The logistics industry in Myanmar has undergone significant development in the past few years spurred by increasing trade flow, better connectivity and the influx of big international players. Sea trade has played a vital role in driving the Myanmar logistics sector, handling approximately 70 percent of the total trade while approximately 20 percent of the trade is handled via border trade with air freight and railroad trade accounting for the rest.
The government’s recent efforts to boost legal border trade including the implementation of Individual Trade Certificates (ITC), approval of new trade licences and establishment of additional border trade centres to facilitate legal trading with neighbouring countries China, Thailand, India and Bangladesh, are expected to bode well for the overall logistics sector.
Although the new airport construction project in Bago is scheduled to finish in 2019 and the Yangon-Mandalay railroad upgrade in 2016, the air and railroad cargo growth could still be delayed by the limitation in infrastructure development to support these initiatives. Hence, progress is likely to be more tangible in the sea and road trade segments due to recent developments of deep sea ports, relaxation of trading regulations and the ongoing AEC 2015 implementation.
Additionally, the Thilawa Special Economic Zone (SEZ) is expected to be operational later this year while Myanmar and Thailand are also planning to revive the Dawei SEZ with a port that would be able to accommodate up to 300,000 DWT (deadweight tonne) vessel. As the ASEAN region transforms into a borderless market of free flow of goods, services and labour without tariffs, Myanmar is expected to witness an improvement of intra-ASEAN trade. As foreign companies would mostly likely to move their production facilities to Myanmar due to cheap labour cost, the country expects an increase of production activities and extra-ASEAN trade. Moreover, the Ministry of Commerce has recently streamlined export procedures by abolishing the deposit requirement in the Central Bank to boost export volume.
Key drivers of growth
Studies reveal that the construction, automotive, industrial and garment sectors account for majority of the logistics spending in Myanmar in past two years. According to Customs department, the cement import value increased by 29.7 percent from $157.5 million in FY 2012-13 to $204.2 million in FY2013-14. The growth is expected to sustain in the near future with the Myanmar construction sector expected to grow at a compound annual growth rate (CAGR) of 11 percent between 2014 and 2018 driven by the real estate boom and government infrastructure projects, according to Solidiance, an Asia-focused growth strategy consultancy.
“Among the end users of logistics services, construction is seen to have high growth, followed by automotive, raw materials and finished garment exports. Moreover, heavy lift equipment and project cargo are seen as long term potential,” commented Ko Kyaw Thu Maw, general manager of EFR-G Link Express Services Ltd, which is one of the leading total logistics providers in Myanmar. The automotive sector, on the other hand, is also experiencing significant growth with the number of passenger and commercial vehicles increasing by 24 percent and 6 percent respectively from 2013 to 2014. However, this growth could be tempered by the recent changes on account of stricter control on import requirements, and Solidiance estimates that the automotive industry is expected to grow at a 7 percent CAGR between 2014 and 2019.
The opportunities for logistics players are growing in the offshore and telecommunication sectors as well. Following the majority of big oil companies winning the offshore license last year, recent periods have seen the growing business activities in the oil and gas sector. According to Myanmar Investment Commission, the permitted investment for oil and gas sector reached $16.9 billion at end December 2014. Moreover, Myanmar telecom sector is growing very fast due to low mobile penetration rate and the increasing FDIs in the telecom sector. Thus, logistics services catering to the telecom industry will be highly needed in the near future.
Myanmar logistics landscape
Looking at the current supply side of the logistics industry in Myanmar, approximately 85 percent of the providers provide classic services such as unloading, loading, custom clearance and forwarding services while only 15 percent of them provide value added services such as labelling, shipment tracking and cold storage. With the growing international trade flow, there will be an increase of demand for companies providing value added services. Foreign investment law has allowed cargo transportation contract business to be done only by entering into joint venture with local partners. In the recent years, the industry has witnessed the entrance of large international players such as SDV and Wallenius Wilhelmsen Logistics through joint venture with local companies, as well as the increasing presence of big local players such as EFR trading and Htoo logistics.
Project logistics will be the new area in the country’s logistics sector generating interest and opportunities. Although there is growing demand, there are only a handful of logistics providers who can provide project logistics due to the high technology involved in lifting and transportation, as well as strict safety requirements. Currently, approximately 75 percent of the logistics service providers are involved in freight forwarding, custom clearance and trucking services while the rest provides air freight, distribution, project logistics and total logistics services.
“Myanmar scored 2.25 in World Bank’s 2014 Logistics Performance Index, far below other ASEAN countries, Thailand (3.43) or Vietnam (3.15). While high demand and increasing infrastructure spending will significantly drive the Myanmar logistics sector growth, challenges remain in terms of tackling high illegal cross border trade volumes which impact industry value,” said Naithy Cyriac, senior consultant from Solidiance Myanmar Co Ltd.
However, the demand for logistics services is growing in the country despite the concern for infrastructure development. With the increasing spending in the public infrastructure, it is expected that logistics services could be facilitated in the long term. As the country becomes more developed and the economy continues to modernise, the modern logistics services will be in high demand and will present good opportunities for both foreign and local logistics players.
Thin Zar Win Maw is a consultant at Solidiance Myanmar. Solidiance is a corporate strategy consulting firm with focus on Asia Pacific. Its industry focus lays on industrial applications, construction, clean tech and healthcare.