BMI View: Road freight will continue to be the dominant freight mode in Malaysia, with rail trade seeing the most significant growth over the medium term. Air freight will see little growth going forwards as it is already well established and developed. O verall the sector will benefit from the country's continue d economic growth and lower oil prices, which will support domestic consumer demand and domestic production. Malaysia is one of the most attractive markets in Asia for investors due to its healthy business environment and high quality transport infrastructure. However, opportunities will be smaller than previously as economic growth is starting to slow down.
Malaysia's economic outlook is expected to deteriorate in 2015 going forward, following three years of robust growth. Currency depreciation and the introduction of the goods and services tax (GST) are both contributing factors to GDP growth set to decline to 4.2% in 2015. The dramatic decline in crude oil is also playing a role as Malaysia's petroleum products and liquefied natural gas account for 14 percent of exports.
Over the medium term, growth rates are set to steadily increase and we still view Malaysia's economy as a strong regional player with solid fundamentals. Economic growth is boosting consumer demand for imported goods and fostering growth in the domestic manufacturing and industrial sectors, which is increasing Malaysia's export offerings. All of these factors support our relatively positive outlook over the next five years for Malaysia's various freight sectors.
Malaysia also benefits from its position as a regional transhipment hub and a large number of Free Trade Agreements (FTAs), which means that investors in Malaysia stand to benefit from cheaper trade costs due to the association with well-connected global routes and bilateral trade ties. Malaysia's trade surplus rose to a high in June 2015, largely due to a strong increase in electronics and palm oil shipments. Imports have however been falling, leading to a rise in the trade surplus. Exports to China will continue to grow, but exports to Japan and Australia, have declined. Over the longer term, the Trans Pacific Partnership (TTP) will boost the country's trade flows with markets such as US, Singapore and Japan.
Road freight will continue to dominate freight in Malaysia as consumer demand for luxury non essentials continue to drive growth. We forecast that road freight will increase until 2017 due to increasing incomes supporting the demand for consumer goods.
Rail freight will be the next strongest performer, as domestic demand for steel and construction materials, improving international rail connectivity and strong trade flows between Singapore, Thailand and Malaysia all serve to support heightened levels of rail freight. This is reflected in our forecast for rail freight tonnage to reach 14mn tonnes in 2015, up by 3.00% on 2014 levels.
Air freight will be the slowest to grow, at 1.17% on overage over the next five years. It continues to be undercut by the improving rail networks in Peninsular Malaysia and as the industry is already well developed, there is little room for further growth. However, it benefits from rising domestic and global demand for consumer electronics and is well positioned as a key player within the global electronics distribution network.
Between 2015 and 2019 we expect rail freight to see the strongest growth, but road freight will continue to be the dominant freight mode regardless of poorly maintained roads, high congestion and high accident rates. With limited transport infrastructure in many areas of the country, the air freight sector will continue to represent a vital means of transport for supply chains in Eastern Malaysia over the medium term.
Airlines have complained of a sinking terminal at Kuala Lumpur airport where water and cracks could pose a safety risk and increase wear and tear on planes
The recent announcement by MASKArgo to discontinue its freighter service to Frankfurt has spurred interest in Malaysia by European carriers, including Lufthansa Market, which is closely monitoring the Malaysian market.
IAG Cargo has reported huge growth out of Kuala Lumpur to North America, Africa and the Middle East this year and expects that to continue following the launch of direct services to the Malaysian capital in mid 2015.
Key BMI Forecasts:
We forecast total road freight volumes will rise by 3.4% y-o-y over 2015 to reach 297mn tonnes.
We forecast total rail freight volumes will rise by 9.3% y-o-y over 2015 to reach over 14.8mn tonnes.
We forecast total air freight volumes will rise by 1.2% y-o-y over 2015 to reach 930,000 tonnes.
We forecast total imports to reach USD206.3bn in 2015.
We forecast total exports to reach USD226.9bn in 2015.
Malaysia's top trade partners will be China, Singapore, Japan, Thailand and the US.