World Retail Voice Blog Post
Thailand Online, part 1 ‐ logistics & fulfilment
Ecommerce in Southern and SouthEast Asia has long been dominated by China and India. But online retailing is beginning to take root in this highly dynamic and culturally diverse region, home to 600 million inhabitants. The ASEAN online market is projected to grow by 25% each year, a rate twice as fast as the ecommerce markets in Europe, the US and Japan.
Against this backdrop, Thailand’s ecommerce market is significantly placed. Compared to other SouthEast Asian countries, it can boast a relatively better transport infrastructure and has been steadily increasing warehousing capacity nationwide to sustain overall economic growth.
In an exclusive interview, Parin Songpracha, Director of Ecommerce at worldleading logistics provider DHL in Thailand, shares with Planet Retail his thoughts on the country’s fastevolving online space and the myriad of opportunities arising thanks to a combination of socioeconomic and technological developments.
Video produced by DHL
How big is the Thai ecommerce market and where do you see it going in the next few years?
According to experts’ estimated guess, the Thai ecommerce market could be valued at around USD3 billion. And that doesn’t include services, like tickets, airlines or hotels only products. With an average 30% yearonyear growth every year the market could almost double in the next three years. But in Thailand, the ecommerce market is very fragmented, with the top 10 players covering less than 25% of the total market.
In the last two years, all the big retailers have become interested in ecommerce. And this year, it’s been all the other industries that aren’t directly related to internet retail, but are important to the ecommerce ecosystem, like logistics and payment, among others. As they strive towards better performance and releasing innovations, they will enable smaller players – not just retailers, but also small B2B companies that use the online channel to drive business – to participate in the ecommerce market in Thailand.
This will facilitate accelerated growth of the market. That’s why I believe, in the next two, three years, all the big players from other industries will also explore the market to expand their playing field.
How will ASEAN integration scheduled for the end of this year affect crossborder ecommerce and logistics?
It will gradually affect it, rather than changing it from A to B. I believe, in the first year, when people hear about the crossborder collaboration of the ASEAN ecommerce federation, it will help to create more trust in shopping online from other countries. Still, they may not buy that much initially. But in the second or third year, as confidence grows, this will help drive crossborder online transactions.
For logistics, infrastructure will need improvements to make things easier and cheaper, to support transaction costs and make them more frictionless. The ASEAN integration will undoubtedly help to improve it more quickly.
So the growth of Thai ecommerce, coupled with the ASEAN community, will also enable smaller players in Thailand to expand their consumer market, especially as Thailand is a tourist destination and we’re selling more than we’re buying.
As for globalscale players like Amazon, I think that, though SouthEast Asia is attractive to them, from a global perspective, India or China take precedence, as our market is still smaller in comparison. That’s why, for ASEAN countries, we have to help ourselves to homogenise our differences to be seen as a more attractive market.
What are some of the obstacles online retailers in Thailand face that prevent them from growing faster?
Infrastructure. Despite supportive factors like increased internet penetration, better speeds and greater coverage would enable faster ecommerce growth.
Other obstacles that need to be cleared lie in the online ecosystem. The first is improving the user experience for online shopping websites. The second would be payments because offline bank transfer is still the preferred payment method among Thai eshoppers, and this isn’t as easy or frictionless as credit cards.
And logistics as well, because its role within an online transaction takes up around 75% [of the time].You spend just around 23 minutes to buy, but the remaining part takes up to a few days. In Thailand, we only have one choice: Thai Post. But to accelerate ecommerce growth, we expect more – we expect a higher standard than Thai Post from other couriers. They will have to improve with rising growth and more demand for ecommerce.
Urban hubs, lowertier cities and rural backwaters all present their own set of challenges. Traffic in Bangkok can slow down delivery times, while in the provinces, developing a fulfilment system for affordable deliveries to people living far away from distribution hubs, poses another challenge. How can online retailers and their fulfilment providers overcome these?
Indeed, it doesn’t only happen in Thailand, but other large developing countries also face this situation, and it is quite painful because we cannot provide the same standards nationwide. The solution cannot come from one single party because the country is too big. As online retailers, we cannot do much about this [infrastructure].
But what we can do is to work with several good third party logistics providers. Because in a big country like this, we have what we call a ‘local hero’ in different areas. They excel in their localities, with a strong network and being costeffective. But, as they cannot each cover wide regions, one retailer may have to work together with three to four suppliers in a jigsaw approach to cover the whole country to ensure that customers across the nation receive their orders within an acceptable time.
With traffic jams, they’re mainly dependent on the time of the day. We use a combination called ‘4wheel’ and ‘2wheel’. If you know there will be heavy traffic in a certain area, you can perform 810 drops per hour, for which you’ll need 2wheelers as a temporary solution. If you know that it’ll be light traffic, then we can increase the number of trucks we need to use, in order to maintain the service levels of delivery.
Any interesting fulfilment trends we are/will be seeing in the next few years in Thailand?
In terms of payment options, demand for cashondelivery (COD) has spurred its [online] growth tremendously. Customers really want it, they love COD.
COD is a highcost delivery method compared to conventional methods. You need a trustworthy guy to carry a lot of money, plus you cannot do too many repeat deliveries. For example, three years ago, the customer refusal rate to pay [for those changing their minds about their purchase] or not being at home for delivery was around 30%.
But luckily things have improved over time. Preemptive alerts are one way to reduce refusal rates – delivery staff call customers one or two hours ahead, as they leave the warehouse, to confirm delivery. As far as I have heard from the successful logistics providers, currently the best refusal rate is under 5%.
As for upcoming fulfilment trends in Thailand, these could involve “Uberisation” like some use of taxi operators that are willing to do part of the delivery as well as crowdsourcing in logistics.
This is the first part of a twopart feature focusing on Thai ecommerce. Part 2, featuring an interview with Rakuten TARAD will follow soon.
Associate Analyst Asia
Originally published on Planet Retail on May 14, 2015