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Vietnam E-commerce market shows great upsurge but gradually levels out in recent years. The reason is that current logistics capacity in Vietnam is not sufficient enough to fulfill such increasing sales.

In term of cost, logistics industry in Vietnam accounts for 20% of GDP much larger in comparison with the 3% statistics in the US, proving high inefficiency in the overall network. Meanwhile, per-capita spending in online platforms stays low at 160 USD per annum. This makes it even more challenging for E-tailers to create economy of scales and maintain their fulfillment charges without a subsidizing policy.

Besides, E-com service providers also have to meet increasing service level bar set out by major powerhouses which follow a service excellence strategy. Nearly 60% of the customers expect to have on-time deliveries as promised by E-tailers. 64% demand for free delivery. They also like to return goods easily and free of charge like the way Amazon offers to US customers.

No marketing tactics or promotion deals can deliver this experience. For example, if a customer orders a product which is 30% off but have to wait 7 days for delivery (normal delivery time is more or less 4 days), he will be very unhappy and likely to leave the E-com platform. An inefficient logistics system certainly infers high fulfillment cost per package and loss of sales opportunities from leaving customers.

Therefore, current powerhouses in Vietnam are now driven to strengthen their logistics infrastructure. Even the emerging C2C platform Shopee that originally focuses on providing transactional tools between sellers and buyers, is now building their own fulfillment center to match other competitors in the market. Other players keep investing loads of money into their fulfillment centers and delivery network. For instance, Lazada leverages their warehouse capacity in Hanoi and expands into cross-border logistics.

However, the logistics battle is at its very early stage. All e-com platforms are operating at a net loss at the moment with a big chunk of the expenditures on marketing and operations inefficiency. As of the operating margin (often referred to as PC1), only one player has recently made a good enough effort to turn it positive.

It is exciting in Vietnam now to look forward to the next moves in logistics renovations of e-commerce players. Numerous modern supply chain concepts that are widely known in the western world such as strategic partnering and shared economies in fulfillment are yet to enter the nation. We would love to see how it turns out for this market in the upcoming years.

Another notable point is that most current investments in logistics are directed to Hanoi and Hochiminh City. The growing market in second tier cities and provinces like Danang or Can Tho are still left uncover. Will any player be bold enough to make this move before eton comes into this sector? We shall see.