Driven by e-commerce, Asean's digital economy growth to keep weighing on supply chains

Singapore

THE blistering speed at which Asean's digital economy is expected to continue growing - supported in large part by e-commerce - will continue to place strains on supply chains in the coming years.

But companies are better placed to tackle fresh challenges, according to experts The Business Times spoke with.

Logistics players have been reconfiguring their supply chains to meet current demands of the online delivery model, notes Soon Ghee Chua, senior partner at Kearney.

"E-commerce drives a different flow of logistics which will need a re-channelling of resources and assets - like, for example, more goods directly delivered to end-consumers by delivery riders, rather than to retail shops by delivery trucks."

Already the biggest growth driver of the digital economy this year, e-commerce sales, in terms of gross merchandise value (GMV), is projected to jump 62 per cent, from US$74 billion in 2020 to US$120 billion this year, said Bain & Company's e-Conomy SEA 2021 report, which was written in collaboration with Google and Temasek.

And e-commerce is expected to remain the biggest growth driver until 2025, contributing about US$234 billion worth of GMV to the total pie of US$363 billion.

Paul Kent, partner, advisory, KPMG in Singapore, noted that the Covid-19 pandemic coupled with Asean's "young and digitally savvy population" have been key in driving consumption.

"Thirdly, a number of technology companies have grown into market leaders in the e-commerce space. Peer-to-peer payments and buy-now-pay-later applications have (also) grown in popularity," said Kent.

Bain & Company's Florian Hoppe, who heads the Apac technology and analytics group, said that while the team expected the surge in e-commerce GMV in 2020, the uptick in 2021 was "surprising".

But this exponential growth is expected to slow next year.

"The growth rate (for e-commerce) going forward will slow down a bit. I think what's going to happen though is that the other sectors (such as transport and online travel) will start coming back," says Hoppe, even as he qualified that it is slowing off a strong base.

"What it also means is that the whole growth of the digital economy is much more industrialised by now. These are big industrial companies with big warehouse infrastructures (and) they are starting to dabble with freight planes."

Chinese e-commerce giant JD.com, for instance, is reportedly looking to have "no fewer than 100 planes" by 2030, including leased and jointly purchased aircraft.

"If you look under the hood at where the smart money is going, it's actually into e-commerce enablement - fields such as logistics, last-mile delivery," says Hoppe. "There's a lot of attention on this space right now because people are realising that's where the the next wave of growth needs to be supported."

Technology is also playing a key role.

In November, Deputy Prime Minister Heng Swee Keat unveiled the new Supply Chain 4.0 Initiative, which aims to develop digital and automation solutions to meet the demands of businesses and use technology to make supply chains more agile.

The private sector too has stepped up efforts to digitalise the sector.

Rajesh Mehta, Asia-Pacific head of treasury and trade solutions at Citi, notes that trade in particular has been tougher to digitalise relative to other areas of banking.

"Trade is complex, with multiple counterparties involved in a single trade transaction. In Asia, where the region is fragmented, the lack of uniformity in regulatory frameworks also poses the need for nuanced requirements," he says.

The pandemic and current supply chain disruptions have been a catalyst to prompt a move from paper to digital for cross-border documentation.

Citi is working with industry bodies as well as government agencies to facilitate this shift, says Mehta. Indeed, the automation and digitisation of trade documents will provide a more efficient flow and help reduce costs in the supply chain.

They are, for instance, working with Komgo and Contour towards issuing and processing digitised Letters of Credit. Citi is also collaborating with a multinational blockchain-based shipping platform to offer electronic Bills of Lading.

This is after Singapore became the second country to adopt the United Nations (UN) Commission on International Trade Law's Model Law on Electronic Transferable Records into domestic legislation, which grants such electronic trade documents the same legal standing as paper-based ones.

Roadblocks still exist

Among other factors, connectivity is key to Asean realising its huge potential in the digital space.

According to the UN Conference on Trade and Development B2C E-commerce Index 2020, which measures an economy's readiness to support e-commerce, only 3 Asean countries rank in the top 50.

This highlights the need for individual developing countries to build up their digital and logistical infrastructure to capitalise on the opportunities offered by e-commerce, says KPMG's Kent.

"For example, some remote areas of Asean remain inaccessible due to a lack of roads or flights, which limits their e-commerce participation. Individuals living there could be experiencing low Internet penetration and may be largely unbanked. Thus, it is critical for governments to implement programmes or policies that will boost their countries' preparedness in supporting e-commerce."