Rapid urbanisation, increasing trade due to economic integration, and emerging new business models like e-commerce are accelerating the demand for efficient logistics in the Association of Southeast Asian Nations (ASEAN). However, the development of logistics infrastructure across ASEAN is challenged by differences in the geography of each country and regional connectivity. For instance, it is relatively easy to build infrastructure for countries like Singapore and Brunei that are less populous as compared to countries like Indonesia and the Philippines. Further, countries like Malaysia and Thailand have land connectivity with big economies like China and India, and so both benefit from cross-border, seamless logistics unlike the Philippines. Consequently, delivery costs differ across countries and consumers and online retailers continue to face high costs in countries like the Philippines and Indonesia.
Other challenges local logistics players face are the complex logistics chain and difficulty in selecting the right transportation mode. Further, the ongoing US-China trade war has resulted in increased competition in the region as international logistics companies, including Nippon Express and the DHL Group, are expanding operations in the region, reducing margins. Despite the existing dynamics, logistics companies are leveraging technology to offer differentiated solutions. Governments too are upbeat about driving the market by developing infrastructure such as warehouses and economic corridors.
Philippines
Logistics costs in the Philippines are the highest as compared to other Southeast Asian countries. According to data from the National Development Planning Ministry, the country was ranked 60th on the global logistics ranking with logistics costs as high as 27.16 per cent of the total sales of companies. To overcome the challenge, the government continues to make improvements in logistics infrastructure through the development of projects like the TransJava highway and PNR Clark railway, besides creating logistics and industrial parks and warehouses.
Further, the country has witnessed a boom in the e-commerce segment mainly due to increasing disposable income and internet penetration. According to Statista, the country’s overall online spending increased by 16 per cent in 2018 compared to a regional average of 21 per cent. The e-commerce industry is currently dominated by digital shopping platforms Lazada, Shopee and Zalora.
To support this growing e-commerce market, several logistics companies are developing online solutions. For instance, U-Freight Group (UFG) has launched iShipmore, an online shipping platform that aims to assist sellers who need to ship items bought online to Philippines-based consignees, enabling the delivery of goods that were earlier not delivered in the country.
However, challenges such as the lack of standardisation of permits continue to hamper the growth of the sector. Logistics permits are given by different ministries – permits for warehouses are under the trade ministry, permits for bonded logistics centres are under customs and excise, while courier permits are under the communications and information ministry.
Singapore
Singapore’s logistics infrastructure is quite developed as compared to its neighbours and it is ranked 2nd on the World Bank’s Asia Logistics Hub Index. The government sees the segment as a key growth area as it has tremendous potential in terms of improving the country’s gross domestic product (GDP). A rapidly growing e-commerce market due to greater penetration of the internet and mobile devices and a rise in local last-mile delivery start-ups is driving the market.
To further ensure seamless logistics services, new avenues are being created. The Monetary Authority of Singapore (MAS) and the Infocomm Media Development Authority, for instance, completed Business sans Borders [BSB] Phase One proof-of-concept (POC) in November 2019. This BSB is a “meta-hub” or connector of several small medium-centric platforms to help small industries seamlessly access a much larger ecosystem of buyers, sellers, logistics service providers, financiers, and digital solution providers.
Further, a smart logistics initiative has also been taken up to leverage digital technologies to develop a cutting-edge logistics network in the country. This initiative will allow cargo owners and third-party logistics service providers to improve the visibility of their supply chains, and share resources to create more efficient logistics networks. This could enable significant cost reductions for logistics service providers operating in Singapore. To further boost the segment, the government has outlined a Logistics Industry Transformation Map, which lays down a strategy to achieve a value-add of S$ 8.3 billion and create 2,000 jobs in the segment by 2020.
Thailand
The Thailand government is moving ahead with its plan to improve the logistics market by investing heavily in infrastructure development. Under the 12th National Economic and Social Development Plan (2017-2021), the government has set a target to reduce logistics costs from 14 per cent (2016) to 12 per cent of GDP by 2021, for which projects like the Eastern Economic Corridor are being developed. Further, small-scale trucking fleet operators are trying to strengthen their transportation linkages among other member countries to improve cross-border transportation connectivity. The number of logistics companies also grew in the region from 830 in 2016 to 1,151 in 2017 and to 1,340 in 2018, thanks to a booming e-commerce market due to the entry of players like Flash Express and Best Express, backed by Alibaba. Over 2 million parcels were dropped at logistics warehouses.
Flash Express has already set up 1,100 delivery points nationwide but hopes to nearly double the number to 2,000 by the end of 2019.
Cross-border trade is also expected to grow as China’s e-commerce company JD Central is planning to enter the market to reap the benefit of a well-established logistics network. The Chinese government is also planning to launch a freight service from Xi’an, the capital of Shaanxi province, to Southast Asian countries, including Thailand, by the end of 2019 under the much-touted Belt and Road Initiative.
Apart from this, to reduce logistics cost, Deliveree, Thailand’s leading logistics platform, in November 2019, added long-haul services with full logistics technology from Bangkok to selected provinces at a highly affordable fixed price. Other service providers – Hitachi Asia (Thailand) Company Limited and Hitachi Transport System Vantec (Thailand) Limited – have rolled out a vehicle sharing service from June 2019 in the country to deliver cargo from multiple shipping companies.
Thailand’s parcel market is also growing rapidly as foreign companies are expanding into the market. For instance, Korea-based CJ Logistics is expanding business in the country through the introduction of “K-Logistics” with cutting-edge technologies. This advanced logistics centre has a daily delivery capacity of 400,000 units.
Indonesia
Transportation of goods in Indonesia is predominantly through the road network and only 1 per cent of the total freight volume is moved by the railways. Consequently, logistics costs accounts for about 25 per cent of the GDP. To reduce the ratio, the country is planning to reduce the logistics costs by improving railway infrastructure with the development of new tracks in Java, Sumatra, Sulawesi and Kalimantan, which comprises 2,159 km of inter-urban railways and 1,099 km of urban railways. Further, Indonesia’s Ministry of Industry is pushing logistics firms to adopt digital technology-based solutions to reduce delivery time and thereby costs.
Cambodia
Cambodia’s robust economic growth has been driven by export-oriented businesses. Increased integration into regional and global value chains has made the logistics sector central to the country’s development strategy. According to the World Bank, it is estimated that by 2030, Cambodian firms will move four times more goods through highways, ports, airports and warehouses. To tap the potential, several projects like the strengthening of the two economic corridors – Sihanoukville-Phnom Penh and Poipet-Bavet – are already under way, and more are planned over the next decade. Projects for developing road, railway, and port infrastructure and air cargo hubs are also under way.
Conclusion
E-commerce is undoubtedly driving the intercity and cross-country logistics boom in SEA countries. Further, due to the deepening US-China trade war, major international logistics companies, including Nippon Express and the DHL Group, are expanding operations in SEA as manufacturers are shifting production to the region. Warehouses are being built and logistics companies are strengthening their trucking services to boost sales. Rhenus Logistics, for instance, has expanded its warehousing solutions in the Asia-Pacific region, mainly in Singapore, Thailand, the Philippines and Indonesia, and is planning to expand steadily with one new warehouse on average being added every three months.
However, with the growing presence of foreign logistics giants and small-size local delivery companies, the market has become a price-driven battlefield, resulting in thinning margins. Further, most new players have cutting-edge technologies that smaller local peers are finding hard to compete with. Innovations and differentiation in provision of services by reducing delivery time and providing seamless online services have become the key to survive in the thriving market.
