DPM Tharman Shanmugaratnam at the opening of LF Logistics Regional Distribution Centre on 26 April 2016

DPM Tharman Shanmugaratnam | 26 April 2016

 

Dr Victor Fung, Honorary Chairman, Li & Fung Limited

Dr William Fung, Group Chairman, Li & Fung Limited

Dr Beh Swan Gin, Chairman, EDB

Distinguished Guests,

Ladies and Gentlemen,

Introduction

It is a real pleasure to join you here this morning to celebrate the opening ceremony of LF Logistics Regional Distribution Centre. This new centre is a major milestone in the growing partnership between Singapore & Li & Fung.

It comes at a challenging time – with cyclical headwinds affecting many in the logistics business, in Asia and globally. All the leading players know that, Li and Fung know that.

Time of opportunity for players who are building operations in Singapore that are focused on the medium to long term. In particular, it is investments like LF Logistics that highlight the prospects of serving a growing ASEAN and Asian economy over the next 5 years and beyond. It also shows how innovations and the use of digital technologies in logistics can raise productivity in the sector, and cater to changing consumer needs everywhere. For Li & Fung Logistics, the journey started in 1995 when you acquired Inchcape. But you have been in Singapore of course much longer, since 1970. It has been a good journey together and I’m glad that we are now taking this major step to move forward. Victor had mentioned the medium to long term strategic significance of this facility. He spoke about the One Belt, One Road plan, particularly the Maritime Silk Route, for which this would be a significant gateway. But it is also at the center of the ASEAN region, which is going to be a major consumer market in Asia, and to some extent, globally.

Singapore is well placed to serve the growing ASEAN market

In a subdued global environment, ASEAN is making steady growth.  As a consumer market, ASEAN in fact surpasses India in size, and is close to coastal China[1] - this has significant prospect for a whole range of businesses catering to the ASEAN middle class, with consumer spending at US$1.2T today and estimated to keep growing as this group expands. (ASEAN’s middle class is projected to double by 2020, from 190 million in 2012 to 400 in 2020[2].)

Growth will be uneven from year to year, and from country to country. But there is an underlying appetite in the ASEAN middle class for increasingly sophisticated products and services.  Foreign Direct Investment in manufacturing in ASEAN is also expected to keep growing, as global MNCs reconfigure their production networks in the face of rising costs in China. 

Embracing the future of retail through innovations in Omni-channel logistics

However, it is not growth as usual. Technology is re-shaping how consumption takes place and how goods get produced and how they get distributed to the consumer. 

E-commerce adoption, in particular is a gamechanger. Still relatively low in ASEAN, but it is projected to grow very rapidly[3].) . This will have profound impact on the future of retail[4].) . Retailers and Brand Owners who will need to embrace these changes in order to grow their businesses.

One emerging opportunity is in the convergence of sales channels – brick-and-mortar, online and mobile – in other words, omni-channel. But this convergence of sales channels also requires a new generation of logistics networks – fast and reliable, and also delivering a consistent level of customer experience across offline and online channels, from the time they place their orders to when orders are fulfilled. A successful omni-channel strategy on the part of brand owners and retailers hence needs to be supported by logistics networks that enable a single integrated channel of product flow.

We have a good example right here.  I am glad to see that Nike has expanded its partnership with LF Logistics - from managing its retail store fulfilment to including the management of its global e-commerce supply chain. In fact, Nike’s first ever Global E-commerce Distribution Centre for Asian sizes will be managed by LF Logistics out of this regional centre in Singapore.

Transforming Singapore’s urban logistics for efficient last mile delivery

However, the transformation of logistic networks to support e-commerce and omni-channel solutions does not rest on the logistic provider’s own network alone. It will also be greatly facilitated by common infrastructure, for efficient and customer-friendly last-mile delivery. The last-mile delivery is being done today. Many different players doing it in their own way, competing with each other. But it is in fact, still an inefficient business in many parts of the world, including most of Asia and including Singapore.

We must unlock the encumbrances that currently exist, and promote innovation in last mile delivery. We must do this well in Singapore, and eventually scale up new business models around the region.  

Large Scale Deployment of Parcel Lockers (‘Federated Lockers’)

One of the key initiatives that we have embarked on in this regard is the large scale deployment of parcel lockers within Singapore. This is to ease the last mile delivery challenges for small parcels. Based on IDA’s findings, the biggest problem faced by our local delivery companies is in making door to door deliveries and finding that no one at home to receive the goods.  Return visits add to costs and often inconvenience for customers. 

Some companies have therefore started adopting locker solutions, but it is impractical and costly if each company employs its own locker solution in each neighborhood. There is hence a role for common parcel lockers in or near residential areas - involving standardisation (“federation”) and enabling aggregation, to lower costs.  

IDA and our economic agencies have been working with businesses on this common locker model. It will be implemented in areas with higher demand first, before we scale this up in neighborhoods around the island to create a nationwide common parcel locker system or what we term as “Federated Lockers”. I believe we will be the first country to do this nationwide.

Reducing last mile traffic via Smart Urban Logistics

Besides the parcel locker system, we are also focusing our efforts on our Smart Urban Logistics initiative. Technology will be a key enabler here - enabling high velocity transactions and tracking of shipments. (For e.g., cloud-based dock scheduling systems to coordinate deliveries across enterprises; secured in-transit cargo with encapsulation and tracking technologies; and electronic Proof-of-Delivery (POD) to simplify the whole delivery and change of custody process.)

However, domestic logistics is in greatest need of transformation.

There are two ongoing pilots under this initiative – 1) In-Mall Distribution and 2) the Offsite Consolidation Centre. Both aim to reduce traffic inefficiency which we have in Asia and here in Singapore, and the manpower involved in delivering goods to retailers. 

The In-Mall Distribution model involves stationing a logistics operator within a mall, to receive and consolidate the delivered goods. The operator will then perform the last mile delivery to the retail shops. The in-mall distribution trials will be launched at Tampines Mall in July this year, followed by Bedok Mall subsequently. (Approximately 300 retailers are expected to benefit from these trials.)

The Offsite Consolidation Centre too will ensure each truck making deliveries to malls and precincts is fully optimized. We expect to commence the pilot by the 2nd half of this year.

These In-Mall and Offsite pilots will also help us to develop the complementary regulations to enable these initiatives to be scaled up.  We will give more details on this in the earlier part of next year.

Conclusion

The rise of Asia as both a production base and a consumer market, technology developments and shifting consumer preferences will present both challenge and opportunity for every player in supply chains.   The government will take an active role in helping industry to innovate and adapt to new technologies and trends, and to promote industry-wide solutions.

Li & Fung is a natural collaborator with Singapore in promoting supply chain innovations, in servicing growth across in the region, and in addressing some of our domestic challenges.

On this note, I would like to offer my heartiest congratulations to Li & Fung on the opening of their Regional Distribution Centre and I look forward to the continued deepening of Singapore’s partnership with Li & Fung.

 


[1] Euromonitor, “ASEAN Economic Community Will Offer a Young and Dynamic Consumer Market”, http://blog.euromonitor.com/2013/10/asean-economic-community-will-offer-a-young-and-dynamic-consumer-market.html

[2] Nielsen, “ASEAN 2015: How can you prepare your business for what lies ahead?”, http://www.nielsen.com/my/en/insights/reports/2014/asean-2015-prepare-your-business-for-what-lies-ahead.html

[3] Penetration of ecommerce has been 1% or less outside of Singapore.  However, AT Kearney expects it to grow at 25% per year (2013-2017)

[4] According to IDC Retail Insights 2014, 20% of the top global retailers have started the transformation of its businesses towards enhancing the omni-channel experience