Can Temasek-backed Scommerce beat a sea of rivals in Vietnam’s logistics race?
VietReader 23-11-2020, 07:46

Singapore’s Temasek wants to back “aspiring unicorns” in Southeast Asia. Last year, Vietnam-based ecommerce logistics provider Scommerce apparently fit the bill.

The Temasek-led round of US$100 million was one of three mega deals that catapulted Vietnam’s tech ecosystem to new heights in 2019. A year earlier, Scommerce had reportedly also raised US$30 million from a private equity fund.

GHN is a brand under Scommerce. / Photo credit: Scommerce

The company specializes in last-mile express and on-demand delivery. Like other notable tech companies from Vietnam that prefer to dodge the regional limelight, such as VNG and the newly-crowned unicorn payment company VNPay, Scommerce is squarely serving the domestic market.

It makes sense for it to do so: Vietnam has one of the highest logistics costs in the world, accounting for about 20% of its GDP. Plus, 98% of Vietnamese firms are small and medium enterprises (SMEs), and they’re craving for better delivery solutions.

According to the Vietnam Logistics Report 2019, the number of orders processed by fast-delivery logistics companies grew by 45% on average between 2015 and 2020 and could reach 530 million orders in 2020.

The latest Google, Temasek, and Bain & Company report projects that Vietnam’s digital economy could reach US$52 billion in GMV in 2025 (trailing only Thailand’s US$53 billion and Indonesia’s US$124 billion). And even during a pandemic, Vietnam’s ecommerce is still growing at a staggering pace of 46% as consumers flock to buy online, thus accelerating delivery demand.

That’s why regional competitors such as Ninja Van, Lalamove, and J&T Express have been crowding this space. Sea Group even quietly bought a local logistics company in 2017. Grab and Gojek are also competing in the on-demand delivery segment.

So will Scommerce be able to defend its home-court advantage?

Getting started and ahead

Scommerce traces its origin to a startup called Giao Hang Nhanh (GHN), which means “fast delivery” in Vietnamese. GHN was founded in 2012 by a group of ex-employees from Mobile World, Vietnam’s leading electronics retailer.

Scommerce (short for “services for commerce”) was established in 2017 and subsequently subsumed GHN into a grander plan. By 2018, it crossed the US$100 million revenue mark, claimed CEO Luong Duy Hoai as per a local media report.

It achieved this by becoming the delivery partner for all of Vietnam’s largest platforms — Shopee, Tiki, Sendo, and Lazada — as well as more than 100,000 small and medium-sized online merchants.

Image credit: Siddharth Bishnu / Tech in Asia

GHN got early financial and strategic backing from Seedcom, a notable venture builder co-founded by Dinh Anh Huan, who had made his fortune after Mobile World went public in 2014. (Tech in Asia previously wrote about Seedcom in 2015 and more recently about Dinh’s new retail group Ficus.)

In a 2013 interview with Tech in Asia, Luong, who was then the CEO of GHN, said that his company aimed to develop “a trust-building service” that can bring Vietnamese ecommerce to the next level.

Can Temasek-backed Scommerce beat a sea of rivals in Vietnam’s logistics race?

Scommerce co-founder and CEO Luong Duy Hoai / Photo credit: Scommerce

At the time, the delivery space was dominated by traditional providers and state-owned postal services, which could not meet the growth demand from ecommerce platforms. “GHN realized very early on that ecommerce would eventually get very big in Vietnam,” a former executive at the company tells Tech in Asia.

“Back in 2012, Shopee had not arrived yet; Lazada had only just begun and Tiki was only two years old. To solve the trust issue, how could we increase visibility and transparency in all orders?” he says.

Similar to traditional logistics players, GHN also operated its own fleet of full-time shippers. But it was more tech-focused very early on.

On-demand platform AhaMove was advertised as an Uber for delivery

For one, GHN allowed both sellers and buyers to track orders through a dashboard that’s connected via an API to ecommerce platforms. It also optimized the routes for delivery persons.

These features might be taken for granted today, but back then in Vietnam, merchants found these added services invaluable. GHN became a viable alternative for sellers and quickly caught up with incumbents such as VNPost and Viettel Post.

A timely spin-off

In 2014, GHN started hiring freelance shippers as an experiment. A year later, AhaMove, an on-demand platform that was advertised as “an Uber for delivery,” was spun off from GHN.

AhaMove was inspired by the asset-light platform models of Lalamove and GoGoVan (now rebranded as GoGoX). But “getting freelance motorbike drivers onboard was much faster and easier than truck drivers,” according to a former team member.

Launched in 2015, AhaMove has been a quite popular on-demand platform for delivery in Vietnam. / Photo credit: AhaMove

“We were also lucky that Uber and Grab were battling it out to dominate Vietnam at the time,” he adds. Grab had launched GrabExpress in 2015 but only as an added service within its ecosystem, while Uber quit the region in 2018.

To serve online sellers who need quick intra-city deliveries, AhaMove quickly amassed thousands of freelance shippers, most of whom were already familiar with making quick cash as ride-hailing drivers.

Now operating as a separate subsidiary within Scommerce, AhaMove has been a viable extended arm for GHN’s hub-and-spoke model, helping it meet a surge in delivery demand especially during seasonal promotions.

A tipping point?

Last mile is generally the most expensive part of the shipping process, requiring the optimization of delivery routes and density.

In Vietnam, challenges for last-mile delivery are monumental.

In major cities, shippers navigate narrow, congested, and poor-quality roads to reach destinations with confusing street addresses. For delivery companies, cash on delivery has always been a pain. They also have to compete with postal services in making deliveries to rural residents, which account for 63% of the population.

But that has not stopped players from flocking to capture this space.

At least 50 active startups are providing ecommerce logistics services in both the first-mile and last-mile sectors, according to estimates by Vietnam-based Do Ventures. Both last-mile and on-demand deliveries have witnessed “an upsurge as consumers seek convenient and safe shopping alternatives” due to the Covid-19 pandemic, says Vy Le, co-founder and general partner at Do Ventures.

Ninja Van entered Vietnam in 2018 and quickly expanded its nationwide coverage. The Singapore-based company is arguably one of the most well-funded technology-enabled logistics companies in Southeast Asia, having bagged another US$279 million injection earlier this year. Ninja Van also benefits from a partnership with Grab across the region.

See also: How Ninja Van is powering cross-border ecommerce beyond deliveries

Photo credit: Ninja Van

According to Dung Phan, Ninja Van’s president in Vietnam, the firm prioritizes serving SMEs in the country, including social sellers on platforms such as Facebook, Instagram, and Zalo.

“Vietnam is comprised of a large number of SMEs, which require a different commercial and operational approach,” Phan says in an email response to Tech in Asia.

“Getting started is difficult. Demand is localized, which requires us to customize our operations. We believe that Ninja Van Vietnam’s wide coverage network within Southeast Asia as well as [its] international partners will play a major role in connecting Vietnamese SMEs to foreign sellers and buyers.”

A threat to Scommerce?

Another noteworthy competitor is Giaohangtietkiem; its name means “cost-saving delivery” in Vietnamese.

The competition between GHN and Giaohangtietkiem bears some similarities to the rivalry between Grab and Gojek. Founded in 2013, Giaohangtietkiem, which also runs a hub-and-spoke model, has a powerful backing. In 2017, Sea Group acquired the logistics startup for an undisclosed price.

Giaohangtietkiem, which declines to participate in this story, has the benefit of leveraging the Sea-owned Shopee, which also has a dominant position in Vietnam.

Latest Iprice data shows that Shopee has about 62.7 million monthly web visits, 3x higher than Tiki’s and Lazada’s. Giaohangtietkiem’s revenues also reportedly increased more than 6x in 2018 following Sea’s acquisition, according to local media reports.

On another front, ecommerce platforms are also investing more in their logistics arms, which could lessen their dependence on third-party services.

TikiNow guarantees a two-hour delivery within big cities for the more than 100,000 products on the Tiki platform. Lazada Express also competes in the two- to four-hour delivery timeframes and offers added services such as 24/7 centers where customers can pick up their parcels.

TikiNow follows in the footsteps of Amazon Prime: faster delivery to improve customer experience. / Photo credit: Tiki

Shopee Express offers delivery within four hours in some inner districts in Hanoi and Ho Chi Minh City. And Sendo has partnered with GrabExpress to provide express delivery within three hours in certain city districts.

According to industry analysts, by owning their own logistics arms, ecommerce platforms could lower their reliance on third-party logistics providers such as Scommerce and handle deliveries in denser areas to improve their margin.

Staying focused

Scommerce COO Hang Do agrees that the ecommerce delivery space will get “more complicated” in the coming years. However, she says, without providing details, that Scommerce has a healthy balance between serving formal ecommerce platforms and directly serving SMEs and sellers on social media.

“Vietnam’s SMEs market is big enough and no player can capture it alone,” she tells Tech in Asia.

At last month’s Tech in Asia 2020 Conference, Do said that competitors such as Ninja Van and J&T Express have been putting “pressure on local companies like ourselves to innovate faster and do better.”

But whereas Scommerce had forayed into other areas —  even food delivery at one point — competitors have stayed focused on the “SMEs goldmine,” says the former GHN executive who was quoted above. “It’s a much bigger pie that can help [them] from being over-dependent on ecommerce platforms,” he adds.

Scommerce had briefly experimented with its own food delivery service called LaLa in 2017 but shut it down shortly after. Its cross-border component Gido was also reportedly closed at the end of last year; visitors to the website are now directed to GHN Logistics.

When asked by Tech in Asia, Scommerce’s Do did not comment on Gido’s closure but said that cross-border shipping is currently not one of the company’s priorities.

We never had a lot of capital to play with. We did not raise a bigger round until our late stage

As the competition heats up, while local delivery players like Scommerce might have a head start in terms of market understanding, regional players can secure and leverage their multi-country agreements with regional clients, according to an industry analyst from a regional consulting firm.

“Such partnerships can allow them to get favorable pricing terms and higher volume commitments,” which in turn lets them invest more money in technology and infrastructure, he explains.

Since Covid-19 might have slowed down some expansion plans, the analyst predicts that third-party ecommerce logistics players would eventually have to diversify into traditional (B2B and retail) logistics for “more predictable revenue and relatively higher margins versus ecommerce logistics.” Ninja Van, as an example, has launched B2B logistics in Malaysia.

In the case of Vietnam, Do Ventures’ Le foresees that the next battlefield for ecommerce would lie outside of Hanoi and Ho Chi Minh City — which also means ecommerce logistics providers would have to focus on supporting customers and retailers in lower-tier cities.

Still, compared with other cash-laden regional rivals, Scommerce has been “more conservative” when it comes to spending capital, according to its COO Do. It’s perhaps partly the result of having no regional plan.

“We never had a lot of capital to play with. We did not raise a bigger round until our late stage,” she said during the Tech in Asia 2020 Conference. “That has given us strong discipline [on] what to spend, how to spend, and how to drive the business to profitability.”