What is Logistics service?

As discussed in the article What is Logistics?, we know that in Vietnam, legal documents do not have the concept of Logistics but only specific regulations on “Logistics service”. It sounds a bit confusing, but to make it easier to visualize, let’s take the example of “customs procedures” for example: Customs procedures are the tasks that customs declarants and customs officials must perform according to the provisions of this Law for goods and means of transport (Clause 23, Article 4 of the 2014 Customs Law). And “customs clearance services” is a service business in which the service provider will do customs declarations on behalf of the owner of the goods and make a profit from that service. Replacing “Customs procedures” with Logistics, we will see that Vietnamese law does not currently define what Logistics is (like the Customs Law defines “customs procedures”) but there are regulations on “Logistics services” (according to the 2005 Commercial Law and sub-law documents). In this article, we will discuss “logistics services” and classify them.

Concept of logistics services

We know that, since the second half of the 20th century, with the development of productive forces and the effective support of the scientific and technological revolution in the world, the volume of goods and physical products produced has increased day by day. Due to the narrowing gap in traditional competitive areas such as product quality or price, manufacturers have shifted to competing in other aspects such as: inventory management, delivery speed, rationalization of the flow of raw materials and semi-finished products, … including the physical distribution management system of the enterprise. In that process, there has been a need for logistics services, which over time have been specialized and developed to become one of the service industries playing an important role in international trade.

Although there are still many different views, in general, the concepts of Logistics services can be divided into two groups:

• Narrow definition group: typically the definition of the 2005 Commercial Law considers Logistics similar to the delivery of goods: “Logistics services are commercial activities in which traders organize the implementation of one or more stages including receiving goods, transporting, storing, storing, carrying out customs procedures, other documents, consulting customers, packaging, marking, delivering goods or other services related to goods as agreed with customers to receive remuneration”. However, it should be noted that the definition in the Commercial Law is still open, expressed in the phrase “or other services related to goods”. The concept of Logistics in some specialized fields is also considered narrow, that is, limited to the scope and objects of that industry (for example in the military field). According to this point of view, the nature of Logistics services is the collection of factors supporting the process of transporting products from the place of production to the place of consumption. Thus, Logistics services carry many transportation elements, and Logistics service providers according to this concept are not much different from transportation service providers.
• Wide definition group: According to this point of view, Logistics services are associated with the entire process of importing raw materials as input for the production process, producing goods into circulation and distribution channels to reach the final consumers. This definition group of Logistics services contributes to clearly distinguishing between providers of individual services such as transportation, delivery, customs clearance, distribution, production support services, management consulting… with a professional Logistics service provider, who will undertake all stages in the process of forming and delivering goods to the final consumers. Thus, a professional Logistics service provider is required to have solid professional expertise to provide a comprehensive service to manufacturers.

Logistics service classification

1. As WTO classification

According to the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), logistics services are divided into 3 parts as follows:

• Core Logistics Services: are essential services in Logistics activities, accounting for a significant portion of total Logistics costs and need to be liberalized to promote service flow, including: cargo handling services, storage and warehousing services, transport agency services and other auxiliary services.
• Related Freight Logistics Services: are services whose liberalization will be important for the efficient provision of integrated logistics services as well as providing an enabling environment for the development of Third Party Logistics (3PL) activities. They include: freight transport (sea, inland waterway, air, rail, road and rental of unmanned vehicles) and other services related to logistics services including technical analysis and testing services, delivery services, commission agency services, wholesale and retail services.
• Non-core Logistics Services: include computer and computer-related services, packaging services and management consulting services.

2. According to Decree No. 163/2017/ND-CP

Logistics services includes:

1. Container handling services, except services provided at airports.
2. Container warehousing services are part of maritime transport support services.
3. Warehousing services are services that support all modes of transport.
4. Express delivery service.
5. Freight agency services.
6. Customs clearance agency services (including customs clearance services).
7. Other services, including the following activities: Bill of lading inspection, freight brokerage services, cargo inspection, sampling and weighing services; goods receipt and acceptance services; transport document preparation services.
8. Wholesale and retail support services include inventory management, collection, aggregation, classification and delivery.
9. Freight transport services are part of maritime transport services.
10. Freight transport services are part of inland waterway transport services.
11. Freight transport services are part of rail transport services.
12. Freight transport services are part of road transport services.
13. Air freight services.
14. Multimodal transport services.
15. Technical analysis and testing services.
16. Other transportation support services.
17. Other services agreed upon by logistics service traders and customers in accordance with the basic principles of the Commercial Law.

3. According to service content

• Designing / Planning: Providing design, planning, and restructuring services for customers’ supply chains to achieve optimal results and maximize competitive advantages. Here, logistics service providers will base on the current production organization status of customers to build a suitable supply chain, build a reasonable production process, and ensure to minimize unnecessary time and costs.
• Inbound Logistics:
  + Kitting: managing the process of selecting, contributing and transporting unassembled components to the enterprise’s production line.
  + Quality control / Quality assurance: Conducting quality checks at the warehouse and removing substandard products and transporting them back to the manufacturer to replace substandard components.
  + Sequencing: Arranging components and materials for a production line in a specific order for convenient production and packaging.
  + Milk runs: Optimizing the flow of goods by consolidating and delivering to multiple customers at the same time. Designing complex routes with multiple loading and unloading points, combining multiple orders from multiple customers at the same time. The purpose is to maximize the vehicle’s carrying capacity and save transportation costs.
  + VIM (Vendor Inventory Management): Collect goods from many small suppliers of goods or materials necessary for the customer’s production and business process, store and distribute to customers.
• Manufacturing Support, includes:
  + Sub – Assembly: Applicable to electronics, automobiles, and fast-moving consumer goods industries. Logistics companies will also undertake the task of assembling basic product parts from individual components.
  + Inventory Planning: Plan and control your warehousing process with state-of-the-art warehouse management systems to ensure optimal inventory levels and minimize costs.
  + Packing/ Labeling: Packaging and labeling of goods.
• Outbond Logistics/Warehousing and Distribution: With a modern and large-scale warehouse system, Logistics companies can undertake the storage of finished products and distribution to consumers at low cost. In addition, to meet customer requirements, these companies also provide a number of special warehouse services such as: Contract warehousing; Dedicated warehousing; Multi-user warehousing; Bonded warehousing, Automated warehousing; Cross-docking warehousing.
• The group of freight forwarding and consolidation services is related to the entire flow of materials and goods, including:
  + Ocean/Air freight: Full Container Load (FCL), Less Container Load (LCL), Airfreight.
  + Dedicated contract carriage
  + Intermodal service
  + Merge – in – Transit: Applicable to companies that import complete parts from multiple suppliers, the Logistics company will combine the input and output of the supply chain in a coordinated and efficient manner, assemble them into final products and deliver them directly to customers.
  + Customer Service.
• Aftermarket Logistics: can help customers manage post-transaction factors, including a number of services:
  + Return Logistics: Manage the process of collecting scrap, recycling or disposing of it for customers.
  + Repair Logistics: Receive and repair finished products or parts.
  + Revers Logistics: Design and manage the flow of unused materials or equipment back into the supply chain.
  + Call center: Receive orders and register deliveries for customers.
• Lead Logistics Provider or 4PL: On behalf of the customer, manage the entire supply chain or, when necessary, subcontract the services of several other Logistics companies, the customer only has to deal with a single service provider.

The role of Logistics services

According to statistics in recent years, the proportion of Logistics services contributing to GDP is about 5-6%, among the highest in all fields. Through that, we can see the important role of Logistics industry for the economy in general and businesses in particular. Below are some key roles of Logistics services in an economy.

• Improve management efficiency, reduce costs in the production process, and enhance competitiveness for businesses.
• Save and reduce costs in distribution and circulation operations.
• Increase business value of freight forwarding businesses.
• Expanding markets in international trade.
• Contribute to reducing costs, perfecting and standardizing documents in international business

Hopefully the above article has helped readers better understand what Logistics services are as well as the role and importance of Logistics services in business. If you need further discussion, need advice or have a need for Logistics services, please comment below or contact our team of experts immediately to receive the earliest support.