Afta death knell for logistics and transport sector?

THE logistics and transportation sector is generally a low-profile industry that is often taken for granted as a 24 hours a day, seven days a week sector, reliable and independent.

However, the truth is that it is facing an imminent and serious threat to its sustainability — one that many industry players are still unaware of.

Ironically, this threat is directly brought about by the Asean Free Trade Area (Afta) agreement, which aims to increase the region’s competitive edge as a production base in the world market through the elimination of tariffs and non-tariff barriers and to attract more direct foreign investment.

While Afta’s objectives are noble and beneficial, it could be a death knell for the local logistics and transportation industry brought about by some operational implications due to its ‘open market’ concept.

This threat is none other than the big competitive ‘lag’ that the local logistics and transportation industry will find itself in five years when Afta comes into force in 2013.

To date, the local logistics and transportation industry has continued to thrive, thanks largely to it being a closely “protected” industry. Foreign operators in the country have to comply with the licences and regulations that are laid down by the Malaysian government.

An example of this risk is to consider the competition between Thai and Malaysian prime movers come 2013.

While Thai prime movers need only apply for a single ‘blanket’ licence to carry a variety of commodities with a container truck, their Malaysian counterparts have to hold multiple licences in order to transport different types of commodities using the same single vehicle.

This local licensing requirement alone is a big process headache and huge cost impediment for local transportation owners, causing them to lag behind in terms of competitiveness.

With Afta, local players will also relinquish their right to require Thai prime movers (transporting commodities down from the northern regions) to unload their goods unto their vehicles at the borders, as well as be forced to compete for business clients with these cheaper, more attractive prime mover services who are now free to ply through Malaysia’s highways and rail tracks.

So long as they pay the required toll, foreign prime mover operators are free to travel right down south where Singapore will be their preferred port of export.

Port Klang will be sidelined for the similar reasons of not being cost and efficiently competitive enough, with Singapore firmly positioned as the region’s preferred shipping hub.

The higher cost of local road taxes and licence requirements alone are serious enough to cripple the local logistics and transportation sector.

Not only will local transportation businesses suffer, but also local logistics providers such as warehouse owners, forwarders and courier companies.

A quick fix such as a compensation scheme drawn up by the Transport Ministry is not sufficient to address this looming industry risk in the long term.

What is required immediately is an urgent study of the possible risk scenarios to the logistics and transportation sector with Afta taking effect and prioritise the measures to be taken to prepare local players to better face this looming risk.

With the recent increase of fuel, it is acknowledged that the government need to do more to support the industry to help them build expertise and capability to be able to compete in the region.

Besides depending on the government to drive changes, logistics and transportation firms themselves should beef up their capacity in several areas such as:

# Improving their work efficiencies and streamline of processes to maximise productivity while continuously lowering operating costs;

# Deploy strategies for organisations to scale, which is by complementing processes with technologies. A key area is to adopt “collaboration” technologies that can help the business build connectivity beyond local shores and prepare the organisation to serve an “enlarged” customer-based;

# Look to provide “value add” via new and innovative services such as vendor payment collection and documentation (invoices, purchase orders, etc) management that complement existing and traditional logistics and transportation services. Perhaps mergers and acquisitions (M&A) activities would be an appropriate move; and

# The logistics and transportation sector is regarded as the artery of supply-chain and viewing strategic adoption of business process and technologies in the view of a more complete and total supply-chain perspective would be perhaps the most crucial initiative undertaken by the companies.

Indeed, local logistics and transportation players need to quickly find ways to do business better and more smartly, so that they do not fall “victim” to what is supposed to be an advantageous trade agreement.

It’s hoped that Afta — which promises a whole world of opportunities for the efficiently produced Asean commodities and sectors — does not turn out to be the death knell for certain ignorant and unprepared industries.

The writer is chief executive officer of TradeNex.com Sdn Bhd that provides nexCONNECT, the country’s e-collaboration platform for the logistics, manufacturing and retail industries.