Increasing e-commerce transactions driven by rapidly changing consumer behaviour combined with the entry of giant e-commerce platforms through local partnerships has intensified competition among logistics and parcel delivery services, challenging existing players in the domestic market.
Booming e-commerce has also attracted an influx of courier applications and international parcel delivery service providers to tap into the flush local market.
With the need to defend their turf as best as they can against foreign competitors, Thai companies have adopted new strategies as a means to strike back against foreign counterparts, notably in e-commerce and logistics.
Modernise to survive
Heavy competition in Thailand's e-commerce market may just be what is forcing Thailand Post, the largest local parcel delivery service, to adjust its business strategy to retain its revenue stream.
To cope with changes in the logistics business driven by technological innovations, Thailand Post has been quick to modernise its postal and delivery operations in order to transform into a fully automated operation by 2021. The transformation strategy was initiated in late 2016.
More importantly, Thailand Post, as the state postal enterprise with 19 logistics centres plus 1,300 post offices nationwide, has to uphold its role as the country's most well-known mail provider, providing mail and parcel delivery services nationwide at affordable prices.
The company has created an e-commerce portal to complement the existing national broadband network project for 40,000 villages across the country, with expectations that this will create value-added hard infrastructure and allow villagers in rural provinces to benefit from the e-commerce marketplace.
Moreover, the government has tasked Thailand Post with developing the postal and delivery network to become a logistics facilitator for the government's Eastern Economic Corridor (EEC) project by 2019.
"We faced a very tough period of service competition in 2017, which has continued into this year," said Thailand Post president Smorn Terdthampiboon. "Thailand Post has to turn around both internal and external operational structures."
Boosting efficiency of delivery services through automated operations while implementing proper cost-effectiveness management are vital for Thailand Post's survival and tied together with creating and maintaining long-term revenue growth for the logistics business.
According to International Postal Corporation (IPC), total global business-to-consumer (B2C) e-commerce sales in 2016 registered US$1.9 trillion (60.9 trillion baht) or growth of 24.6% from 2015. This included $1.1 trillion for Asia-Pacific, $0.4 trillion for North America and $0.3 trillion for Western Europe.
In 2017, e-commerce sales in the US and China stood at $1.6 trillion, accounting for 70% of global e-commerce sales.
IPC predicts that global e-commerce sales will grow by 141% during 2016-21.
More importantly, for a borderless business like e-commerce, IPC sees total cross-border e-commerce sales reaching $900 billion in 2020, growing 25% a year on average or even twice as fast as domestic e-commerce sales.
Additionally, Asia-Pacific's e-commerce market in 2020 is predicted to be twice the size of Western Europe's and North America's combined.
The figures explain why the Asia-Pacific market is so attractive to e-commerce platform providers and international couriers, creating a climate of intense competition as they home in on business opportunities.
Most recently, giant e-commerce platform providers such as Alibaba and JD.com have accessed e-marketplaces directly in Thailand through local partnerships, shaking up domestic and cross-border e-commerce ecosystems.
Cognisant of the need for action, Thailand Post has started two new services this year, namely ePacket and Courier Post, launched on April 9 and May 2, respectively.
Captivating new services
The two new services are deemed as complementary to Thailand Post's existing international business, known as express mail service (EMS). The move is another factor boosting international business revenue to an estimated 4 billion baht, a growth of 14.2% year-on-year from 3.5 billion in 2017.
The ePacket service is targeted at online merchants delivering parcels that weigh under two kilogrammes to the 16 most popular destination countries, which include Japan, China, Singapore, South Korea and the US.
The fee scale for delivery starts at 120 baht and runs to almost 1,000 baht, depending on the destination. Recipients will receive parcels within 3-9 days, based on distance.
Thailand Post says ePacket will help Thai online retailers deliver their products abroad at 20% lower cost on average compared with the same service provided by international courier giant DHL.
This move eliminates a pain point for online retailers, who have been charged hefty fees for delivering products abroad via registered EMS.
Courier Post is a premium service provided in partnership with DHL. The service aims to capture e-commerce merchants who want to deliver high-valued goods through a premium service, with a faster delivery time to 25 counties worldwide.
Under Courier Post, recipients will receive parcels just 1-3 days after the delivery process begins. The service manages all related custom clearances at delivery destinations for e-commerce merchants.
With these latest services, Thailand Post will be able to connect its shopping tools with giant multinational e-commerce platform eBay by June, aiming to expand its new service to serve Thai online retailers on eBay.
The rationale behind working with eBay is to serve cross-border e-commerce for Thai retailers, as there are more than 10,000 Thai retailers using eBay as a sales channel.
Kerry Express is enlarging its same-day delivery network in Bangkok and opening more service points nationwide.
Apart from eBay, Mrs Smorn said the company is looking to establish partnerships with other e-commerce behemoths such as Amazon and Tmall in the future.
Tmall is a Chinese-language website for B2C online retail, a spin-off from Taobao, and is operated by Alibaba Group.
However, there are few Thai retailers operating on both Amazon and Tmall, especially when compared with eBay.
Last year, DHL held the biggest market share of overall cross-border e-commerce services in Thailand at 45%, followed by Thailand Post at 30%.
Mrs Smorn said Thailand Post is competing with international couriers in some areas of the logistics business, but also establishing cooperation in other areas to provide greater benefits to customers.
"Not every courier is keen on all business dimensions," she said. "The key is to implement a strategic measure based on optimising benefits for the company."
Thailand Post plans to spend at least 3 billion baht a year during 2016-18 to upgrade its core automation systems and distribution centres, including fleet vehicles.
Additionally, the company is set to spend about 12 billion baht through four major digital-driven development projects: 7 billion baht is allocated for the establishment of two new logistics centres by next year; 4.4 billion for the installation of a mixed-mail and parcel sorting system throughout the 19 logistics centres by 2022; and 1.1 billion for upgrading counter automation point-of-sale for all 1,300 post offices nationwide this year.
Last year, Thailand Post booked 27.8 billion baht in total revenue, with 4.2 billion baht in net profit.
Key local collaborations
Kerry Express, the courier delivery arm of Hong Kong-based Kerry Logistics Network, has been in Thailand for nearly 14 years. The courier has consolidated the formerly fragmented Thai delivery market, owning an 80% market share this year under private players.
State-owned Thailand Post remains the largest delivery network not only in Thailand but in Southeast Asia, said Kerry Express chief executive Alex Ng.
Thailand Post controls 60% of the total market.
Kerry, however, is quickly catching up, with 3,000 parcel shops and service points and 900 distribution centres situated across Thailand.
Aside from funding from the parent company, the key success factors towards Kerry's expansion are implementation of technology and willingness to form alliances.
"The technology used in delivery is available on the shelf, but few or no Thai companies had implemented it when we arrived," Mr Ng said.
To a certain extent the company's success has been built on the back of alliances with Thai corporations, a strategy that the company has doubled down on over the past two years.
Last year, the company penned a deal with Central Group to allow it to use Central-owned FamilyMarts as delivery points.
This year, the tie-up has expanded to include Tops supermarket. The deal may also put Kerry Express in an advantageous position to serve Central's JD.com e-commerce joint venture, once it's rolled out.
More recently, VGI Global Media Plc, a provider of media space in the BTS skytrain system, has agreed to purchase a 24% stake in Kerry Express. The deal is exclusive, meaning that this will be BTS's only logistics partner and Kerry will be allowed to set up service points along BTS lines.
One of foreign companies' greatest advantages is their ability to break the web of market rivalries that local companies are locked into, Mr Ng said.
"I would advise Thai companies, especially in the e-commerce context, to join hands to build a front against Chinese giants entering the marketplace," he said. "I would also advise them to go abroad to build experience."
Digital to defend turf
The entry of diverse non-bank digital companies, both foreign technology giants and local startups, in the payment system is a growing threat that stokes fear among Thai banks.
Non-bank digital entrants have adopted big data analytics technology to acquire insight into customer behaviour and create digital payment channels offering convenience and positive experiences to customers.
Ultimately, non-bank digital players are snatching away market share in the once-lucrative payment market from banks.
Even though fintech startups are taking a bite out of banks' payment business, they are not considered a major threat to banks, who have the financial capital to take over these startups.
Still, international platform powerhouses like Alipay, Tencent, Facebook, Google and Amazon are fierce competitors, coming in with a wide reach, a massive customer base, ample capital and the ability to build payment infrastructure quickly to catch up with demand.
Equipped with advanced and sophisticated technology, these tech giants can extend beyond the payment channel to tap into the retail banking business.
In Thailand, the lending business remains unscathed because regulations are still barriers to emerging digital-oriented banks that aim to provide financial services.
Responding to the threat, several Thai banks recently made waves by scrapping digital transaction fees for inter-bank and cross-clearing zone transfers, bill payments and top-up services. Some of them even go as far as offering cardless ATM withdrawals free of charge.
The move is seen as an attempt to migrate existing customers to go online and attract new mobile banking app users.
Mobile banking app and internet users numbered 31.6 million and 20.5 million, respectively, at year-end 2017, still far below the 80 million bank accounts that are active, according to Bank of Thailand data.
The central bank has said that commercial banks' fee-based income derived from fund transfers amounted to 24 billion baht in 2017, representing 12% of total fee-based income of about 200 billion baht. Commercial banks' fee-based income of almost 200 billion baht, meanwhile, represented 20% of total revenue.
Although banks are forgoing income of tens of billions of baht a year from waiving transaction fees on digital channels, they expect that the self-sacrificial move is a worthwhile bet because the customer base for the banks has the potential to increase, while the banks can save costs by shrinking brick-and-mortar branches.
Amid the digitisation phenomenon, a large customer base is crucial for the banking business because big data technology can be used to analyse customer behaviour in order to offer personalised financial services and products that accommodate new lifestyles.
Although it's too early to gauge whether Thai banks' strategies will be successful or not, there are some positive signs beginning to manifest.
K Plus, Kasikornbank's mobile app and the country's largest banking app by users, saw the number of transactions surge by 2.5 times year-on-year to 20 million a day in April -- just one month after the bank scrapped digital transaction fees -- while its users jumped by 37% year-on-year to more than 8.1 million.
Similarly, the number of banking transactions on SCB Easy, Siam Commercial Bank's mobile app, also jumped to 50 million per month in April.
Thailand Post employees process packages in Chon Buri. THITI WANNAMONTHA
Kerry Express is enlarging its delivery network in Bangkok and opening more service points nationwide. SOMCHAI POOMLARD