Fierce competition and high fuel costs take toll on Vietnam delivery operators

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HANOI (Vietnam News/Asia News Network): With consumers switching heavily to online purchases, the express delivery market is expected to see many positive developments. However, fierce competition and high fuel costs have significantly affected the profit margins of delivery businesses.

Viettel Post Joint Stock Corporation (VTP), an affiliate of military-run telecom giant Viettel, reported total revenue in the second quarter of VNĐ5.46 trillion (US$230.8 million), up 5.2 per cent year-on-year.

Of the estimate, service sales including delivery, e-fulfillment and other logistics services, reached VNĐ2.33 trillion, up 30.8 per cent year-on-year.

However, the gross profit margin of this segment narrowed significantly from 9.7 per cent in the same period last year to 8.1 per cent. This makes Viettel Post's gross profit margin almost flat at 3.8 per cent.

During the period, incurred costs also increased, pulling Viettel Post's profit after tax down 8.5 per cent over the same period last year to nearly VNĐ97 billion.

Cumulative post-tax profit in six months reached VNĐ200 billion, down 7 per cent while revenue still increased 9 per cent year-on-year to total over VNĐ11.2 trillion.

The reason was that the number of e-commerce products originating from China plummeted due to the zero-Covid policy and the cost of fuels such as petrol and oil rose sharply.

Viettel Post currently owns 2,200 post offices - ranked second in the industry, just behind VN Post - and has a delivery system spanning most provinces. Along with its outstanding network, Viettel Post benefits largely from the boom in post-pandemic e-commerce.

Express Mail Service (EMS) recorded Q2 net revenue down 6.5 per cent year-on-year to VNĐ531 billion. Gross profit margin continued to decline sharply to 14.1 per cent from 22.2 per cent in the second quarter of last year.

After deducting expenses, EMS saw a net loss of VNĐ3 billion in the second quarter while in the same period last year it still made a profit of VNĐ30 billion.

In the first 6 months, EMS recorded net revenue of VNĐ1.15 trillion, a slight increase of 3.9 per cent over the same period last year, but gross profit margin shrank significantly from 19.7 per cent in the same period to 15.6 per cent. Post-tax profit also decreased by nearly 59 per cent year-on-year to VNĐ22.3 billion.

EMS is a subsidiary of the Vietnam Post Corporation (VNPOST), the largest enterprise in the delivery industry with a system of more than 13,000 points spread across the country including post offices, post offices, kiosks and public mailboxes.

In 2021, VNPost recorded total revenue of VNĐ26 trillion and profit after tax of VNĐ526 billion, up 7.9 per cent and 39 per cent, respectively over the previous year.

Having a smaller scale, Giaohangtietkiem (GHTK) delivery company recorded revenue of nearly VNĐ6.9 trillion.

However, increasingly fierce competition caused the profit after tax of this enterprise to decrease significantly compared to the 2019-20 period (over VNĐ500 billion) to more than VNĐ300 billion.

Meanwhile, competitors such as Fast Delivery (GHN), J&T Express, Lazada Express or Ninja Van all experienced years of losses.

Basically, international companies like BEST Express or J&T are still maintaining a strategy of spending money to provide low-cost services in order to gain market share faster.

On the other hand, domestic enterprises such as VN Post, Viettel Post, GHTK and GHN also try to maintain the customer file and position by discounting prices to compete.

In a recent report, SSI Research said the expansion of door-to-door delivery companies will continue to drag on, making profit margins low and market share difficult to determine.

According to VCBS Securities, large market share will belong to a few large enterprises with a relatively stable market share, competing mainly in terms of quality, technology and network instead of price competition. This may help reduce pressure on the gross profit margin of delivery businesses in the future.

Despite many difficulties in the short term, the express delivery sector is still lucrative thanks to the boom of e-commerce.

According to estimates, Vietnam's e-commerce market can continue to grow at a rate of 25 per cent per year, thereby reaching $21.5 billion and $25.8 billion respectively in the 2022-23 period.

The express delivery services segment is expected to reach a value of $4.88 billion by 2030, representing a compound annual growth rate of 24.1 per cent for the 2022-30 period. —