issues and challenges of logistics in malaysia - with abstract

7/28/2019 Issues and Challenges of Logistics in Malaysia - With Abstract

1/11

ISSUES AND CHALLENGES OF LOGISTICS IN MALAYSIA: APERSPECTIVE

Mohd Hafizzuddin Md Damiri*

Abstract

Malaysias progress on logistics has failed to keep pace with its growth in trade.Developing countries in this region are now catching up, so faster progress on logisticsdevelopment will be crucial to sustaining Malaysias competitive advantages. Highlogistics costs in Malaysia derive from poor transport infrastructure, underdevelopedtransport and logistics services and slow and costly bureaucratic procedures for dealingwith both exported and imported goods. The balance among these three varies amongcountries in the region but in each country, a complementary approach to address all of

them will be needed to produce a sustainable improvement in competitiveness.

Keywords: logistics issues and challenges, Malaysian logistics, trade and transport,logistics competitiveness, transport infrastructure.

Transport and Logistics Issues

Why focus on logistics? The case is simple. Reducing the cost and improving the quality

of logistics and transport systems improves international market access and leads

directly to increased trade and through this, to higher incomes and the scope for

significant reductions in poverty. And, despite two decades of improvement, Malaysia

has significantly scope for further reducing its transport and logistics costs.

____________________*Department of East Asia Studies, Faculty of Arts and Social Sciences, University of Malaya and PublicService Department (PSD), Malaysia. Paper prepared for the United Nations Economic and SocialCommission for Asia and Pacific (UNESCAP) Regional Expert Group Meeting on Trade and TransportFacilitation for Export Competitiveness, Yangzhou, China 25-26 September 2008 and the NationalConference on the Direction of the Logistics Industry and Supply Chain in Malaysia: Issues andChallenges, Shah Alam, Selangor, Malaysia 4-5 August 2009.


2/11

Studies have indicated the importance of efficient ports (in terms of both operational

efficiency and document facilitation) for trade competitiveness1, but the arguments

highlighted show that ports are only one aspect of the connection between logistics and

trade growth. Looking at the total cost of getting products from producers to markets,

land transportation to ports accounts for a higher proportion than processing within the

port or the maritime voyage itself, and it is improvements in land access that offer the

greatest scope for increasing trade competitiveness.

Under the Third Industrial Master Plan (IMP3), launched in 2006, Malaysias logistics

development were charted carefully and diligently as to keep on pace with other

countries in South East Asia. Unlike its neighbors Singapore, Thailand, Vietnam

Malaysia still lags on the development and competitive edge for logistics, if not, total

logistics solutions. Transportation means by air, sea and land, coupled with disparity on

issues related to regulations, policies and operations, hinders further improvement in

this sector.

Then there is the use of technology. Investments in this may cost millions, if not billions

of dollars, including upgrades, maintenance and necessary tune-ups. Skepticism on

technology further impede logistics-related improvements be made, for example, the

National Single Window (NSW). This project has been going on for years, where

Malaysia is championing it in the ASEAN arena, without a hint of progress or success in

1 Engel, Charles & Jian Wang, International Trade in Durable Goods: Understanding Volatility, Cyclicalityand Elasticities, NBER Working Papers 13814, National Bureau of Economic Research Inc., 2008.


3/11

the near future. This brings us to the elaborate details for each logistics segment and its

problems, which of course, need to be ironed out appropriately.

i. Maritime Issues

Seventy percent of Malaysias trade in manufactured goods is carried by containers and

the use of containerized shipping has increased tremendously. During the 1990s, total

container movements increased at least nearly 10 percent a year, with the fastest

growth occurring in the ports of Malaysia. The rapid growth in container usage

represents both a revolution in maritime technology and a significant logistics challenge

to economies in the region.

Though container ports in the region are becoming more efficient in handling containers,

Malaysia cannot keep pace with the rapidly growing demand for berth and storage

space. While the capacity of the container fleet on the South East Asia East Asia

routes increased at more than 20 percent a year between 1980 and 20002, the capacity

of container berths to handle those ships increased at less than 8 percent a year.

Countries in the region, including Malaysia, responded to the shortage by adding new

berths, converting general cargo berths to container handling and developing new ports.

Expanded capacity requires greater land area for use in container storage and storage

yards to handle the capacity still cannot cope with the decreasing amount of space

2 Feenstra, Robert C. & Kee, Hiau Looi, Export variety and country productivity: Estimating themonopolistic competition model with endogenous productivity, Journal of International Economics,Elsevier, Vol.74(2), 500-518, 2008.


4/11

available both at the ports and depots3. Not to mention the means of transporting the

containers across land.

There is limited scope for further reducing costs by increasing vessel size and the next

development is likely to be more direct services from what are now feeder ports. With

higher volumes and more efficient smaller vessels, this could overcome the cost penalty

of transfers in the hub ports4. The start of this trend can already be seen in the slower

growth rates of two regional megaports in this region: Port Klang and Port of Singapore.

ii. Multimodal Transport

Malaysia uses containers for the maritime part of trips, loading and unloading them in

the ports rather at the origin and destination of their cargo. This eliminates the main

cost-saving advantages of container use. Countries that can best encourage door-to-

door movement of containers using multimodal transport will be best equipped to

compete and to bring trade benefits to their more remote areas 5, such as between West

Malaysia and East Malaysia. To achieve this integration, Malaysia needs to:

Match inland with maritime infrastructure. An important reason that

containers do not move inland from container ports is that road and rail

3 Venables, Anthony J., Evaluating Urban Transport Improvements: Cost Benefit Analysis in the Presenceof Agglomeration and Income Taxation, CEP Discussion Paper, Center for Economic Performance, LSE,2004.

4 Feenstra, Robert C., New Evidence on the Gains from Trade, Review of World Economics, Springer,Vol.142(4), 617-641, 2006.

5 Romer, Paul, New goods, old theory and the welfare costs of trade restrictions , Journal of DevelopmentEconomics, Elsevier, Vol.43(1), 5-38, 1994.


5/11

infrastructure lack the right carrying capacity and vehicle dimensions for the

transport of loaded containers. This scenario can be seen in East Malaysia.

Simplify trade documentation. Examples include the use of through-

waybills and single invoices for all modes. In customs clearance times, the

economy of Malaysia is quite similar to those of other developing countries

but if taken together, developing countries are significantly slower that

developed countries. Another regulatory change to allow containers to be

cleared for tariffs, customs, health and taxation charges at inland locations

away from the ports would help reduce port congestion but could raise

additional security concerns.

Develop an efficient freight forwarding industry. Third-party logistics or

3PL is not a well-advanced concept in Malaysia. In industrial countries,

almost a third of logistics turnover is contracted to 3PL providers, but even in

industrialized Malaysia, barely 10 percent of trade-related transport services

are provided in this way. Progression to the earlier stage of second-party

logistics or 2PL which companies unify their internal transport and

warehousing functions and create their own internal logistics departments in

Malaysia is still underway.


6/11

Develop effective communications systems, so that freight forwarders

can take advantage of the shipping alternatives available and keep their

clients aware of the status and location of their freight.

Even the least accessible countries in this region have improved the quality and scope

of their information systems such as Thailand, Vietnam and Indonesia but few have

been able to develop freight forwarding agencies that perform as well as those in the

more accessible and trade-open countries, such as Singapore.

iii. Ports and Land Access

The high costs of land access to ports, reinforced by the effects of production

agglomeration, have caused an excessive concentration of export-related activities in

port cities and essentially restricted the benefits of trade growth to the areas

immediately surrounding ports.

If the benefits of trade are to be more widely distributed, the penalties of inaccessibility

need to be addressed. Such action could not only stimulate trade-induced growth in

currently inaccessible areas, but if successful, this could reduce and slow the growth

of trade-induced urban congestion and pollution in port cities.

Reduction of port access costs depends on having adequate infrastructure, appropriate

vehicles and logistics technology that allows these to be use efficiently 6. As container

6 Mangan, John, Chandra Lalwani & Fynes, Brian, Port-centric logistics, International Journal of LogisticsManagement, Vol.19(1), 29-41, 2008.


7/11

ports expand, we find it increasingly difficult to accommodate both the added space

requirements and the road congestion that results from the high volumes of truck traffic

servicing the ports. While the depth of the maritime access channel is not a constraint

on growth, the urban congestion problems of port growth can often be solved by moving

non-maritime port activities (mostly value-adding production and packaging services)

inland7, closer to the industries that the port serves and to build rail links to avoid

generating extra load traffic.

iv. Air Freight

In Malaysia, air freight accounts 30 percent of Malaysias international trade by volume

but more than 55 percent by value8. Air freight is important for Malaysia: first, because

the distance from Malaysias major exports U.S. and Europe makes quick delivery of

sea freight impossible; and second, because a high proportion of Malaysias

manufactured exports require timely delivery. Another reason is because these

manufacturers have high value to weight ratios, the ad valorem cost of their air transport

is comparatively low.

Good air freight facilities are important in attracting fast growing, high value-added

industries. Hence, competition between airports in South East Asia to act as a hub for

major logistics companies is growing tremendously, providing services equally or better

than the other. The smaller and newer airports that can offer better services are also

7 Meixell, Mary J. & Norbis, Mario, A review of the transportation mode choice and carrier selectionliterature, International Journal of Logistics Management, Vol.19(2), 183-211, 2008.

8 Ministry of International Trade and Industry (MITI), Malaysia, Malaysia International Trade and IndustryReport 2008, Percetakan Nasional Malaysia Berhad, Kuala Lumpur, 2009.


8/11

growing faster than the larger ones; this happens in support of low-cost carriers, by

giving an alternative to air travel besides major airlines servicing the various South East

Asia air sectors.

Airlines and traditional freight forwarders both compete and cooperate with each other

to provide air transport-based freight services. The progress of air freight forwarding and

air freight logistics in Malaysia and its neighbors could be compared in favor with that in

the U.S. and Europe, while at the same time depending on multinational air carriers for

efficient air freight logistics.

Policy Recommendations

To again highlight the importance of logistics, it is best, against this background, for the

need of the Government of Malaysia to take actions to improve trade-related logistics on

several fronts, if Malaysia were to increase its trade competitiveness, apart from being

burdened with logistical nightmares.

i. Domestic Integration

For the less open and accessible areas in Malaysia, especially in East Malaysia, the

development of more tightly integrated domestic markets and logistics systems is a high

priority. Besides promoting an appropriate mix of modes roads, waterways and rails

complementary institutional actions must be taken to extend better transport services to

remote areas and to establish better conditions for market development, for example

through postharvest services, cargo consolidation through farmer or business


9/11

associations, information on prices and market demand, access to credits and human

skills.

ii. Private Sector Collaboration

The transport of the outputs of very simple extractive industries may not require

advanced logistics abilities, but high-value products call for services such as freight

forwarding, 3PL, warehousing, storage, packaging, e-business use and tracking.

Logistics needs of this kind tend to better served by the private rather than the public

sector. In Malaysia, the Government may be well advised to withdraw from direct

provision of logistics services while creating the right enabling environment for

competition and private investment. This may entail legalizing and deregulating freight

forwarders and allowing new entrants, including the international companies that can be

a major source of capital, technology and new management practices needed to

develop sophisticated services. Even areas such as port management and operations

that are traditionally managed by the Government may benefit from private service

provision.

Given the fixed costs of entry, private operators are reluctant to provide services where

trade volumes are low. The initial public investment in facilities such as inland container

terminals in potentially high-growth areas in Malaysia, which are distant than ports, can

be recovered through later concession revenues or outright sales.


10/11

To encourage private sector collaboration, the Government has established the

Malaysia Logistics Council (MLC) in January 2007, to (i) provide leadership and serve

as a focal point to address all issues relating to the development of the industry, (ii)

monitor and coordinate implementation of programs and activities of the respective

Agencies/Authorities at both Federal and State levels involved in the development of the

industry, (iii) steer research and training activities of the Center of Excellence for

Logistics and Supply Chain and (iv) streamline strategies and policies governing the

logistics industry which cuts across several implementing authorities9.

iii. Regulatory Environment for Transport

Lack of regulatory coordination across transport modes is a common problem in

Malaysia, if not, the South East Asian region. One regulatory agency monitors ports,

another on road licensing, third on freight forwarding and each may have different plans,

standards and reporting requirements. This presents problems for firms that seek

seamless freight movement across modes. A transparent and uniform regulatory and

legal regime for private sector participation, safety, environment, traffic rules, vehicle

weight and dimension is a prerequisite for an effective transport agency. An obvious

solution is regulatory consolidation so that businesses face consistent rules.

Improved transport infrastructure in trade corridors is an important strategy that will

facilitate the attraction of foreign direct investment and trade-based growth away from

port cities. While infrastructure development in competing modes can stimulate

intermodal competition, it can be costly in the early stages of trade corridor expansion:

9 Malaysia Logistics Council, Terms of Reference for the Malaysia Logistics Council, January 2007.


11/11

for Malaysia, it has five economic corridors, focusing on different primary activities,

apart from logistics.

Future Directions for Logistics in Malaysia

In terms of competitiveness and efficiency in Southeast Asia, Malaysia should look

towards emerging economies and development of their logistics arrangements, ports

and infrastructure, freight management, connectivity and usage of technology. These

countries are rapidly moving and taking measures such as separating regulator and

operator functions, corporatization, investment and cooperation, mergers and

acquisitions, branding and marketing, development and so forth, to become a brand

known within the region.

By having adequate hard and soft infrastructures, Malaysia will be able to increase

the level of competition from its neighbors and grow influence to foreign logistics service

providers to establish their regional offices. However sweet it may sound, the logistics

scenario in Malaysia will still face numerous other challenges with its neighbors in the

region, in this increasingly competitive and liberalized environment.

*** END ***

issues and challenges of logistics in malaysia - with abstract

Documents