Evolution of Logistics in Indonesia: The Rise of E-commerce-owned In-house Logistics

Consumers living in the digital world

The e-Conomy SEA 2021 report by Google, Temasek, and Bain & Company has recorded that Southeast Asia saw an additional 20 million new digital consumers during the first half of 2021. Almost 60 per cent of these came from areas outside of the big cities, indicating the growth of e-commerce penetration in the region.

This is consistent with the statement of the Governor of Bank Indonesia, which said that e-commerce transactions in the country have reached IDR 401 trillion in 2021, growing 50.6 per cent from the previous year.

Based on a report published by Momentum Works, despite online shopping becoming common among Indonesians, Indonesia’s e-commerce consumers are still concentrated in the Greater Jakarta area. Online shopping in this area is estimated to make up 60 to 70 per cent of the total volume of e-commerce in the country. 

Santanu Mitra, Managing Director of Digital Economy Group, DBS, stated that this centralisation of e-commerce transactions in the urban cities of Indonesia has created a great opportunity outside Greater Jakarta. “There are at least 170 million consumers in the second- and third-tier cities who have not been served optimally due to logistical barriers. Indeed, they have not experienced the convenience of e-commerce like those who live in the big city,” Santanu said.

Logistics services are under pressure to be faster and more efficient, with a more affordable shipping costs. However, several challenges in the logistics sector remain in Indonesia.

Logistics challenges in Indonesia

Given Indonesia comprises some 17,000 islands, the logistics of last-mile delivery (the final delivery to the consumer address) can be complicated, especially for remote areas. Complex geographic distribution and less-than-ideal infrastructure conditions such as damaged roads have long been challenges to the logistics sector.

The hurdles faced by logistics service providers, especially in the last-mile delivery sphere, vary greatly. For instance, the delivery time for conventional shipments is longer due to rigid schedules; in contrast, delivery might be faster for on-demand services, but it comes with higher costs and only covers limited distances.

Last-mile delivery service potential

Several third-party logistics (3PL) providers in Indonesia, such as J&T and JNE, experienced high-volume growth in 2020, serving 1.6 to 2 million shipping orders daily. 

In order to serve the second- and third-tier cities, several established players in the logistics industry, start-ups, and e-commerce managers are building conjoined warehousing and delivery networks.

Several e-commerce platform managers in the country have already launched their own logistics solutions or in-house logistics. One of them is Shopee which has offered Shopee Xpress since 2019.

Adoption of on-demand delivery for e-commerce players

Lazada is a pioneer of in-house logistics in Southeast Asia. With order processing and compliance centres occupying more than 300,000 square metres of land in six Southeast Asian countries. To date, Lazada has processed more than 85 per cent of total packages purchased by its users in 2021.

The rapid development of in-house logistics has encouraged 3PL providers to evolve faster in order to remain relevant and competitive.

Some measures done by 3PL providers are to expand the service coverage and increase expense efficiency. 3PL services could also cooperate with local platforms to reduce shipping costs, even to remote areas of the country, i.e. through collaborations with on-demand delivery providers such as Grab and Gojek.

Same-day on-demand delivery logistics services are now dominated by Grab and Gojek, which have massive fleets distributed across Indonesia. This kind of delivery has enabled faster intra-city delivery, with options of instant delivery (one to three hours) or same-day delivery (six to eight hours). 

Both Grab and Gojek have now moved into the package delivery space while dominating food delivery and e-grocery services. “On-demand delivery will eventually become an approach taken by e-commerce to be paired with their in-house logistics solutions, providing a solution in terms of the delivery speed and responding to consumer needs for convenient online shopping,” said Santanu.

Developing business scale and efficiency will be a key factor to take the lead in the competition. Moreover, the business landscape will push 3PL providers to compete with in-house logistics networks to provide faster and affordable delivery for consumers in both metropolitan and small cities.

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DEG products and services include advisory services on Series B funding to raise capital in pre-IPO, IPO, and M&A, and providing structured loan solutions across markets, with a focus on Singapore, Indonesia, India, China, Hong Kong, Taiwan, and Vietnam.  

Find out how DBS’ Digital Economy Group supports technology companies and start-ups by providing strategic support and best-in-class services at every stage of the growth cycle. Get in touch with us at [email protected]. 

This article was originally published on Tech in Asia Indonesia