In spite of the recent slowdown of economic growth in South-east Asia that followed more than a decade of rapid expansion, the region continues to exhibit vast, untapped growth potential – both in terms of demand, with an increasingly affluent consumer base, and in terms of supply, with an increasingly diverse array of goods and services. Situated at a key crossroads, Thailand is well placed to take advantage of this potentially lucrative market by fashioning itself into a sophisticated transport and logistics hub capable of keeping supply chains humming and workers moving. The country has already established itself as a favoured location for investors setting up regional headquarters serving the ASEAN community in a variety of sectors.
Shared Borders
While some of Thailand’s attractiveness stems from its relative political and economic stability, simple geography also plays a strong supporting role. The country boasts interlocking land borders with Myanmar, Cambodia, Laos and Malaysia, with 32 Thai provinces sharing a boundary with at least one of these four countries. The frontier market of Myanmar, which has seen a massive surge of investment in recent years, shares a border with 10 provinces stretching 2400 km. Laos and Cambodia, which also possess substantial potential for economic expansion, maintain borders with 18 Thai provinces across 1810 km and 725 km, respectively. Last but not least, Malaysia also shares a 647-km border with southern Thailand, providing a key link to more affluent markets, and a direct artery to the regional powerhouse and trading centre of Singapore.
In 2016 land-based cross-border trade in and out of Thailand was estimated to be worth BT1.47trn ($41.4bn), a 2.8% increase, according to the Department of Foreign Trade. In 2017 the figure is expected to grow by a further 3%. These land connections are complimented by large deepwater ports located along key shipping lanes, as well as a sophisticated and expanding airport network. The total volume of international goods transported in and out of the country in 2015 stood at 235m tonnes, of which 86% was distributed via waterways, 13% through road transport, and the rest by rail and air routes, according to Ministry of Transport data. This marked a 7.8% increase compared to 2011, when a total of 218m tonnes of cargo was transported. Of the 2015 total, imports and exports were relatively balanced; 112m tonnes of goods entered the country, while 123m tonnes were exported. By contrast, the total volume for the domestic transport of goods in 2015 was 494m tonnes, the vast majority of which (97.68%) travelled internally by road, with rail and air routes hauling just 2.3% and 0.2% of goods, respectively.
The recent establishment of the ASEAN Economic Community (AEC) in 2015 has brought further advantages to Thailand as the 10 members of the bloc have lowered trade barriers among themselves, further increasing the flow of goods and services in the region. A key pillar of the AEC’s ambition to become a robust, physically interconnected trading powerhouse is the Master Plan on ASEAN Connectivity (MPAC), adopted by member states in 2010. This comprehensive blueprint for the region’s physical, institutional and people-to-people connectivity includes plans for the simplification and harmonisation of international transport procedures to help reduce logistics time and costs for cargo movement. These efforts are set to be further cemented into action with the implementation of the ASEAN Framework Agreement on Multi-modal Transport, which has already been ratified by Cambodia, Myanmar, Laos, the Philippines, Thailand and Vietnam. Once in place, the agreement could enhance Thailand’s role as a central trade hub within the bloc as end-to-end handling costs of multi-modal cargo are reduced and cross-border transport is further interlocked.
Money Talks
Recognising the importance of an efficient transport and logistics network for domestic growth and boosting regional trading links, the government has been actively promoting the development of the logistics sector in recent years. The Thailand Infrastructure Development Master Plan 2015-22 (TIDMP) has seen the government dramatically increase allocations for infrastructure development, while the private sector continues to invest money in logistics projects.
In 2015 alone, Thailand’s Board of Investment (BOI) received investment applications for 75 projects in the logistics sector with a cumulative value of BT8.1bn ($228m). All but one of these projects targeted the marine transportation services segment, leaving a lone BT220m ($6.2m) project in the commercial airport segment. Looking to attract further investment to the sector, the BOI offers a range of financial incentives for companies that invest in transportation and logistics. These include tax-based incentives such as exemptions of import duties for machinery and raw materials, along with corporate income tax exemptions of up to eight years. Special incentives also apply to developers of logistic parks and international distribution centres, including a five-year corporate income tax holiday, import duty exemptions for machinery and raw materials, and other non-tax incentives.
This support should help to further the government’s ambitions to establish a total of 10 special economic zones (SEZs) over the short term, which should work in tandem with the country’s logistics and services sectors to accommodate growing demand from potential target markets in South-east Asia. These zones are strategically located close to the borders of neighbouring countries, including Myanmar (Tak and Kanchanaburi), Laos (Mukdahan, Chiang Rai, Nong Khai and Nakhon Phanom), Cambodia (Sa Kaeo and Trat) and Malaysia (Songkhla and Narathiwat).
Increasing Efficiencies
Although the recent flurry of investment in major transportation infrastructure projects across the country is hoped to usher in a new era of transportation efficiency, Thailand has already made significant strides in its logistics industry, in part due to the expansion of multi-modal transport networks linking road, rail and sea. The result of this investment has been the gradual reduction of fixed costs, operational costs and time savings across logistics operations. These savings have translated into tangible economic benefits as logistics costs as a percentage of GDP declined significantly over the past decade, from 18% in 2007 to 14% as of 2016.
According to the World Economic Forum’s 2016-17 “Global Competitiveness Report”, Thailand’s infrastructure ranked a respectable 49th out of 138 markets included. Due to its thriving tourism sector and reputation as a regional business hub, the available airline seat km category, which measures passenger-carrying capacity, was the highest-ranked metric within the infrastructure section, coming in at 15th overall. Overall infrastructure quality ranked 72nd, with other transportation-related metrics placing 42nd (quality of air transport infrastructure), 60th (quality of roads), 65th (quality of ports) and 77th (quality of railroads).
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