Strategy

The Changing Dynamics of Logistics in Southeast Asia

By Nishith Rastogi, CEO & Founder, Locus

The Southeast Asian economy is in an exciting period of transformation. Global trade volumes in the region have increased dramatically over the years with liberalization of imports and exports and huge Foreign Direct Investment.

The abundant low-cost and highly skilled labor force has opened doors for numerous employment opportunities, contributing majorly to the rapid economic evolution of markets in Southeast Asia such as Malaysia, Vietnam, Indonesia, the Philippines, and Thailand.

At the same time, there has been a significant development in the supply chain and logistics ecosystem of the region. The logistics industry accounts for 15-20% of GDP in Vietnam and is expected to grow up to 12% in Indonesia. A number of factors are driving this dynamic transformation, reshaping the supply chain and logistics landscape in Southeast Asia.

Key Catalysts of the Logistics Boom in Southeast Asia

International Trade and Investment

In recent years, Southeast Asia has become a lucrative business hub for industries around the globe. Openness to trade is evident in the expansion of global trade and the establishment of global brands in the ASEAN lands. Investment magnets such as Bitexo Financial Tower and Hanoi Landmark Tower in Vietnam’s Ho Chi Minh City are inviting massive international investment in the region.

Free trade agreement allows ASEAN markets to enjoy custom-free international imports and exports. Hundreds of multi-industry corporations have sprung up in the region, increasing the demand for improved logistics and 3PL services.

Rapid Growth of E-Commerce

E-commerce in Southeast Asia is growing at a tremendous pace. The industry is poised for rapid growth, and by 2025, Indonesia is expected to account for over 50% of the Southeast Asian e-commerce market. Internet penetration across the region, the rising income of the middle class and growing millennial culture have led to this e-commerce explosion.

The evolution of e-commerce has also created opportunities for faster and better logistics services to ensure smooth flow of supply chain operations.

Infrastructure Development and Urbanization

As a result of rapid economic development, Southeast Asia is going through a phase of massive urbanization. A number of mega infrastructure improvement projects have come up to support this urban expansion.

The ASEAN Master Plan on Connectivity proposes the development of transnational transport corridors to facilitate the movement of goods and labor in Southeast Asia. Such significant infrastructure development and the growth of 2-tier and 3-tier cities in the region are driving further demand for efficient transport and mobility services.

The Underlying Challenges in Southeast Asia’s Logistics

Despite the fast economic growth and expansion of Southeast Asia’s logistics ecosystem over the years, the industry is still in the infant stages of development. There are several underlying challenges in the supply chain that need to be addressed to improve end-to-end logistics operations in Southeast Asia.

Complex geographical terrains, poor roadways, and railways make last-mile deliveries a challenge for 3PL providers and e-commerce players in the region. Indonesia, for instance, is made up of more than 17,000 islands and a large chunk of customers live in areas that don’t have paved roads or clearly marked signages.

The ports in many islands are small with limited cargo handling capacity and there is a lack of efficient warehousing systems. Moreover, there is Insufficient visibility and control in the transport and logistics sector in the region. The overall cost of logistics in Southeast Asia is therefore high in the region.

How Technology can Transform Logistics in Southeast Asia

At the end of the day, it all boils down to customer satisfaction and cost-efficiency for supply chain companies to survive the competition and grow with the changing dynamics. Technology is the real superhero that can optimize supply chains in Southeast Asia, cutting down fuel costs, scaling up the speed of deliveries to the end customer and improving last-mile fulfillment.

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. Although the adoption of tech has been rather slow in the supply chain and logistics industry in the region, it is certainly the need of the hour.

There is now 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.

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