Southeast Asia is one of the toughest regions to create a robust logistics supply chain. In this article, we attempt to understand the Southeast Asian logistics landscape and discover how technology is helping some of the regional logistics-based start-ups overcome these territorial challenges.
According to Insight Partners, Southeast Asia’s logistics market size accounted for $36.4 billion in 2017 and is expected to grow at a CAGR of 5.5% over the eight years to account for $55.7 billion in 2025. This is primarily supported by the adoption of the internet and the flood of new online buyers. The internet penetration in Southeast Asia in 2018 was already at 58%, this has increased rapidly with more than 3.5 million Internet users coming online each month. This coupled with the strict lockdown restrictions imposed during the lockdown the online purchasing activity has gone up significantly.
Some factors like the booming e-commerce industry, adoption of technology, and growing domestic consumption, set the stage for the Logistics Industry to register dramatic growth and offer great returns to the early-stage investors.
The Asia Pacific is the largest market for e-commerce logistics
E-commerce logistics will continue to remain a significant industry even in the post-pandemic era as more people have become accustomed to shopping online. According to the report by INS Markit and GSCL, more than 20–30% of Southeast Asian internet users purchase an item online every 30 days, a trend that closely matches online purchasing behavior in the UK and US.
As per the survey conducted by Mckinsey, in Indonesia alone, 58% of residents have begun using online grocery delivery services since the COVID outbreak, with more than 18% being first-time users
The Underlying Challenges in Southeast Asia’s Logistics
There are many underlying challenges in the supply chain that make end-to-end logistics operations in this region difficult.
Complex geography and developing Infrastructure
For cross-border logistics & last-mile deliveries, the complex geographical terrain and a poor network of roads, railways, and ferries make it a challenge for 3PL providers and e-commerce players in the region accounting for about 60% of the operational cost.
For instance, Indonesia is an archipelago of more than 17,000 islands, and a major portion of the population lives in areas that don’t have paved roads or marked signages. The bigger cities like Jakarta are densely populated with a lot of traffic congestion which complicates last-mile deliveries. The ports in many islands are small with limited cargo handling capacity, tides also play a role in the accessibilities of these ports.
Lack of efficient warehousing systems
Warehousing is a costly affair in many of these countries have high land prices and accelerate high wages
Insufficient visibility and control in the transport and logistics
Steep operational costs and rising fuel prices
Customer expectations — higher discounts, lower delivery charges, time-defined deliveries — same day/next day delivery
These issues can be countered by Technology and IoT devices (See also — E-logistics — enabling the e-commerce supply chain with IoT). The digitalization of the complete supply chain and documentation, strategic route planning, real-time tracking, and tracing facilities help the industry become more efficient. The growing interest of global investors in this region is also pushing the industry towards automation, innovation, and strategic restructuring. This will help by optimizing the supply chains in Southeast Asia by cutting down fuel costs, scaling up their operations, the speed of deliveries to the end customer, and improving last-mile fulfillment.
Southeast Asian Landscape is fully equipped to support tech-enabled logistics systems
Technology such as Route Optimization, Predictive Alerts, AI-based forward and reverse logistics, and smart shipment sorting solutions are changing the traditional ways of supply chain operations. This has prompted a significant shift towards smart tech solutions and several industries in Southeast Asia including e-commerce, 3PL, and FMCG are embracing AI in their logistics to grow in the market.
One of the fastest-growing regions, with a large customer base and growing middle-class income, Southeast Asia has the potential to become a major supplier in this region, as well as a market for global economies
Vietnam, Thailand & Indonesia have taken multiple measures to improve their Logistics Infrastructure
As per the Worldbank.org, Logistics Performance Index is an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance in trade logistics. It takes into account multiple factors like — customs, infrastructure, handling of international shipments, logistics competence, tracking and tracing, and timeliness of deliveries to gauge the country’s logistics ecosystem.
In the last decade, Singapore has always been among the top 10 countries ranked as per the LPI score. It is a much friendlier country for logistics, early-stage start-ups supported by a tech-based economy. Government policies also create a favorable business environment that supports the development of local infrastructure, ease of trading cross-borders, and enable swift transactions.
While the other Southeast countries are ranked much lower, Vietnam, Thailand, and Indonesia have taken multiple measures to improve their infrastructure and recorded remarkable gains in the LPI ranking structure.
Southeast Asian Logistics Value Chain — a quick summary
In the next article, we will talk about some of the biggest logistics companies operating in Southeast Asia and the kind of investors active in this region.
About Rocket Equities
Rocket Equities, a corporate finance and M&A advisory firm for fast-growing mid-sized companies in Southeast Asia.