Why road freight is gaining traction in the SEA supply chain
- Renewed economic growth in ASEAN countries will give rise to the demand for logistics services as trade recovers.
- Road freight to grow substantially with regulatory initiatives, economic rebound, e-commerce boom, and increasing demand for sustainable logistics solutions in the region
In the supply chain, air freight is often considered the fastest mode of travel. However, road freight is now increasingly growing in demand in Southeast Asia. More businesses are now seeing road freight as a more convenient route as well, thanks to new capabilities and features provided in the road freight industry.
For DHL, one of the largest logistics companies in the world, the growth in the e-commerce sector in the region has pushed for increased demand in cross-border transportation. The predicted upswing is driven by the renewed economic growth in many of Southeast Asia’s leading economies, as manufacturing rebounds and companies regionalize and diversify their supply chains. This outlook is similarly echoed for Malaysia as the market is expected to see a slight economic rebound of 6% this year.
“With the easing of trade restrictions and implementation of new regulatory initiatives in the region such as the ASEAN Customs Transit System and Regional Comprehensive Economic Partnership, trade cooperation will continue to strengthen and bolster intra-Asia trade. This augurs well for ASEAN countries as they gear up to bounce back strongly from the Covid-19 pandemic,” said Kelvin Leung, CEO, DHL Global Forwarding Asia Pacific.
One of the most significant developments in the ASEAN Customs Transit System (ACTS) introduced in 2020, which allows operators to move goods seamlessly across multiple ASEAN borders with a single guarantee that covers duties and taxes for the entire journey.
The ASEAN road freight market in particular is expected to witness a CAGR of greater than 8% during the forecasted period of 2020-2025. The rise in e-commerce consumer spending and B2B e-commerce, which is predicted to see a 70% increase by 2027, is also pushing demand for door-to-door logistics solutions.
At the same time, there has been an increased number of logistic players emerging in the market as well. While companies like DHL have been focused purely on perfecting road freight, eCommerce companies have also developed their own logistic services to ensure faster deliveries.
Technology modernizing road freight
The key enabler for this is technology. Just as how DHL leverages modern tracking systems, visibility tools, and such, other logistic companies are also doing the same. For eCommerce companies like Lazada and Shopee, most of them offer customers a choice on which delivery company they would prefer. This would range from in-house delivery companies to large established ones like DHL.
“Road freight is now playing a more significant role in international long-haul solutions across Asia as it offers a cost-effective and sustainable option. As we have seen in the last year with volatile air and ocean freight rates during the Covid-19 pandemic, road or multimodal solutions have offered more stable pricing, capacity, and easier border access in Southeast Asia,” said Thomas Tieber, CEO, DHL Global Forwarding Southeast Asia.
Interestingly, Tieber also said that businesses are willing to compromise on the longer shipping period on road freights compared to air as it enables them to evolve their supply chain based on demand and supply. Road freight also allows them to reach more customers and is significantly cheaper to air freight.
At the same time, road freight also generates fewer emissions than air freight, while offering increased security and faster lead times than ocean freight. Road solutions are also highly flexible with trucks able to manage door-to-door local, cross-border, long-haul, and short-haul deliveries.
“Road logistics is seeing a greener future, powered by technology to become more efficient and secure, and being more sustainable with carbon-efficient fuels. Together, these factors are transforming the road freight sector and creating ever more attractive and sustainable logistics solutions,” added Tieber.
With autonomous transport and drones expected to disrupt the industry in the future, Teiber feels that they are prepared for the competition as it only allows businesses to grow and be better at what they do. Also, drone delivery services are no match for road freights as the trucks can carry significantly higher load compared to drones.
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