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Mind the 'last-mile gap' in the logistics sector

Lim Hui Jie
Lim Hui Jie11/10/2022 08:54 PM GMT+08  • 16 min read
Mind the 'last-mile gap' in the logistics sector
One problem last-mile logistics companies face in a fragmented market is the issue of scale. With no economies of scale, it is hard to push costs down, impeding improvements like technology adoption. Photo: Albert Chua/The Edge Singapore
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Last-mile delivery quality here has room for improvement. Are there too many logistics players and can consolidation or technology help?

The ease of e-commerce has conditioned Singaporeans to get too used to buying everything from $1 household items to $10,000 watches online. After all, shopping means picking up the handphone, searching and hitting the order button. Unfortunately, what follows is usually a period of extended anticipation, as buyers wait for days and weeks for their purchases to arrive.

So common is this phenomenon that the term “pre-parcel anxiety” — defined by the Urban Dictionary as being in the state of “nervous impatience” while waiting for delivery, accompanied by “frequent glances at the front door for signs of the courier when you hear any audible or visual cues of their presence” — has entered the contemporary lexicon.

Last month, The Edge Singapore checked the delivery time for 10 different items ranging from clothes and electronics to food and fashion items acquired from Lazada and Shopee, two of the most popular e-commerce sites here.

For products sold by local sellers, the delivery time could be as long as five days; while the waiting time for those from overseas could be as long as 19 days from the moment a buyer hits the order button.

For example, an electronics device bought from a local seller on Oct 9 took six days to arrive at the doorstep. Another product bought in September from the UK took 10 days to arrive, spending three days alone in Singapore.

See also: Tech seen as ‘key driver’ in logistics industry going forward: Geodis

The UK package spent only one day in air transit but five days in the local warehouse on the last leg. In contrast, Amazon offers US Prime members free one-day, coast-to-coast shipping for 15 million items.

So, why do deliveries take so long? Singapore is known to be a key global logistics node but why isn’t the same efficiency seen within this tiny island?

At a glance, there seems to be no shortage of logistics companies in Singapore. According to the Ministry of Manpower (MOM), there are almost 80,000 workers working in the so-called “other transportation and storage” sector as of end 2021, which MOM says comprise employees in logistics companies.

See also: The sweat and tears behind last-mile delivery journeys

Statistics from Singstat in 2020 also showed that there were about 2,600 companies under this classification, with an additional 700 postal and courier companies here.

With over 3,300 logistics companies based in a small island state, you could be wondering why it still takes longer to get a local package compared to one from hundreds of kilometres in other countries.

According to Raymon Krishnan, president of the Logistics and Supply Chain Society in Singapore, these 3,300 companies are all classified under a broad sector and serve many different “verticals”. Some may serve only certain clients or brands, while others specialise in the delivery of certain goods, including medicines, refrigerated goods or furniture.

But having a fragmented market also means having multiple points of failure. Krishnan says: “In any logistics pipeline, there are many handoffs, intermediaries and partners. The minute one link fails, a shipment is affected. And when shipping internationally, the handoffs are even more complicated.”

As an illustration, a business-to-business (B2B) delivery company picks up a package from overseas at the airport cargo terminal. It is then handed over to a local warehouse operator who, after further sorting, hands it to a last-mile delivery company.

To make the landscape even more fragmented, some logistics companies subcontract a portion of their deliveries out to even smaller logistics companies. Krishnan says even large companies, like DHL, FedEx and UPS subcontract their deliveries out to smaller operators for the last mile.

While Singapore may be small, it also has an outsized appetite for e-commerce which leads to high delivery volumes. According to Statista, Singapore’s e-commerce revenue is set to reach US$7.29 billion ($10.47 billion) this year and grow at a CAGR of 16.23% to hit US$11.45 billion by 2025. The number of users is seen to reach 4.1 million by 2025, with user penetration up to 67.2% in 2025 from 59% this year. In comparison, Malaysia is set to hit US$10.1 billion this year while Indonesia is projected to be a US$62.6 billion market.

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Seen in this context, the market, divvied up among so many players, is as fragmented as it could be. Is the industry ripe for consolidation? Will this presumably help improve efficiency, especially in the last mile?

A matter of cost

Olive Tai, co-founder and managing director of e-commerce enabler Synagie, agrees.

“We need to think about consolidation. The problem of Singapore is that we don’t have enough scale, because this is a small country”.

Synagie provides end-to-end commerce enablement solutions to businesses, including providing warehouse space, managing inventory, and running digital advertising campaigns for their customers. Clients include e-commerce platforms Lazada and Shopee and more than 600 brands including Nike, Shiseido and L’Oreal.

Associate professor Tan Kok Choon, deputy head of the department of operations and analytics at NUS Business School, says local delivery firms struggle for scale as they have overheads ranging from salaries to fuel and vehicle costs to cover. Without sufficient volume, unit costs cannot be reduced much, says Tan, a former executive with PSA Corp.

He points out that delivery companies prefer to wait for a fuller load at the sorting hub before heading out to make the rounds so as to make each trip more cost-efficient. “In other countries with a large population, on a single-driver basis, drivers have enough load that each is responsible for a few hundred [deliveries] a day, every day. Whereas in Singapore, it is very uncertain,” says Tan.

In addition, not all delivery companies take on every job that comes their way. Some only serve certain clients, reminds Krishnan.

So, it could be that a warehouse may be full but a product has to wait for a certain deliveryman from a certain company to come and pick it up because the contract is with that company.

For logistics provider J&T Express, 75% of the costs in a shipping journey are incurred during the last mile, says hub operations manager Jonathan Goh, while delivery management software company DispatchTrack estimates labour makes up 60% of last-mile delivery expenses.

“Ignore what you see in shiny brochures or on television. Most e-commerce operations and warehouses are still using manual processes with very little digitalisation tools and seamless information and process flow,” says Krishnan.

In its most basic form, last-mile delivery is about “a man with a bag, delivering things to a door”, says Christopher Ong, Singapore managing director of DHL Express.

Tech, the silver bullet?

E-commerce operators like J&T Express has invested in technology to improve the sorting process, but is also looking to more collaborative practices in the last-mile industry. From left: J&T Express hub operations manager Jonathan Goh and J&T Express sales and marketing director Alice Yeung.

Is the solution, therefore, making better use of technology to reduce the intensity of labour? In the case of J&T Express, it has managed to incorporate sorting machines into its warehouses so that warehouse staff do not have to sort packages manually.

The company has also switched over to a new system that allows the company to plan the best route for a driver, thereby reducing fuel consumption and improving efficiency, says sales and marketing director Alice Yeung.

Big players like DHL have also ploughed money into technology, offering services similar to those of an on-demand online platform, which enables a customer to check the estimated delivery date and time.

More importantly, via the platform, recipients can decide how they want their parcel delivered — be it to the doorstep, a locker, or left in the care of a neighbour. This reduces the rate of unsuccessful deliveries, which saves costs for the company, says Ong.

Deploying technology is “good to have” but costs remain the key issue for local players, says Tai of Synagie. Singapore’s small market means recouping the investment in technology takes a long time and the fragmentation of the last-mile logistics landscape means that a single company cannot generate enough volume to justify the investment, she explains.

“There is no scale and everyone is still trying to run their own warehouse. We are one of the biggest in Singapore but we still don’t have enough volume. BAU (business as usual) volume per day, we only have a few hundred orders. To use a robot is a waste of money,” says Tai.

She estimates that it would take Synagie 10 years to break even if it were to automate its warehouse, compared to two to three years in another country with a larger scale. “It’s just very, very hard for a Singapore company to really say ‘okay, I come forward and I invest this money to automate the whole warehouse’,” Tai laments.

Synagie's Tai: Technology is a good thing but with Singapore’s scale, it is difficult to justify the cost of such a huge investment

Integrated, for a price

Should the market then rely more on the big-name logistics players that already command a certain scale, such as DHL, FedEx and UPS? “The good thing, of course, is that we don’t just do deliveries domestically, our focus is on the end to end,” says DHL’s Ong. “We own the infrastructure all along the way or we manage and control the infrastructure. What that means is that there’s certainty of transit, we are able to guarantee our customers’ confidence that their shipment is on the way and going to get there.”

DHL is also able to narrow deliveries down to a two-hour window, which gives customers a better estimation of when their packages will arrive. This means they do not have to stay at home the whole day to wait for a package even if a separate company was used in the shipping process.

Having all these features improves the customer experience but it does not come cheap. “I’ll be honest, if you use DHL, we are not cheap by any means. But you get certainty and peace of mind for delivery,” says Ong.

Ultimately, it comes down to what price the buyer is prepared to pay and the customer experience he expects, Ong stresses.

For example, a customer may be more willing to pay higher shipping charges for a high-value item like an iPhone to ensure prompt delivery but probably less so for products of lower value.

Associate professor Tay Huay Ling, on the other hand, warns against having an industry controlled by an oligopoly of integrated players.

In such a small economy like Singapore, having only a handful of players could lead to anti-competitive prices, forcing customers to pay high prices for seemingly low-value goods, says Tay, the head of the international trade minor at the Singapore University of Social Science (SUSS).

Stronger via collaboration

Most experts whom The Edge Singapore spoke to are not keen on extreme consolidation. Instead, they favour a more collaborative approach. As efficiency is the name of the game in this sector, SUSS’s Tay thinks that last-mile players ought to pool their resources.

Krishnan also agrees with SUSS’s Tay, saying that consolidation, especially to the point where there is a monopoly, is not necessarily ideal. But he thinks it would be good if smaller companies — whether it is the one-man operation with a van or a small fleet of operators — can join part of a co-operative or network.

This network would allow access to technology and processes and enable them to leverage economies of scale for certain items like insurance, maintenance, training and fuel.

J&T’s Goh thinks that industry players could try and optimise the use of their existing assets, like the sharing of delivery vehicles. They can also try and arrange deliveries at night when there is less road traffic, which makes deliveries more efficient and leads to better utilisation and lower unit costs.

Apart from investing in technology, although DHL’s Ong thinks “a bit of consolidation” is needed, logistics companies should upskill themselves to pull away from the rest of the competition.

At its core, the business-to-consumer (B2C) supply chain is “nothing more than a delivery to a door”, adds Ong. As such, companies need to move up the value chain and differentiate themselves by being able to handle specialised goods like frozen goods or medicines.

Synagie, for example, handles luxury goods for high-end clients. Tai says big brands are very particular about how their products are presented and delivered. One client goes so far as to dictate the specific angle a product needs to be placed in the case which is delivered to the customer.

Most recently, to drive efficiency further, Singapore Post (SingPost), together with the Singapore Standards Council (SSC), has launched a new standard for the last-mile delivery of parcels.

Known as the Technical Reference (TR) 105 guidelines, the guidelines provide guidance to e-commerce players and last-mile service providers to standardise processes and practices to improve the workflow and experience for last-mile deliveries.

TR 105 provides guidance on areas such as packaging, labelling, data collection and transmission, communication content and operational practices. The standard aims to establish industry-wide consistency of last-mile delivery services for the benefit of consumers and retailers.

TR 105 aims to improve the experience of end-consumers in a few ways, including improving the productivity of last-mile deliveries by standardising packaging and labelling guidelines, as well as enabling data exchange and harmonisation across marketplaces, sellers and last-mile service providers.

These will allow players to safeguard data and reduce delivery failure frequency as well as optimise storage and delivery schedules.

In the release by SingPost and SSC, Venkat Shankar, head of logistics at Lazada Singapore, says shipping can “make or break” the online experience and “every little step taken to improve the buyer’s experience, from providing timely updates to shortening delivery time to offering more delivery options suited to both buyer and seller, adds up to the experience”.

Lockers, lockers everywhere

One method that has increased efficiency here is the roll-out of an island-wide network of lockers that serve as drop-off and collection points, which aims to reduce instances of unsuccessful deliveries and wasted waiting time.

“The most efficient couriers are able to tackle 100 deliveries in a day if they’re moving it to a doorstep. But if they’re able to leverage using lockers, potentially, they can do up to 300, because at one stack of lockers, perhaps you can deliver three shipments,” says DHL’s Ong.

Given that 80% of Singapore’s population lives in HDB flats, a parcel left outside a unit is unsafe and could be stolen. Should there be no one present to receive the package, the deliveryman is forced to take the package back and come back another day.

While a network of lockers seems like a win-win for buyers and deliverymen, a report by Today in July reveals that more than one year on, the reception of these lockers remains cool.

In Today’s report, national locker operator Pick Network said that between January and March, an average of 13% of these lockers were used. The report also found that some online shoppers said that they saw no reason to use them when they can have items easily delivered to their doorstep instead.

Pick is a wholly-owned subsidiary of the Infocomm Media Development Authority (IMDA), which plans to set up 1,000 locker stations, each having 40 to 50 lockers. These lockers will be located within a five-minute walk of an HDB block.

But just like the last-mile logistics chain, even the locker landscape is fragmented. A number of locker station operators exist in Singapore, including national locker network Pick which launched in April 2021 and SingPost’s PopStation.

Checks by The Edge Singapore found that online retailers such as Lazada and Shopee offer deliveries to “collection points” but did not specify whether these were lockers.

Instead of lockers, convenience stores like 7-Eleven also serve as collection points, although this option was not available for all products.

When The Edge Singapore asked SingPost if PopStation lockers were integrated into the national locker network, it declined to comment.

In any case, lockers seem to be gaining popularity. On Oct 20, train operator SMRT, which has a network of 600 retail outlets across its entire network of train stations, announced a tie-up with logistics technology company Pickupp. Under the deal, Pickupp will operate a series of “service points” at the train stations from which buyers, sellers and delivery agents can tap.

A reckoning for ‘free shipping’

DHL's Ong: A time of reckoning is coming for free shipping deals handed out by e-commerce platforms as financial sustainability takes centre stage

DHL’s Ong points out that consumers here have been enjoying cheap (or free) door deliveries for years as e-commerce platforms subsidise consumers in their bid to grow market share. With delivery costs commonly ranging from as low as 49 cents to $1.49, there is little incentive for buyers to switch to lockers.

Although it is not always apparent to consumers, Ong points out that a delivery, successful or not, costs money, and each failed attempt, is even costlier. “If a courier can only do 100 [deliveries] in a day with a 10% failure rate, it means that 10% of that person’s day is wasted. Let’s say a driver earns $300 a day, 10% means that you’ve wasted $30 trying to try to get the delivery with somebody who is not there,” says Ong.

He sees “a time of reckoning” coming for e-commerce platforms when they can no longer subsidise costs as the era of easy funding is over. These platforms are now under pressure to stem losses, stop burning cash and be more determined to turn a profit.

He believes that sooner or later, these platforms will charge higher shipping charges. That will force consumers to change their behaviour and make self-pickups the norm.

According to Ong, this could be from a locker or as a “click and collect” model where buyers order online but pick up the purchase from a retail store, increasing efficiency for the warehouse and last-mile companies.

Unfortunately, there may not be a single silver bullet to banish the woes of the last-mile logistics sector, given it has to deal with a labour crunch even if there is e-commerce volume growth.

To achieve a sustainable logistics business, the best is for delivery service providers to incorporate some technology to be more efficient while consumers should be willing to pay more or temper their expectations.

“Ultimately, you must remember, there is no such thing as free shipping,” says Ong.

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