Looking at the Southeast Asian Logistics Landscape

Due to COVID-19, what had been a decidedly dull investment sector — logistics — suddenly has become very sexy.

While COVID brought attention and more business to the sector, underlying trends that existed pre-COVID continue to propel it. Chief among these have been wage increases in China, which have led many manufacturers to move their business to Vietnam, Malaysia, and other Southeast Asian nations. Another major driver is the prosperity of Southeast Asia. The area has 600 million people and is growing. Its internet economy has been booming, consumption rates are high, and it is attracting investment interest from around the world. All those factors make the Southeast Asian logistics industry extremely attractive.

International Players: DHL and FedEx

To be sure, big international players such as DHL and FedEx still have the edge in cross-border logistics in the region because they’ve been around so long, know the countries very well, and thoroughly understand customs rules and regulations. These giants also have tried to expand into the region’s domestic markets. FedEx has been working with partners in Indonesia, for example, and DHL offers e-commerce solutions in Thailand, Malaysia, and Vietnam. But barriers to domestic markets have risen as a result of pressure from local players, so there still are not as many logistics companies that can offer an end-to-end solution throughout Southeast Asia.

New Products in Logistics

But that challenge also spells opportunity. Many companies are now using technology to create a variety of product offerings. Some now can provide same-day, instant deliveries. Others provide next-day deliveries. All are increasing their online visibility. They also are experimenting with value-added and other services. These vary from market to market but include alternative delivery times, fulfillment services, and multiple payment options.

Southeast Asia Logistics Leaders

In logistics, Singapore definitely is far ahead because of its infrastructure. Manufacturing there remains very expensive, but it is very attractive as a bonded warehouse and cross-dock location because its trade rules are supportive and it also has the right industrialized infrastructure.

The competitiveness of Indonesia is increasing, and Malaysia has become the second preferred destination, after Singapore, for cross-docking and bonded warehousing. Next in line are the Philippines, Thailand, and Vietnam, where roads and regulations are in the process of improvement.

Social Commerce

One trend worth noting is the growing importance of social commerce. From a novelty three years ago, it’s now taking over as the way people connect. Each Southeast Asian country has its unique social commerce preferences, which consumers seem to be relying on to the exclusion of traditional platforms. With payment wallets, the new platforms are very easy to use.

Since consumers also want to know the status of their purchase, performance monitoring and delivery-route optimization systems are becoming necessary. That information is being demanded by consumers and also by the logistics companies themselves since they want to know where their drivers are, which routes they’re taking, and when packages were picked up and delivered.

Logistics and Warehouses

And after all that, the focus has again returned to what had been the most boring piece of the logistics jigsaw puzzle: warehouses. As the speed of fulfilling the order becomes the top consideration, issues about whether shared warehouses, dedicated warehouses, or a mix of both is the best way to achieve being close to the customer have become central to the logistics discussion.

Instead of having big, centralized warehouses, the move has been toward hub-and-spoke arrangements. Having control over this network of warehouses is one of the reasons pure e-commerce players have gotten into logistics. By having control, they feel better positioned to offer a better customer experience, which is why e-commerce companies are now setting up their own logistics operations or are being attracted to full-serve logistic solutions providers.

The difficulty of tying together e-commerce and logistics in any environment, coupled with big differences in national rules and regulations across Southeast Asia, is the reason no regional logistics powerhouse has emerged. But the pace of innovation and growth at the national level is intense, which is bound to lead to the emergence of several dominant domestic players. From there, a new regional environment may well emerge.

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About Aparna Bhatnagar Saxena

The co-founder of Vriksh Impact Partners, a female-led boutique investment firm, and CEO of social enterprise TORAJAMELO, Aparna Saxena has more than 16 years of experience as an entrepreneur and advisor to businesses in the areas of logistics and e-commerce. Formerly the Head of Transport – Indonesia at Lazada eLogistics, she also has served as Managing Partner at Superlative Foods, an organic snacks manufacturing company, and held various positions at DPDHL, including Head of Commercial for DHL eCommerce Singapore, Senior Manager – eCommerce Solutions APAC, and Regional Program Manager – APAC and Emerging Markets.

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This logistics industry article is adapted from the GLG Remote Roundtable “Southeast Asia Logistics: In Search of the Next Unicorn in a Fragmented Market.” If you would like access to events like this or would like to speak with logistics industry experts like Aparna Saxena or any of our approximately 1 million industry experts, please contact us.