Moving forward: The freight and logistics segments have experienced rapid expansion

The logistics segment has seen substantial growth in recent years, due primarily to various government development programmes, strong external trade growth and a steady stream of foreign investments. The industry is expected to grow to RM129.93bn ($41.9bn) by the end of 2012, up 10.3% on the previous year, according to statistics from Frost and Sullivan, an international research and consulting firm. This forecast is closely linked to ongoing expansion in most major Asian markets, and especially China, which is an increasingly important trade partner for Malaysia.

Ongoing domestic developments are also expected to contribute to future growth. Some 90% of the total freight traffic in Malaysia is transported by sea. Port Klang, the country’s busiest port, accounted for more than 45% of the nation’s total sea cargo transport in 2011. While ships are expected to account for the majority of cargo movement in Malaysia for the foreseeable future, the rail and air cargo segments are also on the rise, supported by a series of significant investments from the state and private sector players.

LOGICAL LOGISTICS: While the logistics segment is poised for substantial growth in the coming years, it faces a number of challenges. The global economic climate is decidedly lacklustre, which has had a negative impact on trade receipts in South-east Asia at large. Competition for trans-shipment and other business among transport hubs in the region is another issue. Malaysia’s ports compete with major regional transport hubs in Singapore, Thailand and Indonesia, among others. Finally, the use of technology in the industry is fairly limited compared to other parts of the world, which has had a negative impact on productivity overall.

The government has made an effort to deal with these issues in recent years. Port Klang, currently the 13th-busiest container port in the world, according to the Ministry of Transport (MoT), is in the midst of a major overhaul, which is expected to boost Malaysia’s competitiveness within the region substantially. Similarly, a number of firms have embraced new technology in recent years. “The use of the internet has been a major growth driver among local logistics players,” said Teong Teck Lean, the executive deputy chairman of GD Express Carrier (GDEx), a local logistics operator.

Additionally, the logistics industry is expected to benefit substantially from the 2015 launch of the ASEAN Economic Community (AEC). It is anticipated that the AEC will allow for the opening of a number of new markets for cargo transport carriers. Ultimately, the government intends to transition Malaysia into a global trans-shipment and cargo centre.

CARGO VOLUMES: In 2011 the total volume of cargo throughput in Malaysia reached 495.29m tonnes, up from 443.4m tonnes the previous year. In 2012 this number is expected to jump 10.3% to 545.13m tonnes, according to forecasts from Frost and Sullivan. Sea-freight transport accounted for more than 90% of total freight movement in 2011, down from more than 95% the previous year. This drop is the result of steadily increasing volumes of air and rail cargo transport. In 2011 around 5.9m tonnes of freight was moved by rail, up from around 5.3m tonnes the previous year. According to Frost and Sullivan, cargo movement by rail in 2012 is expected to continue to rise, reaching 6.2m tonnes over the course of the year. Air cargo transport, meanwhile, accounted for around 890,000 tonnes of total cargo movement in 2011. It is expected to reach 925,000 tonnes in 2012, and will likely cross the 1m-tonne mark in 2013. Kuala Lumpur International Airport, Malaysia’s busiest airport, accounted for around 74.8% of the total air cargo volume in 2011, with smaller regional airports handling the remaining 25%.

“Multimodal shipping is on the rise, whereas this did not get much attention before,” SC Chong, the managing director of the logistics firm TNT Express Malaysia, told OBG. Nonetheless, sea transport is expected to continue to dominate the logistics sector for the foreseeable future. Port Klang, which is located on the Straits of Melaka about 40 km south of Kuala Lumpur, is Malaysia’s largest and busiest port, accounting for 39.2% of total sea cargo volume in 2011. The Port of Tanjung Pelepas (PTP), meanwhile, accounted for 22.7% of total sea cargo movement that year, while Johor Port accounted for 6.7% and Penang Port 5.9%. In 2012 the sea transport segment is expected to account for 538m tonnes of cargo movement, up 10.1% from 2011.

MONEY MATTERS: As previously stated, it is anticipated that the logistics sector will pull in RM129.93bn ($41.9bn) in 2012, up 10.3% from RM117.8bn ($38bn) the previous year and RM108.5bn ($35bn) in 2010. By 2016 the segment is expected to reach RM203.71bn ($65.7bn), which would be equal to a compound annual growth rate of 11.6%, according to Frost and Sullivan. These growth estimates are primarily based on Malaysia’s steadily expanding economy.

In 2011 total external trade in the country reached RM1.24trn ($400bn), up substantially from RM1.16trn ($374bn) in 2010. External trade could rise by as much as 6% in 2012 to reach RM1.32trn ($425bn) for the year. Similarly, foreign direct investment (FDI) has helped to boost growth in the logistics segment in recent years. In the first half of 2011 FDI reached RM21.3bn ($6.87bn), nearly double the first-half 2011 figure of RM12.1bn ($3.9bn). This expansion in FDI is primarily the result of the government’s efforts to attract additional external investment as part of the Economic Transformation Programme (ETP), Malaysia’s long-term economic development strategy. Malaysia ranked 29th in the World Bank’s 2012 Logistics Performance Index (LPI), the second-highest ranking (after Singapore) in ASEAN and one of the highest in Asia. The country earned especially high marks in the areas of timeliness, international shipments and infrastructure.

GROWTH DRIVERS & ADVANTAGES: Malaysia boasts a number of competitive advantages in terms of logistics. The country’s location at the heart of South-east Asia puts it within a few hours of a substantial percentage of the world’s population by ship or plane. China, which is home to more than 1.3bn people, has been one of the Malaysia’s largest trading partner since 2009. In 2011 total trade between the two countries reached RM166.86bn ($53.8bn), up 13.9% on the previous year, according to statistics from the Malaysia External Trade Development Corporation (MATRADE). MATRADE forecasts that this number has the potential to double by 2017, which would mean a major boost for Malaysian logistics companies. In addition to China, Malaysia has seen steadily increasing trade with a number of other nations in recent years, including Singapore, Thailand, Vietnam and Cambodia, among others. Major Malaysian exports include chemicals, palm oil, machinery, electrical and electronic products, and appliances.

The government has worked to encourage growth in the segment. In March 2012 the state announced that it had set aside RM200m ($64.5m) to subsidise the transport of goods to remote areas of the country. The subsidy, which is part of a price standardisation scheme overseen by the Ministry of Domestic Trade, Cooperatives and Consumerism, is meant to bring down the price of transporting goods to remote rural areas. Under the scheme, 485 areas in Sarawak are expected to benefit from RM101m ($32.5m) in subsidies. Meanwhile, 460 areas in Sabah are poised to benefit from RM90m ($29m) in subsidies, while the remaining funds will go to areas in Peninsular Malaysia. The scheme is expected to open up a number of new markets.

Additionally, under the ETP the government is working to expand a number of key areas, including palm oil, rubber and other agricultural sectors; the retail and wholesale sectors; and the electrical and electronics sector. Boosting activity in these industries is expected to be a boon to local logistics players through at least 2020, when the ETP wraps up.

MAJOR PLAYERS: Malaysia is home to a wide variety of logistics firms. Schenker Logistics Malaysia (SLM), the local subsidiary of German multinational logistics firm Schenker, has been operating in the country since 1979. The firm currently oversees a network of 10 locations in Peninsular Malaysia, including facilities at PTP. In 2011 SLM brought in revenues of RM650m ($209.6m), primarily from the sea- and air-freight handling business. The company expects this figure to rise by around 10% in 2012 on the back of strong investment growth and steadily increasing inter-Asian trade. Malaysia’s logistics players are in the process of preparing for the creation of the AEC in 2015, which will allow for the free flow of goods among all ASEAN countries.

“Right now cross-border trade is a big issue,” said Teong. “After the launch of the AEC, however, we are planning to expand all over ASEAN.”

A major player in the logistics sector is Pos Malaysia, the country’s postal services operator, which was privatised in 1992. The firm has brought in approximately RM1bn ($322m) in revenue in recent years, and this figure is only expected to grow over the course of the coming decade. There are a number of major growth segments in which the operator is working, including business-to-business mail, which accounts for more than 50% of total revenues. The company is working to build up the direct mail segment as well, which could be a major source of growth in the coming years.