|Thailand as ASEAN Logistics Hub: Possibilities and Challenges|
|Written by Deepak Mohan|
The logistics industry in Thailand has been neglected for a long time as the
country, like several of its ASEAN neighbors, has been affected with issues such as
infrastructure and the lack of awareness about good logistics practices.
However, the environment is rapidly changing due to transformation in both the economy and infrastructure. The Thai economy has recovered after the crisis in 1997 and is experiencing a healthy growth. The country has also become a preferred destination for many multinationals especially major automotive companies, to set up their manufacturing base. Also, exports from key sectors like automotive, electronics, textiles and furniture are on the rise.
Improving conditions coupled with Government's support resulted in the development of major infrastructure projects to support logistics. Both the Government and logistics sector are working together to make Thailand as the logistics hub in the ASEAN region.
Opportunities for Thailand as ASEAN Logistics Hub
Thailand has a unique advantage because of its geographical location. It provides easy accessibility to all major ports in the vicinity, including Japan, China and India as well as emerging economies like Cambodia, Vietnam and Laos. Thailand has also committed to the South Asia Free Trade Agreement (SAFTA) and the Indo-Thai Free Trade Agreement, which have improved its trade ties within the region. These factors have resulted in the growth of some major ports like Laem Chabang, Klong Toey and Bangkok.
Thailand also has an extensive road network. With a road density of around 125.7 kilometers per thousand square kilometers, Thailand presently ranks third in the ASEAN region. With the possibility of a Trans-Asian highway networking most countries on the Asian mainland, Thailand could become a regional logistics hub of ASEAN as it is contiguous with countries such as Laos, Cambodia, Malaysia and Myanmar. In addition, the Government has taken initiatives to improve the country's road and rail infrastructure network to match global standards. In 2005, the government announced a plan to invest US$45 billion in infrastructural development over the next 5 years.
The growth of air transport infrastructure also has the potential to place Thailand at a logistical advantage. The opening up of the prestigious Suvarnabhumi airport recently, serves to boost Thailand's position in the regional air freight market.
International logistics companies may choose to make Thailand as their regional operations hub due to the country's booming industrial activities and excellent geographical location. Many foreign automotive companies such as General Motors and Toyota have already made Thailand as their regional manufacturing hub. Increasing exports of furniture and apparel industries could add further momentum to logistics sector in the country.
However, there are some challenges that Thailand must overcome in order to be a regional logistics hub. It needs to address competition from other potential logistics hubs in the region. Singapore, which currently serves as a regional logistics hub for many companies in South East Asia, will be Thailand's number one competitor. It already has a well established air and ocean transport infrastructure. Singapore also has the busiest port in the region, with an annual capacity of around 20 million TEUs (twenty-foot equivalent units). It also has a state-of-the art airport with good logistics support infrastructure and global connectivity. The country has a highly advanced information and communication network.
Malaysia is another major threat for Thailand in its pursuit to be the logistics hub of ASEAN. Malaysia is a rapidly developing nation with very good infrastructure in place. The country has five international airports and two seaports which offer state-of-the-art logistics support infrastructure including huge logistics parks within their vicinity. There is an excellent road network connecting all these major ports and government is trying to further spruce up the infrastructure.
In comparison, Thailand still lags behind Singapore and Malaysia in terms of infrastructure development. It may take a few more years before it becomes a viable alternative to Malaysia or Singapore. Political uncertainty and civil unrest in some provinces could slow the growth of infrastructure.
Besides, the logistics cost in Thailand is almost 20 percent of its gross domestic product (GDP). In comparison, Singapore and Malaysia's cost of logistics are about 8 percent and 13 percent of their GDPs respectively. Apart from the limitations in transportation and warehousing infrastructure, the communication and information networks in the country also need to evolve significantly to match those of its rival neighbors. Human resources is a big challenge for the logistics industry in Thailand. Identifying the right people to do the job and training and helping them to hone their skills needs a lot of investment from logistics companies.
Thailand has good prospects to emerge as a regional logistics hub. However, it needs to overcome certain challenges, before it progresses ahead of its competitors and succeeds in its quest.