Vietnam’s e-commerce – an awakening dragon

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According to the 8th Southeast Asia Digital Economy Report, Vietnam had the fastest-growing digital economy for the second year in a row in 2022. It is expected to retain this title through 2025.

This growth comes as the government aims for the digital economy to make up 20% of total GDP by the end of next year. By 2030, this sector could reach US$220 billion in value, representing an astonishing expansion from roughly US$30 billion last year.

According to Metric, Shopee dominates Vietnam’s e-commerce industry, accounting for 69% of the sector’s market share in Q3 2023. TikTok Shop, launched in late 2022, has grown rapidly in popularity and was the second-largest e-commerce player in 2023, followed by Lazada.

Overall, revenue generated by Vietnam’s five largest e-commerce companies through the first three quarters of 2023 surpassed the full-year total for 2022.

Such growth is driven mainly by dramatic shifts in Vietnamese consumers’ behaviour that began during the pandemic and have since become ingrained. This includes the widespread adoption of online shopping, especially in major urban areas, a trend that has forced logistics companies in both the B2C and B2B markets to reconfigure their services.

In terms of e-commerce, the logistics system plays the role of the end-to-end connection of the entire supply chain system, while an effective logistics system represents the “key” to increasing customers’ shopping experience.

“Alongside prioritizing essential consumer goods, one noticeable shift in customer behaviour is the decreased frequency of in-store shopping outings,” said Phan Tuong Bach, Vice President of Delivery at Ahamove. “This period has witnessed a surge in online shopping popularity, coupled with heightened demand for delivery services. This dynamic landscape has placed significant pressure on delivery platforms to innovate and adapt in order to meet the growing transportation needs of consumers.”

Ahamove operates on the B2B side of logistics and has adjusted its services in several ways over the last few years. This includes offering motorbike delivery services within one, two, or four hours and giving vendors a range of pricing options.

Meanwhile, improved truck delivery services allow businesses to ship bulky items to end customers within as few as two hours.

“To remain competitive in this evolving market, I believe the ideal market leader must be a platform that is dedicated to delivering an exceptional experience for customers across all aspects of the delivery process,” Bach explained. “This includes prioritizing fast delivery times, ensuring affordability, and providing reassurance and reliability with every order.”

A concentrated market

It’s important to note that while Vietnam’s overall digital economy is thriving, it remains heavily concentrated in Hanoi and Ho Chi Minh City, especially regarding e-commerce.

According to research from Metric, those two cities accounted for 86% of total e-commerce revenue in Q3 2023, illustrating their utter dominance of consumer demand.

For Ahamove, the 20 cities outside of Hanoi and Ho Chi Minh City, they service accounts for just 10% of total delivery volume.

The explosive growth of delivery demand in Vietnam’s two largest cities presents challenges on both ends of the logistics chain.

The market is experiencing rapid growth and intense competition among delivery and logistics providers. Therefore, businesses in this sector are compelled to make substantial investments to enhance their systems and offer value-added services to meet customers’ evolving needs. This entails ensuring super-fast and secure delivery and prioritizing affordability and better after-sales support.

Companies are also investing heavily in logistics facilities to reduce shipment times. China’s BEST Express, for example, has built 42 automatic sorting centres across Vietnam, while every significant e-commerce business utilises machine learning and the Internet of Things to optimize operations.

Intense consumer demand, meanwhile, can overwhelm companies, leading to driver shortages, delays, and even service interruptions.

Another problem that demands attention as e-commerce grows is waste from product packaging. Many merchants use vast amounts of cardboard and plastic packaging to ensure that goods aren’t damaged in transit, while this packaging is generally thrown out after delivery.

In 2023, Vietnam News quoted a representative from the Vietnam E-Commerce Association as lamenting that the sector is “generating too high an amount of plastic bags as waste.”

Logistics companies also primarily rely on gas-powered trucks and motorbikes, thus contributing to Vietnam’s greenhouse gas emissions. According to Ahamove’s 2022 ESG report, the company aimed to have 350 electric vehicles operating in Da Nang, with expansion to other provinces in the works.

The future

Tackling such challenges will be critical as logistics companies continue to grow, along with the broader e-commerce sector and overarching digital economy.

Undoubtedly, digital-first consumer behaviour is here to stay, and shoppers will only become more demanding moving forward. Bach states this includes expectations of bulky delivery options, competitive prices, rapid delivery, and more.

“In addition, catering to large e-commerce businesses is also one of the priorities for delivery platforms,” he went on. “Constantly optimizing costs by providing faster and more cost-effective delivery solutions poses a challenge for us. Furthermore, customers are becoming more savvy, focusing their needs on major holidays and sales seasons to get the hot deals. Hence, logistics businesses also need to be prepared with infrastructure to meet the sharp increase in demand at certain times.”

Writing credit Michael Tatarski

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