2012-10-22 02:30:51 - Malaysia Freight Transport Report Q4 2012 - a new market research report on companiesandmarkets.com

Our Malaysia freight outlook remains comparable to last quarter, with subdued economic growth holding back transport demand. However, the release of new official freight volume data for past years has caused us to rework some current estimates and forecasts; in addition we continue to monitor a range of downside risks. On economic growth, we still take a below-consensus position, stressing the dampening effects of lower demand from the country´s key export markets such as Singapore, the US, and China. We also note structural changes within the country that are shifting the drivers of growth from outward-facing exports to inward-based consumer demand, and from manufacturing to services.

BMI predicts GDP growth at 3.3%, down from 5.1% last year. The value of foreign

 

 

trade (imports + exports) will grow by 3.4% in real terms, down from 4.5% in 2011. That said, we expect the country´s major freight modes to continue to perform reasonably well for a variety of reasons. Port traffic is supported by greater reliance on intra-Asian and local trade, which is holding up better than global longhaul trade routes. Air freight is growing faster than GDP, while railway growth, in contrast, is more subdued this year.

Headline Industry Data

- The real value of Malaysia´s total trade will rise by a predicted 3.4% in 2012, a slowdown on the estimated 4.5% expansion experienced in 2011.

- Total cargo volume handled at Port Klang will rise by 7.7% to 209.1mn tonnes in 2012, while volume at the Port of Tanjung Pelepas will rise by a slightly higher 8.2% to 141.01mn tonnes.

- Rail freight volume is projected to rise 1.8% to 6.203mn tonnes in 2012 and to average 4.0% annual growth in the five-year period to 2016.

- Air freight volume is set to grow by 4.1% to 8.471mn tonnes in 2012, down on the 7.0% growth rate achieved in 2011.

Key Industry Trends

MASkargo Flies Into Lower Growth Markets?

MASkargo´s launch of new air freight services to Vietnam and other Asian destinations, along with increased services to Europe, has left a number of analysts scratching their heads. BMI believes that the company´s expansion will expose the firm to a difficult operating environment given the poor growth figures coming out of these regions. For the first quarter of 2012, Europe and Asia Pacific were the two worst performing regions in the air freight sector, with year-on-year (y-o-y) growth of -4.53% and - 2.85%, respectively. Europe continues to be plagued by austerity measures, which have hurt trade across all freight sectors as demand for foreign goods has cooled. A slowdown in China has also made it difficult for air freighters operating in Asia Pacific to maintain profitability as they face lower throughput levels.

Increasing its services into these two regions, especially given the company´s large presence in China (MAS offers four services to Shanghai and one to Hong Kong) exposes the carrier to a far weaker demand outlook throughout 2012.

Penang Set To Be Operated By Seaport Terminals

Under a privatisation deal, Malaysia´s third largest container facility, the Port of Penang, will be operated by Seaport Terminals, itself 30% owned by the international shipping company Maersk Line. Seaport already operates the number two box facility at the Port of Tanjung Pelepas (PTP), where it has a record of boosting volumes by attracting major shipping lines. On the whole, BMI believes the deal will therefore be positive for Penang, although we note concerns among some local analysts that Penang might be kept purely as a feeder port for PTP. BMI highlights, however, that a government will always set stipulations during a port´s privatisation, with the facility awarded with caveats attached. These normally centre on the successful bidder agreeing to achieve a certain level of throughput and investing a certain amount over a period of time.

Trucking Dispute Resolved At Port Klang

Operations at Malaysia´s Port Klang returned to normal in May after the Association of Malaysian Hauliers signed a memorandum of understanding (MoU) with container depot operators to end its industrial action. Truck drivers had protested against high charges and delays at depots and refused to carry drayage to and from container depots outside the port. The operators have agreed to improve service times in order to cut waiting times to less than one hour. As an existing transhipment hub with a developed port sector, Malaysia´s ports are ranked third after Hong Kong and Singapore in the Asian region. Port Klang is well positioned to play a major role on this developing trade route.

Key Risks To Outlook

Compared to our last report, we have juggled the downside risk factors that we believe need to be monitored as we track Malaysian freight activity levels. We now put political risk in the run-up to general elections in the forefront of our calculations. As we have explained previously, BMI does not think that fundamental challenges to the Malaysian economic model are on the cards. Rather our concern is that government pump-priming in advance of the elections could heighten business community worries over the fiscal situation. Also, depending on how the politics plays out and on issues of timing, the natural ´pause´ in investment programmes that takes place during elections in most countries could become unduly prolonged.

Our second downside risk to watch is the danger of a sharp correction in equity and real estate prices. In recent years, the influx of foreign capital into speculative investments such as real estate and equities, have driven up prices of these assets to new historic highs. Valuations on the Kuala Lumpur Composite Index (KLCI) have become increasingly unrealistic by historical standards, and we caution that a sharp decline in equity prices could easily trigger a panic among foreign investors, potentially resulting in large and destabilising capital outflows. Our view that property prices in Malaysia are at risk of significant declines due to an oversupply of units in H212, further compounds the risk of capital flight as foreign investors make up a large portion of the speculative investment property market. Any crisis of confidence of this type could hit investment plans in the freight sector, as well as reducing economic growth and trade levels which are key to freight demand.The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

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