ASEAN Supply Chain - What do we need?

ASEAN Economic Community (AEC) aims to create a single market and production base for 10 countries - Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The core principles of the ASEAN single market and production base are: (1) Free flow of goods, (2) Free flow of services, (3) Free flow of investment, (4) Free flow of capital, and (5) Free flow of skilled labor.

Better logistics connectivity - within states as well as between countries in ASEAN - will boost the region’s value chain and economy. The logistics in ASEAN is a mixed bags with a world class performer like Singapore (which is the Top 5 in the world in 2016 as per Logistics Performance Index (LPI) report by the World Bank Group) and emerging new comer like Myanmar and Cambodia.

Logistics and supply chain industry are critical for the future growth of AEC. Infrastructure, which is very important in assuring connectivity and access to gateways for countries, is still a big challenge in ASEAN.

Indonesia, the largest economy in the AEC, spends 26% of its GDP on logistics, one of the highest rates of spending on logistics per capita in the world. In the meantime, there are major commodity price gaps between provinces in Indonesia and major logistics inefficiencies that hamper economic development and connectivity. Thailand, despite offering easy access to Cambodia, Vietnam and Laos, still spends almost 20% of its GDP on logistics.

The biggest logistic challenge in most ASEAN countries is the total cost of getting products from manufacturers to consumers. Limited facilities and inefficiencies at the ports often resulted in slow products flow. Then, it get worse with the congested traffic in major cities and poor rural roads that often can only be used by small vehicles with high operating cost.

ASEAN governments have indeed focus on policy development and revamping the long-neglected infrastructure. Asian Development Bank (ADB) estimated that ASEAN requires an annual infrastructure investment of $60 billion to 2020, with more than 62% allocated for the development of the transport and energy sectors.

However, improving infrastructure alone will not be sufficient to help ASEAN countries to improve their logistics to boost growth and competitiveness. In Indonesia, Thailand, and several other ASEAN countries, it is crucial for organizations and companies to improve their workforce competencies, to streamline processes, and adopt new technologies to support more efficient and effective supply chain management.