Asean logistics sector could get tech boost as Alibaba unit looks to region for growth

Chinese tech giant Alibaba is eyeing growth in South-east Asia's third-party logistics market, with its Cainiao Network arm recently unveiling a spate of plans for regional smart warehouse projects.

Citing both Asean's strategic location and an e-commerce boom in countries such as Vietnam, Singapore, Malaysia, and Indonesia, Ding Hongwei, general manager of Cainiao Technology, called South-east Asia a key region and one of "our focus markets" outside China.

Stock watchers told The Business Times that Cainiao is a small part of Alibaba's business and not a main profit driver. Yet, others said the investments can benefit both Cainiao and the wider logistics sector by raising digital maturity regionally.

Since Cainiao taps partners' capabilities to deliver orders, challenges in South-east Asia "may come from their less developed fulfilment network" in some countries, said Kelvin Ho, a director in Fitch Ratings' Asia-Pacific telecoms, media and technology team.

As such, Ho expects Cainiao "to borrow its experience in laying a comprehensive last-mile network in China to localise such a network in other regions" through tie-ups.

Chen Tao, an associate professor of finance at Nanyang Technological University's Nanyang Business School, added: "Logistics enterprises that can successfully seize these opportunities will be able to gain huge benefits from the South-east Asian market."

Cainiao's regional presence includes the Cainiao Aeropolis eWTP Hub in Kuala Lumpur, a cross-border logistics gateway opened in partnership with Malaysia Airports and one of 6 global "eHubs", alongside sites in Hangzhou, Dubai, Liege, Moscow and Hong Kong.

It also doubled down on its interest in South-east Asia last November with a long-term plan for 2.5 million square metres of "Cainiao Hubs" or cHubs in the region. The company named Long An and Dong Nai, in Vietnam, as the locations of the first 2 cHubs.

Cainiao last month launched a warehouse solution in which - as Ding put it - "the smart logistics and supply chain technologies provided are owned by Cainiao, but the solutions implemented for each customer are customised".

The first large project under the supply chain technology business unit was a 20,000 sq m smart warehouse facility - which taps technology such as automated guided vehicles - for Thai e-commerce logistics provider Flash Express.

"There are plans to work with other companies and logistics firms to extend our smart warehouse solution more broadly in the near term," Cainiao's Ding told BT.

Observers noted that fast-growing South-east Asia is a natural port of call for Cainiao, as growth slows amid gradual e-commerce saturation in its home market of China.

Prof Chen added that barriers for logistics players will still include heterogeneity in the region: "Without a unified infrastructure and high-speed rail network, the threshold of the new entry is very high, since it has to establish separate contracts... leading Chinese logistics enterprises to lose their competitive edge over local post offices and delivery companies."

Cainiao last reported revenue of 19.6 billion yuan (S$4.2 billion) for the three months to Dec 31, 2021, before inter-segment elimination - making up about 8.1 per cent of all group turnover for the quarter.

Ding could not break down Cainiao's revenue by market, but reiterated that "South-east Asia is a priority region", and that smart logistics and digital transformation investments would continue.

Alibaba is the company's largest shareholder, with a 63 per cent stake, but Cainiao also counts Singapore's state-owned GIC and Temasek among its investors.

Source: The Business Times