A cagey play on delivery market dominance

A cagey play on delivery market dominance

Kerry Express is willing to post losses in order to increase its share of the sector, but it is dependent on the e-commerce segment, writes Suchit Leesa-nguansuk

Mr Ng said Kerry is pursuing a pricing strategy to elevate its market share.
Mr Ng said Kerry is pursuing a pricing strategy to elevate its market share.

Amid tough competition in the parcel delivery segment and economic headwinds, leading courier Kerry Express (Thailand) is paying attention to effective cost management, technology and cross-border delivery services to thrive in the Thai market.

The SET-listed company is looking for ways to ensure profit and become a highly automated courier, says chief executive Alex Ng, who wants the firm to be agile enough to quickly respond to market changes and able to achieve improvement.

Kerry has roughly 40,000 employees, half of them full-time workers, up from its origins in 2012 when it had only 160 workers.


"We are doing things according to our plan. Despite being unprofitable in the last financial report, we believe we are delivering good results. Our results are not a sudden surprise," said Mr Ng, who led the firm to list on the stock market in 2020.

One reason for the company's losses in the first half of this year came from its pricing strategy to drive market share.

"This loss was planned, reducing our prices to increase market share," he said.

In the second quarter, the company saw parcel volume surge 40% year-on-year.

Mr Ng said Kerry will be more careful in cost management and pay attention to efficiency as labour costs, fuel costs and interest rates all increase.

"Internally, we need to spend money much more carefully," he said.

The company separates revenue strategy and cost management. Revenue has been affected by its pricing strategy, which is handled by the firm's business team and management.

Cost management is controlled by its operations and corporate finance teams.

"We need to save every penny we can to make ourselves more efficient," said Mr Ng.

The company is reducing fuel consumption by ensuring better route management and providing incentives for drivers who can save on fuel costs, which he describes as a win-win strategy that does not cut the benefits of drivers.

Following these tactics, Kerry cut its cost by nearly 20% on an average basis cost per parcel, said Mr Ng.

"We will continue to reduce our cost over the next 18-24 months," he said.

"Every month we are reporting lower average costs, which is important. Overall cost is reducing because of two factors: an economy of scale as volume rises and improvement in efficiency."

In terms of technology, the company employs a lot of new machines, software (used for smart routing), automation and mobile technology, said Mr Ng.

"Machines are getting smaller. Smaller machines can move easily to many places. With small machines, there is no need for a huge capital expenditure or decentralised investment," he said.

"Five years ago, we had only one sorting facility. Now we have 14 and in three years, we might have 50 to 100."


Mr Ng said the parcel delivery business depends on the e-commerce sector, which is hurting as some firms resort to cost cutting and layoffs. Some analysts expect the e-commerce sector will have lower or flat growth this year and next, he said.

"This is the biggest challenge in deciding whether to invest or wait until a clearer recovery," said Mr Ng.

As interest rates rise, it will take a toll on many firms seeking funding, he said. Kerry has a strong financial foundation and can take this opportunity to acquire firms with potential, said Mr Ng.

Kerry is interested in businesses tied to fulfilment services and cross-border regional express offerings.

In the next 12-18 months, the company could be actively looking for these companies in the region, including Thailand, he said.

Kerry has pursued cross-border delivery business from China and overseas to Thailand, backed by SF Holding, a Chinese logistics giant that is also its shareholder.

SF Holding has big operations in different parts of China, Hong Kong and major regional gateways.

Kerry is supported by various first-mile delivery hubs in different locations in China, Taiwan, Japan and Hong Kong, while providing last-mile delivery services in Thailand.

"We can control the parcel flow," Mr Ng said.

"We will put our focus on cross-border express and cross-border e-commerce."

Regarding business-to-customer cross-border e-commerce, the company sees an opportunity shipping products from China to Thai customers, as there are a lot of orders of Chinese products via e-marketplaces.

Many Chinese also purchase Thai products and this is an export opportunity, he said.


Mr Ng said Kerry is forming a triangle joint venture with partners to run a locker business in Thailand with an initial target of 3,000 lockers installed in Bangkok in two years.

The partners include SF Holding, which has an affiliate Hive Box that runs a smart locker business in China, and another undisclosed partner.

These lockers can be installed at mass transit stations, condominiums, schools, commercial buildings and retail outlets. The lockers allow users to send, receive and return parcels, as well as sell products and top up money.

"By adding more lockers, we believe we can help change users' habits," he said.

"A smart multi-purpose locker business is a supplement to our existing delivery network. It will build an ecosystem and reduce Kerry's cost of pick-up and delivery."


Kerry sees cross-border express delivery, cold chain and bulky cargo delivery as promising services for its revenue stream.

"These growth engines should emerge quickly, starting next year when the economy recovers," Mr Ng said.

The company plans to launch Kerry Wallet later this year and wants to pursue its "Kerry Everywhere" plan to penetrate deep into communities to offer strong coverage of delivery services, but with an asset-light model, he said.

"We have a ballpark figure five years from now. Non-express delivery business will contribute at least 20% of our revenue and profit, with both revenue and profit rising," said Mr Ng.

He said there are about six last-mile delivery operators in Thailand, compared with 10-12 in Vietnam and six in Malaysia.

Thailand has an average delivery price of US$1 per parcel, compared with $4-5 in Singapore and the US, according to Kerry.

Quality service and competitive prices are the keys to operators reaching profitability and thriving in the market, said Mr Ng.

He said policymakers should pay attention to urban planning as container trucks now spend too much time on city roads, which increases logistics costs.

In China, a driver can make up to 300 deliveries per day, compared with 150 in Bangkok at maximum, said Mr Ng.

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