Since the spring of 2020, entering any shopping mall or business in Singapore has been a multistage process. The city-state went into its “circuit breaker” lockdown last April to control the spread of Covid-19, shutting all but essential businesses and insisting residents remain inside. Since then, the economy has gradually reopened, but access to public areas now means scanning ID cards, checking in through a government track-and-trace system, temperature checks — and queues.
“Every exit, every entry is fully controlled. Every shopping center and every shophouse, we have to queue,” said Muhammad Shadat Bin Garep, a driver working for Ninja Van, a Southeast Asian delivery service based in Singapore. The delays — mitigated slightly by lighter traffic — are Shadat’s main cause of frustration as he works his route, delivering upwards of 150 packages a day. Still, queuing is still preferable to the early days of the pandemic, when delivery drivers and the recipients of their packages worried about catching the virus.
“They know that sometimes these parcels came from China. You can see from their body language when we arrive, how they react, their movement,” Shadat said, laughing. The fear went both ways. “You know, for me, safety is No. 1. Every job that I do, every collection I do, after it’s completed, I go straightaway to the toilet and wash my hands because I’m really scared.”
Ninja Van was founded in Singapore in 2014 and has since expanded to cover Malaysia, the Philippines, Indonesia, Thailand, and Vietnam. The company offers so-called last mile delivery — moving goods from vendors to customers — serving small businesses, big retailers, and the region’s e-commerce giants, including Shopee, Lazada, Tokopedia, and Bukalapak. In 2019, it delivered 180 million packages. In 2020, that number more than doubled.
Logistics companies like Ninja Van, and drivers like Shadat, have been on the sharp end of the pandemic-driven boom in e-commerce across Southeast Asia. As millions more consumers buy online, many for the first time, the infrastructure that supports digital retail has been stretched thin, creating bottlenecks but also huge opportunities for entrepreneurs who can scale up and manage the complexity of supply chains. It has shown that the limits of digital retail are often physical.
“People like a pure digital play because the other side is dirty. There’s oil spills and smudges. But digital business models are understandable and profitable,” said Lin Chengyi, a professor of digital transformation at Insead, the international business school. E-commerce, he said, is “technology plus logistics … They start with technology, but then they win with logistics.”
The e-commerce surge in Southeast Asia predates the novel coronavirus pandemic, driven by economic growth and rapid digitalization. Between 2010 and 2020, 140 million people in the region came online for the first time — 40 million of them in the past 12 months — according to the annual e-Conomy SEA report published by Google, the consultancy Bain & Co., and the Singapore national investment company Temasek. This rush of new consumers has made unicorns of homegrown players in traditional e-commerce, such as Lazada, Tokopedia, Bukalapak, and Shopee, as well as providers of other services like digital payments, ride-hailing, and food delivery. (Amazon, the global leader in e-commerce, launched in Singapore in 2017 and Vietnam in 2018 but has struggled to find purchase in the Southeast Asian market.)
But the pandemic has sent this trend into overdrive. The e-Conomy report found that, on average across Southeast Asia, 36% of people who used digital services were doing so for the first time because of the restrictions imposed during the pandemic. The market value of e-commerce in Southeast Asia grew 63% in 2020 and is now worth $62 billion. The changes, they said, were structural and likely to endure: 90% of new digital consumers said they would keep buying online once the pandemic ends.
“Being in Southeast Asia, being in e-commerce in Southeast Asia, we always had to be prepared for ongoing, perennial growth,” Ninja Van’s regional head of partnerships Alvin Teo said. “So we were slightly prepared, but it would be a little bit of an overstatement to say that we were very prepared for the pandemic.”
At its core, Ninja Van’s model is straightforward. Its drivers, a mix of full-time employees like Bin Garep and subcontractors working shifts, pick up packages from retailers and take them to one of the company’s huge warehouses, where they are sorted and dispatched to their final destination. In Singapore, that means short distances traversed with the help of world-class infrastructure. In Indonesia, a sprawling archipelago of thousands of islands, the challenge is substantially more complicated, requiring a kind of five-dimensional chess with parcels, drivers, trucks, bikes, and boats all moving simultaneously.
The effect of the pandemic has been to increase that complexity. E-commerce has largely been an urban, middle-class phenomenon in Southeast Asia. Cities are where the customers are, and they are also the easiest place to deliver to quickly and efficiently. E-commerce companies typically start with higher-earning customers, whose buying decisions are driven more by convenience than affordability, only later seeking out economies of scale. “You can drive the cost lower. But that’s contingent on a high utilization of your supply chain, which means it only works within the city,” Insead’s Lin said.
E-commerce companies have three options, Lin said: ignore hard-to-reach customers, serve them at the cost of tighter margins, or try to fix the problem via technology such as logistics-management software or drone delivery.
In Southeast Asia, the structure of the economy makes this challenge even more acute. Retail is far more fragmented than it is in the West, with millions of small shops that are now coming online for the first time. To maintain their rate of growth in core markets like Indonesia, e-commerce companies have to figure out how to integrate this into their business models. Some, including Shopee and Lazada, are already trying. Rather than becoming big-box retailers working through a technology interface, they have shifted to become platforms that provide digital infrastructure for smaller sellers — less like Amazon, and more like the Chinese e-commerce leader Alibaba. Managing that is a far more dynamic process than just moving a product from a warehouse to a customer.
“The platform play needs to extend to a technological play so you have some sort of visibility or control in your supply chain, so at least you know where things are,” Lin said. “Otherwise you’re in trouble.”
The need to manage this added complexity is driving a “second wave of e-commerce” aimed at simplifying the logistics between small retailers and wholesalers and letting small shops more efficiently handle their supply chains, according to Shauraya Bhutani, director at tech-focused investment bank North Ridge Partners.
“The supply chain in Indonesia is complicated because of the geography, but also because of the sheer number of intermediaries involved,” he said. “The distribution of goods is like a game of snakes and ladders there … we’re very excited about tech platforms that simplify the process.”
Startups targeting this space are enjoying a surge of interest from venture capital. Singapore-based Bukito allows social sellers to buy products wholesale via their platform and sell directly to customers over Facebook. In Indonesia, Gudangada runs a marketplace that connects small retailers to brands and wholesalers across 500 cities; Waresix provides on-demand warehouses, while Kargo is a self-described “Uber for trucks” that is trying to streamline bulk delivery and enable e-commerce to extend into more far-flung parts of the region.
The best of these systems, Bhutani said, build technology layers on top of existing infrastructure and ways of doing business, optimizing them rather than trying to reinvent them.
Alert to the fact that their success rests on better logistics, major players, including Bukalapak, Tokopedia, and Shopee have begun to move into business-to-business logistics as well — as has Ninja Van, which wants to start aggregating demand from sellers in, say, Jakarta, and helping them to source suppliers in China.
“I don’t want to be alarmist, but there’s an arms race going on in this sector,” Bhutani said. “B2B e-commerce will be bigger than B2C. There will be unicorns coming out of the B2B sector.”
That race will only be partly technological. Ninja Van has been using its tech platforms to try to sweat its assets and meet the surge in demand. Drivers use a smartphone app to track collections and deliveries that feeds into a system that tracks parcels and vehicles. The company uses algorithms to optimize delivery routes to maximize drivers’ efficiency. This system also allowed it to be agile in responding to the shifting demands of the pandemic, as individual countries and regions shut down and reopened at different times and demand rocketed. In the Philippines, it was able to create new distribution statements — like small regional post offices — in days with just a laptop and an internet connection.
This has helped Ninja Van to scale quickly, but it is only part of the picture. As the economic impact of the pandemic started to bite, people began driving up to Ninja Van’s warehouse in Singapore asking for work. Operating in one of the few growth sectors in the economy, it was the rare company in a position to hire some of them. Its staff has grown from 20,000 in 2019 to more than 31,000 today.
“I would say a lot of the methods that we’ve used to scale our capacity are old-school,” Teo said. “At the end of the day, the back end is tech-driven, the front end is our men and our trucks on the front line. To the best of our abilities, we had to scale that up using extra hours, more trucks.”