Southeast Asia becomes new hub for global supply chain

Currently, the global supply chain is undergoing a major transformation, from relying on a single source of supply to diversification to reduce risks. The supply chain vulnerability exposed by the epidemic has caused global manufacturers to begin looking for alternative production locations, and Southeast Asian countries such as Vietnam, Indonesia, Malaysia and Thailand are attracting more and more foreign direct investment (FDI).

Among them, Vietnam and Indonesia are in a leading position in attracting FDI in manufacturing and exports. In 2023, Indonesia’s exports reached US$290 billion and Vietnam’s exports reached US$440 billion; Thailand and Malaysia also performed well, with Thailand’s exports increasing from US$257 billion in 2019 to US$314 billion in 2023; Malaysia’s exports increased from US$280 billion to US$370 billion from 2019 to 2023.

This has made Southeast Asia rapidly develop into a key production center in the global supply chain, highlighting the potential for logistics and infrastructure development, and logistics service providers will gain significant opportunities from growing trade flows.

On the other hand, driven by the increasing Internet penetration, the increasing use of smartphones and the growing middle class, the e-commerce industry in Southeast Asia is growing at an unprecedented rate. According to the Southeast Asia Digital Economy Report 2023 jointly released by Google, Temasek and Bain & Company, Southeast Asia will rank first in the global retail e-commerce market growth ranking in 2023 with a growth rate of 18.6%. The total e-commerce sales (GMV) in Southeast Asia will reach US$139 billion in 2023 and is expected to reach US$186 billion by 2025.

What differentiated challenges does Southeast Asia logistics face?

The significant growth of exports and e-commerce in Southeast Asia has caused tremendous changes in Southeast Asia’s logistics supply chain, which brings opportunities to logistics companies as well as a series of challenges.

One of the challenges is that logistics companies need to adapt to changing demands. The Southeast Asian market covers more than 600 million people in countries such as Indonesia, Thailand, Vietnam, Malaysia and the Philippines. With the development of e-commerce, consumers are beginning to expect faster, more reliable and more convenient delivery services, and are also demanding Willingness to pay for new and more complex logistics services. In order to adapt to consumer demand, logistics services must provide both cheap standard delivery and faster, high-quality delivery options. This has put pressure on logistics service providers to invest in new technologies and improve operations.

Another challenge is that logistics infrastructure development in Southeast Asia has fallen far short of growing demand. Although the Southeast Asian market is often regarded as a whole, there are many countries involved, and different countries have different economic levels, infrastructure, cultural customs, online shopping preferences, etc., resulting in different logistics challenges for each country.

For example: Malaysia’s diverse geography requires a flexible approach. In urban centers such as Kuala Lumpur, traffic congestion can slow down delivery, and rural areas have slow and inefficient delivery processes. In Singapore, life is fast-paced, speed is of the essence, and Singapore’s population Dense, the last mile delivery is difficult; cities such as Ho Chi Minh and Hanoi in Vietnam have relatively developed economies, comparable to domestic first- and second-tier provincial capitals, but there are large gaps in other regions, and even basic asphalt roads may not be available, which is a problem for logistics Network construction raises many difficulties.

Indonesia is an archipelago as its main geographical feature, with more than 17,000 islands. The dispersed geographical environment creates logistics obstacles, making island transportation and last-mile delivery costly and complex. The complex and changing geographical environment affects the coherence and timeliness of logistics distribution. Sex poses a challenge. According to the World Bank, the cost of Indonesia’s logistics industry is the highest in Southeast Asia, accounting for 25% of gross domestic product (GDP), while neighboring countries such as Vietnam, Malaysia and Singapore account for 20% of GDP.