Venture capitalists in Southeast Asia seem to have a lot to say about the implications Grab and GoJek have for the logistics space. It's true that these players are not to be ignored. After all, they have a vast ocean of on-demand drivers throughout the region and literally billions of dollars to spend on new initiatives (think Uber Freight).
However, it's important to note that app-based names like Grab Delivery, GoBox, and Deliveree largely represent consumer use and last-mile transport. In terms of what blue-chip multinational enterprises like Unilever, L'Oreal, and Coca-Cola need for their daily B2B logistics and regional distribution, it's a different game entirely. That game is on the verge of blowing up in emerging markets like Indonesia.
Southeast Asia's e-commerce boom is an important part of the paradigm shift. Online retail will be a more than US$38 billion industry by the end of 2019, up from US$23 billion in 2018. Sales are expected to mushroom to more than US$150 billion by 2025 " that is US$50 billion more than predictions made over a year ago " on the back of stronger-than-anticipated growth, according to Google and Temasek.
Combine this trajectory with a newly-vibrant fintech sector that has all but made sure digital payments are no longer a barrier to entry for consumers, as well as governments making infrastructure promises worth hundreds of billions of dollars, and we can start to see the writing on the wall.
Southeast Asia's third party logistics market accounted for US$36.4 billion in 2017 and is expected to grow at a compound annual growth rate of 5.5 per cent through 2025. This makes it a soon-to-be US$55.7 billion industry, according to Research and Markets.
The US-China trade war has had some interesting repercussions for Southeast Asia's logistics scene. Both Nippon Express and Deutsche Post DHL Group are expanding their operations in the region, with Nippon aiming to ramp up sales by around 50 per cent over the next five years.
But apart from recent global developments, the region's logistics space remains mostly controlled by third-party logistics service providers (3PLs for short). These players are usually characterised as labour-intensive and asset heavy companies. At the end of the day, 3PLs have many salaries to pay, rent and bills to take care of, as well as machines to maintain.
New-found variety, speed, transparency, and on-demand efficiency in the logistics game have begun to take precedence.
Over the past decade, industry stakeholders have been able to observe that 3PLs will soon have no choice but to build out their digital capabilities, not just to make themselves more agile, but to meet the demands of the region's fast-growing retail sector. This in turn creates big opportunities for tech-powered start-ups to carve out their own piece of the pie.
New and innovative companies are cropping up in the mid-mile logistics space (e.g. B2B trucking). Instead of trying to create an end-to-end solution, these companies are solving a single problem at the middle of the logistics equation only. Aiming to be e-commerce enablers for companies of all sizes, there are many interesting cases.
One start-up claims to pick up your package and then find the best shipping price from a reputable agent in the region. Businesses need only to prepare an order and schedule a pick-up time.
They no longer need to think about which 3PL they're going to use, make procurement calls, or root around on the internet for information. The start-up also offers API integration so that e-store owners can handle and track orders within their own platforms.
Indonesia-based start-ups Kargo and Ritase are pretty close competitors, and have the potential to upend the local B2B trucking game. Sequoia-backed Kargo wants to do for the world's largest archipelago what Convoy did for the US, what BlackBuck did for India, and what Full Truck Alliance did for China.
While the phrase is indeed a trope, the company is literally trying to be an "Uber for B2B trucking". This means providing a platform that connects businesses and their shipping needs with trucking companies that have nearby vehicles and cargo space available.
In theory, this makes on-demand, democratically priced shipments possible for businesses in Indonesia. It cuts out the traditional middlemen that would otherwise make margins, but it also helps truckers optimise their loads " and thereby their earnings " by ensuring they're full-up with cargo going both to and from destinations. The idea is that they will clear more shipments overall, while saving on time, fuel, and other associated costs.
In developed markets, these kinds of players have reached valuations soaring beyond US$1 billion.
But transport is not the only variable to consider in the supply chain equation. Storing goods and merchandise is also an important factor.
Waresix is a Jakarta-based start-up that provides an on-demand warehouse service where users can look for and book ready-to-rent warehouses and freight services through its software. Investors can see the potential, as Waresix recently bagged US$14.6 million in fresh venture capital.
But the start-up is not only doing an Airbnb for warehousing " it has also expanded into trucking. Waresix claims that its platform already has over 20,000 trucks and 200 warehouses across Indonesia.
When discussing last mile deliveries, places like Indonesia are infamous. The country is made up of more than 17,000 islands and package recipients may live in areas that don't have paved roads or clearly marked signage. 3PLs simply do not have the same kind of access to every family's front doorstep the way they do in markets like North America.
What these areas do seem to have in abundance, however, is a bunch of micro businesses and SMEs. Nearly every village should have some kind of proximity to a nearby warung (a word used to describe the country's open-air food stalls), a mom-and-pop shop, or a minimarket where you can grab a snack, sip coffee, or buy some toothpaste.
A few start-ups have found that last mile logistics across the nation can be made more efficient by partnering with local businesses and having them serve as "touchpoints" for distribution. Instead of having the package sent right to their home, the buyer can pick up the package at their local shop the next time they stop in to pick up a bag of chips.
A start-up called Kudo takes the ideas one step further and enlists ordinary people with smartphones to act as 'agents.' This means, among other things, that if you live in a remote or rural area and want to shop online, your neighbour's house can potentially be a point of pick-up for your e-commerce purchase " provided that your neighbour is a registered Kudo agent. The company was acquired by Grab in 2017 in a deal worth more than US$100 million.
Today, we can also see names like Warung Pintar positioning themselves similarly by parachuting in their own pop-up warungs, and enlisting locals who want to become proprietors.
These establishments can likely be used as logistics hubs as well. Because each shop is outfitted with the latest e-payments and point-of-sale tech, Warung Pintar is also able to gather lots of valuable data about consumer behaviour in the area. Further, the aim is to also drive basic financial inclusion and e-commerce adoption among the nation's unbanked and offline rural populations.
As we start to see more start-ups solving long-standing logistics problems in emerging Southeast Asia, completely new business sectors are already starting to bloom.
If you are an investor keen on fintech, online-to-offline models, or new retail, understanding how logistics and distribution binds them all together is fundamental in this region.
Gani Lie is an Investment Manager at MDI Ventures, a US$140+ million corporate venture capital initiative backed by Telkom Indonesia.
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