ISSUES AND CHALLENGES OF LOGISTICS IN MALAYSIA: A PERSPECTIVEMohd Hafizzuddin Md Damiri* Abstract Malaysia’s 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 logistics development will be crucial to sustaining Malaysia’s competitive advantages. High logistics costs in Malaysia derive from poor transport infrastructure, underdeveloped transport and logistics services and slow and costly bureaucratic procedures for dealing with both exported and imported goods. The balance among these three varies among countries 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 Public Service Department (PSD), Malaysia. Paper prepared for the United Nations Economic and Social Commission for Asia and Pacific (UNESCAP) “Regional Expert Group Meeting on Trade and Transport Facilitation for Export Competitiveness”, Yangzhou, China 25-26 September 2008 and the “ National Conference on the Direction of the Logistics Industry and Supply Chain in Malaysia: Issues and Challenges”, Shah Alam, Selangor, Malaysia 4-5 August 2009. launched in 2006. Under the Third Industrial Master Plan (IMP3). hinders further improvement in this sector. total logistics solutions.. Unlike its neighbors – Singapore. the National Single Window (NSW). Charles & Jian Wang. Looking at the total cost of getting products from producers to markets. if not billions of dollars. International Trade in Durable Goods: Understanding Volatility. Transportation means by air. without a hint of progress or success in 1 Engel. Cyclicality and Elasticities. 2008. Skepticism on technology further impede logistics-related improvements be made. Thailand.Studies have indicated the importance of efficient ports (in terms of both operational efficiency and document facilitation) for trade competitiveness 1. National Bureau of Economic Research Inc. policies and operations. Vietnam – Malaysia still lags on the development and competitive edge for logistics. and it is improvements in land access that offer the greatest scope for increasing trade competitiveness. where Malaysia is championing it in the ASEAN arena. maintenance and necessary tune-ups. Investments in this may cost millions. land transportation to ports accounts for a higher proportion than processing within the port or the maritime voyage itself. Malaysia’s logistics development were charted carefully and diligently as to keep on pace with other countries in South East Asia. NBER Working Papers 13814. coupled with disparity on issues related to regulations. if not. for example. This project has been going on for years. . Then there is the use of technology. sea and land. but the arguments highlighted show that ports are only one aspect of the connection between logistics and trade growth. including upgrades. which of course. This brings us to the elaborate details for each logistics segment and its problems. i. & Kee. need to be ironed out appropriately. including Malaysia. Export variety and country productivity: Estimating the monopolistic competition model with endogenous productivity .74(2). Vol. Maritime Issues Seventy percent of Malaysia’s trade in manufactured goods is carried by containers and the use of containerized shipping has increased tremendously. 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. converting general cargo berths to container handling and developing new ports. 2008. Journal of International Economics. .the near future. Robert C. Though container ports in the region are becoming more efficient in handling containers. During the 1990s. Elsevier. The rapid growth in container usage represents both a revolution in maritime technology and a significant logistics challenge to economies in the region. 500-518. responded to the shortage by adding new berths. the capacity of container berths to handle those ships increased at less than 8 percent a year. Hiau Looi. 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 2000 2. Countries in the region. total container movements increased at least nearly 10 percent a year. with the fastest growth occurring in the ports of Malaysia. Malaysia cannot keep pace with the rapidly growing demand for berth and storage space. 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. Malaysia needs to: • Match inland with maritime infrastructure.available both at the ports and depots 3. loading and unloading them in the ports rather at the origin and destination of their cargo. old theory and the welfare costs of trade restrictions . LSE. CEP Discussion Paper. Not to mention the means of transporting the containers across land. Countries that can best encourage door-todoor movement of containers using multimodal transport will be best equipped to compete and to bring trade benefits to their more remote areas 5. 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. Vol. Center for Economic Performance. Evaluating Urban Transport Improvements: Cost Benefit Analysis in the Presence of Agglomeration and Income Taxation ..142(4). Journal of Development Economics. 617-641. Vol. 4 Feenstra. 2006. To achieve this integration. With higher volumes and more efficient smaller vessels. New Evidence on the Gains from Trade.. such as between West Malaysia and East Malaysia. 1994. 5-38. Review of World Economics. this could overcome the cost penalty of transfers in the hub ports 4. . This eliminates the main cost-saving advantages of container use.43(1). 5 Romer. Anthony J. Paul. New goods. Elsevier. An important reason that containers do not move inland from container ports is that road and rail 3 Venables. Robert C. ii. Multimodal Transport Malaysia uses containers for the maritime part of trips. 2004. Springer. the economy of Malaysia is quite similar to those of other developing countries but if taken together. .infrastructure lack the right carrying capacity and vehicle dimensions for the transport of loaded containers. • Develop an efficient freight forwarding industry. but even in industrialized Malaysia. health and taxation charges at inland locations away from the ports – would help reduce port congestion but could raise additional security concerns. Third-party logistics or 3PL is not a well-advanced concept in Malaysia. This scenario can be seen in East Malaysia. In industrial countries. barely 10 percent of trade-related transport services are provided in this way. • Simplify trade documentation. 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. Another regulatory change – to allow containers to be cleared for tariffs. customs. almost a third of logistics turnover is contracted to 3PL providers. Examples include the use of throughwaybills and single invoices for all modes. developing countries are significantly slower that developed countries. In customs clearance times. 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. Even the least accessible countries in this region have improved the quality and scope of their information systems – such as Thailand. If the benefits of trade are to be more widely distributed. Reduction of port access costs depends on having adequate infrastructure. As container 6 Mangan. Port-centric logistics. Such action could not only stimulate trade-induced growth in currently inaccessible areas. this could reduce – and slow – the growth of trade-induced urban congestion and pollution in port cities.• Develop effective communications systems. appropriate vehicles and logistics technology that allows these to be use efficiently 6. Vol. 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. reinforced by the effects of production agglomeration. iii. such as Singapore. the penalties of inaccessibility need to be addressed. . John. 29-41.19(1). Ports and Land Access The high costs of land access to ports. 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. Chandra Lalwani & Fynes. Brian. 2008. but if successful. International Journal of Logistics Management. Percetakan Nasional Malaysia Berhad. Vol. International Journal of Logistics Management. and second. While the depth of the maritime access channel is not a constraint on growth. Another reason is because these manufacturers have high value to weight ratios. competition between airports in South East Asia to act as a hub for major logistics companies is growing tremendously. . Air freight is important for Malaysia: first. 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. iv. Hence. because the distance from Malaysia’s major exports – U. and Europe – makes quick delivery of sea freight impossible. providing services equally or better than the other. A review of the transportation mode choice and carrier selection literature. Air Freight In Malaysia. high value-added industries. Mario.ports expand. air freight accounts 30 percent of Malaysia’s international trade by volume but more than 55 percent by value8. 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. Malaysia.S. the ad valorem cost of their air transport is comparatively low. 2009. closer to the industries that the port serves and to build rail links to avoid generating extra load traffic. Malaysia International Trade and Industry Report 2008. because a high proportion of Malaysia’s manufactured exports require timely delivery. Good air freight facilities are important in attracting fast growing. Mary J. 8 Ministry of International Trade and Industry (MITI). & Norbis. Kuala Lumpur. 183-211.19(2). 2008. The smaller and newer airports that can offer better services are also 7 Meixell. if Malaysia were to increase its trade competitiveness. 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. especially in East Malaysia. this happens in support of low-cost carriers. against this background. by giving an alternative to air travel besides major airlines servicing the various South East Asia air sectors. the development of more tightly integrated domestic markets and logistics systems is a high priority. for example through postharvest 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. Besides promoting an appropriate mix of modes – roads. cargo consolidation through farmer or business .S. and Europe. Airlines and traditional freight forwarders both compete and cooperate with each other to provide air transport-based freight services. it is best. apart from being burdened with logistical nightmares. Policy Recommendations To again highlight the importance of logistics. i. while at the same time depending on multinational air carriers for efficient air freight logistics. for the need of the Government of Malaysia to take actions to improve trade-related logistics on several fronts. Domestic Integration For the less open and accessible areas in Malaysia.growing faster than the larger ones. Logistics needs of this kind tend to better served by the private rather than the public sector. private operators are reluctant to provide services where trade volumes are low. storage. Given the fixed costs of entry. access to credits and human skills. which are distant than ports. ii. This may entail legalizing and deregulating freight forwarders and allowing new entrants. .associations. warehousing. The initial public investment in facilities such as inland container terminals in potentially high-growth areas in Malaysia. including the international companies that can be a major source of capital. information on prices and market demand. can be recovered through later concession revenues or outright sales. but high-value products call for services such as freight forwarding. 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. e-business use and tracking. 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. 3PL. packaging. In Malaysia. Private Sector Collaboration The transport of the outputs of very simple extractive industries may not require advanced logistics abilities. 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.To encourage private sector collaboration. Regulatory Environment for Transport Lack of regulatory coordination across transport modes is a common problem in Malaysia. the Government has established the Malaysia Logistics Council (MLC) in January 2007. it can be costly in the early stages of trade corridor expansion: 9 Malaysia Logistics Council. A transparent and uniform regulatory and legal regime for private sector participation. if not. An obvious solution is regulatory consolidation so that businesses face consistent rules. (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. traffic rules. Terms of Reference for the Malaysia Logistics Council. iii. . third on freight forwarding and each may have different plans. environment. safety. the South East Asian region. One regulatory agency monitors ports. to (i) provide leadership and serve as a focal point to address all issues relating to the development of the industry. another on road licensing. standards and reporting requirements. vehicle weight and dimension is a prerequisite for an effective transport agency. (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 authorities 9. This presents problems for firms that seek seamless freight movement across modes. While infrastructure development in competing modes can stimulate intermodal competition. January 2007. Future Directions for Logistics in Malaysia In terms of competitiveness and efficiency in Southeast Asia. focusing on different primary activities. apart from logistics. However sweet it may sound. development and so forth. By having adequate ‘hard’ and ‘soft’ infrastructures. ports and infrastructure. to become a brand known within the region. corporatization. in this increasingly competitive and liberalized environment. These countries are rapidly moving and taking measures such as separating regulator and operator functions. connectivity and usage of technology.for Malaysia. mergers and acquisitions. the logistics scenario in Malaysia will still face numerous other challenges with its neighbors in the region. investment and cooperation. branding and marketing. 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. Malaysia should look towards emerging economies and development of their logistics arrangements. *** END *** . it has five economic corridors. freight management.
Report "Issues and Challenges of Logistics in Malaysia - With Abstract"