From ST Logistics to TOLL Asia – A Singapore story (slide 1)
Good morning ladies and gentlemen. The conference aims to focus upon the key issues Logistics and Shipping industries are facing in the 21st century. Speaking from a logistics business perspective, my presentation today will portray on how TOLL Asia has evolved from a small company doing contract logistics to become a Asia focus regional SCM Company. Challenges we faced during the company rapid expansion years. How we handled these challenges? What opportunities and challenges ahead? Hopefully through this sharing, we can learn from each other.
TOLL Asia, formerly SembCorp Logistics and a Tamasek linked company, is based in Singapore. Let me introduce Singapore briefly to you.
Singapore (slide 2) is in Southeast Asia. This small red dot is Singapore. It sits on the cross road of Europe, Asia and Australia shipping lanes. This is Southeast Asia (slide2). The ten countries in Southeast Asia are members of Association Of Southeast Asia Nations or ASEAN). You will notice that you need to use a magnifying glass to see Singapore. Southeast Asia is rich in natural resources like spices, tin, rubber, coffee and sugar cane etc. Trade activities in SE Asia in the early 20th century were high among the Europeans, Arabs and locals. As early as 1940s, Singapore was developed from a fishing village into a trading port (Slide 3a) by the British to facilitate trade.
During the 40s and 50s, attracted by the trade port economy, our fore father came from China, India, Middle East and other parts of Southeast Asia to settle down in Singapore. Today’s Singapore is (Slide 3b) a multi-races, multi-religions and multi-cultures society. There are four official languages in Singapore – English, Chinese, Malay and Tamil. English is the commonly used business language. We have a bilingual education system – English and the mother tongue.
Singapore is (slide 3c) a city state about 700 sq km in size with a population of about 4.4 millions, about twice the size and population of Taipei city. Singapore has no hinterland and lack of natural resources. Human resource is the only resource we have. Singapore government therefore emphasize on education, technical training and continuous skills development training.
SembCorp Logistics
SembCorp Logistics humble beginning started from ST Logistics, (slide 4) a contract Logistics Company formed to provide 3PL services to the Singapore Armed Forces in 1983. ST Logistics secured the Singapore Army automotive spares management contract in 1983. Later, through competitive bids, it won other Army logistics out source contracts. It won also logistics out source contracts to manage Singapore Navy and Air Force ground logistics.
It took ST Logistics 15 years to develop a long term strategic partnership with the Singapore Armed Forces. Through partnership approach, ST Logistics was awarded in 1999 the Army Design, Build and Operate, or DBO contract to build and operate the automated warehouse. This DBO project epitomizes how commercial solutions can be applied to military to improve readiness and to save costs.
With no hinterland and lack of natural resources, Singapore government reckoned that Singapore businessman has to expand their business beyond the island for survival. In 1990s, the government encouraged Singapore businessman to go regional (slide 5) – particularly to countries within the 7 hours flight circle. The 7 hours circle covers Japan, most Asia developing countries and Australia. The thought was that company senior executives can fly to destination country to meet business partners or negotiate business deals, and to fly back to Singapore, all within 24 hours.
To support this endeavor, the Tamasek linked companies began to take part in regional infrastructures building like ports, industrial parks, communication and IT network. Singapore banks and legal firms were encouraged also to set up branches and offices in the region.
At the same time, government also came up with incentive schemes to promote Singapore as the Regional HQ for MNC. With RHQ set up in Singapore, access to MNC regional decision makers is easier and can therefore better market Singapore.
In response to government “go regional” call, (slide 6) ST Logistics carried out a scenario planning in early 90s. It concluded that logistics will be a growth sector as a result of outsourcing trend, globalization and e-commerce. It concluded also that Asia will be the fastest region of growth.
ST Logistics entered into China market in 1996. Today, TOLL Asia SBU in China (slide 7) ST-Anda operated 7 RDC and 30 DC in China with a reach of more than 1,100 cities and towns. 90% of these cities can be reached within 72 hours.
Between 2000 and 2005, SembCorp Logistics expanded (slide 8) rapidly its footprints in 15 Asia countries and Australia.
In 1999, (slide 9) ST Logistics merged with Sembawang Marine & Logistics to form SembCorp Logistics. After restructuring, SembCorp Logistics focuses on supply chain management, oil and gas logistics and exit marine logistics. SembCorp Logistics also started to provide collateral management and metal logistics services in 2004.
With its rich military logistics support experience, SembCorp Logistics was called by the Singapore government and Red Cross to provide emergency and relief logistics support to relief operations to areas hit by natural disaster – for instance, Aceh tsunami (2004), Iran earthquake (2003), SARS and bird flu epidemic in Singapore etc.
In 2006, SembCorp Logistics was acquired by TOLL Group of Australia.
Hitherto, trade and business activities were mainly (slide 10a) east west direction between US and Asia, and between Asia and Europe. Competition by big regional and international SCM players for SCM businesses along the east west trade corridor is very intense. However, the same can not be said for the north south trade corridor between Asia and Australia (slide 10b).
Trade volume between (Asia Australia map) Australia and Asia is about US$150b per annum. This volume is expected to increase tremendously when the Australia grows its trade with Asia.
TOLL Group, the Australia largest SCM player can play a dominant force in this north-south trade corridor. Alignment with TOLL group provides opportunities for TOLL Asia to scale new heights given this trade corridor.
Challenges faced during SembCorp Logistics rapid expansion
During the rapid expansion, (slide 11a) SembCorp Logistics financial and talent resources were really stretched. We did face start-up and learning curve problems, and operational processes standardization issues.
Our solution (slide 11b)
SembCorp Logistics “assets light” policy did help to relieve the pressure of thinly spread financial resources during the start-up period. We activated short term positing or attachment for middle management staffs to control costs. We trained local staff to supplement limited talent pool. We choose good local partner and alliance to help resolve start-up and transition issues. We formed HQ task force on call to assist SBU to trouble shoot problems, to help achieve standardization processes and IT protocol.
Anticipating that logistics will become more of knowledge based business, we developed suite of technology enabled systems and solutions to be one of our SBU differentiators. Together with the pan Asia network, we started to sell SCM solutions instead of just services.
We prevailed eventually.
(Slide 12) Opportunities and challenges ahead for Asia SCM players
While north south trade corridor is going to be a new frontier for SCM players in Asia, there is an equally if not more important development that will impact greatly on SCM playing in Asia in the next few decades. That is, development of ASEAN Free Trade Areas (AFTA) with China, Japan, Korea, India; for example, ASEAN+1, ASEAN+3, and ASEAN+6.
Take ASEAN-China FTA (slide 13a) for example
“ASEAN-China FTA is the world’s biggest free trade area embracing 1.7 billion consumers, a combined gross domestic product (GDP) of approximately 2 trillion US dollars, and total international trade of 1.23 trillion US dollars”
BRIEFING PAPER ON THE
ESTABLISHMENT OF THE ASEAN-CHINA FREE TRADE AREA (FTA)
18 February 2003
Tariff Commission, Republic Of Philippines
About one in three of world population lives in ASEAN-China FTA. If we use the norm of China logistics spending of 20% of GDP, the logistics pie in ASEAN-China FTA is (slide 13b) at least US$400 billion. This is certainly a very big pie to SCM players. (According to Economist Intelligence Unit, the total cost of China’s logistics industry in the year 2000 exceeded US $200 billion or one-fifth of the GDP and twice the cost of logistics spending in the U.S).
ASEAN-China FTA, particularly China is the world factory now. However, the landscape is changing slowly (slide 14a) in two aspects.
(Slide 14b) Factories are relocating
Firstly, as land and labor costs in eastern China production bases are increasing, more and more factories are relocating to lower costs areas like western China provinces and Indo-China peninsula.
(Slide 14c) From factories to market
Secondly, as workers earnings improve, they have spare cash to buy consumer goods. It is envisaged that more and more goods produced in ASEAN-China FTA will be consumed within the FTA. Therefore, transformation of factory into market is slowly but certainly taking place.
(Slide 14d) Impacts on logistics
Logistically speaking, factory and market demand very different resources and goods. According to Maslow’s hierarchy of needs, surge in demand of food supply and FMCG will likely to occur first when the transformation begins. Demands for consumer electronic and electrical products, medical and healthcare products are next. Luxurious goods will be next, so on and so on….
The transformation will take place in ASEAN-China Free Trade Area particularly south west China and land based ASEAN nations of Thailand, Myanmar, Laos, Cambodia and Vietnam. It will bring forward many new opportunities for every Asia logistics players in these areas.
What then are challenges for SCM players?
I will like to propose the following three factors for your consideration (slide 15)
Geographical spread of consumer base
Language and cultural diversity
SCM customers changing demand
Geographical spread of consumer base
Potential consumers in the evolving theatre of logistics operation are widely spread across a very big land mass. Infrastructures like, ports, road and highways network are not well developed at the moment. This makes accessibility to consumer base difficult or inefficient.
In the press release of the second ASEAN-China Transport Ministers Meeting in 2003 (slide 16), the Ministers reaffirmed that building an integrated transport network for smooth and speedy movement of goods and people is a vital supporting infrastructure to an ASEAN-China free trade area.
By the third Transport Ministers meeting in Phnom Penh, Cambodia, China has committed to take part and fund three projects – Kuming-Bangkok highway, improvement project on the upper Mekong River and the pre-feasibility study of the missing link of the Trans-Asian Railway inside Cambodia.
When the transport network is completed in 10 years time, (slide 17a) it will service the China - ASEAN economic corridors in land based ASEAN countries. The challenge (slide 17b) for SCM player is – whether to enter the region now to take the first mover advantage. Where is your market entry point?
Languages and cultural diversity
This region has diverse cultural background and languages. English is not commonly used in the region. Communication to lower ranking staffs and workers is difficult to new comer. It is also difficult to have one SOP and IT system. There are many taboos that one should not fall into. The challenge (slide 17c) to SCM player is to organize various sections of the supply pipeline into a single chain and make it work for you.
Customers changing demand
When freight and transportation are becoming more of a commodity, many MNC customers begin to trim inventory costs and improve stock turns in order to stay in competition. Many SCM customers have begun to ask for end to end solution. They have begun to redraw the supply-chain map also. When planning the new supply chain map, they will look at the region as a whole and not compartmentised solution in individual area or country.
The SCM solution will have to be an integrated one that involves multimodal transportation, multi-party, multi-agency support and most likely, cross border execution. The challenge is the selection and alignment of a partnership team. Where to position your company in this team? (slide 17d) Will you play team leader or just a responsible team member to take part in the supply chain versus supply chain competition?
(Slide 18) Conclusion
In a growing and geographically wide spread market like ASEAN-CHINA FTA, opportunities are abundant, so are challenges. One has to choose the target market segment and choose the playing field. Future SCM solution will likely to be an end to end multimodal one span across the region. It is likely an integration of solutions laterally and vertically. Owing to the diverse requirement and geographical spread, my opinion is that no one single SCM player can dominate the playing field. It is going to be a SCM versus SCM competition. The importance of an integrator will likely to stand out clearly in future play. (slide 19)
TOLL (Taiwan)
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