Southeast Asia: why the real money is in logistics, not ecommerce

Ninja van founders

Ninja Van founders (L-R): Shaun Chong, Changwen Lai, Boxian Tan

A quiet revolution is underway in an obscure warehouse in Singapore, and you’d be hard pressed to pick its leader out of the pack. When drivers arrive at the nondescript building to report for duty at logistics startup Ninja Van, the CEO blends in among the other mostly 20-something men in polo shirts and flip-flops.
Changwen Lai is a lifelong entrepreneur. As a student at Raffles Institution and Raffles Junior College – Singapore’s most elite schools alongside Hwa Chong Institution – he spent his free time buying used mobile phones at below-market prices from internet forums, and then selling them for a tidy sum. Later, he’d buy bicycle parts, put them together, and sell the two-wheelers for a profit.
“I wanted extra pocket money,” he says, lighting up a cigarette. That was the best use of his free time, since he didn’t need to attend extra lessons – “tuition” as they’re called in Singapore – to get good grades.
He was then offered a government scholarship, but that comes with a six-year bond to government service. A month before he was supposed to leave Singapore for studies, he realized becoming a civil servant wouldn’t be fulfilling to him.
Much to his parents’ disappointment, he turned down the lucrative scholarship, and entered local college Singapore Management University while most of his friends went abroad. There, he started made-to-measure menswear brand Marcella, his first “proper business.”
Investment banking attracted him initially as there were tons of money to be made. But he did not stay long. “Trading became a bit boring as well. I decided to quit my job, and my parents got very pissed again,” he says.
Lai jumped into Marcella full-time, spending half a year in China setting up its factory. With a few retail stores established, its next step was selling online.
But Singapore’s logistics services weren’t ready for ecommerce, he realized. Automatic parcel tracking was non-existent, and printing waybills (delivery instructions) was done manually. Customers were at a loss when a parcel didn’t arrive on time.
So, at a lunch with friends, including angel investor John Tan, Lai lamented on the state of logistics. They told him: take our money and do something about it. That was in April 2014.
Southeast Asia is a laggard in ecommerce, and logistics has a huge part to play. Online shopping accounted for less than one percent of total retail sales in 2013. That’s far behind the six to eight percent in Europe, China, and the United States.
However, things are changing. The lack of ecommerce penetration is seen as an opportunity by entrepreneurs. Rocket Internet almost single-handedly lifted Southeast Asia’s ecommerce economy by investing almost a billion US dollars into Zalora and Lazada, its two flagship websites in the region.
It’s not just professional outfits that are selling online. The growth of marketplaces like Lazada and Qoo10 means individuals and small companies can get in on the ecommerce stakes too.
Investments in ecommerce skyrocketed. This created larger order volumes and higher order densities. In other words, a neighborhood may have seen 10 deliveries monthly a year ago, but now it’s getting 50 packages from online shopping. As a result, ecommerce sites are becoming more efficient, since the cost of delivering the same amount of goods is lower.
But ecommerce met a roadblock. As demand picked up, logistics couldn’t keep up. As the Marcella case demonstrated, it’s an important missing piece: if consumers can’t get their goods quickly, cheaply, and reliably – there’s no business. This makes solving the logistics puzzle not just lucrative, but also crucial to the growth of ecommerce itself.
singpost sp ecommerce delivery

SingPost recognized ecommerce’s potential early.

The money is starting to pour into logistics though, with Singapore Post (SingPost) serving as an exemplar. A company with a long heritage of serving as the country’s national postage carrier, it’s rejigging its infrastructure for another purpose: to become a regional leader in ecommerce logistics.
SingPost’s ambition was validated when Chinese ecommerce behemoth Alibaba sunk close tohalf a billion US dollars into it, turning the company into a front runner in Asia’s logistics race, alongside Japan’s Yamato Transport. It experienced stunning growth of 12 percent in year-on-year revenue in its latest financial report to reach S$919 million (US$669 million). Most of the growth came from logistics.
It’s bearing fruit from seeds that were planted into the company years ago. “Our chairman [Ho Kee Lim] was really at the forefront of innovation back then,” Marcelo Wesseler, CEO of SP eCommerce, tells me. In 2003, Lim started vPost, a site that lets anyone buy from ecommerce sites overseas and ship to Singapore through a virtual address.
So when SingPost began doing delivery for retailers, it already had warehouses, it was already picking and packing catalogues, and it had a database of consumers which could be dangled in front of retailers – all because of vPost.
While SingPost is perhaps the king of the hill, it has competition. Venture capital-fueled tech startups now believe they can sell the shovels in Southeast Asia’s ecommerce gold rush.
Perhaps the real gold rush is in the shovels after all.
Helping the old guys
Compared to other fresh-faced startup founders, Vaibhav Dabhade is an old hand in logistics. His family runs a logistics business back in India. In Singapore, he runs Anchanto, a logistics startup that has gone through many changes since it started in 2011.
Struggling initially with a failed product meant the startup had to develop projects for clients to stay alive. It found footing by building an online marketplace for sellers backed by in-house logistics tech, raising seed money in the process. Now, with more customers (its revenue grew 20 times in a year, with 15 percent monthly growth in the past two quarters), a bigger warehouse, and more experience, Anchanto has morphed yet again. Dabhade’s north star, however, remains perfecting logistics in Asia. It’s now tapping on cavernous, old-school warehouse spaces in the region, and making them ecommerce-ready.
“When you land in Jakarta, look at the area where you land, at the amount of warehouses that are built there. They’re massive. These guys have real estate, they have equipment, manpower. They’ve been running warehouses using very old-school management systems. What they don’t have is tech to integrate that logistics setup with online storefronts,” he says.
With ecommerce becoming increasingly lucrative, it’s no surprise that these traditional logistics firms want in. Anchanto can help by instilling best practices and introducing its own logistics software into these warehouses.
Fundamentally, running an ecommerce fulfillment center requires rethinking operations from the ground up. For example, ecommerce logistics is about picking, packing, and sending single packages to consumers, rather than the large pallets and containers in typical business-to-business logistics. The company also teaches them how to structure their contract – first of all by moving away from multi-year agreements.
Anchanto, therefore, is part consultancy, part software platform, and part logistics provider. It operates its own warehouses and fleet, but also works with other last-mile fulfilment companies to send out parcels. This way, it can expand rapidly to multiple countries while offering almost the same services as SingPost – warehouse and inventory management as well as cross border logistics – for merchants big and small.
As Dabhade puts it, his startup is the Airbnb to SingPost’s Marriott. When expanding, Anchanto simply makes use of latent capacity. SingPost, on the other hand, has to acquire more assets to expand.
On board a rocketship
There’s no rest when your startup is expanding as rapidly as Ninja Van. As I chatted to Lai, the company’s CTO Shaun Chong offered us coffee. Formerly from Anglo Chinese School, Chong has many hobbies. Besides brewing coffee, he’s a DJ and plays the bass guitar. These get him away from the stress of 15-hour workdays spent coding and gawking at diagrams. Because Ninja Van’s main business now is next-day delivery, a lot of warehouse action happens overnight. He sometimes stays awake to make sure things go smoothly.
Lai does not enjoy making coffee as much as Chong. “I think he has a french press; I refuse to learn how to do it,” says Lai, lighting up another cig. “It’s fucking troublesome.” But he gives high praise to Chong’s technical ability, waxing lyrical on how he was able to build a complex system in just months, and rebuilt the entire thing in the Java programming language when PHP didn’t work out.
While touring the Ninja Van premises, a group of older men crowd within a tent, responding to the startup’s job ad calling for delivery guys. 5,000 parcels go out each day, a number that’s increasing 10 to 15 percent every month. Each driver does about 100 parcels, which I understand is pretty efficient.
The company’s office takes up multiple floors. The fleet operations team occupies the first. Engineers, the algorithm specialists, and management work on the second. The third floor offers rest for the weary; there are six beds for employees. “It’s like going back to the dorm,” he says. I suggest it was like the Alibaba House in the ecommerce giant’s early days, where employees lived and worked in the office.
These days, you won’t find Lai sleeping on-site much. He’s typically in Singapore only two days per week as the company is busy expanding in Malaysia and Indonesia. “I’m living out of a suitcase,” he says.
ninja van bed

Why waste time traveling when you can sleep in the same building as your office?

Acing the last mile
Ninja Van is taking a fundamentally different approach to fixing logistics in Southeast Asia. While SingPost and Anchanto provide software services and are armed with both last mile and cross-border logistics capabilities, Ninja Van zooms in on the last mile – the stretch after an item reaches the local warehouse by plane or ship and is sent to the consumer’s doorstep.
How? By using algorithms to optimize “sortation” – the transportation of goods to their destinations. Lai said they’ve automated the entire sortation chain, which means drivers instantly know the optimal route to deliver the most parcels in the shortest time.
But even if a logistics company could get items to customers quickly, they face a second hurdle. What happens if a thousand orders come in simultaneously?
That’s the sort of thing Joe Choa, founder of Singapore-based last mile logistics startup, Courex, faces. An ex-army officer with a hearty laugh who still sports a crew cut, Choa left the armed forces six years ago to become an entrepreneur. He began selling on eBay, but found logistics a chore. He then started a courier service, but realized it’s not the actual delivery that needs improving, but the entire last mile. Courex was born from that journey.
After checking out his warehouse, where workers quietly mill about scanning parcels, packing goods, and monitoring driver routes, we sit down in his office and talk about the business. “Logistics is all about discipline,” he chuckles, linking his company with his army life. “Everything has to go by operational routines.”
Courex is rare among logistics startups because it has not raised any venture capital funding. So far, they’ve done well without, securing customers like Lazada and Zalora.
Choa’s phone buzzes, and he reads the text. “We’ve just got 1,200 orders coming in.”
This is the kind of unpredictability he deals with everyday, and that’s just the way ecommerce rolls. If logistics firms want to retain customers, they’ll need to keep up. “We are serving corporates. Our customers include Samsung and Singapore Airlines. You can’t go to them and say, I don’t have a driver for you.”
Courex wants to build the most efficient warehouse in Asia.

Courex wants to build the most efficient warehouse in Asia.

Logistics startups are finding their own fixes to the unpredictability. Anchanto relies on its fleet, plus a pool of third-party last mile players they can utilize at any moment’s notice. Courex, meanwhile, built an Uber-like network of drivers complete with ratings. Drivers, who bid for job requests, are grouped into different tiers with incentives for outstanding performance, such as monetary bonuses or even a shirt with their name embroidered on it, given out at presentation ceremonies.
Ninja Van, in addition to their own stable of over 100 drivers in Singapore and Malaysia, also has backup capacity it can tap into when a flurry of orders arrive. And here’s the interesting part: the vehicles are taken from existing idle fleets.
Case in point: McDonald’s, whose delivery vehicles experience a lull between lunch, dinner, and supper. “We use their idle time, and we pump volume into them […] So we are the load balancer for all these partner reserve fleets which we plug into our system,” says Lai.
Uber-ization of logistics
Software is eating logistics in Southeast Asia. Previously an obscure area dominated by incumbents, tech startups now believe they can upset the established order by connecting digital networks with physical ones – warehouses, forklifts, and trucks.
Choa saw this shift first-hand. “Everybody started saying Uber is going to change how parcels are delivered. And we started to see a lot of crowdsourced logistics companies – GogoVan, EasyVan – come out,” he says.
That’s the tip of the iceberg. So many new players are entering last mile delivery that logistics people I spoke to, including Dabhade, agree it’s a race to the bottom.
“Everybody’s cutting prices. People are doing deliveries at S$3.60 (US$2.60). It’s crazy. That’s why we decided to expand last mile not on our own, but by partnering with a network,” he says.
The price slashing occurring in last mile is nothing new to him. Tracing the history of the industry in Singapore, he noted how Yamato Transport came into the country five years ago and lowered the market rate drastically to get customers. They then raised prices once they gained market share.
Then Aramex came into Singapore and did the same thing. It’s one fungible part replacing another in an endless cycle.
“If you do last mile only, there’s zero loyalty. You don’t remember who delivered your order, but you remember who screwed it up,” says Dabhade.
The difference though is that startups, inspired by Uber, are now bullish about a sexy new area called on-demand logistics, in which parcels are delivered to consumers in just hours. On-demand is just a small part of logistics, but believers say it holds massive potential.
The appeal lies in giving users instant gratification and making online shopping much simpler, as there’s no need to plan purchases ahead of time. Honestbee, a new online groceries startup in Singapore that sends shoppers out to buy items on your behalf, is tapping into these desires.
Other companies that are stepping into the on-demand space include RocketUncle and FastFast. RocketUncle, founded by former SAP engineer Noam Berda, wants to offer affordable same-day delivery services.
Since launching in Singapore in 2014, the startup claimed to have a database of up to 5,000 drivers. About a thousand are on the network at any one point, ready to accept jobs. “I put out an ad, and got 2,000 drivers applying within two days,” says Berda. While the company didn’t disclose how many items it’s delivering daily, he said the month-on-month growth has been in the double digits. Malaysia and the Philippines are in his sights.
FastFast is perhaps the newest player to enter the Singapore arena. With just three full-time staff and 180 trained drivers, it still has some catching up to do. But the startup hopes its social angle can be an advantage. It’s tying up with community groups to offer delivery jobs to unemployed people, provided they pass a screening process. Involved in this project is Elim Chew, a well-known local entrepreneur who owns a chain of fashion retail stores. Her vast connections with businesses and community groups will be an asset.
Yet it’ll be a while before these startups can claim success. Berda admits he’s in a high-volume game. The company is still losing money on some jobs and gaining on others. He hopes that as demand for same-day delivery rises, it’ll recoup its losses, and more.
“Right now, same-day delivery is small but growing. In the US it’s around 10 percent of the logistics business. At the end of the day, if you can deliver something within the same day, you won’t even want to have a next-day service,” he says.
For Choa of Courex, the entry of these venture capital-subsidized players is worrying. The lower delivery prices are putting pressure on the firm which isn’t getting out of bootstrap mode yet.
But the startup isn’t standing still. It’s requesting payment from businesses within a week instead of the usual 30 days just so it can meet payroll and other expenses. It has upped its tech game by hiring programmers from startups.
Who knew you could use the Kinect in logistics?

Who knew you could use the Kinect in logistics?

The engineering team is building three core technologies for Courex. One, a dimension and weight measuring machine built on top of Microsoft’s Kinect that’ll be half the price of a similar device in the market. It could reduce a process that takes minutes down to just seconds.
Two, it’s working on a route optimization algorithm co-developed with Nanyang Technological University that’ll replace the need for humans to do the job.
Lastly, it has launched an inventory management software-as-a-service for small and large retailers that it hopes will form a new revenue stream to relieve the brutal margins in last mile delivery.
Ninja Van, meanwhile, claimed it has optimized its next-day delivery service to the point where it’s operationally profitable.
Unlike Berda from Rocket Uncle, Lai is not as bullish about on-demand. “You compromise on efficiency if you want to have a tight time constraint,” he says.
Given the high labor and operational costs in Singapore, companies are going to have to subsidize deliveries to make it work. “You must understand where’s the frontier of efficiency. Insufficient people are willing to pay the right price. At the right price, there will always be demand. But there’s a threshold.”
The bottom line is that while people hate waiting for a cab, they don’t mind some delay in receiving that maxi-dress. Lai points out that even Uber is struggling to fulfil its promise of upending logistics, and it appeared to have reined in its lofty ambitions.
That’s not to say Ninja Van won’t ever go into on-demand – it recently delivered 200 items under an hour. “We managed to do it because we have the correct systems. It was cheap.”
Why SingPost looms large
For all the innovation that’s happening in the space, Southeast Asia is stricken by a basic structural issue that threatens its ability to become an attractive ecommerce market, according to white papers by SP eCommerce and PayVision.
Unlike China or the United States, Southeast Asia is a collection of nations, each with unique laws, inefficiencies, and proclivities. Custom procedures slow down cross-border shipping, leading to delays and unpredictability in arrival times to the customer. As such, it’s hard to inform people in the Philippines or Indonesia when to expect their packages.
Inconsistent duties also mean irregular costs, and this affects the ability of logistics companies to scale. Corruption, rampant in many Southeast Asian countries, makes logistics expensive.
“Instead of a cohesive network or infrastructure, each individual market requires separate contracts, deals and localization which prove expensive for the retailers and potentially ends up as an additional cost for the consumers,” wrote the SP eCommerce report.
Illustrating this, Wesseler tells me that people can expect to pay 30 percent extra in duties just to send a pair of jeans from Thailand to Singapore. The end result is that ecommerce is still miniscule compared to the retail market, at just one percent in Southeast Asia compared to 15 percent in South Korea, he added.
As imperfect as this situation is, SingPost is still reaping dividends from it. The uneven terrain makes it tough for new players to cross borders without incurring high costs, while the incumbent already has the pieces in place. That’s why Alibaba chose to work with SingPost; it’s one of a few players who has experience delivering parcels at scale across Asia and handling nasty customs.
This building could be the future of ecommerce logistics in Southeast Asia

A rendering of SingPost’s upcoming US$145 million regional ecommerce hub.

That’s not to say SingPost won’t gain from harmonized regional regulations. In fact – everyone can gain from an enlarged pie, whether you’re the lumbering giant or a startup. And that’s why the ASEAN Economic Community (AEC), a set of proposals which, if adopted by the member nations, could bulldoze much of the regulatory problems faced by businesses in the region.
The problem remains ASEAN itself – a sort of European Union-like organization for Southeast Asia, though with much fewer teeth in enforcing agreements. So if ASEAN can’t fix itself, expect the AEC to only have modest impact on the prospects of ecommerce in that part of the world.
Giants like SingPost don’t faze Lai though, or at least he didn’t show it during our interview. He recognizes that regional expansion, especially into the rough and tumble environment in Indonesia, will be the true test. JNE is a monster there, sending out over 100,000 packages a day, or over 200 times of what Ninja Van is doing. Meanwhile, another logistics startup aCommercehas closed a deal to run the ecommerce operations for Lippo Group, which wants to make a splash with its own online shopping site.
Yet Lai believes Ninja Van has a crucial edge over other companies: it’s simply the largest collection of bright, driven, and ambitious young talents you’ll see anywhere in the startup scene.
As we head back to the front entrance after touring the premises, Lai points me to Lianne Ngoi, a Raffles Junior College alum and Ninja Van’s head of sales and partnerships.
“The smartest woman I know,” he says.
Indeed, the startup is a refuge for investment bankers and oil traders – part of a worldwide trendin which smart people leave traditionally prestigious jobs for tech.
There are 10 Rafflesians in Ninja Van, and one of the algorithm engineers was a hedge fund quant. “This is probably the biggest collection of Raffles students in any organization,” he says. “A lot of us miss the feeling of challenge in secondary school when we were together […] Everyone beside you was equally smart and that motivated you to do more. But when you go out into the working world, intellectual osmosis starts.”
The brainpower at Ninja Van means SingPost has not been able to replicate what the startup is doing, Lai claims. “SingPost would never be able to afford [to hire] us.”
Ninja Logistics snags $3.5M to teleport logistics in a flash

The only place where being a “ninja” isn’t a startup cliche.

Ironically, Lai’s pining for the past was what drove him to bring this group together to carve out the future of logistics. That, and leaving behind a legacy of course, though he is coy about what impact he wants to achieve.
Lai is reluctant to give himself too much credit. The refrain of “I’m just lucky, lah” peppered his conversation, and he tells me yet again how he was simply in the right place at the right time.
“[When we started], we knew nothing about logs (logistics). Nothing. We were like, okay, let’s try logistics, let’s see where it gets us. The vision was never that clear from the start. I wish I could say we thought logs was a hot industry then,” he says.
“Nothing makes more sense than selling the shovels to the gold diggers. But we didn’t think so much about all that or how it could pan out into a regional play.”
Editing by J.T Quigley and Leighton Cosseboom

By Tâm Trần Thị Minh