Unleashing potential: The logistics sector is recording steady growth

With 2013 seeing the government begin formulating a Logistics Sector Master Plan (LSMP), along with the reconstitution of the Malaysian Logistics Council (MLC), the sector is set to see major expansion in the years ahead. This is a welcome development for many, as Malaysia faces the task of boosting regional logistics integration ahead of the ASEAN Economic Community (AEC) in 2015. Making sure all the pieces of the logistics grid fit should help unleash major potential in what is already a highly competitive sector.

Facts & Figures

In comparison with many other South-east Asian nations, Malaysia has a highly developed transport infrastructure. According to the MLC, freight logistics is among the top three employers in the country, while the percentage of GDP spent on logistics is 13%. The last full MLC study, conducted in 2009, also showed the freight logistics sector alone had a RM62bn ($19.4bn) a year effect on the economy. Some 25% of this activity was being carried out by third-party contractors, the rest by companies themselves. According to Frost & Sullivan, in 2013, the logistics sector was expected to grow 9.5%, year-on-year (y-o-y), bringing in RM139.7bn ($43.6bn) in value. The firm forecast a compound annual growth rate of 10.2% for the sector up to 2017, when it would be worth RM207.4bn ($64.7bn). As a major export and import centre, forwarding has major potential for expansion.

With a developed IT backbone, growing internet penetration, and per-capita incomes twice that of China and four times that of Indonesia, the e-commerce market has been expanding, with revenues of $380m in 2013 from product sales only, according to On Device Research. E-commerce is expected to accelerate, boosting the demand for courier and delivery services.

With the government’s plan to boost Malaysia’s 2012 ranking of 29th in the World Bank’s Logistics Performance Index, Prime Minister Najib Tun Razak launched the works on LSMP in October 2013. The plan will look at both the infrastructure and regulatory sides of the sector, aiming to further coordination in planning and remove unnecessary bureaucratic obstacles to logistical efficiency. This will be welcome to sector businesses, while the 2014 ranking improved to 25th. The MLC has voiced concerns on the infrastructure side over the proposed Port Klang road system – a stalled project outlined in the Industrial Master Plan 2006-20 that would enhance “last and first mile” transport in the country’s busiest industrial and commercial region.

Competition

The future too may see more outsourcing of logistics operations to third parties. Already in the market in this regard are several listed companies such as TASCO and Freight Management. Freight Management, meanwhile, operates an asset-light business model in which warehousing is made part of a service package, rather than owned or rented by the firm itself. This has given it good margins in a competitive sector.

While all the major international couriers are also present, Pos Malaysia (POS) – the country’s national post office, which is listed – is boosting its courier services as part of a five-year restructuring begun in 2012. This will likely see POS try to corner more of the growing e-commerce market. In this sphere, GD Express (GDEX) is another emerging force, with its revenue up from RM34.24m ($10.7m) to RM40.3m ($12.6m) y-o-y in the second quarter of financial year 2014, while net profit more than doubled. Teong Teck Lean, managing director and group CEO of GDEX, said that it was difficult to forecast the impact ASEAN integration will have on the sector. “In anticipation of ASEAN economic integration by 2015, Malaysia has fully liberalised the logistics sector. Since 2011, 100% foreign-owned logistics providers have been allowed. This is not the case in other ASEAN countries with the exception of Singapore, making it difficult to predict what impact economic integration will have on the ASEAN logistics industry.”

“While the 2008 global crisis impacted many firms, 2013 was a good year for some major express delivery firms. A lot of that can be attributed to growth in the Asia Pacific,” Christopher Ong, managing director of Malaysia and Brunei DHL Express, told OBG.

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The Report: Malaysia 2014

Transport chapter from The Report: Malaysia 2014

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