Logistics Companies taking the long view at Myanmar
Logistics companies are increasingly entering Myanmar, driven by the opportunities in the emergent economy. In the last ten months international firms like CEVA Logistics, Phee Group, Bok Seng, and Tiong Nam Logistics have opened Myanmar offices providing a full range of services to local and international firms. Others including Australia’s Linfox are eyeing the market and local players are looking around for international partners, like agribusiness group MAPCO, who recently announced plans to collaborate with DHL.
With exports on the rise, and a strong need for imports across almost every sector of the economy, logistics companies sense an opportunity to capitalize in Myanmar. Optimism is however tempered with a strong dose of the realities of doing business in Myanmar and the current challenges that the infrastructure presents to transport.
Sustained attention from global companies is relatively new, but Myanmar has seen international logistics firms and a host of local small-scale operators for years. Local operators often use the ‘gate’ system, with a ‘gate’ in each major city comprised of drivers focused on a specific route.
Companies that have long operated in the sector were previously served mainly by 12-wheel trucks, which were often right hand drive vehicles (the wrong side for Myanmar) imported from Japan. When the government began loosening import restrictions in 2011,
operators began bringing in 22-wheel trucks that are increasingly becoming the standard, but the industry is still dominated by 4-axle 12 wheel trucks. The smaller, 12 wheel trucks, are more reliable in low grade infrastructure – especially in the country’s mountainous periphery.
The range of vehicles, routes, and the fragmented nature of the market makes collecting reliable data on logistics costs across the country difficult. However, industry estimates are that the Yangon to Mandalay route accounts for between 60% and 70% of all trucking. Focusing on that key 680 km route allows an analysis of cost changes over time and regional comparisons.
|Standard 10-Wheel Truck in Myanmar:
Source: Kargo Logistics
Source: Tractus Research
Increased competition in the Myanmar market , which has come from entrants like Kargo, a Yangon based startup that aims to lower logistics costs across Myanmar by providing an app that allows local truckers to bid directly for shipping contracts, and other firms has led to a decrease in costs along Myanmar’s most traveled route from 2010 to present. Cheaper fuel has also played a major factor, as well as using larger trucks when assessing the decreased costs over the seven-year period.
At $20/ton, Myanmar has some of the lower rates in the ASEAN region making it an attractive opportunity for global firms. By comparison, according to independent Tractus research, the average dollar per ton cost in Thailand on the 690km Bangkok – Chiang Mai route is $27/ton. And in Vietnam, the per ton cost for the 670km Long An – Binh Dinh route is $29/ton. The US$/ton – kilometer freight rate for the Myanmar journey works out at 2.9 cents, compared to 3.9 cents for the Thai route and 4.4 cents for Long An- Binh Dinh. All costs assume an empty return trip, which is more common than not across the three countries, and especially the case in Myanmar.
Source: Tractus Research
Companies in Myanmar face additional costs that impact their business beyond those in neighboring countries.
A big problem here is there are few timely backhauls which allow for maximizing productivity from vehicles,” says John Hamilton, Myanmar country manager for CEA Project Logistics.
Time and tolls are two issues that companies face across roads throughout Myanmar. “Myanmar operators typically take up to 1.5 days to make the first leg of their Yangon to Mandalay journey”, according to George Oliver, chief business officer at Kargo. The reason is that Myanmar truckers are banned from a newer, faster and shorter expressway between the two cities, which increases cost and time. The average duration of a trip from Yangon to Mandalay will take a driver 4 days. Operators in Thailand can make an equivalent return journey in a single day. Trips to other destinations in Myanmar with poorer infrastructure take even longer.
Myanmar tolls also eat into operators profits, although they are typically included in the overall cost they charge for services. The Myanmar Highway Freight Transportation Services Association says that a 4-axle truck incurs around $70 in toll fees during the Yangon to Mandalay haul. Hamilton says heavy loads also incur heavier charges in Myanmar than in Thailand.
“It’s a drag on costs,” he says.
Costs on other routes in Myanmar are considerably more expensive than Yangon – Mandalay, however. An ADB study based on 2014 data found that although the Yangon – Mandalay freight rates were low by international standards, the US cent/ton-km rate was 70% higher for the Yangon to Myawaddy route and more than twice as high from Mandalay to Muse– two important routes for cross border trade with Thailand and China respectively.
But there are signs of progress. The government is well aware its toll road system is impractical and in need of reform. The authorities are also planning to allow trucks on the Yangon to Mandalay expressway and build a network of new arterial roads. Meanwhile, the entry of foreign fuel providers is keeping fuel costs down and plans to promote the import of newer better-quality vehicles will ultimately help the industry. As the Myanmar Government initiates reforms and country-wide infrastructure plans begin to take shape, the early entrants to the logistics sector stand to capitalize.
About Tractus Asia
Tractus Asia Limited is an Asia-based foreign direct investment strategy and execution advisory firm with offices in Shanghai, Hong Kong, Chennai, Jakarta, Yangon, Singapore, Bangkok, and Ho Chi Minh City. Tractus advises corporations in developing effective market entry strategies and assists them throughout the execution process, including site selection, real estate transactions and investment incentives negotiations to corporate establishment and start-up management. For more information about Tractus Asia, visit www.tractus-asia.com and follow us on LinkedIn.