Logistics players ride the wave of Malaysia’s semiconductor surge from ‘chip war’

Penang – Malaysia’s “Silicon Valley of the East” – has seen exports double in the past five years to RM463 billion (S$133.5 billion) in 2022, driven largely by the electronics sector.

Shannon Teoh

Shannon Teoh

The Straits Times


DHL Supply Chain began operations at its fourth logistics hub in Penang’s industrial zone Bayan Lepas in 2023. ST PHOTO: THE STRAITS TIMES

November 3, 2023

SINGAPORE – BAYAN LEPAS, Penang – Malaysia is netting more than a third of DHL’s €350 million (S$507.5 million) five-year investment in its South-east Asia supply chain business, with Penang – the epicentre of a semiconductor investment boom – getting the lion’s share of the spend.

Penang and neighbouring Kedah have received a boost from “omni-sourcing”, as businesses adopt a China+1 policy to derisk their supply chains. There has been special urgency for the semiconductor world, which has to hedge against trade barriers imposed by the United States against China.

Logistics players are scaling up in response.

Penang – Malaysia’s so-called “Silicon Valley of the East” – has seen exports double in the past five years to RM463 billion (S$133.5 billion) in 2022, driven largely by the electronics sector.

Integrated circuits alone accounted for over 40 per cent of the value; electronics such as telecommunications equipment, scientific instruments, photocells and the like brought up the share to nearly four-fifths of all exports.

DHL Supply Chain (DHL SC) began operations at its fourth logistics hub in Penang’s industrial zone Bayan Lepas, codified as PLH4, in 2023.

And it is readying its fifth hub in Penang, worth RM150 million, for launch in 2024.

The world’s leading contract logistics provider will add nearly 50 per cent to its current 217,300 sq m of floor space over the next five years. It will site two of its planned four new facilities in Penang, as part of €131 million in investments being ploughed into Malaysia.

Geopolitical tensions largely arising from a US-China “chip war” are driving the move to omni-source, as decades of globalisation appear to have come to a standstill, industry players say.

“What is happening is a restructuring of entire supply chains” to source inputs outside China as efficiently, making Malaysia – with moderate costs, a good supply of labour, and access to air and sea transport – a key destination, said Deputy Minister for Investment, Trade and Industry Liew Chin Tong.

When the Covid-19 pandemic forced the world into a new normal of physical distancing, demand for electronic devices crucial to a contactless reality surged, even as production capacity took a hit from forced closures and reduced operations.

Penang was not spared either, as firms abided by government-mandated and self-imposed protocols to minimise the risk of spreading the deadly coronavirus.

But it was a lack of parts – not workers – that turned out to be the bottleneck for semiconductor firms in the northern island state, such as UWC, then a newly listed test equipment maker.

UWC deputy chief executive Matin Ng told The Straits Times: “Everything else was going fine, but then we would be missing the most simple things like wooden crates, or nuts and bolts.”

As DHL SC Asia-Pacific CEO Javier Bilbao says, the pandemic “vindicated” logistics practitioners.

“Until the pandemic, the logistics industry was the thing that if it was doing good, we don’t need to talk about it,” he said, but supply chain management became a critical driver that kept the world turning as billions of people went into lockdown.

DHL SC’s commitment is a key indicator of Malaysia’s potential for manufacturing growth. Singapore will receive the next largest slice of the regional pie from the German giant – €104 million.

Malaysian logistics players have also benefited from the country’s industrial expansion. One example is Infinity Logistics, which celebrated its 20th anniversary in September.

It listed in Hong Kong just as the pandemic broke out, but in 18 months its shares were trading at five times their initial value, before moderating to current levels that are still triple their initial public offering price.

But where DHL SC seeks to stand out is with a swift adoption of the latest in digitalisation.

During an Oct 17 media tour of its PLH4 hub, robots were observed following staff around the warehouse floor, where million-dollar customised forklifts picked out pallets on command, rather than being manually controlled.

PLH5 and those onwards promise even more precise handling of goods.

UWC’s Mr Ng said that such advances are not just about efficiencies, but are paramount for the semiconductor industry, where performance hinges on nanometre precision.

“We can’t just dump our goods like furniture in the back of a truck. The sensitivity of the equipment and parts that we handle demand very precise handling,” he said.

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