Kerry sets sights on Indochina logistics boom

Asia’s leading logistics and supply chain solution provider accelerates expansion in Southeast Asia in anticipation of stronger trade and e-commerce activities.

How long does it take for cargo to be delivered from Bangkok to Myawaddy, a small town at the Thai-Myanmar border just 500 kilometres northwest of the Thai capital? Believe it or not, it can take as much as 15 days.

The inconceivably long time needed for the journey – which typically takes less than two days by car – reveals the underdeveloped infrastructure and patchy transport network around the region.

The poor roads between Thailand and Myanmar and the lack of rail connections means going by sea is the most viable mode of cargo transport between two neighbouring, land-connected countries.

Inevitably, cargo ships need to travel all the way south to Singapore before turning back north along the Strait of Malacca to reach the west coast of Myanmar.

That is a journey stretching over 3,500 kilometres and is just one of the many examples of Southeast Asia’s woefully inefficient logistics network, which remains the main drawback for economic development. It also underscores the huge potential that remains untapped across the region as its vast young population builds up its spending power.

Jones Lang LaSalle expects trade through the member states of the Association of Southeast Asian Nations (Asean) to reach $5.65 trillion by 2023, more than double the level 10 years ago. The trade boom will be spurred by rapidly rising domestic demand and increased spending on infrastructure, which will support greater volumes of goods.

Hong Kong-headquartered Kerry Logistics Network is leading the charge to exploit that potential.

“We are investing ahead to make sure we are well prepared for the logistics boom in Southeast Asia, as well as the rising cross-border e-commerce between Asean and Greater China,” William Ma, managing director of Kerry Logistics, told FinanceAsia in an interview.

Kerry Logistics, which was a pure-play warehouse operator before 2000, transformed into a fully fledged logistics services provider at the turn of the millennium and started building out an extensive network covering 55 countries across the globe.

Kerry Logistics was spun off as an independent listed company in 2013. It remains part of Kerry Group, the property-to-commodities conglomerate owned by Malaysian magnate Robert Kuok.

ASEAN POTENTIAL

Kerry Logistics is betting big on Southeast Asia at a time when multinationals are moving their manufacturing lines into the region to take advantage of the lower labour cost.

William Ma, Kerry Logistics

“There is always a misconception that if you place a manufacturing order in Vietnam, the entire production will take place in Vietnam,” said Ma, who has engaged in warehousing and logistics with Kerry Group for nearly three decades.

“Globalisation means the manufacturing value chain now spreads across multiple countries instead of concentrating on any specific region.”

The implication of globalisation on manufacturing is the increase in the flow of goods across borders. Naturally, demand for logistics services for the transfer of raw materials into, and delivery of finished products out of, the Asean region has been increasing steadily in recent years.

A report published this year by the Institute for International Monetary Affairs, a Japanese think-tank, estimates that foreign value-added exports by Asean countries – that is, products assembled with imported parts and intermediate goods – increased by 12 times from 1990 to 2013. That pace is likely to have accelerated as the region has become increasingly embedded into global value chains. 

As with Southeast Asia, Kerry Logistics has set its sights on the so-called Greater Mekong Region, encompassing Thailand, Vietnam, Myanmar, Cambodia, Laos and part of southwestern China.

Excluding China, these five nations have a combined GDP of $3 trillion – surpassing that of the United Kingdom – and is growing at a staggering rate of 7% per year.

“Our goal is to build out a logistics network that allows goods to be delivered anywhere across the region within four days,” Kledchai Benjaathonsirikul, Kerry Logistics’ managing director of Greater Mekong Region, said.

Currently, Kerry Logistics supports some of the world’s biggest automobile manufacturers in Thailand, a major manufacturing hub for Japanese, American and European car makers. It also serves major apparel manufacturers and fashion brands with their production in Vietnam, Cambodia and Myanmar.

TRADE TENSION BENEFITS

According to Ma, the importance of Asean as a global manufacturing hub is highlighted by the ongoing trade tensions between China and the US.

“It will be much harder for China and the US to exchange goods and services directly amid trade protectionism,” Ma told FinanceAsia. “Due to Southeast Asia’s proximity with China, Chinese companies are increasingly moving their production into the region to minimise the impact of tariffs on revenue loss.”

In order to capitalise on Asean’s logistics potential, Kerry Logistics has in recent years sold off some of its fixed assets in developed markets. Recent divestments include its rail terminal business in Adelaide, Australia, and Hong Kong’s Asia Airfreight Terminal.

The company is redeploying the capital into Southeast Asia to expand its road freight network and improve its logistics infrastructure.

Kerry Siam Seaport, Thailand

Earlier this year, Kerry Logistics completed the expansion of Kerry Siam Seaport, doubling the number of berths and increasing total cargo handling capacity to over 1 million twenty-equivalent units (TEU).

Located just 100 kilometres south of Bangkok, the multipurpose port is now Thailand’s largest privately run seaport and a key gateway for imports and exports around the region.

The company is also building two dry ports in Myanmar  – in Yangon and Mandalay – with a total annual throughput of 350,000 TEUs. These ports are strategically located at both ends of the Yangon-Mandalay railway, which is currently under construction and will serve as the main route for inland cargo delivery when completed in 2025.

E-COMMERCE

Traditional retail logistics service providers count large companies as their main clients. However, China’s e-commerce boom showcased the vast potential for a new form of logistics demand generated by individuals and small- and medium-sized enterprises.

The growing influence of on-demand e-commerce deliveries – characterised by quick turnaround times and precise delivery locations – is transforming how traditional logistics companies operate.

Instead of point-to-point cargo transportation between factories and warehouses, modern logistics firms are now turning to the last mile of the supply chain – that is, the delivery of small parcels to designated locations such as homes, offices and shops.

“Three years ago we were delivering 8,000 parcels across Thailand every day,” Alex Ng, executive director of Kerry Express, told FinanceAsia. “Today we are delivering 800,000, and by the end of the year we expect [that] number to increase to over 1 million.”

The astonishing growth rate of Kerry Express, Kerry Logistics’s fast delivery services, underscores the massive potential for e-commerce deliveries in a region blessed with a burgeoning middle class and fast-growing mobile access to the internet.

According to social networking service Hootsuite, the number of active mobile users in Southeast Asia grew by 36% in 2016 alone. The overall mobile penetration rate was just 42% but is set to boom as the region builds out its telecommunications infrastructure for 4G networks.

Naturally, online shopping is getting more popular in Southeast Asia and demand for express delivery services is soaring.

Kerry Express, which is now Thailand’s second-largest express delivery behind the national postal service, employs over 18,000 drivers to deliver parcels with its bright orange-coloured trucks and motorcycles. It promises delivery within 48 hours from ordering.

In May, the company entered into an alliance with BTS Skytrain that allows its staff to deliver parcels through Bangkok’s skytrain transit system. This is the first-ever partnership in Asia between a private logistics firm and an operator of a mass transit system.

The partnership with BTS is a much-needed solution to the Thai capital's appalling traffic congestion and enhances the firm’s efficiency for fast delivery. Affluent customers can receive their orders within three to four hours with the premium service, according to Ng.

The group has similar express deliveries in Malaysia, Vietnam and Cambodia, and plans to expand the service to Indonesia and Myanmar in the future.

 

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