How Singapore can become a great logistics hub again

Photo credit: Ali Yahya

Logistics has always been one of the major pillars of Singapore’s economy. The city-state has prided itself as a key regional (at times global) hub for many multinational brands since early 1990s.

But in recent years, brands have migrated their hubs to Singapore’s neighbors: Malaysia and Thailand. This is largely driven by the cost of real estate for warehouses and the cost of manpower, compounded with the lack of manpower for operations.

Other trade and tax initiatives and bigger domestic markets are also making it more compelling for brands to reposition.

But not all is lost. The ecommerce sector is only in its early stages in Southeast Asia, and Singapore can revitalize its position as a key gateway and hub in the region with the correct niche focus.

Regional government partnership

Both Malaysia and Thailand’s governments have partnered with Alibaba for the development of the Digital Free Trade Zone (DFTZ) and Eastern Economic Corridor (EEC), respectively. Many saw this as a massive blow to Singapore’s ecommerce logistics hub ambition, especially after the development of SingPost’s regional ecommerce logistics hub and the redesign of Sat’s former mail terminal to focus on ecommerce.

With DFTZ and EEC, there is a potential to split SEA’s 650 million population into two key sub-regions:

1. DFTZ serving the Nusantara region (Malaysia, Singapore, Brunei, Indonesia, eventually Timor Leste, and potentially Philippines).
2. EEC fulfilling the market needs of Indo-China, consisting of Thailand, Vietnam, and developing SEA countries like Myanmar, Laos, and Cambodia.

Many speculate that Alibaba, through Lazada, may be strategically using the DFTZ and EEC as fulfillment hubs to bring Chinese merchandise closer to the market with suspended import duties and tax. This would reduce cross-border logistics costs from China, but it will also simultaneously reduce turnaround time and improve customer experience.

To be fair, Alibaba is also looking at acquiring more SEA merchants. However, many regional brands are not export ready.

Here lies the potential for Singapore. DFTZ and EEC’s key advantage is bringing down logistics costs for Chinese products. Singapore provides an alternative solution for brands at the other end of the cost spectrum.

Rather than trying to attract the likes of Alibaba, Singapore should focus on attracting mid- to upper-level brands (predominantly from the US, EU, Japan, and Korea) to leverage on Singapore as a gateway to SEA.

Many established (and mostly global) brands are moving to a direct-to-consumer (DTC) model for their ecommerce channels and see SEA as a key market. However, there are still concerns on logistics cost and customs.

Logistics cost

Warehousing and last mile are the two major costs of logistics. Last mile includes cross-border B2C fulfillment.

Customs and air freight

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