Logistics
Strategically located at the crossroads of mainland Southeast Asia, the Kingdom of Thailand shares a common land border with four neighboring countries totaling 5,582 kilometers. In fact, there are 30 Thai provinces physically connected with Myanmar, Laos, Cambodia, and Malaysia. Presently, Thailand is linked to its neighbors through an extensive and functioning network of roads, waterways, and air routes. Yet with the ASEAN Economic Community looming in the distance and the Thai government's drive to lift the country out of the middle-income trap, improvements need to be made in the field of logistics if the Kingdom aims to achieve future progress and prosperity. Over the past 20 years, Thailand's international trade has expanded over 600%. Manufacturing exports, in particular, have increased to where they account for 86% of the country's total exports as of September 2014. Such growth, aided in part by the Kingdom's bilateral trade agreements with Japan, South Korea, China, India, New Zealand, and Australia, has led the Thai government to upgrade its logistics infrastructure and expertise. Currently, foreign companies dominate the logistics industry in Thailand. Its top 10 freight forwarders are
Maersk Line, K&N, DHL, UPS, Schenker, Panalpina, Phoenix International, BAX Global, Agility, and UTI. Totaling US$ 219 billion worth of goods, exports contributed to 58% of Thailand's GDP in 2013, and the transport sector underpinned this notable performance. The export-dependent nature of the Thai economy, with recent structural changes toward a higher share of value-added manufactured goods and level of global trading, requires a strong and integrated transport and trade facilitation system. As a result, the government of Thailand is working on improving its trade systems such as the customs. An e-logistics system is currently being introduced, to cut logistics cost, reduce paperwork, optimize routes and flows, and increase the time management proficiency of freight transport companies. The logistics sector is a huge industry in Thailand. It contributes about Bt300 billion to the economy annually, accounting for 3.2% of the country's total GDP and providing employment to some 3.5 million Thais. Furthermore, the Kingdom has been witnessing a downward trend of logistics cost per GDP over the past decade, from a range of 16-18% during 2001-2008 to a range of 1415% during 2009-2012. Transportation costs in Thailand remain high due to a limited capacity of competitive alternative modes of transport albeit the efforts of operators to apply IT to lower hauling overheads. In addition, the sector still relies heavily on land transport (accounting for 83% share) despite the elevated price of oil. According to the 2014 Logistics Performance Index conducted by the World Bank, Thailand ranks 35 in logistics competency among all 160 countries, thereby demonstrating its competitiveness in the region compared to other developing countries. It must be said that the Thai economy needs to improve the efficiency of its logistics systems, which is revealed by its relatively high costs in relation to its GDP. Having a direct impact on both the industrial structure and spatial distribution of the economy, the costs associated with logistics in Thailand have a direct impact upon the sustainable development of the Thai economy. While the government of Thailand has taken proactive measures to reduce national logistics costs in relation to its GDP, it is now a priority to craft the appropriate logistics policies in order to propel forward the economic development of the Kingdom.
International trade largely has fueled Thailand's industrial and commercial growth. Given this dependence on global trade linkages, freight logistics have played an important role in the competitive edge of various Thai industries. From a macro- economic perspective, outlays for logistics can be divided into four categories: transportation costs, inventory-carrying costs, administration costs, and infrastructure costs. Comprising expenditures for service, fuel, vehicle repair and maintenance, transportation costs usually account for over 49% of total logistics outlays in developed economies. Moreover, inventorycarrying costs consist of expenditures related to warehousing and financing, while administration costs include employee compensation and communications. About 86% of Thailand's cargo is currently moved by road, 12% by ship, 2% by train and the rest via air freight. With a road density of around 125.7 kilometers per thousand square kilometers, the Kingdom possesses an extensive road network of urban and rural roads. Likewise, with the possibility of a TransAsian highway linking most countries on the Asian mainland, this could be the key contributor to Thailand becoming a regional logistics hub of ASEAN. In addition, the Kingdom is home to six international airports, affording access to all regions. A state-of-the-art facility located in the outskirts of Bangkok, Suvarnabhumi currently services over 100 commercial airlines. In 2013 alone it handled some 50 million passengers as well as 1.3 million metric tons of freight. Yet its ongoing phase-two extension will uplift capacity to 60 million passengers. Actually, Suvarnabhumi has been ranked as the 6th best airport globally by the 2013 ASQ Survey for the year 2012 in the category of large airports that provide service to more than 40 million passengers per annum.
As was reported in The Nation, Dr. Witoon Simachokedee, permanent secretary at the Ministry of Industry, declared that Thailand's master plan for industrial logistics targeted a 15% reduction in logistics cost for manufacturing and a 10% increase in efficiency of logistics and supply-chain management by 2016. It is worth noting that last fiscal year (Oct. 2012-Sept. 2013), the Department received a budget of Bt110.8 million under the strategic plan for development of the country's logistics system. About 30 projects already have been completed, which concentrated on 501 business operators, logistics-cost reduction of at least Bt3 billion, human resource development of at least 6,575 people and linkage improvement of at least 28 supply chains. Indeed, the strategic plan consists of three main thrusts: Producing logisticsmanagement professionals for manufacturing sites, promoting cooperation and linkages among business units in manufacturing supply chains, and supporting factors to raise the competitiveness of supply chains in specific industries. The targeted industries are food, petrochemicals, electrical appliances and electronics, automobiles and parts, textiles and garments, and rubber and rubber products. Taken as a whole, these industries hold 70% inventory. Furthermore, it needs to be pointed out that Thai logistics costs hover around 17% of production outlays, while the European Union averages 8-9%. Accordingly, the Kingdom may employ the European model, as Germany is the regional center in Europe just like Thailand is for ASEAN. This advantage could be used to manage logistics costs efficiently through railways, roads, vessels and aviation. With the ASEAN Economic Community taking shape in 2015, it becomes imperative that Thailand moves ahead with its Bt2.4 trillion infrastructure project. Some years ago, the Thai government adopted a policy known as the "three economic rings and five trade gateways" in order to maximize Thailand's geographic position within Southeast Asia and its well-developed infrastructure and logistics networks. To explain, the three economic rings consist of ASEAN, ASEAN+3 (China, Japan and South Korea), and ASEAN+6 (China, Japan, South Korea, India, Australia, and New Zealand). Meanwhile, the five trade gateways refer to the Kingdom's strong road and rail linkages to neighboring countries and beyond. These include the northern gateway, linking Thailand to Myanmar, Laos, and southern China; the northeastern gateway, linking Thailand to Laos, Vietnam, southern China, and East Asia; the eastern gateway, linking Thailand to Cambodia, Laos, and Vietnam; the western gateway, linking Thailand to several BIMSTEC countries, particularly Bangladesh, India, and Myanmar; and the southern gateway, linking Thailand to Malaysia, Singapore, and Indonesia. In addition to the aforementioned plan, Thailand already has in place a Logistics Development Strategy (2013-2017) that revolves around three missions and
seven strategies. The first mission is supply chain competitiveness, which strives not only to increase competitiveness in supply chain management and potential business, but also to promote business related to trade and services in border town areas. The second mission concerns trade facilitation enhancement, which aims to develop transport services and logistics networks, to improve facilitation at gateways, and to promote services improvement and expand LSP (layered service provider) networks. And finally, the third mission deals with capacity building and policy driving factors, which endeavors both to develop human resource development systems and to create monitoring systems for selfimprovement. The ASEAN Economic Community will have a significant impact on trade between the ten member states. From Thailand's perspective, the AEC will boost substantially the Kingdom's trade with bordering countries (Malaysia, Myanmar, Laos and Cambodia) as well as countries further afield like China and Vietnam. Regional integration through the AEC will increase the demand for logistics services in Thailand. Raw materials, goods, and labor will be exchanged more freely, especially for border and transit trade, which are expected to expand substantially. Indeed, the AEC is expected to bring various benefits for ASEAN's logistics industries in terms of regulations and other aspects such as simplified and harmonized customs procedures, improved transportation routes, and reduced tariffs. Given the variety of logistics services - ranging from maritime cargo handling services to warehousing to customs clearance and more - the development of competitive logistics businesses in Thailand will require not only financial capability, but also technological know-how. As other ASEAN member states increase their equity participation in Thai businesses to up to 70%, local players will need to develop their competencies in order to compete effectively. As such, the Thai government has been developing the capabilities of the country's logistic service providers through financial support and manpower training. It also has encouraged the logistics service providers to build networks that can interface seamlessly with logistic business partners from other ASEAN and Asian countries. Other actions taken by the Thai government to increase efficiency of Thai logistics operations include development of e-logistics, paperless customs procedures across the borders of the Greater Mekong Subregion, and a One Stop Export Service Center, where 15 export-related organizations are located at one place to reduce the time required to obtain export documentation. The National Economic and Social Development Board is aware of the need to develop the local industry if the Kingdom seeks to actualize its goal of becoming a regional logistics hub. To take action, it has divided Thailand's logistics sector into a business framework across five types of activities: (1)
cargo transportation inside and outside the country, by road, rail, sea, or air; (2) cargo storage, warehousing, packaging, and cargo distribution; (3) customs formalities; (4) other auxiliary logistics works; and (5) postal and parcel services. Nonetheless, the logistics market in Thailand remains highly fragmented. Yet, trends such as outsourcing logistics services to 3PLs (Third-Party Logistics) to maximize cost efficiency and to diversify risk, as well as greater usage of heavy commercial vehicles/truck and long-haul transportation, are happening. The high value of cross-border trade between Thailand and its neighbors will provide numerous opportunities for relevant businesses throughout the supply chain. At present, many Thai corporations already have set up a logistics business in neighboring countries. Siam Cement Group (SCG), for example, has logistics and transport operations in Laos and Cambodia. Meanwhile, Loxley, a listed Thai conglomerate, has gained a foothold in Vietnam's logistics market through a joint venture with Japan's NTT Docomo Incorporated to establish Mobile Innovation. Currently Thailand has the necessary infrastructure in place to attract foreign investment and is in the process of launching multi-purpose, low-cost logistics bases for companies. In order to develop into a proper logistics hub for the ASEAN region the Kingdom will need to start offering attractively priced logistics services. As a result, the Thailand Board of Investment is at this time granting generous tax and non-tax incentives to logistics projects. Among the many eligible activities are container yards or inland container depots (ICDs), loading/unloading facilities for sea transport, commercial airports, mass transit systems and transport of bulk goods including rail, pipeline and maritime transportation services, and logistics service centers including both domestic and international distribution centers (DCs and IDCs). Any foreign investor, in particular 3PLs, interested in entering the Thai market would be well-advised to take advantage of these opportunities.