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ILB banks on outsourcing business

NEW STRAITS TIMES, WEDNESDAY, 30 JUNE 2004

By: Ishun P.Ahmad

INTEGRATED LOGISTICS BHD (ILB) is banking on the outsourcing business and its buoyant logistic operations in China to post robust growth in the next three to four years.

"We have secured two contracts for outsourcing business to manage warehouses for multinationals. In our new business model, the company is looking to capture this growing business.

"In using our logistic solutions, companies can benefit from better costing," chief executive officer Tee Tuan Sem said.

 
TEE: "In using our logistic solutions, companies can benefit from better costing."

He said the returns from the outsourcing business were good, adding that the company was on the lookout for more such contracts.

"ILB's own warehousing capacity or space like other logistic companies is limited; the outsourcing business gives us the opportunity to leverage more on our resources and fully use ILB's logistics solutions. This is the new way forward rather than just concentrating on traditional businesses," he added.

Owing to industry needs, such as short product-life cycle, customised product requirements and faster lead times, multinational corporations (MNC's) are outsourcing their logistic needs.

He said the improving economic climate had helped to boost its local warehousing business in the last three months. This has resulted in pushing ILB's local warehousing utilisation rates to the brim from 80 per cent in April.

He added that the improved business was also complemented by improving better margins as a result of growing demand and a recovery in the logistic sector.

Global demand for the logistic business is forecast to grow between 15 per cent and 20 per cent per year. The global logistic market was estimated at US$3.4 trillion (RM12.9 trillion) in 2002.

On its China operations, he said the company was looking at a positive road and exponential growth in revenue in the coming years. This is on the back of growing demand for its services and rising capacity space in its warehouses in China.

He said growth for the last three years since 2000 was about 20 per cent.

In addition, the profit margins in China are better than in Malaysia due to the fact that the former is an emerging market and in Malaysia the market is more competitive and matured.

ILB has two warehouses in China: Shenzhen and Shanghai.

In Shanghai, ILB has a warehouse capacity space of 380,000 sq ft over 1.62ha. In Shenzhen, its warehousing capacity is 700,000 sq ft and another 600,000 sq ft is being constructed and is expected to completed in April.

ILB's has so far invested HK$500 million in China on land acquisition and construction of two warehouses.

He said ILB was also looking to expand its Chinese operations through the opening of new warehouses and getting other logistic licenses to be a full-fledged logistic player in China. The licenses would include transport and Class A forwarding licenses ILB subcontracts between 200 and 250 trucks for its operations in China from about 10 contractors.

He said it would continue to subcontract trucks and was looking to buy between 30 and 50 trucks when it received the transport license. A truck costs about RM100,000.

"We are looking at places such as Hangzhou, Tianjin and Shanghai for land to open more warehouses. This is due to the encouraging demand from MNCs for our logistic services. We are excited about our operations there as market potential is tremendous," he said.

He said its logistics solution, vendor managed inventory (VMI), was well-received by its MNC customers in China.

VMI is the practice of manufacturers making suppliers responsible for determining the order size and timing, usually based on receipt of production plan and inventory space.

For the year ended Dec 31, 2003, ILB's operations in Shenzhen and Shanghai posted a growth in turnover of 62.8 per cent to RM26.7 million from RM16.4 million in 2002. Pretax profit increased by 169 per cent to RM7 million for the year from RM2.6 million in 2002.

This compares with ILB's group pretax profit of RM11.37 million on the back of turnover of RM165.33 million. The group posted a net profit after minority interest of RM4.28 million in 2003.

Meanwhile, he said ILB was positioning itself to be a regional logistic player on the same playing field with the big boys and capture a larger share of the MNCs market.

He said ILB was setting up a joint venture company in Thailand and was building an alliance with a local there. ILB does trucking services from Malaysia to Bangkok for MNC customers. It has a warehousing operation in the Philippines through a joint venture in 2000. The company also has warehousing and trucking operations in Singapore.

ILB, an investment holding company, through its subsidiaries provides public bonded warehouses, freight forwarding, shipping agents, bonded trucking, and transportation.

The company also invests in property and provides property rental, leasing and hire purchasing.

It was formed to implement a restructuring to facilitate flotation of Integrated Warehouse Sdn Bhd, Integrated Forwarding & Shipping Bhd, Integrated Freight Services Sdn Bhd and Integrated Leasing Sdn Bhd on Bursa Malaysia.

Major customers are Matsushita, Sharp Roxy, Toray and IKEA. The group also provides warehousing facilities in Shenzhen, China, through Integrated Logistics (HK) Ltd and in Cabuyao, the Philippines, through KP Integrated Sdn Bhd.