Market research : Cold chain in Viet Nam (part 2)

Part 1: Cold chain in Viet Nam

Main players in storage services

According to Overview of the Cold Chain for Agriculture in Viet Nam 2019,  ‘Commercial cold storage services in the South have developed far ahead of the North, demonstrated by the outstripped number of both foreign and domestic cold services providers as well as their sizes in the former compared to the latter. According to expert estimation,16 Mekong Logistics of Minh Phu–Gemadept, ABA Cooltrans, Emergent Cold, and Hoang Lai Group are the top leading cold storage providers, with the capacity of each being up to 45,000–50,000 pallets, followed by Meito (30,000 pallets), Lotte Logistics, Preferred Freezer Services (23,000– 24,000 pallets), and New Land of Sojitz and Kokubu (15,500 pallets).

Cold storage market in Vietnam mainly used by Seafood sector. Seafood processing companies also actively invest in cold storage for production. Most cold storages for seafood exports in Viet Nam are for pangasius and shrimp products, which combined comprise two-thirds of Viet Nam’s seafood export value. Due to the higher weights of pangasius products, the cold storage capacity in pangasius facilities is clearly higher than that in shrimp facilities, as shown in the below tables. Over the last two decades, the extraordinary emergence of pangasius exports from Viet Nam has created a boom in cold storage capacity serving the seafood sector. Meanwhile, the phenomenon of importing intermediate seafood products for further processing and reexporting also requires additional capacity (The Cold Chain for Agri-food Products in ASEAN 2019).


Refer: The Cold Chain for Agri-food Products in ASEAN 2019.

Refer: The Cold Chain for Agri-food Products in ASEAN 2019.

Main players in transportation services

With the strong growth of the supermarket system, expanding in suburban areas. Demand for transportation of domestic fresh food increased. Additionally, locations of cold storages and production farms for domestic consumption and export are far. These leads to demand of cold transportation service. Currently, many transport companies invest in cold transport. Some typical companies are ABA, , Binh Minh Load, Agility, Bao An, Toan Thang…..


Source: Emergent Cold 2019

According to the Vietnam logistics report 2019, the potential domestic cold-chain service market has attracted an increasing number of multinational logistics companies to Vietnam, establishing facilities as part of the strategy to expand their geographic reach to support the rapidly growing customer demand.

Policies related to the cold chain in Viet Nam

In the context that Vietnam integrates more and more deeply and effectively with other countries in the world and the region, namely the signing and implementation of FTAs such as Vietnam – Korea FTA (VKFTA) and  ASEAN – Korea (AKFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Vietnam – EU Free Trade Agreement (EVFTA) have created a dramatic improvement in the business environment, expanding investment and trade for Vietnamese businesses and  positive impact on domestic import and export activities.

The completion of legal regulations has been a concern of government. The reality of deeper and wider international economic integration of Vietnam, especially the implementation of next-generation Free Trade Agreements (FTAs), requires appropriate provisions, creating favorable conditions for the development of logistics services, boosting domestic investment and international cooperation.

In terms of strategy, The Prime Minister issued Decision No. 200 / QD-TTg dated February 14, 2017, approving the Action Plan to improve competitiveness and development of Vietnam’s logistics service industry to 2025. According to the action plan , to enhance competitiveness and develop logistics services in Vietnam by 2025, Vietnam strives to contribute 8% -10% of GDP in the logistics service industry, and the growth rate of the service reaches 15%. -20%, outsourcing logistics services reach 50% -60%, logistics costs reducing to 16% -20% of GDP, ranked according to the national logistics capacity index (LPI) in the world with 50th onward.

Regarding logistics development promotion policies, On December 30, 2017, the Government issued Decree No. 163/2017 / ND-CP providing regulations on logistics service business (effective from February 20, 2018), detailing the Commercial Law. on logistics service business conditions and limits of liability for traders providing logistics services. The promulgation of this Decree has comprehensive coverage of logistics services, internalization of international commitments on logistics. This is a new step in institutional reforms related to logistics services as well as specific regulations on investment and development of logistics services in Vietnam. New points of the Decree are expected to create a more favorable legal corridor for businesses to easily access the logistics market; promote geo-political advantages in developing logistics infrastructure to accomplish the goal of helping Vietnam become a major transshipment hub of Southeast Asia and Asia.

In particular, for foreign investors when dealing in logistics services, besides having to meet the conditions like domestic investors, Decree 163/2017 / ND-CP also notes a number of additional articles. For example, when dealing in cargo transportation services of maritime transport services (except domestic transport), foreign investors are allowed to set up companies operating fleets of Vietnam’s flag or contributing capital, buying shares and stakes in enterprises, in which the proportion of foreign investors’ capital contribution does not exceed 49%. The total number of foreign crew members working on Vietnamese-flagged ships (or registered in Vietnam) owned by these companies in Vietnam shall not exceed one-third of the ship’s charter. The captain or first mate must be Vietnamese citizens. However, in order to comply with the international commitments to which Vietnam is a member, Decree 163/2017 / ND-CP also noted the case of investors. Foreign investors are subject to the provisions of international treaties that have different provisions on the conditions of business of logistics services, investors may choose to apply the investment conditions prescribed in one of the treaties.

Additionally, Policy of Food Safety Law 2010 on condition for food preservation influencing cold chain service is in clause 1b of Article 20: “ Food producers and traders must meet the following conditions for food preservation: Preventing the effects of temperature, humidity, insects, animals, dust, strange smell and negative environmental effects: guaranteeing sufficient light: having special-use equipment for adjusting temperature, humidity and other climate conditions, ventilation equipment and other special preservation conditions required by each type of food”.

The Government has also clearly shown its commitment to supporting and creating a favorable environment, to improve the competitiveness and develop logistics services in Vietnam when The Prime Minister signed  Decision No. 27/2018 / QD-TTg dated July 6, 2018, issuing the Vietnam Economic Sector System (this is the first time Vietnam has its own logistics industry code (Code 52292: Logistics ))  and Directive No. 21 / CT-TTg dated July 18, 2018, on promoting the implementation of solutions to reduce logistics costs, and effectively connect transport infrastructure.

Opportunities

Vietnam is a country producing and exporting many agricultural and aquatic products. The domestic market is growing thanks to the strong expansion of the modern retail chain and food service, convenience stores. However, preservation of agricultural products from harvesting to consuming has not been completed.

The storage space for goods is becoming increasingly important as Vietnam’s goods enter the global value chain. According to research results published by CEL Consulting in 2019, showing the average loss of production, treatment after harvesting, storage and transportation to the point of distribution of fruits, vegetables, meat and seafood in Vietnam is 25.4%, 5.3% higher than the standards set by FAO for South and Southeast Asia.

The research also showed that only 14% of Vietnamese manufacture associate solutions with cold chains, except for the fishery sector accounting for 42.1%. While the use of cold chain for exporters is 66.7%, the manufacturers and supplier to the domestic market only apply cold chains with 8.2%.

According to Emergent Cold (2019) on evaluation on the capacity of  services of cold storage in Vietnam shows that  More than 50% of businesses can provide from 6 to 7 services in cold storage. More than 20% of businesses provide 9 – 11 services, and 20% provide less than 5 services. A very small portion of enterprises can provide 16 services in cold storage. Services are provided mainly: transport and distribution services, cross-docking services, value-added services such as loading and unloading goods; service of changing packaging, printing stamps and labeling; service of forwarding and transporting goods and containers from factories or ports etc.

Therefore, it can be noticed that the incomplete cold supply chain in Vietnam is creating a large room for businesses to invest in this segment.

In addition, in the context of difficulties and congestion like the current COVID-19 pandemic, cold storage is even more necessary than ever. According to CBRE Vietnam Co., Ltd., in the context of the outbreak, the opportunity to increase online sales and accelerate the form of multi-channel retail, the addition of warehouse supply around the large metropolitan areas are essential in order to meet the sudden increase in last-mile delivery.

Niche markets in industrial real estate and logistics are also expected to benefit from the impact of the epidemic, as consumer demand and retail distribution of fresh food will boost tenants’ demand for cold storage systems in coming years.

Source: Kotra ,GSO, Emergent Cold and local media and newspapers.

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