Last mile logistics in Indonesia with J&T and Exaq: two potential disruptors

J&T is going a route that’s heavy on physical retail stores, Exaq, which is just starting out, has a more radical vision.

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Last mile logistics in Indonesia with J&T and Exaq: two potential disruptors

Last mile delivery is a tricky business in Indonesia. How do you make sure a package arrives at someone’s private address, when they might be living on an island on the other side of the archipelago, infrastructure is unreliable, and street names and house numbers are jumbled?

The advent of e-commerce only made the problem worse. Traditional logistics companies, like the state-owned post, weren’t well-equipped to handle the many small packages for individual recipients which come in at high frequency. And they also weren’t used to offering the non-stop, 24-hour service customers expect today.

KrASIA spoke to two executives from local logistics firms who believe they have a chance to profit from the underserved and growing opportunity of e-commerce deliveries — and capture that massive business before incumbents can really adjust to the new demands.

One of them is Robin Lo, the CEO J&T Express, a three-year-old company that has scaled rapidly. Its pick-up and drop-off points can now be found all over the archipelago. Lo was previously the general manager of Chinese smartphone maker Oppo in Indonesia. The firm last year claimed it’s already valued at over US$ 500 million, after taking on US$ 100 million in funding.

The other is Thalhah Fakhrizal, COO of Exaq, an early stage venture founded by former executives from Indosat Ooredoo and FedEx, who fundamentally believe in an asset-light, decentralized approach to logistics.

The following excerpts have been edited for clarity and brevity.

J&T Express

KrASIAWhat was the market opportunity you saw when you launched J&T?

Lo: The peak season for every business in Indonesia is during Lebaran (Indonesia’s biggest national holiday), however business owners could not ship their products to the customer as all shipping companies in Indonesia close for operations for up to two weeks during the season. This led us to build J&T Express, operating 365 days a year to serve the different needs of our customers. Of course, the high growth rate of Indonesia’s online businesses is another strong reason to start J&T too.

KrASIAWhat are the key differentiators to incumbents like JNE and Tiki?

Lo: We offer a 24 hours hotline customer care, free pick-up services, 365 days operational hours, easy real-time tracking and nationwide coverage. J&T is the first Indonesia Express company who focus on the online business. Currently, around 60% of J&T’s business comes from e-commerce.

KrASIAWhat did J&T learn from Oppo that’s applicable to the logistics business?

Lo: The business strategy is different between the two industries but the experiences help in terms of people management and the network that we initially had with Oppo around the nation.

KrASIAAt what stages in the delivery process does tech play the largest part? Can you describe the journey of a package from a sender to a recipient?

Lo: Internal and external integration and information update throughout nationwide.
Sender > Drop off Points (J&T Branch) > origin Gateway (Processing center) > destined gateway (Processing center) > destined points (J&T Branch) > Receiver.

KrASIA: How did J&T overcome some of the challenges in Indonesia, like unclear address, bad infrastructure?

Lo: By providing proper training to all our recruits making sure they are ready from the first day of work and improve the efficiency of individuals.

KrASIA: Other than Shopee, which e-commerce platforms already work with J&T? What does your collaboration with Shopee look like?

Lo: J&T collaborates with many e-commerce platforms. Shopee, Tokopedia and Bukalapak are among the big ones. It is a win-win solution where we provide better services to platforms and thus more customers are willing to shop from the platforms.

KrASIA: How is J&T funded at the moment? Is J&T financially supported by Oppo?

Lo: No, we are not financially supported by Oppo. We are two independent entities and J&T is privately funded.

KrASIA: How large is your fleet? Does J&T own the entire fleet, or does it work with subcontractors?

Lo: J&T owns our entire fleet of 18,000 motorbikes and 1300 vehicles. We have more than 4,000 drop points and collection points all around Indonesia.

KrASIA: Is an expansion across Southeast Asia in the cards, or will you stay in Indonesia first?

Lo: J&T Express has started in Malaysia and Vietnam from July 2018, and is working to set up our team in the Philippines and Thailand to launch by the end of 2018. We currently only facilitate domestic shipments within each country.

Exaq

KrASIA:  What’s the market opportunity you saw when you started Exaq?

Fakhrizal: Last mile delivery in Indonesia (which includes Tiki, JNE and J&T) is modelled after FedEx international. This doesn’t work for high-frequency domestic deliveries in Indonesia. The international delivery volume is much lower than domestic volume, so the process must be a mass process and scalable.

KrASIAWhat’s the solution?

Fakhrizal: Our plan is to make the entire chain super asset light, relying on smart routing through tech. It’s similar to Go-Send but with multiple transfer nodes. The process outsources some of the labour to the sender. (Go-Send is the parcel delivery service of Indonesia’s biggest on-demand app, Go-Jek).

This is a simplified explanation of how it works:

Each time a package is prepared to be sent out, the seller inputs the recipient’s address and contact, and prints it out and sticks that label on the package. The label will have a QR code and the seller’s shop logo. This happens if the sender uses the Exaq website. If the sender uses Exaq’s mobile app, printing the label is unnecessary.

An Exaq courier partner picks up parcels at a sender’s address at a scheduled time, then brings it to a sorting station in the same city. Another Exaq partner scans, sorts package into a bucket for the city its going to, then a trucker picks it up, scans it, brings it to that city’s sorting station, where a courier partner picks it up and brings to the recipient’s address. In the future, intercity trucking companies will bid for the job, to ensure competitive prices.

There are separate apps for each group of partner stakeholders (seller/courier/trucker) and the sorting stations are not operated by Exaq. The goal here is to be asset light, by signing up companies with empty storage space.

KrASIAWhat are some other points that incumbents still miss about logistics for e-commerce and that you are trying to solve?

Fakhrizal:  For example scalable Cash on Delivery. We resolve the issue of how to control the money and the courier. We do this with an e-wallet. The courier’s app has an e-wallet function. When he receives the cash payment from the recipient the courier has one day to top-up the wallet with the right amount. If a courier fails to top up the wallet there will be a penalty. We don’t need a license for now, it’s a closed loop system.

Exaq’s process also provides reverse logistics that helps e-commerce sellers map the return delivery route based on the original/initial delivery route. The return delivery price is much lower. This could help sellers and buyers do business like Ssalestock or Amazon, where you choose and pay for the items you like from one delivery, and return the others. This is needed for fashion and shoes because of size and colour preferences.

Parcel tracking can also be innovated. Incumbents still require you to input the tracking number. We will make that tracking method become obsolete. Customers don’t need to input a number to track the delivery because all of the status updates are pushed to the app. That’s more convenient for high volume deliveries.

On top of that, we have a control menu, not just for tracking. ‘Control’ means the customer can do something when the package still in the delivery process, such as change the delivery address to the nearest Exaq drop-off point instead of the home address, for example, if the recipient needs to suddenly go out and prefers to pick it up later. There’s also a chat menu within the Exaq app for customers to communicate.

KrASIAWhy aren’t the incumbents swiftly adapting to these new opportunities?

Fakhrizal:  JNE, even J&T, have invested so much in shopfronts and people. Now it’s hard to go leaner, they would need to let go many people. According to McKinsey, the logistics sector is not as agile as other sectors. We believe there’s room for disruption.

Editor: Ben Jiang