A protected industry globally

Keen competition: A J&T Express employee in action. The Indonesia-based firm has been aggressively expanding ahead of its Hong Kong initial public offering.

IN many countries around the world, the last mile delivery of documents and parcels seems to have regulations in place to protect homegrown entities. The situation is not unlike how the banking and telecommunications sectors are also governed.

In banking and telecommunications, that level of protection is clearly visible in Malaysia, where local banks and telcos have been protected from the onslaught of foreign players.

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For example, no new foreign bank licences have been issued in a long time. Those operating here are the ones who had secured their licence a long time ago and even they are limited in the number of branches they are allowed to operate, for example.

The story is similar to telcos. Aside from Norway’s Telenor, there are no other foreign players operating in the local telecommunications scene.

As a result of these rules, local banks and telcos have managed to grow to a certain size and become regional champions. Cases in point include Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd and Axiata Group Bhd.

Pos Malaysia Daya bumiPos Malaysia Daya bumi

In the last mile delivery space, mature economies like the United States, Japan, South Korea and even China have been quick to protect their local delivery firms, limiting the entry of foreign players.

In Japan, for example, four local players dominate more than 95% of the market with Yamato Transport capturing the largest at 48%.

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As for the United States, 95% of all eCommerce orders in the country are delivered by FedEx, UPS or the US Postal Service.

Closer to home, foreign-owned courier companies in Indonesia must have a local partner who owns a majority of shares and will have management control, while in Vietnam, the approval process for a new entrant and subsequent monitoring of their activities are very stringent, industry players tell StarBizWeek.

There are also many operational conditions to be met by new players going into Vietnam.

In Malaysia, the situation is quite different. For starters, more than 100 licences have been issued to-date.

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This has led to serious competition in the space. However, it was not until the appearance of some big-name foreign players that competition led to dangerous levels. In the race to gain market share, the price war that ensued left many local players struggling to be profitable, let alone stay in business.

Notably, after much representation to the regulator of the industry, a two-year moratorium was imposed on the issuance of courier licences, effective Sept 14, 2020 until Sept 15, 2022.

In a statement then, the Malaysian Communications and Multimedia Commission or MCMC said that the decision was taken under the licensing authority of the Postal Service 2012 Act and could be reviewed at any time based on the needs which arise.

Interestingly, earlier this year, a new foreign player emerged in the scene, which has led to even more price throwing. Elsewhere, an analyst notes that Indonesia-based J&T Express has also been aggressively expanding ahead of its Hong Kong initial public offering.

An industry executive says that the issue is not so much about the number of players, but ensuring a decent but not overly competitive landscape.

“There seems to be the aim to grab market share by a couple of foreign service providers via campaigns such as free delivery. They seem unconcerned whether the industry as a whole may be killed,” points out the industry executive.

Considering the price-throwing, he reckons that these players could be running at a loss just to grow volume and market share. He adds that there is a need for some kind of policy like a base rate to safeguard the homegrown players.

Financial results recorded by local companies reflect the situation.

<a href='/business/marketwatch/stocks/?qcounter=GDEX' target='_blank'>GDEX Bhd</a><a href='http://charts.thestar.com.my/?s=GDEX' target='_blank'><img class='go-chart' src='https://cdn.thestar.com.my/Themes/img/chart.png' /></a> reported a RM1.9mil net loss in the first quarter ended March 31, 2022 – its first loss-making quarter since the company’s listing in 2005.GDEX Bhd reported a RM1.9mil net loss in the first quarter ended March 31, 2022 – its first loss-making quarter since the company’s listing in 2005.

GDEX Bhd reported a RM1.9mil net loss in the first quarter ended March 31, 2022 – its first loss-making quarter since the company’s listing in 2005.

Analysts expect its margins to continue to be under pressure due to the stiff price war in the last mile delivery segment, coupled with increased cost pressures.

Incumbent Pos Malaysia Bhd has remained in the red for the last few years, albeit losses narrowing following better cost efficiency and a transformation plan in place.

Similarly, competition also saw Nationwide Express Holdings Bhd succumbing to losses in the last few years. In February 2020, the company triggered the Practice Note 17 status criteria and was delisted in April this year after Bursa Malaysia rejected its appeal for an extension of time to submit its regulation plan.

Meanwhile, CJ Century Logistics Holdings Bhd disposed its loss-making courier service business for RM7.47mil about a year ago.

With the rapid growth of eCommerce sales, the last mile is seen as one of the most crucial in the logistics supply chain because it is about customer experience.

“Those that are able to carve a niche amid the competition may be able to survive in the game, although it may come at the expense of margins.

“But it is another thing altogether to hope for a Malaysian giant to emerge in this field and expand successfully into the region in the same vein that Maybank, CIMB and Axiata have been able to do,” says an industry observer.

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