Full Steam Ahead

Malaysia

Economic News

22 Jul 2010
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With Malaysia's economy having shrugged off the last vestiges of the global financial crisis and now looking to post strong growth for the year, the country's shipping and logistics industries are well placed to take advantage of the rising tide of prosperity.



Malaysia's exports rose by 31% in the first quarter of 2010 compared to the opening three months of last year, climbing to $49bn, with the March total of $18.4bn an increase of 36.4% – the highest monthly export growth in more than a decade, according to a International Trade and Industry Ministry report issued on May 4. With imports also on the rise, jumping by 35% in Q1 to $37.1bn, there are clear signs that the country's economy is well placed to surpass the 4.5-5% growth predicted by Bank Negara, and could breach the 10% forecast by some analysts.



While there are some factors that could impact on the soaring overseas trade activity, with yet-to-be released figures for April and May expected to ease back as a result of the effects of the Icelandic volcano eruption disrupting the air cargo segment, this will not hit the shipping sector, which accounts for 65% of all freight movements to Europe.



One firm that has benefitted from the exports boom is Malaysian International Shipping Corporation (MISC), which released its financial statements for the three months ending March 31 on May 5, the report showing a 36.5% increase in net profits compared to the same quarter in 2009. Having posted $60.8m worth of black ink, the company says it has cruised out of the trough that the shipping industry found itself in last year, when demand for hulls fell sharply, cutting revenue across the sector.



One of the reasons given for the improved performance was the return to health of the firm's liquefied natural gas (LNG) operations, a crucial segment for MISC, given that it is the largest owner-operator of LNG tankers in the world.



"The improvement of the bottom line was due to higher profits in LNG and offshore businesses, and a cost reduction effort that resulted in lower operating costs," the company said in a statement issued to Bursa Malaysia.



MISC is also reinforcing its chemical tanker fleet, having taken delivery of another carrier early in the year and is planning to have up to 15 more such vessels under its company flag by 2012.



In early May, shipping firm Shin Yang Corporation announced that its plan to list its shares on the stock exchange by the third quarter had been given clearance by the Securities Commission, which had approved the company's application to float its entire issued and paid-up share capital on Bursa Malaysia.



The Sarawak-based company is planning to expand its existing fleet of 245 vessels and further develop its already established ship building and maintenance services, according to Shin Yang's chief executive officer, Ling Chiong Sing.



"The group's listing proceeds will be used for the construction of additional vessels so that we can tap further on the growth demand from the East Asian market
," he said. "Additionally, the proceeds will be used to enhance our shipbuilding capacity and facilities, both in Sarawak and in the Middle East."



It is not just Malaysia's shipping lines that are looking to expand, the country's port operators are also ramping up efforts to increase cargo handling capacity to meet the rising demand.



At the end of April, Mior Ahmad Baiti Mior Lub Ahmad, the chief executive officer of Bintulu Port Holdings, told local media that a major redevelopment of the company's facility at Kuching would be completed by August at the latest. As part of the $90m project, the capacity of Bintulu Port's container terminal is being increased from 400,000 twenty-foot equivalent units (TEUs) to 650,000 TEUs, with storage areas also being expanded to handle the extra load, Mior Ahmad said.



Though adding more than 50% to the container-handling capacity of the port, expected traffic increases mean that the current project is just an interim measure, said Mior Ahmad.



"The expanded capacity can cater to requirements up to 2014. There is space for further expansion to increase capacity to 1m TEUs a year," he said.



At other ports around Malaysia, capacity is already being stretched as the economy rebounds. In late April, Northport (Malaysia), the country's largest multipurpose port operator, announced its facilities had handled 779,867 TEUs in the first three months of the year, a 26% increase over the same period in 2009.



With foreign trade soaring, the company said it expects solid year-on-year growth, turning around a 2% downturn in container traffic from last year.



"Based on the demand-side developments, cargo volumes at Northport could increase between 10% and 15% in 2010 compared with the volume of containers handled in 2009," Northport's managing director, Datuk Basheer Hassan Abdul Kader, said in a statement issued on April 22.



However, while both Malaysian port operators are looking to cash in on the coming economic boom, it may take some time before local shipping firms will be able to take full advantage of the improved business climate. Currently, only 30% of Malaysia's seaborne trade is carried in domestically owned hulls, meaning local exporters and importers are paying out large charter fees to foreign carriers.



This will change as local owners move to expand their fleets, and as the economies in the region and beyond increase the pace of their recovery, with Malaysian shipping firms capturing a greater percentage of the country's foreign trade.
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