Economic Update

Several major international retailers are opening logistics centres in Malaysia, furthering the country’s aim of becoming a regional distribution hub.

In March Chinese e-commerce giant Alibaba announced it would set up an integrated logistics and distribution facility in Kuala Lumpur, part of an initiative to develop a Digital Free Trade Zone (DFTZ) in concert with the Malaysian government.

Set to be launched in late 2019, the Alibaba facility will combine Customs, warehousing and fulfilment operations, with the aim of providing faster clearance and delivery for imports and exports around the region.

After taking majority control of logistics firm Cainiao last month, in a deal valued at RMB5.3bn ($796.8m), Alibaba announced plans to invest some $15bn in its global logistics network through to 2022.

Sri Liow Tiong Lai, the minister of transport, said other companies could also join the initiative.

Other global retailers select Malaysia as a regional logistics base

Alibaba is the third retailer so far this year to choose Malaysia as a base for its regional logistics and distribution operations.

In early March Zalora, a Singapore-headquartered online fashion retailer, opened a 43,600-sq-metre e-fulfilment hub in the country. The $4.2m facility has the capacity to hold 4m items and process up to 100,000 items per day, and is intended to be the sole supplier of Zalora products to Malaysia and other high-growth markets across South-east Asia, including Singapore, Hong Kong and Taiwan.

The facility’s location in Shah Alam, on Malaysia’s west coast, is well connected by both sea and air, and was chosen in part for its proximity to Kuala Lumpur, one of Zalora’s biggest markets.

The retailer has been awarded Authorised Economic Operator status by Malaysia, allowing it to move quickly through Customs, and reduce the lead time from order to delivery to as little as two days for customers in the region, local media reported.

In late August Swedish furniture retailer IKEA also announced plans to establish a 100,000-sq-metre distribution and supply chain centre in Malaysia.

Built to supply the ASEAN region, the RM908m ($216.2m) facility will have an annual capacity to store 9500 stock keeping units valued at RM6.6m ($1.5m). The facility will initially serve 12 IKEA retail stores in the region, with plans to expand operations to 20 by 2026.

Upon completion, the facility will be one of IKEA’s 10 largest regional distribution centres globally, according to a statement by the Malaysian Investment Development Authority.

E-commerce and regional distribution the focus of airport city

The new DFTZ under development is part of the Kuala Lumpur International Airport (KLIA) Aeropolis, located on the site of the former low-cost carrier terminal. It will include a 17.5-ha e-fulfilment centre, a 46,000-sq-metre satellite services office and an e-services platform, according to Lai.

“The DFTZ is a special trade zone designed to promote the growth of e-commerce and to capitalise on the exponential growth of the internet economy, making Malaysia the regional fulfilment hub for ASEAN consumers,” he told attendees at the FIATA World Congress in Kuala Lumpur earlier this month.

In addition to the 1250 regional flights per week on offer, the KLIA Aeropolis is already home to four major logistics integrators and 20 of the top-25 freight forwarders, according to Lai.

The airport sees 72 aircraft movements per hour, and a combined 750,000 tonnes of cargo transported each year, Badlisham Ghazali, managing director of Malaysia Airports, the parent company of the operator of KLIA, told industry press in September.

With capacity for 1.1m tonnes, there is room for further growth at KLIA, though additional infrastructure investment will be needed as inter-ASEAN trade expands. By 2050, Malaysia aims to increase its annual cargo volume to 3m tonnes.

Broader policy blueprints to develop logistics sector

In Malaysia alone, the e-commerce market is projected to reach RM114bn ($26.9bn), or 6.4% of GDP, by 2020, according to the National E-Commerce Strategic Roadmap.

The roadmap, of which the DFTZ is a part, aims to facilitate cross-border trade and nearly double sector growth, from the current 10.8% to 20.8%, by 2020.

It dovetails with the government’s Logistics and Trade Facilitation Masterplan 2015-20, which seeks to establish Malaysia as the preferred logistics gateway to Asia for major manufacturers, traders and e-business organisations.

To achieve this, the three-phase plan aims to tackle persistent problems in the sector, such as existing distribution bottlenecks, as well as encourage domestic growth and regional expansion.

Malaysia ranked fourth out of 50 markets on the Emerging Markets Logistics Index 2017, produced by global logistics company Agility, behind only the UAE, India and China, underscoring the country’s attractiveness as a transport and logistics centre.