Neutral on M’sian transport sector over US tariffs

KUCHING: Analysts are neutral on three major transport subsegments – aviation, shipping and logistics – following the possibility of the US imposing additional tariffs on .

Looking at aviation, MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) believed travel demand should stay elevated based on the strong underlying demand of traffic despite the possibility of US-additional tariffs on China.

Despite aerospace being one of the area targeted for additional tariff, it expect any possible impact would be exclusively directed to the trading countries namely China and US.

“At this juncture, we view the aviation industry to remain resilient,” it said in a special report yesterday. “This is considering that domestic and international traffic continued to show positive momentum at the beginning of the year, despite coming from a high-base.

“Moving forward, we expect the positive trend to persist, benefiting Low Cost Carriers such as AirAsia and AirAsiaX as well as MAHB, as the largest airport operator in .”

Meanwhile, repercussions towards the shipping industry and port operators are believed to be limited as the impact from the latest 25 per cent tariff on steel is minimal to Malaysia, seeing as US trade restrictions already cover more than 90 per cent of US steel imports from China.

The reason for this is that China is only the 10th largest supplier of steel to the US in 2017 with 94 per cent of the exports already subjected to special tariffs, it said.

In relation to farming products such as pork bellies in the US which were slapped with tariffs by China, MIDF Research expected shipments from the US to China to be affected, specifically via the Transpacific shipping route.

“In spite of US exports of pork to China which may be reduced, China could shift to other major pork producing countries from the Eurozone such as Germany, Spain, Denmark and Netherlands.

“The Transpacific shipping volumes would be adversely affected but this may provide new opportunities for shipping liners servicing routes from Europe to Asia (China).

“Assuming retaliatory tariffs are also imposed on US agricultural products such as soybeans, China could seek other alternative sources from Latin such Brazil and Argentina which are the second and third largest soybean producers in the world for 2016, respectively,” it said.

“This would then again spur cargo volume for the Latin America-Asia shipping routes.”

MIDF Research said this would bode well for Malaysian port operators, namely Westports Holdings Bhd (westports) and MMC Corporation Bhd (MMC Corp) due to its strategic location where shipping liners would pass through them in servicing routes covering Europe to Asia and Latin America to Asia, contributing to drybulk cargo.

“For instance, major shipping liners such as Maersk, a member of the 2M Alliance, is a major client of MMC Corp’s Port of Tanjung Pelepas in Johor,” it explained.

“Port of Tanjung Pelepas (PTP) is one of the ports of call for Maersk’s AE10 Eastbound services starting from from Gdansk, Poland followed by Bremerhaven, Germany and Rotterdam, Netherlands with China’s main ports such as Shanghai and Ningbo as its final destination.

“Moreover, PTP has a partnership model with Maersk via the AP Moller-Maersk group that owns 30 per cent of PTP.”

Even after the rate hike later in 2018, the transshipment tariffs are still lower than the ones in PSA, making Westports more attractive. In addition, Westports’ plan for implementing automation in its system in the long run could increase efficiency and thus bode well to attract liners to start new services at Westports.

On a broad level, MIDF Research believed there should be no direct impact from the possible trade war on last-mile delivery players as growth in the Malaysia’s e-commerce industry is a strong buffer for parcel volume growth.

Logistics companies such as Logistics Holdings Bhd too could benefit from South East Asian and e-commerce through its cross border trucking business which more time effective compared to sea freight and more cost effective than air freight, it said.

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Source: Borneo Post Online

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