Amid troubles in global courier services, a Malaysian giant arises

GD Express Carrier Bhd - from a company that was financial haemorrhaging, to a Malaysian giant. PHOTO: Vanitha Nadaraj

By Vanitha Nadaraj

Teong Teck Lean is a name you will want to remember. He is now the 44th richest man in Malaysia with a net worth of US$235 million, one spot ahead of AirAsia’s Tony Fernandes. All because he turned around an ailing courier company into a quiet Malaysian giant that is now flexing its muscles in other Southeast Asian countries.

Teong took over the then two-year-old GD Express Carrier Bhd (GDex) that was on its deathbed due to massive financial haemorrhaging at the end of 1999. He turned it around and had it successfully listed on the Bursa Malaysia’s main board, within a space of 13 years. Teong is its managing director and group chief executive officer.

GDex now has a 15% market share, growing at a three-year compound annual rate of 28%. GDex is second to Pos Laju ,which has 23% market share. Pos Laju is Malaysia’s oldest and most established courier service provider.

In terms of market capitalisation, GDex is the largest at RM2.28 billion (US$550 million), while national postal company Pos Malaysia Bhd, the owner of Pos Laju, is second at RM1.12 billion (US$227 million).

GDex saw a growth spurt from 2011 to 2015. Its revenue doubled in those five years, and profits grew by more than four times. A chunk of its revenue, about 80%, was from conventional business-to-business segment, and the rest was from its e-commerce business.

Tough business

Courier service is not the easiest of businesses, because the profit margins can be low, if profits are to be seen at all. Even the big players in that market are struggling. Last year, UPS posted a profit of slightly more than 7% while FedEx suffered a loss of about 7%. The major global players in the industry are likely to see a plateau in their growth.

Amazon found out the hard way. It was doing perfectly well in its e-commerce business, charting bigger sales volume, but trouble started when it got into the delivery business. Their investments into technology, transportation and warehousing to ship millions of packages wiped out their e-commerce profits. They are now looking in disbelief at their losses of US$57 million.

Enter e-commerce

Locally, however, things may be easier for both international and domestic service providers, because of the potential e-commerce holds for the industry. It will probably do what the telephone did for the radio industry – phone-in programmes in the late 1990s gave radio the lifeline it needed.

Malaysia’s e-commerce market has the potential to grow as much as five-fold. The present penetration rate is less than 1% and can grow as much as the present penetration rate for Singapore, which is at 4 to 5%.

However, e-commerce business may not be all that hunky-dory for the local courier industry. The need to sell products at lower-than-retail prices will push e-commerce merchants look for the cheapest deals in delivery, triggering a business scuffle among local courier companies.

Then there are hidden costs that the courier company would have to bear. Delivery will have to be handed to the recipient and cannot be left at the door or the gate, unlike in US or Europe, because there are more incidences of thefts in Malaysia. This could mean making more than one trip to the address to make sure the recipient or consignee is at hand to receive the shipment.

The e-commerce business segment is still small in Malaysia, but once it grows and becomes a huge component in local courier companies, then the profits will not be as huge as anticipated.

Which is probably why GDex is expanding regionally.

Regional expansion

Recently, GDex signed a deal with state-owned PT Pos Indonesia allowing the Malaysian company to tap into PT Pos Indonesia’s extensive network of more than 24,000 service points. The Indonesian company provides full coverage in big cities, almost full coverage in suburban areas, and 42 percent coverage in rural and remote areas in Indonesia.

This seals GDex as a regional e-commerce player and will be sharing infrastructure, processes and network with one of the largest postal companies in the region.

The Indonesian deal came one week after GDex signed a tie-up with Japan’s largest door-to-door delivery service company, Yamato Asia Pte Ltd. This company now owns 23% of GDex, further diluting Singapore Post Ltd’s (Singpost) share in GDex to 11.2% and Teong ‘s to 36.17%.

Yamato’s entry is a strong sign that the e-commerce market growth is going to hugely benefit GDex. Something which SingPost already knew earlier.

A report by Hong Leong IB Research says: “SingPost (proxy to Alibaba) and Yamato (proxy to Rakuten) are expected to boost GDex’s business volumes, given the feed-in business from these partners and expanded connectivity and solutions for local clients.”

Reseller easyParcel also expands regionally

Resellers are those who help remove the hassle in documentation and picking up when using courier service. They also allow small players to enjoy discounts without the need to place deposits and adhere to other requirements. Resellers, to many e-commerce merchants, are God-sent.

Malaysian start-up easyParcel was the first web-based courier delivery platform and e-commerce shipping solution provider in Southeast Asia. It allows users, from a micro-enterprise through to large e-commerce players, to check for delivery rates and book for delivery services from multiple courier companies in Malaysia.

In one and a half years, the company was able to go from zero to RM35 million (US$8.6 million) in valuation and entirely through organic growth. Its subscriber base is at least 45,000 and it has recorded more than one million deliveries up until January 2016.

easyParcel started in June 2014 and the young company is now planning to move into Singapore and Thailand, easyParcel CEO Clarence Leong tells ASEAN Today. “We decided to expand our business from only doing domestic deliveries to cross border ones,” he adds.

What resellers like easyParcel do is opening to a lot of small players like e-commerce merchants and allowing them to use the services of both local and international courier companies. Resellers are facilitating small businesses to get onto the e-commerce game in a way they would not have been able to.

Road to China

About 10 years ago, delivery service provider TnT introduced its Asia Road Network into China, where delivery is done via land and not air or sea. This network connects China to more than 125 cities across 5,000 km in Vietnam, Thailand, Singapore, Malaysia, and Laos.

With regional trade and ASEAN trade with China increasing over the years, land connectivity is becoming more important. The ASEAN Economic Community and its goals to make the movement of goods free within the region will make the land route to China even more well-positioned.

GDex’s expansion plan is one of the many developments in the courier and delivery industry in Southeast Asia, but it certainly created a lot of excitement in Malaysia.