Smart Logistics Becomes the Shining Digital Economy Sector in Indonesia

Although logistics is the backbone of national and international trade, the sector is facing many challenges in Indonesia, such as inadequate infrastructure, and the lack of reliable communication and information technology networks.

According to Mordor Intelligence, logistics costs vary widely between 25% and 30% of Indonesia's GDP, compared to developing economies, equivalent to 5%. This means that shipping goods from one city to another in Indonesia can be expensive and challenging.

As the e-commerce industry develops, logistics technology is predicted to be an industry that will rise following the expansion of Indonesia's digital economy. Several challenges in the industry have attracted a lot of investment for up and coming startups, most of them raising large sums this year.

According to Sebastian Togelang, e-commerce is still in its infancy in Southeast Asia and will expand more than five times in the next few years. Meanwhile in Indonesia, as the largest market and economy in the region, the logistics sector holds enormous potential.

As an investor, Togelang has a lot of confidence in this industry. Earlier this year, Barito Teknologi and Kejora InterVest Growth Fund led a US$50 million investment to support logistics startup SiCepat Ekspres.

According to him, logistics is the key to the internet economy, playing a key role in ensuring the movement of goods from merchants to consumers. In addition, to some extent, this also involves payments between parties. Therefore, this sector has the potential to enjoy considerable improvement, based on the general development of the internet economy and economy. This is very attractive to investors.

“When we talk about the entire logistics spectrum, the Southeast Asian market size is around US$600 billion, depending on which report you read. But my opinion is that, in any part of the world, logistics is a direct lineage of the economy itself. Therefore, I would like to see the logistics technology sector lead the wave of the rapidly growing regional economy,” Togelang continued.

Togelang believes that e-commerce is still in its infancy in Southeast Asia and the sector will continue to grow more than fivefold in the next few years. Given the fact that Indonesia is the largest market and economy in the region, logistics will have many opportunities in this country.

This factor has made Togelang and his team at Kejora confident in their investment in SiCepat Ekspres, which is considered one of the largest Series A investments in the region. In addition, the founders also have a proven track record in trading and logistics. So far, SiCepat Ekspres has shown promising progress, its revenue has grown more than 15 times since Kejora first funded the initial round two years ago, according to Togelang.

"Given the market's strong growth rate, developing a logistics company is not difficult. However, the real challenge is to create one profitable. We, very regretfully, see several other logistics players still idolize the 'burn money' strategy. Therefore, when considering the rapid development of SiCepat while maintaining a strong business core, we feel confident to invest in this company," he said.

Aiming for Efficiency

The entire logistics supply chain process is a combination of various functions, such as transportation, warehousing, packaging, distribution, storage, and so on. According to a PwC report entitled Shifting Patterns: Future of The Logistics Industry, lack of “digital culture” and training is the biggest challenge for conventional transportation and logistics companies.

This allows emerging tech startups to fill gaps and capture business opportunities. They can digitize core operations to create intelligent logistics systems.

Some of the key technologies used by logistics startups include radio frequency identification (RFID), GPS, cloud computing, and data analysis. Intelligent logistics is expected to improve the process of transporting goods, inventory management, finding and managing warehouses, restocking stock, and the overall retail experience.

Tiger Fang, co-founder and CEO of Kargo Technologies, recognizes that there is high demand and opportunity in this sector. Fang is the former Uber executive who was behind the launch of the US company's operations in Indonesia, Malaysia and Thailand. He decided to leave his old job to build a logistics technology startup in 2018.

“I think the digitization of trucks and logistics is not about the 'how', but the 'when'. By the time Uber did to merge with Grab, we operate on quite a significant scale, there are millions of trips every week in 40 cities in Indonesia,” Fang told KrASIA. "Uber is in the field of logistics for population mobility, while Kargo is in the field of logistics for the delivery of goods," he continued.

Fang said that around 75% of trucking companies in Indonesia own less than 20 trucks. Therefore Kargo offers them digital gateways to get jobs faster, get paid faster, and expand your business.

“Logistics accounts for nearly a quarter of Indonesia's US$1 trillion GDP, but is not supported by adequate infrastructure and is plagued with inefficiencies,” said Fang. He explained that trucks that deliver goods from urban production centers often return unloaded, with truck drivers relying only on a few phone calls and group calls to get their day to day work. WhatsApp, contracts are still handwritten, and payments are sometimes made months after the Driver has completed the delivery.

Observing this condition, Fang and the Kargo team developed a driver and company dashboard application that offers location tracking real-time, job selection, invoicing, digital proof of delivery, as well as payments that integrate seamlessly with all systems.

“Meanwhile, on the sender's side, they can track their assets directly real-time and have access to the largest trucking network so they can focus on their core business. This will eliminate any worries about how to find trucks and pay more for brokers,” he continued.

Kargo Technologies simplifies the supply chain of freight forwarders with their services, making it much more efficient and profitable for both the shipping company and the freight company.

In addition to shipping goods, another logistics branch that is currently being disrupted by digital innovation is warehousing. Earlier this year, Indonesia's largest e-commerce company, Tokopedia, launched a procurement service called TokoCabang, utilizing a network of smart warehouses spread across various regions in Indonesia.

Through TokoCabang, Tokopedia sellers can store their products in a network of warehouses. The company also provides support covering incoming order handling, packaging, and delivery of packages to delivery couriers.

Another player in the warehousing industry is micro-warehousing startup Crewdible and cross-border e-commerce procurement AllSome. The last one is a Malaysian startup that is currently preparing to enter Indonesia.

These warehouse management services are typically aimed at small and medium-sized businesses (SMEs) who have an expanding business and inventory but cannot afford to rent large storage space for their own business.

“One of Crewdible's missions is to support small individual sellers to create established businesses. By tackling the most difficult and mundane tasks of an e-commerce business, Crewdible aims to free up sellers time so they can focus on growing the business, adding more products and doing more marketing,” explained Crewdible CEO Dhana Galindra to KrASIA.

Crewdible also enables unoccupied empty space and turns it into a business, providing the same benefits for e-commerce merchants and space owners alike.

Promising business

Finding the right and sustainable model is a huge challenge for all businesses, including logistics technology startups. Since the industry has no dominant players, startups need a lot of experimentation to find the right ways to run a business. However, some industry players believe that the business in this industry is very promising and that they are able to generate positive cash flow even in a relatively short period of time.

“There are many ways to make money. We've successfully piloted the subscription model with hundreds of people willing to pay. When we match shippers with carriers, it creates a good take-up rate within the industry, validation of the business model, as well as several related economic units. Currently, we are focused on building liquidity and network, so we invest by expanding to corporate customers and geographically. Traditional brokers usually charge a commission of up to 20% on each delivery,” Fang said.

He revealed, Kargo Technologies had won tent and contract clients and was now the largest truck network in Indonesia in just six months of operation. The company from the start has had a positive economic unit and is already on the path to profitability, Fang added.

Rooling Njotosetiadi, co-founder and CEO of the newly founded freight forwarding startup Logisly, shares the same optimism. The Logisly platform launched in January 2019, and the company has seen positive cash flow in less than a year. “We reap margin positive from transactions by helping shippers and trucking companies to be more efficient in delivering goods,” said Njotosetiadi.

“While the system matches shippers with empty trucks, we offer a better deal for both customers. For example, for a truck that is already carrying cargo from Surabaya to Jakarta, rather than returning empty, the trucking company expects to load something on the way home at a lower price. We can get a margin from that,” he continued.

This business model looks flawless. Despite being a young company, Logisly has partnered with more than 200 trucking companies and has worked with around 100 freight forwarders from various sectors.

Crewdible also applies the same strategy. Galindra said that logistics, especially warehousing, do not require a money-burning strategy because they offer focused services for niche markets.

“Perhaps in terms of ride-hailing, users will choose a cheaper platform because ride-hailing operators tend to offer the same service: taking passengers from point A to point B. However, in warehousing, we offer value and services such as quality assurance, storage security, response speed, and more. A business won't mind paying a little more as long as the service meets their needs," he said.

For online sellers, Crewdible charges a 3,5% fee for each invoice or a maximum of IDR 10.000 (US$0,71). These costs are then divided — 80% for warehouse owners and the rest for Crewdible, Galindra said. He said that with a clear business model, Crewdible has shown positive developments. The company recently posted US$1,5 million from Global Founders Capital and aims to achieve profitability 13 months from now.

The competition is wide open

According to Mordor Intelligence, Indonesia's logistics sector does not have a high level of industrial concentration. International players account for about 30% of the market size while the remaining 70% is made up of local players.

The field is still wide open for logistics technology startups because currently there is no single player dominating this sector.

“If we look at market developments in other countries, logistics is not a winner-takes-all sector. We expect there will be two to five leading players in each vertical. Especially for long-distance delivery, the top five players will continue to compete for the leading position. However, we believe this competition is more like running a marathon than sprinting. Therefore, players who are able to break down economic units and profitability from day one will be more sustainable in the long term,” said Togelang.

As a newcomer to this industry, Njotosetiadi believes that logistics and all its verticals have a large market in Indonesia. There are opportunities for every player and because of that, he doesn't worry too much about the competition.

Investments keep flowing

KrASIA noted that at least eight logistics startups received new investments this year. Given that the industry is swelling rapidly, it should come as no surprise that more investors are targeting the logistics market next year.

According to Bhima Yudhistira, a digital economy analyst at the Institute for Economic Development and Finance (INDEF), logistics is a sector that will thrive and attract a lot of investment next year.

“The logistics sector is very attractive because it has many verticals and we see that many new players are offering innovations such as smart warehouses outside of the metro area. These players also work closely with e-commerce platforms, which helps them grow fast. Indonesia's logistics scope is huge, so I think we will see a bigger transformation in this field in the near future," he told KrASIA.

Togelang from Kejora Ventures said that logistics technology in Southeast Asia has not even touched the surface. Kejora hopes to see much more progress in this sector in the future and companies to actively shape its development.

The following is a list of Indonesian logistics startups that have been in the spotlight and received fresh funding in 2019:

Cargo Technologies, initial funding of US$7,6 million in March led by Sequoia Capital India

Kargo Technologies is a logistics startup that integrates shippers and logistics providers in a single marketplace, solving inefficiencies and reducing costs.

SiFast Express, US$50 million Series A funding in April, led by Barito Teknologi and Kejora InterVest Growth Fund

SiCepat Express offers courier, warehouse, and air and cargo shipping services throughout Indonesia, as well as serving tens of thousands of online merchants. The company claims to have delivered more than 200.000 packages every day. It currently has 600 outlets across the country and aims to have 200 drop points in Jabodetabek this year.

triplogic, funding with an undisclosed amount from East Ventures in May

Triplogic handles deliveries in 61 cities across the country. By placing smart lockers in local shops to use as points drop off, packages can be delivered to their destination within three hours. Triplogic claims to be able to handle thousands of deliveries daily and aims to have over 15.000 points drop off at the end of 2019.

Waresix, US$14,5 million Series A funding in July, led by EV Growth, SMDV, and Jungle Ventures

The startup connects shippers and businesses with warehouses and trucks available across Indonesia, providing greater transparency, quality service and increased revenue for asset owners. Waresix currently has more than 20.000 truck and 200 warehouse operators in a network that spans across the country.

Ritase, US$8,5 million funding in Series A . investment round in July, led by Golden Gate Ventures

Ritase provides a B2B digital transportation system that matches shippers and carriers, simplifying the logistics supply chain to create a more efficient ground shipping process. The startup has reached 500 small and medium-sized transportation companies, with more than 7.500 trucks and 7.000 registered drivers.

logically, an undisclosed amount of funding from Convergence Ventures and Genesis Ventures in August

This startup is increasing truck utilization and bringing more transparency to trucking businesses using technology.

Shipper, US$5 million seed funding in September from Y Combinator, Insignia, and Lightspeed

Shipper is a logistics aggregator platform. They work with multiple micro-hubs from all over to enable first-mile pickup and have operated ten warehouses to assist with e-commerce procurement.

Crewdible, US$1,5 million pre-series A funding in October from Global Founders Capital

Crewdible connects e-commerce sellers with warehouse owners to fulfill orders. They turn empty facilities such as homes and offices into micro-warehouses.

- This article was first released by KRASIA. Re-released as part of a collaboration with DailySocial