Logistics costs in the new normal optimization


Logistics costs in the new normal optimization
The logistics service industry plays an essential role, is a key service industry with high added value, as a foundation for trade development, contributing to improving the competitiveness of the economy. Therefore, the reduction of logistics costs is one of the top goals of every business and country.
 
The action plan to improve competitiveness and develop logistics services through 2025, together with the Government's Decision No. 200 / QD-TTg dated February 14, 2017, outlined targets by 2025: Logistics fees reduced to 16% - 20% of GDP ", and there are many related research topics. Because it is an important and urgent issue, recently (2019 - 2020), the Ministry of Industry and Trade and the Ministry of Transport (MOT) have had ministerial-level research projects on national logistics cost reduction. On the basis of an analysis of the overview and current situation of logistics costs, Vietnam Association of Logistics Service Enterprises has made specific recommendations to improve the logistics system associated with reducing logistics costs.
 

The basic composition of logistics costs through official studies

Logistics costs include costs related to transport, inventory and the cost of managing goods in the supply chain of goods. The main components of logistics costs identified are customer service, inventory costs, transportation, warehousing, information system costs, order processing, and shipment quality costs. Logistics costs vary by product, logistics service company and country, and the way logistics costs are calculated is also different. (1) Briefly understand: "Logistics costs are all the costs associated with moving a product from the time of material delivery to the delivery to the customer and any processes in between". Logistics costs are the logistics costs of a business in particular and the logistics costs of a country. This article only covers national logistics costs.
 
The factors that contribute to logistics costs include: Transportation costs; Inventory costs; Management costs; Infrastructure costs. Since the cost of infrastructure is mainly covered by the government, when calculating this cost, it is often excluded from logistics costs (2). Depending on the calculation method, in general, many countries apply the main components of logistics costs including: Transportation costs (about 60%), inventory costs (about 35%) and management costs (about 5). %). For example, the US logistics cost ratio in 2018 is 63%, 33% and 4%.
 
In Vietnam, up to now, there are two official published calculation studies on logistics costs, including: Final Report 2014 "Transport Consulting Services to Support the Ministry of Transport on Multimodal Transport Development" of the Company. consulting company ALG, World Bank (WB); and Transport and Logistics Statistics Yearbook 2018 (NGTK 2018) of the Ministry of Transport with the support of the World Bank and in collaboration with the International Transport Forum (ITF) under the OECD (Announced 2020).

Calculation of ALG Consulting Company

ALG has used a specific logistics cost method for 12 commodity chains (electronics and components; Electrical equipment; Textile; Automotive Industry; Pharmaceutical; Vegetables; Footwear; Seafood; Rice; Coffee; Beverages; Furniture), then interpolate estimate and draw conclusions of Vietnam's national logistics costs corresponding to all value added manufacturing industries in the country. Logistics costs include: transportation costs 59% + port costs 1%, inventory costs and management costs 40% (storage, yard: 11%, loading and unloading: 21% and packing: 8 %). This calculation is consistent with the method of calculating logistics costs of many countries, such as the US, Western Europe, Japan, Singapore, Thailand, ... ALG also gives a specific number of logistics costs accounted for in product costs. : Electronic products and components: 1.2%; Electrical equipment: 3.5%; Textile and garment: 9.3%; Cars: 2%; Pharmaceutical products: 0.3%; Vegetables: 29.5%; Footwear: 11.7%; Seafood: 12.2%; Rice: 29.8%; Coffee: 9.5%; Drinks: 19, 8% and Furniture: 22.8%. On the basis of that calculation, ALG draws Vietnam's logistics costs equivalent to 20.9% of GDP (2014), of which transport costs account for about 60%, the high cost compared to developed countries. (3). Currently, the structure of Vietnam's exports has changed dramatically.
 
Comparing logistics costs for 10 out of 12 categories studied according to ALG report in 2010 and updated 2018 data can be seen that when the commodity structure has changed, logistics costs also change. Specifically, logistics costs decreased from 10.70% to 8.74% for 10 categories (2010 - 2018).

The calculation of the Statistical Yearbook 2018 (SY 2018)

SY 2018 calculated on the basis of 4 groups: Transportation and loading and unloading costs; Warehouse costs; Cost of inventory; and Management costs. This calculation is basically the same as that of ALG mentioned above. The only difference is that SY 2018 calculates the logistics cost on the revenue of enterprises nationwide, including manufacturing and wholesaling enterprises, unlike ALG that calculate the cost on a comparison with GDP. different. Usually, the method of calculating logistics costs on sales of enterprises is lower than the method of calculating logistics costs compared to GDP. We should take logististics costs compared to GDP as the calculation of ALG that countries around the world are currently using to calculate logistics costs, thereby demonstrating the development level of our logistics service industry.
 
According to SY 2018, logistics costs on revenue of manufacturing firms (manufacturing) in 2018 is 8.96% and on total sales of wholesalers (whole sale) is 9.77%. This rate is definitely an improvement compared to 2014. Percentage of 4 constituent groups as shown in Figure 1, of which transportation and handling costs account for the highest (4.80% / 8.96% for manufacturing enterprises) and 4.75% / 9.77% for wholesalers), followed by inventory costs 1.97% and 2.54%, warehousing expenses 1.41% and 1.59% and Finally, the logistics cost is 0.78% and 0.89%.
 
Based on the calculation of ALG, Vietnam Logistics Business Association (VLA) calculated on the basis of updating the data on the volume of goods transported and the volume of goods transported and published in the White Paper. - VLA 2018 “Logistics costs are equivalent to Vietnam's GDP in 2017 at 14.5% - 19.2%, estimated logistics costs by GDP are about 16.8%, equivalent to a value of about 42 billion USD". Compared with the calculation of SY 2018 above, this number is reliable.
 

The main contents need to focus on reducing logistics costs

National logistics costs are calculated on the basis of freight and handling costs, inventory costs and management costs. The reduction of logistics costs in our country is mainly focused on these three groups.
 

1. Cost of transportation and loading and unloading of goods

Transport and handling costs account for about 60% of logistics costs. Account for 1/3 - 2/3 of the cost of distribution. Transportation costs include transport service costs, fuel costs, vehicle costs and vehicle maintenance costs. ALG's report included 59% transportation cost and 1% handling cost.
 
The cost of transportation and handling depends on the choice of the mode of transport, the choice of the carrier and the itinerary - the schedule of the carriage (5) (a clear example will be given in the recommendation). According to the Ministry of Transport, Vietnam's market share of domestic freight in 2019: Roads 76.8%, railway 0.3%, inland waterways 18%, maritime 4.9% and aviation 0% (6). Through this, it can be seen that almost domestic goods are transported by road or inland waterways. Thus, the reduction of logistics costs in transport is mainly about road transport and the efficient combination of road transport with other modes of transport.
 
The transport cost also depends on the coefficient of the use of means of transport. The imbalance in freight transport requirements leads to a high rate of return trucks, from 50% to 75%. In addition, urban planning problems have limited urban delivery, while the demand for last-mile delivery has exploded with the proliferation of e-commerce, especially during a pandemic. COVID-19.
 
The current cost of loading and unloading cargo also depends heavily on the level of cargo handling equipment, especially for inland waterways. Especially for seaports, the fact that foreign container shipping lines charge a very high THC surcharge (about VND 2,645,000 / VND 4,025,000 for a 20 '/ 40' container) makes logistics costs soar.
 

2. Inventory costs

As one of the biggest logistics costs after the cost of transportation and handling. May account for more than 20% of a manufacturer's total assets and more than 50% of wholesalers and retailers' total (5). Inventory costs are generally divided into four main groups of costs: capital cost for inventory, inventory service costs (insurance and taxes), storage space costs and inventory risk costs (costs). loss and loss - such as loss, damage, expiration, obsolete and reordering). Inventory costs are exchanged for other logistics costs such as transportation costs, customer service costs ... Therefore, appropriate logistics policies both minimize the total cost and maintain. purpose of serving customers in production and circulation. During the COVID-19 pandemic the past proved this when the global supply chain was broken, the typical example is the lack of raw materials for the production of textiles and clothing.
 

3. Management costs

Includes expenses paid to employees for logistics operations and communication costs. Indirect HR management costs, support staff, distribution center staff, inventory planning and analysis staff, and shipping department.
 
VLR

Lê Duy Hiệp, Đào Trọng Khoa, Nguyễn Duy Minh, Nguyễn Tương

Our mission is to effectively connect businesses in Indochina with our global network. LEC wishes to build a professional import-export community for Indochina through its "import mandate" activities. With the aim of minimizing risks for importers and exporters and improving the competitiveness of Indochina importers and exporters in the international market.

With the above information, hopefully you have a better understanding of 3rd party Logistics services and how to choose the appropriate supplier. If you are looking for a company that provides comprehensive, professional and fast logistics services. Please contact LEC Group immediately to get the best support!

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