Thailand's Logistics Future: A Window of Opportunity

The strategic development of logistics in Thailand has been neglected for a long time. Like many of its Asean neighbours, the country has been affected by issues such as limited infrastructure, traditional cost containment and the lack of awareness about good logistics practices.

The Thai economy has still to fully recover after the global financial crisis; however, the environment is changing as the country has become a preferred destination for many multinationals, especially major automotive companies, to set up manufacturing bases. Also, exports from key sectors such as agriculture, electronics, textiles and furniture are back on the rise.

The incoming government coalition led by the Pheu Thai Party has a limited window of opportunity to establish a national logistics strategy and implementation framework to revive the economy and deliver on its commitments on raising the standard of living.

Thailand is geographically positioned to become one of Asia's major trading hubs; this is particularly true for the airfreight, trucking and railway industries. Combining this with Thailand's well-developed, value-added industries, it could potentially face an influx in foreign investment from those companies seeking to be a part of Asia's increasingly complex trade routes.

Once the corridor that will link Southeast Asia with China is completed, Thailand will witness heavy trade flows among these countries - if the internal logistics infrastructure, cost efficiencies and resource skills to support it can be developed at the same pace.

Reducing national logistics costs: Logistics costs in Thailand are almost 20% of gross domestic product (GDP). In comparison, the figure is 8% in Singapore and 13% in Malaysia. Apart from the limitations in transport and warehousing infrastructure, the communication and information networks in the country also need to evolve to match those of rival neighbours. Developing suitable skills, management experience and operational skill is a big challenge for the logistics industry in Thailand.

The incoming government's commitment to invest in improvements to rail infrastructure is vital. However, this not only involves extending standard-gauge lines, dual tracks and fast passenger trains. The current heavy reliance on high-cost trucking can only shift to rail if proper intermodal transfer terminals are constructed in strategic locations and vehicle standards are developed to support new technologies and smarter operating methods. These terminals must be capable of rapidly handling high volumes of containerised freight. Modern materials handling equipment is needed to allow the efficient transfer of products between rail-cars and road carriers.

Overall the transport industry needs to switch to cheaper sources of energy, adopting innovations such as lower truckloads using multi-deck palliated transporters, improved routing of scheduled deliveries including the development of national back-haul booking portals. New vehicle technologies include the introduction of B-Double trucks and transport planning software to increase management efficiency, optimize loading and reduce transport costs.

There also needs to be a corresponding development of designated road infrastructure and routes to support increased feeder traffic using inter-modal terminals. This will create greater efficiency for long-haul transport as well as decrease overall logistics costs.

Promoting competition: Logistics service suppliers (LSP) in Thailand are principally foreign businesses with high service standards and group profit targets, whereas Thai LSPs are still weak owing to a scarcity of business networking, scant information in logistics management techniques and restricted funding, technology and systems knowledge. According to the International Air Transport Association, multinational LSPs had a 72% growth rate over the past five years. However, the figure for Thai LSPs was only 2.75% for the same period.

There are still very limited numbers of qualified young managers specialized in logistics and supply chain technology in key Thai LSP positions, and those who are qualified are being headhunted at an alarming rate by neighboring countries such as Vietnam.

Capacity building: There is an urgent need to produce knowledgeable Thai logistics personnel for both the manufacturing and the logistics service industries. Additionally, entrepreneurs must understand how to increase logistics efficiency and send staff for training in the field. The government should allow tax deductions for training expenses, while the training capacity of various institutions needs to be improved, creating a system to accommodate the demands of upgrading the skills of the logistics labor force.

Cooperation is alao needed among training institutes and workplaces to produce personnel with skills that match business needs and support the creation and transfer of logistics innovation.

The new government has a window of opportunity to get it right. Securing the right talent, developing the correct strategy, putting in place robust programme management and establishing a practical implementation framework are keys to Thailand's future competitiveness and economic success.

http://www.thinkasiainvestthailand.com

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