Global shipping giant Maersk has opened its latest logistics and distribution center to cope with growing domestic demand in Vietnam and “significant trade growth” in the region.
The center is located in northern Vietnam, about 25 kilometers east of Hanoi’s city center and 120 kilometers west-northwest of the seaport of Hai Phong.
Built by Mapletree Logistics Bac Ninh Phase 3 and located inside the VSIP Industrial Park in Bac Ninh, Maersk says that the warehouse area is 10,8458 square meters with a clearance of nine meters. It has 12 dock levelers (machines used to overcome the difference in height and distance between the warehouse floor and the height of a vehicle). It has 10 “normal” docks and the floor can take a payload of four tons per square meter.
According to Maersk, about 40% of the warehouse is occupied by Turkish home appliance company Vietbeko and the remainder is filled with goods from Maersk customers working in the automotive and fast-moving consumer goods segments.
A spokesperson for Maersk downplayed any suggestion that the development was driven by businesses relocating their supply chains to Vietnam from China as a result of the trade war between the U.S. and China.
Instead, she emphasized that the rationale for investing in a northern Vietnamese warehouse was due to domestic factors.
“There’s a growing demand and it [the logistics center] is just to meet that demand.”
She added that Vietnam has been experiencing high growth and that it has a growing middle class. The new warehouse is to cater to local consumption, especially as international brands increasingly enter the Vietnamese market.
Support for these comments can be seen in the graph below titled “Nominal Gross Domestic Product ($Bn) (Vietnam)” and sourced from FreightWaves’ Sonar. There has clearly been very significant growth in Vietnam over the last 25 years.
The spokesperson added that the location was chosen in the northern part of the country due to its proximity both to Hanoi and the seaport at Hai Phong and the fact that there is substantial freight and industrial infrastructure in the region.
Maersk already has an existing distribution center in the southern part of the country near Ho Chi Minh City, which provides services to the lifestyle, fashion and chemicals sectors.
Maersk reported third quarter 2019 revenues of $10.06 billion (which was down 1%), year-on-year profit of $520 million (a 40% year-on-year increase) and also the company’s second successive quarterly profit.
Dylan Waller is a frontier and emerging markets analyst with Indigo Frontier. Vietnam is among the countries he covers. Waller publishes insight via the SmartKarma platform.
He also lends support to the idea that there is a growing consumer class with higher incomes than previously in Vietnam.
“Vietnam is also in a favorable spot in terms of demographics given that its median age has risen in the past decade to 30.5, a point at which consumption is greater (compared with 18 years of age in many African countries). This transition has further been supported by increased urbanization and the inflow of foreign direct investment (FDI) companies, which pay higher wages.”
He also points out that Vietnam is increasingly manufacturing complex goods while countries like Bangladesh and Cambodia are attracting comparatively lower value industries, such as textiles.
“Vietnam has consequently been a major beneficiary of the U.S.-China trade war, and has seen a strong inflow of FDI from China, which has made China one of the largest investors in Vietnam this year… Furthermore, it is imperative to note that Vietnam alone is too small to absorb a significant amount of China’s economic activity, and the country also has challenges such as lower labor productivity and higher cost of materials due to the reliance on imports…
“Vietnam has been able to move up the value chain by manufacturing higher value exports such as phones, computers, cameras and electronics, as countries such as South Korea have been using Vietnam as a low-cost hub for electronics manufacturing… Frontier peers such as Myanmar, Bangladesh, Sri Lanka, Cambodia and Laos will only likely be able to absorb lower end export activities from the China spillover, mainly textile exports, given that some of these countries have lower wages,” Waller writes.