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ILB Set Sights On Logistics Outsourcing

STAR BIZ, MONDAY, 06 FEBRUARY 2006

By: KATHY FONG

IN a world that competes on speed and efficiency, manufacturers are outsourcing non-core activities to trim costs and boost productivity.

This outsourcing trend and demand for better supply chain management have changed the landscape of the logistics industry and opened up tremendous business opportunities in this industry.

Main board-listed Integrated Logistics Bhd (ILB), which has evolved into a full-fledged logistics company, is striving for a share of this expanding pie in the manufacturing sector.

TeeGroup chief executive Tee Tuan Sem (pic right) has set his sights on developing its vendor management inventory (VMI) solutions business in the Asian region.

“We want to concentrate on our VMI business,” Tee told StarBiz in an interview.

ILB is not only a freight forwarder and haulier now.

The group provides VMI solutions that enable customers to practise the just-in-time (JIT) concept. Manufacturers can have their vendors store all raw materials under one roof at ILB’s warehouses, and if they wish, they can also assemble the finished products there.

In China, ILB currently owns warehouses in Shenzhen’s Futian tax-exempted zone that borders Hong Kong, and Shanghai’s Waigaoqiao tax-exempted zone in the east of China.

“Our warehouses in Futian are fully utilised. The current capacity is not enough. We need to lease space,” said Tee, who has been at the helm of ILB for three years.

The group’s former finance director wants to double the size of the group’s China operations by end-2008, riding on the mainland’s booming manufacturing sector.

“It is not an easy goal to double our operations in China, but I think this is achievable. We should always aim high,” Tee said confidently.

Given the annual revenue growth of 60% to 80% it has recorded over the past five years in China since 2000, it does not seem to be a tall order for ILB to double its operations in China.

Turnover from the mainland has grown more than 10 times to RM48mil in the financial year ended Dec 31, 2004, from RM4.2mil in 1999. For the nine months ended Sept 30, the division recorded revenue of RM50.2mil.

“Income contribution from China is likely to rise to 80% of the group's total revenue or could be even more than that because of the sizeable market,” he said.

Indeed, the higher income generated from the republic has cushioned the drop in revenue back home.

“The market here is huge. There is a lot of room to grow. Not many companies in China have adopted the supply chain management model,” said Tee.

ChartThe flourishing manufacturing industry and the brisk export volume underpin ILB’s confidence in the prospects of the logistics industry in China.

Another trump card that the group has is the Class A licence granted to its subsidiary Integrated Shun Hing Logistic Co Ltd by the State Council in Beijing late last year.

The licence is critical for ILB’s expansion in China, as it allows the group to operate anywhere in the country without geographical restriction.

Furthermore, the license permits ILB to provide other logistics services such as freight forwarding and haulage that complement the group’s existing VMI business.

“ILB will be a full-fledged logistics company in China, like what we are in Malaysia. So we could offer higher value-added logistics package,” he explained.

While expanding in China, one of the world’s fastest-growing markets, ILB is not neglecting its home market.

Last October, the group won a warehousing and logistics contract from Titan Petchem (M) Sdn Bhd, a unit of petrochemical giant Titan Group, to manage the latter’s warehousing operations in Pasir Gudang, Johor.

The three-year agreement expires in November 2008, with an option to extend for two years.

“That’s the biggest third-party outsourcing logistics project in Malaysia. It boosted our confidence,” said Tee.

The project will lift ILB earnings. More importantly, this will be a good reference for the group to secure more such large-scale projects in Malaysia and neighbouring countries.

Analysts see warehousing management as an area that will revive ILB’s growth in Malaysia.

Nonetheless, ILB is not just eyeing China and Malaysia.

Tee said the group was formulating plans to integrate the regional branch operations that it had in Asia-Pacific. The branch network laid provided a foundation for regional expansion, he added.