Southeast Asia’s ecommerce logistic headache: finally resolved?

Whilst catching up with some friends running e-commerce businesses in the Philippines, we chatted about changes in the logistics – for a long time prime challenge for e-commerce in the country.  

A number of new e-commerce logistic companies have entered Manila recently, causing the prices to drop significantly. Now it costs only about 40 pesos (US$0.78) to deliver a small packet within Metro Manila, and about US$3 to send one to the provinces. Most importantly, now these packages can actually be delivered, often on time.

Logistics has been one of the key bug bear for e-commerce across the region. The lack of logistic experience in new markets, challenging geography, personnel management and Cash on Delivery (COD) are some of the real headaches.

However, with Alibaba and Amazon driving the upward trend of e-commerce in Southeast Asia, the logistics part also has experienced an uptake of investment.

The Rise of the Ninja

This week, Reuters reported that Singapore headquartered e-commerce logistic firm Ninja Van is raising at least US$60mil for it’s next South-East Asia (SEA) expansion, after a US$30 million round last year led by Dubai based Abraaj Group.

Ninja Van is undoubtedly one of the most dazzling companies in the arena. When 27 year old Lai Chang Wen founded the company in 2014, many industry veterans were highly sceptical.

“What can a kid who has no experience in logistics industry whatsoever do?” was the refrain we heard from many back then.

People believe that the startup would eventually be forced out of the market by established (and much bigger) logistic companies such as DHL or Singpost.

Alas, the big ones either flopped (in the case of SingPost) or came about very slowly (in the case of the international giants). Whilst Ninja Van boosts a lot about its technology and algorithms to optimise the delivery process, the biggest differentiator is customer experience.

Just ask any e-commerce seller who has used both Ninja and SingPost – they will tell you the difference.

Bright red uniforms, mobile phones (instead of cumbersome data terminals) for processes, and the ability to come for collection after knock-off times – next day delivery became possible, while many incumbents often take 3-5 working days for the same city.

Ninja Van now has presence in 6 SEA countries – Singapore, Malaysia, Indonesia, Vietnam, Thailand, and the Philippines. The aim of the upcoming fundraising is to achieve 100% coverage of these 6 countries.

The expansion would also involve smaller cities and remote regions such as Indonesia’s Papua province – some 3500 kilometres from capital Jakarta.

This is an ambitious goal for a logistic company, as there will be key hurdles that Ninja Van will need to overcome:

(i) Natural hurdles – e.g. the archipelagic state of some of the SEA countries (e.g. Indonesia), poor roads etc.

(ii) Manmade hurdles – e.g. traffic jams in key cities such as Jakarta and Manila

(iii) Competition from traditional incumbents – These companies are still lagging behind in terms of services, price, but are very well capitalised and are trying to take steps to compete.

(iv) Competition from new entrants – such as J&T Express (Indonesia).

J&T Express

J&T Express is an Indonesia logistic provider that promises “high speed delivery to customers and support the growth of e-commerce business”. It claims that it achieves this using advanced IT system to improved efficiency and service quality to their customers.

This is not surprising, given that the main founder, Jet Li, built Oppo’s distribution network in Indonesia, selling close to a million mobile phones a month. Part of the management team came from SF Express, the leading logistics company in China which took off with the e-commerce boom, overtaking their more traditional competitors.

The combination of SF’s knowhow, processes and Oppo’s local expertise, the momentum for J&T is fierce. They are now delivering through a network of more than 8000 delivery men and 1000 delivery/collection points.

Last month, the company announced that they had completed a funding round of US$100 million, valuing the company at US$540 million post money. This is a phenomenal achievement for a company which is just two years ago. And it also shows it is possible to overcome all the said challenges about delivery.

How about DHL and JD.com? 

As seen in other tech sectors, the largely established incumbents are nowadays fast to realise, but slow to react to, the rapidly changing customer’s needs.

By virtue, with its huge fleet of resources, capital, knowhow and established brand name, DHL should have been the key e-commerce logistic player in SEA. However, progress has been painfully slow.

DHL introduced DHL eCommerce in 2014 (previously known as DHL Global Mail) with the aim to provide domestic and international shipping services to online retailers and other B2C shippers.

Their blog posts challenge the “Amazon effect” logistics trend where consumers are expecting faster and reliable shipping for free then analyze the pot-holes in these trend, and why their simple and transparent pricing is better. They are also trying to beef up recruitment in this space to improve implementation efficiency.

All well and good – but this needs to be balanced with fundamental market forces – what their customers’ customers want – which is the “Amazon effect” that competitors are offering. And if a recruitment process takes more than 6 months and is still ongoing- their competitors would have vaulted ahead on service improvements.

JD.com, the Chinese e-commerce company boasts of having 236.5mil active customer accounts and the largest drone delivery system, infrastructure and capability in the world – is also finding it challenging to expand into SEA.

Their challenge is that they want to build their own logistics system in SEA but had hit massive competitive hurdles. Their bid to enter the Indonesian market through Tokopedia was thwarted by Alibaba, which was more nimble and ambushed JD by outbidding (a lot) for Tokopedia.

JD’s talks with other potential partners to gain a foothold in the region (such as the discussion with Central Group in Thailand) – but again progress has not been passed for a number of reasons.

Speed is imperative in achieving success in this industry, and time is running out for these big guys. Acquisitions may be a better strategy than doing it all by yourself – as Alibaba and Tencent has long learnt.

Boom time for the e-commerce logistic industry

Overall, the eCommerce logistics industry in SEA is undergoing tremendous changes. Efficiency is expected to improve significantly. This will then create a virtuous circle for overall e-commerce demand and penetration.

We are looking forward to the boom. In the meantime, my friends from the Philippines (and the SEA regions) are complaining less and less about logistics, and marvelling more about the improvement they are seeing day to day.

That is a good sign.

(Originally written in Chinese by Jialei Zhao; Translated into English by Brenda Singh)