Penang, Malaysia has become a booming production hub for high-tech companies. These companies require significant air freight shipping from Malaysia, specifically Penang, but cargo capacity out of Penang International Airport is insufficient to handle current demand. As a result, Penang-based factories need to use Kuala Lumpur and Singapore as gateways to connect with the US, Europe and other countries. That has spurred interest in freight forwarders with cross-border road freight capabilities.
How we got here
Let’s look first at what led up to the challenge. Penang, a small city in northern Malaysia, has transformed itself into the “Silicon Valley of the East,” with many large, high-tech companies establishing factories here. Despite a population under 2 million, Penang had 5% of the world semiconductor exports in 2019 – and since then these export volumes are increasing given the worldwide thirst for semiconductor products.
Penang is host to 350 multinational companies and 4,000 small and mid-sized enterprises. What’s driving them to Penang?
For one, the local government is committed to building a high-tech based economy. Batu Kawan Industrial Park and Kulim Hi-Tech Park are hubs for high-tech manufacturing and both are a short distance from the airport and seaport in Penang.
Another industrial development, the Penang Technology Park, is under construction by a private developer and will exclusively house tech firms like semiconductor and medical device manufacturers. See the sidebar for additional reasons companies are attracted to Penang.
The pursuit by manufacturers of a “China Plus One” strategy has also buoyed Penang’s growth goals. These companies seek to expand production beyond China to mitigate risks associated with COVID-related disruptions and fallout from China-U.S. trade conflicts.
Why Consider Penang as a Production Hub?
- Central location within Asia-Pac. This makes Penang an ideal gateway to Asia.
- Good neighbors. Companies considering Penang are comforted by the fact that many noted high-tech firms have already moved here, including Intel, AIC Semiconductors, Flextronics, Lam Research and HP.
- Free zones. These zones offer tax and duty exemptions/delays for imports and exports.
- Ease of doing business. This includes a stable political environment, available labor, a relatively high literacy rate, and responsible trade unions.
Shipping from Malaysia: the challenge
Since tech firms tend to use a higher percent of air freight services out of Asia than shippers in most other industries, air freight volumes have grown rapidly along with Penang’s rise as a high-tech production hub. But air freight capacity shortages have created challenges for companies shipping from Malaysia to the US and other markets.
According to the Penang Freight Forwarders Association (PFFA), air freight rates out of Malaysia that soared during COVID are now stabilizing. But carriers are still not back to pre-COVID flight schedules, so demand exceeds supply. That has led BCOs and forwarders to seek other options.
Speaking on this issue, Ali Ahmad, Honorary Secretary General of the PFFA, recently said “The shortage of air cargo space has prompted customers to use trucking services to transport cargo to Singapore.”
Companies have sought out freight forwarders offering multimodal solutions that include moving cargo over the road to bigger air cargo hubs.
Dimerco has seen this increased interest, first-hand.
The company operates a Cross-Border Road Freight solution (CBRF) that connects key freight markets in China all the way down to Singapore – and everywhere in between. The solution includes helping companies in Malaysia that want to take advantage of Singapore’s cargo capacity, flight frequency, and vast number of connections with other global gateways.
When Penang’s outbound air freight capacity is limited, Dimerco can arrange CBRF from PEN-SIN and an outbound flight from SIN at the same cost as shipping direct from PEN due to Dimerco’s strong freight consolidation program out of Singapore.
Here’s an example:
During COVID, a major chip manufacturer struggled with reduced air freight capacity direct from Penang to both Hong Kong and Singapore. To create a more reliable, predictable supply schedule for customers, the company now moves cargo over the road from Penang to Singapore and then connects via air to Hong Kong and other gateways.
For global shipments into Penang, many companies also choose to route through Singapore because of its connections to many global gateways and attractive cost. For its customers, Dimerco can route to consignees in Penang via truck or air – usually by the next day. Singapore customs regulations allow this cargo to be handled as a transshipment and, therefore, free from Singapore duties and taxes.
Are you seeking a partner for air freight shipping from Malaysia?
If you seek reliable air freight shipping from Malaysia, Dimerco has freight experts in 6 company-owned offices throughout the country in Penang (2), Ipoh, Kuala Lumpur (2) and Johor Bahru.
According to David Yeoh, branch manager of Dimerco/Penang, “For companies who don’t mind a longer door-to-door transit time in exchange for lower freight costs and reliable air freight capacity, they should explore using cross-border road freight to connect Penang with Singapore for both imports and exports.”
To learn more, reach out to Dimerco to start a conversation.