Digital Free Trade Zone

Key Drivers of Malaysia’s E-commerce Logistics

Logistics and trade facilitation

Beginning in 2004, Malaysia began experiencing a steady decline in its trade-to-GDP ratio in both the export and import of goods and services. However, the country has implemented steps to rectify this drop in recent years by pursuing opportunities in the area of international trade. Consequently, by 2017 it has begun reversing this trend.

Trade is increasingly important to Malaysia due to the fast-growing market for shipping and logistics development in Southeast Asia, which is backed further by the booming e-commerce market in the region. Growth is such that by 2025, e-commerce is expected to expand up to 32 per cent year-on-year to reach US$88 billion, achieving 6.5 per cent penetration. This compares to the 2016 market which was worth US$5.5 billion and had a penetration rate of 0.8 per cent.

Malaysia has the potential to capitalise on the changing pattern of trade in the region thanks to a number of factors, particularly its strategic location, connectivity, infrastructure and attractive business climate. To effectively build on the increasing number of opportunities presented by shifting trade dynamics, the Economic Planning Unit has created the Logistics and Trade Facilitation Masterplan (2015-2020) to act as a roadmap for future growth. The plan provides a framework to resolve bottlenecks in the logistics sector and elevate Malaysia to the status of a regional logistics hub in the medium term. It has been devised in recognition of the important role played by the logistics segment with regards to all other sectors of the economy and consists of five strategic shifts and 21 action items.

The successful implementation of the Masterplan will have a significant impact on the overall standing of the national logistics sector. For example, it is expected to increase the contribution of the transport and storage segment to national GDP from 3.6 per cent in 2013 to 4.3 per cent by 2020, which represents an estimated increase of MYR22.2 billion. Additionally, cargo volume has the potential to grow at 8 per cent per year to reach 880 million tonnes by 2020, while the plan is also anticipated to generate up to 146,000 new jobs over the same period, particularly in the high-skilled category.

 

Port Klang

The ongoing development of Port Klang into a maritime logistics centre is critical to Malaysia fulfilling its goal to become ASEAN’s logistics leader. A key part of the plan is to increase the TEU handling capacity of the port from 12 million in 2016 to 20 million before 2020. As such, the development will involve expansion works to its Westport and Northport, among other initiatives.

In addition to the physical redevelopment of Port Klang, upgrades are also being made to its e-commerce capacity, mainly via Port Klang Net. This undertaking will establish an e-platform to connect key industry players and speed up the cross-border movement of goods. Crucially, it will enable operators in the logistics value chain to collaborate electronically through an information and communication system, thereby transforming the way information is exchanged throughout the logistics ecosystem.

Moreover, the project aims to provide stakeholders with seamless connectivity, enhanced operations efficiency and reduced costs of doing business. As a result, players will be able to share real time information electronically and instantaneously to expedite business processes and enhance service delivery and performance.

 

 

Carey Island

Complementing the work at Port Klang is the proposed construction of a large port and industrial city on Carey Island. This endeavour will require infrastructure investment of over MYR200 billion and, once complete, will cover an area of more than 100 square kilometres. The 20-year project will involve the development of an integrated port capable of handling up to 30 million TEUs, as well as related infrastructure, industrial parks, free trade zones, and commercial and residential buildings. The completed port will also provide maritime services including bunkering, ship repair and maintenance. In addition, it will cater for container ships, bulk and liquid carriers, and vessels carrying grains, minerals and vehicles. Once operational, Carey Island port will help to manage the congestion at Port Klang, which is close to reaching its capacity of 16 million TEUs.

 

Digital Free Trade Zone

With over 20 million internet users, Malaysia has the potential to become a significant e-commerce leader in the region. Nevertheless, e-commerce penetration in the country remains relatively low and its contribution to GDP was just 5.8 per cent in 2016, compared to 21 per cent in China and 35 per cent in the U.S.

To capitalise on growing opportunity in this area, in March 2017 the Chinese e-commerce giant Alibaba announced plans to establish an e-commerce hub in Malaysia. The hub, known as the Digital Free Trade Zone (DFTZ), will form part of collaborative efforts between Alibaba and the Malaysian government and will encompass logistics, cloud computing and e-financial services. The overarching goal of the DFTZ is to boost trade and e-commerce growth in the region.

The DFTZ will be located adjacent to Kuala Lumpur International Airport (KLIA) and is anticipated to generate 60,000 jobs and oversee the movement of up to US$65 billion worth of goods around the ASEAN region by 2025. In terms of connectivity, the regional hub will facilitate the cross-border movement of goods by means of the strong air and sea connections at KLIA and Port Klang, including the expected delivery of packages within 72 hours to ASEAN countries.

Warehousing, e-fulfilment facilities, offices and services involving cashless payments in the hub are set to serve as the base infrastructure to help businesses expand their e-commerce activities in Southeast Asia, particularly small enterprises. Significantly, the DFTZ will also have its own customs clearance to expedite imports and exports, as well as an online cross-border trading services platform to link Malaysia directly to Hangzhou e-commerce free trade area in China.

As a result, the implementation of the e-commerce drive under the Logistics and Trade Facilitation Masterplan has been brought forward to 2017, marking a new milestone for the strategic roadmap. Additional in-depth focus on the local e-commerce sector is therefore expected to boost industry efforts to become a primary catalyst for the digital economy and a significant contributor to national GDP.

 

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