This article first appeared in digitaledge Weekly, on September 14 - 20, 2015.

According to former communications and multimedia minister Datuk Seri Ahmad Shabery Cheek, Malaysia’s e-commerce industry, which was worth RM53 billion in 2014, is expected to grow to RM72 billion this year and RM88 billion in 2016.

As more and more consumers use the internet to make purchases, one of the biggest beneficiaries of this trend is the logistics industry, which is involved in the unglamorous back-end work of delivering the goods purchased.

“The rise of the online retail shopping segment — both the business-to-consumer and customer-to-customer — has been the driving force of the burgeoning courier service industry,” says RHB Research analyst Ahmad Maghfur Usman in a July 14 report.

“While rising competition between online shopping companies could put pressure on costs and consequently, squeeze margins for courier service providers, on the upside, this could bring about more volume for courier service providers and, hence, drive economies of scale further.”

While it is difficult to assess how much of what is being handled by courier companies is e-commerce-related, the general volume of parcels handled by the country’s postal and courier service industry has increased drastically over the last few years.

Data from the Malaysian Communications and Multimedia Commission shows that the postal service delivered 1.26 million parcels domestically last year, doubling 2013’s 662,681 deliveries. Courier traffic for parcels reached 15.29 million domestically last year, growing threefold from the 5.27 million parcels seen in 2012. Internationally, courier firms in Malaysia handled 4.07 million parcels last year, up from 1.83 million in 2012.

More telling of e-commerce as a catalyst for the logistics industry, though, is the investment and capital expenditure courier companies are willing to undertake to capture a share of the e-commerce market. For example, Bursa Malaysia-listed GD Express Carrier Bhd (GDEX) (fundamental: 3; valuation: 0.70) incurred RM10.21 million in capital expenditure in its financial year ended June 30, 2014, to cope with greater demand for its delivery services.

In that year, the company expanded its vehicle fleet from 297 to 453, increasing its capacity to 1,005 tonnes from 807 tonnes. It also increased its manpower from 2,013 workers to 2,315, to cope with the surge in demand for its express delivery services.

GDEX’s express delivery segment posted a profit of RM24.48 million in FY2014, a 13.4% improvement from a year ago. The segment contributed 91% to the firm’s profit, with the remaining 9% coming from logistics services.

According to GDEX managing director Teong Teck Lean, the company has been improving the quality of its services to fit into the business model of e-commerce firms in order to ride the boom.

“There are several factors that contributed to the growth of e-commerce. Retailers are embarking on different channels to reach out to their customers, and we believe that the internet is one of the channels they are focusing on. For new start-ups, selling through the internet is easier, as opposed to the traditional bricks-and-mortar retailing,” he says.

“Delivery of goods to customers is one of the key factors of a successful e-commerce business, and we fit in perfectly as the service provider for these players. E-commerce-related business contributes about 15% to our revenue and is growing rapidly. The volume growth is very encouraging.”

Similarly, Pos Malaysia Bhd (fundamental: 2.20: valuation: 0.90), which has seen an erosion of profits from its core mail business due to declining mail volume, is now spending more on growing its courier, express and parcel (CEP) business. This segment, which contributed 30% or RM480 million to the company’s revenue in its financial year ended March 31, 2015, has been growing in tandem with the increase in e-commerce transactions.

Pos Malaysia group CEO Azlan Shahrim has also described the CEP segment as the main driver of the company’s growth. This explains the concerted effort made by the company to improve its Pos Laju services.

Pos Laju has expanded its physical courier infrastructure by providing ad hoc kiosks, commenced operating on the first Saturday of each month and on public holidays and invested in fuel-efficient vehicles, mobile scanners and a bigger workforce to ensure it keeps its courier market share. It has also introduced innovative products like EZiPoz — a reverse logistics service to complement e-commerce transactions. EZiPoz provides online shoppers in Malaysia with a street address in the US, allowing them to buy from retailers that do not ship their products outside the US.

Even for those who are not in the courier business yet, the e-commerce-related revenue is starting to look tempting.

“E-commerce is something we are looking into closely,” says Tiong Nam Logistics Holdings Bhd, which has expertise in warehousing and customs forwarding.

“As a total logistics solution provider with our extensive expertise in door-to-door micro-distribution deliveries, Tiong Nam (fundamental: 1.10; valuation: 2.40) will definitely take advantage of this trend to provide a healthy supply chain for deliveries.”

Other players that have been touted as potential newcomers to the last-mile delivery market by analysts are TASCO Bhd (fundamental: 1.80; valuation: 1.40), Freight Management Holdings Bhd (fundamental: 1.40; valuation: 1.80) and Ingenuity Consolidated Bhd (fundamental: 0.95; valuation: 0.90).

With just about anything a click away for consumers, the logistics industry will do well to ride the e-commerce boom.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.