Vietnam is one of the countries experiencing rapid urbanization in the East Asia region. As of September 2022, the urbanization rate nationwide reached approximately 41.5%, with 888 urban areas. Each year, it is estimated that Vietnamese cities add between 1 to 1.3 million residents. Most of this growth is concentrated in two major cities, Ho Chi Minh City and Hanoi, with population densities of 4,375 people/km² and 2,398 people/km², respectively. This urbanization trend poses serious challenges, negatively impacting transportation and the flow of goods. Difficulties in delivery, higher costs, and a host of associated risks and consequences arise. The term "City Logistics" naturally emerged to address these issues. Mentioning "City Logistics" refers to complex and challenging problems involving various factors such as traffic congestion, restricted hours, large order volumes, and additional costs. It is not an exaggeration to say that "City Logistics" has become a constant headache for both logistics service providers (3PL) and businesses, especially in retail and FMCG.

1. What is "City Logistics"?

City Logistics" or urban logistics is understood as optimizing the supply of goods within urban areas by considering specific factors such as traffic conditions, social aspects, environmental pollution, and customer demands. Simply put, "City Logistics" encompasses all logistics activities/services taking place within urban areas. These activities are governed and influenced by numerous unique and challenging factors compared to other regions.


2. Challenges of "City Logistics" in Hanoi and Ho Chi Minh City:

In this article, we focus on the "pain points" in the logistics systems of the two major cities, Hanoi, and Ho Chi Minh City, which are the hottest areas in Vietnam. Specifically:

a. Traffic congestion and restricted hours and zones

Traffic congestion is a familiar issue for residents of Hanoi and Ho Chi Minh City. Difficulties in vehicle movement during peak hours, traffic jams on certain routes to the city center, and especially during holidays become extremely complex and severe. The main cause is the rapid increase in the population and vehicles, outpacing the infrastructure's capacity. This significantly reduces the speed of transportation and delivery, leading to a decrease in the turnaround ratio (one truck completes fewer trips per day). Traffic congestion also prolongs delivery lead times, resulting in orders not reaching customers on time, affecting service quality and the business's reputation.


The government is actively exploring solutions, focusing on reducing the frequency of vehicle operations at the same time. Regulations regarding restricted hours and zones in Hanoi and Ho Chi Minh City are relatively effective solutions that have been implemented. Light trucks under 2.5 tons are prohibited from moving within the city during early mornings and late afternoons (6 am to 9 am & 4 pm to 8 pm in Ho Chi Minh City; 6 am to 9 am & 3 pm to 9 pm in Hanoi). Large trucks (over 2.5 tons) are only allowed to operate in the city at night. Overall, restricted hours and zones help significantly reduce traffic pressure but indirectly lead to increased logistics costs. Delivering goods within the city becomes challenging, and businesses face the problem of nighttime delivery rejection by customers.

b. large order volumes, but mostly small individual orders

High population density in Hanoi and Ho Chi Minh City creates a vibrant market for retail. Retail giants like Central Retail, MM Mega Market, Coop Mart, Lotte, Aeon, along with convenience store chains like GS25, Cycle K, Mini Stop, B'smart, and 7-Eleven, concentrate heavily in urban areas to serve residents. However, the increase in the number of convenience stores and retail chains in urban areas results in a large volume of small individual orders. This puts significant pressure on the packing and shipping processes for warehouses and transportation departments. Small individual orders complicate the picking process, increase waiting times for truck loading, and necessitate the combination of as many small orders (drop points) as possible on one truck. This situation leads to truck drivers dealing with handling, sorting, and managing piles of accompanying documents. Issues such as document loss and errors are common in the current delivery process for modern trade channels.


c. Domino effect of order drop-offs

The nature of combining too many points for modern trade channels can easily lead to a domino effect of order drop-offs. If a truck is late for the initial orders, it naturally affects the lead time of subsequent orders. The risk of order drop-offs within the city is high. External factors like road congestion, traffic jams, restricted hours, and restricted zones can be considered daily and expected challenges for city logistics. Here, we focus on subjective factors such as an excessively large number of orders per day. This overload affects the receiving capacity of supermarkets and retail stores, causing congestion in the delivery process. The counting and exchange of goods between drivers and store employees also take a considerable amount of time due to a large number of items and complex documents. Late deliveries from initial points lead to changes in the delivery plan, affecting all parties involved in the service chain.

d. Involvement of e-commerce: adding complexity

The number of orders for modern trade channels (delivering to supermarkets and convenience stores in the city) is perhaps still insignificant compared to the enormous quantity of e-commerce orders. The continuous growth of e-commerce puts tremendous pressure on the existing city logistics infrastructure, which is already heavily overloaded when considering only modern trade channel orders. E-commerce provides consumers with shopping convenience and product experiences, but it also worsens traffic congestion and environmental pollution within the city due to an increasing number of motorbike drivers on the roads. A high volume of orders also leads to increased delivery pressure, affecting transportation costs and the quality of logistics services.

3. What are the solutions?

a. Building Hub systems (cross-docking model)

Establishing Hubs to consolidate and specialize in delivering goods for a limited geographical area is a promising idea for City Logistics. The most crucial aspect is analyzing, evaluating, and selecting suitable Hub locations within the city. Hub locations need to be convenient for receiving goods from distribution centers and large warehouses (often located on the outskirts of the city) while having quick transportation connections to surrounding delivery points. Hubs can range from a few hundred to 1,000 square meters, operate 24/7, and function like a combined small and medium-sized warehouse. When operational, Hubs receive consolidated orders from large trucks at night, conduct sorting and classification, and then deliver to points within the city using motorcycles, vans, or even tricycles. Delivering goods with small vehicles from the Hub is highly flexible, convenient for movement within the city, and cost-effective.


b. Optimizing nighttime deliveries

As mentioned above, regulations restricting hours and zones allow large trucks (> 2.5 tons) to travel within the city at night. Using large trucks to transport many orders on the same trip significantly saves costs. However, achieving this requires cooperation from all parties involved. Logistics service providers need strategies for reducing prices, offering service fee discounts for nighttime delivery. The saved costs also need to be transparent and ready to be shared with customers, persuading them to agree to a change in delivery time. Additionally, solutions to improve unloading speed for large trucks need to be researched and implemented by businesses. Large trucks need to be unloaded and leave the city before 6 am. Otherwise, they are forced to stay within the city, incurring parking fees and late-night transport congestion. Optimizing the use of large trucks at night for point-to-point transportation is essential to the success of City Logistics.

c. Implementing technology solutions

The fourth industrial revolution (Industry 4.0) has significantly impacted all industries globally, and logistics is no exception. Technology solutions for City Logistics are diverse, such as the Internet of Things (IoT), Artificial Intelligence (AI), and Big Data. Businesses can utilize these solutions for fleet management, route optimization, and real-time tracking of shipments. AI can help analyze traffic conditions, predict delivery time, and propose optimal routes. Moreover, implementing technology solutions in warehouse management is crucial. Automation helps reduce the time required for picking and packing, while IoT ensures the security and safety of goods during transportation.

d. Encouraging community cooperation

City Logistics is a problem for the entire community, and finding solutions requires cooperation from various stakeholders. Local authorities play a crucial role in creating a favorable legal framework and implementing effective regulations. Businesses should collaborate to establish Hubs, share warehouses, and optimize transportation resources. E-commerce platforms can encourage customers to choose flexible delivery times, reducing pressure during peak hours. Creating an environment where all stakeholders collaborate and actively contribute to solving City Logistics problems is essential.

City Logistics is a complex problem that requires a comprehensive and multi-faceted approach. Addressing the challenges in Hanoi and Ho Chi Minh City involves not only the application of advanced technology but also the active participation and cooperation of various stakeholders, including businesses, local authorities, and the community. Building Hub systems, optimizing nighttime deliveries, implementing technology solutions, and encouraging community cooperation are all crucial elements in finding effective solutions for City Logistics in these urban areas. As Vietnam continues to experience rapid urbanization, it is essential to address these challenges to ensure the smooth flow of goods and maintain the economic growth of these cities.

Source: TEBS department - Technology / Engineering / Business Solution