This market insight piece is designed to give an up-to-date overview of Cambodia’s logistics and distributions sector, along with the opportunities and challenges for investors in Cambodia in 2023.

It also includes valuable contributions from leading distributions company Speedwind Distributions, which are provided by Chairman & Founder of multi-award-winning company, Mr. Dalton Wong.

To find out more about investing or doing business in Cambodia, you can view AquariiBD’s extensive services here, or contact one of our team who will be happy to discuss further.

How important is the logistics sector for the development of Cambodia?

According to the World Bank, well-developed logistics networks contribute significantly to GDP and affect most aspects of economic activity. Productivity and growth are fundamental to each other. As a result, the logistics sector has played and will continue to play a hugely important role in Cambodia’s development.

In order to strengthen ASEAN’s economy, ASEAN adopted a Master Plan on ASEAN Connectivity 2025, which emphasized connectivity and logistics, a more efficient supply chain and enhanced trade routes will enhance competitiveness. The freight transportation sector plays an important role in enhancing the economy as a major component of the logistics sector

Aiming to promote consumer welfare while promoting economic growth. Inter-country and cross-border freight movements improves the integration of national and international markets, fostering competition and specialisation. It can also aid development by connecting remote regions to centres of economic activity and by allowing consumers to benefit from a wider variety of products and services, while spreading technological advancements across the country and internationally.

Similar to other South East Asian countries, Cambodia is suffering from the socio-economic impact of the COVID-19 outbreak. The pandemic has resulted in the disruption of supply chains and limited the flows of trade and investments. Logistics companies have been affected by operational constraints and are facing financial distress. According to the Cambodia Freight Forwarders Association (CAMFFA), about 10 to 15% of logistics providers were heading for bankruptcy as of June 2020.

How does Cambodia’s logistics sector rank globally?

In terms of overall logistics performance, Cambodia ranked 98 out of 160 in the World Bank’s Global Logistics Performance Index.

Logistics costs over sales in Cambodia were estimated at 20.5% in 2018, higher than some ASEAN countries, such as Thailand and Vietnam, and the global average of 10-12%.

How developed is the logistics sector in Cambodia?

The most recent report has stated that the transportation and storage market in Cambodia was worth over USD 2.1 billion, representing some 7.8% of the country’s economy.

The report said that currently, the Cambodian logistics sector is largely dominated by road freight transport, with the number of registered trucks doubling between 2008 and 2016. However, despite significant investment and improvements in recent years, it is reported that Cambodia’s transport infrastructure still lacks operational capacity in terms of both quantity and quality.

How have companies evolved in the logistics and distribution sector in Cambodia over the years?

Speaking from his experience, Mr. Dalton Wong said, “we were involved in the distribution business for many years under different names prior to my company. SpeedWind was created to consolidate all of the knowledge we had learned and standardize high-efficiency processes across a nationwide distribution company and network capable of delivering inbound or outbound distribution competitively.”

Dalton Wong said investment in staff and supply chain structure has caused an evolution in the distribution sector.

“Over the past 10 years, we had seen the logistics/distribution sector evolve from a purely traditional pickup-and-drop system to that a very structured system involving many players in the market. In the past, because of a lack of exposure, talent, and availability of technology in the market, the availability of reliable delivery and distribution services in the Kingdom was very limited. As a result, the service standards were very low and the costs of distribution were relatively high, leading to all-around inefficiency.”

“However, throughout the years, many companies have taken steps to change this through investment and perseverance. At Speedwind, we began by inventing and investing in the technology the sector needed to reduce inefficiency and bring down the cost of delivering our services. We also brought in foreign talent and trained our local talent to optimize our operational capacity and with that pioneered the proper implementation of best practices in HR. As a result, we began to see standards in the supply chain get a lot better and today the sector is getting very close to what developed country consumers enjoy abroad.”

What do logistics companies in Cambodia need to do to improve?

Mr. Dalton Wong said while factors such as the emerging importance of the internet and unplanned pandemics like COVID-19 bring the need for innovation and introducing new ways of working, the core of a distribution company will always be its people and technology.

“Therefore, we recognize the need to invest in these as key pillars to ensure our success. A successful distribution company means all the employees work in a cohesive manner, doing the correct thing at the right time with the right system,” he added.

What are the key challenges in Cambodia for the distribution sector?

Distributions are part of supply chain management, which is essentially the flow of supplies from a starting point to the destination. A successful distribution company is able to distribute from a start point to a destination in the fastest and most cost-efficient way. This was made difficult as in the past there was a constant factor of uncertainties, such as unreliable payment methods, lack of suitable transportation, inaccurate delivery addresses, and the security of the cargo whilst on route.

Cambodia’s Government has been instrumental in helping improve the above challenges, such as by ensuring the availability of internet in all the provinces and introducing new roads and highways that connect major destinations and trade routes directly. The government, as well as the fast-moving banking system, have also helped by investing in technology and delivering services that allow payments and refunds to be made across provinces with just the push of a button. Now, together with investment from companies in their own operations, distribution services are offering better value and faster services than ever in the Kingdom.

The next major challenge will be merging more with e-commerce platforms, who should always consider the e-logistics and e-payment solutions required. While Cambodia is still in the process of developing its logistics sector, especially for the country’s rural areas and last-mile delivery service, online stores also need to ensure their digital payment services are properly integrated into the overall ecosystem.

What is the GDP from the logistics sector in Cambodia?

GDP from the transportation and storage sector amounted to KHR 8 618 billion in 2019.

This number has constantly been increasing which means that the transportation and storage sector will represent above 8% of the country’s economy in 2020, with many expecting it to reach 10% over the next few years.

A report by the World Bank said that the logistics costs over sales in Cambodia were estimated at 20.5 percent, transport at 9 percent, warehousing at just under 4 percent, inventory carrying at a flat 6 percent and logistics administration at just under 2 percent.

What are the relative cost of logistics in Cambodia compared to other ASEAN countries?

Compared to some countries in South East Asia, namely Thailand and Vietnam, costs are higher. That said, Cambodia’s logistics costs are lower than others, including the Philippines and Indonesia, with informal logistics charges levied by government agencies remain significant, estimated at about 48% of the logistics administration cost, according to the World Bank. This is when compared to the global average of 10-12 percent.

What is the most common method of logistics in Cambodia?

The main mode of transportation in Cambodia is Road transport. It is estimated that the share of road transportation for both passengers and freight represents around 90%. Cambodia’s road network covers 61 543 kilometres, including 2 254 kilometres of national paved roads, 5 007 kilometres of inland national roads, of which 72% are paved, and 9 031 kilometres of provincial roads, of

which only 30% are paved. The remaining 45 242 kilometres are rural roads, of which only 5% are paved. The number of registered trucks more than doubled between 2008 and 2016.

What are the other modes of logistical transportation in Cambodia?

Water transport represents a small proportion of the freight transportation sector in Cambodia. That said, it is

still an important element for the country’s local economy and exports. Cambodia has two international ports – Phnom Penh Autonomous Port (PPAP) and Sihanoukville Autonomous Port (SAP) waterways for freight and passenger traffic.

SAP is the only deep-water seaport in Cambodia and in 2018 recorded container throughput of 541 228 TEUs. While not being a deep-water seaport, the import-export volume through PPAP in 2018 was higher than that of SAP.37 The volume handled by both ports recorded solid growth in 2019 where SAP handled 633 099 TEUs and PPAP handled 275 000 TEUs.

Rail transport for passenger and freight is minuscule in Cambodia compared to street transport. Cambodia’s rail network covers around 640km, which includes the two main routes, namely the Northern line, which connects Phnom Penh

to the Thai border Battambang and finishes at Poi Pet (on the Thai border). The Southern line connect  Phnom Penh to the port of Sihanoukville.

What are the recommendations for improving the logistics sector in Cambodia?

A report in 2019 said that in order to contribute to the continued improved efficiency of the logistics services sector in Cambodia, 30 recommendations on specific legal provisions should be reviewed, amended or removed. The main recommendations are summarised below:

  • Road freight transport: In relation to a so-called multi-manning requirement whereby freight transport vehicles with a total weight of more than 16 tonnes must have a driver and an assistant driver, consider offering additional options to ensure road safety, such as appropriate rest requirements for the driver, so that transport operators can select the most suitable approach.
  • Maritime freight transport: Consider the advantages and disadvantages of the provision of port services by private entities. If a policy decision was made in favour of private involvement in the provision of port services, create appropriate legal frameworks so that the provision of port services could be tendered based on fair, transparent and non-discriminatory terms to guarantee competition for the market.
  • Competition: In cases where competition is limited, limit price regulation to the regulation of maximum prices, not minimum prices for port services. Maximum prices should be regularly revised to ensure they remain in line with market dynamics and provide the necessary incentives for innovation and investment. Registration amendments: The report said that the authorities should remove or limit the discretion of the decision maker in the vessel registration process. If discretion is maintained, publish guidelines on the exercise of this discretion.
  • Improve understanding: Ensure applicants have the right to reasons to understand the basis for the decision. In relation to the business license for international transport, clarify the meaning of “single purpose” and any geographical restriction.
  • Consider removing the requirement to stipulate a single destination and business objective in the licensing process and the requirement to obtain a second business license. In relation to vessel repairs, limit ex-ante approval and ex-post-inspection to significant renovations, not day-to-day repairs.
  • Small-package delivery services • Amend legislation to remove any ability to regulate the rates of small package delivery services (SPDS). The legislation should reflect current practices where there is no price regulation of SPDS and where SPDS providers are free to set their own prices. •
  • Clarify the Postal Law to ensure that the monopoly does not include small package delivery services (i.e. courier services). International agreements • Where international agreements contain provisions that limit the number of operators or vehicles that can provide cross-border transport in Cambodia, the OECD makes two recommendations. First, remove these restrictive provisions setting quotas and replace them with a licensing system.
  • The licensing criteria should be clearly defined in the international agreement or implementing laws or regulations. Second, assess market need and demand everyone to three years, and consider adapting the number of licenses that can be issued. Both these recommendations would require negotiations between signatory countries.”
  • Road freight transport: In relation to a so-called multi-manning requirement whereby freight transport vehicles with a total weight of more than 16 tonnes must have a driver and an assistant driver, consider offering additional options to ensure road safety, such as appropriate rest requirements for the driver, so that transport operators can select the most suitable approach.
  • Maritime freight transport: Consider the advantages and disadvantages of the provision of port services by private entities. If a policy decision was made in favour of private involvement in the provision of port services, create appropriate legal frameworks so that the provision of port services could be tendered based on fair, transparent and non-discriminatory terms to guarantee competition for the market.
  • Competition: In cases where competition is limited, limit price regulation to the regulation of maximum prices, not minimum prices for port services. Maximum prices should be regularly revised to ensure they remain in line with market dynamics and provide the necessary incentives for innovation and investment.
  • Registration amendments: The report said that the authorities should remove or limit the discretion of the decision maker in the vessel registration process. If discretion is maintained, publish guidelines on the exercise of this discretion.
  • Improve understanding: Ensure applicants have the right to reasons to understand the basis for the decision. In relation to the business license for international transport, clarify the meaning of “single purpose” and any geographical restriction.
  • Consider removing the requirement to stipulate a single destination and business objective in the licensing process and the requirement to obtain a second business license. In relation to vessel repairs, limit ex-ante approval and ex-post-inspection to significant renovations, not day-to-day repairs.
  • Small-package delivery services • Amend legislation to remove any ability to regulate the rates of small package delivery services (SPDS). The legislation should reflect current practices where there is no price regulation of SPDS and where SPDS providers are free to set their own prices. •
  • Clarify the Postal Law to ensure that the monopoly does not include small package delivery services (i.e. courier services). International agreements • Where international agreements contain provisions that limit the number of operators or vehicles that can provide cross-border transport in Cambodia, the OECD makes two recommendations. First, remove these restrictive provisions setting quotas and replace them with a licensing system.
  • The licensing criteria should be clearly defined in the international agreement or implementing laws or regulations. Second, assess market need and demand everyone to three years, and consider adapting the number of licenses that can be issued. Both these recommendations would require negotiations between signatory countries.”