Logistics sector expected to gain from Trans-Pacific Partnership

The inking of the Trans-Pacific Partnership (TPP) agreement last week provides new opportunities for Malaysian companies. The TPP agreement gives Malaysia direct market access to attractive markets, such as the United States, Canada, Mexico and Peru. Malaysian products will become cheaper for these markets, which will increase exports from Malaysia.

TPP will therefore strengthen Malaysia’s position as leading production hub for palm oil (related products), petrochemicals, electrical & electronics, aerospace, machinery and equipment and many more. TPP will also directly benefit the Malaysian sea and airports in terms of increasing volumes, instead of depending on Singapore’s trade network where a significant volume of Malaysian products (like agriculture products such as fruits, vegetables, flowers, and ornamental fish) are repacked and relabelled in Singapore.

Currently China is the manufacturing hub of the world for many industries, but is heavily constrained by its natural resources: from water to land to energy. Pollution has caused a lot of the existing water to be unusable without being cleaned up. A shortage of skilled labour increased the cost of labour in China. Several labour-intensive industries in particular electronics and textile are starting to move to cheaper locations in Southeast Asia, such as Vietnam and Indonesia. The result is that the manufacturing hub of the world is slowly moving towards Southeast Asia, hereby shifting also the logistics gravity towards Southeast Asia. For sea shipments between South East Asia and the East Coast of the Americas, cargo goes westbound via the Suez Canal in the Middle East, rather than sailing east across the Pacific Ocean. Both Vietnam and Indonesia are attractive places to manufacture goods, due to their large low cost labour force, but a logistics nightmare. Malaysia is well positioned along the Trans Asean Transport Network, well connected by road, rail, sea and air to its neighbouring Asean countries such as Vietnam and Indonesia. Malaysia is therefore an excellent transportation gateway and logistics hub for these countries. As a result, it will directly benefit the seaports Port Klang, PTP, Penang Port and the airport KLIA. There will be room for Asean Mega Distribution Centres at these locations to facilitate consolidation, value added logistics, and distribution activities.

TPP will drive exporters and their shipping companies to explore new routes to Pacific Rim markets. Although duties and barriers aren’t coming down immediately, businesses are going to start exploring and developing those export markets, supply market for specific raw materials, and supply chains. The agriculture-exporters are already working on deals with buyers. The Americas are large exporters of halal meat, whereas Asia is a large importer of halal meat. Connecting those markets and further processing in Malaysia, could strengthen Malaysia as halal food hub. The Americas are large exporters of corn and soya, whereas Asia is a large importer of these products. Malaysia could further process these raw materials into processed food products for the Asian markets. Malaysia is a large exporter of palm oil, whereas the Americas are one of the primary importers of Malaysia’s palm oil. As a result, TPP will become an accelerator for Malaysia’s farms, manufacturing, trade and logistics sector.

TPP represents real market opportunities for Malaysian companies of all sizes, a chance for them to compete on a more level playing field with markets around the Pacific Rim, and strengthen Malaysia’s position as the preferred logistics gateway to Asia.