Cross-border trade between Thailand and Vietnam tends to grow by approximately 30%CAGR over the next 3 years.

Key drivers of this growing trend are an expansion of manufacturing sector and a growth of domestic consumption in Vietnam, which will generate positive impacts of Thai cross-border logistics business.

However, problems concerning road conditions, differences between transportation laws in each country, and complexities in customs procedures remain important obstacles to cross-border trade to Vietnam.

Cross-Border Logistics  to Vietnam…A Golden Opportunity should not be missed!!

In June 2018, member countries of the Greater Mekong Subregion (GMS) has implemented cross-border transport operations according to the GMS-CBTA (Cross- Border Transport Facilitation Agreement), with the aim of reducing obstacles from customs procedures and traffic systems.

EIC estimates that the agreement will help to reduce transport leadtime by 45% and save logistics costs over 20% compared to traditional cross-border logistics model.

Based on a past performance analysis of the cross-border logistics business landscape, EIC found that the number of registered vehicles do not reflect the competitiveness of this business.

This is shown in the operating results of logistics service providers with over 100 registered vehicles, which performed below the average market – an average revenue growth of around 10% and an average gross profit margins of around 20%.

Nevertheless, cross-border logistics business must confront with numerous challenges, including infrastructure limitations, intense competition from both Thai and international competitors under the GMS-CBTA agreement, and the expansion of the railway network as an alternative mode of transportation to Vietnam.  

Cross-border trade has become increasingly important for  Thai economy, especially given that Vietnam, as a main cross-border trade partner, contributes over 60% of Thailand’s total cross-border trade.

It is well-known that Thailand has long-standing trade relations with neighboring countries and the government has worked continuously to promote trade in the regional area.

Over the past 5 years (2014-2018), border trade to Myanmar, Laos, Cambodia, and Malaysia expanded by 3%CAGR, while cross-border trade with southern China, Singapore, and Vietnam grew by more than 12%CAGR. In 2018, Thailand’s cross-border trade was valued at over 300 billion baht, or over 2 million tons in trade volume.

Despite the fact that cross-border trade with southern China fetched the highest value amounting to 100 billion baht, there was a relatively low share of trade volume because the majority of cross-border exports consisted of high-value products such as computer components and electronic equipment. Meanwhile, the volume of Thailand’s cross-border trade with Vietnam amounted to 1.3 million tons, contributing over 60% of Thailand’s total cross-border trade volume and 95% being exports.

Given this, the Vietnam market could present an opportunity for logistics service business.Key Thai export products to Vietnam include fresh, chilled or frozen fruits, non-alcoholic beverage, and electronic equipment.

For the medium term (2019-2021), Thailand’s cross-border trade with Vietnam is expected to improve by around 30%CAGR relied on Vietnam’s economic growth, from an expansion of manufacturing sector and domestic consumption.

Vietnam is one of the world’s fastest-growing economies,  attracting foreign investors who are interested in establishing production base in the country for exports. Chinese investors, in particular, are also increasingly relocating their manufacturing base to Vietnam to avoid trade wars. However, Vietnam’s manufacturing sector relies much on imports of raw materials and intermediate goods which is positively impacting Thailand’s export supplying to these factories.

In terms of domestic consumption, over 90 million of Vietnam’s population with middle class accounting for over 15% has boosted demand for high-quality and luxury goods. Coupled with a…

Author:  Kamonmarn Janglom

Source link

About the author

EIC or Economic Intelligence Center, a unit of Siam Commercial Bank Public Company Limited, is established to provide business executives with valuable insights for effective decision making.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Sign Up for Our Newsletter

Get notified of our weekly selection of news

You May Also Like

Vietnam Increases weekly Overtime Hours quota to 60 hours

Vietnam’s National Assembly passed a Resolution on March 23 to increase overtime working hours from the current 40 hours to 60 hours a month. However, the total number of overtime working hours cannot exceed 300 hours annually.

Hong Kong’s case for RCEP membership

At the moment, Hong Kong does not have bilateral trade agreements with Japan or South Korea. By joining RCEP, Hong Kong may be able to capitalise on significant new trade and investment opportunities with both these countries.

What you need to know about the Regional Comprehensive Economic Partnership

Although India pulled out at the last minute, China and 14 other countries agreed on the world’s biggest trade agreement – the Regional Comprehensive Economic Partnership (RCEP).