Vietnam has grown to become one of the e-commerce markets with the biggest potential in the ASEAN region. According to the 2020 Southeast Asia e-commerce report by Google, Temasek and Bain & Company, the average growth rate for the period 2020 - 2025 is 29% and by 2025, the scale of Vietnamese e-commerce will reach 52 billion USD.
Vietnamese consumers increasingly favor the convenience of online shopping, influencing a wave of shifting storage from retail stores to warehouse space. It can be seen that the strong development of e-commerce is reshaping the logistics market and creating more diverse types of assets, the most prominent of which is urban logistics real estate.
Urban logistics real estate is receiving a lot of attention from the media and investors. This new field is often confused with the logistics city model, although the concept is quite different. Logistics city can be understood as an urban model associated with the development of logistics services as a key economic sector. Normally, logistics cities will be associated with an important type of infrastructure serving logistics services such as international seaports and international airports. Urban logistics is urban-centric, serving mainly consumer needs in cities.
Demographic trends show an increase in last-mile deliveries in urban areas. This is especially true in Vietnam, where nearly 40 million people live in cities. However, urban delivery costs are also increasing, reaching 50% or more of total supply chain costs. Therefore, e-commerce investors are eager to acquire logistics real estate that can reach the inner city within a 30-minute drive. This is also the top priority goal of developers to increase competitive advantage.
Currently, due to expensive land costs and opposition from stakeholders to logistics activities in the city, urban logistics projects are mainly located in the city-fringe or suburban areas. According to data from Cushman & Wakefield, the Southern key economic region recorded a total warehouse supply of about 5.2 million sqm of floor space, of which Ho Chi Minh City accounted for about 14% of the total supply. The Northern key economic region recorded a warehouse supply of about 2.1 million sqm of floor space, of which Hanoi accounted for 12% and Hai Phong accounted for 26% of the total supply.
The logistics system is the foundation for logistics services, also known as order fulfillment services, consisting of two parts: order processing and transportation to the buyer. Normally, to serve urban needs, logistics zones are divided into three areas from the central core.
Distribution centers and last-mile warehouses are located in Zone 1, within 10km of urban distance or 30 minutes of truck driving, usually located in belt areas approaching cities and provinces. Zone 2 will have sorting centers, concentrated mainly on the edges of the city, next to bus and train stations, airports and other freight solution hubs. Zone 3 is in the inner city with highest density of goods and is mainly used for delivery and pickup points at existing stores, collection points such as lockers and shelves served by a smaller fleet of delivery vehicles.
Source: Cushman & Wakefield
Retail logistics real estate is usually rectangular, with an area from 3,000 sqm to 7,000 sqm, with 5 docks for pickup trucks; The floor is raised to the height of a truck, the ceiling is 6m high, and there is a spacious area for parking and waiting. Real estate for 3PL and parcel companies requires land with a narrow length, an area from 5,000 sqm to 7000 sqm, with 5 doors for pickup trucks; Many side doors on both sides of the building for trucks to park outside, doors for trucks are also lined up inside, ceiling height is 6 meter.
In Ho Chi Minh City and Hanoi, the scarcity of available land funds and logistics facilities forces developers to take advantage of many different types of real estate, often old buildings or vacant land. Although older buildings have higher risks and are less efficient for activities such as unloading and storing goods; However, logistics warehouse locations near inner-city delivery points are still a top priority for 3PL companies, e-commerce retailers and parcel companies. In some cases, these old buildings are refurbished to relatively better quality, helping service provider deliver goods quickly.
By 2050, the urban area of Ho Chi Minh City is estimated to have 28 - 30 million people, with an urbanization rate of about 90%. Higher urban density means greater obstacles to logistical land use. There is currently a large gap between the required urban logistics space and the actual amount, and closing this gap requires investing time and capital to address barriers to operating logistics services in cities.
Local governments and investors need to strategize for the "urban spatial model". Quantify the total demand for urban logistics space in leading e-commerce markets in Vietnam based on current and future online sales volumes. This method also calculates the ratio of truck volume per square meter of urban logistics; e-commerce revenue statistics such as amount spent per consumer and average number of parcels per order, based on two different truck utilization strategies: truck space optimization (primarily 3PL ) and prioritize delivery speed (mainly e-retailers).
Ho Chi Minh City currently has 9,600 businesses registered in the logistics service industry (accounting for 36,7% of the country). The city also accounts for 54% of businesses providing professional logistics services in the country (about 2,700 businesses). However, small and micro enterprises operating logistics activities in the city today still account for a fairly large proportion, about 40 to 50%.
The current priority for e-commerce retailers and delivery companies is to secure one of the few remaining available locations in Zone 1 and 2. However, logistics facilities closer to city centers also face a range of social, economic and environmental challenges, including: Increased traffic volumes and congestion in public spaces (i.e. curb space for loading and unloading), Institutional legality and environmental impact assessments; Fierce competition in providing convenience and service quality; The emergence of new distribution channels and the increasing complexity of goods; Incorporating innovation into already complex urban supply chains;
Source: Cushman & Wakefield
In the coming years, there is a possible future scenario with warehouses being built underground, traditional trucks converted to electric vehicles, which can solve concerns from stakeholders regarding noise and air pollution from delivery vehicles.
The urban logistics system is the foundation for urban development. To remain competitive, attractive and environmentally friendly, cities must engage in solutions that reduce the costs and constraints of urban logistics. Focus on investing in developing passenger transport infrastructure, logistics infrastructure, increasing cargo handling capacity, capacity of seaport warehouses, and investing in proactive supply chains to form service supply centers on a regional level. At the same time, cities will also need to gradually restructure the market share, giving priority to developing rails, inland waterway and air transports to reduce pressure on road transport.
