Industry could be facing a foreign takeover

No Thai-owned firms are ranked in the top 10 logistics-service providers in the Kingdom by asset size, meaning that the country might lose its footprint in this market to foreigners, in much the same way as the retail business has done.

Out of 15,000 companies providing logistics services in Thailand, 15 per cent are majority-owned by foreigners. These firms generate nearly 70 per cent of the logistics-market value, according to Pongchai Athikomrattanakul, director of the Centre for Logistics Excellence.

He said the activities of most of the 85 biggest majority Thai-owned logistics companies were concentrated in customs clearance, land transportation and freight forwarding, in all of which the market is small and highly competitive.

Thailand's logistics-market value for 2008 is expected to be about Bt800 billion, amounting to 10 per cent of the country's economy. Though following the tourism industry at 15 per cent, the figure for the logistics sector is larger than those for textiles, furniture and toys.

These data are included in a recent study of the Thai logistics business, supported by the National Economic and Social Development Board.

"The Thai logistics industry is threatened not only by the invasion of giant international providers, but also by the state's lack of understanding of the industry," said Pongchai.He said the top 25 world-class logistics-service providers by assets have been in the Thai market for a number of years.

He added that the world's leading truck owner is conducting a feasibility study on the potential of providing land transportation services in Thailand.

"Interestingly, logistics service providers from the US and the EU have entered into the country's logistics market over the past five years," said Pongchai, adding that they have also expanded their networks by branching out, not by forming joint ventures.

Citing the official study, he explained that the government had neglected the logistics industry for a long time, causing Thai-owned firms to lose their competitiveness.

He said the government was working with only a "rough breakdown" in its understanding of the logistics business. The government has segmented the business into 16 categories, compared to 30-40 categories in developed countries.

"This means the country is at a disadvantage in negotiating free-trade pacts with other countries. If we segment the business into many modes, we will have more choices to save or open any of them more cautiously," said Pongchai. In the meantime, the government would be able to develop the logistics sector by category more precisely.

Customs clearance and freight-forwarding services are disadvantaged by taxes compared to other countries. Logistics providers are interpreted as brokers, meaning they are levied the 7-per-cent value-added tax on service charges. There is no VAT on these services in Singapore and Hong Kong.

Other modes such as transportation by truck are levied only 3 per cent on the services.

Pongchai suggested that Thai logistics-service providers should pay more attention to preparation than in the past. "Otherwise, we will lose our logistics business to foreigners, as the retail business has."