Niche services necessary for logistic firms as competition rises
KUALA LUMPUR: The local e-commerce industry has been projected to register a 20.8 per cent growth by 2020 and as such, analysts believe that at this rate, niche services are now necessary for logistic companies to beat the competition and meet the rise in demand.
“Competition is expected to remain stiff as new entrants seeks to tap into the growth in Southeast Asian e-commerce which is expected to grow from US$23.2 billion in 2018 to US$102 billion by 2025 (more than 300 per cent) according to a study by Google and Temasek.
“In order to circumvent this situation logistics companies need to develop their own niche,” MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) said in its sector update on the transport sector in Malaysia.
It viewed that the increase in the number of domestic parcels handled will entice more last mile deliveries companies to pursue strategic tie up with the various e-commerce companies including startups such as J&T Express and Lalamove which will lead to intense price competition.
“Existing last-mile delivery companies will need to continuously revise the delivery fees downward in order to remain competitive in view of the high number of players in the industry.
“This will inevitably lead to compression in profit margin which, in turn, impacted the earnings of these companies,” it added.
However, it noted that there are companies which are already tapping into new services to improve their profit margins.
For example, it said, GD Express Carrier Bhd (GDEX) used its ‘myGDEX’ online portal to firm up its C2C segment in Malaysia while expanding its footprint by acquiring a 44.5 per cent stake in Indonesia-based courier player, SAP Express.
“Competition is much tougher in Indonesia given its large demographics of 280 million people spread across islands. However, we view that SAP Express’s extensive coverage to more than 6,000 delivery points will serve as a competitive advantage. Based on our understanding, SAP Express was still loss-making in FYE17 and we are cautiously optimistic on its path to break even in the coming quarters,” MIDF Research added.
Meanwhile, it noted that there are opportunities of growth in online shopping.
“Although the food products are primarily non-refrigerated this presents a great opportunity for cold chain service providers in the long-run, as the emergence of online shopping for groceries should create additional demand for refrigerated (reefer) trucks and warehouses near major urban areas.
“Aside from that, opportunities to provide retailers from various industries such as pharmaceuticals, agri-business and halal food production are still ample.
“Tasco Bhd’s (Tasco) growth in the cold chain logistics business is a testament to this as PBT margins of the segment has remained healthy above 10 per cent for the past five consecutive quarters.
“Nonetheless, competition in cold chain logistics is not high in view of high setup costs which also include higher financing costs. We expect profit margin to improve further as the elevated finance costs is expected to taper within three to four years,” the research team explained.
All in, MIDF Research maintained its ‘neutral’ call on the sector.
It said: “The presence of the start-ups in the logistics industry will continue to bite into margins of existing players in the wake of higher demand from e-commerce activities.
“As such, we opine that logistics players will need to continue adapting to the consumer dynamics that prevail over time to remain relevant in the wake of stiff competition coming from these start-ups.”