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E-commerce logistics rat race forces firms to diversify

Jakarta Post - August 4, 2023

Aditya Hadi, Jakarta – Homegrown online delivery company Anteraja, which saw a significant drop in revenue in the first half of the year, has placed the blame squarely on e-commerce firms for causing a decline in demand for delivery services by increasing the take rates they collected from merchant sales.

Analysts opined, however, that despite some moderation as offline outlets reopened, e-commerce transactions in Indonesia were continuing to grow. But whether logistics and delivery companies benefited from this would depend on their cooperation with e-commerce firms.

Anteraja's parent company PT Adi Sarana Armada (ASSA) booked revenue totaling Rp 818 billion (US$53.8 million) in its package delivery business in the first six months of 2023, a 56 percent decline from the same period last year. As a result, Anteraja expects its annual revenue to stagnate or decline.

"One reason is the decision of e-commerce platforms to increase the take rates from their sellers, which has caused a drop in consumer demand," ASSA president director Prodjo Sunarjanto said on July 23 to explain the slowdown in the package delivery industry, as quoted by Bisnis Indonesia.

The resulting impact on ASSA was significant, as e-commerce companies accounted for 90 percent of Antaraja's business. Nevertheless, Prodjo expressed the hope that the industry would help improve Antaraja's financial performance to reach the break-even point by the year-end.

Management consulting firm Redseer expects continued overall growth in nationwide parcel volumes from e-commerce this year, fueled by a shift in consumer demand for products with lower average order value but higher volume, such as fashion, beauty and personal care products.

"The player-level impact depends on their partnerships [if any] with various e-commerce players. Larger players [that are] working closely with leading e-commerce incumbents and TikTok Shop could be better off [compared to] smaller players or firms with niche partnerships," Redseer Southeast Asia partner Roshan Raj told The Jakarta Post on Tuesday.

Anteraja counts PT Roda Bangun Selaras, a subsidiary of tech giant GoTo Group, as one of its shareholders and serves GoTo Group's e-commerce unit Tokopedia, aside from other players, such as Shopee and Bukalapak.

But Anteraja is not on the list of logistics partners of TikTok Shop, which has gained popularity in the country with its live commerce feature and only counts J&T, Ninja Xpress, JNE and SiCepat as its logistics partners.

Rise of in-house logistics

Singapore-headquartered venture outfit Momentum Works also forecasts continued growth in e-commerce parcel volumes this year, though the growth rate might be moderate due to the post-pandemic revival of offline shopping.

However, the firm opined that some third-party logistics (3PL) companies could experience a parcel volume drop from the growth of in-house logistics services, such as Shopee Xpress and Lazada's LEL Express.

"Shopee Xpress now delivers 40 percent of Shopee's [parcel] volume, and LEL Express delivers up to 60 percent of Lazada's packages in Indonesia," Momentum Works insights lead Vion Yau told the Post on Monday.

According to Yau, major e-commerce firms like Shopee and Lazada would want to control a significant part of logistics as a buffer. She also threw in the idea that TikTok Shop, once it achieved greater scale, might also run its own logistics service.

"Now that these in-house logistics have grown to be meaningful players, you can see that 3PL firms are being squeezed on price," she added.

Kuo-Yi Lim, cofounder and managing partner of Singaporean venture capital firm Monk's Hill Ventures whose portfolio includes Ninja Xpress, said the e-commerce market in Indonesia had hit its peak during the pandemic. Both 3PLs and in-house logistics services thus invested in additional capacity, as capital was still present at that time, which had resulted in overinvestment.

"When the [demand for e-commerce services] drops, those [firms with in-house logistics] want to make sure the investment made [produces results]. Thus, the parcel volume going to 3PLs becomes compressed," Lim told the Post on Tuesday.

He added that 3PL firms could consider cutting back on capacity by closing logistics hubs and reducing fleets while at the same time, seeking to diversify to serve more clients.

"A logistics firm that is dependent on one or two key customers for most of its volume will be vulnerable. Emerging platforms, such as TikTok Shop and direct-to-consumer brands, provide opportunities for them to diversify," Lim noted.

Evading price war

Prodjo explained that ASSA planned to focus more on becoming an end-to-end logistics provider and not limiting its business to serving e-commerce firms through Anteraja alone. For this, it had tapped into the business-to-business (B2B) market through Cargoshare, a middle mile logistics firm.

"Anteraja remains a crucial part of the network, catering to both e-commerce and non-platform channels," he said. Nevertheless, "the primary goal for Anteraja this year is to improve profitability rather than solely increase the parcel delivery volume".

Momentum Works' Yau said 3PL firms needed to diversify their business away from just e-commerce logistics, which offered little room for differentiation. If not, they could only compete on price.

"We can already see that happening with J&T Express' declining gross profit per order in Southeast Asia," she said.

This diversification could entail working with corporations, the brands' own sites and social commerce, she continued. Another possible way out for 3PL firms was to expand into other parts of the value chain, such as freight forwarding.

"Ultimately, logistics is a game of scale. Players with larger scale, effective operations and thus, cost advantage, will have a significant edge," Yau said.

Roshan from Redseer agreed that price was an important factor. However, logistics firms could also differentiate their offerings in terms of coverage area and delivery reliability.

But he cautioned that despite the promise of higher revenue and margins, moving to B2B would not be easy, which required logistics firms to build additional assets and improve delivery standards to compete with incumbents in that market.

"Hence, the challengers have to offer greater value to B2B players while committing to longer-term logistics support," he noted.

Source: https://asianews.network/e-commerce-logistics-rat-race-forces-firms-to-diversify