This article first appeared in The Edge Malaysia Weekly on October 24, 2022 - October 30, 2022

FOR years, the delivery of parcels and documents in Malaysia has been dominated by foreign players such as DHL, FedEx Corp and United Parcel Service Inc (UPS), as well as local companies Pos Malaysia Bhd, GDEX Bhd and Nationwide Express Courier Holdings Bhd.

Demand for courier or last-mile delivery services has seen on-steroid growth in the past three years, fuelled by the Covid-19 pandemic, with many e-commerce platforms outsourcing their services to delivery companies, leading to more start-ups setting up shop in Malaysia.

According to data by the Malaysian Communications and Multimedia Commission (MCMC), parcels per capita have risen from 7.6 in 2019 to 23.5 in 2021.

The boom has also attracted foreign players with deep pockets to the market. Major e-commerce platforms such as Lazada and Shopee have even set up their own logistics arm, adding pricing pressure in the last-mile industry.

Despite growing demand, many players, particularly local companies, are not benefiting from it.

For perspective, Malaysia — with a population of 33 million — has 122 courier licences. Thailand, with its population of 70 million, has half as many courier licences as Malaysia, and Indonesia has 42 for a country of 273 million.

New technology-savvy players such as Ninja Van, Lalamove and J&T Express with deep pockets have been slashing prices to capture market share. Currently, charges for courier services are left to market forces.

The price wars led to razor-thin margins for industry players, with many dependent on volume to stay afloat.

Associated Chinese Chamber of Commerce and Industry of Malaysia’s Socio-Economic Research Centre (SERC) executive director and economist Lee Heng Guie tells The Edge: “While last-mile delivery services providers and courier companies have enjoyed brisk sales, they also saw their profit margins being squeezed by the ongoing price war, which has cannibalised the domestic courier and delivery services industry in recent years.

“The race-to-bottom price war, [involving mainly] foreign-based start-ups and delivery service providers to gain market share, has resulted in many small-scale companies either suffering losses or forced to cease operations.”

The cut-throat competition and mounting losses led to quite a few local players exiting the industry.

Nationwide Express, which can trace its roots back to 1985, is one casualty. It was classified as a Practice Note 17 (PN17) company in February 2020 and delisted on April 5.

KTM Distribution Sdn Bhd, which has had a 38-year presence in the courier and logistics business, terminated its operations effective Nov 1. In a statement, KTMD said the cessation of operations is in line with its restructuring exercise.

Meanwhile, CJ Century Logistics Holdings Bhd, formerly known as Century Logistics, sold its loss-making courier arm last year for about RM7.5 million. Other players such as GDEX and Pos Malaysia suffered consecutive quarters of losses.

Two years ago, in response to feedback from the industry, regulator MCMC imposed a moratorium — which ended on Sept 15 — on new courier licences.

But has the moratorium helped?

Association of Malaysian Express Carriers (AMEC) president Teong Teck Lean says the moratorium has neither helped nor changed the industry much, as it has not prevented disruptive start-ups from entering the market.

“There are new start-ups that want to operate in a very aggressive manner, by buying into local companies that hold courier service licences and can immediately begin their operations aggressively,” says Teong, who is also managing director and group CEO of GDEX.

Pos Malaysia CEO Charles Brewer concurs, saying: “The moratorium had no real impact one way or another. New carriers wanting to enter Malaysia are able to circumnavigate the moratorium by acquiring already-established Malaysia-based carriers, along with their existing operating licence.”

Brewer believes Malaysian courier and logistics providers are operating in a very crowded and competitive space, which is unsustainable.

In fact, he notes that competition remains intense, with prices dropping.

“In recent months we have seen many examples of ‘price dumping’ to acquire market share, driven primarily by foreign carriers whose business models and strategies are very different from those of the local carriers,” he says.

Pos Malaysia and GDEX are members of AMEC, which represents 25 major courier companies in the country.

SERC’s Lee points out that in a free market, price competition is inevitable but must not compromise the quality of services and healthy practices are necessary to ensure sustainable growth for the industry.

“Any form of services dumping or price undercutting should be contained or prevented, as it causes unhealthy development. Unhealthy industry [practices] will prevent investors from thriving, as the low profit margin disincentivises them to invest, especially in efforts to digitise to further improve the quality of services to consumers,” he says.

Meanwhile, industry players say new entrants such as Indonesia-based J&T Express and Singaporean start-up Ninja Van have done very well over the past three years as they capture market share from local players in their growth-focused strategy.

“As long as the e-commerce industry keeps growing, we expect the competition in the last-mile delivery industry to continue,” a market observer says.

He concurs that the price war in the past years has been detrimental to the local companies.

“But, that is the reality of things. In addition, the market was not ready for the unexpected boom in the e-commerce industry led by the pandemic,” he adds.

Nonetheless, he expects the price benefits of low prices for courier or last-mile delivery to be short-lived, and that the companies that manage to capture the biggest market shares could determine prices.

An analyst points out that J&T Express has been very aggressive in its pricing strategy and, in less than three years, managed to dominate the e-commerce delivery segment. “J&T Express is also eyeing an initial public offering (IPO) in Hong Kong. With fresh capital, the company is in a sweet spot,” he says.

According to its filings with the Companies Commission of Malaysia, J&T Express (Malaysia) Sdn Bhd posted an impressive net profit of RM80.14 million in the financial year ended Dec 31, 2020 (FY2020) compared to a net loss of RM59.65 million in FY2018. Its revenue has grown at a compound annual growth rate of 253% over the past three years to RM854.16 million in FY2020 from RM19.46 million in FY2018.

Last November, J&T Express raised US$2.5 billion (RM11.84 billion), ahead of its IPO, valuing the company at US$20 billion. Investors include Temasek Holdings, Hillhouse Capital Group, Boyu Capital Advisory Company Ltd and Sequoia Capital China, according to news reports.

Founded in 2015, J&T Express is now a decacorn — a private company valued at more than US$10 billion.

Meanwhile, industry players are also crying foul over logistics services set up by e-commerce platforms such as Lazada and Shopee, saying the different businesses are cross-subsidising each other, which reduces courier charges, or even offer free delivery.

“As such, there is no level playing field,” says AMEC’s Teong. “These e-commerce companies are heavy users of logistics services but are a big threat to the courier industry as well. Therefore, there needs to be more communication among platforms as well as anti-competition practices enforced by regulators, to establish a win-win situation for all. Competition in the industry is and will be more intense and will impact the margins of courier players.”

It is worth noting that, last Friday, the Malaysia Competition Commission (MyCC) issued a statement saying Shopee had been given until the end of this month to provide “justification to its conduct”, along with a detailed account on how issues relating to customer dissatisfaction with its first- and last-mile delivery services are being addressed.

The statement did not say what the merchant and consumer complaints were but it said MyCC had engaged with the e-commerce platform because of “the escalating public outcry against certain practices of Shopee”.

Brewer says Pos Malaysia is working very closely with MyCC, MCMC and AMEC to find a sustainable solution for the industry.

“The courier and logistics industry employs tens of thousands of Malaysians and is essential to the country. As such, it is imperative that we develop the right framework that meets the needs of the consumer, the seller and the sector,” he adds.

Teong suggests that the government intervene in the price war while start-ups that can serve underserved locations in the country be encouraged to participate in the market.

While he agrees with free-market practices, he says local logistics players have a vital role in nation-building, and that the government should cultivate local champions in the last-mile delivery space.

Teong says: “The government should recognise the courier industry as a very important infrastructure of the nation. In this industry, logistics, fulfilment and delivery will all need sophisticated digital systems that connect to all industries, including banks.

“To fund this essential infrastructure, one of the most important things that the government can do is to establish a base price as a funding mechanism, to help industry players establish, meet and sustain standards of such infrastructural needs.”

AMEC and Pos Malaysia share the same view.

Will such a practice — a sector-wide base price — pass muster with MCMC, which regulates the industry? Note that anti-competition watchdog MyCC has no say in matters under MCMC’s jurisdiction. At press time, MCMC had yet to respond to requests for comments.

An analyst points out that specific protection measures, such as enforcing a floor price for parcel delivery, are impossible to implement, as it is difficult for the authorities to track each parcel.

“With hundreds of millions of parcels being delivered each year, how would the authorities monitor each of them?” he says.

Ninja Van Malaysia CEO Adzim Halim says that while setting a zero service fee is detrimental to all stakeholders — namely logistics companies, shippers and online shoppers — a floor pricing structure can be equally prohibitive to overall sectoral growth.

“We’ve seen a real shift in consumer trends in the last few years, with a shift towards greater service experience. Service consistency and quality are two of the top factors that help define excellent service experience,” he says.

Adzim disagrees that the last-mile delivery space is overcrowded. “Our industry is made up of a wide variety of different sub-segments, including airfreight, sea freight, last mile, warehousing and fulfilment.

“With this in mind, I don’t believe that it is a matter of too many players trying to grab a slice of the same pie, but rather multiple players finding their niche and grabbing slices of different pies.”

With the end of the moratorium, what will be next for the industry?

Note that last year, MCMC issued a public consultation paper to seek industry feedback for a new licensing framework for the courier industry.

The proposal could see new restrictions on the number of parcels handled by courier companies as well as the shareholding structure to increase local partici­pation, depending on the type of licence.

The proposal is part of MCMC’s  larger National Courier Accelerator Plan, dubbed Pakej, to improve courier and postal services in Malaysia.

In a press conference last week, MCMC chief operating officer Datuk Mohd Ali Hanafiah Mohd Yunus said the Pakej programme was still at the proposal stage.

“We have not finalised anything and are still at the info-gathering stage,” he said.

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