Logistics sector to benefit from eCommerce popularity
10 Dec 2024
Shipping diversions from the Red Sea have continued to weigh down on global trade, especially within the Asia to Europe regions, says Kenanga Investment Bank Bhd.
In a report, the research house said the diversion from the Suez Canal to the Cape of Good Hope had resulted in a longer voyage for the Asia-Europe route, which contributes to 30% of global container volume, thus reducing the frequency of calls to shipping lines.
“The World Trade Organisation (WTO) kept its projection for 2024 global merchandise trade volume growth at 2.6% and introduced 2025’s at 3.3%, but said the lower water levels in Panama Canal is also disrupting the movement of shipping liners,” it said.
Reports of extreme weather off Southern Africa’s shipping routes as well as the worsening situation in the Middle East is likely to further impact the movement of shipping liners with a possibility of further cuts in the WTO’s projection for global merchandise trade volume growth.
The report also said that stricter regulations on carbon emissions could pose more concerns to the seaport and logistics industry, particularly from the United Nations’ International Maritime Organisation (IMO) and the European Union (EU).
“While the exact implications of the regulation of IMO and EU’s Carbon Border Adjustment Mechanism on the seaport and logistics sectors remain unclear, the volume of containers heading to the EU will certainly be affected, especially those originating from China, which is a major exporter of iron, steel and aluminium to the EU,” Kenanga Investment said.
The research house said overall, the sector’s earnings saw a slight improvement in its recent third quarter results season with 25%, 25% and 50% beating, meeting and missing its forecasts, respectively, as opposed to 50% meeting and 50% missing its forecasts in the preceding quarter.
“Westports Holdings Bhd beat expectations with stronger earnings growth, despite only a marginal increase in container volume driven by the better yield from gateway cargoes and lower operating costs with recognition of lower depreciation cost,” it said.
Kenanga Investment said Swift Haulage Bhd also met its expectations and it expects a strong quarter ahead for the group as port congestion eases.
It noted that Bintulu Port Holdings Bhd’s results disappointed due to higher-than-expected operating and tax expenses, while Pos Malaysia Bhd’s results were also more subdued on poor cost containment, with its core net loss plunging further into the red.
Meanwhile, the report said on a positive note, the boom of eCommerce has continued on and is a bright spot in the domestically-driven third-party logistics sector, which is less vulnerable to external headwinds.
Kenanga Investment noted the boom will spur demand for distribution hubs and warehouses to enable just-in-time delivery as well as reshoring to bring manufacturers closer to end-customers.
“It will also enable an efficient automation system and warehouse decentralisation to reduce transportation costs and de-risk the supply chain.
“There is also strong demand for cold-storage warehouses on the back of the proliferation of online grocery startups,” it noted.
The research house said it will maintain a “neutral” call on the sector, but does not have any top pick at the moment.
Source: The Star
