Bullish Venture Capitalists Spot Big Promise in Indonesia’s Trucking Sector

2 September 2019

When Indonesia-based early-stage investor East Ventures decided to inject money into a company called Kargo in 2016, it was venturing into unknown territory.

No venture capital (VC) firm had previously placed a bet on Indonesia’s problem-ridden trucking space, despite the emergence of a few startups trying to tackle the inefficiencies in the industry. Things picked up in the following two years, but the number of deals sealed was still negligible.

Until now. The country’s trucking space has witnessed a spike in investor interest as VCs flock to invest early in a sector they hope will become the next big disruptor in Indonesia, an archipelago notorious for its logistics challenges.

This year alone, 18 VC firms have announced investments in five early-stage B2B startups in Indonesia’s burgeoning trucking space, including East Ventures’ investment to Waresix.

Infra push

An early mover, East Ventures claims to have observed firsthand the development of the trucking sector. According to partner Melisa Irene, increased investor interest in the trucking space owes significantly to the development of infrastructure in the country, which President Joko Widodo had made a priority during his first term in office.

With an initial infrastructure budget of 155 trillion rupiah ($11.11 billion) in 2014 that went up to 410 trillion rupiah in 2018, the Indonesia government oversaw the development of 3,432 kilometres of conventional roads in the country and the construction of 941 kilometres of toll roads between 2014 and 2019.

“While land transportation is not the only mode of transportation in Indonesia’s logistics space, it makes up the majority. This expanded the industry pie for trucks and there was a new opportunity to be more efficient,” said Irene.

With logistics cost as high as 24 per cent of Indonesia’s GDP, the country’s logistics performance is among the worst in Southeast Asia. In neighbouring countries Thailand and Malaysia, the logistics cost-to-GDP ratio is 15 per cent and 13 per cent, respectively.

According to an Indonesia B2B Trucking report by Redseer, an overwhelming majority of trucks in Indonesia are owned by SMEs and mid-level businesses, with only 10 per cent owned by organized or enterprise players. This contributes to the low overall fleet utilization levels with the rate of empty backhauls reaching up to 80 per cent.

Indian unicorns setting the trucking trend

While a unicorn status may be a far-fetched notion in Indonesia’s B2B trucking space today, startups in the space can look towards success stories of global counterparts, particularly in India.

India has seen two logistics startups in the trucking space be crowned unicorns, with a third player on the cusp of reaching the $1-billion valuation mark.

The first of the two unicorns is SoftBank-backed Delhivery, which joined India’s unicorn club in March this year. Later in July, its competitor Rivigo is said to have crossed the $1-billion valuation mark following the close of its Series E round.

The third player is Sequoia-backed Blackbuck that saw its valuation rise to $950 million in its latest funding round in May.

With notable similarities between the Indian and Indonesian logistics landscape, investors are hopeful Indonesian companies can achieve the heights of their Indian counterparts.

However, the sheer size of Indonesia’s logistics market – according to Research and Markets, the Indonesian freight and logistics market is expected to be worth $383 billion by 2023 – has not been enough to attract foreign logistics giants. Some startups are willing to give it a pass too.

“I think after running a company for several years, going for a big market is good for investors and other things. But how you can win that market, what is the winning formula is different from market to market. Size is not an indicator of having the winning formula,” said GoGoVan co-founder and CEO Steven Lam.

Hong Kong-based last-mile delivery unicorn GoGoVan has so far skipped Indonesia in favour of Singapore and Vietnam as part of its Southeast Asia foray.

Source: Dealstreet Asia