Malaysia Freight Transport Report Q2 2012

We are still expecting moderate growth in the Malaysian freight sector in 2012, with no major changes to many of our projections relative to our last quarterly report. Yet downside risks are beginning to increase.

We have reduced our GDP projection by a percentage point to 3.2%, on the back of global headwinds caused by the eurozone crisis and more sluggish growth in China. And another sign of the less benign environment is that we have reduced our projection for real trade growth this year to 3.4%, barely above GDP growth. Political risk also needs to be taken into account: national elections are expected during the course of the year, and by 2013 at the latest. Across our five-year forecast period to 2016, GDP will expand by an annual average of 4.1%, a little lower than in the preceding five-year period.

The freight sector will see broadly above-GDP rates of cargo growth in 2012, influenced by the domestic economy, intra-Asian trade, and the expansion of energy demand across the Malaysian economy.

Headline Industry Data

We have further trimmed the expected growth in the real value of total trade in 2012 to 3.4%, with exports gaining 2.8%. Imports will increase by a higher 4.0%.

Rail freight volume is projected to rise 6.6% to 5.83mn tonnes in 2012 and to average 6.4% annual growth in the five year period to 2016.

Total volume handled at Port Klang will rise 7.7% to 197.70mn tonnes in 2012, while volume at the Port of Tanjung Pelepas will rise by 8.2% to 130.09mn tonnes.

Key Industry Trends More Transport Links With Singapore Discussed After meeting his opposite number from Singapore in January 2012, Malaysian Prime Minister Najib Razak said the two countries were discussing further transport links, including a proposed road tunnel, water-taxi service, and cooperation between Malaysia's regional airport at Senai and Singapore's international airport at Changi. The two neighbours have already agreed a joint US$9.8bn investment package, mainly in property projects and a railway link between Singapore and the neighbouring Malaysian state of Johor.

Airlines Reorganise Routes In Search of Profitability Budget airline AirAsiaX has dropped four long-haul routes (to Mumbai, New Delhi, London and Paris) in a move that may indirectly help the state-owned Malaysian Airlines (MAS). However, parent company AirAsia denies any coordination between the two airlines' strategies. The loss-making MAS has meanwhile cut seven unprofitable routes, although it is increasing services to ASEAN destinations, Beijing, Taipei, and Los Angeles.

Good Prospects for Port Klang BMI is projecting strong growth for Port Klang in 2012. The port's Westports terminal has reported a 15% year-on-year (y-o-y) increase in throughput. With plans underway to increase the port's capacity, we believe the facility should be well placed to take advantage of growing consumer demand in the area. 'The port has been well known to the shipping industry as one of world's best productivity terminal operators in container handling,' said Ruben Emir Gnanalingam, Westports chief executive officer. Gnanalingam is positive about the port's prospects this year and expects to see throughput surpass 7mn twenty-foot equivalent units (TEUs) in 2012.

Key Risks To Outlook We see two important downside risks to keep in mind. Of the two, the most probable is for global growth to be lower than we expect, impacting on Malaysian GDP, and by that route, reducing freight demand.

Our core forecast already incorporates a slow-down factor; the risk here is that it could be more intense than expected, perhaps through a deeper eurozone crisis or a sharper Chinese slowdown. The second unknown is the chance of a sharp increase in Malaysian political risk. We are already contemplating that the domestic political temperature will increase in the wake of the acquittal of opposition leader Anwar Ibrahim. On the whole, however, we believe this will be a relatively benign process, with both the government and the opposition offering reforms and 'better governance' as they compete for future votes.

The risk here is that the process could take a sectarian and violent turn. Political violence would scare off investors and lead to a sharper economic slowdown.