Logistics turns to tech to meet new demand

Asia’s logistics sector is booming. And it is technology — whether used to map global shipping routes or plan customer deliveries — that is helping propel growth at companies large and small.

From shipping groups to warehouse owners, logistics businesses have often been slow to embrace digitalisation. But global supply chain disruptions early in the pandemic forced a rethink as companies turned to tech-based solutions to locate and help transport goods.

Nowhere is this more evident than in Asia, where surging ecommerce sales and western unease around Chinese suppliers is putting pressure on logistics groups.

Online sales in Asia hit almost $3tn in 2021, according to research group Insider Intelligence. China is by far the biggest market, but sales are expanding rapidly in countries across the region and logistics start-ups are springing up to help meet demand.

Singapore start-up uParcel launched in 2015 with a crowdsourcing model for drivers, using AI to match them to locations and deliveries. With a compound annual revenue growth rate of 64 per cent between 2018 and 2021, it is included in this year’s FT/Statista ranking of high-growth companies in Asia-Pacific.

Co-founder and chief operations officer Wee Leong Ng says high demand for online deliveries meant his company struggled to fulfil orders in peak periods. Many times, he was unable to source drivers and had to deliver the parcels himself — “but doing so makes me want to build better technologies”, he says.

The start-up, which focuses on same-day deliveries for goods — from groceries to medicines — has expanded into Malaysia and plans to launch in India this year, Leong Ng says.

Growth in the wider region’s logistics industry has been driven by new technologies for plotting shipping routes, tracking goods, operating warehouse robots and managing driving fleets, according to analysts.

Asia’s $231.2bn contract logistics market is expected to achieve compound annual growth of 5 per cent between 2019 and 2028, according to logistics data provider Mordor Intelligence.

“All large logistics companies are dedicating huge amounts [of cash] to digitalisation,” says Viki Keckarovska, research manager at UK-based logistics consultant Transport Intelligence, “because demand for visibility [of company operations] has increased, putting a lot of pressure on logistics companies to invest in real time visibility.”

Tracking shipments and operations is important for the automotive sector, one of the biggest users of logistics groups, globally.

Industry trends including the switch to electric vehicles and rising exports from China mean that, as production demands shift, logistics operations must adapt.

“All of those supply chains that were set up and configured in a certain way — all of those logistics services — are now having to rethink and reconfigure,” says Tim Foster, lead logistics adviser at Cushman & Wakefield.

Steve Saxon, partner in McKinsey’s Shenzhen office, says logistics companies need to be flexible enough to connect new components to manufacturers in new locations, as parts now come from across the region. “Japan has a lot of the high-tech components in a car and the tyres are coming from south-east Asia, or at least the rubber is,” he notes. “People involved in the supply chains of automotive are doing well.”

Elsewhere in manufacturing, analysts expect logistics groups to benefit as western companies source more suppliers outside China amid tensions between Beijing and Washington.

Supply chains are increasingly bypassing China, says Keckarovska, and “it will be south-east Asia and India which will be more attractive production and sourcing destinations”.

Companies “are diversifying because they have to”, says Saxon. “The risk of being reliant only on manufacturing in China is too high.” But logistics companies, he adds, are “a bit behind the manufacturers, playing catch-up”, and are focused on growth in India, Indonesia, Pakistan, Bangladesh and Vietnam.

Saxon also warns that some logistics revenue growth may prove “temporary”, due to a rise in container freight rates in the pandemic, as restricted capacity drove up prices.

Companies with “scarce assets such as container ships and aircraft” racked up huge revenue and profit increases in the period but this is not sustainable, he argues.

All the same, opportunities remain for logistics groups because of rising ecommerce, says Keckarovska — but companies will have to “dedicate more resources” to technology to sustain growth.