Price wars, pan-ASEAN ambitions push consolidation in last-mile 3P logistics space

News Analysis 12 October

Price wars, pan-ASEAN ambitions push consolidation in last-mile 3P logistics space

By , Tony Goh, Nhung Nguyen, Krista Montealegre, and Mick Basa

Locals closing shop, likely targets
Locals forming partnerships to have scale/volume, technology
Vietnamese home-grown players dominate over regionals

The last-mile third-party logistics (3PL) industry in Southeast Asia is facing pressure to consolidate as players have been driving down prices of delivery services due to intense competition across the region, sector advisors and industry sources said.

The need to create pan-ASEAN entities has pushed regional players like Grab [NASDAQ:GRAB], Ninja Van, J&T Express, Lalamove, and Flash to expand rapidly across borders. They had to do so at a steep price: they had to come into a new market offering services at a lower cost than what local competition charge to gain market share, the industry executives said. The low-hanging fruits for these players are the Southeast Asia-wide e-commerce platforms like Shopee, a subsidiary of Singapore-based Sea [NYSE:SE], and Lazada, the Southeast Asia arm of Alibaba Group [HKG: 9988], which also compete against each other by offering users perks such as free shipping coupons.

Most of the foreign players have more money to burn so they can afford to offer dirt-cheap shipping fees, while local last-mile 3PL companies struggled, an industry executive from the Philippines said. “Since volume is the name of the game, the local players that wanted to compete joined the fray, eventually that affected their financials and cash flow,” this executive said. This has led to closures of smaller players that could not keep up with the foreign VC-backed players.

“That is the reason why we got out of servicing e-commerce platforms, the pricing is just too low,” Jose Rene Almendras, president and CEO of AC Logistics Holdings, a wholly owned unit of Philippines conglomerate Ayala Corp [PSE:AC], told this news service. AC Logistics provides 3PL services to small- and medium enterprises (SMEs) and large corporates through its subsidiaries Entrego and Air21, neither of which have been servicing the foreign-owned e-commerce platforms.

The first Philippines industry executive agreed that the businesses of 3PL players relying on e-commerce platforms are not sustainable. “There are other markets that can be captured outside the e-commerce platforms, which are online sellers. If we will be able to capitalize on those markets outside e-commerce platforms, we can compete and grow sustainably,” this executive noted.

The omni-channel commerce in the Philippines is large enough for last-mile 3PL players to be able to carve out their own niche, “so we serve whom we want to serve,” said a second Philippines-based industry executive.

Scale, technology to survive

Mohniandi Harikrishnasamy, founder and group managing director of Malaysia-based Everest Integrated Logistics, said that while competition is indeed intense in the last mile space, the fast growth in e-commerce can provide space for efficient operators to continue to thrive. However, he said scale is increasingly important in this game.

This is a pull factor for last-mile 3PL players to think about forming alliances or getting investors to have more scale.

The Everest founder said they have been approached by several foreign players who are interested to cooperate, “but we have not reached any deal yet.”

In the case of the Philippines, the locals have been banding together with fellow local players “so we can help them and provide them with volume. With that we can grow together because local players are situated in one location,” the first Philippine-based industry executive said.

Xteven Teoh, founder and managing director of Malaysia-based automation solution company XTS Technology, said many last-mile 3PL companies were operating at a loss due to a lack of volume and scale, which kept them from investing in automation that can help improve operation efficiency. By automating basic decision-making, such as sorting and route planning, the logistics teams can focus on the strategic functions of the business and innovate new ways to alleviate customers’ pain points when it comes to last-mile delivery, he added.

Malaysia-based Parcelhub co-founder and CEO Bryant Chai agreed and said that for his company to be able to compete, it invested in technologies such as mapping to offer smart logistics, which he predicts as the future of last-mile 3PL. Players now need to capitalize on the use of automation, machine learning, and real-time data to offer companies a competitive advantage and the ability to optimize supply chain management, he explained.

In Indonesia, the biggest cause of the price war was the ability of e-commerce platforms to have their own last-mile 3PL capabilities and this is the route that Tokopedia has taken to have an edge in Southeast Asia’s largest economy. With the Gojek/Tokopedia merger, Tokopedia tapped Gojek’s fleet for its last-mile delivery capability, an Indonesia-based sector advisor said.

Wei-Jye (Jacky) Lo, the CFO of GoTo Gojek Tokopedia [IDX:GOTO] said during the company’s 1Q23 earnings call that it is investing in growing its last-mile delivery capability to serve premium instant and same-day delivery and conventional delivery. The company wants to scale up its in-house delivery capability to make it as part of its e-commerce value proposition.

Dominant locals

While there is a price war going on in Vietnam, it is not as intense as what is experienced by its neighbors. Luong Duy Hoai, CEO of e-commerce ecosystem Scommerce, said the SME penetration in e-commerce platforms in Vietnam is bigger than in other SEA countries. Top local players have a good revenue structure since SMEs account for more than 50-70% of their businesses.

“The regional players who depend mostly on e-commerce platforms will see their margins squeezed, causing them to bleed and might look for M&A or sell their business,” he said. These regional players may eventually want to exit Vietnam as they continue to incur losses.

Another reason why regionals struggle in Vietnam is because e-commerce platforms in the country have their in-house last-mile delivery services, such as SPX and LEX, TikiNOW, according to a Vietnam-based industry executive.

In contrast, the Big Four of Vietnam’s last-mile 3PL logistics industry—Giaohangtietkiem, Giao Hang Nhanh, VNPost, and Viettel Post—are all profitable and the prices of their services are not the cheapest either. Even an on-demand player like Ahamove is profitable, the executive said.

The top local 3PL players have already built a good operating infrastructure to make a difference in terms of service quality and sales model. “The most obvious driver for this industry is operational capacity, which can help handle large output and low cost, so 3PLs are qualified to build a competitive sales model. In Vietnam, I think 3PLs have no need to acquire other companies in the same industry,” this industry executive noted.

Deals watchlist in Southeast Asia

Singapore

Grab Holdings [NASDAQ:GRAB] was reported to be planning to acquire the Southeast Asian Foodpanda units of Delivery Hero [ETR:DHER], a German food delivery company.

Malaysia

J&T and local leaders in the last mile logistic services such as Penang-based Easy Parcel, which owns Pgion, Pos Malaysia [KLSE: 4634] and GDex [KLSE: 0078] are likely consolidators, a Malaysian sector advisor said.
Capital A [KLSE:5099], a tech-based services unit of budget carrier group AirAsia, which is expanding in the delivery space, could potentially be a buyer when the market consolidates, the same Malaysian sector advisor said.
Mergermarket reported in April 2022 Easy Parcel is tapping regional financial investors as it looks to raise USD 35m-USD 40m to expand its services.
Mergermarket reported in October last year that Capital A is looking to raise up to USD 150m in new growth capital to expand its digital businesses, including expansion for its logistics services unit Teleport.

Indonesia

Ninja Van is looking for 3PL companies that could merge with its Indonesian unit, Ninja Xpress, Mergermarket reported.
Anteraja (PT Tri Adi Bersama), a subsidiary of PT Adi Sarana Armada Tbk [IDX:ASSA], is also a likely target because they’re struggling to capture market share, a second Indonesia-based sector advisor said.
Kargo was also rumoured to be exploring strategic options and this tech winter is the time to figure out how it can have scale and launch an IPO when the market becomes favorable, a third Indonesia-based sector advisor said.
Indonesia-based SiCepat Ekspres is looking to sell part of its stake in the electric motorbike manufacturing joint venture Volta, as well as some other non-core assets, online media reported.

Philippines

CVC Capital-backed Fast Logistics Group and LBC [PSE:LBC] are likely buyers for those that have over-expanded now that the demand for last-mile 3PL is not as pressing since the COVID-19 pandemic is over, said a Philippines-based sector advisor.
AC Logistics is acquisitive and is in talks with a potential partner to be a dominant player in the space, as reported by Mergermarket.
Metro Pacific Investments [PSE:MPI], a Philippines-based infrastructure conglomerate, is on the lookout for targets to enter last-mile logistics to support its agriculture business, Mergermarket reported.