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Room for SMEs in logistics

WITH the growing affluence in Asia on the demand side and the emergence of China and India as the world's factories on the supply side, Singapore's strategic location puts it in good stead to become a regional distribution centre.

And this spells boom time for the logistics industry. Small and medium-sized enterprises (SMEs) within the industry can grab a slice of the growing pie, as long as they are innovative and carve a niche for themselves, say industry players.

The logistics industry is one of Singapore's oldest industries, growing in tandem with the country's development from a trading port into one of the world's busiest trans-shipment hubs today.

According to Drewry Shipping Consultants, a London-based shipping consultancy firm, the world's top 10 operators control 53 per cent of container traffic. Singapore is the world's busiest container port, handling 23.2 million TEUs last year. It is also Asia's fourth largest cargo airport, handling 1.83 million tonnes of air cargo last year.

The logistics industry is critical to the Singapore economy both as an industry, and as an enabler. As an industry, logistics accounts for more than 8 per cent of our gross domestic product (GDP) and employs over 100,000 workers, according to the Economic Development Board (EDB).

It has experienced strong growth over the past years. In 2005, the logistics sector grew by over 11 per cent year on year. With Asia as the manufacturing powerhouse of the world, the logistics outsourcing market is expected to enjoy double-digit growth over the next five years. Frost & Sullivan estimates that the Asean market alone is expected to reach US$28 billion by 2012.

With SMEs making up more than 90 per cent of the 6,300 logistics establishments in Singapore and employing about 60 per cent of the logistics workforce here, they are a key pillar of the logistics industry. And while they are competing against the likes of DHL and UPS, SMEs here should be able to hold their own if they are able to differentiate themselves, as shown by some of their counterparts which have gone into niche segments or are offering customised services.

Victor Tay, director of Transport, Logistics and Environmental Engineering Services division with Spring Singapore, says: 'There is scope for the logistics industry to grow further and become a major sector in Singapore. Singapore can thrive on its current position of a regional distribution centre, logistics headquarters for global corporations to manage their global supply chain with their IT support, R&D and supply chain operations strategically controlled from Singapore.'

Blurring of boundaries

Spring Singapore is the government agency championing local SME development across different industry clusters. In addition, with the boundaries between traditional logistics and transportation services blurring, many opportunities are opening up for agile logistics SMEs to innovate their services to address new markets. An example of this blurring of services can be seen globally in UPS.

'Toshiba, which was motivated by its customers' need for shorter turnaround servicing time of its notebooks, has outsourced a part of its customer services to UPS. UPS has gone beyond traditional courier and express logistics into providing repair services for Toshiba notebooks,' says Mr Tay. 'In Singapore, our SMEs are also transforming their business models,' he adds. One SME, Axis Plus, for example, has followed UPS footsteps, and is offering customer service centre and reverse logistics for their clients like Nokia, Sony Ericsson and Samsung.

Reverse logistics is the management of merchandise being returned due to damage, seasonal changes, restocking, salvage, recall or excess inventory. Reverse logistics is a trend that has taken off big time in Europe and the US, especially in addressing the recyclable and environmental friendly products, and it is now spreading to Asia.

Another SME, Air Market Express Pte Ltd, is also leveraging on another growing trend - kitting and assembly logistics. Nick Soon, Air Market's CEO, says that more manufacturers and distributors are outsourcing more peripheral assembly, such as putting together the final parts of a product.

Logistics providers in the US and Europe are already latching on to this trend. 'Sometimes, even the quality checks will be done in the logistics providers' premises,' says Mr Soon. 'I think it will be the trend that will become really big in Asia within three to four years. Foreign multinational companies are already outsourcing their kitting and assembly, and the local big boys will soon be following suit. It's just like how the warehousing and inventory outsourcing trend came from the West to Asia some years ago.'

The big logistics players are already offering these kitting and assembly services in the region. And Air Market wants to be one of the first local players to launch this trend, says Mr Soon. His company is now building up its warehouse management capabilities with Spring Singapore's assistance so that it can expand its services to become a third party logistics to its clients.

There are also SMEs that have differentiated themselves by specialising in boutique logistics services. With the consolidation among logistics players around the world and in Singapore (for example, in Singapore, Toll Holdings acquired SembCorp Logistics, while PWC-Translink and Accord-CJ Corp merged), a market space to provide more niche and customised services has opened up as these services are too niche in nature and deemed not lucrative enough for the bigger merged logistics entities, say industry players. Says Collin Phua, managing director of cold chain (refrigeration) logistics company Storbest Logistics Pte Ltd: 'Unlike bigger players, we are able to offer niche customised services to our clients. Besides offering end-to-end solutions (from trucking, distributions and storage) to clients, we also offer 'just-in-time' support via 24/7 services. For example, during the festive year-end period, we will go the extra mile by extending our logistics services so that we can help our food supplier clients meet their home delivery demands.'

Another SME which also finds its competitive advantage in offering customised services is FPS Global Logistics Pte Ltd. Says Alvin Tan, FPS' MD: 'If you are too huge a company, clients become just numbers to you. For us, we treasure each and every client and show them that we will go the distance with them. We offer tailor-made services and recommend the most efficient methods to them. That's the personal touch that smaller players can offer.'

Synergy Logistics Pte Ltd is another niche player providing logistics services for the movement of heavy oil & gas equipment. Its clients include oil & gas heavyweights such as Haliburton and Sumitomo. Like Storbest and FPS, Synergy offers personalised services to its clients based on their needs.

Says Spring Singapore's Mr Tay: 'Even though in the logistics industry, scale of economy is important, some of the bigger boys are not flexible in meeting customised clients' demands. They tend to have strict procedures to follow. On the other hand, some SMEs being smaller, are nimbler and more agile and can be more flexible with their services.'

And sometimes, the larger logistics companies also find that it is not worth their while to be overly focused and specialised. This throws up opportunities for SMEs which wish to create a niche for themselves. 'The big boys are not really into the B2C (business to consumer) model. They can find it too tedious to deal with consumers directly, whereas SMEs are nimble enough to do it,' says Mr Tay.

Local cord blood banking pioneer StemCord Pte Ltd is one such example. StemCord is what Spring Singapore would term a 'transformed' logistics service provider and it specialises in cord blood stem cell storage and transportation, using stringent criteria set by the American Association of Blood Banks. StemCord's focus is so specialised that its co-founder Dr Ang Peng Tiam tells BT he sees the company not as a player in the logistics industry but in the biotechnology industry. Still, with its core business being the provision of storage services, StemCord is a key example of a smaller local logistics player that has managed to carve out a niche segment for itself vis-a-vis the multinational logistics companies.

Bright prospects

The prospects for the logistics industry may be bright, but all the logistics SMEs that BT spoke with say they are feeling the competition keenly. 'This industry is highly fragmented and competition is becoming more intense. And you can expect margins to thin further as competition heats up even more unless your company makes a deliberate effort towards differentiation,' says Joseph Ooi, managing director of Synergy.

Storbest's Mr Chua is also feeling the heat. 'With the competition getting more intense in Singapore and the region, cold chain logistics players like us need to upgrade and offer integrated logistics services so as to secure better margins for our services.'

Synergy is exploring how to upgrade its process and systems so as to improve its operational and workflow efficiencies, while FPS is trying to build up its container load optimisation capabilities so as to save on costs and improve its efficiency.

However, a lot of logistics companies are still not enhancing their technological capabilities, notes Mr Tay. As a result, their productivity levels are not as competitive as the multi-national corporations which have streamlined their supply chain operations.

'This will result in some small medium enterprises competing on prices just to win contracts. Industry feedback is that some companies are quoting at cost or below cost just to win a customer. Competing solely on price will result in a downward spiral in industry cost structure,' cautions Mr Tay.

But he highlights a more positive aspect - more logistics players are banding together to form strategic alliances to expand their services, scale up their infrastructure and increase their logistics capacity. CargoTec, an air cargo company has merged the strengths of a few companies (namely, SAAA Cargo Services Pte Ltd, Allspeed Services Pte Ltd, Air Transport Pte Ltd and BB Express Pte Ltd) to provide a comprehensive service of cargo clearance, ground transfer, packing and warehousing.

There are existing schemes within Spring Singapore to help the industry and enterprises in piloting industry-wide projects and implementing capability development initiatives. These initiatives may include RFID technologies adoption, supply chain management system integration and business process re-engineering.