Sea Group announced expectation-beating earnings in Q3, sending stock prices up by 10%. A key highlight? SPX Express.
Has Shopee’s in-house logistics arm finally caught up to J&T Express in parcel volume?
Join us as we dive into how Shopee’s investment in strengthening its in-house logistics is paying off, deepening its “moat” against rising e-commerce rivals such as TikTok Shop and Temu. But is this enough for Shopee to be invincible? (Probably not)
We’ll also explore Shopee’s latest pick-up lockers, and their potential on easing reverse logistics in the region and transforming the consumer experience.
Also available on Spotify and Apple Podcast
Featured materials:
Temu launches in Vietnam, The Low Down
How players profit in a world where ecommerce return rates reach 90, Momentum Works, The Low Down
Shopee & Grab both had a solid quarter – can they grow further?, Momentum Works, The Low Down
Does Shopee have a moat?, Momentum Works, The Low Down
Sea Q3 results, Sea Group
J&T H1 2024 interim results, J&T Express
[AI-generated transcript]
Sabrina: Hi everyone. This is episode 98 of the Impulso podcast. And this week, Q3 results for both cgroup and Grab were recently released, right? And both of them did pretty well. Share price rose about 10 percent and we published for both companies.
Sabrina: And we published a commentary on the lowdown covering eight key pointers from both their earnings, right? So if you guys are interested that will be linked in the show notes down below But we thought that we would there were a couple of pointers that we wanted to Go more in depth on which was one of course, shopee express Which is the logistic arm of shopee as well as the digital financial Services of both cgroup and grab which we will probably cover in another episode
Jianggan: And of course, headquarters of both companies are within like 500 meters from where we are.
Jianggan: I think half of them is right opposite. Anyway, so obviously has been a good week for the people in Southeast Asia’s tech ecosystem. I have [00:01:00] two lunch appointments next week with people from both companies respectively. And, the previous agreement is that I will buy lunch. But I think now it has turned around.
Jianggan: They are going to buy you lunch. Yeah, yeah, yeah. And somebody said, okay, I’m going to buy a full course, and plus a chicken leg. I said, why chicken leg?
Sabrina: Yeah, why chicken leg?
Jianggan: It’s boneless.
Sabrina: Oh. So, good results for them, right? So, one of the things that we mentioned in the commentary was obviously about Shopee Express.
Sabrina: And you commented that investment in its in house logistics arm, Shopee Express, seems to be paying off. For C group itself and that Shopee Express actual parcel volume is already on par with that of J and T Express. So what makes you say this?
Jianggan: Uh, we can pull out the slides about J and T’s results, right?
Jianggan: So in the first half of the year, and of course, you guys know that the J and T Express is a logistic company that started in Indonesia, expanded across Southeast Asia. Went into [00:02:00] China and now it’s also active in markets like the Middle East, as well as Latin America. There are rumors that the GNT Express is going to Europe as well.
Jianggan: So this is a very aggressive company, a successful one, and over many years it has been the largest e commerce logistic company in Southeast Asia. So if you look at this chart, so J& T reported the market share of 27. 4%. And they mentioned about company A, which has 24. 3 percent market share, which is, I think in terms of volume, about 90 percent of J& T. So, and obviously they didn’t mention who this company A is. They only said the company’s e commerce in house logistics.
Sabrina: So, it’s pretty likely, right?
Sabrina: That it’s company
Jianggan: It’s pretty clear. There’s a company B, which is like one third of company A’s market share.
Sabrina: So, this is in H1 2024, but based on the results from Q3C group, you said that they’re probably on par now.
Jianggan: [00:03:00] It’s possible because, if you look at the first half of the year and generally probably did about 11 million parcels a day and shopping was shopping in house logistics of what we’re doing about 10.
Jianggan: If you can move to the slide from the shoppies results about the gross orders. Yes. So you can see that the shoppies. GMV group, but the gross gross order volume. From the first half year to the third quarter grew more than 10 percent to 2. 8 billion. But of course, I mean the gross orders do not necessarily mean parcels.
Jianggan: There could be exceptions, right? I mean, there could be orders which were cancelled before parcels were sent out. There could be an order which, for whatever reason, the consumer didn’t pay. So no parcels were sent.
Sabrina: There can be virtual orders as well. So, for example, when you order an eSIM, it’s also an order, but they don’t actually have to send you any parcel.
Jianggan: Yes, yes, yes. And in fact, I think some of the other e commerce platforms depend largely on sort of these virtual items, which no parcels are sent. So, [00:04:00] so historically when people compare the GMV of e commerce platforms and the parcel volume, and sometimes you see a disconnect. I think one main culprit was Tokopedia.
Jianggan: So for a long time investors couldn’t make sense. Okay. The GFV is growing, parcel volume is not growing. What’s happening?
Sabrina: What are they selling?
Jianggan: Uh, cars.
Jianggan: You don’t put cars into a parcel and deliver it to the consumer.
Sabrina: That’s true. I guess these are things that you wouldn’t really realize unless you know what’s happening on the ground, right? If you just look at the financials, oftentimes it doesn’t tell you.
Jianggan: Yeah. But I think we can do some approximation, assuming that the conversion ratio from gross orders to number of parcels is relatively consistent.
Jianggan: So if the gross orders grew by 10%, I think the parcel volume should roughly grow with a similar ratio. And we know that almost all the growth in parcels are sent by ShopExpress. So I think they put a cap on how much they allocate to third party logistic providers. [00:05:00] So if shop is, possible and grew by 10%, I think Gen T, we looked at their, Q3.
Jianggan: I think Gen T did about, 12.1, uh, million Parcel a . That’s like 7% growth from Q2.
Sabrina: Q2 or from H one,
Jianggan: I think, Q1, Q2 are roughly the same.
Sabrina: Okay.
Jianggan: So if you do that comparison, you’d see that, I mean Shop Express, or SPX experience probably catch up very, very fast.
Jianggan: And we should also not discount the fact that, when people mention about their market share, they might deliberately like, you know, put their market share to be a bit higher. I mean, different sort of, ways of actually doing the statistics.
Sabrina: I think another thing that we have also seen from the J& T H1 interim report is that their revenue per parcel seems to be on a downward trend, right? So it’s about 74 cents now. So what does this actually mean for Shopee as well as other players in the logistics Because JNT is a pretty good benchmark, right?
Sabrina: Like you said, they’re one of the biggest logistic players. And if
Jianggan: they are They have been the biggest, right? And
Sabrina: their revenue per parcel has been [00:06:00] going down.
Jianggan: So if you look at the chart that Felice just showed, it’s a pretty consistent trend, right? So since 2022, where they used to charge like 0.
Jianggan: 97 per parcel to 0. 74, that’s like 25 percent drop. Of course, for them, they are saying that, okay, we’re not worried because the cost is also dropping accordingly. So the cost per parcel used to be 0. 79 and now it’s like 60 cents. So I think the probability is roughly the same, right?
Jianggan: Actually, probably increase a little bit. Um, that shows, I mean, the nature of e commerce logistics as a game, especially in this part of the world where where where I think there’s concentration of cargo owners, right? I mean, the number of platforms in Southeast Asia and the largest one shoppy Lazada TikTok shop and now Timu and the others are pretty small.
Jianggan: So, so you do have e commerce logistic players who have to play with this very limited set of platforms, which give them most of the business. So, [00:07:00] of course, the negotiation power is kind of different. We see J& T is still growing, and I do think that a large part of that growth is tied to Tiktok shop and Q4, Taemoo came into the market, in Vietnam quite aggressively.
Jianggan: We know that they have been working with, based express and ninja van for their first launch. But I do think that as they grew in size, I think lots of these orders would go to GMT. Because GMT has the infrastructure and capabilities to handle large order volume.
Sabrina: But what does this mean for Shopee specifically?
Sabrina: So, for example, if I’m an e commerce platform who runs my own logistics, is it a good thing that the revenue for external logistic players is going down?
jianggan: Of course, because I still use external, right? Because if I am a Shopee. I’m not going to, I mean, have the capacity for all my volume. I would want to, I mean, I don’t know.
jianggan: I mean, do you do a lot of e commerce?
sabrina: I do. I just ordered like three things from Shopee. If over Shopee express is really. Pretty fast now, I feel. [00:08:00]
jianggan: Did you use the guaranteed next day delivery thing or?
sabrina: I didn’t use the guaranteed. So I, I mean, I’ve bought from Shopee for quite a while now. Delivery used to take about a week, maybe longer.
sabrina: Now it takes about two to three days. I just ordered something on, we’re filming this on Thursday. I ordered something on tuesday and it arrived yesterday.
jianggan: Okay, that’s next day.
sabrina: Yeah, and I was, I didn’t use like next day delivery or anything. I just normal DOS.
jianggan: Did you notice Which logistic company sent that parcel?
sabrina: Shopee Express. So they have that sticker, yeah. So I was like, oh, it’s so fast now.
jianggan: So one thing I’ve noticed over the last year, and I think logic will be pretty obvious to anyone, is the regular items is typically sent by Shopee Express. And all the weird items are sent by other logistic companies.
sabrina: What is a weird item? Like odd shaped or like heavy items?
jianggan: Like we order like 12 kilograms of cat litter. That’s typically not sent by shopping by somebody else. I mean, the heavy ones, the old ship ones, et cetera, et cetera. [00:09:00] So obviously, I mean, when gent he drives the price down, whether this is driver or shopping, I mean, which was the cause, which was the effect on the reality is that the cost for logistics in the whole region is done and obviously that will give the platform more leeway. To increase the orders and actually to grow. So I would think there’s a positive thing, but I do think that for other logistic providers, it becomes a tougher game to compete, especially we don’t have the width and the infrastructure as well as the operational efficiency that J and T.
sabrina: Something I want to bring us back to, something we talk about a lot when we mention Shopee is always Shopee’s mode, right? Previously when we were talking about TikTok Shop entering the region, and now Kimu, something we discussed was what actually is Shopee’s mode and how are they defending against these competitors.
sabrina: So now it seems that Shopee Express is a pretty good mode for them.
jianggan: My thought about mode is, uh, it’s always like something that’s there. But something that I mean, if, if a [00:10:00] competitor or if attacker is determined enough, they will try to, I don’t know, find ways to either, I mean, put a bridge on it, like however, however temporary it is or swim over or whatever.
jianggan: So from the defender point of view, , I don’t think the mode is ever permanent, so you need to constantly like, you know, Deepen
sabrina: the moat, or build different moats.
jianggan: so actually my hometown back in China, Nantong, that has probably one of the widest moat.
sabrina: Oh, like an actual moat?
jianggan: Historically, the city is like, you know, in the middle and they build a moat and historically they’ve been like, you know, digging it to be wider, wider, wider. I think at some point in time, it’s like almost like a kilometer wide.
sabrina: Why are they building the moat for? I don’t know.
jianggan: For defense. Oh. And not now.
jianggan: It’s a very nice park where you can throw around and roll a boat and stuff. But, but in, in the past it was purely for defense. Right.
sabrina: But that’s the thing about a mote is once your competitor finds a weight, then you put a bigger mote, put a deeper mo.
jianggan: Yes. so it’s a race, right? I mean I think for defender’s job, so for Shopee, or I think as a matter of [00:11:00] fact, for Grab or for whoever who’s in this region.
jianggan: Their job is to, constantly, dig the more to be deeper, to be wider, so that it becomes harder and harder for the, for the competitor to come. And hopefully, at one point in time, the competitor will finally say, hey, it’s too difficult to, to attack this more, let’s go somewhere else. If you look at history, there’s lots of examples, Huns, they come to a city, ah, shit, this city The mode is too wide, the defender is too strong, it’s very hard to attack. Let’s go somewhere else.
jianggan: The world is big enough, right?
sabrina: Coming back to Shopee Express Because that’s what we’re talking about another thing that I’ve also noticed I don’t know if you’ve noticed but near our office. They actually have these Shopee Express lockers now, so it’s um, Located in Frisianopolis, which I guess is pretty near where C group has an office around there, right?
sabrina: So they have these sort of lockers. So it’s kind of like the pick up and go lockers where they can put your Shopee parcels in and then you can just collect it as and when. But we did a little research and there’s only two of them in [00:12:00] Singapore.
sabrina: So do you think this is something that Shopee Express is going to expand further into?
sabrina: And if they do, what are the benefits of having this locker as compared to the hundreds of pickup points that they already have?
jianggan: I think a couple of things. So first on the lockers for e commerce parcels are not a new thing, right? So in China, there’s this company called hive box, which was established by S.
jianggan: F. Express. And they build lockers across apartment blocks, of course, across office buildings, and that they have been profitable. No, that’s just unprofitable. And historically, people were skeptical about them because I think the thing about lockers is that you need, I mean, the unit economics is pretty easy to calculate, right?
jianggan: You need a certain usage and people using, paying a certain fee per usage to make it profitable. So historically it was difficult because there are other options, right? You could go to the convenience store in the community, you could go to the security guard in a housing complex.
jianggan: So there are many ways for, for last mile delivery. [00:13:00] Hypebox actually found a use case, I mean the company is just a part of our IPO so we can read their prospectus. They found one use case which is returns.
sabrina: Oh.
jianggan: Because returns are a bit more difficult to manage, right? Compared to one way sort of delivery.
jianggan: So the consumers will put that in a box and the overrider will find it very easy to actually click that. I think we mentioned that for some categories in China, the return rate can be like 90%.
sabrina: 90%. Yeah. So that’s
jianggan: lots of, uh, lots of parcels to be stored somewhere for someone to pick up. And then the reverse is always more sort of spread out and difficult to control.
jianggan: So, so they found that use case.
sabrina: And reverse logistics is actually pretty important because it lowers the barrier for a lot of people to buy. Purchase stuff online as well, right? If I can easily return it and just get a refund.
jianggan: Yeah, if you can easily return it. And also, as we mentioned, the cost of logistics is coming down.
jianggan: So that also makes it easier for the platform to allow you to return it.
sabrina: Yeah, that’s true. Because sometimes, I don’t bother returning things because I just think the cost is [00:14:00] not worth it. But like when I was shopping in China, it’s very easy to just return something.
jianggan: And did you realize that people have no remorse?
jianggan: I mean, here, I spoke with lots of consumers, they feel a bit guilty like returning things. And in China, it’s like, okay, well, don’t like it, just return it.
sabrina: But I guess it’s different as well. So in China, reverse logistics has probably been there for a while. So the sellers also have already kind of taken this into consideration when they’re inventory.
sabrina: Right. I think in Southeast Asia, it’s not. There yet. So maybe in the next few years, this is something that we’ll see and that’s something that I guess the Shopee part Shopee X Lockers would be good for as well
jianggan: And wouldn’t it be nice that if you want to buy something But you’re not sure whether you want to buy it and you get someone to send it over and you check whether you actually like it
sabrina: Yeah, and
jianggan: if you don’t like it, you return it
sabrina: It’s efficient I mean for example if you buy shoes you can buy like four pairs of shoes and then try on every size and then just return the rest.
sabrina: And see
jianggan: which color you like the most. Yeah that you don’t like. So I do think these kind of lockers are an attempt [00:15:00] to make logistics easier right? So obviously compared to the pickup points, I think in Singapore you have lots of pickup points. We have lots
sabrina: of pickup points but they’re not bad. I would say just, okay, maybe it’s Singapore, nobody really cares, but the security isn’t there.
sabrina: So a lot of them are just like small corner shops near housing estates where they’ll just put your parcels on like a shelf and you literally just go there and then you find, you match your name or your number and then you just take the parcel and go. Nobody checks. You don’t have to sign anything. You can steal someone else’s parcel.
jianggan: Have you stolen someone else’s parcel?
sabrina: No, but when I go, I feel like someone can steal my parcel. If I wanted to steal someone’s parcel, it would be pretty easy.
jianggan: But, but this, I don’t know, I mean, you go to China, right, you look at the office buildings, , they just have a table, right, all the parcels are there.
jianggan: And whoever just
sabrina: Nobody bothers to steal. So that’s the thing. It’s obviously in countries like this, nobody bothers to steal it.
jianggan: Is that because the
sabrina: I don’t know why.
jianggan: Yeah, but, but, but you’ve been to a sorting center. You see the amount of parcels there. Yes. And each parcel is probably not worth much.
sabrina: That’s true.
jianggan: Or the hassle of like [00:16:00] stealing that, I mean.
sabrina: That’s true, you don’t really know what you’re stealing either. If the parcel is so small.
jianggan: Think about that, if you’re a thief, you want to put your time and work, I mean.
sabrina: Into things that are more worth it. Okay, we don’t need to debate what are. Think of
jianggan: thieves as rational business persons, and they will obviously gravitate towards things which have better ROI for them.
sabrina: So, I think that’s all for. Most of them are businessmen. Yeah, that’s all for today’s episode. We hope you guys enjoyed this deeper dive into the sort of logistics of Shopee and if you guys are curious about their earnings, there are a lot of reports out there by Financial analysts who go deeper into the numbers and we also
jianggan: analysis that will tell you about everything
sabrina: And we also have a commentary on our blog where we highlight a couple of pointers So, thank you guys for tuning in to this week’s episode.
sabrina: I hope that you guys enjoyed it. If you did, do like and subscribe. As well as, share these videos with your friends if you found it helpful or interesting.
jianggan: So this is episode 98. This is
sabrina: episode 98.
jianggan: And the next one will be 99. And the following one will be 100. 100. Which one is more auspicious?
sabrina: 99. [00:17:00]
Jianggan: Why?
Sabrina: Cause I’m born in 99.
Jianggan: Oh. Someone
Sabrina: just revealed, someone just
Jianggan: revealed her age.
Sabrina: Yeah.
Jianggan: Um, did you notice, sorry, back to the discount. They always use
Sabrina: 99 or 90. Yes, I won’t
Jianggan: use one. I think I think I think I think in certain contexts you always use 99.
Sabrina: Yeah,
Jianggan: in some other contexts you always use 98. In some other contexts you use 95.
Jianggan: Like 23. 95.
Sabrina: Oh, I’m sure there’s a reason for that. I
Jianggan: think it’s cultural. Yeah, I think it’s cultural. So for instance, in China, you will not see anything with 99.
Sabrina: 99. No,
Jianggan: it’s always 98. All right.
Sabrina: Thank you. Bye bye. Enjoy.