How Southeast Asia’s E-Commerce Boom is Transforming the Logistics Industry

With the rapid development of e-commerce in Southeast Asia in recent years, Southeast Asia’s logistics industry has also welcomed many opportunities. According to incomplete statistics from 7:05, out of the 19 new unicorn companies in Southeast Asia in 2021, three (Ninja Van, Flash Express, and J&T Express) come from the logistics industry. In addition, many startups have joined Southeast Asia’s logistics battlefield, making the entire logistics ecosystem more vibrant. In this increasingly popular track, what clear understanding should logistics players have of the market, and how should they continue to move forward?

Factors Promoting the Development of Southeast Asian Logistics

Logistics is a vast industry, involving upstream sectors such as warehousing real estate, infrastructure, logistics hardware and software manufacturing, and downstream services needed by industries like trade, e-commerce, retail, accommodation, and catering. The logistics transportation segment becomes the core of the entire logistics industry chain, driving its operation. Logistics itself can also be categorized in various ways, such as macro logistics (warehousing, distribution, packaging, transportation, information services) and micro logistics (production logistics, sales logistics, supply logistics, reverse logistics, and waste logistics), production logistics and circulation logistics, traditional logistics, integrated logistics, and modern logistics, or even internal and external logistics of enterprises. This article will focus on the macro environment of Southeast Asian logistics and the e-commerce logistics field.

According to Supply Chain Asia, the logistics industry accounts for 15-20% of Vietnam’s GDP and is expected to account for 12% of Indonesia’s GDP. Many factors are driving the development of the logistics industry in Southeast Asia, presenting opportunities for entrepreneurs and investors. For instance, the development of Southeast Asian logistics relies on the rapid growth of e-commerce and benefits from improvements in international trade and infrastructure in the macro environment.

1. E-commerce and Logistics are Inseparable

In recent years, the rapid development of Southeast Asian logistics is mainly due to the booming growth of e-commerce in the region. Especially under the influence of the pandemic, the increase in online shoppers has driven the growth of e-commerce order parcels, further boosting the express delivery industry. According to reports by IHS Markit and GSCL, over 20% to 30% of internet users in Southeast Asia shop online once a month. Additionally, according to a McKinsey survey, since the outbreak of COVID-19, 58% of residents in Indonesia have begun using online grocery delivery services, with over 18% using it for the first time.

Besides daily e-commerce shopping, Southeast Asian consumers also ramp up their shopping during holiday promotions, bringing more delivery orders to logistics companies, especially express delivery companies. Parcel Monitor analyzed shopping behaviors during Ramadan in Indonesia, Malaysia, and Singapore in 2021, as well as during Songkran in Thailand in 2021, to calculate the parcel volumes in the region. The analysis showed that the parcel volume in all Southeast Asian countries increased by at least 20% during the peak season, with Singapore’s parcel volume growing by 35%, Malaysia by 23%, Thailand by 34.1%, and Indonesia by 55%. To keep pace with the growth of e-commerce, express delivery companies must continuously improve their service quality.

According to the 2021 Southeast Asia Internet Economy Report jointly released by Google, Temasek, and Bain, Southeast Asia’s e-commerce GMV (Gross Merchandise Volume) was about $38 billion in 2019 and approximately $120 billion in 2021, with a compound annual growth rate of over 60%. It is expected that by 2025, Southeast Asia’s e-commerce economy could exceed $230 billion. As the “cake” of the Southeast Asian e-commerce market gets bigger, the “cake” of the local logistics industry will also create greater value.

2. International Trade Drives Logistics

Southeast Asia is located at the crossroads of major global trade routes, and the region’s trade has become busier thanks to relaxed free import and export trade policies and tariff-free regulations among ASEAN countries, offering numerous logistics opportunities. For example, due to advantages like tax incentives and low labor costs, Vietnam has enhanced its attractiveness to foreign manufacturers and supports supply chain shifts. This will generate further potential growth in Vietnam and Southeast Asia’s industrial sectors, especially in logistics services.

Today, the global trade situation is becoming increasingly tense, and the political and economic landscape may face greater uncertainty and challenges in the next decade. In contrast, Southeast Asia is becoming a safer and more stable choice for many international trade companies. On the one hand, international trade companies can enjoy policy benefits and cost advantages in Southeast Asia; on the other hand, Southeast Asia’s international logistics facilities are relatively complete and can handle large volumes of international trade.

According to the J&A Capital Markets Report, in 2020, approximately $2.8 trillion in international trade occurred in Southeast Asia. Singapore alone can connect to over 600 ports worldwide, with 200 shipping routes passing through it, and more than 130,000 vessels docking in Singapore each year. In terms of the air freight market, Singapore plays a dominant hub role, occupying about 50% of the region’s air freight market. In addition, Vietnam’s air freight market has an annual growth rate of 10.1%, with its market share increasing from 3.3% to 9.3%. As many multinational companies accelerate the relocation of production bases to Vietnam and several Southeast Asian countries, Southeast Asia’s air freight volume is expected to grow further. Moreover, the demand for warehousing and logistics facilities in Southeast Asia will also increase.

Meanwhile, international logistics companies like DHL and FedEx have long been establishing cross-border logistics in the region. They are very familiar with the logistics markets of Southeast Asian countries and the customs rules and regulations. Kelvin Leung, CEO of DHL Global Forwarding Asia Pacific, said, “As Southeast Asia relaxes trade restrictions and implements new regulatory measures, such as the ASEAN Customs Transit System and the Regional Comprehensive Economic Partnership (RCEP), trade cooperation will continue to strengthen and promote intra-Asian trade. This is a good start for ASEAN countries preparing for a strong recovery after the pandemic.” The ASEAN Customs Transit System (ACTS) was launched in 2020, allowing goods to be transported across multiple ASEAN borders, benefiting regional trade in Southeast Asia. Moreover, these giants are also trying to expand into Southeast Asia’s domestic logistics market. For example, FedEx has been working with partners in Indonesia, and DHL provides e-commerce logistics solutions for Thailand, Malaysia, and Vietnam.

3. Infrastructure is Improving

According to the World Bank’s 2018 Logistics Performance Index (LPI), Singapore’s logistics performance ranks seventh globally. Singapore is strategically located on the world’s major trade, shipping, and air routes and is one of the most connected countries in the world. Even during special periods like the pandemic, Singapore’s port logistics capabilities remain the best in the world. The “2021 Xinhua-Baltic International Shipping Centre Development Index Report” shows that Singapore has won the championship for eight consecutive years, once again topping the list of the world’s leading maritime center cities. Additionally, Changi Airport in Singapore is often rated as the best airport in the world, serving over 100 airlines, with more than 62 million passengers passing through the airport each year.

In contrast, the logistics performance indexes of other Southeast Asian countries are slightly lagging: Thailand ranks 32nd, Vietnam ranks 39th, Malaysia ranks 41st, Indonesia ranks 46th, and the Philippines ranks 60th. This shows that aside from Singapore, the logistics ecosystems of other Southeast Asian countries still need further improvement.

Despite the challenges posed by such uneven infrastructure for the Southeast Asian logistics industry, governments of various countries have also introduced many initiatives to further improve local infrastructure, providing important support for the development of the logistics industry. More importantly, Southeast Asia also emphasizes logistics connectivity between countries and regions to continuously improve the logistics capacity of Southeast Asia. For example, the ASEAN Connectivity Master Plan proposes the development of cross-border transportation corridors to facilitate the flow of goods and labor in Southeast Asia. Such significant infrastructure developments will impact the construction of logistics infrastructure in second and third-tier cities in Southeast Asia, raising higher demands for transportation and logistics. The efforts of Southeast Asian countries to improve logistics infrastructure mainly include:

The Thai government proposed the “Thailand 4.0” strategy and the “Eastern Economic Corridor” development plan around 2017, while also promoting the construction of the Southern Economic Corridor and creating 10 border economic zones, strengthening investment in large infrastructure projects such as railways, ports, and airports to enhance transportation capacity. Today, the “East-West Economic Corridor,” “North-South Economic Corridor,” and “Southern Economic Corridor” in Thailand have connected the main routes of other Greater Mekong Subregion (GMS) countries (GMS refers to six countries and regions in the Mekong River basin, including Cambodia, Vietnam, Laos, Myanmar, Thailand, and China’s Yunnan Province). The Thai government also offers various tax and non-tax

In the Philippines, during President Duterte’s term (On May 25, 2022, the Philippine Congress held a joint session, announcing Ferdinand Romualdez Marcos as the 17th President of the Philippines. According to the procedure, Marcos will be sworn in on June 30.), the “Build, Build, Build” plan was proposed, aiming to increase public infrastructure spending from an average of 2.9% of GDP to about 7.3% by the end of the Duterte administration. From 2016 to 2022, it is expected to spend about 8 to 9 trillion pesos to address the country’s massive infrastructure backlog and hope to usher in the “golden age of infrastructure” in the Philippines. Under this plan, the Philippine government is advancing multiple infrastructure projects, including three bus rapid transit systems, four seaports, six airports, nine railways, and 32 roads and bridges.