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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.