External trade growth to propel logistics sector

THE growth in the external trade is expected to propel the expansion of the country's logistics industry this year.

Malaysia's external trade is expected to increase 5.9 per cent to RM1.32 trillion this year, from RM1.24 trillion last year, promising positive prospects for local logistics service providers.

"Growth of the country's external trade signifies the growth of the transportation and logistics industry, especially for import and export forwarding, air freight and ocean freight-related businesses," said Gopal Ramasubramaniam, Frost & Sullivan vice-president for transportation and logistics practice Asia Pacific.

Given such a scenario, Malaysia's logistics industry is expected to grow 10.3 per cent to RM129.93 billion in 2012 compared to an estimated RM117.8 billion a year ago.

This will mainly be attributed to strong government support to logistics-related development and economic growth fuelled by foreign investments in the country.

Foreign direct investments surged to RM21.3 billion in the first half of 2011 from RM12.1 billion in the corresponding period in 2010, reflecting growing investors' confidence following the government's initiative to stimulate economic growth, namely the Economic Transformation Programme (ETP).

"The introduction of several initiatives such as the Government Transformation Programme and the ETP provided a conducive business environment for the logistics market to grow," Gopal said.

In this regard, he said Malaysia's major trading partners are Asian countries, which are also expected to experience stable economic growth. Electrical and electronic products, chemicals, palm oil, machinery, appliances and parts are key trading commodities for Malaysia.

Moving forward, the Malaysian logistics industry is forecast to grow at a compounded annual growth rate of 11.6 per cent to reach RM203.71 billion in 2016.

Malaysia's total cargo volume is projected to increase 10.1 per cent to 545.13 million tonnes this year, from 495.29 million tonnes in 2011, with sea freight set to be the most favoured mode of transport for cargoes in Malaysia, handling more than 90 per cent of total freight traffic last year.

Total cargo volume by sea alone is expected to grow 10.1 per cent to 538 million tonnes in 2012, Gopal said.

Port Klang, Malaysia's busiest container port, contributed 39.2 per cent of total sea throughput in 2011, while Port of Tanjung Pelepas in Johor contributed 22.7 per cent.

"With strong growth in the nine months to September 2011, Johor Port is likely to overtake Penang Port in terms of cargo volume handled by end of 2011," Gopal said.

He estimated that Johor Port's market share to total sea throughput at 6.7 per cent as compared to Penang Port's at 5.9 per cent.

Gopal expects the rail segment of the logistics industry to make a significant impact in the next few years, especially with the completion of KTM's double-tracking project, linking Johor Baru in the south to Padang Besar in the north.

"Cargo volume by rail is expected to increase to 6.2 million tonnes in 2012 as compared to 5.9 million tonnes in 2011.

"Rail has sustained positive cargo volume growth over the years and can be significant differentiator for Malaysia to position as a supply chain hub," he noted.

Meanwhile, cargo volume by air is expected to grow 3.9 per cent to 925,000 tonnes in 2012.

"Steady growth in the economy and external trade will contribute to the growth of air cargo volume in 2012.

"Air cargo volumes should cross the one million mark to ensure the infrastructure facilities as well as supporting supply chain functions are fully leveraged. This is very critical for the overall industry growth as well," he said.

Gopal said that freight forwarding transportation and warehousing services will remain as the main revenue stream for logistics service providers as these key functions are more likely to be outsourced by logistics end users.

"Value-added services, such as information management and vendor management, are likely to be outsourced more in the future.

"Logistics end users are increasingly looking for capable logistics service providers to help them in better inventory control and information management," he said.

On another subject, Gopal believes that sustainability and healthcare will be the focus areas for the logistics industry in Malaysia in 2012.

"Logistics service providers should coordinate sustainable logistics practice in a way that meets customer requirements at minimum cost, such as transport modal shift to tower carbon dioxide or CO2 emission and utilise the warehouse rooftop to install solar panel under the feed-in tariff scheme implemented by the government," he said.

In this aspect, he foresees logistics service providers to continue investing in building green warehouses, which are built to fully optimise the usage of natural light and air circulation to maintain a constant warehouse temperature and systematic rain harvest system.

He also said the government's plan to develop Malaysia into a medical devices hub in Asia Pacific under the healthcare's National Key Economic Areas is expected to expand the healthcare logistics segment.

He foresees logistics service providers in Malaysia to focus on specialised logistics solutions for specific industries, such as health-ccare and pharmaceutical segment in the future compared to basic services currently.

"Logistics end users are also expected to centralise their supply chain needs, compared to the current trend of engaging multiple logistics service providers for different logistics requirements," he said.