Another 3-5 years before any consolidation in China’s logistics market: GOGOVAN’s Steven Lam

Steven Lam, CEO and co-founder, GOGOVAN

China’s hugely fragmented logistics market is unlikely to see any large scale consolidation in the next 3 to 5 years, according to Hong Kong-based unicorn GOGOVAN chief executive Steven Lam.

“The top 5-10 (players) only own like 15 per cent of the market share. ZTO, SFExpress, huge companies that are listed once combined, only represent the lower double-digit of the market,” Lam shared in an interview with DEALSTREETASIA. “So I don’t see any need for consolidation at this moment because there are so many players out there. We just need to survive and be a big fish in a small pond.”

GOGOVAN itself is no stranger to mergers.

In August 2017, the Hong Kong logistics unicorn joined forces with 58 Suyun, China’s largest intra-city logistics platform, in a rare, cross-border deal between a mainland Chinese and Hong Kong company. Their combined operations gave GOGOVAN access to 100 cities in China and 58 Suyun’s massive driver network. It also took 58 Suyun’s operations into GOGOVAN’s overseas markets in Taiwan and Southeast Asia. Both had Alibaba as a common investor.

That deal also resulted in GOGOVAN becoming Hong Kong’s first tech unicorn, a company that is valued at over a billion dollars. While its unicorn status has propelled the logistics on-demand provider into the limelight, the label has served both as a burden and inspiration for Lam and the company.

“It is a burden because you don’t get any benefits (in being a unicorn). Do you get lower tax rates? No. Do customers pay you more? No. Do you get more investments? No. Instead, expectations are very high, and people say we are big company and must have benefits like Google or Facebook – we don’t do 4-hour work days and we don’t say 20 per cent of our time will be invested in building new things. We have money, but that is to make our app great for our customers – that’s it!”

At the same time, Lam said the ‘unicorn tag’ had its merits, giving hope to aspiring entrepreneurs in Hong Kong.

“Our entire founding team is made of Hong Kongers, post 80s kids. None of us is from a wealthy background. Whether we are successful in the long run or not, it doesn’t matter – as long as we can play a part in that story to inspire Hong Kongers that they too can do something – that’s enough for me. At the end of the day, if someone became successful because of us – that’s worth something,” he added.

Moving forward, Lam shares that GOGOVAN’s focus will be on further building its data, driver and user base in China.

“Even though we have a huge driver base, but compared to all of China and the number of potential drivers out there, we are just a fraction of the market. Making sure we do a good job there is pretty complicated,” he continued.

Lam stressed that there’s still plenty more to do in China. Logistics costs in China, for instance, are still much higher than in the US, despite the high level of digitisation that China went through over the last 5 to 10 years.

“China is the priority so all of our energy goes to China, followed by Southeast Asia. So in the past year, we’ve not been doing much in Southeast Asia, but we did a beta launch in Vietnam to test the market. China is still too big. We are still a small player in terms of the logistics market in China. There are so many players and the market is just waiting for disruption so there is a lot for us to do there,” he said.

The Hong Kong unicorn last raised a $200 million Series D round in July 2018 led by InnoVision Capital. The round also included participation from Russia-China Investment Fund, Hongrun Capital and Qianhai Fund of Funds, Alibaba’s Cainiao and 58 Daojia Group. Lam declined to disclose GOGOVAN’s operational runway or current progress on fundraising.

With Alibaba being a major investor in Indonesian e-commerce giants such as Tokopedia and Lazada, the GOGOVAN co-founder did not rule out the possibility of partnering with the Chinese internet giant and its investee companies in SEA in the future.

Edited interview excerpts:-

What about Indonesia? One of the biggest challenges that everyone talks about in Indonesia is logistics.

Indonesia is a big market. When I compare the markets in this region, China is the biggest one, and the second that comes to mind is Indonesia. In the last 2-3 years when investors refer to the Southeast Asian market, most of them are referring to Indonesia. So if we are not doing Indonesia, we are not doing Southeast Asia.

Indonesia has a huge market in logistics and yet not many people have successfully cracked it there. I don’t think it’s a technology problem. It’s the cultural and geographic dynamic that is just completely different. In China, you can drive across the country, but in Indonesia, I have no idea how you move from island to island and connect the whole community under one network. I don’t see any company out there that is able to do it at this moment.

Even though there are a lot of startups in Indonesia, they’re in the top tier cities. But for the second or third-tier cities, I don’t see a lot of action. I was in Bromo, Indonesia recently and it has a totally different dynamic compared to China. I can tell it is a tier 3 or 4 city type there. But in China, that type of city has grown to a different level. So Indonesia is a big market, logistics is a big market but it’s going to take time. I would stay it’s 10 years behind China, but the growth path is going to be faster.

Do you plan to do something in Indonesia?

Not at this moment.

Would you say you’re slightly cautious about entering Indonesia? You did say acknowledge that Indonesia is Southeast Asia’s biggest market.

I think after running the company for several years, going for a big market is great, good for investors and many things. But the winning formula is different from market to market. Size is not an indicator of having the winning formula. You have to look at yourself and see what and how you can play. This is one of those things where we have to wait until we are ready. Until we see that we have a winning formula, let’s not rush it.

What about Vietnam?

Vietnam is growing really fast and in terms of logistics, it is really old fashioned. We see huge potential there but it will take 3-5 years of time to really see the market or industry change.

When we see Didi, Taobao, all these payment methods taking off the last 10 years in China, logistics then was still old fashioned. We are at that stage where for a lot of traditional logistics companies, digitisation means taking the paperwork to excel and Wechat. That is the digitisation process for a lot of people. Even China is in that stage. I see a huge potential just to help those guys evolve.

Look at Amazon and other e-commerce players in the US, why is it that logistics costs in China are 15 percent of anything, while it’s just about 7 to 9 per cent in the US? That’s a huge gap. A lot of people have this perception that logistics in China is more efficient than the US, but why is the cost still so much higher?

So there is a lot of opportunities for us to play here. Taking a step back, Vietnam is in the early stage, but it is only 10-15 years behind China and we’ve seen what happened in China. That is why we see Vietnam as a really good potential market. They are all very digitized with smartphones, drivers will be easy to train. All of these build a foundation for us to do a good job in Vietnam.

But why is there still such a big gap between logistics cost in the US and China? 

The information and transaction costs in China are still quite high. The trust level itself adds 2-3% of the transaction cost. When I say trust, I’m referring to how much I trust the driver and the logistics company. This means I’m assured that no one is going to run away with my products and everything is going to be delivered safely and smoothly.

In the US, as long as you’re working with a company with some history, most people don’t worry about things disappearing, or instances where a booking is made and no payment is done. At the very most, they’ll worry about accidents. These are all things that are out of your control, but there are lots of insurance policies to protect the goods from end-to-end, whether import or within the country.

When we installed some insurance products in China just 2-3 years ago, every single trip that you book on the platform added $2-3 just to protect it. If anything goes wrong, I lose RMB500-1000. All these transaction and information costs add to the total logistics costs in China.

What about your strategy for China? Are you planning to do more M&A there?

We have done the one M&A that we’ve wanted to do with 58 Suyun, so we are not looking for any M&A anytime soon. Moving forward, we just need to build up the platform we have right now. Even though we already have a huge driver base, but compared to all of China and the number of potential drivers out there, we are just a fraction of the market. Making sure we do a good job there is pretty complicated.

What about opportunities in vertical M&A?

We are doing something new with one of our shareholders, Alibaba. We are doing vehicle financing and leasing to some of our drivers. We are testing new energy vehicles as well. We don’t own the vehicles but just help promote it to our drivers. That is not our focus now, but it is something we are looking to do down the road.

Right now we are focused on building our platform. Anything related to our drivers can become our vertical. It is vertical where we have many competitors, so we want to stick to what we are good at.

It’s been very hard for outsiders to crack China. The market has several unicorns and players in your space. How have you been able to crack China’s market?

China is a very complicated market, there is no winning formula for it. I think in China you either go big or go home, because, by the time you’ve started in China, you would have found yourself with hundreds and hundreds of competitors in every single city doing exactly the same thing you are doing. That’s just how China is. If that wasn’t how it was, there would be no China today. You just have to adapt to that landscape.

Second, you have to spend hours to learn about what you don’t know in China. There is no fixed set of tools or methods to do anything. If your industry is new, and you are trying to disrupt something, then you bring in something new. The new method must be complementary to the old method so the people can adapt. That I think is the most difficult part.

There are so many players in China, do you see the sector ripe for consolidation? Or do you think it will be long before that happens?

I think it will take 3-5 years before any consolidation. The inter-city logistics market that I am in is even more fragmented. For the cross-city or the supply chain type, there are so many players out there. The top 5-10 only own like 15 percent market share. ZTO, SFExpress, huge listed companies, if combined, still represent the lower double-digit of the market. So I don’t see any need for consolidation at this moment because there so many players out there, we just need to survive and be a big fish in a small pond. When we see a player dominate 30-40 percent of the market share, that is when we would see a consolidation of the market.

How far away are you from one player getting 30-40% of the market share?

I don’t think anyone will do it in the next 3-5 years. We are talking about tens of millions of drivers and millions of logistics companies out there, and a lot of them aren’t going to adapt. A lot of them have a long term relationship with their clients. So that really takes time, they are built on personal relationships, which is something that technology cannot crack.

How much capital would you need to crack the Chinese market?

I would say, in the last five years, a lot of capital. If you can see any single Chinese startup doing great in the market, it’s because they consume so much capital. We raised a lot, but compared to our friends in the industry, we have not raised the most. Our friends have raised billions.

When you are talking about billions of people as your market foundation, some say you have to burn it to the ground and then rebuild it. You don’t change it one at a time, you just burn it all. That was the mentality of the last 3-5 years. Chinese founders say this all the time.

But, from a capital point of view today, some of these new founders, even Didi, Mobike, are beginning to realise that you can’t burn everything to the ground because it’s just too big.

When you look at the road ahead, what are your key challenges? 

I think the biggest challenge is adapting our business model or the way that we do business – it’s not as fast as the consumer market as we cannot use any monetary stuff [coupon/discount] to facilitate demand.

We have to tell businesses in China and Singapore about our own business model. Not to hire third-party logistics or own your asset which is the vehicles. That adaption took a lot of education and time.

The second layer is all of this competitive landscape and the big players coming into the market. We always question ourselves, if there is no new player coming into our market, is it a sexy market? So we look at the competitive landscape from a different angle.

The last challenge would be that the global environment is changing so fast. Five years ago, when we were raising money in Hong Kong there was not even a VC that we could talk to. In China, we have a saying that if you are in the right time at the right place, even if you are a pig, you can fly. You just need to be there at the right time.

 I think it is really hard for any entrepreneur to adapt. What you’re good at becomes the definition of how other people look at you. With the ongoing trade wars, suddenly people are saying China is not a good market. So to me, how to adapt is a challenge.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.