24 Aug 2016
Thai Logistics Sector Bolstered by Neighbours During Local Downturn
With its economy struggling and political uncertainties, the Thai logistics sector has been becalmed, according to many at the Asia Warehousing/Cold Chain Show, but work from more lively neighbouring countries has provided a real lifeline.
With the Thai economy struggling and political uncertainty looking to be a long-term issue, the successful companies in the warehousing and cold storage sectors are those offering cost-saving goods and services, while bringing in business from the faster growing economies nearby.
Overall, exhibitors at the Asia Warehousing/Cold Chain Show reported slack business this year. For many attending the show their customers are at the tail end of the sector's five-year investment cycle, with Thailand's political uncertainties also taking a toll on the economy. Despite this, the mood of some exhibitors was surprisingly upbeat, a sentiment driven by the expectation that a number of the investment projects currently on hold will be reactivated next year as the business cycle picks up.
Stronger growth in the bordering countries of Myanmar, Vietnam and Cambodia has also been providing a host of new opportunities. The rising costs of labour, compounded by a notable shortage of skills, are pushing customers in the sector towards investing in automated systems and higher quality machinery, reducing their overall dependence on workers.
The construction sector, in particular, is seen as having a grim time in the Thai market. Highlighting this Rabih Hraiki, a Sales Engineer with Zamil Steel said: "We are a Saudi Arabian company that specialises in the construction of warehouse facilities. We have a representative office here. The economy has slowed down a lot in Thailand and the government is still a bit unstable. There are not as many opportunities here as in some of the other ASEAN countries, such as the Philippines, Myanmar and Vietnam. Competition in Thailand is also very fierce."
Hraiki also noted the higher cost of capitalising on the limited business opportunities that do arise in Thailand, saying: "Our business is all about labour and labour costs in Thailand are getting very high – particularly with regard to the skilled workers that we need. Costs are now close to double those of some other Southeast Asian countries. I don't really anticipate much improvement in the market here over the next couple of years."
Bryan Bowman, Southeast Asia Regional Manager for US-based Supply Chain Services International (SCSI) was more sanguine. He said: "SCSI is a global service provider specializing in quality and logistics services. We offer a very broad range of services customised to fit the specific needs of individual customers. We have been in Thailand now for three years and the bulk of our business here is focused on the quality management field. This sees us providing such services as supplier assessments and development, OEM quality management support and various inspection services.
"Sure, the economy has slowed, but we have seen things pick up in the second half of the year. The Thai market is difficult and there's still a lot of maturation that has to happen in the lower end Thai supplier base, especially when it comes to accepting the value of better quality management. A lot of companies that have some foreign management in place, though, are starting that cultural change."
Increasing wages may be presenting some companies with problems, but for others – particularly those specialising in automation and labour-saving good and services – it is providing opportunities. Honeywell Systems (Thailand), part of US multinational Fortune 100 Honeywell, has been selling barcode management systems for warehouses in Thailand for the past five years and, until this year, the company had enjoyed good growth.
Visitak Chaosuankluay, the company's Enterprise Account Manager, puts this down to the business cycle, saying: "This year, most companies are freezing their budgets until next year when it comes to this kind of investment. This is, in large part, due to the business cycle, so we are optimistic for next year.
"I believe that companies will start to steadily invest in new systems that reduce costs. For smaller warehousing companies, this may not be the big enterprises solutions, but rather smaller warehouse management systems."
Menam Mechanika, a local company that provides integrated systems solutions for new warehousing facilities and cold chain storage facilities, has also found the market increasingly receptive. Veerachai Tintansup, the company's Sales Manager, said: "Menam Mechanika started operations in 2002. When we first began, our customers did not know anything about automated operating systems. Now, though, our customers are much more familiar with the concept. More companies are automating than ever before."
Swiss firm Kardex Remsta, which manufactures automated warehouse systems in Germany, was also bullish about the opportunities presented by the problems in the labour market. Yan Yoke Loong, the company's Director Dealer Business APAC, said: "What our system does is bring the goods to the person automatically rather than wasting time by requiring people to go walking around the warehouse to find and get them.
"We've been here in Thailand for more than 20 years and, through our local distributor, we have sold nearly 200 units. Our clients are predominantly international companies operating here. This kind of automation brings savings of up to 80% on storage space, while productivity can increase by up to 800%."
Loong also noted the problems in the labour market in Thailand, believing that they enhance the business prospects for automation providers. He did, however, warn that many local companies had yet to grasp the potential benefits, saying: "I speak to my customers here and they say that they are having problems getting people. We believe that, for the next five years, this will continue to drive automation in the sector. For us, the challenge is really getting the message out there to the Thai market – this system is available now and can really deliver productivity savings. ROI on our systems is typically between just one to two years."
The cold chain storage sector in Thailand is very well developed. With a long history of exporting frozen foods, originally seafood and, latterly, chicken. It has long since accepted the need to invest in the best global equipment as a requirement for meeting the strict import regulations of the developed markets of Europe and the US.
Mathieu Balay, a French national and a nine-year veteran of the Thai cold chain sector, works as Engineering Director for Sirayooth, a Bangkok-based specialist in industrial refrigeration equipment and food processing systems. He believes that energy efficiencies will provide good opportunities in the future, saying: "The Thai cold storage industry was an early mover in the region when it came to adopting quality refrigeration systems from overseas suppliers. As such, the market has been pretty stable, but what we are beginning to see now is a growing interest in the more energy efficient systems."
Malaysia-based CS Panel was hoping to tap into this trend by offering a new type of insulating wall panel for cold storage facilities. Cheah Shern Kee, a Senior Manager with the business, said: "We started this company in 2014, producing polyurethane sandwich panels. In Thailand, we believe that a lot of potential customers are changing their mind-set from being solely price-oriented to taking more of a quality-oriented approach. We see very big potential here.
"Polyurethane panels are much better quality than the traditional expanded polystyrene (EPS panels) that currently dominate the Thai market. Our parent company, CS Metal, has a lot of experience when it comes to successfully operating in the Thai market and this is something that we can draw on."
For many in the industry, the stronger growth in the surrounding countries – notably Myanmar and Vietnam – has provided a welcome relief from the downturn in Thailand. Chatude Guptabha, Director of Thaireefer, a company specialising in refrigerated container products, said: "This year, Thailand has been quite challenging and the economy is not growing. Luckily, the surrounding countries are buoyant, so we are confident that we can catch that wave.
"I think we are going to see a greater trend towards using higher quality machinery as labour is getting harder and harder to find. There will be a need to invest in equipment that reduces personnel costs."
Asia Warehousing/Cold Chain Show 2016 was held at the Bangkok International Trade and Exhibition Centre from 6-8 July. The event featured 80 exhibiting companies and attracted more than 5,800 attendees from 34 countries.
Geoff de Freitas, Special Correspondent, Bangkok