GNN scandal rocks delivery segment

Delivery companies are competing in the market, with GNN even resorting to crime, Photo: Le Toan

Over the past few weeks, the Vietnamese delivery market saw locally-owned GNN Express suspend operations after more than one year of co-operating with e-commerce giant Lazada.vn.

In early September, GNN Express announced a halt to operations due to financial difficulties. On the company’s website, general director Hoang Ngoc admitted that he had abused trust to appropriate around VND5.5 billion ($243,400) of customers’ cash-on-delivery (COD) payments.

To resolve the imbalance between the company’s revenue and expenditure, Ngoc used the COD income of about 100 vendors to finance other activities of the company. Additionally, GNN Express also owes banks loans that were taken up to buy six cars, and VND1.7 billion ($75,200) of unsecured loans, and owes VND3.5 billion ($154,900) to other people, VND1 billion ($44,250) to partners, VND700 million ($31,000) in unpaid salaries for employees, and VND200 million ($8,850) in social insurance.

Since the crisis at GNN came to light, vendors have lost track of their goods shipped through the company. GNN has VND800 million ($35,400) in its hands, but VND200 million ($8,850) of this will be used to pay employees’ salaries, and the remainder will compensate vendors.

“GNN Express reaffirms that we are stopping operations, but not declaring bankruptcy. News of the company’s financial deficit are true. The stop will not cause losses to shops,” Ngoc confirmed.

Explaining the reason behind GNN Express’ halting of operations, Ngoc noted, “In early 2017, the Board of Management of GNN Express decided to work with Lazada.vn. Although I pointed out the risks of this co-operation, I alone could not prevent the deal. Our company made a mistake. Lazada.vn is so big that we had to borrow money from banks to buy cars and hire employees. After nine months of serving Lazada.vn, they cancelled the partnership, saying the quality of our services was not high.”

According to the Ministry of Industry and Trade’s Vietnam Competition Agency, Lazada.vn is the most complained-about e-commerce platform in the country. In 2017, there was a multitude of complaints about the quality of products and services, as well as delays in delivery, goods being different from the advertisements, delivering used items or the wrong articles, repudiating liability, cancelling orders, fake promotions, and wrong prices, prompting the agency to consider an investigation at Recess Co., Ltd. which is the owner of Lazada.vn.

However, it is likely that the breakup may have been a result of Lazada.vn’s plan to grow its own logistics and delivery arm, transferring all such tasks to its in-house delivery arm.

Specifically, Lazada E-Logistics Express (LEL Express), the logistics and e-commerce delivery arm of Lazada Group, launched its auto-sorting centre in Ho Chi Minh City last November and the second one in Hanoi in June. Through these centres, LEL Express will take care of Lazada.vn’s delivery needs, making other delivery partners redundant. This implies that Lazada.vn breaking up with GNN Express over low-quality services might have only been an excuse to tie up loose ends.

COD risks

Several lessons can be learned from the breakup between GNN and Lazada.vn, particularly the risks inherent in using small delivery companies and COD payments in the market. In fact, most online buyers prefer paying after receiving goods. According to the Vietnam E-commerce Association (VECOM), nearly 90 per cent of e-commerce transactions are conducted with COD.

“This method is favoured by most customers shopping online, but also contains huge risks for vendors,” said Tran Trong Tuyen, general secretary of VECOM, referring to GNN.

He added that cash flows through very complex channels after customers pay COD for delivery companies. “The bigger the companies are, the wider the cash flows, and it is rather hard and time-consuming for vendors to get their money. If the delivery company slips into the red, hundreds of vendors might lose large amounts of money. COD is not vital to e-commerce, it would be far safer if payments did not use cash,” Tuyen said.

As e-commerce and delivery have been developing rapidly, the application of e-payment in e-commerce transactions is essential to reduce costs, optimise procedures, and improve service quality. “We should encourage shoppers to use non-cash payments to reduce risks. I believe that e-wallets and QR (quick response) payments will be very popular in the near future,” Tuyen noted.

Talking to VIR about these concerns, Vu Quoc Tuan, a representative of Lazada Vietnam, said, “The government has issued a number of regulations on non-cash payments, and we always promote this channel because it is the safest and most secure option for e-commerce transactions.”

Lazada.vn’s move to build out its own delivery arm instead of sub-contracting to small-scale delivery companies, while certainly hurting those being replaced, should be a welcome development for vendors, as the risk of losing COD revenue due to misdeeds in a small delivery company would be largely mitigated if the money went through a larger corporation, which has more stable finances and stronger corporate governance.

Fierce competition

Over the past few years, being a key segment in retail, delivery services have been emerging and developing as e-commerce platforms boom. From only a handful of companies in 2013, the figure rose to nearly 60 units with bigger scales at present.

According to a market research by SCommerce Group, Viettel Post and VNPost make up 60 per cent of the total market, while 30 per cent belongs to giaohangtietkiem.vn (developed by GHTK JSC) and GHN Express (operated by SCommerce Group). The remainder belongs to smaller ones like ShipChung, AhaMove, Giaohangso1, Tochanh, Zozoship, and others, which are developed by big technological companies or startups, with some of them having started receiving attention from foreign investors. The 2018 E-Commerce Index showed that annual revenue growth at delivery companies was at 62-200 per cent. According to National Payment Corporation of Vietnam, the number of e-transactions using domestic cards increased by 50 per cent in 2017, while its value grew by 75 per cent on-year.

Delivery services are very active now, especially in last mile delivery, from distribution hub to customers. However, though most delivery units have reduced prices to raise competitiveness, the quality of their services remains limited.