Wednesday, October 29, 2008

Malaysian logistics sector may consolidate further

KUALA LUMPUR: The fragmented local logistics industry is expected to enter into a consolidation period with inefficient and smaller players exiting the industry or being merged or acquired amid the current slowing global economy, according to analysts and industry players.

Being a highly sensitive industry that grows in tandem with the overall economy, they said the local logistics industry, which mainly consists of medium and smaller scale players, was expected to shrink amid the current economic slowdown.

Consumption of goods, regardless of whether they are automobile, electronics and electrical, and fast-moving consumer goods, would normally be lower during any slowdown, leading to less movement of cargo, said one industry player.

Trans-Asia Shipping Corporation Bhd (TASCO)’s chief executive officer Lee Check Poh expected more manufacturers to consolidate their logistics suppliers and appoint one or two logistics players to serve them.

“They normally look for logistics players with total logistics services like us (including air, sea, land and warehouses) whereby they are able to negotiate in bulk and in turn reduce cost and minimise administration hassle,” he told The Edge Financial Daily.

He said based on his observations during the 1997/1998 financial crisis, more manufacturers would look to total logistics players to design and improve their supply chain management to reduce their transit lead time and maintain minimum inventories, which in turn, would improve their cash flow.

Coupled with the high fuel prices and electricity tariffs, an analyst said the logistics players would face even tougher times ahead as they were unlikely to be able to fully pass through costs to their customers in view of the highly competitive nature of the industry.

He said the shrinking profitability might actually bode well for the bigger players, as they would be able to leverage on their economies of scale to reduce the impact of higher operational costs.

Moreover, the analysts said the bigger players, especially those with cash surplus in hands, might take the opportunity to expand their market shares via mergers and acquisitions (M&A), which in turn, enlarge their customers base.

An industry player said there would also be a shift towards outsourcing of logistics related activities among manufacturers due to cost-cutting pressures.

Source: The Edge Financial Daily

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