Plugging the logistics gap
28 Mar 2022
In 2006, brothers Ong Chin Keong and Ong Chin Kian started Transcargo Worldwide (M) Sdn Bhd to provide freight forwarding services in Malaysia. They facilitated shipments for courier and e-commerce companies, whether it was by land, sea or air transport. Over their decade of running the company, the brothers have seen the content of their freight change with the rise of e-commerce.
“At least 15 years ago, e-commerce was still not in the picture. During that time, we shipped mostly semiconductors and electronics. We’re still shipping that now. But in addition, we have a lot of e-commerce orders now,” says Chin Keong.
“Malaysians buy a lot of products from overseas via platforms like Taobao, Alibaba and Amazon. So, we can see a lot of imports, especially from China. We do not have enough capacity [to handle the demand]. That’s why you notice new cargo airlines emerging now.”
E-commerce exports from Malaysia used to be dismal, they add. But that changed after e-commerce companies such as Zalora made Malaysia their regional e-fulfilment hub.
“Suddenly, we have so much cargo to export. There is also a lot of demand from West to East Malaysia from the likes of Shopee and Lazada. The tonnage can be more than 100 tonnes a day. This has changed the way the air cargo industry works,” says Chin Keong.
The brothers’ experience is a reflection of the overall rise in demand for e-commerce in recent years, which shot up dramatically during the Covid-19 pandemic when people were stuck at home.
In fact, the e-Conomy SEA 2021 report by Google, Temasek and Bain & Co found that Malaysia’s internet sector gross merchandise value (GMV) was expected to reach US$21 billion (RM88.47 billion) — a 47% year-on-year surge from the previous year — in 2021, which can mainly be attributed to a 68% growth in e-commerce. By 2025, the e-commerce GMV is expected to grow another 8% to US$19 billion.
Transport Minister Datuk Seri Dr Wee Ka Siong has said that the freight and logistics market is projected to grow to more than US$55 billion by 2026 in Malaysia, with e-commerce being the significant driver.
The rising demand for e-commerce, however, has also strained the existing logistics infrastructure. It is a global problem. During the pandemic, videos of warehouses being overwhelmed by parcels and news of workers protesting their low pay despite a heavier workload went viral.
The spread of the coronavirus further hamstrung the global supply chain as the number of workers was reduced, resulting in port congestion and raw material shortages.
While the Covid-19 factor might be temporary, it has exposed gaps in the logistics industry that have to be filled in order to meet the rising demand for e-commerce, industry observers say. And it’s not just a problem for last-mile deliveries.
“While it’s true that the downstream segment was initially struggling to cope with the sheer volume [of deliveries], the whole value chain is highly interconnected. It is not just a bottleneck at the point of delivery but rather, it extends across the whole value chain,” says Cheong Yen Li, director of deals strategy at PwC Malaysia.
“The pandemic was purely a catalyst for growth, and e-commerce volume is expected to continue growing even post-pandemic. Therefore, it is not a temporary problem and more structural changes will be required.”
Dealing with the lack of manpower in a labour-intensive industry is a major challenge in Malaysia, say various interviewees. Other countries are managing this shortage by investing in automation and robots, but in Malaysia, the relatively high cost of installing technology is a hurdle.
As e-commerce becomes more mature, the logistics industry also needs to invest in tech-enabled processes that are more complex, accurate and meet the demand for speedy deliveries. Nowadays, people want next- or even same-day delivery of e-commerce orders, much as they do with food deliveries.
That’s something that Joe Khoo, co-founder and CEO of e-commerce fulfilment start-up iStore iSend, personally experienced since starting the company in 2009. In e-commerce, people were initially selling goods out of their houses but now, they are storing huge inventories in proper warehouses. With the growth in e-commerce, demand for sophisticated logistics infrastructure has spiked.
“When we first started, logistics for e-commerce was not a sexy business. The perception was that logistics was a very manual and dirty blue-collar work for people who didn’t graduate from university. But it has changed a lot since the boom of e-commerce,” says Khoo.
It’s also because of the pandemic that people began to notice the logistics industry, especially the last-mile delivery riders. But the supply chain is longer than that. There is the warehouse that the riders pick up parcels from, which is the space in which iStore iSend operates. The number of players involved will be even more if it involves cross-border commerce. “For the whole thing to work seamlessly, the whole industry must improve,” says Khoo.
Robots, automation, software
Watch videos of some warehouses in countries like South Korea, the US and Germany, and you will see automated guided vehicles (AGVs) following workers around the warehouse as they pick e-commerce orders, robotic arms directed by smart cameras sorting parcels and conveyor belts transporting the parcels around the warehouse.
Some of these AGVs can be seen in Malaysia. For instance, MR DIY’s e-commerce warehouse utilises them to send the products to packers, while Lazada and Ninja Van have conveyor belts running through their warehouses.
Last-mile delivery players are using analytics and software to plot the most efficient delivery routes, while e-commerce fulfilment companies have software that allows merchants to have a real-time view of their inventory, among other things.
But the use of technology, especially automation and robotics in warehouses, is still not as common in Malaysia as overseas, say the interviewees. The high cost of adoption as compared to the affordable labour cost is a major factor.
This is especially true in the last-mile segment, where thin margins and high competition mean the players have to focus on preserving their profits.
“We see a lot of automation in countries where their cost of labour is very high. The math works out for them. But for the last-mile delivery players here, how do we expect them to compete with the rest and still invest in technology? I think that’s where the business model breaks down,” says iStore iSend’s Khoo.
“Automation only works if you have a huge volume. But you can’t do that unless you have enough to invest in technology, and the return-on-investment period might be too long if your profit margins are thin. It becomes a vicious cycle.”
iStore iSend, for instance, utilises conveyer belts in its warehouses. “The more heavy-duty stuff like robots might only be introduced at a later stage when there’s bigger volume or when labour cost has gone up so much that we have to look into it,” says Tommy Yong, co-founder of iStore iSend.
With more players entering the market promising even lower delivery rates, the competition will become fiercer. But businesses are looking into technology solutions now, as there is inflationary pressure on labour wages and a shortage of workers.
Xteven Teoh, founder and managing director of XTS Technologies Sdn Bhd, can attest to that, as queries and orders from logistics companies for its warehouse automation solutions have increased in the past year. Many are interested in installing conveyor and dynamic weighing scales (DWS) systems for the sorting line.
“The DWS and sortation system automatically reads the barcode on the goods and sorts it accordingly. Without it, operators have to manually scan the barcode and sort the goods,” says Teoh.
He has also assisted companies to set up a warehouse management system (WMS) so that the process of storage and packing can be more efficient and accurate. This is complemented by the Automated Storage and Retrieval System (ASRS) and Autonomous Mobile Robot (AMR) forklift, which can replace humans to do palletising, picking and checking.
“All logistics players need to have a WMS at the very least instead of manually doing the stock count. Secondly, they should do labelling in the warehouse and thirdly, they should consider ASRS,” says Teoh.
Many logistics players are also hesitant because they are unsure which technology to implement and they are unwilling to change their current way of operation, he adds.
“We will study and analyse the whole process and identify which areas need to be improved or automated, and which technologies should be implemented. The investment can be less than RM1 million.”
The importance of software such as a WMS cannot be overemphasised, the interviewees stress. Transcargo, for instance, uses in-house software that links its customers to the airline and shipping lines and allows them to see their inventory and liaise with Transcargo for documentation needs.
Malaysia is years behind China in digitalising the supply chain, says Transcargo’s Chin Kian. He and his brother visited the headquarters of Cainiao, the logistics arm of Alibaba, in China in 2017, and saw its highly automated warehouses. Now, Cainiao is doing similar things at Malaysia’s Digital Free Trade Zone (DFTZ).
Transcargo worked with Alibaba to develop and execute the electronic World Trade Platform (eWTP) that enables Alibaba sellers to export their products from Malaysia seamlessly. The sellers’ shipping orders will be sent to Transcargo, which will book the shipment once the relevant documents are sent to them digitally.
“We use the eWTP system for customs clearance; the exporter can see the whole progress and status on the dashboard,” says Chin Kian.
iStore iSend also thrives in this area. “For logistics to be automated, you need to have a system to integrate the hardware. We try to make things simple with our ODIN system, where clients can see from the dashboard what’s happening in the warehouse and which order is being packed. It makes it easier for them to manage and scale,” says Khoo.
As for whether technologies like drones can be utilised for last-mile delivery, the initiatives seem to be in the planning stages. A trial was done by Teleport, AirAsia’s logistics unit, last year under the government’s National Technology and Innovation Sandbox.
Can Malaysia be a logistics hub?
In the last few years, the government has launched e-commerce strategic road maps and incentives for logistics companies to adopt technology, in hopes of establishing Malaysia as an e-fulfilment hub.
It partnered with Alibaba Group Holding Ltd to establish the eWTP in 2017, and set up the Cainiao Aeropolis eWTP Hub, an e-fulfilment and smart logistics centre to support e-commerce exports. The hub was formerly known as the KLIA Aeropolis DFTZ. Lazada was the first to leverage the hub. According to reports, it has an auto parcel sorting system, AGVs and smart CCTVs.
These actions are a step in the right direction, observes PwC’s Cheong. What else is needed? Enhanced flight connectivity and network, improved turnaround and efficiency of the clearance processes and the true digitalisation of the delivery value chain, alongside support for small and medium-sized enterprises (SMEs) to digitalise.
To do so, however, requires investments. Cheong suggests two areas that last-mile players need to focus on. “They need scale, which can be achieved either through organic or inorganic means such as mergers and acquisitions, and [they need to] improve operational efficiency. This includes technological investments, as investing in digital networks will be just as important as the physical infrastructure.”
On the other hand, for logistics players to justify their investments in technology, bigger volumes of exports would be ideal, Khoo suggests. Malaysia will have to think about how it can get its companies to export to more markets and make the process smoother.
“Service providers like us make it easy for potential clients to make Malaysia a hub. If we [provide this service] for many SMEs, we have the volume to automate. The government needs to come up with policies to help us and merchants to be more export-friendly and provide them with education on how to do business in other countries,” says Khoo.
Going for robotics
In one of DHL Express’ service centres in South Korea, a robotic arm sorts documents and small parcels into separate bins. The DHLBot, powered by artificial intelligence (AI), is positioned at the end of the conveyer belt and sorts packages based on their destination.
The robot can sort more than 1,000 small parcels in an hour, increasing efficiency by 40%. This is a part of the DHL Group’s overall digital transformation effort. According to Lau Tian Chen, Vice President, Head Asia Pacific Innovation Center, DHL Customer Solutions & Innovation, the company has been utilising robotics, automation, the internet of things (IoT) and data analytics in its facilities.
The mobile robots, for instance, have been deployed in Japan, China, Singapore and Australia. Drone delivery is available in China while robotic arm applications are implemented in Singapore, Thailand and Korea. Autonomous robots for last-mile delivery are also being used in Singapore.
“One of the biggest challenges facing the logistics industry today is a talent shortage. The use of technology helps our employees with repetitive and strenuous tasks, while automation improves efficiency and reduces error rates,” says Lau, who believes that scaling new technologies will be crucial to their future success.
Why are these technologies only deployed in certain markets? Lau says DHL picks locations based on their volume, labour costs and the availability of technology and providers.
The last point can be a challenge, as the company is constantly looking for technology partners that can deploy solutions consistently across its network and are scalable.
“There are a lot of vendors that are still in the start-up phase, and that poses some challenges to their scalability. [Additionally, they] don’t have a presence in [some of] the markets that we would like to be in,” says Lau.
The deployment must also be economically viable. That is why it could be more challenging to do it in countries with lower labour costs. For such markets, technologies like IoT and data analytics that are not as infrastructure-heavy are more ideal.
“Some examples include the tracking and tracing of high-value goods, smart security locks to deter nefarious activities in logistics operations and complex network and inventory optimisation using data analytics,” he says.
Malaysia, for one, could benefit a lot from IoT. It has an extensive network of communication technologies, says Lau. IoT enables data collection, which can then be used for data analytics.
DHL has been actively looking for technology partners in Malaysia. He points to a recent memorandum of understanding (MoU) signed with Pen Aviation to commercialise time-critical goods deliveries for port logistics missions using unmanned aerial vehicles. This is done in partnership with Raya Airways as the cargo drone operator.
Another partnership that DHL has in Malaysia is for last-mile drone delivery operations, which Lau says still has to overcome regulatory and privacy challenges to become commercially feasible. DHL signed an MoU with Iskandar Investment Bhd and the Malaysian Global Innovation and Creativity Centre (MaGIC) in 2020 to establish the Iskandar Drone and Robotics Zone.
What are the technologies that Lau is excited about? Data analytics for warehousing operations, whereby the data is captured using IoT, is one. This allows for optimisation of inventory and processes quickly and accurately. Another is the use of robotic arms for picking, paired with computer vision AI and mobile robot technologies. The robots can move autonomously between workstations to pick items directly from shelves.
“Using drones for inventory cycle counting and security patrols in the warehouse is another interesting technology,” Lau says.
“To go to the next level, industry players could explore blockchain. For example, Dubai customs recently launched a cross-border e-commerce platform that uses blockchain technology to integrate and automate operations between customs, logistics and courier companies. It’s the first of its kind in the region and aims to help the emirate become a global hub for e-commerce. This is the future and it is an untapped opportunity in Southeast Asia,” Lau adds.
Bridging e-commerce and logistics
Last August, Lazada took a step forward in easing the e-commerce experience in Malaysia by rebranding its logistics arm as Lazada Logistics and introducing multi-channel logistics (MCL) services, whereby it will fulfil e-commerce orders made through Lazada and other channels.
This makes Lazada the only e-commerce player in Malaysia with an end-to-end integrated logistics network, according to the company. It has its own warehouses, sorting centres, delivery hubs and last-mile delivery riders in Malaysia.
When the pandemic struck, Lazada collaborated with many offline businesses to help them go digital, says P Sunil Singh Gill, Lazada Malaysia’s chief logistics officer. It did this by taking 0% commission and having a dedicated team to help them set up online stores, among others.
This, and the already rising appetite for e-commerce, has increased the demand for logistics.
“There are numerous stories of employees going above and beyond, such as those who soldiered on to deliver massive TVs in cardboard boxes or those who had to walk [many] kilometres to work when public transport was suspended during the lockdown,” says Sunil.
“Another dedicated group of employees once spent the night sorting parcels in a sortation centre. All of these are incredible evidence of professionalism, commitment, kindness, unity and solidarity.”
Does Lazada Logistics utilise technology? Sunil says the company is powered by a data-driven, smart routing algorithm, which is needed to meet the surging demand for e-commerce.
“Data facilities technologies play an important role for Lazada Logistics. We spend time analysing the data and information; utilising digital tools and machine learning with back-end support; testing and optimising the route patterns and ways to facilitate greater efficiency for our drivers; as well as figuring out how to simplify the journey of an order package from a seller to the customer.”
What about robotics or even drone deliveries for the last mile? According to Sunil, the company is always keen to optimise leading technologies. “There’s definitely a vast potential, but cost effectiveness is a factor to be considered. We also believe that success is enabled through resource optimisation of both technology and people,” he says.
Nevertheless, the company hopes to continue supporting Malaysian local entrepreneurs to digitalise their businesses and adopt best practices from other markets, especially from China through Alibaba, which owns Lazada. It will keep expanding its fulfilment capacity and improving its last-mile delivery service, Sunil adds, to meet the high demand during peak e-commerce shopping seasons.
“The decision to have some last-mile fleets do first-mile pickups and the establishment of multifunctional hubs and mini fulfilment centres are a few recent examples of operational agility and flexibility improvements that aim to reduce the average delivery time spent on one order,” says Sunil.
“This year is Lazada’s 10th anniversary and in the next 10 years, we will continue to optimise digital innovation while empowering our people and finding better ways of doing business.”
Source: The Edge Markets