Episode One

eCommerce and Logistics with Arne Jeroschewski of Parcel Perform

IndoTekno Podcast, 19 May 2020


ALAN: Greetings everyone, and a warm welcome to our very first instalment of IndoTekno.


IndoTekno is a biweekly podcast, in which we invite a guest in to discuss all matters Indonesia and technology-related. The podcast will be hosted in English, with a subsequent transcript made available in Bahasa Indonesia. Kami akan memberikan transkrip podcast Bahasa Indonesia di situs web kami.


My name is Alan Hellawell. I am the host of IndoTekno. I am also the Founder of Gizmo Advisors and serve as Venture Partner at Alpha JWC Ventures.

We have launched the IndoTekno podcast for four simple reasons:


FIRST, We are very eager to help raise the profile of Indonesia’s talented, promising and fast-growing technology eco-system

SECOND, We specifically want to add a new, rigorously analytical voice to the growing conversation around Indonesia’s technology scene

THIRD, we hope to profile, as early as possible, emerging business models that could grow into the next multi-billion dollar opportunity

Finally, and most importantly, we at IndoTekno hope to make accessible to everyone the masterful insights of Indonesia’s leading tech innovators

We’ve chosen as our first topic of discussion the largest part of the Indonesian internet economy, e-commerce, and the mission-critical enabler to its growth, logistics. The Google Temasek Southeast Asia Internet Economy Report estimated that the region’s e-commerce market hit USD38b in Gross Merchandize Value (or GMV) in 2019, significantly higher than on-line travel at USD34b, and multiples of GMV from the sharing economy at USD13b. Indonesia e-commerce GMV alone likely topped USD21b last year, suggesting that it is over half of Southeast Asia’s e-commerce business. As one data point, Goldman Sachs estimates that Shopee – the region’s largest e-commerce platform - saw a near doubling in GMV in Indonesia last year. McKinsey meanwhile expects the online commerce market to grow up to $65 billion by 2022.


The Indonesia Logistics Association meanwhile estimates that the country’s broader logistics market likely only grew between 10% to 15% last year. However, these companies’ e-commerce logistics businesses almost doubled.


Few people are as well qualified to comment on trends in Indonesian e-commerce and logistics as today’s guest.


Arne Jeroschewski is the Founder and CEO of parcelperform. Prior to founding the company in July, 2016; Arne spent seven years as a consultant with McKinsey in their Berlin and Singapore offices, before assuming leadership roles at regional fashion e-commerce platform Zalora, in addition to SingPost and DHL.


Arne, thank you for joining us today.


ARNE: Thank you very much for having me today, Alan.


ALAN:   Can you give us a (30-second) description of parcelperform and the services that you offer?


ARNE: Parcelperform is a leading carrier independent parcel tracking platform that operates globally. With over 600 carriers integrated we have businesses, most importantly ecommerce merchants, to improve their post purchase customer experience, reduce customer service costs and optimize their logistics management. So we provide branded tracking pages, intuitive parcel overviews for merchants to manage their shipments, and we build custom logistics performance reports. With this, we've won multiple international brands to work with our platform, including Nespresso, Decathlon, Megabrands, Salestock, so a wide variety of partners we work with and therefore we have a huge data set to work with when it comes to e commerce logistics.


ALAN: I referenced Indonesia e-commerce growth in my earlier remarks. We-are-Social and Hootesuite moreover estimate that over 90% of Indonesia’s 152 internet users have shopped online before. Roughly 5% of Indonesia’s retail economy is now on-line.


A crucial component of the continued growth in e-commerce relates to the logistics experience, including average delivery time. Can you share with us what trends you have seen in delivery time in Indonesia?


ARNE: If we look at what consumers are saying is we see that more than one third of the consumers in Indonesia still express dissatisfaction with the experience they're getting from e-commerce. This was done in a study we did as parcelperform together with iPrice Group. Nevertheless, what we are seeing over the last years; the experience consumers are getting is improving constantly over the years. Whereas two years ago, we will see seeing that deliveries on average took about more than three days, I think this number has come down to a little over two days wowadays. This is a tremendous improvement and will technically also help consumers to be more satisfied with the experience and induce them to shop more. So this is, of course, helped by the fact that a large majority of the ecommerce shipments are still going to the biggest cities where shorter transit times are a little bit easier to do so we see that more than 40% of the shipments actually go to Jakarta and the greater Jakarta area. But nevertheless, we've seen that even across the country, transit times are getting lower and lower, and therefore ecommerce becomes a very relevant means of shopping for consumers in Indonesia.


ALAN: How do these absolute vales and trends in Indonesia compare with other markets in the region?


ARNE: To be fair, Indonesia starts with a rather challenging geographical setting. There are many islands, many with no major commercial airport, a challenging road infrastructure and of course, a lower willingness to pay for kinds of advanced logistics services. Nevertheless, you see that in Asia is taking a middle spot and the ranking when it comes to transit times and ecommerce logistics KPIs. So therefore, I think you can see despite the challenging environment, Indonesia is doing a very good job in building this infrastructure. If you look at the latest World Bank statistics, you can see that Indonesia jumped 20 points to rank number 46 when it comes to logistics infrastructure, which is an enormous improvement, and you can see that  many more consumers in Indonesia will have access to high performance ecommerce logistics infrastructure very soon.


ALAN: What are the unique challenges that e-commerce logistics faces in Indonesia relative to other markets?


ARNE: If you look at the logistics markets in general, you can say that Indonesia has one of the highest relative logistics costs in the world. About 25 to 30% of the GDP in Indonesia goes to logistics expenditures. In other countries, it's only 5% and sometimes even less. So this  results in longer holding times for freight and parcels, not so reliable processes, longer transit time, and of course, more time spent on the roads, transporting goods from A to B. Nevertheless, what we can see is that in the bigger cities, the logistics experience in Indonesia is not any worse than other big cities across Southeast Asia. Therefore, we can see that Indonesia is very on a very good path to get to the same levels as other countries. The one big difference that we still see is that a lot of the deliveries and ecommerce logistics are still to-door deliveries. And there Indonesia is lagging behind other markets, where the likes of collection points and parcel lockers are a lot more prevalent at the moment already. But nevertheless, you see a lot of carriers even here in Indonesia investing in this infrastructure, which will eventually also add to the customer experience that Indonesian  consumers will get in the future.


ALAN: Any observations about cross-border logistics that you can share with us? How, for instance, have average delivery times have trended for cross-border e-commerce since the beginning of the pandemic?


ARNE: Well, to answer this question, the most important is, first of all to understand how the pandemic is impacting logistics processes overall, because logistics itself is  relying on processes their repeatability and reliability. The pandemic resulted in tremendous shockwaves upsetting a well oiled logistics machine around the world. A lot of flights and linehauls were cancelled, were rescheduled, borders were closed. There were increased checkpoints at customs. And throughout the process, I think key also is that there were high levels of staff sickness in the logistics companies because, not people just getting infected but also, they are staying home even with minor illnesses, or they just wanted to be preventative in not exposing themselves to the virus. With that there was a huge upsetting in the logistic setup across the world, and therefore also in Indonesia. So this resulted in increased transit times for a lot of parcels, mostly on the international level. So the worst one that got affected were the international postal delivery routes where the deliveries sometimes got delayed by weeks. So some countries had  customs clearance delays of two to three weeks that they had to fight, only now getting close to getting rid of their backlog. So this probably affected international deliveries into Indonesia to a similar extent. But I think what we are seeing is those delivery times are going back to where they were prior to the crisis over the last few weeks. But to note, one thing that we also realized that players who had their own infrastructure for example, their own airline, their own trucks, have navigated the crisis relatively well, with transit times being only minimally affected even through the worst parts of the crisis towards the end of March in between ending of April.


ALAN: There seems to be a steady drumbeat of new logistics business models being introduced into Indonesia. What transformative models have you seen arrive in the market over the past year or two?


ARNE: Logistics is following similar rules across the world therefore a lot of the innovations that we see are probably also visible in other markets. What we have seen recently in Indonesia are models like same day delivery options that get introduced and offer a very new service dimension for users. So examples for those of course Gojek, LalaMove for companies like Paxel in the market. Another dimension where innovation is happening is on the underlying infrastructure level. When it comes to trucks or warehouses, existing infrastructure is thought to be better used by establishing marketplaces for underused capacity. When it comes to road freight, there's for example Kargo, when it comes to warehouses there's for example, Waresix. This gives the everyone a better opportunity to optimize logistics setups and to save costs along the way. Another point, which I mentioned earlier, is lockers and delivery points or collection points for ecommerce logistics. We have seen across the world that those delivery options are appreciated by consumers because not everyone is at home or wants to deal with every delivery individually. These options have been introduced by a lot of players now across the market. Although Indonesia is still in its infancy, we expect that to be an upward trend in the future. And of course, there are a lot of parcel carriers that are seizing the opportunity right now. You see that the e-commerce volumes growing tremendously, and everyone seeks to profit from the opportunity. So you see a lot of players entering the market, extending their networks and, for any industry with very low entry barriers and such a tremendous growth, you will see a lot more players entering the space going forward.


ALAN: Any interesting color as to how the logistics experience is evolving for the online merchant?


ARNE: Sure, no problem. I think when we look at the logistics experience, we usually look at it from three dimensions: 1) speed, 2) cost and 3) the experience itself. If you look at speed, we already talked about the transit times that parcels take in order to get to the consumers. We already see that almost the majority of the parcels are being delivered in the bigger cities reach their end customers the next day. This is a great achievement. Because when I started looking at ecommerce in Indonesia in 2012, this was for sure not the case. So over the next years, we expect those delivery times to get faster and faster. Again, because the players are investing in  scheduled linehauls, higher capacity sorting centres, better route planning, and everything it takes to make the logistics processes more seamless for the customer.


ALAN: What about the consumer? What changes has he/she seen of recent, and what can we expect going forward?


ARNE: At the same time, cost advantages come into play because the volume is growing and the players are operating at a higher scale. They can let their customers, namely the merchants, benefit from these cost advantages. So you see that more and more merchants offer free delivery across the board to all consumers, and therefore the consumers benefit from this, and are even more compelled to make more orders online. Lastly, from the experience point of view we look at what the consumer is essentially receiving as a service. A key element there is visibility and tracking. Customers want to know where the processes are, what's happening to them, when can they be expected at their doorstep, and they want to get to the level where they can also influence the journey along the way. So that means they can reschedule, redirect and interact with the carriers to make sure that the delivery fits into their lifestyle and they don't have to fit the lifestyle to the delivery. And lastly, coming back to the collection point: this offers a very new dimension for consumers. They can pick up their parcels in their own time. If you look at markets like Singapore, we have more than 35% of the deliveries actually going to connection points, which makes the delivery process even more cost effective, and adds another level of convenience for the consumer. So from that perspective, I think those are the trends that we will likely see in Indonesia over the next few years to intensify, delivering a much, much better logistics experience over time.


ALAN: The Indonesian Logistics Association (ALI) reported that logistics volume has been down 60 to 70 percent across the board since early March due to the emergency measures taken by the government to prevent COVID-19 transmission.…sorry, but I have to return to the “P” question: what has the pandemic done to the state of Indonesia’s e-commerce logistics market?


ARNE: But the good news is that ecommerce logistics was not as hit hard as the average logistics company because B2B businesses were more severely affected. Nevertheless, February and March have been hard for most of the players when it comes to the effects of the pandemic,. What we have seen is that across the world, in our customer portfolio, we've seen the volume in February lagging behind about 20% compared to last year, and in March, about 10%. This indicates that even the ecommerce industry, who's believed to be benefiting from the effects of the pandemic, was hit hard. This is usually explained by a few of the complexities that ecommerce was exposed to during the pandemic. The first one is a lot of ecommerce companies or ecommerce sellers also operate offline businesses. Offline businesses were hit very hard, and therefore the offline online business wasn't able to fully compensate for the losses the companies made in the offline world. Therefore they had a lot of challenges to deal with, like layoffs, etc. The second very important element is an inventory mismatch. That means what was bought before the pandemic is not what is bought during the pandemic. So a lot of companies have different categories in their inventory, than the ones that were high in demand after the virus. The last two elements are the logistics set-up and the logistics productivity. With a lot of infections coming into the logistics warehouses and operations, the productivity has gone down tremendously. And a lot of the logistics processes don't support social distancing measures that were required during this time. So even though you could expect that ecommerce logistics would benefit from this, February/March has been a tough time for the industry. But what we are seeing now is that, during April, things are turning around incredibly across the world, and similarly in Indonesia. So the ecommerce players now have figured out how to handle these situations. They have new supplies of products that are high in demand right now. We see that from April onwards, ecommerce will be on a very incredible growth spurt, benefiting from a shift in consumer behavior that is induced by the pandemic.


ALAN: looking at China logistics earlier in this year, the pandemic seems to have catalyzed some massive competitive shifts amongst its largest 3PL’s. SF Express February revenue rose 77.3% year-on-year; and business volume was up 118.89% year-on-year. Meanwhile, YTO revenue in February fell 35.69%;  Yunda was down  13.41%; and Shentong declined 37.26%. Are you seeing any similar structural shifts in Indonesia during this period, either amongst players or modes of operation?


ARNIE: I wouldn't expect that. If you look at China, the virus impact was very regionally concentrated around Wuhan and Hubei. And if you look at the logistics industry in China, the players that you mentioned have very specific geographical exposures. All of them serve nationwide, but their respective market shares in the parts of the countries differ. With this, you could see that the virus had a very differential impact on the players, as shown by the numbers that you just presented. Looking at Indonesia and most other countries, the impact of the viruses as more widespread. We also don't have these regional pockets where certain players are particularly strong or weak. So I don't expect any major shifts in the competitive dynamics. Most importantly, because most of the merchants are keeping the carrier mixes quite constant these days. We haven't seen any big changes in the way carriers are used across our customer base. So therefore, I would say the competitive dynamics won't change much.


ALAN: More broadly speaking, how do you see the eco-system recovering going forward?


ARNE: First of all, I wouldn't call it a recovery because recovery, to some extent, implies it goes back to where we were. I think this pandemic will create a new normal that is much talked about these days. Most of the players are already setting themselves up to be successful in this new normal. and seize the opportunity. One of the things that most of the merchants putting all their efforts now are growth, and developing new markets, and being able to serve as many of the orders as they can at the moment. So the supply chains are now set up to handle the volumes. People are able to operate with social distancing, which is likely going to be around for for a longer time. They've set up different shifts in the warehouses, they made sure that their sorting processes work differently. So there's a lot of changes happening. Most importantly, the consumers are getting used to the new normal. They're ordering things online that they wouldn't have thought of ordering before the crisis. It's very hard to assume that they will forget about this after the crisis and go back to the patterns that they had before. We're likely going to see is unprecedented growth for e-commerce. There's a hardly any possibility that we will go back to where we were. We're very optimistic that starting from Q2, ecommerce will will be a very, very interesting industry to look at, for investors and consumers or anyone that seeks to seize the opportunities from this.


ALAN: What advice might you give to a merchant who seeks to go on-line in Indonesia?


ARNE: You better hurry. Indonesian ecommerce has has grown tremendously over time. I remember, when we started in 2012, the market was a highly supply-constrained. So if you were the first guy who could sell a black t-shirt online at that time, you literally could capture most of the orders. The times have changed tremendously. You can buy almost everything online, maybe except for some international luxury item. Literally everything is available. If you are a merchant, and you don't have an absolutely unique product, you will see a market environment which is already quite competitive. That doesn't mean that there aren't opportunities, because the market is still growing by double-digit percentages year-over-year. Therefore, you should make sure that you enter the market soon. and seize the opportunity because Indonesia, as you mentioned earlier, is the biggest market in Southeast Asia and has tremendous opportunities to grow for anyone who's part of it.


ALAN: Do you view basic digital literacy amongst merchants as a bottleneck to further expansion in Indonesian e-commerce?


ARNE: This actually goes back to the points I made earlier. We are moving away from from a supply-constrained ecommerce market where there are very few items available online. Every additional item coming online will enhance the market. There are so many products available online across multiple marketplaces. From that perspective, we believe that literacy of the merchants may not be a factor that's holding back ecommerce in Indonesia. We believe that this is more a consumer-driven exercise. The more consumers get used to the fact that they can buy things online, they change their lifestyles, tospend more time online and buy more things online. That will be the biggest driver behind the growth of e commerce in Indonesia in the future. That goes back to the fact thatwe have this new normal people are now were forced over a few weeks and months now to live in this world where e commerce is the vital way to get get products into their houses. We imagine that they won't go back to this.


ALAN: Well, this concludes our maiden podcast of IndoTekno. Thanks so much for joining us today, Arne.


We hope you, the listener, have enjoyed the episode. We welcome any constructive criticism, ideas for speakers, topics you feel that the world needs to know about, and any and all other feedback on the show. My email is Alan@gizmo-advisors.com.


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The podcast was translated from English to Bahasa Indonesia by Alpha JWC Ventures.