Report Summary

Supported by Singapore’s Economic Development Board (EDB), the Economist Intelligence Unit has developed the Asia Competition Barometer with the aim of understanding the changing market dynamics in key sectors and assessing the intensity of competition in them. Drawing upon company-level data on profitability and other indicators, the Barometer quantifies the changing dynamics of competitiveness in Asia for select industries between 2004 and 2009.

What does the emergence of Asia as a major engine of global economic growth mean for companies operating in the region? Asia’s robust economic outlook—coupled with diminished growth prospects in many other parts of the world—has attracted new investment into the market both from regional players and Western multinationals. As a result, competition in the region is expected to intensify. Given the darkening global economic outlook, and the expected impact on some economies and sectors in the region, growth and profitability look uncertain in the near term. But over the medium to longer term, Asia’s strong economic fundamentals will ensure consistent growth across a range of industries. How are companies positioning themselves to capitalise on Asia’s growth opportunities over the next few years?

The Asia Competition Barometer assesses the intensity of competition and changing market dynamics in several key sectors. This report examines the transport and logistics (T&L) sector, which includes the following sub-segments: land transport and transport via pipelines, water transport, air transport, warehousing and support activities for transportation and postal and courier services.

Among the key findings of this report are the following:

Asia’s T&L sector has been expanding rapidly, in line with the region’s stellar economic growth. Several broad macroeconomic trends, including Asia’s widening manufacturing base, deeper intra-Asian trade integration, rising household incomes, high urbanisation rates and widespread government efforts to improve infrastructure have boosted demand for T&L services in Asia. By 2009, nine out of the ten biggest container ports in the world were in Asia, up from just five in 2000. This growth looks set to continue, given Asia’s relatively robust economic outlook.

The number of players in Asia’s T&L sector, homegrown and global, is rising. The number and size of publicly-listed firms in the T&L sector in Asia has increased dramatically, from 199 firms in 2004 to 275 in 2009. Total combined revenues more than doubled from US$66.1bn to US$140.8bn during the period. Meanwhile, in recognition of Asia’s increasing importance to the global T&L sector, foreign MNCs have been building up their presence in the region.

Competition in Asia’s T&L sector is intensifying, as firms get leaner. The influx of new players into the region’s T&L sector has led to a more competitive operating environment. The industry’s largest publicly-listed Asian players saw their market shares decline between 2004 and 2009, as new players, including many low-cost competitors, entered the business. Current trends in the industry suggest that fierce price competition will continue. In such an environment, sources of competitive advantage will emerge both in big firms that can reap cost efficiencies and small firms that can serve niche segments.

Profitability in Asia’s T&L sector has been declining, but pockets of growth exist. The average gross margin of publicly-listed Asian firms declined from 49.8% in 2004 to 39.8% in 2009.  Competition is only one factor pushing down profits. A number of others—including the global economic downturn, higher fuel costs and rising wages—have put pressure on margins. To maintain profitability, many firms will have to focus on specific growth niches, such as low-cost air travel or express and freight forwarding services, particularly in China and India.

Rising domestic demand in Asia will change the nature of trade in the region, creating new growth opportunities. As the global balance of economic power shifts from the West to the East, and as private consumption in Asia picks up, the nature of trade flows in the region will change dramatically. Though component trade is still huge, and growing, this trend indicates a shift towards more final demand. This will push logistics providers to improve their importing and intra-regional capabilities. This also suggests that shorter-haul freight companies concentrating on the region will grow faster than those focussed on long-haul routes, for instance between Asia and Europe. In addition, small T&L firms able to serve remote parts of Asia where incomes are rising—such as commodity-rich parts of Indonesia—stand to boost revenues.

Asia’s evolving manufacturing footprints will affect the region’s T&L industry by shifting demand to newer markets. Several broad trends are causing a rethink of Asian manufacturing, including rising wages in China, which are leading to the flight of low-cost manufacturing away from the south and coastal areas of that country to inland provinces and neighbouring countries such as Vietnam. T&L firms will need to adapt to these changing dynamics in order to maintain profitability.

Other reports in this series look at the information technology services, precision engineering, petrochemicals and chemicals, and pharmaceuticals sectors in Asia.