The ASEAN Logistics Industry - A growing Connectivity Hub

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The ASEAN nations collectively – if considered a nation – would be the seventh largest economy in the world. Their combined Gross Domestic Product (GDP) is about USD2.4 trillion (as of 2015). ASEAN has a consumer base of more than 600 million, an expanding labor force and a rising Ecommerce industry. There is a growing need to streamline industrial inventories and develop an efficient logistics industry to aid increasingly complex supply chains. Will ASEAN’s logistics industry rise to the challenge?


Gurgaon, Haryana, India., February 7, 2018 - (PressReleasePoint) -The ASEAN logistics industry - A growing connectivity hub

The growing wealth of ASEAN economies: With rising costs in China, creeping political turbulence around the world and slower global growth, ASEAN is being seen as a haven of tranquillity by investors. ASEAN’s business sphere is not mature, dominated as it is by small and medium-sized enterprises. But the abundance of natural resources and cost-effective skilled labor has lured many companies to carry out manufacturing processes in this region. For instance, Thailand and Indonesia are now playing host to labour-intensive manufacturing processes, especially for the automotive and electronics sector, due to lower labor costs compared to China’s. Favorable trade policies and agreements have led to greater regional integration, aiding the economy’s growth.
Why does the ASEAN logistics industry matter?: The ASEAN region is attracting a great deal of attention in the global logistics community. Some of the reasons for this include:
Strong economic growth: Home to more than 600 million people, the region has the third largest labor force in the world behind India and China. The population is larger than that of North America and the European Union . Moreover, the GDP growth forecast for the next decade (from 2013) is at 5 per cent per annum – an enviably stable and decent level of economic growth in this day and age.
TradeASEAN trade volume is expected to increase by 130 per cent and be valued at USD5,653 billion by 2023. The expansion in trade volumes will mainly be driven by a rise in demand for goods and services in China as well as India – the world’s big and growing consumer bases which are driving trade in the region. Moreover, the recent crystallization of the ASEAN Economic Community (AEC) in 2015 and other free trade agreements have resulted in what many now see as a single market and production base that allows a greater volume of goods to be made and to pass through. It has also led to an increasingly transparent legal and regulatory framework for intra-ASEAN trade.

What factors are responsible for the ASEAN logistics industry boom? ASEAN is witnessing a growing middle class with increased spending power. This will drive the demand for logistics as consumers demand more, better and more varied products and services, often to be delivered to their doorstep. The factors that will enhance the growth potential of logistics players are:

Low cost outsourcing: China’s strategic shift towards domestic consumption has led to a diversion of manufacturing processes to ASEAN – a low-cost labor supplier.

Inefficiencies in ASEAN supply chains: Deficiencies in skilled human capital, lack of technical know-how and R&D has led to inefficiencies in ASEAN’s supply chain and logistics infrastructure. The solutions to such inefficiencies are provided by foreign logistics service providers, which have created a market opportunity.

Emerging ASEAN logistics markets in Asia: Even though Singapore remains the top ASEAN Logistics hub for the tenth consecutive year (as of 2016)23, Thailand’s Logistics industry is on the upswing and is giving Singapore a run for its money. A few emerging markets to watch for are:

Indonesia: Indonesia’s logistic sector is expected to grow by 15.4 per cent in 2020 due to the growing economy. Strong growth factors include the rise in export of manufactured products, high domestic consumption, and improvement in infrastructure investment along with regional trade integration. The Indonesian government plans to invest in the construction of 24 new seaports, 15 new airports, 3,600 kilometers of new roads, the expansion of the railway network by 3,258 km and improve public transportation in 29 cities.
Malaysia: With a fourth place ranking in the 2016 Agility Emerging Markets Logistics Index27, Malaysia is considered to be an attractive location for new logistics entrants. The logistics sector is expected to contribute 4.3 per cent to the country’s GDP in 2020 from the current 3.6 per cent. Amongst its Southeast Asian counterparts, Malaysia boasts a vastly developed transport infrastructure which consist of five major ports, neatly constructed highways, five port container terminals (rails), five international airports and four inland ports (as of 2015).

Challenges ahead: The ASEAN logistics industry is not yet fully developed. What challenges and potential pitfalls should investors consider?

Lack of structural reforms in the CLM countries: The Philippines, Indonesia and Vietnam are rapidly upgrading their road, rail, maritime and air cargo infrastructure in line with AEC frameworks. However, the much smaller economies of ASEAN – Cambodia, Laos, and Myanmar – are still substantially lagging behind.
Political and environmental disruptions: The region is prone to frequent disruptions such as natural disasters (typhoons, tsunamis to name a few), power outages and poor infrastructure – not to mention the occasional media panic caused by a terrorist attack. Furthermore, complexity around bureaucracy, corruption and rampant red tape often results in high import taxes and heavy documentation requirements – strong deterrents’ to foreign investors.

The future outlook for ASEAN Logistics: The gradual liberalization of ASEAN logistics services will increase competitiveness and foreign participation, thereby introducing more logistics players into the market. But initially there may be more pitfalls than opportunities, as competition forces prices to be cut and over-supply looms. However, the industry should soon stabilize as mergers and acquisitions between global and local players take root. To support an orderly development of the logistics industry, governments will need to build adequate port, airport, road, rail and IT infrastructure for sophisticated supply chain processes. To overcome infrastructural bottlenecks, individual ASEAN government, as well as ASEAN as a whole, must ensure timely completion of transport related projects and other agreements related to transport facilitation, such as the ASEAN Single Window Policy, which integrates the National Single Windows of the member states to ensure faster cargo clearance and improved transparency.


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