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Talk to most experts in Southeast Asia about the potential of ecommerce in the region and they’ll find common ground: the real bottleneck towards growth lies primarily in logistics that can’t keep up.

Decrepit infrastructure, outdated customs processes, and the sprawling landscape all add up to a scenario notoriously murky to navigate. Indonesia, for example, is the largest internet market in Southeast Asia and it’s expected to drive the bulk of growth in ecommerce. Economic indicators are rosy and consumers have higher disposable incomes.

The problem? It’s a massive archipelago consisting of 17,000 islands. Ecommerce deliveries can take up to a week if delivery is even offered at all, leaving customers frustrated and uncertain whether they’d engage in a purchase again.

It’s a similar story in the Philippines, which has over 7,000 islands. Countries like Thailand may be geographically easier to navigate but it’s not without its own set of challenges: the Kingdom witnesses the second-highest road accidents in the world, just marginally behind Libya.

But simply adding more delivery vehicles and hiring people to drive them won’t instantly solve the problem. Within the logistics industry, there are issues such as fuel pilferage, lack of adherence to safety rules and regulations, and rash driving. These problems entail an inherent cost for fleet operators ordinarily passed on to end consumers in the form of delivery fees. And that’s a cost which can be avoided.

Thai company Drvr is trying to tackle these challenges head-on. It uses telematics, which allows devices to send and receive information across large distances, to track vehicle performance, driver behavior, unscheduled stops, and so on. Drvr installs an array of sensors inside vehicles to help managers keep track of the fleet and also provides a SaaS platform that displays an overall dashboard. It can be modified and tweaked according to client requirements, of which Mercedes Benz is one.

CEO and co-founder David Henderson, who hails from Seychelles, first moved to Thailand in 2014 following a stint at a telematics firm in Australia. The challenges of solving mammoth problems in Asia was the primary motive – he had originally pitched the idea to his previous employer but they were far too risk-averse for his liking. So he decided to quit and branch out on his own.

“The product we had two years ago was simply a GPS tracking product,” David tells ecommerceIQ. “We’ve matured significantly as a company since, and it’s fair to say that we have one of the most advanced fleet management and IOT platforms in the world now.”

The Drvr analytics dashboard

Why start in Thailand?

David explains that his target market isn’t just the logistics sector, but any business that owns and operates a large fleet of vehicles. This could entail players in transportation as well as construction. Such businesses need to keep a keen eye on the health of their vehicles to make sure that drivers and support staff aren’t running amok.

“Thailand is a natural market for us because there are over 3 million vehicles manufactured here annually with commercial vehicles accounting for half that number. That’s the primary reason we’re based here,” he explains.

Drvr’s core solution aims to make fleet operators operate efficiently. It achieves this via a number of ways – the first, as mentioned earlier, is via the predictive analytics platform it offers. The driver version of its app also combines gamification elements to help coax drivers into following the rules. There are rewards every time they adhere to a certain standard such as the maintenance of an average speed or keeping unscheduled stops to a minimum – these could be in the form of cash bonuses or enhanced performance reviews, but is agreed mutually between the fleet manager and driver. The company says this helps reduce the element of confrontation between them and HR.

“One of our immediate use cases that we can prove to our customers is in the case of fuel theft. Fuel theft is a major issue, not just in Thailand but right across the world in fact. It takes on different forms in different areas – [in Thailand] it tends to be siphoning but in Australia and other places […] people tend to fraudulently buy fuel or fill up their own car with the company credit card. We can detect these scenarios and prevent them from happening,” says David.

Before Drvr came along, the common solution to this issue was that companies would simply pay their drivers lower. These would lead to distorted economic incentives – drivers would simply shrug their shoulders and pilfer more fuel from the vehicle in order to sell it for cash. And the cycle would worsen.

David doesn’t disclose how many customers he has but does say that the startup turned a profit last month. While they’re based in Thailand, the largest market is currently Myanmar in terms of volume. However, both Indonesia and the Philippines are high on his list of priorities.

“We see Indonesia as the critical market in Southeast Asia – volume-wise, it’s just one with huge potential. Margins are a bit lower, admittedly, but there are big opportunities there,” he adds.

“At the same time it’s very tricky to get a foothold – we’ve failed a couple of times because of the difficulty of finding a reliable local partner. If you’re successful in Indonesia, it’s a massive tick on your profile.”

What trends does he notice?

Fleet analytics companies aren’t exactly mindblowing tech and there’s a few of them around already such as Cartrack and Coolasia. For David, however, they’re trying to set themselves apart in terms of the sophistication of their platform and the clients.

Mercedes Benz trucks, one of their key clients, actually ships all vehicles in Myanmar with Drvr sensors pre-installed. This provides a certain degree of validation when pitching to other companies. Drvr is also helping facilitate the growth of a subscription vehicle model – whereby fleet owners ‘rent’ vehicles from manufacturers as opposed to simply buying it outright and then allowing it to depreciate over its lifecycle.

This scenario – which David claims is already happening in markets like Australia – necessitates razor-sharp analytics so manufacturers know how to charge on an hourly or monthly basis. Analysts need to understand costs specifically and it’s simply not possible to do that without carefully monitoring existing vehicles to figure out when it’s liable to break down, what the fuel costs are, and other predictive analytics.

He claims Drvr is working with manufacturers interested in this model – the sensors and analytics will help them build a financial model – but doesn’t name names.

Will IOT engulf Asia?

Some people might scoff at the idea of high-tech commercial vehicles plying the backwaters of Asia given how cheap labor costs are, but David doesn’t believe it’s so far-fetched. He agrees on the fact that the economic imperative, for now, is missing but says the costs of devices and provisioning the service is “much lower than what it was in the past.”

“If you’re in ecommerce or logistics, the reality is that customers expect goods to be delivered the same day or as quickly as possible. In order to facilitate that you can’t have drivers sleeping on the side of the road or stealing fuel. It damages your brand and the perception of your service. Even the most old-fashioned Thai companies are beginning to realize that,” he explains.

Indonesia is arguably the most important internet market in Southeast Asia as a result of its sheer size, emerging middle class, and digitally savvy population.

The annual global digital ecosystem report by We Are Social says Indonesia has 132.7 million internet users, which points to a penetration rate of 50% of the population. 130 million of these use some form of social media, showing how plugged in Indonesians are when it comes to documenting their lives online or using platforms like YouTube to consume content.

Source: We Are Social

With half of the Indonesian population still offline, there’s massive potential for ecommerce ventures, smartphone manufacturers, as well as brands building products to appeal to millennials in the country.

Other countries in Southeast Asia – Malaysia, Singapore, Thailand, and the Philippines for example – may have higher internet penetration rates but their smaller populations can’t compete with Indonesia in terms of volume.

It’s these numbers that have forced investors to take notice.

study by Google and AT Kearney indicated that venture capital activity in Indonesia has grown 68X in the past five years, driven mainly by growing interest in ecommerce and ridesharing.

Total VC activity in the first eight months of 2017 was recorded at US$3 billion – more than double the number for the entirety of 2016, which was US$1.4 billion.

The same study predicted the volume of investments in Indonesia will continue to grow in the foreseeable future because VC investment as a percentage of GDP in Indonesia is actually lower than its Southeast Asian counterparts.

Source: Google / AT Kearney

What are Indonesians doing on the web?

Indonesian residents love the internet. 79% of survey respondents in the We Are Social report said they logged on to the web at least once a day. The average daily time spent online was almost 9 hours with approximately 5 hours dedicated to social media and streaming music.

Source: We Are Social

The majority of web traffic in Indonesia comes from mobile phones, facilitated by the availability of cheap smartphones to the Indonesian population coming online for the first time; sidestepping desktops and PCs directly.

Access to mobile has also caused excitement around fintech as only 36% of Indonesians possess bank accounts and only 3% have credit cards. If e-wallet platforms get it right, there are 125 million mobile internet users waiting for easy banking.

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Indonesians are also increasingly using the internet to embark on their product buying journeys. 45% of Indonesian netizens search online for a product or service to buy with a similar number landing on an online store and 40% make ecommerce transactions at least once a month.

Source: We Are Social

Fashion & beauty categories attract the highest amount of spend online, almost double that of electronics despite having a lower basket size than consumer appliances like mobile phones, cameras, and wearable gizmos.

It was estimated that Indonesians spent close to US$10.3 billion online in 2017.

Source: We Are Social

Dizzying statistics aside, the Indonesian market still has plenty of space to grow.

Expect heightened competition in the years to come as incumbents jostle for space and keep raising large war chests to outmuscle opponents. VCs, especially with an entrenched position in the market, can’t afford to back down now – there’s too much skin in the game for them to consider any hasty exits.

Recent developments already demonstrate how investors are taking a long-term view of the market. Alibaba injected over a billion dollars in local ecommerce marketplace Tokopedia last year. JD.com, Alibaba’s direct rival in China, has opened fulfillment ccenters across Indonesia with a view to keep expanding. And homegrown unicorn Go-Jek is rapidly transforming into a Wechat-esque ‘super app’ with users able to do everything from hail motorbikes to get their plumbing fixed, and pay for it via e-wallet.

The popularity of  ‘click and collect’ has grown among consumers worldwide as it offers them more flexibility in retrieving their online purchases. More importantly, the reason why consumers prefer this last mile method is because they avoid the delivery fee.

A growing number of companies like Japanese fashion retailer Uniqlo are letting customers pick up online purchases in 400 of its 500 stores in China to help tackle problems such as delayed deliveries. Retailers generate foot traffic and sales to offline stores.

67% of shoppers purchase an additional item while collecting their items in store.

It’s no wonder 51% of CEOs plan to offer click and collect in the next 12 months, while investment into same-day delivery only attracts 31% of them.

However, retailers need to keep in mind that to provide a positive experience for consumers using the service, simply relying on existing infrastructures such as the physical store isn’t enough.

The latest report from JDA & Centiro found that among the most common problems in the last 22 months that often occurred with click and collect included long waiting times and unsynchronized inventory between online and offline stores.

Retailers planning to provide click and collect as part of their ecommerce strategies need to allocate enough resources, whether it be data systems or software, to have a clear snapshot of real-time inventory to improve the entire retail process for both on the ground employees that need to fulfill incoming orders and the consumers standing in line waiting to spend their hard-earned cash.

Deliveree logistics marketplace

Deliveree’s Group CEO Tom Kim and Group Head of New Product Nat Atichartakarn at Deliveree’s Jakarta HQ

The current state of logistics in Southeast Asia is often bemoaned as one of the main challenges holding the region back from its full economic development.

Alibaba founder and chairman Jack Ma remarked that with Indonesia’s geographical state, a comprehensive logistics network is needed to stimulate growth.

His assessment is also applicable to other emerging markets across the region.

But these types of infrastructural projects in the Philippines, Thailand or Vietnam is not an easy, and certainly not, cheap feat. Here are a few examples of current plans in the works:

  • World Bank estimates $500 billion is needed in Indonesia over the next five years to bridge the infrastructure gap
  • President of the Philippines, Rodrigo Duterte, proposed a $161 billion six year plan to improve railways and ports to connect the archipelago’s islands
  • Thailand’s government has also started 20 infrastructure projects worth $50.2 billion to improve the country’s current rail lines

This regional bottleneck has opened opportunities for startups to figure out the cheapest and quickest way to get a package from point A to point B.

Companies solving last-mile headaches for ecommerce companies have attracted a lot of investor money like Lalamove and NinjaVan with $100 million and $30 million funding rounds, respectively.

But a logistics technology company that recently raised $14.5 million is looking to tackle another problem.

“We’re interested in solving bigger, bulkier problems that sit further upstream from your last mile delivery challenges,” explained Tom Kim, Group CEO of Deliveree. “With marketplace technology, we want to fundamentally challenge the way companies approach first and mid-mile bulk logistics.”

Deliveree logistics marketplace

ecommerceIQ speaks with Tom and the Group Head of New Product, Nattapak Atichartakarn, to discover how the logistics company found success in Southeast Asia by helping businesses reduce costs for first and “mid-mile” goods transport and what they plan to do with the recent Series A injection from Gobi Partners.

Logistics but focus is on technology

Through the Deliveree mobile app and web marketplace, customers have access to screened qualified drivers of commercial vehicles to move their merchandise and/or cargo.

The company’s new marketplace model houses 15,000 commercial vehicles consisting of cargo vans, pickups trucks, small-large box trucks, as well as economy vehicles such as MPVs and hatchbacks on its platform — covering three metro cities in Southeast Asia; Bangkok, Jakarta, and Manila (the company operates under “Transportify” due to a trademark issue in the Philippines).

Having started with serving end-customers, the company realized in order to grow its business, it had to focus on serving corporate clients.

“The bread and butter of our business is goods, merchandise, and cargo — bulk movement from outer provinces to warehouses in the cities, factories to distribution centers, and distribution centers to retail stores, or what we call modern trade,” explains Nat.

Now, nearing the end of its third year of operations, the company says it is close to financial break-even in its core markets. Nat credits this success to the quality of technology and drivers that Deliveree provides.

The company’s tech team of 30 developers in Vietnam is responsible for building, managing, expanding, and innovating the company’s marketplace tech capabilities and solutions that focuses on businesses needs:

  • Batch booking toolsets for high volume customers
  • Flexible booking scheduling from immediate to two weeks in advance
  • Drop off package at multiple destinations up 10 locations
  • Real-time tracking of driver and package location
  • In-app chat between customers, drivers, and customer support
  • Cash on Delivery and original document return services
  • Contract logistics option for businesses that need dedicated resources
  • Full commercial insurance

In addition to targeting SMEs, Deliveree also partners with transportation and logistics companies without their own technologies to connect them to new customers on its platform.

“People think these big logistics companies own their whole logistics network, when in fact, many don’t. A lot of them outsource ground transportation elements of the business and they use us as a provider of ground transportation for bulk goods and cargo so we address the gap and needs of the industry,” says Tom.

Capitalizing on quality

Deliveree logistics marketplace

The company takes pride in the high quality of its drivers, achieved by imposing a high standardized screening process, something Tom doesn’t skimp on.

It’s easier to get into most colleges than to get into our driver pool.

“We only invite a third of the driver applicants to training — it’s less than the acceptance rate at the most universities,” says Tom.

Calling it the “best trained fleet on the market”, every single driver must endure six hours of in-class training, which includes customer etiquette, and pass a 50 question final exam with 80% score or higher.

The company also enforces additional training for drivers with low satisfaction scores and regularly do real-time quality checks with a mystery shopper.

While not the most scalable process, Nat says it’s a price the company’s willing to pay.

Growth without quality is more of a step backward for us.

With such high investment in human resources, is the company worried about “leakage” – the shift of user-driver relations moving off the platform?

“There will always be a case or two of customers trying to work with our partners directly, but most of them end up coming back to our platform. Why? Because one of the reasons they come to us in the first place is they don’t want to, or can’t, manage this specific part of the business,” said Tom.

“And with the added value we provide for them, I don’t see why businesses would want to even bother.”

Ride-hailing apps aren’t built for cargo

With the heated war between ride-hailing companies in the region, parcel delivery is one of the added value services that is being offered by Uber and Grab to capture a wider clientele.

But Deliveree isn’t worried.

“These ride-hailing companies have always been doing logistics but they haven’t been doing it right,” said Tom.

According to Deliveree, the services provided are not comparable as the requirements for logistics is radically different than the passenger business.

“If you’re looking at the value of delivery bookings in Uber and Grab, it’s probably not more than a few dollars. Our average booking value is more than 10 times the amount and at the same time, our resources and costs to support each booking are higher than what a passenger app would expend per booking,” said Tom.

Tom also pointed out the security risks highlighted by a recent ruling in the Philippines by the country’s Land Transportation Franchising and Regulatory Board (LTFRB) that banned any package delivery through ride-hailing apps accompanied without a passenger. The reason? Drug-trafficking concerns.

“Trust me, it won’t only be the Philippines that will apply this rule,” commented Tom.

Small ecommerce pie for Deliveree

With the current state of ecommerce in Southeast Asia where fashion still tops all categories in popularity and ordering large items like bicycles or washing machines is still uncommon, the pie for Deliveree’s business is not that big.

“Ecommerce is primarily a business comprised of small things, and we don’t move small things — we move big things,” says Tom.

But Tom believes the company will eventually grab their share of Southeast Asia’s ecommerce pie.

“Our company is not closely aligned with the ecommerce industry today because the items that people buy are still small parcels and it isn’t our specialty because of the challenging economic units,” said Tom. “Ordering anything and everything online is an evolution that will probably happen in the next over ten years or so.”

“This is when we (Deliveree) will likely play a much bigger role in the ecommerce value chain.”

Growing its current markets

With new funding from its Series A round, Deliveree is exploring some interesting growth plans.

The company hasn’t ruled out M&A to grow the business in key markets and although expansion to new cities and countries are in the cards, Nat said that Deliveree is more interested in growing the cities where it is currently operating at the moment.

Deliveree logistics marketplace

“Imagine if Asus, Lenovo, and Acer compete with each other in the tablet market in Jakarta,” said Tom. “When the sales start, there’s a limit to how far the competitors can go because they have inflated costs the further the consumers. If we can bring down the cost base and give them more margin latitude, the competitive playing field will force some of those savings into discounts, sales, promos, even lower everyday pricing and ultimately the consumer wins.”

Deliveree logistics marketplace

“These are the kind of big problems we love to be involved in solving,” concludes Nat.

Here’s what you need to know today.

1. Alibaba stock has gained 60.5% so far in 2017

Alibaba shares rose steadily from January to May, right alongside fellow e-tailing giant Amazon. Then Alibaba held a successful and convincing analyst day in early June, sending share prices skyward while Amazon’s stubs took a small haircut due to this international competitor’s apparent rise.

Alibaba’s sales increased by 60% year over year in the recently reported fourth quarter, and that revenue growth is accelerating.

Looking ahead, Alibaba is exploring global growth while its home-market Chinese consumer base grows more affluent and able to afford the occasional retail splurge. This company is riding powerful economic trends, not short-lived fads.

Read the rest of the story here.

 

2. For brands, fitting rooms are the key to unlocking valuable customer data

Fitting rooms are evolving past poorly lit mirrored closets and transforming into critical data touch points. By tracking the movement of in-store products using RFID technology and scanning systems, brands can follow item-by-item performance to make decisions.

“It’s scalable, but retailers need to position themselves to be able to pivot on a daily basis in reaction to this data,” said Ray Dollete, associate director of creative technology at Phenomenon. “Retailers aren’t tech organizations”

 

3. Southeast Asia poised for logistics boom

“Consumers have bypassed computers and are using their mobile phones to shop. About 20 to 30 percent of those online in Southeast Asia have bought something via the internet in the last 30 days, a similar rate to the United States or the UK,” says Regina Lim, JLL’s Head of Capital Markets Research, Southeast Asia.

“Our top markets for industrial development are Indonesia and Vietnam. Indonesia’s manufacturing output could accelerate to 6.5 percent over the next five years, from the current five percent. Vietnam stands out with its skilled workforce and relatively low costs.”

It hasn’t gone unnoticed by big players such as Alibaba, SingPost and Reebonz, all who have launched logistics hubs in the region this year.

Read the rest of the story here.

Here’s what you should know today.

1. JD.com invests $397m into luxury marketplace Farfetch as part of a new strategic partnership

JD.com, China’s second-largest ecommerce company after Alibaba, is pumping $397 million into Farfetch, a marketplace for luxury brands, as part of a new strategic partnership.

Last year, Farfetch raised $110 million specifically to support its expansion in Asia. China, where Farfetch launched in 2014, had already become its second-largest market by the time that round was announced in May 2016.

In return, JD.com gets an important ally as it focuses on high-end retail to help it differentiate from Alibaba, which despite various anti-counterfeiting efforts is still saddled with a reputation as a haven for knockoffs.

Read the rest of the story here.

 

2. Bangkok to launch $147M digital economy fund

Thailand is set to launch a THB 5 billion (US$147 million) fund aimed at growing local startups; the estimated launch date is September of this year.

this Digital Economy Fund will serve four functions:

  1. Support development of tech companies
  2. Increase R&D efforts
  3. Support the operations of the Digital Economy Promotion Agency (DEPA)
  4. Support the expenses of the National Digital Economy Committee (NDEC)

Along with the new fund, “the DE Ministry, the Revenue Department and the Board of Investment are working on proper incentives packages to be offered to startups.”

Read the rest of the story here.

 

3.  Logistics firm LBC Express raises $50m from Crescent Point in the Philippines

LBC Express Holdings Inc, a listed courier and logistics company in the Philippines, is raising up to $50 million from Singapore-based private equity firm Crescent Point.

Crescent Point is a China, Southeast Asia and Australia focused private equity and special situations investment firm.

“The proceeds of the convertible instrument will be used to fund the growth of the business of the company, including capital expenditures and working capital,” LBC Express said in its statement.

Read the rest of the story here.

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