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MALAYSIA LOGISTICS DIRECTORY 2016/2017
THE MALAYSIAN ECONOMY
According to the Economic Outlook 2016 report by the Malaysian
Rating Corporation Bhd (MARC), Malaysia’s gross domestic product
(GDP) growth for 2016 is expected to average around 4.4% while
headline inflation will rise to around 3.2%.
Real GDP growth will remain below its potential, as the impact
of the slowdown in domestic demand is reflected in the headline
number. Recent increases in public transportation charges,
toll rates, the abolishment of electricity rebates for certain
segments of the population, further subsidy rationalization and
the impact of ringgit depreciation will likely continue to dent
private consumption as consumers become more cautious about
discretionary spending and drive up the consumer price index.
The pace of investments will also be affected by rising interest
rates as the impact of rate hikes in the U.S. reverberates across
the globe. In addition, as domestic demand remains strongly
correlated with the external sector, any significant weakness in
external demand will have adverse repercussions on domestic
demand. On that score, MARC forecast growth for private
consumption and private investment for 2016 to be 4.2% and
6.9%, respectively.
The ratings agency also highlighted that commodities will have
an obvious impact on Malaysia’s headline GDP. With the supply
glut in the global market outpacing demand growth, oil and
other commodity prices will remain under pressure in the near
term. However, it expects crude oil prices to recover slightly in
the second half of 2016 on the back of strengthening demand
and improved prospects in China.
As for the ringgit, the currency bore the brunt of the commodity
rout and political noise in 2015 and the pressure remains on the
downside in 2016 at least in the first half of the year, as crude oil
prices are expected to stay depressed due to supply outstripping
demand. Other factors that might cap the upside of the ringgit
in the near term include limited prospects of an OPR hike amid
weak economic conditions, prospects of outflows of portfolio
capital in view of further rate hikes in the U.S. and possible
further devaluation of Chinese renmimbi.
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Tiong Nam Logistics Holdings Bhd, in preparation for new
challenges, is planning a multi-storey warehouse slated to be
built within three to five years. The home-grown transportation
company will also be investing in more automation to maximize
efficiency and control costs, given the tough economic environment.
According to group executive director Victor Ong, in the pipeline
is a technologically advanced five-storey warehouse with one
million sqft and facilities that allow for trucks to be parked
on top of the building. The company plans to have it built in
either Shah Alam or Johor Bahru within the next three to five
years, with an expected capital expenditure of RM100 million.
This strategy offers a number of benefits. Since a multi-storey
warehouse offers much more usable floor space per sqft of land,
it allows the company to operate in a dense urban area, rather
than locating far away from the population centre. This reduces
transit time as well as fuel costs.
Tiong Nam also plans to invest in more automated storage and
retrieval systems (ASRS) for its warehouses to improve efficiency.
LOGISTICS UPDATES
DRB-Hicom Bhd (one of Malaysia’s leading firms involved in the automotive manufacturing, assembly and distribution industry) has over the past few years been on an acquisition spree that has seen it buy into significant parts of the logistics chain. DRB-Hicom is the major shareholder of Pos Malaysia Bhd and the company is growing its logistics business through its subsidiary KL Airport Services Sdn Bhd (KLAS), which is an independent ground handler that provides a comprehensive range of services to various commercial airlines operating through Malaysian airports.
KLAS has acquired Konsortium Logistik Bhd and also bought Gading Sari, an air freight operator. Through these acquisitions, KLAS is now able to offer land, sea and air logistics services, aimed at positioning itself as an integrated logistics solution provider. In December 2015, Pos Malaysia has accepted a deal to purchase KLAS and a parcel of industrial land in Shah Alam from DRB-Hicom for RM835.16 million. Besides helping DRB-Hicom to consolidate its logistics business, the move is expected to improve the medium to long-term earning potential of Pos Malaysia and its subsidiaries.
Pos Malaysia Bhd recorded a 89% drop in net profit to RM3.48 million for the second quarter ended September 30, 2015, compared with RM33.99 million posted in the previous year. However, revenue was 7.3% higher at RM398.8 million against RM371.67 million in the same period last year. The company attributed its poorer performance to lower profits from the mail and retail segments driven by higher transportation cost for the transshipment business and recognition of expired postal order in the previous corresponding period. The improved performance from its courier, express and parcel (CEP) business managed to help offset lower revenues from the mail business.
Going forward, the CEP business will continue to be the main driver of Pos Malaysia’s earnings growth amid a lacklustre traditional mail delivery business. The CEP business has emerged as an important engine of growth, catalysed by e-commerce growth due to higher broadband penetration, growing familiarity and increasing acceptance of online and mobile transactions. Pos Malaysia aims to grow its CEP business segment further by maximizing the efficiency of its CEP infrastructure, capturing additional market share and generating new revenue streams via the introduction of new products and services.
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MALAYSIA LOGISTICS DIRECTORY 2016/2017
According to the company, the benefits include optimising storage
space and reducing manpower costs by 50% and investment in
the system can be recovered within 10 years.
Last year, Tiong Nam bagged triple honours at the 2015 Frost &
Sullivan Malaysia Excellence Awards. The company took home
the coveted Best Regional (ASEAN) Road Transportation Service
Provider of the Year award based on its performance for the
financial year 2014. It also clinched the Domestic Logistics Service
Provider of the Year award, marking the second consecutive year
in which it has received this recognition. It also received the Best
Road Transportation Service Provider of the Year award.
Kerry Logistics Malaysia, a leading logistics service provider in
Asia, is eyeing double-digit growth for its operations in Southeast
Asia, following the opening of its IT Development Centre in
Bayan Baru, Penang. The centre was set up to harness information
technology (IT) to support the company’s rapidly expanding
international operations. As part of the company’s overall IT
development strategy, the new centre will serve as an offshore
support centre to share resources among different offices globally
in a bid to increase operational efficiency at lower costs. With
its head office in Hong Kong, Kerry Logistics offers integrated
logistics, international freight forwarding and supply chain
solutions.
Century Logistics Holdings Bhd, an integrated logistics services
provider, expects RM500 million turnover in two to three years
from RM300 million in 2015, primarily driven by its existing core
businesses and mergers and acquisitions (M&A) activity. The
group provides floating storage and transshipment services for
international oil trading companies and procurement logistics
services to electrical and electronics customers. It is also involved
in supply chain management and ship-to-ship (STS) transfer for
fuel oil traders, including services for floating storage units (FSU)
within the port limits of Port of Tanjung Pelepas and Pasir Gudang
in Johor.
Last year, Century Logistics invested close to RM140 million to
build a multi-storey warehouse in Klang as part of its business
expansion. Expected to be completed by mid-2017, the total size
of the warehouse is approximately 600,000 sqft, which would
increase the company’s warehouse space by 30% to 40%. As
of mid-2015, the company has a total of 1.5 million sqft of
warehouse space across its facilities, in which additional 500,000
sqft were rented out from other landlords. To complement its
existing business, the company is currently seeking to acquire a
document management services company, without setting a time
frame for its M&A plans.
After a somewhat subdued financial year 2015 (FY15), logistics
and freight service provider Freight Management Holdings Bhd
(FMH) hopes to resume its growth trajectory in FY16. Earnings in
FY15 will be subdued due to some necessary long-term investments
that had to be made for the betterment of the company in the
future. Besides the reorganization of its air freight business, FMH
made a RM30 million investment for its warehouse that will
give it additional exposure into the high growth pharmaceutical
and healthcare sectors. The new warehouse allows temperature
control to meet pharmaceutical requirements and helps create a
higher value business.
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duties is deferred until the goods are removed. In other words,
local importers or proprietors who are entitled to claim back goods
and services input tax would be able to improve their cash flows
through the deferment of payment of GST and import duty. The
Johor-based integrated logistics service provider expects the
license to create a wide-ranging client base as it is one of the
most sought after type of warehouse post-GST implementation.
Xin Hwa is principally involved in the provision of land transport
operations, warehousing and distribution operations as well as
other services such as freight forwarding, custom brokerage,
manufacturing and fabrication of trailers. As of June 2015, the
company has a fleet size of 435 prime movers, 703 trailers and
35 trucks while its customers come from diverse industries –
furniture, building materials, electrical and electronic products,
marine equipment and supplies as well as port operators.
FMH found it necessary to invest in this segment given that
contribution from its pharmaceutical and healthcare customers
had seen strong growth in FY14 (from practically nothing to
occupying 70,000 sqft of temperature controlled warehouse
storage space).
Moving forward, FMH expects sea freight (its core business
segment) to drive its overall business. Although outlook for
short-term imports is less optimistic due to the weaker ringgit,
there is a spike in volume for exports. The company is not directly
involved in the transportation of exported and imported goods
but rather engages third-party shipping lines to transport goods
while it resells these services with its own value-added services.
Therefore, FMH is not exposed to the overcapacity challenges
facing shippers and not impacted by the fluctuations in oil prices
as it adopts a cost-push approach.
Meanwhile, Felda Global Ventures Holdings Bhd (FGV) is planning
to build a warehousing and logistics facility in Tanjung Langsat
(Johor) to enhance logistical capabilities for the whole group
(scheduled to be completed in March 2017). The facility will be
built on a 10-acre land in a port-bonded area, well developed
with basic utilities for logistics use and direct connection to the
port terminal, making it highly viable for international business
transactions. A new subsidiary, FGV Logistics Sdn Bhd, has been
formed to manage and operate the facility in collaboration with
local warehousing company for the domestic and international
markets. The investment is part of FGV’s trading, marketing and
logistics (TML) cluster’s continuous effort to enrich its logistics
supply chain components that will in the longer term translate
into improved market share and income to the group.
In another related development, Xin Hwa Holdings Bhd was
granted a bonded warehouse license by Customs for its newly
completed 220,000 sqft warehouse in Pasir Gudang, Johor. With
this, its total warehouse space will be increased to 464,600 sqft
from 244,600 sqft. Bonded warehouse is a warehouse authorised
by Customs authorities for storage of goods in which payment of
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MALAYSIA LOGISTICS DIRECTORY 2016/2017
LOGISTICS & TRADE FACILITATION MASTERPLAN
Launched in March 2015, the Logistics and Trade Facilitation
Masterplan is designed to provide guidelines and strategies
to enhance the efficiency and effectiveness of the transport
and trade facilitation mechanisms, improve productivity of the
freight logistics sector and provide a better environment for the
logistics industry in the domestic and international markets. The
aspiration is to be the “Preferred Logistics Gateway to Asia”
by 2020.
There are five strategic shifts and 21 action items to be
implemented in three phases under the plan (see Figure 1). The
first phase, which runs from 2015 to 2016, focuses on addressing
bottlenecks in the sector while the second phase is to promote
domestic growth of the sector. The emphasis in the third phase
(from 2020 onwards) will be on creating a regional footprint.
A National Logistics Task Force (NLT) has been set up to ensure
the smooth implementation of the Logistics and Trade Facilitation
Masterplan in order to boost Malaysia’s economy and exports
as well as to unlock the potential of Malaysia’s logistics sector.
Led by the Ministry of Transport, the task force will also be
made up of members from the International Trade and Industry
Ministry and the Economic Planning Unit of the Prime Minister’s
department. The NLT will be assisted by five cluster group
members comprising government agencies, industry players and
academicians, to determine the implementation of the respective
action plan.
The successful implementation of the plan will increase the
contribution of the transportation and storage sub-sector to the
national GDP from 3.6% in 2013 to 4.3% in 2020 (RM50.8 billion),
an estimated increase of RM22.2 billion. Cargo volume is projected
to grow 8% annually to reach 880 million tonnes by 2020. It
will also generate 146,000 new jobs by 2020, mostly in the
high-skilled category.
Source: Economic Planning Unit, 2015.
Figure 1: Summary oF the LogiSticS and trade FaciLitation maSterpLan.
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SHIPPING INDUSTRY OUTLOOK
The dry-bulk shipping downturn began in 2008, after the onset ofthe financial crisis and has worsened significantly last year as the Chinese economy has slowed. The Baltic Exchange’s main BDI index, which gauges the cost of shipping commodities, is more than 95% down from a record high hit in 2008. The index is often regarded as a forward-looking economic indicator (for industrial demand) with about 90% of the world’s traded goods by volumetransported by sea. The current oversupply of vessels that hasbuilt up over the past five years makes things worse, with ratesexpected to stay at a depressed levels for at least two more years.
Worsening conditions have already claimed casualties. Several bulk carriers, such as South Korea’s Daebo International and Japan’s Daiichi Chuo Kisen have been forced into bankruptcy while Lithuania’s government shut down its state-owned bulk carrier in July 2015.
In stark contrast, tanker shipping companies will outperform their peers in other segments due to more moderate fleet growth and healthy demand resulting from oil stockpiling and high refinery throughput due to lower oil prices. At the same time, ship owners are moving aggressively to scrap vessels to head off the kind of surplus seen in the dry-bulk market.
According to Fitch Ratings, outlook for the global shipping
industry remains gloomy in 2016. Muted global trade growth and
the economic slowdown in emerging markets would exacerbate
current overcapacity in the sector, resulting in further falls and
volatility to already depressed freight rates. However, performance
will vary across segments, with dry-bulk and container shipping
under pressure, while tanker and LNG shipping fare better.
Fitch’s comments echo analysis from Drewry (a shipping
consultancy firm), which has forecasted the dry-bulk shipping
segment to remain in the red until 2017 (despite a significant
slowing in fleet growth) due to slow demand growth.
China’s slower growth and economic transition will pose
significant risks for the shipping industry (especially the dry-bulk
segment) due to its key role in global trade, accounting for
two-thirds of global iron ore imports and 20% of world coal
imports. Weaker demand growth will increase overcapacity, the
key factor blighting the shipping industry’s recovery prospects and
putting pressure on freight rates. Container shipping capacity
is expected to increase 6% in 2016, on top of a 9% increase in
2015, outpacing demand growth of 3% to 4.5% in 2016.
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MALAYSIA LOGISTICS DIRECTORY 2016/2017
Shipping companies will continue to implement defensive
measures including cost-cutting, which will be helped by lower
bunker prices, slow steaming, idling and the cancellation of
sailings to achieve profitability. But industry analysts view these
measures as insufficient to lead to a protracted recovery in
the sector. Rigorous capacity discipline along with a pick-up in
demand would be necessary to reach a sustained equilibrium. Fitch
expects larger container shipping companies that successfully
implemented cost-containment measures to remain profitable
in 2016. On the other hand, financials of smaller and especially
dry-bulk shippers will remain stretched, which will probably lead
to more bankruptcies.
Chronic overcapacity and slow economic growth are also
driving firms to form vessel-sharing alliances and explore M&A
options. In early December 2015, France’s CMA CGM bought
Singapore-based Neptune Orient Lines (NOL) to create the third
largest line in a US$2.4 billion deal aimed at improving the
company’s competitiveness. The acquisition would create a
group with combined revenue of $22 billion with 563 vessels
and command 11.5% of worldwide market share.
The same month also saw the announcement of the merger
between two of China’s biggest shipping firms – China Ocean
Shipping (Group) Co (COSCO) and China Shipping Group. The
merger creates the world’s fourth largest container shipping
company with an estimated 8.1% market share, a major step in
the Chinese government’s plan to develop a globally competitive
maritime industry. Even so, the merged entity would still lag
far behind the top three industry players – APM Maersk,
Mediterranean Shipping Co and CMA CGM, which oversee almost
40% of the market.
Meanwhile in Malaysia, the Malaysia Shipping Master Plan
(MSMP) is set to be tabled in the Cabinet for approval. The
Ministry of Transport had through its agencies including the
Marine Department and the Maritime Institute of Malaysia
(MIMA) worked closed with industry representatives in drafting
the MSMP.
The master plan will cover the whole range of shipping
industry including ports and supply base logistics to ensure
the country’s maritime industry continues to be competitive.
Education and training will also be among the focuses of the plan.
The objective is to revitalize the shipping industry and maritime
sector in Malaysia through structured strategies from holistic
representatives in order to strengthen and ensure a dynamic and
sustainable industry.
In the preliminary assessment, the MSMP had identified and
underlined specific and strategic target markets for Malaysia’s
industry player to penetrate and capitalize. MSMP is proposing
the participation of Malaysia’s fleet in the global energy shipping,
intra-Asean trade shipping and enlargement of current operations
in the domestic market. In undertaking the plan, the MSMP must
be aligned with other national plans and agendas including the
Shipbuilding and Ship Repair Master Plan under the purview of the
Malaysia Industry-Government Group for High Technology (MIGHT)
and the study of Malaysia’s port sector that is currently being led
by the Economic Planning Unit.
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E-COMMERCE LOGISTICS
The e-commerce boom has brought about significant changes in
how products are delivered to customers. In a conventional online
retail model, purchased items are typically distributed via a postal,
parcel or freight network while recent e-commerce models have
led to a wave of new demand for four distinct types of logistics
functions:
A recent report by A.T. Kearney (a global management consulting
firm) reveals that retail e-commerce around the world continues
to grow at an impressive pace. Sales increased more than 20%
worldwide in 2014 to almost $840 billion, as online retailers
continued expanding to new geographies and physical retailers
entered new markets through e-commerce.
Source: Euromonitor, 2015.
• Mega e-fulfilment centres where merchandises are stocked and
picked at item level. These large facilities (typically between
500,000 sqft to one million sqft) are either operated by the
retailer or a logistics service provider and runs around-the-clock.
Parcel hubs or sortation centres which sort orders by zip or post
code and route them to the relevant parcel delivery centre for
final delivery to designated locations.
Parcel delivery centres which handle the last mile delivery to
customers.
Integrated technology where shopping carts are connected
to a transportation management system for shipping options,
accurate price quotes, shipment tracking, automated document
generation, payment reminder, alert system and information
collection for data analysis.
•
•
•Over the next decade, e-commerce will continue to gain
popularity in both developed and emerging markets and as a
result, logistics companies will have to play a key role in providing
supply chain management services that evolve with consumers’
changing shopping habits. This is one of the key findings in the
DHL Global E-tailing 2025 study, which explores future scenarios
with alternative views of what global e-commerce could look like
for consumers and businesses.
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MALAYSIA LOGISTICS DIRECTORY 2016/2017
Southeast Asia, with a population of 600 million, is poised to
eventually become the third largest e-commerce market in the
world, second only to China and India (ultimately surpassing the
U.S.). Online sales currently account for only 1% to 2% of total
retail sales in many Southeast Asian countries, providing ample
scope for the kind of breakneck growth that online trade has
enjoyed in China, where e-commerce now makes up 11% of total
retail sales, up from 2.5% just five years ago.
The e-commerce market in Malaysia is poised to flourish next year
and beyond with better mobility and enhanced Internet security.
Malaysia’s e-commerce market size has seen a 31% increase in
compound annual growth rate from 2010 to 2014 and a similar
growth is expected in the coming years with the local e-commerce
hitting around US$3 billion by 2018. With a total of approximately
252 million Internet users in Southeast Asia, Malaysia has the
third highest percentage of Internet users at 67%, after Singapore
and Brunei. The promising Internet penetration indicates an
enormous growth potential for e-commerce market growth.
While 2015 has been a fruitful year for online businesses, online
retail accounts for only 2% of total retail sales in Malaysia. Three
factors – mobility, better infrastructure, improved security and
enhanced logistics will drive local e-commerce development in
2016.
Correspondingly, the country’s postal and courier sector is targeting
to handle one billion packages yearly by 2025, driven by rapid
development of e-commerce, the Malaysian Communications
and Multimedia Commission (MCMC) said. Currently, domestic
postal and courier firms are handling 150 million parcels per year,
registering a profit of RM3 billion. If the target of one billion
packages per annum could be met by 2025, the profit would
reach RM10 billion.
Tapping into e-commerce logistics requires more than just
warehouses, trucks and manpower. It demands for technology
that integrates logistics setup with online storefronts and this
component is lacking among many domestic logistics players.
As oppose to conventional business-to-business delivery where
goods are measured by pallets and containers, a large part of
e-commerce involves serving end consumers. It is about picking,
packing and sending individual packages to consumers.
It is important to highlight that it is not about being the fastest
in the e-commerce delivery race but rather, about being able to
deliver an order at a time frame and price point that customers
want. In the past, providing customers with more options means
more investments but that may not be the case today. Given the
increasing popularity of outsourcing and business alliances,
a company that lacks a particular component in its packaged
solution can easily source it elsewhere. Therefore, e-commerce
opens up a new segment for old and new, large and small logistics
players alike.
As put by the founder and executive chairman of the World
Economic Forum Klaus Schwab, “In the new world, it is not the
big fish which eats the small fish, it is the fast fish which eats
the slow fish”. Domestic logistics firms that can be among the
first few to cater for e-commerce growth needs in the country
are set to benefit significantly in the future.
Source: FT Confidential Research, 2015.