Southeast Asia is undergoing a societal and economic transformation. The region is moving swiftly through the gears of economic development, with government policies aimed at reducing poverty, increasing the skill levels of the workforce, and opening the region up to higher value economic activity such as manufacturing. Wages are growing rapidly in line with this. Indonesia, for example, is forecast to have the highest real salary increase globally in 2021 and is on track to become a global economic powerhouse. This is all good news for the warehouse automation sector. With the increase in disposable income, the Southeast Asian eCommerce market has taken off. Other factors have also driven the market. The US-Sino trade war has led global manufacturers to turn away from China and invest in Southeast Asia. Also, the COVID-19 pandemic has underscored the need to improve resilience in supply chains. Warehouse automation is a key factor in building that resilience.
Major drivers of eCommerce: general merchandise and groceries
The warehouse automation market is forecast to grow from just under $450m in 2020 to just over $920m in 2024, corresponding to a CAGR of more than 20% which is far higher than the global growth rate. In 2024, Singapore is forecast to be the largest market for warehouse automation followed by Thailand and Indonesia. Across the region, parcel, food & beverage and general merchandise are forecast to account for the lion share of warehouse automation revenues, although several large grocery projects in Singapore such as the Redmart’s new automated centre account for a disproportionately large share of the market given the limited number of projects due to the size and complexity of grocery warehouse automation systems.
The battle of the titans of online retail
Two major online retail companies are homing in on the Southeast Asia region – Lazada, majority owned by Chinese eCommerce giant Alibaba, and Amazon. Lazada is investing heavily in logistics infrastructure across the region. It has deployed its own automation technology in a large number of warehouses, notably in Thailand and Singapore where labour costs are higher than in other Southeast Asian countries. As wages continue to rise and eCommerce spreads, there will likely be further investments in automated warehouses. Lazada has already installed five large fulfillment centres in Vietnam, in Ho Chi Minh City, Hanoi, and Da Nang. Other infrastructure projects have included new sorting centres and enlarged last-mile hubs. Whilst Alibaba/Lazada has made serious inroads into the Malaysian, Indonesian and Vietnamese eCommerce markets, Amazon has also penetrated the market in Vietnam, where it is likely that there will be a dog-fight between Amazon and Alibaba, as the two companies battle it out to create the most efficient logistics infrastructure
Economic zones: Government policies help drive growth in eCommerce
Economic zones are key drivers of growth in the Southeast Asian region. Thailand has established the Eastern Special Development Zone, or Eastern Economic Corridor (EEC) in three provinces in the eastern part of the country. Alibaba/Lazada is investing heavily in the zone, putting $352m into building a smart digital hub at Thailand’s U-Tapao International Airport, which will include a fully automated warehouse. The aim of the facility is to ease the shipment of Thai products to China for sale on Alibaba’s websites, but there will likely be a reciprocal arrangement, with Chinese products coming inwards for sale by Lazada. Interact Analysis anticipates a strong market for fulfilment automation equipment as the company battles it out for market share in the general merchandise sector with other giants such as JD.com and, possibly, Amazon. The EEC will likely become a critical logistics centre for these companies as they ship in products from around the world for distribution across the country.
In conjunction with the Malaysian government, Alibaba is also developing a digital free trade zone (DFTZ) in Malaysia, with the aim of establishing an online platform for Malaysian SMEs to get their products onto the global market. As a first step, the company has invested $200m in a warehousing and sorting facility near Kuala Lumpur International Airport. Interact Analysis estimates that $30m of this investment went into automation equipment.
To continue the conversation about warehouse automation in the Southeast Asia region, please get in touch with Rueben Scriven, senior analyst at Interact Analysis, at email@example.com