Challenge ahead to maximise benefits from trade liberalisation

Once AFTA is fully implemented, logistics activities should increase in correlation with growing intra-Asean trade.

What the government wants to do is bring down as low as possible logistics costs, say from 19.8 per cent of gross domestic product in 2005 to 16 per cent in 2011, as targeted by the National Economic and Social Development Board.

The forecast was part of the country's 2007-2011 strategic development plan for logistics.

Though the government plans to spend Bt300 billion on logistics development in the next five years, one-third of that is optimistically focused on the railway system across the country.

Many logistics firms want the government to do more.

"Thailand should not be just a 'transit' hub in the region, which builds many rugged roads and leaves a lot of pollution behind," says Chumpol Saichuer, chairman of Thai Logistics Alliance.

The strategic plan positions Thailand as a "logistics" hub to serve the increasing demand for trade among Asean, considered the fastest-growing region in the world.

Therefore, the government should do something more in parallel with building infrastructure to create a larger share of the country's logistics income, he said.

Meanwhile, China has a clear-cut policy for trade and investment in Asean, and all of its transport routes in Asean head here, he said.

The local logistics industry was worth Bt300 billion in 2007, increasing from Bt231 billion in 2005.

Market liberalisation was the talk-of-the-town last year, especially among small and medium-sized logistics firms.

"Market liberalisation will still be the hottest topic among logistics firms this year," Chumpol said.

Logistics firms would be polarised into two major groups - large and small, he said. Those categorised in the large group - such as Siam Cement Group, AA and Berli Jucker - will normally deliver their own products.

The small firms will be outsourced by larger logistics service providers (LSPs), he said.

Typically, out of the country's 16,913 logistics firms, 80 per cent are SMEs.

SMEs suffered badly from the global financial crisis last year as world trade volume slumped by 30-40 per cent.

However, they were kept afloat by the government with Bt3 billion in liquidity loans over five years.

Over the past two years, some logistics SMEs have gone out of business while a lot more have been merged into larger firms, Assoc Prof Ruth Banomyong said.

"Two things are expected to happen starting in 2010, which is the year that logistics firms are allowed to have foreign shareholdings of up to 51 per cent, and more in 2015," he said.

First, giant international LSPs, which hide behind their Thai nominees, will show their true colours.

Second, the market will be tougher, given a wider range of customised services.

"To the present time, the government does not understand what the logistics business is. Therefore, the plan it's proceeding with is not really right," he said.

Jarupat Tantimit, vice president of the Thai Licensed Customs Brokers Association, said about 80 per cent of the more than 200 members of the association had not already closed nor were inactive, due mainly to the entrance of multinational logistics firms.

Aat Pisanwanich, director of the Centre for International Trade Studies, said logistics costs were estimated to reach 21 per cent in 2014 if the government does not fully develop the system.

The key factor for LSPs remains the rising trend of oil prices, which are likely to reach US$100 (Bt3,290) per barrel from $80 currently.

"If local LSPs can't lower their costs, such as for warehouse and storage management, they will lose their footprint in the market to other country rivals, especially Singapore and Malaysia," he said.

Thailand carries a much higher logistics cost of 18.9 per cent in 2007, compared with 8.7 per cent for the US and 8.3 per cent for Japan.

Looking into details, he said Thailand was found to have much higher inventory carrying costs at 8.5 per cent than Japan at 2.5 per cent and the US at 2.8 per cent.

Inventory management cost is no exception, with Thailand at 1.7 per cent versus Japan and the US at 0.4 per cent and 0.3 per cent.

Local LSPs have not realised any benefit from the single market to be created by the Asean Economic Community (AEC) as yet, even though the logistics industry kicks off liberalisation this year, he said.

Under the AEC framework agreement, Thai LSPs are allowed to have foreign shareholding of up to 51 per cent starting this year and 70 per cent in 2015.

Techa Boonyachai, vice chairman of the Thai National Shippers' Council, said Thailand needed the quick integration of each government agency to develop the country's logistics system more efficiently over the next five years.

Many places, including Hong Kong, China, and Japan, agree that Thailand's logistics have developed slowly, due mainly to the inefficient collaboration between government agencies and the private sector.

"This is the main challenge for Thailand. Before the implementation of the Asean Economic Community in 2015, we have to solve this problem quickly and speed up connecting the country's logistics with other countries under the regional framework," he said.