The Southeast Asian third-party logistics market is set to grow to $55.7 billion by 2025 with a 5.5% CAGR and is projected to reach $85.2 billion by 2033, driven by a booming e-commerce sector, which now makes up 20% of retail sales.
That’s why logistics companies need to pay closer attention to these drivers of growth to leverage the growth opportunities to maximise their potential.
In this excerpt from our industry report, State of Logistics in Southeast Asia 2023, you will learn about the four key drivers and trends that are reshaping the logistics landscape in the near future.
Four Key Drivers of Southeast Asia’s Logistics Sector
A multi-year study of logistics development in Southeast Asia highlights four key drivers of growth that the logistics industry should keep an eye on:
- Expansion of economies that, in turn, boost consumer purchasing power.
- Advancing urbanisation.
- Increasing engagement in regional trade and investment.
- The surge of e-commerce platforms enables more supplier options for customers and producers.
1. Economic Growth
Economic growth, as reflected in a country’s GDP (gross domestic product), is crucial to increased wages and living standards and helps increase consumers’ purchasing power. Based on the IMF’s GDP projections for Southeast Asia, the purchasing power of consumers in the region is looking decidedly positive.
ASEAN is projected to reach US$3,912.216 billion by 2025 and US$4,499.000 billion by 2027. By 2025, the GDP of Indonesia and Thailand are projected to reach US$1,628.938 billion and US$632.448 billion, respectively, while Malaysia and Singapore’s figures are expected to decrease to US$556.183 billion and US$496.813 billion, respectively.
The GDP of Southeast Asia is expected to grow at an average rate of 5.2% from 2025 to 2027. In comparison, it will outdo the world, which is expected to grow at an average rate of 3.3% from 2025 to 2027.
2. Advancing Urbanisation
The urbanisation of Southeast Asia and its rising consumer class is inextricably linked. The urban consumer class dominates Asia, where urbanisation has been advancing rapidly, with 1.7 billion people representing approximately 54% of the global urban consumer class.
With the expanding consumer base in Southeast Asia, trade is anticipated to flourish, resulting in more significant quantities of merchandise requiring transportation through local and cross-border distribution channels.
The ongoing trend of urbanisation in Southeast Asia will substantially impact the expansion of cities and urban areas, increasing demand for freight transportation and affecting the volume of freight traffic in numerous urban centres.
The trend is projected that over 90 million people will migrate to urban areas by 2030, which will support the continued growth of the consumer class, likely to double to 263 million households.
This significant increase in the urban population of ASEAN countries will stimulate economic activity throughout the region and foster growth in the logistics industry in each country.
3. Regional Trade and Investment
Economic cooperation among the members of ASEAN has been and still is critical to the facilitation and liberalisation of cross-border trade and investment in the region. This cooperation looks to deepen even more with the recent implementation of the Regional Comprehensive Economic Partnership (RCEP), arguably the most significant free trade agreement in history, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
As it stands, the Association of Southeast Asian Nations (ASEAN) is a prime example of how the logistics sector can significantly benefit from a region’s prosperity through its Free Trade Agreement (FTA). The logistics sector accounts for about 5% of the bloc’s GDP and employment, providing jobs for approximately 17 million people.
The region’s various free trade agreements (FTAs) are among the world’s largest and offer numerous opportunities for foreign investors. These agreements provide benefits such as reduced importer costs, improved customs clearances, and increased access to products eligible for preferential treatment.
The ASEAN FTAs led to a remarkable upswing in ASEAN’s merchandise trade and exceptional overall trade figures among its member countries. The ASEAN report of 2022 evidenced astonishing figures highlighting the region’s economic prowess. Singapore, the largest economy in ASEAN, is leading the pack, which achieved a remarkable total trade value of $862.8 billion in 2021. Vietnam followed closely with $666,5 billion, while Indonesia recorded $427.7 billion.
4. The Rise of E-Commerce Platforms
McKinsey observes that Southeast Asia’s e-commerce industry is witnessing a trend where consumers purchase more products through various channels, increasing the need for cross-border fulfilment. This trend is driven by the growing number of consumers utilising multiple digital platforms to shop within the region.
One of the most noticeable effects of e-commerce platform diversification on logistics has been increased demand for faster delivery options. Consumers expect their purchases to arrive quickly and efficiently, creating pressure on logistics companies to provide timely and reliable delivery services. The increased focus on last-mile delivery, which is the final delivery stage and directly impacts the customer experience, has prompted logistics companies to adapt and provide flexible solutions to handle smaller and more frequent shipments in the changing e-commerce landscape.
As the behaviours of digital consumers change, a PWC report on the future of the logistics industry emphasises the necessity for logistics companies to adjust their strategies to stay competitive. The report highlights the importance of technological investments, enhancing last-mile delivery alternatives, and providing expedited and dependable delivery services.
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