Tag Archives: logistics

Amazon wades in to Vietnam’s e-commerce jungle

Vietnamese media was abuzz with news that US giant Amazon is set to join the country’s fast-growing retail market this month, with representatives stating that the company will open its platforms to domestic small- and medium-sized enterprises.  Despite the buzz, softly, softly is order of the day with the e-commerce giant aware that there’s plenty of regulation in the pipeline that will affect development of the e-commerce sector in Vietnam.

 

Amazon signed a deal with the Vietnam E-Commerce Association (VECOM) at the Vietnam Online Business Forum in Hanoi on March 14. The deal was discussed at a meeting late last year between the association and Amazon, according to Brand Finance Global Ranking.

 

With a young, hyper-connected population of nearly 100 million, Vietnam is a prime target for e-commerce development in Southeast Asia. Unfortunately for shopaholics, the representative from Amazon denied the company had intentions to trade in Vietnam at this time.

 

Instead, Amazon has agreed to provide e-commerce services for VECOM, which is a group of 140 local online businesses, marking the first time the association has collaborated with an e-commerce player. The Amazon deal will allow Vietnamese firms to sell and export goods through its ecosystem. In return, The Vietnamese market holds strong growth potential for Amazon in the future.

 

Prime target

 

On the bright side, it may not be long before Amazon and other online retailers change their tune. Partnering with third-party merchants, like in the agreement with Vietnam, is likely a precursor to Amazon entering the market with its full slate of offerings. Similar steps were taken by the firm in Australia and Brazil.

 

Such deals can be considered a way for Amazon to get its foot in the door and build familiarity with consumers before introducing its full line-up of services. This could mean that Vietnam is the next target in the company’s Southeast Asian strategy, after rolling out in Singapore last year. As subscribers dwindle, expanding from saturated markets like the US and EU would be a good bet, and Southeast Asia as a whole provides a promising future for e-commerce.

 

In particular, Vietnam’s e-commerce market grew by 25 percent last year, and the growth trend is expected to continue. Revenue from online retail is forecast to hit US$10 billion by 2020, accounting for 5 percent of the country’s total retail market.

 

As it stands, Lazada dominates a third of the country’s online shopping market. Head of Chinese giant Alibaba, Jack Ma, stumped up US$1 billion to buy stakes in Lazada and enter the Southeast Asian market, including Vietnam. This move allowed deeper penetration into Vietnam’s e-commerce and brought products directly to Vietnamese consumers through the B2C (business to consumer) model.

 

It is this model that Amazon will seek to emulate. The Chinese firm is positioned primarily as an intermediary – connecting sellers to buyers, and operating a delivery network.

 

Amazon clearly sees the potential. The country has the ingredients for a thriving e-commerce economy thanks to a young population, rising incomes and growing internet and mobile adoption. This last point, the ubiquity of mobile phones, will prove crucial if online platforms are to succeed. The importance of mobile commerce in generating traffic is far greater in Southeast Asia than in other Western economies, so a mobile strategy will make or break a venture.

 

From street to screen

 

The changing tastes of the country’s young consumers is pushing traditional brick-and-mortar stores to rethink their strategies. Big retailers like Vincom, Lotte, AEON and Saigon Co.op have launched online shops with alluring promotions to attract buyers.

 

However, the market is still at an early stage of development, meaning challenges such as high cash-on-delivery rates, lack of customer trust and poor logistics infrastructure. Meanwhile, e-commerce companies are spending aggressively to gain market share, resulting in fierce competition.

 

Difficulties in turning a profit have led to a number of failures. VNG Corp reported a loss of over US$5.3 million from its investment in e-commerce firm Tiki.vn in 2017. Other local e-commerce companies like Lingo.vn, Deca.vn and Beyeu.com have been forced to shut down due to prolonged losses.

 

The blame for these failures has been placed on high logistics costs. According to experts, companies need to allocate enormous expenses for their e-commerce business, from sales and marketing to warehousing and logistics, easily eating into profits. Many platforms also overspend on promotions and discounts in early months to lure customers and increase their market share in a crowded environment.

 

However, the challenges don’t seem to have dampened enthusiasm and foreign players continue to pump money into the online retail sector. Undeterred, Lazada is investing in the growth of its first mile, last mile and fulfillment capabilities to keep up with the growth of e-commerce in Vietnam. In addition to developing automated sorting centres to speed up delivery, the company also cut commissions by 50 per cent to lure in more online retailers.

 

Online retail makes up just 1 percent of the total retail market in Vietnam, compared to 14 percent in the US and China. As such, there is plenty of room still to grow. The ongoing expansion of the marketplace, and continued investment pouring in, will help Vietnam to develop an e-commerce ecosystem, allowing for opportunities in logistics, warehousing, and online payments.

 

For more information about e-commerce in Vietnam, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Vietnam Logistics Law – New Decree 163 – Nothing to See Here?

Despite media reports to the contrary, Vietnam’s new logistics regulation does not further open up the market to foreign investment but newly requires compliance with e-commerce regulations.

On 20 February 2018, Government Decree No. 163/2017/ND-CP on logistics services will replace the old Decree 140/2007/ND-CP. Many foreign investors had hoped for further clarification and market access in the logistics sector. The new Decree 163 does not grant new rights to foreign investors, at least on paper, and may even introduce new uncertainties in practice. While the most interesting new provision could turn out to affect the digitalization of logistics processes.

Issued in 2007, just when Vietnam acceded to the WTO, Decree 140 is ancient for Vietnamese law standards. The law has moved on since then, as Vietnam opened most service sectors to foreign investors, including many (but not all) business activities in the logistics sector. A few points on Decree 163 are outlined below.

I. “Logistics” redefined

Foreign investors (and Vietnamese businesses seeking foreign investment) must closely review each business activity they plan to conduct in Vietnam to see if foreign ownership limitations and other conditions apply. The old Decree 140 defined “logistics” with reference to Article 233 of the Commercial Law 2005. Article 3 of the new Decree 163 defines and regulates the following “logistics services”:

Logistics services under Article 3 of Decree 163

  1. Container handling services, except for provision of such services at airports.
  2. Container warehousing services as part of maritime transport support services.
  3. Warehousing services as part of support services for all modes of transport.
  4. Delivery services.
  5. Freight transport agency services.
  6. Customs brokerage services (including customs clearance services).
  7. Other services including the following activities: bill of lading inspection, freight brokerage services, cargo inspection, sampling and weighing services; goods receipt and acceptance services; and transport documentation preparation services.
  8. Wholesaling support services and retailing support services including activities being management of goods in storage, collection, sorting and classification of goods, and goods delivery.
  9. Freight transport services as part of maritime transport services.
  10. Freight transport services as part of inland waterway transport services.
  11. Freight transport services as part of rail transport services.
  12. Freight transport services as part of road transport services.
  13. Air transport services.
  14. Multimodal transport services.
  15. Technical analysis and testing services.
  16. Other transport support services.
  17. Other services provided by logistics service providers and as agreed with their clients in accordance with the basic principles of the Commercial Law.

“Delivery services” and “other transport services” are not further defined in Article 3. The lawmakers probably intended that one refer to the Vietnam Standard Industrial Classification System (VSIC), which is comparable to the United Nation’s Central Product Classification (CPC) codes used in Vietnam’s WTO Service Sector Commitments (WTOSSC) . For example, “delivery services” under VSIC 5230 include delivery of mail and parcels not covered by “freight transportation services.” VSIC 5320 is similar to WTOSSC’s “courier services” (CPC 7512), which includes “express delivery services.” There is no foreign ownership limit in Decree 163 for “delivery services,” nor for “courier services” under the WTOSSC – that’s good news for foreign courier services providers.

II. No changes to foreign ownership limitations (FOL)

WTOSSC and Decree 140 already defined FOL and their respective schedules. Decree 163 does not change anything. Decree 163 addresses FOL of various freight related services but is silent on passenger transportation services.

The below chart summarizes the main foreign ownership caps in the logistics sector. It is a simplified chart, and additional conditions apply to those business lines. Further conditions apply to foreign investors. For example, maritime freight transport companies with up to 49% foreign ownership may register ships in Vietnam and fly the Vietnamese flag, but only up to one third of the crew members may be non-Vietnamese; the captain and the first officer must be Vietnamese citizens. Like other conditions in Decree 163, this is nothing new and was already set forth in the WTOSSC.

Vietnam: Foreign Ownership Limitations (FOL) in the Logistics Sector

WTOSSC Decree 163
CPC Service Description FOL FOL
742 Storage and Warehouse 100%
748 Freight transport agency (incl. freight forwarding services) 100%
749 Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners 99% 99%
7211 Maritime transport (Passengers; less cabotage) 49%
7212 (a) Maritime transport (Freight; less cabotage) – joint-venture fleet flying Vietnamese flag 49% 49%
7212 (b) Maritime transport (Freight; less cabotage) – foreign fleet 100% 100%
7221 Internal waterways transport (Passengers) 49%
7222 Internal waterways transport (Freight) 49% 49%
7111 Rail transport (Passengers) Unbound
7112 Rail transport (Freight) 49%
7121 + 7122 Road transport (Passengers) 49%
7123 Road transport (Freight) 51% 51%
No CPC Custom clearance 99%
No CPC Container station and depot 100%
7411 Container handling (except at airports) 50% 50%
621, 61111, 6113, 6121, 622, 631 + 632 Distribution (import/export, commission agents, wholesale, retail) 100%

III. New e-commerce provision – digitalization of logistics services

One thing that is new in Decree 163 is its express requirement to comply with Vietnam’s e-commerce regulations. Article 4.2 provides that a logistics business conducting part of or its entire business electronically over the Internet, mobile or other “open networks” must comply with e-commerce regulations. Vietnam’s main e-commerce regulation is Decree 52/2013/ND-CP. Decree 52 requires e-commerce service providers to either notify or register with the Ministry of Industry and Trade. E-commerce providers must also protect personal information and consumer interest in accordance with Decree 52 and other laws and regulations. Arguably, though, these e-commerce requirements were already applicable to logistics services that conducted e-commerce activities before Decree 163.

Article 4.2 is very broad and could obviously apply to any business communications over e-mail, messaging apps, web-conferencing, company websites, and social networking sites – just to name few. The question is whether Article 4.2 will also apply to new internal, digital enterprise processes, such as digital supply chain and smart warehousing technologies that utilize “open networks.” Vietnamese law does not define “open networks,” and various literature about the topic is inconclusive as to what it actually means. For instance, one tech article concludes that today “open network” means “user choice” – which is not very helpful from a legal perspective. If IT specialists disagree on the meaning of “open networks,” the various Vietnamese authorities involved in regulating and licensing logistics activities are likely to be confused as well and could interpret Article 4.2 in various, uncertain ways.

Bottom line: The new Decree 163 does not expand market access rights of foreign investors in Vietnam’s logistics sector, but it introduces an explicit requirement to comply with e-commerce regulations.

For more information , please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

More Clarity on Foreign Investment and M&A in Logistics Companies in Vietnam

Foreign investors can now proceed with more certainty when setting up logistic companies or acquiring stakes from Vietnamese partners. Logistics is an area where discrepancies between international treaties and domestic law implementation have caused many headaches. However, Vietnam’s Ministry of Industry and Trade (MOIT) has recently provided more clarity through a guiding regulation (Circular No. 9911/BCT-KH) and a number of official letters, including responses to the Ho Chi Minh City People’s Committee and the Vietnam Business Forum. At the same time, a few Japanese logistics companies have established 100% foreign-invested subsidiaries in Vietnam.

International treaties should supersede national law, and official comments from MOIT have restated that view. So, we initially refer to Vietnam’s WTO service sector commitments (WTOSSC) in most cases. Accordingly, some sectors are open to 100% foreign investment (e.g., warehousing and freight forwarding), while some still require Vietnamese equity participation (e.g., container handling).

Foreign Ownership Limitations in the Logistics Sector (WTOSSC)
CPC Service Description Max. Foreign Ownership
742 Storage and Warehouse 100%
748 Freight transport agency (incl. freight forwarding services) 100%
749 (partially) Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners 99%
7211 Maritime transport (Passengers; less cabotage) 49%
7212 Maritime transport (Freight; less cabotage) 51%
7221 Internal waterways transport (Passengers) 49%
7222 Internal waterways transport (Freight) 49%
7111 Rail transport (Passengers) Unbound
7112 Rail transport (Freight) 49%
7121 + 7122 Road transport (Passengers) 49%
7123 Road transport (Freight) 51%
No CPC Custom clearance 99%
No CPC Container station and depot 100%
7411 Container handling (except at airports) 50%
7512 Courier (express delivery) 100%
621, 61111, 6113, 6121, 622, 631 + 632 Distribution (import/export, commission agents, wholesale, retail) 100%

As a foreign buyer in an M&A case, besides the purchases price and other conditions, we recommend to consider and differentiate between absolutely essential and optional business lines as well as the best case and acceptable levels of ownership in the target.

Yamato Logistics and Sagawa Express have established 100% foreign-invested subsidiaries in Vietnam. This is possible through strategically limiting business lines to those that are open to 100% foreign investment.

For further information, please  contact Giles Cooper (gtcooper@duanemorris.com), Manfred Otto (motto@duanemorris.com) or any other lawyer you are regularly communicating with at Duane Morris.

Lawyer in Vietnam Oliver Massmann Transportation and Logistics businesses Requirements to apply for the badges: Which way for wholly owned foreign enterprises?

On 10 September 2014, the Government issued Decree No. 86/2014/ND-CP setting out conditions on transportation business (Decree 86) that automotive vehicles with designed capacity of 10 tones and above and from 7-10 tones must bear badges (the Badges). On 7 November 2014, the Ministry of Transportation and Communications (MT) issued Circular No. 63/2014/TT-BGTVT guiding Decree 86 (Circular 63), which requires that only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges.
However, according to Vietnam’s WTO Schedule of Specific Commitments in Services, foreign contribution in a joint venture doing transportation services must not exceed 49% of the total charter capital of that joint venture. Accordingly, enterprises with more than 51% foreign ownership do not have transportation business in their investment certificates, resulting in the impossibility to obtain the Certificate of doing transport business by automotive vehicles. This further leads to the fact that these enterprises will neither be able to apply for the Badges.
Moreover, Decree 86 creates the concept of ‘transport business with indirect money collection’ which is defined as ‘the transport business by automotive vehicles, in which the transport business units perform the transport phase and perform at least another phase in the process from production to consumption of products or services and collect freight through revenues from such products or services’ (Article 3.3). Circular 63 further requires trucks used by companies that carry out the transport business with indirect money collection to affix the Badges thereon when in traffic.
It is noted that some enterprises, considering their business nature, have to invest in specialized means of transportation to transport their own products between their locations and to their customers in Vietnam (for example, industrial gas products). Examples would be road tankers, special trailers and tube trailer, etc. that must be imported because their special designs make them impossible to be produced in Vietnam. Given high technical safety standards of international level, it is nearly impossible/very difficult for enterprises to rent these special vehicles in Vietnam while relying on the same standards.
It does also not make any business and legal sense if a manufacturing foreign invested enterprise which is allowed to import means of transport for its operations to serve its production activities is forced to register for professional transportation business or outsource this internal job to a professional business transportation company. In fact, thousands of other foreign invested enterprises have been long granted with the right to import means of transportation without any requirement on transportation business until the adoption of Decree 86.
Considering the abovementioned difficulties of enterprises with more than 49% foreign ownership doing business in crude oil products with special characteristics, the Ministry of Transport has proposed to the Government to consider the issuance of the Badges for vehicles of these enterprises without requiring the Certificate of doing transport business by automotive vehicles, and at the same time consider the amendment of Decree 86.
Consequently on 30 March 2016, the Prime Minister issued Resolution No. 23/NQ-CP which clearly states that in the short term, the Government allows the Ministry of Transport to issue the Badges to commodity carrying trucks of foreign invested enterprises with 49% foreign ownership or more for the purpose of the main production and business of these companies. For the next step, the Ministry of Transportation is responsible for incorporating the same regulations in the amendments of Decree 86. This has basically solved difficulties resulting from Decree 86 for enterprises with 49% foreign ownership or more.
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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Vietnam Opens Logistics Sector to Foreign Investors . . .

By Manfred Otto, Duane Morris Vietnam LLC

>Japanese

As of 11 January 2014, wholly foreign-invested enterprises (“FIE”) are permitted to provide almost all types of logistic services in Vietnam subject to proper licensing. The problem is that important aspects of logistics are not open to wholly-owned foreign companies: container handling services and road transport services still require joint ventures with Vietnamese partners.

Continue reading Vietnam Opens Logistics Sector to Foreign Investors . . .

ベトナムが物流部門を外国投資家に対して開放. . .

>English

ドウェイン・モリス・ベトナム法律事務所
オットー マンフレッド 倉雄(著)
小林 裕(訳)

2014年1月11日、ベトナム政府は100%外資企業(FIE)に対してほとんどの物流部門を開放した。問題は、コンテナ輸送業や道路輸送サービスなどの重要な物流部門に関してはベトナム国内企業との合弁が必要となり、FIEには解放されていない点である。

この点について、国連の重要商品、サービスの分類コード(CPCコード)に従うWTOサービス部門コミットメントに基づき、外国企業による市場への参入は保証されるはずであるが、「物流部門」についてベトナムのWTOコミットメントは定義付けをしていない。ただし、次の「すべての物流手段の補助サービス(Sector H)」は現在FIEにも開放されている。 Continue reading ベトナムが物流部門を外国投資家に対して開放. . .