This article first appeared in Digital Edge, The Edge Malaysia Weekly on March 28, 2022 - April 3, 2022

“It was the best of times, it was the worst of times,” wrote Charles Dickens in the opening of A Tale of Two Cities.

The same could be said about the impact of Covid-19 on the local courier industry in the last three years. While consumers have embraced online shopping and benefited from low to no delivery charges for goods purchased, courier companies are barely scraping by, some with low profit margins and others bleeding cash.

“The industry has been on steroids since the outbreak of the pandemic and it is now very crowded with 122 licensed players. With the ongoing price war, there are bound to be casualties in the market,” Ng Shern Yao, co-founder and chief operating officer of Logistics Worldwide Express Sdn Bhd, tells Digital Edge.

The situation is dire. Financial results posted by courier companies shed some light on how the industry has fared recently.

On March 2, Nation­wide Express Courier Services Bhd was classified as a Practice Note 17, or PN17, company — a classification given by Bursa Malaysia to companies in financial distress. Pos Malaysia Bhd, which can trace its roots back to the early 1800s, has suffered losses for four consecutive years. It lost RM333.6 million in its financial year ended Dec 31, 2021 (FY2021), and RM303.5 million in FY2020.

GDEX Bhd (formerly known as GD Express Carrier Bhd) increased its revenue to RM364 million in the financial year ended June 30, 2020 (FY2020), from RM250.5 million in FY2017. However, its net profit shrank to RM18.5 million from RM36.8 million during the same period.

Several industry players and a financial analyst interviewed by Digital Edge concur that the domestic courier and delivery services industry has experienced cannibalisation in recent years as a result of a price war initiated mainly by foreign-funded start-ups that were willing to burn money to acquire market share.

Teong Teck Lean, president of the Association of Malaysian Express Carriers (Amec), says the situation is overwhelming and the ongoing price war is hurting the industry. “It is a bloodbath on the ground. Local companies, even large players like the publicly listed ones, could collapse if this continues. The industry is at a tipping point.”

Dr Fadhlullah Suhaimi Abdul Malek, chairman of the Malaysian Communications and Multimedia Commission (MCMC) — the regulatory body that oversees the licensing of courier services — reiterated this during a radio interview with BFM in June last year. He said that the parcel per capita in the country doubled to 14 in 2020 from just seven a year earlier. But the profit margin of local courier companies, in general, has been flat.

“We see one line going up north (referring to revenue) and another going down south (referring to profit). It is a red flag for us. It won’t be able to sustain the industry and we might not have a courier company to turn to one day [if it continues],” Fadhlullah said.

All of which begs the questions, is the situation serious enough to warrant government intervention, should it get involved and in what way would it do so? 

For Amec, the answer is clear: There is a need for the government to rein in the price war and protect local companies, says Teong, who is also managing director and group CEO of GDEX. Amec industry group members also include well-known names such as City-Link and Skynet Worldwide.

According to the association’s estimates, the industry employs about 154,000 individuals and the price war is putting their livelihoods at risk, Teong points out.

“The industry has a more direct and wider impact on people, even though it generates lower profit and revenue than other industries such as banking and telecommunications, and garners less attention from the public,” he says.

This is why the government needs to intervene to support and cultivate local champions in the digital era, rather than lose out to foreign start-ups, Teong asserts.

“Home-grown players are more likely to reinvest their profits in the country to create more and higher-value jobs, instead of moving the business overseas after a market is captured. Does the government want to give domestic players a chance [or see them fail]? This is the key question,” he says.

Having local champions is crucial to safeguarding national sovereignty as courier companies’ services cover the entire country and they have access to data from a large pool of customers, he adds.

While protectionism and nationalism might be at odds with free market practices and competition that benefit the consumer, Teong believes that the logistics sector, including courier service providers, has been vital and strategic to the nation.

In other countries, domestic players tend to dominate the ecosystem because of the protection measures provided by their governments, to some extent. “In countries like the US, the courier industry is dominated by local players such as USPS (United States Postal Service), FedEx and UPS (United Parcel Service). In Japan, there are the Japan Post, Yamato [Transport] and Sagawa Express.

“In Indonesia, you (foreigners) can’t own a majority stake in a courier company and control the management, even though there are a lot of opportunities for partnerships and collaborations. In Vietnam, if you want to invest in a courier company, you would need to pay a visit to their prime minister’s office. In China, do you see foreign courier companies dominating the market? You don’t.”

However, could the safety net provided by the governments mean that domestic courier companies are not competitive enough? Teong does not think so. “Certain protection measures are given to local companies in various industries, including banking and telecommunications. Several of them have grown to become regional players today.

“You must understand why local courier companies are losing out. They (the foreign start-ups) are throwing large amounts of money to win market share. It is a one-sided fight.”

He adds that the price benefits enjoyed by consumers at this moment could be short-lived as prices could rise when the start-ups capture the local market and shift towards a business model that focuses on profit rather than revenue.

MCMC’s Fadhlullah also brought this up in his BFM interview. According to him, the number of courier companies had been growing unfettered in the last few decades as it was easy to apply for a courier licence. The increasing number of licensees partly contributed to the current price war.

It was this concern that pushed the MCMC to announce a two-year moratorium on the issuance of courier service licences in October 2020, which ends in September this year. Last June, the regulator put forth the National Courier Accelerator Plan (Pakej) for public consultation, hoping to establish a more sustainable ecosystem for the industry.

Initiatives under Pakej include a new licensing regime; sharing of resources among courier companies; and the use of electric three-wheeler vehicles for delivery, particularly in rural areas. At the time of writing, the MCMC had yet to respond to Digital Edge’s request for the latest update on Pakej.

In an email reply, Singapore start-up Ninja Van did not respond to questions regarding the price war but says, “Ninja Van is supportive of MCMC’s Pakej initiative that aims to deliver quality service and seamless coverage to support the e-commerce industry growth.

“We are committed to working closely with MCMC, especially when it comes to driving higher adoption of pick-up and drop-off services, which is also a key focus outlined in the proposal.”

A financial analyst with a foreign research firm and a founder of a local delivery start-up, however, are not in favour of government intervention to control market prices. This is because service dumping, which could stamp out domestic players, is not as severe as it has been made out to be.

Service dumping is a term used to describe a situation where players in a sector disrupt a new market by offering very low prices.

Although the analyst, who requested to remain anonymous, concurs that the challenges faced by domestic courier companies are real, he argues that none of them has shut down yet.

Market consolidation — an idea that has been bandied about for some years now — has also not happened, which could be a sign that things might not be as bad on the ground.

“The price war is ongoing. And the pressure will continue to be there as everyone is chasing the volumes. New entrant J&T [Express] had a huge funding exercise and is slated for an IPO (initial public offering). Ninja Van might want to get listed as well. These new players are focusing on growing their market share to justify their valuations. It is the reality of things.

“However, I haven’t heard of any major players closing shop, even though they might be unprofitable or making less money. The consumers are benefiting from it,” he says.

According to news reports, J&T Express raised US$2.5 billion (RM10.5 billion) last November, ahead of its IPO in Hong Kong, valuing the company at US$20 billion. Ninja Van, which has been operating in Malaysia since 2015, raised US$578 million in its E-series funding round last September. 

As parcel volume continues to grow and the pie continues to expand, it is up to each player to leverage their advantages to grab new business, the analyst believes.

“It goes down to the scale of their business, efficiencies, service quality and more. If they are not able to compete on all these fronts, they should be left to fail.”

Specific protection measures, such as enforcing a floor price for parcel delivery, are impossible to implement as the authorities cannot track each parcel delivery and their respective pricing, adds the analyst.

“With hundreds of millions of parcels being delivered each year, how would the authorities monitor [the pricing] of each of them? Not to mention that a lot of these prices are [set] on a contractual basis.”

Clarence Leong, founder of online courier services platform EasyParcel and last-mile delivery service provider Pgeon Express, agrees that fierce competition in the courier industry could hamper its growth but he too agrees that price control measures might not be the right way to go.

“There is a price war and many are hurt. But I think competition is not just about the price, it is also about the quality of service. How wide is your servicing network [to help consumers send their goods to places they want]? How fast is your delivery and are the parcels sent in good condition to the buyers?

“If your service isn’t good, consumers won’t engage your service even if prices are low. To some extent, price wars have always occurred in the courier industry. It is a very competitive industry. You can’t run away from it.”

Leong also believes that setting a floor price to control market pricing might not be possible as it is too cumbersome for the authorities to monitor the price of every parcel delivered in the country.

He adds that the key customers of Pgeon Express are micro, small and medium enterprises (MSMEs) that deliver products in smaller volumes. The market is less price sensitive and it shields the company from engaging in price wars to win over the mass market.

The Penang-based EasyParcel is owned by Exabytes Group, a web and e-commerce hosting website provider. According to Crunchbase, its investors include Axiata Digital Innovation Fund, Intres Capital Partners and Gobi Partners.

Last October, Pgeon Express announced that it had entered into an asset purchase agreement with CJ Logistics Express Malaysia Sdn Bhd to acquire 326 units of commercial vehicles, with the objective of increasing its pick-up and delivery capacity by five times.

However, Leong agrees that competition in certain areas can be avoided among industry players for their mutual benefit, as suggested by Pakej. For instance, courier companies could share their pickup and drop-off (Pudo) points — locations for consumers to send and retrieve items — with each other.

“There are many overlapping Pudo points in the country [as each player tries to expand its service network to different areas]. It would be great if industry players could open their Pudo points to other players to avoid wasting resources. There are many overlaps at the moment.”

EasyParcel has about 5,000 Pudo points nationwide, which is half the amount of the country’s total Pudo points, according to data provided by Pakej.

“We are happy to share our Pudo points with other courier companies. They can send their parcels to our Pudo points and make the last-mile deliveries to their customers themselves, without the need to pay us a fee. They can also choose to let us deliver the parcels by paying us a fee. We are happy to collaborate.”

When asked if they are worried about local courier companies losing out to foreign-funded players, the financial analyst and Leong both say that the government could introduce new measures to protect local players as and when necessary. Now, however, is not the right time, they point out.

To that, Amec’s Teong asks: Would it be too late by the time the government does decide to intervene when the situation is already dire?

“Many local companies, including the large ones, might fail [by then]. Sure, Malaysian consumers are benefiting from the very attractive pricing for delivery, but will this continue after these players [especially foreign ones] capture and dominate the market?”

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