FOREIGN TRADE UNIVERSITY

FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS

---------***--------

GRADUATION THESIS
Major: International Business Economics

EMERGING ROLE OF 3PLS PROVIDERS

IN GERMANY AND LESSONS LEARNT FOR
VIETNAMESE ENTERPRISES

Student’s name : Ha Thi Thuy

Student ID : 0951050172
Class : English 1 – High Quality Class
Course : 48
Instructor : Bui Duy Linh, MSc.

Hanoi, May 2014

 TABLE OF CONTENTS
LIST OF ABBREVIATIONS
LIST OF TABLES AND FIGURES
INTRODUCTION .......................................................................................................1
CHAPTER I. THEORETICAL FRAMEWORK OF THIRD PARTY LOGISTICS 4
1.1 OVERVIEW OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT.....4
1.1.1 Definition of logistics and supply chain management ...................................4
1.1.2 Key logistics activities ...................................................................................6
1.1.3 Supply chain stages ........................................................................................9
1.2 OVERVIEW OF THIRD PARTY LOGISTICS ............................................11
1.2.1 Definition of third party logistics .................................................................11
1.2.2 Types of third party logistics providers .......................................................13
1.2.3 Phases of third party logistics ......................................................................14
1.2.4 Distinguish 3PL from others ........................................................................16
1.3 ROLE OF 3PL IN SUPPLY CHAIN ..............................................................19
CHAPTER 2: PRACTICAL ISSUES OF 3PL PROVIDERS IN GERMANY .......21
2.1 OVERVIEW OF GERMAN LOGISTICS SECTOR .....................................21
2.1.1 Logistics Performance Index........................................................................21
2.1.2 Revenue ........................................................................................................22
2.1.3 Investment ....................................................................................................24
2.1.4. Infrastructure ...............................................................................................26
2.1.5 Logistics regions ..........................................................................................29
2.2 GERMAN THIRD PARTY LOGISTICS PRACTICES ................................33
2.2.1 Revenue ........................................................................................................33
2.2.2 Assets ...........................................................................................................36
2.2.3 Services, industry focus and key customers.................................................37
2.2.4 Global network .............................................................................................39
2.3 FACTORS THAT CONTRIBUTED TO THE SUCCESS OF 3PLS SECTOR
IN GERMANY .....................................................................................................40
2.4 STRENGTHS AND WEAKNESSES OF GERMAN 3PLS PROVIDERS ...43
2.4.1 Strengths .......................................................................................................44
2.4.2 Weaknesses ..................................................................................................45
CHAPTER 3. VIETNAM THIRD PARTY LOGISTICS PRACTICES AND
RECOMMENDATIONS FOR VIETNAMESE 3PLS ENTERPRISES BASED ON
GERMANY’S EXPERIENCES ...............................................................................47
3.1 OVERVIEW OF LOGISTICS SECTOR IN VIETNAM ...............................47
3.1.1 Logistics Performance Index........................................................................47
3.1.2 Logistics growth and costs ...........................................................................49
 3.1.3 Infrastructure ................................................................................................51
3.1.4 Strategic freight corridors ............................................................................55
3.2 VIETNAM THIRD PARTY LOGISTICS PRACTICES ...............................58
3.2.1 Revenue ........................................................................................................58
3.2.2 Services and industry focus ..........................................................................59
3.2.3 Logistics firms ..............................................................................................60
3.2.4 Assets ...........................................................................................................61
3.3 SWOT ANALYSIS OF 3PLS PROVIDERS IN VIETNAM .........................62
3.3.1 Strengths .......................................................................................................62
3.3.2 Weaknesses ..................................................................................................63
3.3.3 Opportunities ................................................................................................64
3.3.4. Threats .........................................................................................................65
3.4 RECOMMENDATIONS OF SOLUTION FOR VIETNAM THIRD PARTY
LOGISTICS BASED ON GERMAN THIRD PARTY LOGISTICS
PROVIDERS’ PRACTICES .................................................................................67
3.4.1 Macro solutions ............................................................................................67
3.4.1.1 Establish and adjust applicable regulations relating to logistics activities
...............................................................................................................................67
3.4.1.2 Invest in infrastructure ..............................................................................68
3.4.1.3 Build and maintain high quality workforce ..............................................68
3.4.2 Micro solutions.............................................................................................69
3.4.2.1 Improve the competiveness of enterprises ................................................69
3.4.2.2 Enhance cooperation .................................................................................69
3.5 RECOMMENDATIONS OF SOLUTION FOR VIETNAMESE
GOVERNMENT AND THIRD PARTY LOGISTICS PROVIDERS .................70
3.5.1 Recommendations of solution for Vietnamese government ........................70
3.5.2 Recommendations of solution for Vietnamese third party logistics providers
...............................................................................................................................71
CONCLUSION .........................................................................................................72
REFERENCES ..........................................................................................................73
APPENDIX A GLOBAL 3PL MARKET SIZE ESTIMATES ................................80
APPENDIX B TOP 40 GLOBAL LOGISTICS PROVIDERS ................................82
APPENDIX C INVESTMENT AT CURRENT PRICES BY KINDS OF
ECONOMIC ACTIVITY IN VIETNAM .................................................................85
 LIST OF ABBREVIATIONS
1PL First party logistics
2PL Second party logistics
3PL Third party logistics
4PL Fourth party logistics
EU European Union
FDI Foreign Direct Investment
GDP Gross Domestic Product
KPI Cost, Time, Reliability
LPI Logistics Performance Index
MNCs Multinational companies
OECD Organization for Economic Co-operation and Development
SCM Supply Chain Management
SOEs State-owned enterprises
TEUs Twenty-foot equivalent units
US United States
VLA Vietnam Logistics Business Association
WTO World Trade Organization
 LIST OF TABLES AND FIGURES
Figure 1.1 Key logistics activities……………………………………………… 6
Figure 1.2 The basic supply chain……………………………………………… 9
Figure 1.3 Dell Supply Chain Stages…………………………………………… 10
Figure 1.4 L.L.Bean Supply Chain Stages……………………………………… 10
Figure 1.5 Logistics concepts…………………………………………………... 17
Figure 2.1 Logistics Performance Index in 2010 (Top 10)…………………….. 22
Figure 2.2 Revenue of logistics sector in Germany between 2004 and 2011….. 23
Figure 2.3 Logistics revenue in EU member countries in 2007………………... 24
Figure 2.4 Total commercial real estate investment turnover in 2011…………. 25
Figure 2.5 Investment turnover by logistics-types of use in 2011……………… 26
Figure 2.6 Investment turnover by portfolio ratio……………………………… 26
Figure 2.7 Germany-Europe logistics’ hub……………………………………... 27
Figure 2.8 Modal split of goods traffic in 2011………………………………… 28
Figure 2.9 Top 8 countries in terms of third party logistics revenue in 2012…... 34
Figure 2.10 Allocation of revenue of Top 40 Global 3PLs in 2012……………. 35
Figure 2.11 German 3PL providers’ assets in 2011…………………………….. 36
Figure 2.12 DHL global network……………………………………………….. 39
Figure 2.13 Production growth in 5 European countries 2010-2013 (%)……… 40
Figure 2.14 German GDP per capita between 2008 and 2013…………………. 41
Figure 3.1 Logistics Performance Index of Vietnam, East Asia and Pacific
region and Low income group in 2010…………………………………………. 47
Figure 3.2 Logistics Performance Index of Vietnam between 2007 and 2010…. 48
Figure 3.3 FDI into Vietnam between 2007 and 2012 (Implementation capital). 49
Figure 3.4 Vietnam’s freight volumes by mode in 2008……………………….. 52
Figure 3.5 Infrastructure investment in Vietnam between 2009 and 2012…….. 53
Figure 3.6 Infrastructure investment by sectors in Vietnam between 2009 and
2012 …………………………………………………………………………….. 54
Figure 3.7 Six primary freight corridors in Vietnam…………………………… 56
Figure 3.8 Industry focus of Vietnamese 3PL providers in 2007………………. 59
Figure 3.9 Logistics cost in some countries in 2011 over GDP………………… 63
Table 1.1 Logistics Activities Development Framework………………………. 8
Table 1.2 The five 3PL phases………………………………………………….. 15
Table 2.1 Top 10 global logistics providers in 2011…………………………… 33
Table 2.2 Industry focus of DHL and/or DB Schenker………………………… 38
Table 3.1 Logistics costs in some countries in Asia Pacific in 2012…………… 50
Table 3.2 Vietnam Infrastructure ………………………………………………. 51
Table 3.3 Third party logistics revenue in Asia Pacific in 2012……………….. 58
Table 3.4 Charter capital of some typical logistics companies in Vietnam……. 62
Table 3.5 Effectiveness of Vietnam transport policies and implementation
assessment in 2006……………………………………………………………… 65
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INTRODUCTION
1. Research overview

In the context of global integration, effective operations play a very important

role in the success of every enterprise. The question of how to be effective and
efficient in all stages of a supply chain has been still controversial. Logistics in
general and third party logistics in particular have been suggested as an ideal
solution. Moreover, they are increasingly favored by various enterprises and
contributing more to the development of those entities.

For the past ten years, many Vietnamese enterprises have recognized and
considered third party logistics providers to be their key to success so that they can
focus on exploiting their competitive advantages to survive and gain market share
over their rivals. Those firms choose to outsource instead of performing all logistics
activities to reduce costs. Others, however, are still confused about whether to
outsource or not because they are reluctantly ambiguous about whether using third
party logistics providers’ services is really beneficial in their own case.

The market demand for third party logistics as well as the rising number of
foreign investors since Vietnam became one of WTO members makes Vietnam a
promising logistics location. Beside well-known third party logistics providers like
UPS, APL, etc, more and more domestic logistics firms have been established in
recent years. Before Vietnam’s being a WTO member, it was rather easy for them
to compete with foreign companies. Still since 2007, those firms have faced a lot of
challenges as being equally treated like their foreign competitors. Therefore,
Vietnamese enterprises are required to be aware of their strengths and weaknesses,
opportunities and threats to develop and expand their business.

Being aware of this urgency, the writer chooses the thesis of “Emerging role
of 3PLs providers in Germany and lessons learnt for Vietnamese enterprises”.
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2. Research objectives

The thesis aims at identifying pertinent recommendations of solution for

Vietnamese third party logistics providers. In order to reach this objective, the
following specific objectives are required to obtain. Firstly, the research analyzes
theoretical frameworks in order to provide audience basic knowledge of supply
chain management, logistics and third party logistics. Secondly, by addressing
recent third party logistics practices adopted in Germany, the thesis will draw out
valuable lessons used as groundwork for later recommendations. Lastly, an
overview of Vietnamese third party logistics practices will be analyzed to find out
the pros and cons as well as suitable solutions based on German companies’
experiences.

3. Object and research scope

The object of the thesis is to evaluate practical issues of 3PL providers both in
Vietnam and Germany to figure out their achievements and limitations. The
research scope focuses on third party logistics theories which have been developed
for the last one hundred years and third party logistics practices which have been
discussed for the last ten years.

4. Research methodology

The methodology used in this thesis is the combination of analysis method,

comparative method, and synthesis method.

5. Thesis structure

The key content of the crisis is structured in three chapters.

Chapter 1: A general theoretical framework of third party logistics is presented.

Chapter 2: The thesis then identifies practical situation of German 3PL providers
and further figures out their key to success, strengths and weaknesses.

Chapter 3: The thesis graphs a general view of Vietnamese 3PL firms and a number
of feasible solutions are suggested based on German providers’ experiences.
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6. Acknowledgement

I would like to express my grateful thank to Mr. Bui Duy Linh, Master of
Science, for his valued instructions, comments and suggestions during the
development of this thesis.

Ha Thi Thuy
 4

CHAPTER I. THEORETICAL FRAMEWORK OF THIRD PARTY

LOGISTICS

1.1 OVERVIEW OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT

1.1.1 Definition of logistics and supply chain management

Logistics is essentially a planning orientation and framework which aims to
build a unique plan for the flow of products and information through a business.
Supply chain management is based on this framework and aims to obtain linkage
and coordination between the processes of other parties in the pipeline.

There have been a variety of different definitions of logistics and supply chain
management.

According to Eberhard Dülfer (2005, p.41), the concept of logistics may date
back to around 2700 B.C when the Egyptians built their Great Pyramid of Giza,
which is 146 meters high and weighs 6 million tons. Blocks of stone weighing
several tons were transported and assembled at the construction site. This work
required sophisticated material handling technology in moving those giant blocks
and putting them into place. Until now, there has not been a thorough explanation
for the precision in taking advantage of limited and inceptive resources at that time.

The idea evolved continuously and during War World I, Department of

Defense Dictionary of Military and Associated Terms in their Joint Publication 1-02
defined logistics as “The science of planning and carrying out the movement and
maintenance of forces. In its most comprehensive sense, those aspects of military
operations which deal with: design and development, acquisition, storage,
movement, distribution, maintenance, evacuation, and disposition of material;
movement, evacuation, and hospitalization of personnel; acquisition or construction,
maintenance, operation, and disposition of facilities; and acquisition or furnishing
of services.”

In recent years, logistics is more widely recognized, especially in business

world. In Oxford dictionary, the word logistics is referred to as “the commercial
 5

activity of transporting goods to customers”. In addition, the word has its origin in
the late nineteenth century from a French word logistique, from loger “to lodge”. A
more detailed description belongs to Logistix Partners Oy (1996): “Logistics is
defined as a business planning framework for the management of material, service,
information and capital flows. It includes the increasingly complex information,
communication and control systems required in today's business environment”.

On the other hand, 1905 marked the first use of the word supply chain. The
Independent newspaper mentioned this concept in one of their articles about
wartime situation. However, it took nearly seven decades for the inception of the
term supply chain management (SCM) when in June 6, 1982, the Financial Times
ran an article by Arnold Kransdorff on “Booz Allen’s rather grandly titled supply
chain management concept”. Keith Oliver, a Senior Vice President with Booz
Allen, had coined the phrase and this was the first time it was used in the public
domain. He described the overall process of “Planning, implementing and
controlling what goes on at the supply chain in order to satisfy customers’ needs in
a quick efficient manner” as Supply Chain Management.
John T.Menzer (2011, p.5) defined supply chain as “a set of three or more
companies directly linked by one or more of the upstream and downstream flows of
products, services, finances and information from a source to a customer”. Another
idea came from Christopher (2013, p.2), who suggests that a supply chain
management is “the management of upstream and downstream relationships with
suppliers and customers in order deliver superior customer value at less cost to the
supply chain as a whole.”
According to Carter and Ferrin (1995), SCM incorporates logistics into the
strategic decisions of the business. R Jeyakumar (2009) takes the stance that SCM
involves the planning and management of all activities involved in sourcing and
procurement, conversion and all logistics management activities. Both logistics and
supply chain management play an important role in our everyday lives’ activities.
Logistics management is the part of SCM that plans, implements and controls the
efficient, effective, forward and reverse flow and storage of goods, services and
related information between the point of origin and the point of consumption in
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order to meet customer requirement. Logistics involves getting in the right way, the
right product, in the right quantity and right quality, in the right place at the right
time, for the right customer at the right cost.

1.1.2 Key logistics activities

Lambert, Stock and Ellram (1998) believe that logistics performance has been
recognized as a critical opportunity to improve profitability and firm’s competitive
performance.

Figure 2.1 Key logistics activities

Source: Ballou H. Ronald, Business Logistics and Supply Chain Management,

5th Edition

According to Grant et al (2006, p.19), logistics activities can be grouped into

9 components:

1. Customer service and support 6.Order processing and logistics

2. Demand forecasting and planning
3. Purchasing and procurement
4. Inventory management
5. Transportation
communications
7. Material handling and packaging
8. Facility site selection and warehousing
9.Return goods handling and reverse
logistics.
 7

Support activities may vary from company to company. For example,

customer service and support deal with figuring out the needs and wants of
customers and satisfying them by using marketing mix. Those customers range
from suppliers, intermediate or final customers. The second category, demand
forecasting and planning, estimates how much to order from suppliers and/or
transport/stock in each market. Purchasing and procurement, on the other hand,
defines source selection, purchase timing and purchase quantities. The flow of
materials within an organization starts when procurement sends a purchase order to
a supplier. This means that procurement looks for suitable suppliers, negotiates
terms and conditions, organizes delivery, arranges insurance and payment, and
performs all necessary tasks to bring materials into that organization. In the past,
this has been seen as a largely clerical job centered on order processing. Now it is
recognized as an important link with upstream activities, and being given more
attention. Inventory management is primarily about specifying the size and
placement of stocked goods. It covers systems and processes that identify inventory
requirements, set target, provide replenishment techniques and report actual and
projected inventory status. Order processing and logistics communications receives
order, prepares and ships company’s goods. It finds and removes materials from
stores. In a typical case, ordered materials are located, identified, checked, removed
from racks, consolidated into a single load, packed and transferred to a departure
area for loading onto transport vehicles. Material handling and packaging involves
interim movement of materials in internal system. It brings materials from one
operation to another, and also brings materials picked from stores to the place where
they are needed. The objective of materials handling is to offer efficient
movements, with short journeys, using suitable equipment, with little damage, and
using appropriate packaging and handling where needed. Transportation means
delivering goods from one place to another by considering mode of transport, type
of delivery operation, load planning and route schedule. Facility site selection and
warehousing is affected by customer’s location or supplier’s location, transportation
services, employee availability and wage rates (for qualified labor), warehouse
 8

layout or design, ownership, etc. Last but not least, managers should take into
account of returns and waste material from production, distribution and packaging.
Other scholars, Sink, Langley and Gibson (1996), offered a list of all
activities that a logistics service provider performs. They categorized all these
activities into six functions as: Transportation, Warehousing, Inventory
management, Order processing, Information systems, and Packaging. Comparing
between Grant, et al.’s and Sink, Langley and Gibson’s view, it is easy to figure out
that the latter is a shortened version of the former.

Banomyong (2007) develops a framework for logistics performance

indicators (KPI): Cost, Time and Reliability. These dimensions reflect the output of
any logistics system as well as its capability to meet customer requirements at the
lowest cost, as quickly as possible and on time.

Table 2.1 Logistics Activities Development Framework

Logistics activities
Customer service and
support
Purchasing and
procurement
Information Processing
Transportation
Warehousing and site
selection
Demand planning and
forecasting
Inventory Management
Material handling and
packaging
Reversed logistics
Cost
Ratio of customer service
cost per sale
Ratio of procurement cost
per sale
Ratio of information
processing cost per sale
Ratio of transportation cost
per sale
Ratio of warehousing cost
per sale
Ratio of forecasting cost
per sale
Ratio of inventory carrying
cost per sale
Ratio of value damaged
cost per sale
Ratio of returned goods
value cost per sale
Time Reliability
Average order cycle time DIFOT
Average procurement cycle Supplier In Full and On-
time Time Rate
Average order processing
Order Accuracy Rate
cycle time
Average delivery cycle time DIFOT
Average inventory cycle
Inventory Accuracy
time
Average forecast period Forecast Accuracy Rate
Inventory Out of Stock
Average inventory day
Rate
Average material handling
Damage Rate
and packing
Average cycle time for
Rate of Return Goods
customer return

Source: Ruth Banomyong, Developping a logistics performance assessment tool for

SMEs: A Closer Look at Logistics Costs, 2007
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1.1.3 Supply chain stages

Chopra, Sunil and Peter Meindl (2004) suggest that there are various stages in
a typical supply chain. They may include five common parties as follows:

1. Customers
2. Retailers
3. Wholesalers/Distributors
4. Manufacturers
5. Component/Raw material suppliers
Each stage in a supply chain is connected though the flow of products,
information and funds. These flows often occur in both directions and may be
managed by one of the stages or an intermediary. However, a supply chain need not
cover all those stages. Basing on the needs of customers and the roles of the stages
involved, each supply chain may have a different structure.
Figure 1.2 illustrates a basic supply chain. The basic supply chain includes
five entities: Supplier, Manufacturer, Distributor, Retailer and Customer. While
goods are transferred respectively from Supplier to Customer via Manufacturer,
Distributor and Retailer; information and funds are exchanged among those five
parties. The chain stresses the importance of Customer. Therefore, as long as his
satisfaction is fulfilled, the supply chain shows its effectiveness.
Figure 1.2 The basic supply chain

Supplier Manufacturer Distributor Retailer Customer

Flows of goods
Flows of information and funds

Source: Chopra and Meindl, 2004, Supply Chain Management, 2nd edition,
Pearson Prentice Hall
 10

In some cases, such as Dell, a manufacturer may fill customer orders

directly. Dell builds-to-order; that is, a customer order initiates manufacturing at
Dell. Dell does not have a retailer, wholesaler, or distributor in its supply chain.

Figure 1.3 Dell Supply Chain Stages

Supplier Customer

Supplier Manufacturer Customer

Supplier Customer

Source: Chopra and Meindl, 2004, Supply Chain Management, 2nd edition,
Pearson Prentice Hall
Another example in the book is the mail order company called L.L.Bean. In
this case, manufacturers do not respond to customer orders directly. Instead, L.L.
Bean maintains an inventory or product from which they fill customer orders.
Compared to the Dell supply chain, the L.L. Bean supply chain contains an extra
stage (the retailer, L.L. Bean itself) between the customer and the manufacturer.

Figure 1.4 L.L.Bean Supply Chain Stages

Supplier Customer

Supplier Manufacturer Retailer Customer

Supplier Customer

Source: Chopra and Meindl, 2004, Supply Chain Management, 2nd edition,
Pearson Prentice Hall
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1.2 OVERVIEW OF THIRD PARTY LOGISTICS

1.2.1 Definition of third party logistics

Unlike logistics or SCM concepts, it has not been exactly known who coined
the term third party logistics (3PL). It is believed that the concept was used for the
first time in the 1970s and 1980s when companies outsourced more logistics
services to third parties. As time elapses, those third party logistics providers (3PLs)
expanded their services to cover certain geographical areas, products or modes of
transport and integrated their existing warehousing and transportation services
continuously until now, becoming what we call “3PL” today.

There are two main major schools who managed to define the term “third
party logistics”: “broad” versus “narrow” definitions.

The former was attributed to Knemeyer and Murphy; Coyle, Bardi, and
Langley and Menon, McGinnis, and Ackermann and Sink and Langley.

Knemeyer and Murphy (2004) defined ‘third party logistics’ as ‘logistics

outsourcing’ or ‘contract logistics’.

Coyle, Bardi, and Langley (2003, p.425), in addition, refer to third party
logistics as “an external supplier that performs all or part of a company’s logistics
functions” and to “encompass suppliers of services such as transportation,
warehousing, distribution, financial services, and so on.”

Besides, Menon et al (1998) suggest the concept as:

“A for-hire provider performing logistics activities for the buyer or seller of

raw materials, goods in process, or finished products”

Sink and Langley (1997) interpret it as:

“Using the services of an external supplier to perform some or all of a firm's

logistics functions”
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These interpretations of third party logistics do not differentiate between

short-term and long-term issues or between transactional and relational exchanges
(Knemeyer and Murphy, 2005b).

On the other hand, Murphy and Poist; Bagchi and Virum approach the issue
on a more “narrow” way. Murphy and Poist (1998, p.26) define third party logistics
as being:

“A relationship between a shipper and third party which, compared with

basic services, has more customized offerings, encompasses a broader
number of service functions and is characterized by a longer-term, more
mutually beneficial relationship.”

Bagchi and Virum (1996, p.193) view third party logistics like:

“A long-term formal or informal relationship between a shipper and a

logistics provider to render all or a considerable number of logistics activities
for the shipper. The shipper and the logistics provider see themselves as long-
term partners in these arrangements.”

Papadopoulou (2011) is another author who supports the narrow definition of

third party logistics providers. He defined the term as:

“Independent companies providing single or multiple logistics services to a

purchasing company. Third party logistics providers, although they do not
hold ownership of the product for distribution, are legally bound and
responsible to perform the requested logistics activities of the purchasing
company. The relationship between the two parties is long-term and
beneficial.”

These three definitions have one thing in common that differs from the broad
approach: long-term relationship between the shipper and the logistics provider. It
stresses the importance of long-lasting connection or strategic alliance between
those two parties.
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The thesis, to summarize, follows the definition guidelines offered by the last
scholar-Papadopoulou.

1.2.2 Types of third party logistics providers

According to Coyle et al (2013), there are six major types of third party
logistics providers:

1. Transportation-based
2. Warehouse/distribution-based
3. Forwarder-based
4. Shipper/management-based
5. Financial-based
6. Information-based firms

Transportation-based 3PL providers were initially in charge of carrying

cargo via truck, rail, air or other modes of transportation. As the requirements from
their customers expanded, those companies no longer merely provided freight
movement service but their responsibility might cover transportation operations
management, contract carriage offerings, logistics solutions development and many
other services. Some typical examples of those transportation-based 3PL providers
and their parent companies are APL Logistics, Neptune Orient Lines Limited,
FedEx Global Supply Chain Services, FedEx Corporation, Schneider National,
Schneider National Inc., UPS Supply Chain Solutions, United Parcel Service of
America Inc. Their logistics service may rely on the assets of their parent
companies or on the assets of other entities.

Warehouse/distribution-based 3PL providers, similarly, include many, but

not all, who have former warehouse or distribution experience. Their process of
transition to integrated logistics has been less complex than for the transportation
based providers. DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM are
examples of warehouse/distribution-based 3PLs.

Forwarder-based 3PL providers, on the other hand, were essentially very

independent middlemen extending forwarder roles. They are non-asset owners that
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capably provide a wide range of logistics services. AEI, Kuehne & Nagel, Fritz,
Circle, C. H. Robinson, and the Hub Group can be referred to as forwarder-based
3PL providers.

Management-based 3PL companies offer managerial functions and the

technology to create an effective logistics solution but do not necessarily have their
own assets and therefore make use of other logistics company's warehouses and
trucks for example. Cerasis, AFS Logistics, GlobalTranz, Worldwide Express are
typical management-based 3PL providers.

Financial-based companies are the ones that provide freight payment and
auditing, cost accounting and control, and tools for monitoring, booking, tracking,
tracing, and managing inventory. Cass Information Systems, CTC, GE Information
Services, and FleetBoston are examples of financial-based 3PLs.

Information-based has witnessed significant growth and development in this

alternative category of Internet-based, business-to-business, electronic markets for
transportation and logistics services nowadays. Two famous companies are
Transplace and Nistevo.

1.2.3 Phases of third party logistics

There is another way to classify third party logistics providers based on types
of services they provide. Papadopoulou (1998, p.3) groups them into 6 main types:
single services, separated services, integrated services, combined services, complex
services (incorporated services). When 3PL provider offers only single services, it
means that his capacity covers merely haulage (transportation) or warehousing
services. Separate 3PL services providers, on the other hand, are those who can
perform either haulage or warehousing services. Combined haulage or warehousing
services responsibility belongs to integrated services providers. Once one enterprise
can provide extra services, trade administration or planning services, for example,
besides equipment, warehousing, transportation functions, we call him a combined
3PL services providers. Moreover, if a 3PL provider is capable of offering a
package (network) of services including all above functions together with yard
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management and information ones, he can be referred to as complex (Incorporated)

services provider.

As a consequence of this service classification, the evolution of third party

logistics can be divided into five phases as follows.

Table 1.2 The five 3PL phases

Phase period Phase name Characteristics

Early 1900s-Late 1950s Introductory period Single services
Late 1950s-Mid 1960s Awareness period Separated services
Mid 1960s-Late 1970s Necessity period Integrated services
Late 1970s-Late 1980s Integration period Combined services
Late 1980s-Late 1990s Differentiation period Complex services
Source: Papadopoulou and Macbeth, 1998, Third party logistics evolutions:

Lessons from the past

Introductory period, which spreads from the first decade of the nineteenth
century to the late 1950s, marks the infancy of third party logistics concept.
However, the idea was taken granted because companies only referred to third party
logistics providers when they could not arrange for transportation or they wanted to
gain cost advancement. Therefore, in this period, the providers’ services were
restricted to the provision of transportation services.

The next ten years, Awareness period, witnesses the growing recognition of
third party logistics providers. As the demand from market increased, more and
more companies started to consider the third party alternative. For the reason of
their limited internal capacity, capital and inventory control, they no longer found it
profitable enough to perform transportation, warehousing ownership, maintenance,
planning and control on their own. As a result, they decided to outsource.

The period between 1960 and 1970 is accompanied with some major
political, legal (continuous transport deregulation) and financial fluctuations. In this
necessity period, more pressure was put on companies in terms of increasing sales
 16

volumes as well as reducing both energy and transportation costs. Third party
logistics providers played a significant role in improving distribution operations,
cost effectiveness and obtain optimal cost and service situation.

Integration period showed a critical change in perception of third party

logistics. The providers, at that time, were considered as a differentiator and profit
centre from the companies. As companies expanded their business, their distribution
channels got much more complex. Together with high export activity, technological
advances, legal changes and globalization trend, it led to the incredible rise in
demand for third party logistics providers’ service.

The next decade saw escalating awareness from companies of their

competitive advantages and core competencies. Third party logistics providers were
believed to bring economic, management and strategic advantages to their clients.
This period is called Differentiation period, as a result.

1.2.4 Distinguish 3PL from others

Deutsche Bank (2008, p.2) categorizes logistics concepts into four main
types:

1. First party logistics (1PL)

2. Second party logistics (2PL)
3. Third party logistics (3PL)
4. Fourth party logistics (4PL)

The first type, 1PL, includes those companies that perform logistics activities
using their own resources. Their services range from transportation, storage and
handling. Second party logistics, as it is called, involves the presence of a second
party, or an external provider to perform logistics services using their own
resources. 3PL is a broader concept as the providers offer a wide range of activities,
such as value added services, information management, etc, based on their
capacities. The most advanced providers are 4PL providers who can act on behalf of
their customer to perform all supply chain management activities. They do not
 17

require merely their own logistics capacities but they now refer to a number of
independent subcontractors.

Figure 1.5 Logistics concepts

1PL 2PL 3PL 4PL

External Service External service External Service
Manufacturer
Provider provider Provider
executes own
logistics (single logistics (complex logistics (entire value chain
service using own services using own using capacities of
capacities) capacities) subcontractors)

Source: Deutsche Bank Research

Each type of logistics provider has its own strengths and weaknesses.

First of all, in case of First Party Logistics (1PL), the manufacturer may
prevent itself from information leaks when using external logistics provider.
Furthermore, the manufacturer may enjoy the opportunity of undertaking
distribution of cargo from the point of origin to the destination. However, this
brings various disadvantages to the enterprises. They must invest in buying
transport vehicles, arranging warehousing, managing information systems as well as
qualified workforce to cover all logistics operations. It is not suitable for SMEs who
do not own enough financial capacity, experience as well as technical knowledge in
logistics management. 1PL may reduce the effectiveness of business activities.

Some companies only outsource a few basic functions from Second Party
Logistics Providers. Those providers help companies to perform some certain
logistics services such as transport, storage or handling activities using their own
capacities. The manufacturers now can be free from pressure originating from 1PL.
They nevertheless bear the risk of sharing information with their partner.
 18

An increasing number of firms have decided to outsource more integrated

services and value added services to Third Party Logistics Providers. The primary
purpose of using a 3PL is that a firm can save time and focus on its core
competencies to compete with its rivals instead of wasting their time dealing with
non value-added activities. Better logistics services can be provided to their
customers when manufacturing companies choose to outsource, in addition. By
using 3PL services, they can decrease their logistics costs when the expense is too
high. There are some drawbacks though. Similar to 2PL, those firms who wish to
outsource their logistics services have to take risks when information is exchanged
between third party logistics providers and their company. Another disadvantage of
outsourcing is that once the finished goods are transferred to warehouse location,
the manufacturer loses control over them. Moreover, not every firm is able to select
a right third party logistics provider. Likewise, a risk sharing scheme should be
constructed in case a dispute arises.

Thanks to the need for increased service levels and pressure for costs, Fourth
Party Logistics Providers emerge. It enables a firm to hand over its supply chain to
a reliable and experienced fourth party logistics provider who will coordinate the
activities of third parties. Furthermore, a 4PLs provider can find the best solution
for each customer as well help you reduce costs by choosing the most appropriate
carrier offering lowest rates. As a result, service levels are enhanced. Using 4PL
services is somehow preferred to 3PL ones as a firm can get more supply chain
visibility by stay in touch with only one partner instead of different third parties.
Turning to weaknesses of 4PL, the client may face high switching costs when they
want to change partners. Those costs may include penalty costs for breaking long-
term contract and initial reduced efficiency when the new provider needs time to get
familiar with the company operations.

It might be confusing at first to differentiate one type of logistics from the

other. However, it can be easily figured out that 3PL evolves from 1PL and 2PL.
Their responsibilities have been enriched and enlarged. On the other hand, 3PL is
 19

distinguished from 4PL in terms of accompanying capacities from subcontractors or

not.

1.3 ROLE OF 3PL IN SUPPLY CHAIN

The role of third party logistics providers in supply chain in the past and
nowadays is rather distinctive.

A used-to-be third party logistics provider was supposed to be in charge of

traditional logistics services such as transportation and warehouse management.
Take United Parcel Services Inc. (UPS) as an example. In 1907, A 19-year-old
James E. (“Jim”) Casey, borrowed $100 from his friend and founded the American
Messenger Company in Seattle, Washington. In 1919, as the company expanded, its
present name was adopted. The company simply offered messenger services
including running errands, delivering packages, carrying notes, baggage, trays of
food from restaurants.

Because of globalization trends and market demands, those third party

logistics providers have evolved and their capacities have much more advanced.
Now they are engaged in strategic coordination of their customers’ supply chain
activities. At present they are serving as a unique “orchestrator” within the supply
chain to help connect members within supply chain and facilitate SCM best
practices (Zacharia, Sanders and Nix, 2011). Supply chain orchestration, according
to Martin Christopher (2011, p.222), can be defined as the task of managing
coordinating and focusing this value-creating network. The orchestrator, hence, will
be probably the most powerful member of the network, but not necessarily. Cisco
Systems, one of the world’s leading players in the networking and
telecommunications markets, has created a virtual supply chain in which almost all
manufacturing and physical logistics are outsourced to specialist contract
manufacturers and third-party logistics companies. Only a very small proportion of
their 20,000 different stock keeping units are actually ‘touched’ by Cisco. The
above example can show the critical role of a third party logistics provider in an
effective supply chain.
 20

In summary, logistics can be said to be a primary function that helps

companies cut costs and improve responsiveness through outsourcing. By
enhancing customer satisfaction and providing competitive advantage, third party
logistics providers’ role will be certain to be advanced.
 21

CHAPTER 2: PRACTICAL ISSUES OF 3PL PROVIDERS IN GERMANY

2.1 OVERVIEW OF GERMAN LOGISTICS SECTOR

This part concentrates on describing the overview of German logistics sector
since the first year of twentieth century until now. Based on the statistics provided
by Deutsche Bank Research, CBRE and some other institutions, this part is going to
give the audience a general idea of how German logistics providers are running
their business.

2.1.1 Logistics Performance Index

2010 marked the first time when Germany was ranked first by World Trade
Organization in terms of attractiveness as a logistics location of all 155 countries.

Logistics Performance Index, according to World Bank, can be defined as the

weighted average of the country scores on the six key dimensions:

1. Efficiency of the clearance process (i.e. speed, simplicity and predictability

of formalities) by border control agencies, including Customs;
2. Quality of trade and transport related infrastructure (e.g. ports, railroads,
roads, information technology);
3. Ease of arranging competitively priced shipments;
4. Competence and quality of logistics services (e.g., transport operators,
customs brokers);
5. Ability to track and trace consignments;
6. Timeliness of shipments in reaching destination within the scheduled or
expected delivery time.

The scores are from one to five, one being the worst performance and five
being the best performance for the given dimension. The LPI also allows deriving a
country’s Logistics Performance Index (LPI). Results are averaged for each key
dimension by country rated. To facilitate meaningful comparisons, results have
been averaged by regions, which are defined by the World Bank classification with
an equal weight for each country in the survey. Regions groups are defined by the
World Bank country classification.
 22

Figure 2.1 Logistics Performance Index in 2010 (Top 10)

LPI

Norway
3.93
Belgium
3.94
United Kingdom
3.95
Japan
3.97
Switzerland
3.97
Luxembourg
3.98
Netherlands
4.07
Sweden
4.08
Singapore
4.09
Germany
4.11

Source: World Bank

As we can see from Figure 2.1, among 10 most attractive nations, Germany
scored best with overall 4.11 points out of 5. Followed closely are Singapore,
Sweden, the Netherlands with 4.09, 4.08, 4.07 respectively. The top 10 countries
ranking illustrates the dominance of European countries when Singapore and Japan
are the only two representatives coming from Asia. In three of the six categories
that World Bank uses to calculate the overall ranking, Germany ranks in the top 3
including Customs, Infrastructure and Timeliness. As a result, Germany is
considered as an ideal logistics location.

2.1.2 Revenue
Making use of its advantages, German logistics sector, in general, witnesses a
constant growth in terms of revenue during the period of 2004 and 2011.
 23

Figure 2.2 Revenue of logistics sector in Germany between 2004 and 2011

(billion EUR)

250

201 210
210
200
175 205
180 190
170
150

100

50

0
2004 2005 2006 2007 2008 2009 2010 2011

Source: Bundesvereinigung Logistik (BVL)

In the first phase of the period, from 2004 to 2008, earnings generated from
logistics increased by around 4.5%. It rose from 170 billion EUR in 2004 to over
200 billion EUR in 2008. Compared to manufacturing sector with 3% growth rate,
logistics can be considered as the fastest growing sector in Germany (Deutsche
Bank Research, 2008). However, in the end of 2008, like most other nations in the
world, the effects of the financial crisis have slowed down the development of the
sector and for the very first time, in 2009, logistics turnover decreased to
approximately 180 billion EUR. However, the gloomy situation did not last long. In
the next two years, Germany had a quick recovery and returned back on its growth
track like post-crisis period.

Turning to logistics revenue in European area, according to Peter Klaus and

Christian Kille (2007), Germany was the most profitable in logistics in 2007.
Logistics generated roughly 150 billion Euros, which is represented by 12.7% of
Germany GDP.
 24

Figure 2.3 Logistics revenue in EU member countries in 2007

(billion EUR)

Logistics Revenue Region:

€ 583.1 billion
Others 103.1

Belgium 24.2

Spain 27

Netherlands 49.5

Italy 57.5

UK 74.9

France 96.9

Germany 150

Source: Peter Klaus and Christian Kille, 2007, Top 100 in European Transport and
Logistics
As we can see from the above figure, the total logistics revenue in Europe in
2007 was 583.1 billion Euros. Germany constituted around 25.7% of the figure,
followed by France and the United Kingdom with 16.6% and 12.8%. Other 10
countries (Others) generated 103.1 billion Euros from logistics sector in the same
year. This amount was only two-thirds of German value.

2.1.3 Investment
The overall transaction volume in 2011 is €22.62 billion. Comparing with the
same period in 2010, the number did increase by 18% and was the best result since
the booming years-2006 and 2007.

Figure 2.4 illustrates different proportion of commercial real estate

investment turnover categories in 2011. There are six of them: office, retail,
logistics/industrial, hotel, development site and others.
 25

Figure 2.4 Total commercial real estate investment turnover in 2011

5% 3%
5% Office
4%
Retail
36%
Total: Logistics/Industrial
€22.62bn Development site
Hotel
Others
47%

Source: CBRE

Thanks to positive economic outlooks, domestic consumption in Germany

takes nearly half of the pie. This shows how quickly Germany is getting over the
financial crisis and the on-going sovereign debt crisis in Euro zone. Revenue
generated from logistics/industrial investment is accounted by 4% or €903.7
million. Comparing with the previous year, it had a slight fall of 1%. Those
investments go to three main types of use: distribution and logistics, industrial,
warehouse.

With a critical contribution (77%) or €694.3 million, according to figure 25,

distribution and logistics properties were the most favored logistics properties in
2011, leaving industrial and warehouse with insignificant investment volume:
€120.1 million (13%) and €89.3 million (10%) respectively. The reason for this may
have its origin from the conservative portfolio strategy of international institutional
investors. Because logistics properties have been increasingly considered as a
standard investment product, the demand for prime and flexible properties has
soured in recent years.
 26

Figure 2.5 Investment turnover by logistics-types of use in 2011

10%

Distribution and
13%
logistics
Total:
Industrial
€903.7mil
Warehouse

77%

Source: CBRE

Figure 2.6 Investment turnover by portfolio ratio

2010 2011
16%

40% Single Single

assets assets
60% Portfolio Portfolio
84%

Source: CBRE

In more detail, according to figure 2.6, we can see an obvious downward

trend of portfolio assets traded. In 2010, at least forty percent of investment was on
portfolio transactions. However, in 2011, the situation got worse when the number
plummeted to only 16 percent of the overall investment.

2.1.4. Infrastructure
“Germany enjoys many advantages in the market for logistics. These include
its relatively high degree of industrialization, the openness of its economy, its
central location, its polycentric economic structure and its high-quality, extensive
transport infrastructure” (Deutsche Bank Research, 2008). According to the 2011-
 27

2012 Global Competitiveness Report, Germany's extensive infrastructure was

ranked second after Hong Kong (SAR) for special praise due to its capacity for
highly efficient transportation of goods and passengers.
More goods pass through Germany than through any country in Europe
(Germany Trade & Invest, 2010). In the north, Germany conducts trade with United
Kingdom, Scandivania and the Baltic States through its seaports.
Figure 2.7 Germany-Europe logistics’ hub

Source: Germany Trade & Invest

On the other hand, roads and rail links through Jutlan Peninsula enables the
country to have an easy access to Denmark and the rest of Scandivania. In the west,
German firms can make use of effective networks of roads, rail links and inland
waterways to conduct trade with four neighbors including Netherlands, Belgium,
Luxembourg and France. In the south, Switzerland and Austria can be listed as
important commercial partners of Germany. In the east, Germany shares border
with Poland and Czech Republic, making it easier to reach Slovenia, Slovakia,
Hungary or even Greece, Turkey, Ukraine and Russia.
 28

To summarize, with 231,000 km of roadways, of which 12,600 km are high

speed highways, 37,900km railway tracks, 7,500km waterways and 26 international
airports, Germany is well designed to transport both passengers as well as goods
quickly and efficiently. Together with more than 250 inland ports, Germany’s port
infrastructure facilitates the efficient delivery of goods in Europe’s largest market.
Besides, Germany also owns a network of airports, of which 23 offer international
service. Among these, Frankfurt is typical as being ranked the world’s seventh and
ninth largest airport in terms of cargo and passenger volume respectively (Germany
Trade and Invest, 2014).

Figure 2.8 is the case where there should be a comparison of goods traffic
among different modes of transport.

Figure 2.8 Modal split of goods traffic in 2011

2%
6%
9%

Road
Railway
Total:
4333.7 Waterway
mil tons Pipeline

83%

Source: CBRE

It can be easy to figure out that road is still the most important mode of
transport. In 2011, it is estimated to carry a total volume of 3,597 million tons of
cargo. Or in other words, the volume is nearly 680 times as that of Germany’s
population in 2013 in terms of weight. This quantity makes up 83% of the whole
traffic. Railway, waterway and pipeline, on the other hand, are underdogs with
limited quantity of 390 million (9%), 260 tons (6%), and 86.7 (2%) tons of goods
traffic respectively.
 29

2.1.5 Logistics regions

Germany Trade and Invest (2010) has identified 21 major logistics regions in
Germany. All of them own extensive intermodal infrastructures. Besides, each
possesses logistics services providers’ in-depth knowledge which enables them to
offer various services as well as higher education logistics training. The twenty one
logistics regions are:

1. Bremen-Weser 8. Berlin/Brandenburg 15. Saarland

2. Hamburg Metropolitan 9. Saxonian Triangle 16. Hahn/Trier
3. Rostock 10. Nordhessen 17. Nuremberg/Upper Franconia
4. Munster/Osnabruck 11. Thurungia 18. Freigburg/Lorrach
5. Rhine-Ruhr 12. Rhine Main Region 19. Ulm
6.Hannover/Braunschweig 13. Rhine-Neckar 20. Danube
7. Magdeburg 14. Stuttgart/Heilbronn 21. Munich
Because it is impossible to include all components of Germany’s logistics
landscape, it is suggested that only highlights and infrastructure in each region be
discussed.

Bremen-Weser Region is famous for its ports and extensive transportation

infrastructure. It is, in addition, a leader in handling, warehousing and transfer of
goods. With extensive logistics research facilities, customized solutions and a long
history of offering transportation services, Bremen-Weser is considered as one of
the top worldwide logistics locations.

Hamburg Metropolitan is well-known for its unique location between two

seas and beautiful scenery. In terms of logistics, similar to Bremen-Weser, it is also
a leading center in the world. Companies choose this region for its outstanding
freight handling, distribution and logistics services. Hamburg Metropolitan is a
destination for MNCs who wish to look for specialists helping them run their
worldwide networks.

Rostock is characterized by its state-of-the-art infrastructure and high quality,

flexible services. Together with its strategic location, logistics providers in the
 30

region may enjoy its first-class facilities and ease of movement as well as
transportation and distribution cost reductions.

Munster/Osnabruck provides tailor-made services nationally and

internationally. A variety of leading logistics providers have their branches located
in the region. There are some main customer-oriented packages including
warehousing, e-commerce solutions.

Rhine-Ruhr is situated at the economic heart of Europe. It is considered the

most critical marketplace of Germany. It has highest highway and rail density in
Europe, making it possible to bringing forty percent of EU’s population to within a
day’s each. Because of these advantages, nine of top 100 logistics providers in
Europe are located here.

Hannover/Braunschweig is a leading economic and logistics place in the

northern region. Its central position enables it to trade with all relevant markets in
both Germany and Europe. Besides, its diversified industrial base towards export
attracts a lot of logistics providers to locate their branch in the region.

Magdeburg, a fast growing east-west trade gateway, has one of the largest
inland ports in Germany. State-of-the art facilities and top research bodies are also
some other main characteristics of the area.

Berlin/Brandenburg has a promising future in logistics. Its location, inland

harbors serving major German seaports provide it a true competitive advantage in
the industry. Furthermore, it owns a network of railways, roads, air routes and
inland waterways.

Saxonian Triangle is an optimal logistics location for Europe-wide

distribution. It has many favorable conditions to make it a logistics location par
excellence: modern infrastructure, telecommunications and business environment,
international airports.

Nordhessen used to be an excellent central location in Germany and now it is

even better. Its location can offer very latest cut-off time for nest-day deliveries.
 31

Contract logistics, transport and automobile logistics can be mentioned as some

strengths of the region.

Thurungia is ranked among most-prized logistics regions in Europe. It has

highly advanced transportation infrastructure and in particular, it is ideal to choose
it for business and industrial logistics, distribution and third-party logistics.

Rhine Main Region owns famous Frankfurt International airports, excellent

highway networks, Europe largest railway station and access to two critical inland
waterways.

Rhine-Neckar region has over 100,000 companies and can be said to be one
of Germany most important economic areas with exceptional transport structure and
strategic location.

Stuttgart/Heilbronn is famous as one of Europe’s industrial warehouses. As a

result, thanks to the demand in transport logistics, all international and national
companies in the fields have their presences here. Well-developed cargo
infrastructure, and inland ports are keys to success of the area.

Saarland has its reputation as home to 50% of EU’s GDP. Its outstanding
infrastructure provides optimal conditions for all logistics activities.

Hahn/Trier is one of the four air cargo hubs in Germany. It also offers high-
performance rail and expressways services to all major European commercial
centers and inland port.

Nuremberg/Upper Franconia has various advantages in efficient

infrastructure and attractive investment sites. The region is not only a distribution
center and logistics hub for southern part but also a gateway to south-eastern
Europe.

Freigburg/Lorrach region was formed by three countries’ borders: Germany,

France and Switzerland. It is a major hub for both passenger and cargo traffic.
 32

Ulm is an important logistics location. The Ulm and Swabian Chambers of

Commerce has its competence center based here, enabling it to offer different kinds
of consulting services.

Danube concentrates its logistics services in freight villages at Regensburg,

Straubing and Ingolstradt. It is an expanding logistics competence center with a
dense network of companies and logistics services providers.

Munich is considered as one of the most significant commercial centers in

Europe. In Germany, it is a leader in high-tech. It offers excellent operating
conditions to logistics providers.

2.1.6 Logistics firms

There are 13 global logistics providers in Germany: Dachser, DB Schenker,

DB Schenker Rail, DHL Express, DHL Supply Chain, HHLA, Rhenus, Röhlig
Logistics, Schenker AG, Time:matters, Willi Betz, Hellmann Worldwide Logistics,
Fiege. Of all these, DB Schenker and DHL are the most well-known ones.

SJ Consulting Group Inc., a transportation and logistics consulting firm in

Pittsburgh, Pennsylvania, United States published the list of Top 40 Global
Logistics providers based on their revenues in 2011. Six companies from Germany
are included: DHL, DB Schenker, DACHSER, Hellmann Worldwide, Rhenus,
Fiege. Especially, DHL and DB Schenker are ranked first and third.

In top 10, there are 2 companies from Germany, 2 from Switzerland, 1 from
Netherlands, 3 from USA, 1 from Denmark and 1 from France. It can be figured out
from the table that of all these 10 companies, the first three-DHL, Kuehne & Nagel
and DB Schenker- are the most critical ones. Their revenue, which is more than
60% of 10 countries’ revenues, makes up the majority of the figure. DHL Logistics
earned around 38 billion US dollars, which is twice as that of DB Schenker or
Kuehne & Nagel. The remaining companies in the list have one thing in common:
the turnover of each firm is lower than 10 billion US dollars. The statistics once
 33

again proved the important presence of German logistics providers in the global
market.

Table 2.1 Top 10 global logistics providers in 2011

(million US dollars)

Rank Company Revenue Base country

1 DHL Logistics 37,780 Germany
2 Kuehne & Nagel 22,104 Switzerland
3 DB Schenker Logistics 19,865 Germany
4 CEVA Logistics 9,593 Netherlands
5 C.H. Robinson Worldwide 8,741 USA
6 DSV 8,162 Denmark
7 Panalpina 7,331 Switzerland
8 SNCF Geodis 6,335 France
9 Expeditors International 6,150 USA
10 UPS Supply Chain Solutions 6,058 USA
Source: SJ Consulting Group, 2011

2.2 GERMAN THIRD PARTY LOGISTICS PRACTICES

2.2.1 Revenue
Armstrong & Associates (2014) has been calculating Global Third Party
Logistics (3PL) Market estimates for over a decade. In 2012, according to their
latest research, Germany was ranked fourth in terms of 3PL revenue.

In 2012, the overall turnover from 3PL activities in the world is 685.1 billion
US dollars. The most profitable nations are United States and China with 141.8 and
118.4 billion US dollars respectively. Japan and Germany took the third and fourth
place with 53.2 and 31.5 billion US dollars earned from 3PL activities.
 34

Figure 2.9 Top 8 countries in terms of third party logistics revenue in 2012

(billion US dollars)

Italy 20.8

United Kingdom 22.5

Brazil 25

France 26

Germany 31.5

Japan 53.2

China 118.4

United States 141.8

Source: Armstrong & Associates

The remaining countries in figure 2.9 include three from Europe and 1 from
South America, all of which have revenue ranging from 20 to 26 billion US dollars.

The revenue generated from 3PL in Europe, in particular, was 158 billion US
dollars, which makes up around 25 percent of global value. Germany once again
shows its dominant position in the region by contributing one fifth of 3PL revenue
to regional turnover. This number accounted for 10.5% of logistics revenue. Beside
three countries mentioned above, Spain and Netherlands are also listed as those with
high 3PL revenue-represented by 13 and 9.2 billion US dollars respectively. The
rest of Europe generated 35 billion US dollars, which is a little bit higher than that
of Germany alone.

From the previous figures, it can be concluded that Germany is one of the key
players in terms of third party logistics both globally and regionally.
 35

Turning to third party logistics providers, SJ Consulting Group has issued a

list of Top 40 Global 3PLs in 2012 based on their revenue. Among them, in terms
of number, there are 13 firms from US (13%), 6 from Germany (15%), 5 (12.5%)
from Japan, 4 from France (10%), 2 from Switzerland or Denmark (5% each), 1
from Netherlands, Australia, China, Kuwait, South Korea, UK, Singapore or
Luxembourg (2.5% each). However, concerning revenue, it is a different story. The
total revenue of 40 companies in 2012 was 225.041 billion dollars. The three largest
3PL firms, DHL, Kuehne & Nagel, DB Schenker, constituted nearly 35 percent
(78.51 billion dollars) of the overall turnover.

Figure 2.10 Allocation of revenue of Top 40 Global 3PLs in 2012

35%
37 other companies

DHL, Kuehne&Nagel, DB
Schenker
65%

Source: SJ Consulting Group

What is even more striking is that two of them, DHL and DB Schenker, are
both German-based. Their turnover, 36.841 and 19.537 billion dollars respectively,
together made up one fourth of the Top 40 global 3PLs market. The reason for this
is that those third party logistics providers are regarded as “Giants” in logistics
sector. They own outstanding facilities and in-depth knowledge about logistics as
well as gain loyal customers after a long time running the business. Therefore, it is
not a surprise when they got so much influence in third party logistics market. In the
top 40 list, furthermore, there are four more German-based 3PLs: Dachser & Co.,
Rhenus & Co., Hellman Worldwide Logistics and Fiege. Besides the first company,
 36

Dachser, with 5.668 billion dollars in revenue, the rest had their value ranging from
approximately 2 to 4 billion dollars.

2.2.2 Assets
From this part, it is suggested to go into more detail of what and how German
third party logistics providers are doing. As DHL and DB Schenker are the two
typical representatives of German third party logistics providers, we assume that
their characteristics belong to those of German third party logistics.

In this section, 3PL assets of DHL and DB Schenker will be analyzed. 3PL
assets comprise of three elements: number of employees, number of warehouses,
information systems and some other facilities.

Figure 2.11 German 3PL providers’ assets in 2011

180000
160000
140000
120000
100000
80000
60000
40000
20000
0
DHL DB Schenker
Employees 176000 57134
Warehouses 2500 500

Source: Logistics Quarterly

Figure 2.11 provides us a brief introduction about two companies’ workforce

and warehouses in 2011. As a winner in revenue, DHL outperformed DB Schenker
in both categories. DHL’s 3PL workforce was almost three times as that of DB
Schenker. Turning to warehouse quantities, the gap is even bigger. While DHL
owned around 2,500 warehouses, DB Schenker’s number was just one-fifth of that.
 37

Furthermore, it is estimated that at the same time, the total workforce in Germany
was 40 million people. DHL and DB Schenker together made up around 0.58% of
the national workforce, which is very impressive.

Changing to information systems, there seems to be no different story.

According to Logistics Quarterly, DHL’s information system was “excellent” with
a variety of choices for their clients: TMS – Oracle – OTM/sci3, RedPrairie,
Proprietary, WMS – HK Systems, Insight, RedPrairie, Manhattan, Proprietary. DB
Schenker got a “good” assessment for offering fewer options with MS – Oracle –
OTM, SAP, WMS – Infor/EXE, SAP.

To summarize, German 3PL providers’ assets contribute effectively to the

development of Germany and in comparison with DB Schenker, DHL still a bigger
firm not only in terms of revenue but also in their asset ownership.

2.2.3 Services, industry focus and key customers

First of all, taking services provided by DHL and DB Schenker into account,
Logistics Quarterly, a magazine focusing on developing ideas for leadership in
logistics and supply chain management, has pointed out some familiarities between
these two giant companies in terms of their available services as well as industry
focus.

In the first category-services, the magazine argues that both of them offer
contract logistics, air and ocean forwarding, customs brokerage and spare/service
parts logistics. DB Schenker, in particular, provides additional services such as
supply chain management solutions, land transport including road, rail and short-
sea, integrated heavy freight transportation, project logistics, household removals.
DHL’s services, on the other hand, also cover supply chain consulting,
transportation management, home delivery, contract manufacturing/packaging.

As both providing some similar services, DHL and DB Schenker now share
some market segments.
 38

Table 2.2 Industry focus of DHL and/or DB Schenker

DHL
1. Automotive
2. Consumer Goods
3. Food/Groceries
DB Schenker
4. Industrial
5. Retailing
6. Technological
7. Healthcare
8. Elements

Source: Logistics Quarterly

Table 2.2 suggests that DB Schenker and DHL have their presence in many
industries, in which automotive, consumer goods, food/groceries, industrial,
retailing and technological are their mutual focuses. These six markets are very
huge and crucial. Therefore, for sure they bring them various lucrative offers from
big customers. Besides, DHL also provides 3PL services in healthcare and elements
industries.

Considering their customers, by looking at their key clients, there is no

difficulty to figure out that all of them are giant MNCs with enormous financial
capabilities. Corresponding to the industry, DHL’s services are available to: Ford
Motor, Goodyear Tire & Rubber, Pep Boys (Automotive), Procter & Gamble
(Consumer Goods), Caterpillar (Elements), Hershey (Food/Groceries), Bayer
Healthcare (Healthcare), Industrial, Wal-Mart, Toys “R” Us (Retailing), Xerox
(Technological). DB Schenker’s key customers can be mentioned: BMW, Daimler,
Volkswagen, Ford Motor (Automotive), Chanel, Procter & Gamble, Unilever
(Consumer Goods), Kraft Foods (Food/Groceries), DuPont, Metso (Industrial),
Winners (Retailing), Cisco Systems, Siemens, Océ, Microsoft (Technological).
 39

As top and experienced 3PL services providers, German 3PL providers show
their major role in 3PL market. Not only are they “giant” in 3PL market but they
also establish and maintain long lasting relationship with their “giant” customers.

2.2.4 Global network

Being global logistics providers, German 3PL providers’ customers scatter all
over the world.

DHL is present in over 220 countries and territories across the globe. At first
glance, it exceeds the number of members of United Nations. The company’s
network includes North America, South America, Europe, Africa, Asia and
Oceania.

Figure 2.12 DHL global network

59
42 55

59

14

25

Source: DHL

In North America, there are 42 countries and territories in which DHL offers
its logistics services. The number in South America is 14. In European Union and
Africa, DHL shows its dominant position by engaging its operations in 59 nations
for each continent. Asia, on the other hand, is also a potential market with 55
countries and territories as DHL’s clients. Oceania, in spite of its small size, also
has 25 countries and territories capable of referring to DHL services.
 40

DB Schenker, as a smaller company than DHL, operates in over 130

countries world-wide.

2.3 FACTORS THAT CONTRIBUTED TO THE SUCCESS OF 3PLS

SECTOR IN GERMANY
There have been many studies on this issue. One of them comes from
Deutsche Bank (2008) in their research called Logistics in Germany: A growth
sector facing turbulent times. In the research, it can be pointed out that there are two
major drivers to the development of logistics in general and third party logistics in
particular: the internal and the external factors.

First of all, the internal factors or Germany’s advantages in the business

should be analyzed. The country enjoys various excellent assets to be a breadwinner
in the industry. These include the high degree of industrialization compared with
other countries in Europe. (Figure 2.11)

Figure 2.13 Production growth in 5 European countries 2010-2013 (%)

(2010 is base year)

120

115

110 Turkey
Poland
105
Germany
Hungary
100
Denmark

95

90
2010 2011 2012 2013

Source: Organization for Economic Co-operation and Development (OECD)

Figure 2.13 illustrates the development of industrial production in five typical

countries including Turkey, Poland, Germany, Hungary and Denmark during the
 41

period of four years from 2010 to 2013. 2010 is the reference or base year. Those
are five countries which witnessed the most significant changes in European region.
The reason why industrial production should be carefully discussed instead of
service sector is that the former usually requires a more critical presence of logistics
services providers. Among the above nations, the leading country is Turkey with
almost 17% rise in their industrial production in three-year time, followed closely
by Poland and Germany. Germany saw its considerable increase in production area
in 2011-approximately 8% and remained a stable rate until 2013. Thanks to this
positive trend in production, logistics sector was likely to seize the opportunity to
expand to satisfy the rising demand for transport and logistics services.

Another factor lies on the size of German economy itself. According to OECD
statistics, in 2012, Germany was ranked 12th in terms of GDP per capita.

Figure 2.14 German GDP per capita between 2008 and 2013

(US dollars)

44000
GDP per capita
42682
42000
41923
40990
40000

38000 38320
37115

36000
35973

34000

32000
2008 2009 2010 2011 2012 2013

Source: Organization for Economic Co-operation and Development (OECD)

It can be seen from Figure 2.14 that after the financial crisis in 2008, German
income decreased sharply from 38,000 US dollar to below 36,000 US dollar in 2009
and immediately had a quick recover by showing a continuous growth in their
 42

income in the following years. In 2013, the value reached its peak at around 42000
US dollars per year. As personal income increases, consumption also increases,
which enables industrial and trading companies’ sales jump. Logistics firms, in
addition, depend much on their customer’s increasing turnover to develop their own
business by being offered more logistics contracts. In recent years, hence, logistics
sector has much benefited when people get richer.

The third internal driver has been discussed carefully in the first part of
chapter 2: Germany has a strategic location in Europe. Germany is located at the
heart of the region with nine countries as immediate neighbors. This advantage
makes Germany the most important transit country in European area and enables
international freight handling to develop consequently.

Another explanation for the success of German 3PL logistics is its transport
infrastructure. Not only is Germany well-known for its scope but also for its high
quality of transport infrastructure. Germany possesses a network with 12,800km of
motorways and 37,600km of railway tracks are considered as the densest of all
European territorial states (CBRE, 2012). In terms of quality, in The Global
Competitiveness Report 2011-2012, the overall infrastructure in Germany was
ranked 10th among 142 countries. The quality of roads as well as port infrastructure
got the same result. Air transport and railroad infrastructure performed even better
by being included in top six countries with best scores. All these favorable
conditions enable Germany to develop its 3PL services, especially transportation
with less cost and shorter time than its neighbors.

The last internal driver evolved from German long history of relatively
polycentric economic structure. As a result of the so-called freedom of cabotage or
EU-15’s companies having the right to conduct freight transport activities within
European Union states since 1998, the transport routes in Germany have increased.
In 15 years, the cabotage volumes in Germany have risen by approximately 60%,
making it the most important market for such cabotage transport after France. It is
estimated that one fourth of all cabotage journeys within the region were carried out
in Germany.
 43

Turning to external factors, in recent years, globalization and outsourcing

have enormously promoted logistics as well as third party logistics services.
Globalization is the worldwide movement towards economic, financial, trade and
commercial integration. There are some typical events that directly affect the
logistical activity in particular. The first to mention is the fall of the Iron Curtain.
According to CNN (2014), it was not only a simple phrase made by Winston
Churchill to describe “the line separating the Soviet-dominated eastern Europe from
the sovereign nations of the west” but it actually implied “a guarded barrier that
millions of people couldn't cross because they were imprisoned in their home
countries”. It did create a lot of obstacles to both everyday normal lives and
economic cooperation among countries. Some other events in the connection are the
economic blossoming of many developing as well as emerging markets in Asia such
as Brazil, Russia, India and China together with the China’s entry to the WTO in
2001. These two events have offered German logistics companies opportunities to
expand their market and exploit local advantages by establishing new branches in
low-wage nations. However, as a result of globalization, the competition among
industrial companies is increasingly intense. They gradually became fully aware
that if they wanted to survive and develop in the economic battle, the practice of
performing all logistics activities has not been beneficial any longer. They decided
to outsource to focus on their core competencies. Globalization and outsourcing,
hence, have led to the collapse of trade barriers and stimulated the logistics sector.

2.4 STRENGTHS AND WEAKNESSES OF GERMAN 3PLS PROVIDERS

The previous parts have provided the audience a wide range of information
about German logistics practices. It is easy to figure out that German 3PL providers
have benefited from its national competitiveness. However, there is a saying that
Practice makes perfect. There is no circumstance where any firm could develop
with merely advantages without making mistakes in the global competition. DHL
and DB Schenker, as typical representatives of German 3PL providers, are not
exceptional. They both have strengths and weaknesses and it is crucial to be aware
of their characteristics to draw out some lessons for Vietnamese enterprises.
 44

There are several studies and research on the two giants’ strengths and
weaknesses. The majority shows that the former seems to outweigh the latter.

2.4.1 Strengths
In terms of advantages, German 3PLs providers are widely recognized as a
positive and strong public brand images. The companies make sure to consider eco-
friendly drive technologies during purchasing new vehicles. At the moment, DHL
owns a total of 10,500 green vehicles, which is 20 percent higher than the previous
year. For example, their fleet includes CNG-a readily available alternative to diesel
fuel, DHL Electric Daily, carbon-free delivery in Bonn, Streetscooter-world
premiere of the electric delivery van in Bonn, DHL dual-fuel trucks, Green DHL
fleet in Manhattan, DHL propane vehicles-propane autogas vans for pick-up and
delivery, etc. All confirm DHL’s shifting to renewable resources other than fossil
fuels. Besides, DHL also combined advanced technology with dynamic route
planning in its vehicles. They are enabled to calculate the most efficient routes by
avoiding traffic jams and road maintenance. DB Schenker is also providing their
clients with customized Eco Solutions based on calculating CO2 emissions for all
transport routes. Furthermore, the company has cooperated with Ericsson in carbon
emissions reduction by truck transport. By combining systematic speed monitoring
and an intelligent, mobile-on-board traffic system from the Swedish
telecommunications company can carbon emissions by the German logistics firm be
reduced and monitored. The company's strategy is to reduce its CO2 emissions by
20 percent until 2020. Similar to DHL, DB Schenker has purchased 2 new Iveco
Daily 35S14G EEV running on natural gas for distribution activities in Romania. In
addition, the logistics company is planning to build its own natural gas station.

Second, DHL has rapid expansion in both business and service network.
Initially, DHL only provided mail delivery services. Not until 1970s was parcel
delivery service added. Until now, it has been a big player in express services,
logistics services and mail services. Turning to service network, in the very first
years, the company had its operations in Germany and the United States. After
many years in the business, the company is present in over 220 countries and
 45

territories across the globe. Furthermore, a new unit called DHL Solutions &
Innovation was introduced in 2009. The aim of the project is to deliver new short-
term solutions and services to the current needs of its customer. DHL claims to
solve problems for its customers in an innovative way. Few people know that DB
Schenker is almost 150 years old. In July 1972, Gottfried Schenker founded the
forwarding company networking different means of transport using modern
communications technology. It is the foundation stone for modern forwarding and
logistics.

Another advantage of the German 3PL provider comes from its enormous
financial base. Many financial institutions have ranked DHL in top 3 logistics as
well as 3PL companies in terms of revenue for several years. Thanks to this huge
earning, more and more investments have been used for further expansion.

Last but not least, after a long history in logistics industry, the companies
have gained a large customer source. It is of great importance as customers are the
ones who pay.

2.4.2 Weaknesses
Turning to German 3PLs providers' weaknesses, both DHL and DB Schenker,
despite the fact that they had done something for building positive public image,
were seriously blamed for dismissing employees. In 2009, DHL announced to lay
off 9000 workers in Wilmington, Ohio due to "Economic Tsunami". 7500 out of
12000 people in the town lost their jobs after this. In the first months of 2014, DB
Schenker also informed state officials to dismiss more than 200 employees in
Bethlehem Township. The layoffs will take place in three phases including March,
April and July 2014. The result is that 223 people will become unemployed (The
Morning Call, March 2014).

Another problem that DHL and DB Schenker need to cope up with is

complaints from their customers. On DB Schenker's website, there have been
frequently asked questions. Among these, many concern about late and inaccurate
deliveries. For DHL, various negative feedbacks on its services have been received.
 46

Some clients may have been disappointed with consistent late deliveries or felt
dissatisfied by its staff's negligence. The others complain about its high customer
service cost.
 47

CHAPTER 3. VIETNAM THIRD PARTY LOGISTICS PRACTICES AND

RECOMMENDATIONS FOR VIETNAMESE 3PLS ENTERPRISES BASED
ON GERMANY’S EXPERIENCES

3.1 OVERVIEW OF LOGISTICS SECTOR IN VIETNAM

The last chapter focuses on describing the overview of Vietnamese logistics
sector as well as third party logistics practices in recent years. Moreover, by
comparing with German third party logistics providers’ experiences, some
recommendations for Vietnamese enterprises are offered.

3.1.1 Logistics Performance Index

Figure 3.1 Logistics Performance Index of Vietnam, East Asia and Pacific
region and Low income group in 2010

LPI
5
4
Timeliness 3 Customs

2
1 Vietnam
0 East Asia and Pacific

Tracking & tracing Infrastructure Low income

Logistics International
competence shipments

Source: World Bank

Concerning Logistics Performance Index, in 2010, Vietnam was ranked 53th

out of 155 countries and territories by World Bank. In particular, the overall LPI
score of Vietnam was 2.96 out of 5. Among six categories, timeliness, tracking and
tracing and international shipments of Vietnam are much more effective than the
remaining ones with 3.44, 3.10 and 3.04 respectively. Logistics competence,
 48

customs and infrastructure got lower results with 2.89, 2.68 and 2.56 points orderly.
Furthermore, compared with the average Logistics Performance Index of the region-
East Asia and Pacific or even low income group, Vietnam’s score surpasses both of
them. In detail, the East Asia and Pacific got 2.80 for the overall LPI. China was the
top performer in the region with 3.49 total points. The average result of low income
group was just 2.38, which is much lower than that of Vietnam. Vietnam was
considered as the most efficient nation by World Bank in terms of LPI among low
income countries, in addition.

Turning to the growth of Logistics Performance Index between 2007 and

2010, according to World Bank, Vietnam’s ranking was the same in 2007 and 2010
(53th out of 155 countries and territories). However, there are some major
differences in six categorized elements.

Figure 3.2 Logistics Performance Index of Vietnam between 2007 and 2010

2007 2010

3.44
3.1 3.22
2.89 2.96 2.89 3 3.04 2.9
2.68 2.8 2.89
2.5 2.56

LPI Customs Infrastructure International Logistics Tracking & Timeliness

shipments competence tracing

Source: World Bank

According to Figure 3.2, in 2007, Vietnam’s LPI was 2.89. In three-year time,
there was a significant increase in the effectiveness of logistics sector and in 2010,
the overall score rose by 0.07. By having a closer look at six key dimensions, in
general, it can be seen that most of them had an upward trend. Tracking and tracing
 49

and timeliness saw the most dramatic change with approximately 0.2 point rise in
the score. Infrastructure, international shipment and logistics competence had a
medium growth ranging from 0.04 to 0.09. The efficiency of the clearance process,
on the other hand, was the only category which showed negative trend. From 2007
to 2010, the score for it dropped remarkably from 2.89 to 2.68, indicating the
degradation in clearance process in Vietnam.

3.1.2 Logistics growth and costs

According to StoxPlus (2013), Vietnam logistics sector grows at the rate of
approximately twenty percent per year. In five-year time, this number is supposed
to increase from 20% to 25% due to an increasing amount of capital invested in
Vietnam by multinational companies such as Nike, Samsung, Intel, Nokia, etc.

Figure 3.3 FDI into Vietnam between 2007 and 2012 (implementation capital)
(million US dollars)

FDI

11500
11000 11000
10460
10000

8030

2007 2008 2009 2010 2011 2012

Source: Vietnam Report

Figure 3.3 shows the amount of FDI into Vietnam since the country became
WTO’s 150th member in 2007 until 2012. In general, it can be said that there was an
upward trend in implem10
 50

entation capital for the whole period. In the first year, Vietnam’s FDI statistics
stayed at nearly 8 billion US dollars. The following year saw a dramatic rise in FDI
into Vietnam at a rate of almost 44% (11.5 billion US dollars in 2008). Between
2009 and 2012, the figure remained stable at around 11 billion US dollars.
Promising signs of FDI inflows from well-known corporations are likely to offer
Vietnam numerous opportunities for developing local forwarding and warehousing.

According to Armstrong & Associates (2013), the total cost from logistics in
Asia Pacific in 2012 was 21,881.9 billion US dollars. Among 13 included countries,
Vietnam was ranked last in the list in terms of both GDP and logistics cost.
Vietnam’s GDP in 2012 was 138.1 billion US dollars. Expense originated from
logistics sector of the country in the same year was 14.8 billion US dollars, which
made up roughly 10.7% of GDP.

Table 3.1 Logistics costs in some countries in Asia Pacific in 2012

(billion US dollars)

Logistics cost (GDP

Region Country 2012 GDP Logistics cost
%)

Australia 1,542.0 1,619.1 10.5%

China 8,227.0 1,480.0 18.0%
Hong Kong 263.0 22.4 8.5%
India 1,825.0 237 13.0%
Indonesia 878.2 94.0 10.7%
Japan 5,964.0 506.9 8.5%
Asia Malaysia 303.5 32.8 10.7%
Pacific Philippines 250.4 26.8 10.7%
Singapore 276.5 23.5 8.5%
South Korea 1,156.0 104.0 9.0%
Taiwan 474.0 42.7 9.0%
Thailand 365.6 39.1 10.7%
Vietnam 138.1 14.8 10.7%
Others 218.6 23.4 10.7%
Region 21,881.9 2800 12.8%
Source: Armstrong & Associates
 51

Compared with other nations in Asia Pacific in terms of logistics cost

proportion in GDP, Vietnam was in the middle group. China and India were the two
countries suffering from greatest expense rate with 18.0% and 13.0% respectively.
There are some countries enjoying effective logistics operations such as Hong
Kong, Japan, Singapore, South Korea and Taiwan. All of those had least logistics
costs ranging between 8.5% and 9.0% of GDP. The remaining members including
Vietnam spent about 10.7% of their GDP for logistics.

3.1.3 Infrastructure
Vietnam enjoys some certain geographical advantages in the market for
logistics.

Table 3.2 Vietnam Infrastructure

Capacity Rank
Railways 2,632 km 62
Roads 206,633 km 24
Waterways 47,130 km (2011) 4
Airports 45 (2013) 96
Source: Central Intelligence Agency (CIA), World Bank

Table 3.2 illustrates infrastructure capacity of Vietnam in recent years. Thanks

to its long coast and extensive network of rivers, Vietnam waterways in general are
47,130 km long. As a result, the nation is ranked fourth in terms of waterways
capacity. Road system in Vietnam, on the other hand, is fairly good with 206,633
km, placing Vietnam at 24th position in world map. Railways and airports in
Vietnam should be paid more attention, in addition. They got very low ranking of
62th and 96th respectively.

As a developing country, Vietnam has been investing a great amount of

capital to improve its infrastructure quality. In The Global Competitiveness Report
(World Economic Forum, 2012), Vietnam was ranked 90th out of 142 included
countries. In particular, the quality of overall infrastructure got 3.1 points and was
ranked 123th. In contrast with capacity, the quality of railroad and airport
 52

infrastructure was much better than that of road and port structure. In comparison
with other countries and territories, railroad and airport infrastructure quality situate
themselves at 71th and 95th position in the list. Road and port infrastructure, on the
other hand, were ranked 123th and 111th respectively.

Figure 3.4 Vietnam’s freight volumes by mode in 2008

Road
45% Rail
48%
Coastal shipping
Inland waterway

5%
2%

Source: The World Bank, 2014, Efficient Logistics: A Key to Vietnam’s

Competitiveness

Taking freight transport market structure into account, from Figure 3.4 it can
be pointed out that Roads and Waterways once again dominated the market in terms
of freight volumes in 2008. In 2008, the overall freight volume was 400 million
tons, in which Roads and and Inland Waterways take nearly half of the pie each. In
detail, 181 millions of tons were carried by former while the latter’s handling
volume was 193 tons of freight. Coastal shipping and rail were less preferred by
constituting only 4.4% and 1.9% of the total value.

According to World Bank (2014), the availability of both electricity and

telecommunications in Vietnam is very limited. Not only are they monopolized by
state but they are also expensive. Most of electricity in the country is supplied by
 53

hydroelectric plants which have limited capacity in dry seasons. In consequence, a

variety of manufacturers have suffered from frequent shortages of power.
Telecommunication has the same problem of high cost as electricity. Compared
with other countries in South East Asia, the rates for international calls are
considered relatively high. Furthermore, limited access of landlines, mobile phones
and internet services is another disadvantage of Vietnam in attracting foreign direct
investment.

Being aware of its limitations, Vietnam has spending more to improve the
quality of its infrastructure.

Figure 3.5 Infrastructure investment in Vietnam between 2009 and 2012

(billion dong)

Infrastructure Investment
142000
140051
140000
139846
138000
136000
134000 134599

132000
130000
128000
127373
126000
124000
122000
120000
2009 2010 2011 2012

Source: General Statistics Office

Figure 3.5 indicates an upward trend in investment in infrastructure in

Vietnam from 2009 to 2012. The first three years witnessed a sharp increase in
infrastructure investment from 127,373 billion dong to 140,051 billion dong. The
amount spent on investment in 2011 surged by nearly 10%. The following year
showed almost no change in the amount of investment for the sector.
 54

Figure 3.6 Infrastructure investment by sectors in Vietnam

between 2009 and 2012

100%
12.6 13.2 13.2 14.1
90%
80%
70%
40.9 42.5 42.2 41.8
60%
50%
40%
30%
46.6 44.3 44.5 44.1
20%
10%
0%
2009 2010 2011 2012

Electricity, gas and water supply Transportation and storage Telecommunication

Source: General Statistics Office

As we can see from Figure 3.6, there are three components in infrastructure
investment: electricity, gas and water supply; transportation and storage;
telecommunication. It can be easily figured out that the majority of investment was
used in transportation, storage and electricity, gas and water supply projects.
Especially, in the whole period, electricity, gas and water supply investment played
a critical part at around 45% of the overall value. Transportation and storage
constituted the little bit lower proportion from 40% to 42%. The last category,
telecommunication, took the least proportion of below 15%. However, unlike the
above key players, the investment for this sector has been increasing constantly in
four-year time.

In summary, it is expected that the increase in investment on infrastructure in

recent years will reduce the overall costs of logistics sector.
 55

3.1.4 Strategic freight corridors

According to United States Department of Transportation, a transportation
corridor can be defined as:

“a combination of discrete, adjacent surface transportation networks (e.g.,

freeway, arterial, rail networks) that link the same major origins and
destinations. It is defined operationally rather than geographically or
organizationally.”

It is crucial for Vietnamese government to take the concept into considerations

in order to improve logistics performance. As a result of economic globalization,
international trade expands enormously, which leads to higher demand for freight
shipments. This requires municipal governments to cooperate in finding suitable
solutions to their infrastructure problems.

World Bank (2014, p.50) has identified six primary freight corridors with the
highest volumes of container flows in Vietnam. Six of them are:

1. Vietnam-China Corridor
2. Hanoi-Haiphong Corridor
3. Midland Corridor
4. Ho Chi Minh City-Vung Tau Corridor
5. Mekong Delta Corridor
6. North-South Corridor

In the thesis, it is impossible to include every single characteristic of each

corridor. Therefore, only highlights of each region will be discussed.

The first to mention is Ho Chi Minh-Vung Tau Corridor. This region plays a
very important role in the economic growth of the entire Southern Economic Zone
by handling a total amount of 4.8 million TEUs in 2011. The corridor is
characterized by its container-handling marine terminal as well as highways and
bridges. There are eleven container-handling marine terminals in the area, five of
which are deep-water ones. These terminals can operate well based on extensive
 56

network of highways and barge services. The latter is responsible for 95 percent of
containers from Ho Chi Minh City to the Cai Mep-Thi Vai terminals. The former
includes finished and under construction projects. Some projects will be in use in
the next two decades such as NH 51, Bien Hoa-Vung Tau Highway (Parallel to NH
51), HCMC-Long Thanh-Dau Giay Highway, Beltway 2, Beltway 3, Beltway 4,
Figure 3.7 Six primary freight corridors in Vietnam

Source: World Bank, 2014, Efficient logistics: A key to Vietnam’s

competitiveness

Cho Tho-HCMC Expressway, Long Thanh International Airport. Thanks to these,

the problem of highway congestion and logistics cost may be considerably reduced.
 57

The second most important region in the country is Hanoi-Haiphong Corridor.

This area was in charge of 2.7 million TEUs in 2011. It comprises of three port
complexes: Hai Phong port and Dinh Vu port, both of which own five container
terminals; Cai Lan port with two container terminals. Haiphong is 100 kilometers
from Hanoi and cargo can be delivered back and forth via rail, road and inland
waterway. Trucking service is preferred to the two remaining modes. A new Hanoi
to Haiphong Expressway and Hanoi-Cai Lan rail connection are under construction
and scheduled to be completed in a few years additionally.

Vietnam-China Corridor is characterized by cross-border trade between the

two nations. In 2011, 1.8 million TEUs were exported to China and 250,000 TEUs
were imported through the border gates. The main freight border crossing point in
the area is the Friendship Gate near Lang Son.

Midland corridor includes ports of Danang, Qui Nhon and Nha Trang. It
handled three percent of domestic container rate in 2011. In particular, Danang
ports accounted for half of the figure. The province situates itself at one end of the
East-West Economic Corridor connecting with Lao PDR, Myanmar and Thailand
though the link is considered of little significance in terms of container volumes.

Mekong Delta is known as a large rice-growing area which contributes almost

half of Vietnam rice output. Can Tho port in the region was capable of delivering
3,196 TEUs in 2011. This number is only one-fourth of that in 2004 due to the
construction of Can Tho bridge. As a result, trucking service is preferred. The plan
of building a Can Tho to Ho Chi Minh City Expressway is not yet to come into
effect as needing approval from the government. Besides, Cho Gao Canal in
Mekong delta is considered as the major mode for barges carrying loose cargo from
the area to Ho Chi Minh City ports.

Last but not least, in 2008, North-South Corridor handled about 29,000 tons of
containerized cargo daily. Approximately forty five percent of the value was
transported via southbound leg and the rest travelled through northbound leg. In
terms of modal split, the former dominated coastal shipping while the latter showed
 58

superiority in highway shipping. Like some other regions, the corridor offers three
transport options including NH1, coastal ocean shipping and rail.

3.2 VIETNAM THIRD PARTY LOGISTICS PRACTICES

3.2.1 Revenue
According to Armstrong & Associates (2013), Vietnam generated 1.1 billion
US dollars from third party logistics in 2012.

Table 3.3 Third party logistics revenue in Asia Pacific in 2012

(billion US dollars)

Region Country 2012 3PL revenue

Australia 16.5
China 118.4
Hong Kong 2.5
India 16.6
Indonesia 6.8
Japan 53.2
Asia Malaysia 2.3
Pacific Philippines 1.9
Singapore 2.7
South Korea 11.5
Taiwan 4.7
Thailand 2.8
Vietnam 1.1
Others 1.7
Region 242.7
Source: Armstrong & Associates

According to Table 3.3, it is obvious that Vietnam accounted for the least
amount of revenue from third party logistics in Asia Pacific. The total value in the
region in 2012 was 242.7 billion US dollars, in which Vietnam contributed only
0.45% to the figure. The reason for this lays on the fact that Vietnam logistics sector
itself has been immature when compared with other countries in Asia Pacific area.
 59

Its neighbor, China, is the most profitable nation in terms of third party logistics
revenue by constituting roughly half of the regional turnover. Japan was ranked
second in Asia Pacific with 53.2 billion US dollars, in addition. Beside Australia,
India and South Korea with their 3PL revenue ranging from 10 to 17 billion US
dollars, the remaining countries earned extremely low 3PL income of below 7
billion US dollars in 2012.

There are promising signs for third party logistics in Vietnam though.
Armstrong (2013) believed that “Thailand, Indonesia and Vietnam are all
experiencing double digit 3PL growth”. With growth rate of 20 to 25 percent per
annum, Vietnam is expected to take opportunities to develop third party logistics
segment.

3.2.2 Services and industry focus

Figure 3.8 Industry focus of Vietnamese 3PL providers in 2007

1%

3%
6%

Retail
Hi-tech
Automotive
Pharmaceuticals

90%

Source: Union Logistics

In 2006, Union Logistics collected data and statistics about target markets of
Vietnamese third party logistics providers. The result was shown in Figure 3.8.
 60

Among different industries, it is reported that there were four key customer
resources of logistics enterprises in Vietnam. They were retail, high-tech,
automotive and pharmaceuticals sectors.

As we can see from the figure, the majority of logistics providers’ customers
came from retail sector. They accounted for nearly 90 percent of the total value with
1.26 billion US dollars. Retail sector was expected to increase 14.7% annually.

Hi-tech, automotive and pharmaceuticals are three smaller segments following

retail. High-tech clients occupied 6% of total logistics revenue with 0.08 billion US
dollars. It was estimated that this sector would grow at 5.7% per annum. Turning to
automotive, its proportion was only half of high-tech’s market share. On the other
hand, pharmaceuticals took up the least percentage of the market with 1% in value.
Nevertheless, these two segments have been considered potential industries with
expected growth rate in the next few years at 10%.

3.2.3 Logistics firms

There has not been any official statistics showing the exact number of
companies providing logistics services in Vietnam. It is estimated that there are
approximately 1000 logistics companies in the country, of which 230 are VLA
(Vietnam Logistics Business Association) members (including 183 official
members and 47 associated members) (VLA, 2014). According to Doan and Pham
(2013), logistics companies in Vietnam can be categorized as follows:

1. State-owned enterprises
2. Private-owned enterprises and joint stock companies
3. Foreign Direct Investment enterprises

The first group, state-owned enterprises, makes up 18 percent of logistics

sector in terms of number. Those companies together dominate the forwarding
services and domestic transportation. They can handle many different market
segments but the majority of them are fairly good at providing single rather than
integrated services. In addition, state-owned enterprises enjoy most profits
 61

generated from transportation and distribution activities. Vinalines, Transimex and

Vinafco are some representatives of the group.

Private-owned enterprises and joint stock companies, on the other hand,

occupy around 70 percent of Vietnam logistics market. Most of them are small and
medium enterprises (SMEs) with limited financial capacity ranging from 500
million dong to 5 billion dong. Workforce shortage is another problem of this group
as many firms employ fewer than 10 people in their organizations. The two
disadvantages and short life cycle make their operations restricted to single services.
Some typical companies can be mentioned: Vinatrans, Sotrans, VinaFreight,
Gemadept, etc.

100%-Foreign Direct Investment companies, despite accounting for only a

small proportion (2%), have the greatest influence in the sector by taking up 30% to
35% of market share. After decades in business, they have established long-lasting
relationship with multinational companies. Thanks to their enormous financial
capacity, experience and high technology, those foreign firms have no difficulty in
competing against immature domestic ones. DHL, Maersk Line and APL are some
representatives that have presence in Vietnam at present.

3.2.4 Assets
Not mentioning foreign direct investment enterprises, most of Vietnamese
logistics providers in Vietnam have many disadvantages in both financial capacity
and human resources.

According to Union Logistics, charter capital of 80% of Vietnamese logistics

providers is lower than 1.5 billion dong. Many companies’ workforce ranges from
10 to 20 employees. These two unfavorable conditions have prevented Vietnamese
third party logistics providers from offering high value-added and integrated
services.
 62

Table 3.4 Charter capital of some typical logistics companies in Vietnam

(billion dong)

Charter capital

Vinalines 10,693
SOEs
Transimex 230.75
(2012)
255
Vinatrans
83.518
Sotrans
Private
sector 56
Vinafreight (2007)
475
Gemadept (2006)

Source:Vinalines, Transimex, VinaCorp, VietStock, Gemadept

There are a few enterprises which are considered as competent still. Among
state-owned enterprises (SOEs), according to Table 3.4, Vinalines is considered as
the largest firm in terms of charter capital with more than 10,693 billion dong in
hand, followed by Transimex with approximately 230 billion dong. As private-
owned or joint stock companies, the remaining four representatives possessed less
amount of capital. Gemadept was ranked first with 475 billion dong. Vinatrans,
Sotrans and Vinafreight’s charter capital are 255 billion dong, 85.518 and 56 billion
dong respectively.

3.3 SWOT ANALYSIS OF 3PLS PROVIDERS IN VIETNAM

3.3.1 Strengths
Vietnamese third party logistics providers enjoy some certain advantages in
doing their business.

First of all, Vietnam was ranked 53 out of 155 countries in terms of Logistics
Performance Index in 2010 by Word Bank. Comparing with low income group or
East Asia and Pacific region, Vietnam got higher score in the overall LPI.
 63

Furthermore, between 2007 and 2010, Vietnam saw an upward trend in almost all
categories of logistics performance index. In detail, five elements including
infrastructure, international shipments, logistics competence, tracking & tracing and
timeliness had their results improved. Custom clearance was the only category
witnessing a decline in performance in this period.

As mentioned in previous sections, private-owned and joint stock companies

make up the majority of Vietnam logistics market. It is estimated that there have
been more than 1,000 companies in the sector. This number is even greater than in
some countries that have a strong logistics background like Singapore or Thailand.

3.3.2 Weaknesses
Beside a few favorable conditions, Vietnamese third party logistics providers
are facing many challenges as well.

Figure 3.9 Logistics cost in some countries in 2011 over GDP

Source: StoxPlus

Logistics cost in Vietnam is considered relatively high when compared with

other countries in the region. According to StoxPlus (2013, p.4), in 2011, the sector
cost was estimated at 25 billion US dollars, which was approximately 20.8% of
Vietnam GDP in the same year. Whereas in other developing nations like China or
 64

Thailand, logistics cost was around 18% and in some developed countries,
Singapore or United States for example, the figure was only 8% to 10% of total
GDP.

In spite of the fact that there are a lot of companies in the market, many of
them lack both experience and financial capacity. According to Union Logistics
(2013), 80 percent of Vietnamese 3PLs providers have 1.5 billion-dong-and-less
charter capital. As a result of financial shortage, the size of those companies is
relatively small with limited human resources. As a consequence, those
disadvantages prevent them from providing complicated and full package services.
Their information system, on the other hand, may not be sophisticated and modern
like foreign competitors, which restricts them to domestic customers consequently.
Last but not least, a large number of Vietnamese 3PLs enterprises fail to establish
an international network.

3.3.3 Opportunities
Vietnam third party logistics segment, in spite of its small size, is expected to
grow at the rate of 20% to 25% in the next few years (StoxPlus, 2013). There are
certain positive signs for the development. As mentioned in previous parts, there
has been an increasing amount of foreign direct investment into Vietnam in recent
years. Many multinational companies like Samsung, Intel, Nike, Nokia have
established their manufacturing factories in the country, which may offer
Vietnamese third party logistics companies more chances to expand their business.

In addition, according to General Statistics Office, Vietnam has witnessed an

increase from 20% to 30% in retail sales of goods and services since 2007.
Furthermore, in 2012, Vietnam had a trade surplus for the first time during 20 years.
Besides, in 2009, according to The master plan on development of Vietnam’s
seaport system through 2020, with orientations toward 2030, the throughput of
goods through the entire seaport system is expected to increase to 500 and 600
million tons/year by 2015, 900 and 1,100 million tons/year by 2020 and 1,600 and
2,100 million tons/year by 2030. These three factors are likely to contribute
effectively to the growth of logistics sector.
 65

Moreover, Vietnamese government and other international institutions are

paving the way for logistics sector development by investing more in infrastructure.
With 4.5% of GDP investment, Vietnam is the leading investor in Asia in its road
infrastructure. Many projects in six strategic freight corridors are under construction
and scheduled to operate in the next few years. Improvement in infrastructure will
help Vietnamese logistics companies reduce cost significantly.

3.3.4. Threats
Table 3.5 Effectiveness of Vietnam transport policies and implementation
assessment in 2006

Source: World Bank

 66

The first issue comes from Vietnamese legal framework. Vietnamese

government showed a lot of weaknesses in planning and implementing transport
strategies.

Table 3.5 shows the result of an assessment by World Bank of how effectively
Vietnamese government carrying out their policies. In summary, Vietnam got very
poor result for implementation of both legislations and mechanisms in road
infrastructure. Road transport services showed promising plans at first but
insignificant outcome. Ports and related structure also needs more attention of a
suitable mechanism. Without strategic advancement in planning and implementing
transport strategies can Vietnam logistics sector make use of their potential to grow
and expand.

As we also can see from table 3.5, one of the biggest threats to Vietnamese
3PLs providers at the moment is insufficient infrastructure. Although roads and
waterways are the most important modes in terms of freight handling volumes, they
got very low score of quality in The Global Competitiveness Index. Out of 142
countries, quality of roads and port infrastructure were ranked 123th and 111th
respectively. This problem has been worsened when the demand for multimodal
transport is increasing day by day.

Another challenge is from foreign competitors. Although domestic players

dominate the logistics market in terms of number with more than 1,000 entities, yet
foreign direct investment enterprises are the ones who win. They defeat Vietnamese
third party logistics firms in all fields with enormous financial capacity, experience
and huge customer resources. For example, Maersk Line has been in business for
more than a century or APL is 166 years old this year. Moreover, 2014 is the time
when Vietnam has to fulfill its commitments of WTO to open the door for foreign
logistics providers, which may increase the competition in the sector.

Last but not least, one challenge that threatens both domestic and foreign
enterprises is the hesitation of manufacturers in outsourcing. According to
Investment South Centre South Vietnam, the rate of outsourcing in our country is
 67

very low-25% to 30% while in other countries like China, the figure in 2010 was
63.3%. In Japan and Western countries, about 40% of enterprises used third party
logistics services. There are some common reasons for this problem. Many small
and medium enterprises operate on restricted financial resources and they would
perform all logistics activities rather than outsource in order to reduce costs. The
others argue that they are afraid of information leak risks when sharing it with a
third party logistics provider additionally. The other did not outsource for the reason
that they did not have enough knowledge to find a suitable logistics provider.

3.4 RECOMMENDATIONS OF SOLUTION FOR VIETNAM THIRD

PARTY LOGISTICS BASED ON GERMAN THIRD PARTY LOGISTICS
PROVIDERS’ PRACTICES

3.4.1 Macro solutions

3.4.1.1 Establish and adjust applicable regulations relating to logistics activities

It is suggested that Vietnamese government should consider and establish
practical regulations to enable the development of logistics sector.

One of the obstacles to the development of logistics sector is the discrepancy

between the planning and implementing of regulations, mechanisms or legislations
in Vietnam. As discussed in section 3.3.4 Threats, Vietnamese government showed
incompetence in both issuing and carrying out transport policies. There have not
been necessary as well as suitable solutions to transport problems in Vietnam.
While roads and waterways are the two most critical modes of freight transport, the
authority seemed not to pay enough attention to the planning process. Moreover, the
result of implementing policies relating to road and port infrastructure was of little
significance additionally.

Besides, there have been some limitations in Law On Enterprises 2005,

Decree 140/2007/ND-CP (Detailing the implementation of the Commercial Law
regarding conditions on logistics service provision and liability limits of traders
providing logistics services) and Decree 87/2009/ND-CP on multimodal transport.
Not only are they unclear, unspecific but they are also no longer consistent to
 68

market environment. All of them lack certain linkage and failed to offer favorable
conditions for the development of logistics sector in general and third party logistics
in particular.

A National Committee of Logistics Management should be established, in

addition. This authority is supposed to supervise the overall logistics activities in the
country. They are in charge of investigating and proposing suitable regulations
relating to logistics activities to the government. Moreover, the committee is
entitled to support and offer orientations to third party logistics newcomers.

3.4.1.2 Invest in infrastructure

One of the keys to success of German third party logistics lays on its high-
quality and extensive transport infrastructure. Well-planned and well-organized
infrastructure helps them reduce logistics cost considerably.

Statistics showed that Vietnam logistics cost was very high and the reason for
this is inadequate infrastructure. More attention should be paid on enhancing quality
of road and port infrastructure. Moreover, it is recommended that Vietnamese
government should carefully plan and carry out feasible projects in each freight
corridor as well as establish connections among them for the ease of freight
transport from one corridor to another.

3.4.1.3 Build and maintain high quality workforce

One of the main characteristics in German logistics regions is the presence of
logistics research institutions. Their existence ensures the future supply of dedicated
and qualified staff in logistics.

As for Vietnam, there has been a shortage of well-trained employees lately.

Vietnam had better focus on enhancing its logistics staff including three different
levels: policy makers, managers and employees. Besides, more logistics courses
should be held at universities or colleges to increase the recognition of the concept.
 69

3.4.2 Micro solutions

3.4.2.1 Improve the competiveness of enterprises

Different from German third party logistics providers, Vietnamese enterprises
are incapable of providing full package services. It is widely recognized that foreign
direct investment companies dominate in Vietnam logistics market with their
outstanding financial capacity, experience and reputation. After hundreds of years
in business, they established long lasting relationships with giant manufacturers and
multinational companies. On the other hand, the majority of Vietnamese enterprises
have entered the market for a few years. With limited financial and human
resources, they are restricted to domestic clients and single services. They lost the
battle against foreign competitors as a result.

There are some solutions to the issue. First of all, Vietnamese players should
be aware of all supply chain stages and logistics activities as well as equip their
logistics staff with technical knowledge, international and domestic laws on trade,
etc. Furthermore, they should invest more to expand and enhance their facilities
such as warehouse, transport vehicles. Information systems should be up-to-date to
meet the demand from customers, in addition. Last but not least, there should be
strategic cooperation among small and medium enterprises to increase their
competitiveness in the market as well.

3.4.2.2 Enhance cooperation

There are many associations in Vietnam logistics market: Vietnam Logistics
Business Association (VLA), Vietnam Shipowners’ Association (VSA), Vietnam
Ship Agents and Brokers Association (VISABA), Vietnam Seaports Association
(VPA). To improve the logistics performance of Vietnamese enterprises, as
guardians, the cooperation of these associations should be tightened.

As for Vietnamese third party logistics providers, they also can improve their
ranking through M&A as German companies did. In December 2005, DHL
acquired Exel for 5.5 billion euros. In January 2006, BAX Global was acquired by
 70

DB Schenker. As a result, they have become the most powerful third party logistics
companies in the world in recent years.

3.5 RECOMMENDATIONS OF SOLUTION FOR VIETNAMESE

GOVERNMENT AND THIRD PARTY LOGISTICS PROVIDERS

3.5.1 Recommendations of solution for Vietnamese government

The Government is the highest authority with the highest power to enact
legislation. Deficiencies in Law On Enterprises 2005, Decree 140/2007/ND-CP
(Detailing the implementation of the Commercial Law regarding conditions on
logistics service provision and liability limits of traders providing logistics services)
and Decree 87/2009/ND-CP on multimodal transport somehow have discouraged
logistics development in Vietnam. Therefore, the first recommendation is that
Vietnamese government should improve its legal framework to adjust to the real
situations of the market as well as create favorable conditions for Vietnamese third
party logistics providers. Besides, the master plan on development of Vietnam
logistics market through 2020, with orientations toward 2030 should be examined
and approved. These two advancements will lead to a more transparent and
consistent marketplace for both domestic and foreign players.

The second recommendation for the Government is to establish National

Committee of Logistics Management. The committee will take charge of
supervising performance of logistics activities in the country. Market research is
supposed to be conducted so that suitable policy adjustments can be made, in
addition. The most important role of the committee, however, is to establish a
strategic planning and implementing of policy for the whole industry.

The third recommendation is to coach and train leading logistics specialists.

Those experts will work with specific associations, National Committee of Logistics
Management for instance, to work out the best solutions to current issues.
Furthermore, they are the ones who can exchange their ideas and experience to the
next generations.
 71

Last but not least, Vietnamese authorities should conduct research on success
stories of other countries in the region as well as in the world. Only by looking
inside their logistics sector, studying their characteristics, strengths and weaknesses
can Vietnamese scientists learn and figure out the dos and don’ts in developing
logistics business.

3.5.2 Recommendations of solution for Vietnamese third party logistics

providers
Vietnamese third party logistics providers have met a variety of challenges on
doing their business. To grow and expand, they need to be aware of strengths and
weaknesses of their rivals and themselves. The first recommendation for them is to
get proper and adequate understandings of logistics activities. A lot of entities in
Vietnam, as attracted by profit potential in the sector, have rushed for business start-
ups in logistics with limited knowledge. As a result, many have been kicked out.
The second recommendation, hence, is to develop human resources and create a
professional working environment for their employees.

Another disadvantage of Vietnamese logistics companies comes from its

inadequate technology. In the near future, they should pay attention more to
upgrade their information systems, purchase new transport vehicles or expand their
warehouse, etc. Improvements in technology will enable them to attract more clients
and to diversify their service offerings, leading to a higher degree of customer
satisfaction.

The next recommendation for domestic players is to maintain a positive image

and prestige. Many big manufacturers choose Maersk, APL or DHL instead of
Vietnamese companies for the reason that they are well-known and trustworthy.
The process of building a brand is not an overnight success. It requires step-by-step
improvements.

The last recommendation is that Vietnamese third party logistics providers

need to have a strategic vision in business planning and investment. Only by being
well-planned can they increase their presence in the logistics market.
 72

CONCLUSION
After making research on the topic of Emerging Role of 3PLs Providers In
Germany, the writer draws out conclusions:

 Third party logistics services have been developed for many decades and
played a more and more important role in enterprises’ success.
 German 3PLs providers enjoy a lot of advantages in doing their business and
continue to expand in the future. Among them, DHL and DB Schenker are
the most typical representatives by being ranked in top 3 companies which
generated highest revenue from third party logistics.
 Vietnamese enterprises have some advantages in providing 3PL services
such as increasing Logistics Performance Index and number of domestic
logistics players. Besides, many challenges have been found relating to
foreign competitors, inadequate Vietnam legal framework, domestic
customers’ hesitation and their companies’ weaknesses.

As anticipated, in the future, Vietnamese Enterprises will have to face more and
more threats. Certain solutions are recommended to both Enterprises and
Vietnamese government, which are specified as follows:

 Vietnamese enterprises are highly recommended to enhance their technical

understandings and knowledge in logistics. They are suggested to invest
more to improve their technology as well as service quality to build a
positive and trustworthy brand.
 Vietnamese Government is recommended to complete the laws and
enactments relating to enterprises operation in order to offer favorable
conditions for logistics development. Besides, they are suggested to establish
National Committee of Logistics Management and focus on logistics
specialists training to ensure suitable planning and implementing of policies
in the sector.
 73

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 80

APPENDIX A
GLOBAL 3PL MARKET SIZE ESTIMATES
Table A.1: Global 3PL market size estimates

Global Logistics Costs and Third-Party Logistics Revenues (US$ Billions)

2012 2012
2012 Logistics Logistics 3PL 3PL
Region Country GDP¹ (GDP %) Cost Revenue % Revenue
North America
Canada 1,819.0 9.0% 163.7 10.2% 16.6

Mexico 1,177.0 12.0% 141.3 9.0% 12.8

United States 15,680.0 8.5% 1,334.6 10.6% 141.8

Region 18,676.0 8.8% 1,639.6 10.5% 171.2

Europe
France 2,609.0 9.5% 247.6 10.5% 26.0

Germany 3,401.0 8.8% 299.7 10.5% 31.5

Italy 2,014.0 9.7% 195.4 10.6% 20.8

Netherlands 773.1 8.3% 64.4 14.3% 9.2

Spain 1,352.0 9.7% 130.9 10.0% 13.0

United Kingdom 2,441.0 8.8% 213.9 10.5% 22.5

Others 3,804.8 9.3% 352.9 9.9% 35.0

Region 16,394.9 9.2% 1,504.8 10.5% 158.0

Asia Pacific
Australia 1,542.0 10.5% 161.8 10.2% 16.5

China 8,227.0 18.0% 1,480.9 8.0% 118.4

Hong Kong 263.0 8.5% 22.3 11.3% 2.5

India 1,825.0 13.0% 237.1 7.0% 16.6

Indonesia 878.2 10.7% 94.0 7.2% 6.8

Japan 5,964.0 8.5% 506.9 10.5% 53.2

Malaysia 303.5 10.7% 32.5 7.1% 2.3

Philippines 250.4 10.7% 26.8 7.1% 1.9

Singapore 276.5 8.5% 23.5 11.5% 2.7

South Korea 1,156.0 9.0% 103.9 11.1% 11.5

 81

Taiwan 474.0 9.0% 42.8 11.0% 4.7

Thailand 365.6 10.7% 39.1 7.2% 2.8

Vietnam 138.1 10.7% 14.8 7.4% 1.1

Others² 218.6 10.7% 23.4 7.3% 1.7

Region 21,881.9 12.8% 2,809.8 8.6% 242.7

South America
Argentina 475.0 12.0% 57.0 8.9% 5.1

Brazil 2,396.0 11.6% 277.9 9.0% 25.0

Chile 268.2 11.5% 30.8 9.4% 2.9

Colombia 366.0 12.5% 45.8 8.1% 3.7

Peru 199.0 12.5% 24.9 8.4% 2.1

Venezuela 382.4 11.9% 45.5 7.0% 3.2

Others 191.2 14.2% 27.2 5.8% 1.6

Region 4,277.8 12.3% 509.1 8.5% 43.6

Remaining Regions/Countries 10,599.4 17.5% 1,887.3 3.7% 69.6

Total 71,830.0 11.6% 8,350.6 8.2% 685.1

Source: Armstrong & Associates

 82

APPENDIX B
TOP 40 GLOBAL LOGISTICS PROVIDERS
Table B.1 Top 40 Global Logistics Providers
2011
2011 Revenue Base
Company Coverage Notes
Rank in $ Country
millions
Excludes Williams Lea
1 DHL Logistics $37,780 Germany Global (Corporate Information
Solutions) division.
Kuehne &
2 $22,104 Switzerland Global
Nagel*
DB Schenker Excludes asset-based portion
3 $19,865 Germany Global
Logistics of Land Transport .
CEVA
4 $9,593 Netherlands Global
Logistics
C.H. Robinson Total Transportation
5 $8,741 USA Global
Worldwide Segment.
Acquired Finland-based Wasa
6 DSV $8,162 Denmark Global
Logistics OY in May 2011.
Acquired Australia-based
Apollo Forwarding in
7 Panalpina* $7,331 Switzerland Global February 2011 and Norway-
based Grieg Logistics AS in
April 2011.
Estimated Forwarding,
Supply Chain and Contract
Logistics revenue only.
Growth primarily from 2010
acquisitions. Acquired U.S.-
8 SNCF Geodis $6,335 France Global
based One Source Logistics
in June 2011, and acquired
France-based Pharmalog and
the night delivery business of
GLS France in Sept. 2011.
Expeditors
9 $6,150 USA Global
International
UPS Supply
Forwarding and Logistics
10 Chain $6,058 USA Global
segment only.
Solutions
11 Sinotrans $5,673 China Global Freight Forwarding revenue.
DACHSER &
12 $5,520 Germany Global
Co.
Acquired UAE-based SAT
13 Toll Holdings* $5,375 Australia Global
Albatros in February 2011,
 83

40% of China-based Tianjin

Anda Logistics in May 2011
and Germany-based AWG in
July 2011.

Gefco $5,148 France Global

14
UTI
15 $4,914 USA Global
Worldwide
NYK
16 $4,589 Japan Global
Logistics*
Logistics and Freight
Forwarding. Contractual
Agility
17 $4,418 Kuwait Global issues in the U.S. prevent
Logistics
bidding for and renewal of
existing government work.
North Excludes revenues from
18 J.B. Hunt $4,060 USA
America Truckload.
Transportation and Logistics
segment; excludes African
19 Bolloré $3,880 France Global operations, which are
primarily asset-based port
operations.
Hellmann
20 Worldwide $3,850 Germany Global
Logistics
Excludes asset-based and
public transportation.
Acquired Germany and
21 Rhenus & Co. $3,485 Germany Global
France operations of
Wincanton in December
2011.
Kintetsu
22 World $3,358 Japan Global
Express*
Sold all mainland European
United operations during 2011, split
23 Wincanton $3,350 Global
Kingdom between the Raben Group,
JCL Transport, and Rhenus.
Acquired U.S.-based
Nippon
24 $3,314 Japan Global Associated Global Systems,
Express*
Inc. in March 2012.
Acquired Exel Transportation
Services in April 2011
25 Hub Group $2,768 USA Global
(Rebranded as Mode
Transportation).
Division of AP Moller-
26 Damco $2,752 Denmark Global
Maersk.
 84

27 Sankyu* $2,679 Japan Global

Penske
28 $2,600 USA Global
Logistics
29 Pantos $2,435 Korea Global
Caterpillar
30 Logistics $2,400 USA Global
Service
Logistics & Freight
Forwarding segments.
Norbert
31 $2,330 France Global Purchased U.K.-based TDG
Dentressangle
in May 2011 and China-based
APC in July 2011.
Supply Chain Solutions and
Dedicated Contract Carriage
revenues. Acquired U.S.-
32 Ryder $2,206 USA Global based Total Logistics Control
in December 2010 and The
Sully Companies in January
2011.
33 Fiege $2,180 Germany Global
34 Logwin AG $1,857 Luxembourg Global Formerly Thiel Logistik.
Schneider
35 $1,810 USA Global
Logistics
Acquired U.K.-based
BDP
36 $1,745 USA Global Rostrum Forwarding Ltd. in
International
February 2011.
Hitachi
Acquired Japan-based Vantec
37 Transport $1,692
Corporation in March 2011.
System*
Menlo
38 Worldwide $1,590 USA Global Subsidiary of Con-way Inc.
Logistics
New contracts transitioning
wholesale IMC business to
Pacer rails. Revenue gains offset by
39 $1,479 USA Global
International absence of international
military freight forwarding
business.
Contains full-year revenues
North for both Genco and ATC's
40 Genco ATC $1,465 USA
America Solutions division; merger
completed in October 2010.
TOTAL TOP 40 $227,041
Source: SJ Consulting Group, Inc.
 85

APPENDIX C
INVESTMENT AT CURRENT PRICES BY KINDS OF ECONOMIC
ACTIVITY IN VIETNAM
Table C.1 Investment at current prices by kinds of economic activity (bil dong)
2009 2010 2011 Prel. 2012

TOTAL 708826 830278 924495 989300

Agriculture, forestry and fishing 44309 51062 55284 51740
Mining and quarrying 59754 62520 67950 68954
Manufacturing 120146 161904 186008 217943
Electricity, gas, stream and air conditioning supply 67338 70491 75347 77660
Water supply, sewerage, waste management and
remediation activities 18465 21504 23297 23446
Construction 26227 39023 43914 46299
Wholesale and retail trade; Repair of motor
vehicles and motorcycles 31188 40684 49461 63513
Transporation and storage 85343 95814 104653 104173
Accommodation and food service activities 14923 17436 20802 27008
Information and communication 25872 30305 31617 31954
Fiancial, banking and insurance activities 9888 15692 18952 21962
Real estate activities 33315 39023 45763 51740
Professional, scientific and technical activities 8010 9299 11556 13751
Administrative and support service activities 23817 27897 29121 28195
Activities of Communist Party, socio-politocal
organizations; public administration and defence;
compulsory security 21406 25157 28844 29976
Education and training 20202 23580 27273 30767
Human health and social work activities 10278 12039 15255 18599
Arts, entertainment and recreation 10632 12537 14607 16719
Other activities 77713 74311 74791 64898

Source: General Statistics Office