than130cities inBrazil.Municipalitiesuse theapp’s free

dashboard to monitor and respond to citizen complaints. In one city, the Colab App platform

AccidentHo Chi Minh, 10.8, 106.4

Informal paymentHo Chi Minh, 10.8, 106.6

Road congestion Da Nang, 16.06, 108.06

Road congestionHanoi, 21.02,105.8

REPORT ISSUES

FilterSort by: Recent

Days:15Opened:25Closed:5Acknowledged:54

Search for issues nearby:

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helpedraisedparticipation inasimplemunicipalbudgethearing from300tomorethan10,000

individuals.

• SeeClickFix (USA): An app used to address federal issues by delivering service requests to

governments, SeeClickFix has become the official non-emergency reporting platform for

approximately300cities,withdataintegratedwiththe311(non-emergencycallnumber)system

and a current resolution rate of 90 percent. SeeClickFixencourages residents to actively report

neighborhoodissues,whicharethendirectedtotherespectivegovernments.

• NoiseApp(Ireland):LaunchedinpartnershipwiththePoliceServiceofNorthernIrelandandthe

Northern Ireland Housing Executive, Noise Appallows community residents to complain about

nuisances relating to high noise levels in their neighborhoods.Using the app, residents can log

location, dates, times,make 30-second recordings of the high noise level and explain how the

noise is affecting them. The data is then automatically sent to the investigating environmental

health officer. Council officers follow up in person, and can use the recordings as supporting

evidence.

14.Rolloute-tollingandCCTVcamerasattollbooths

i. Currentchallenge

Becauselongwaittimesattollbooths,especiallyatcityentrypoints,oftennullifyanytimesavedbyusing highways or expressways, many drivers avoid toll roads. Along with the time delays, the

extendedidlingtimewaitingatcongestedtollplazasresultsinadditionalfuelburn.Everyyear,paperticket printing and traffic congestion at manual toll collection (MTC) systems costs Vietnamapproximately US$162.7 million (Vietnam News 2018). However, RFID (Radio-Frequency

Identification)tagscanreducethetimespentatthetolls.TheRFIDtollsystemdetectsthevehicleandelectronically deducts the toll amount from the account linked to the vehicle’s tag, eliminating theneedforthevehicletostopatatollbooth. Inadditiontosavingthetruckoperators’ time,theRFID

systemalsobenefitsthegovernmentbyreducinglaborcostsattollplazas,whiledynamictollandtaxpricingincreasestollcollection.

Installing CCTVs at tollbooths would also aid in monitoring congestion and reducing informalpayments,whichcurrentlyaccountfornearly10percentofoperatorcosts.

ii. Proposedpolicy

In 2015, DRVN and VietinBank started developing the electronic toll collection (ETC) system inVietnam launched in2016.WithRFID tagsnowavailableonnearly500,000of the3million cars in

Vietnam,thegovernmentplanstorolloutETCnationwide.Thusfar,e-tollinghasbeenimplementedon25tollbooths(Ngoc2018)—approximately33percentcoverage.

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This policy proposes prioritizing three highway routes (QL1A, QL5 and QL 20) on which e-tollingimplementation could be accelerated. Together, the three proposed highways account for

approximately 30 percent of the national truck-carried freight flows and around 60 percent of thecountry’stollbooths.

Thepolicyalso recommends installingCCTVsatall tollbooths tomonitor traffic congestionand flagany unauthorized practices related to informal fees. The surveillance footage can bemonitored byDRVNorotherrelevantauthoritiestoobservereal-timetrafficflowaroundtollbooths.

iii. Internationalexamples

ETC is a common phenomenon across multiple countries. Examples from the United States and

Sweden18arehighlightedbelow:

• UnitedStates-MexicoBorder:Everyday,theRFID-enabledlanesattheUS-Mexicoborderhandle

20,000vehiclecrossings.TheETCprogramaimstoreducecongestion,improvetollefficiency,and

add potential revenues streams through use of electronically stored traffic data. RFID-enabled

carspass throughdedicated lanesequippedwithreaders,whichmeasuretheamountof timea

car takes topass theborder.Readersalso capture the timestampand locationofeachvehicle.

Theprogramhasreducedvehicleinspectiontimefrom35to10seconds,savinglaborcosts.

• Stockholm,Sweden:ThedynamicroadtaxprograminStockholm involvestheuseofRFIDtags.

The RFID system senses every car (equipped with an RFID tag) crossing into the city’s central

district. The e-tolling system, which processes 2.5 million transactions per day, identifies the

vehicleandcalculatestheroadusagefeebasedonthetimeofday.E-tollinghasledtoa20to25

percentreductioninoveralltrafficvolumeincentralStockholm(Arnoldetal2010).Theprogram

recovered its initial investment costs of approximately EUR 380 million in three years, and is

currentlyaself-sustainableprogramwithannualrevenuesofEUR96million.

PolicyImpactAssessment

Thepolicyinterventionselaboratedintheabovesectionareexpectedtoimprovetheefficiencyofthetrucking sector in Vietnam. For example, the proposed policy interventionswill produce a positiveimpact on truck fleet characteristics, such as truck age, truck size, and truck fleet utilization. This

sectiondiscussesthemajorimpactsofthepolicyinterventions.

Thesepolicyinterventionsareexpectedtodrivesixkeychangesinthesector,whichinturnwillhaveapositiveimpactonthekeyoutputmetrics—forexample,freightcostandemissions:

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1. Reduction in road freight share: The infrastructural policies for improving road access to

ports,promotingcontainersonbarges,andcoastalshippingaimtoshiftloadsfromroadsto

othermodes,suchasinlandwaterwaysandcoastalships.Theimprovedcontainerizationand

upgradedport infrastructureshouldhelppromotemultimodalitybetweenvariousmodesof

transport.

2. Improved truck utilization rates: Policies aimed at efficient supply-demand match—for

example, establishing cooperatives, creatinga legal framework topromotebrokerages, and

increasing investments indigital freightaggregatormodelswill tackletheproblemofempty

backhauls and LTLs. In addition, the infrastructural policyondeveloping logistics andurban

consolidationcentersaimstoconsolidatefreightandincreaseutilizationoftruckcapacity.

3. Reductioninvehicleage:Thefollowingthreepolicyinterventionsareexpectedtolowerthe

averagefleetageinthecountry,andthereforeleadtoincreasedfuelefficiency:

! Fleetmodernizationprogram

! Roaduserchargebasedonvehicleage

! Fleetimprovementthroughagrowth-basedlendingprogram

4. Increaseintheaveragecarryingcapacityofthefleet:Theproposedpolicyofagrowth-based

lending program for larger and newer truckswill likely increase the number of truckswith

highercarryingcapacity.Thefleetmodernizationprogramcouldalsoincentivizeoperatorsto

purchase larger-sized trucks, reducing the number of trucks required to carry the same

amountoffreight.

5. Lowertransittime: Infrastructuralpoliciesonroadupgradationandtheacceleratedrollout

of e-tollingwill likely, lower traffic congestion on roads and reducewaiting times, thereby

leadingtoshortertransittimes.

6. Betterdrivingethicsandgovernance:Processrelatedpolicies,includingthedevelopmentof

issue-resolutionmobileappandcommitteesaswellasimproveddrivertrainingshouldresult

inbetterdrivingethics(e.g.,feweraccidents)andenhancedgovernancetothetruckingsector

(e.g., fewer informal payments). These policies will also streamline the overall process of

transportingfreightbyroad.

144

Reductionintransportationcosts

Improving truck fleet characteristics—for example, fleet age and carrying capacity—will have apositiveimpactonbothfixedtransportationandvariabletransportationcosts.Betterfueleconomy,

onaper-tonbasisofnewerandlargervehicles,andlowercoststomaintainayoungerfleetwillhelplower variable costs. With more larger-sized trucks in the fleet to transport the same amount offreightandreduceemptybackhauls, fewer truckswouldberequired.Reducedtrip timewouldalso

increasethenumberoftripsandallowformorefreighthaulageinfewertrucks.Inaddition,improvedvehicleutilizationwouldresultinbetteramortizationoffixedcostsoveralargerrevenuebase,whilebettergovernancemechanismsandbetterrulecompliancewillleadtoreducedpaymentsofinformal

fees.With these benefits inmind, the proposed policy interventions should reduce transportationcostsperton-kmforintercityroutesby16percent(figure5.16).

Sincetransportationcostsaccountsfornearly60percentofthetotallogisticscosts(MoIT2017),withintercity truck freight representing 20 percent19 of the total annual freight tonnage, reduction inintercity transportation costs by 10 to 15 percent could lead to a sizeable reduction in the total

logisticscostsinVietnam.

Figure5.16.Post-InterventionReductioninTransportationCosts

InVNDperton-km

Note:Operatorfixedcostsincludeadministrativeandofficecosts.TransportationcostscalculatedbasedonthemethodologydiscussedinChapter3;keyassumptionsforimpactassessmentinclude50percentincreaseinpayloadofintercitytrucks,5percentreductionininformalfee,5percentreductionintransittime,and10percentreductioninemptybackhauls;calculationsdoneforalong-haultrip(1,500km)

Post intervention Baseline

67.6%

4.6%

27.8% 3.3%

30.3%

66.4%

1,274

1,074

-16%

Vehicle variable cost Operator fixed cost

Vehicle fixed cost

145

ReductioninGHGemissions

GHG emissions depend directly on the amount of fuel consumption. Younger fleetswith improvedfuelefficiencywillhaveloweremissions.Also,withimprovedbackhaulutilizationandreduceddelays,

fewer trucks would be required to transport the same freight, further reducing fuel consumption.Overall,thepolicyinterventionsshouldresultinabout7percentreductioninvehicularGHGemissions(figure5.17).

Figure5.17.ReductioninGHGEmissionsEfficiency

IngramsofCO2perton-km

Note:GHGandpollutantsemissionscalculatedbasedonthemethodologydiscussedinChapter4;keyassumptionsforimpactassessmentinclude20percentincreaseinEuro4compliantvehicles,reductioninvehicleage(truckagelessthanorequaltofive<=5yearsforlong-haultrucks),truckspeedincreaseby5percentandemptybackhaulreductionby10percent.

Reductioninpollutants

Vehicle-generatedpollutantsareregulatedbytherelevantemissionsnorms.Forexample,comparedto recent Euro 4 vehicles driven by the engine efficiencies, older vehicles—subject to Euro 2

standards—contributemorepollutantemissions.Theproposedpolicies,byincentivizingthepurchaseof new trucks and disincentivizing the use of older trucks,work to lower the average age of truckfleets. Accordingly, having more and newer trucks complying with the recently introduced Euro 4

normswill result in feweremissionsof environmentalpollutants.Dependingon thepollutant type,pollutantlevelsshouldthereforedropanestimated14to16percent(figure5.18).

146

Figure5.18.Post-InterventionReductioninPollutants

Note:CO=Carbonmonoxide,ingramsPTPK(pertonperkm);HC+NOx=Hydrocarbons+NitrousoxidesingramsPTPK;PM=particulatematter,ingramsPTPK.

Reductioninroaddamage

Shiftingfreightfromroadtoothermodesoftransportentailsreducingtheloadappliedtoroads.Road

damagefactor,anumericalestimationofroaddamage,isbasedontheequivalentstandardaxleload(ESAL) applied. Road damage can be described as a condition in which the road structures fail tooptimallyservethetrafficabove.Accordingtothestudy’sorigin-destination(OD)model,theshiftto

transportinggoodson inlandwaterwaytransport (IWT)networksandcoastalshippingcouldreducetheroaddamagefactor—forroadsconsideredintheODModel—byabout5percent(figure5.19).

Figure5.19.Post-InterventionReductioninRoadDamage

Source:SholichinandRumintang2017andNguyenandLe2016.Note:ValueofroaddamagecalculatedbasedonSholichinandRumintang2017.Valuesofdamagefactorinmillionunits;keyassumptionof5percentreductioninroadfreightshare,whichcontributestolowerroaddamage.CostofmaintenancetakentobeapproximatelyUS$3,300perkm,calculatedbasedonNguyenandLe2016.

147

Reductioninroadaccidents

Enhanced driver training, alongwith the issue-resolution app, should help improve driver behaviorand overall road safety levels. Since the GoV bears the loss of or damage to any public property

causedbyanaccident,betterroadsafetywillreducegovernment-bornecosts;accordingtoareportprepared by the International Road Assessment Programme (iRAP), a 10 percent reduction in thenumberofaccidentswouldsavetheGoVapproximatelyVND70million(figure5.20).

Figure5.20.Post-InterventionReductioninRoadAccidents,inCostperYear

Annualcostofroadaccidents,inmillionVND

Note:Assuminga10percentreductionindeaths,numberofdeathsandcostofaccidentscalculatedbasedonInternationalRoadAssessmentProgramme(iRAP)VietnamReport.

ReductionintheGoV’sforexexpenditure

Forexexpenditureisaffectedbytheamountoffuelacountryimports.Withacurrentannualdieseloilshortageof1.8milliontons(VietnamNet2017),Vietnammustimportcrudeoiltomeetitsfuelsupplyneeds.Lookingahead,policiestargetedtowardayounger—andmorefuel-efficient—fleetwithlarger,

higher capacity trucks should help reduce the number of trucks on the road. As a result, fuelconsumption,alongwiththeneedtoimportfuel,willdecrease.Drivenbythesepolicyinterventions,Vietnam’s overall forex expenditure on crude purchase could reduce by approximately 7 percent

(figure5.21).

Toassistpolicymakersinbetterunderstandingtherelativecostsandbenefitsofthevariouspolicies,

thestudyproposesapolicyprioritizationmatrix,illustratedintable5.9.Collectively,thepoliciesareprojectedtosignificantlyimproveVietnam’struckingsectoraswellaslowerlogisticscostsandGHGemissions.Giventhetruckingsector’sdominanceinthelogisticssector,

thiswill,inturn,improveVietnam’stradecompetitivenessandproducepositivesocialandeconomicbenefitsforVietnam’scitizens.

148

Figure5.21.Post-InterventionReductioninForexExpenditure

ForexexpenditureinbillionVND

Note:Assumingthereductioninfuelconsumptionwillbeentirelycompensatedfromimportedfuel,currentfuelconsumptionwouldbereducedby5percent,duetothereducednumberoftrucks,andby2percent,duetotheimprovedageoftrucks,whichtranslatesintolowerfuelimportcostsforthegovernment.

Table5.9.ImpactandCostAssessmentofPolicies

1. Approximateestimatedrangeofgovernmentinvestmentsrelatedtotheproposedpolicy2. Policyimpactsroadsafetyandcontributestotheoverallimprovementofthetruckingsector

149

Summary

! ThepolicyoptionsrecommendedaspartofthisstudytargetreducinglogisticscostsandGHG

emissions,whileimprovingsectorperformance.

! Thepolicies are divided across four categories: infrastructure-related, supply-side, demand-

side,andprocess-related.Thekeypolicyrecommendationsincludethefollowing:

! Infrastructure-relatedpolicyoptions

! Reduce congestion around ports through the provision of centralized parking bays

andconsolidationyardsnearports(short-term)andwideningofroads,strengthening

of roads to handle heavier trucks, lane reservation, and dedicated truck corridors

(medium-term).

! Promote “container-on barges” to boost inlandwaterway transport (IWT) usage by

adopting fleet sizes/designs/waterways suitable for containerization, allocating

berthingwindowsatmaritimeports for IWTbarges,alongwith improvingcontainer

handlingfacilitiesatriverports.

! PromotecoastalshippingontheNorthVietnam–SouthVietnamroutebyencouraging

more coastal shipping lines, domestic shipping centers, reducedporthandling costs

for domestic cargo, and increased RO-RO vessels that promote trucking–coastal

itineraries.

! Integratelogisticscentersandurbanconsolidationcenters(UCCs) intheexistingICD

master plan, with logistics centers prioritized at ICD locations closer to industrial

zonesandUCCsprioritizedatthecityfringesofHanoiandHCMC.

! Prioritizeandupgradetheroadinfrastructureoftheeightkeyroutesaccountingfora

majorshareof intercitytruckingtraffic.Elevatedroads,overpasses,additional lanes,

lanereservationscouldbeexplored.

! Supply-sidepolicyoptions

! Introduce a truck fleetmodernization programwith incentives for truck owners to

scrap their older vehicles. This could include offering registration tax waivers and

scrapvaluerebates,andencouragingOEMdiscounts.

! Varyexistingroaduserchargeswithfleetagetodisincentivizetheuseofoldertrucks.

! Strengthen driver training by adding personal health and safety components and

physical tests. Enhance the licensing process through periodic trainings for the

150

renewal of licenses. Making a registry of licensed drivers and their driving records

availabletotruckingcompanies,couldalsoincreasethequalityoftruckdrivers.

! Improve Vietnam’s fleet through a growth-based lending scheme aimed at

preferential lending rates for the purchase of more fuel efficient and larger-sized

trucks, subject to company growth, to reduce excessive trucking sector

fragmentation.

! Establish cooperatives for owner-operators to allow the smaller players to pool

resources and help them achieve scale efficiencies. Simplify the implementation of

regulationsspecifyingminimumassetspertruckingcompany.

! Demand-sidepolicyoptions

! Promotebrokeragefirmsthroughdefiningregulationsfortheregistrationofbrokers,

providing incentives for brokerage firms, allowing 100 percent foreign direct

investment(FDI)forsuccessfulforeignbrokeragefirmstosetupbranchesinVietnam

andencouragingcooperativestocreatepan-Vietnambrokerages.

! Increase investments in digital freight aggregator models through government

policiespromotingfundraising,researchanddevelopment,FDI,mentorship,andopen

datasharing.

! Process-relatedpolicyoptions

! Launchanissueresolutionmobileapptoreportissuesfacedbyatruckdriverduring

his or her trip, such as accidents and informal payments, along with an issue

resolutionteamtoresolvetheissues.

! Roll out e-tolling and CCTV cameras at tollbooths along key routes to avoid the

unnecessary and unauthorized stopping of trucks, which increases costs and

emissions.

Thesepolicyinterventionsareexpectedtodrivethefollowingchangesinthesector:

! Reductioninroadfreightshare

! Improvementintruckutilizationrates

! Reductioninvehicleages

! Increaseintheaveragecarryingcapacityoffleet

! Lowertransittimes

! Betterdrivingethicsandgovernance

151

! Thestudyestimatesthesuccessfulimplementationoftheserecommendedpoliciescould

reduce transportation costs by approximately 16 percent, while lowering GHG by

approximately7percent.

! Otherpositiveimpactsoftherecommendedpolicyoptionsincludereducedpollutants(by

about14to16percentperton-km),reducedroaddamage(byapproximately5percent),

reducednumberof accidents (by about10percent) and reduced forexexpenditure (by

approximately7percent)duetolowerrequiredfuelimportsthankstotheyoungerfleet

andhighercapacityutilization.

! Apolicyprioritizationmatrix isproposedtoassistpolicymakers inbetterunderstanding

therelativecostsandbenefitsofthevariouspolicies.Thecollectiveimpactofthepolicies

isprojected to significantly improveVietnam’s trucking sector,aswell as lower logistics

costsandGHGemissions.

Notes

1.Costsonaperton-kmbasis.Source:ProfitabilitymodelfortruckoperatorsinVietnam.

2.SaigonNewportCorporationstatisticsreportedin“TransportingColdContainerCargobyBarge:AnEconomicalSolution,”publishedinVietnamLogisticsReview(dateunknown;notavailableonline).MoreinformationonSaigonNewportCorporationavailableathttps://saigonnewport.com.vn.

3.VINAMARINE(http://www.vinamarine.gov.vn/Index.aspx),2016data.

4.AccordingtotheSpanishShortSeaPromotionCenter—SPCSpain:http://www.shortsea.es/index.php.

5.StatisticaccessedviaafinancialdatabaseoftruckingandlogisticscompaniesinVietnam,availabletoAventionclients.

6.Cityyellowcarsexceeded85%ofthecumulativephase-out.Seepage19intheICCTwhitepaper,“ReviewofBeijing’sComprehensiveMotorVehicleEmissionControlPrograms,”publishedin2015.

https://www.theicct.org/sites/default/files/publications/Beijing_Emission_Control_Programs_201511%20.pdf.

7.Basedonunpublished2018dataprovidedbyDRVN.

8.Nationwidetruckingcompanysurveywithover110respondents,conductedaspartofthisstudyin2018.

9.Thestudy-conductedsurveyrecordsresponsesof150Vietnamesetruckdriversacrossthecountry

10.SeeArticle65ofLawNo.23/2008/QH12,onroadtraffic,approvedNovember13,2008,bytheNationalAssemblyofVietnam.https://thuvienphapluat.vn/van-ban/EN/Giao-thong-Van-tai/Law-No-23-2008-QH12-of-November-13-2008-on-road-traffic/88512/tieng-anh.aspx.

11.See:https://vanbanphapluat.co/circular-no-46-2012-tt-bgtvt-on-driver-training-driving-tests-and-issuance-of-driving-licenses.

12.ResultsgeneratedbytheGHGModeldevelopedforthisstudy(2018).

13.DecreeNo.01/NQ-CPdated01/01/2018

152

14.InformationgatheredfromtheRBIwebsite:https://www.rbi.org.in/.

15.SpecialDrawingRights=Asupplementaryforeign-exchangereserveassetsdefinedandmaintainedbytheInternationalMonetaryFund:https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR.

16.OfficeofTransportationCooperatives,DepartmentofTransportation,RepublicofPhilippines:http://otc.gov.ph.

17.MalaysiaCo-operativeSocietiesCommission:https://www.skm.gov.my/index.php/en/.

18.BasedonfindingsfromofA.T.Kearneyglobalteamanalysis.

19.Calculatedusingroadfreightshareof77percentintotalfreight(GeneralStatisticsOfficeofVietnam)andintercityfreightshareof27percentintotalroadfreight(VITRANSS2report,JICA2010b).

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