The expanding economies and growing populations of the Greater Mekong Subregion have meant that there is an ever-increasing need for trade connections, which in turn has been capturing the attention of logistics providers. One of the largest players in Asia is no exception.

“This is definitely a high-growth-potential region for us,” says Gary So, deputy managing director of Kerry Logistics Network. “In recent years, we’ve been putting a lot of resources into developing the ASEAN countries. The Greater Mekong Subregion would be the next phase of our business development. Thailand and Vietnam are probably the two most important countries in which we’ve been investing for the past few years. They also act as a springboard into the region, so I believe we’re well positioned to tap into that growth.”

One of the primary ways with which the company is tapping into trade between China and Southeast Asia is Kerry Asia Road Transport, a cross-border trucking solution launched in 2008 that now spreads from Shanghai all the way through to Sabah on the island of Borneo.

“There are still not too many players in the market, especially when we’re talking about reaching from Eastern China all the way down to Singapore, connecting China, Vietnam, Cambodia, Thailand, Malaysia and Singapore,” So says. “There are a lot of players that work on connecting two countries but only a few that operate through multiple countries.”

According to So, KART positions itself as a neutral platform serving 3PLs and forwarders.

“We shift hundreds of containers on roads every day,” he says. “We help customers relocate their factories, move raw materials from China into Vietnam, and we also move some cargo from Hong Kong to Malaysia through Vietnam, for example. We have a lot of customers in the garment and electronics industries. They ship their in-process goods from China to Vietnam for completion because of lower labour costs, then ship the finished goods back to Yantian in Shenzhen for exporting.”

As attractive and lucrative as it may be, the transportation of cool chain goods isn’t something that is on the radar, at least in the immediate future.

“There are a still a lot of grey areas in transporting chilled products across borders,” So says. “The cost is extremely competitive and it’s less regulated than the customer base we’re serving. It’s also quite a fragmented market. We’ll explore the possibilities when things are more transparent.”

While new connections are being set up between key points, such as the 1,900-kilometre highway between Kunming and Bangkok which opened in 2008, relatively poor transport infrastructure is still an issue for much of the region.

“In terms of cross-border trade and major cities, the infrastructure is fine,” says So. “The new highway connecting Kunming to Bangkok is pretty efficient. But going out to other places, there’s still a lot of room for further development, which I believe would definitely facilitate more cross-border trade by road. Obviously we follow our customers and even if the road conditions are very bad, there are other means of transportation that we could adapt to suit the local context.”

For added flexibility to deal with the peaks and troughs throughout the year, Kerry operates the KART network partly using its own trucks and partly with contractors.

“It’s definitely a difficult region,” So says. “You need to go for someone who’s local and trust is something you need to build with time. There are a lot of unexpected circumstances that can occur in the GMR – bad road conditions, police inspections, roadblocks, etc. This is when we really need someone we can trust because they need to be able to solve the problem locally.”

Although infrastructure is one of the major challenges Kerry faces in the region, So says the company isn’t too worried because it believes that, in the long run, China’s Belt and Road initiative as well as other countries’ own initiatives will prove to be very beneficial for connectivity.

One other challenge is customs clearance.

“It’s still very immature, especially in the case of e-commerce products,” says So. “LTL merchandise has been running for years, but small-parcel e-commerce products are very different.”

He adds that Kerry has been working hard to come up with a suitable model out of China in the past few months.

“We think we have the solution to that,” he says. “Hopefully we’ll soon be running this cross-border transportation for e-commerce, which we believe will be another growth engine for the KART business.”

The first phase of the rollout will be the Southern China-Malaysia trade lane because e-commerce is thriving and because it’s the right length in terms of distance.

“It will take seven to eight days door-to-door, which is reasonable,” So says. “By sea, it normally takes about two weeks. With air, there can be a lot of backlog at certain times, such as around Singles’ Day. That’s why we see a niche market for this cross-border transportation for e-commerce.”

So expects the offering to roll out across the rest of the network pretty soon after that, given that the e-commerce demand has been there for a long time and current cross-border connections do not provide sufficient capacity to address that demand.

“Initially we might mix loads with the other LTL cargo but eventually, I anticipate that it will be a whole container of cross-border e-commerce products going both ways,” he says. “There are a lot of purchases made in China from Southeast Asia as well, so we believe it won’t just be one-way traffic.”

So admits that traffic flows aren’t always stable and can be affected by political events or currency fluctuations.

“If you look at Malaysia, before the extreme devaluation of the ringgit versus the US dollar, there used to be a lot more southbound traffic because the ringgit was a strong currency compared to the Thai baht,” he says. “Now it’s the other way round and so there’s more northbound traffic. The ecosystem is changing so we have to change our business model as well to adapt.”

The Malaysia-Thailand trade lane is fairly well balanced at the moment, according to So, with the northbound to southbound ratio at about 60:40 or 55:45. The Vietnam-China, lane, on the other hand, is much more dominated by southbound traffic.

More broadly, Kerry’s overall strategy for the Greater Mekong Subregion in the short term takes the form of a multi-pronged approach. In Cambodia, Laos and Myanmar, the company will continue to invest in land and facilities. In the meantime, it will also strengthen land transportation into those countries from Thailand and Vietnam, as well as develop more cross-border business from China.

“In countries where we see huge potential for e-commerce, like Malaysia, Thailand and Vietnam, we’ll definitely focus on developing a stronger last-mile delivery network for small parcels, but in the other GMS countries, we’re not sure yet and we’re not quite ready to go in a big way in that regard,” says So. “But we’re watching closely.”

By Jeffrey Lee

Asia Cargo News | Hong Kong