Muted Transport Outlook as Fresh Catalysts Fail to Materialize

The transport sector faces a muted near-term outlook in the absence of fresh catalysts, even as sustained intra-Asia trade demand and rising foreign direct investments (FDIs) and domestic direct investments (DDIs) in Malaysia support key players like Westports. A confluence of factors—geopolitical frictions, evolving shipping alliances, and potential policy shifts—continues to shape earnings trajectories and capacity dynamics across the port, logistics, and freight sectors. While the Israel-Hamas ceasefire offers some relief to shippers by easing freight pressures that had built up over the past year, the market remains sensitive to volatility in global trade flows and new capacity entering the system. Against this backdrop, analysts are weighing resilience against the risk of overcapacity as shipping lines adapt to evolving routes and regulatory regimes.

Market backdrop: freight-rate dynamics and regional recovery signals

The current freight-rate environment reflects a complex mix of easing conditions and lingering uncertainty. The Drewry World Container Index, which tracks 40-foot container rates across eight major maritime lanes, shows a pronounced decline—from a peak of US$5,937 per FEU on July 18, 2024 to US$3,364 per FEU on January 30, a drop of about 43%. Yet these rates remain substantially elevated relative to pre-crisis levels, being roughly 137% above the 2019 average of US$1,420 per FEU. The divergence underscores a market still rebalancing after a period of intense volatility driven by supply-chain disruptions, port congestion, and shifts in vessel deployment. While the ceasefire reduces immediate pressures, it does not instantly reset the structural supply-demand balance that shaped freight costs over the prior year.

Analysts note that as tensions ease, the cost pressures and congestion levels that plagued shipping lanes should gradually ease. In particular, the temporary halt to Houthi attacks in the Red Sea diminishes the risk premium that had kept routing and scheduling tight, potentially boosting shipping line calls at regional hubs, including Westports Holdings Bhd. A broader reversion to pre-crisis sailing distances is anticipated as vessels gradually return to the Red Sea routes. This normalization is expected to influence load factors and average voyage lengths, which in turn could exert downward pressure on freight rates. However, the pace and durability of this normalization depend on how long the ceasefire remains in place and how the broader macro environment evolves.

Even as this normalization unfolds, there are upside risks to the supply chain. The diversion of vessels from the Suez Canal to the Cape of Good Hope, along with congestion sparked by Red Sea disruptions, could gradually ease, increasing the frequency of port calls by shipping lines to Westports and other regional ports. Yet, the easing of these bottlenecks must be balanced against the influx of new-capacity vessels that have been delivered or announced, a factor that could keep overall freight-rate levels in a state of temporary softness. Maybank Investment Bank (Maybank IB) highlights that, while rates may ease as the sector returns to more normal sailing patterns, the market faces the challenge of new capacity that had been absorbed during the partial Suez closure being released as travel times normalize.

In its January 21 note, Maybank IB warned of overcapacity looming in the freight market as new ships hit the water and as the partial Suez closure effects dissipate. The bank estimates that the market would need to remove approximately 1.8 million TEUs of capacity merely to maintain the status quo on freight rates. This perspective underscores the tension between demand recovery, particularly in intra-Asia corridors, and the supply shock from vessel deliveries that could weigh on pricing for a period. The looming capacity issue is a critical factor for port operators and logistics players as it shapes tariff dynamics, scheduling efficiency, and capital expenditure decisions.

Concurrently, the reshaping of alliances and the implementation of new shipping relationships add another layer of complexity. On February 1, new shipping alliances are taking effect, with potential implications for schedule reliability and port congestion. Maybank IB suggests these developments could trigger delays and short-term congestion in local ports; however, it expects the impact to be less pronounced than the disruption experienced during the full rerouting of lines away from the Suez in late 2023 and early 2024. A staged return with careful planning could minimize disruptions, but the timing and execution of these alliances remain key risk factors for the near term.

Overall, the research community remains cautiously constructive on Westports’ near-term prospects, anchored by steady intra-Asia demand and rising investments at home. CGS-Cathay (CGS International) has raised its target price for Westports to RM4.40 from RM4.15 and maintains a market-perform stance, arguing that 2024 results beat expectations and that the domestic environment supports continued container-volume growth. In contrast, other houses have adopted more nuanced views. CGS International’s note emphasizes possible upside from tariff movements and US-China trade developments, but it also flags the sensitivity of port volumes to external policy shifts. The broader sector outlook remains mixed, with some upside underpinned by regional trade activity and some downside risk tied to global macro conditions and capacity expansions.

Recent performance cues for Westports reinforce a favorable but cautious stance. The company posted FY2024 net profit of RM779.43 million, up 11% from RM699.58 million in the prior year, driven by a higher investment tax allowance in 4QFY2024, record container volume, improved gateway cargo yields, and lower operating costs. The yearly container-volume milestone was achieved with 10.98 million TEUs in FY2024, surpassing the prior record of 10.88 million TEUs set in 2023. Even as the top-line momentum is meaningful, local policy developments and global supply-chain dynamics could influence the pace of future gains.

Within this context, there is a continued emphasis on improving scheduling efficiency and reducing vessel bunching as local market catalysts. The December 2023 ban on Israeli-flagged cargo ships docking in Malaysia did not heavily burden Westports, given its intra-Asia focus. Still, any improvement in vessel scheduling and the reduction of congestion could indirectly support throughput and reliability, thereby reinforcing Westports’ competitive position in the regional trade network.

Westports: earnings momentum, market views, and catalysts

Analysts have offered a measured mix of expectations for Westports, anchored by a generally positive view on its longer-term growth trajectory in the face of ongoing global volatility. Kenanga Research maintains a market-perform rating on Westports with a target price nudged to RM4.40 after the FY2024 results exceeded market expectations. The reasoning centers on Westports’ robust domestic and intra-Asia trade exposure, which continues to drive container volume growth and revenue generation. In its view, the port’s earnings resilience will be reinforced by the 4QFY2024 performance, a strong gateway cargo mix, and the potential for better scheduling to relieve congestion risk.

Maybank IB, by contrast, adopts a more conservative stance on the sector, rating the transport/logistics theme as a whole as neutral. The research house argues that while near-term freight-rate pressures may ease as the Red Sea disruptions subside and sailing times normalize, the industry faces a structural overhang from new-ship deliveries and an eventual need to absorb excess capacity. The bank’s assessment on Westports highlights the likely benefits from sustained intra-Asia demand and the favorable impact of rising FDIs and DDIs in Malaysia. Nevertheless, it flags the risk that the industry may need to contend with capacity-driven price pressure and a slower-than-expected volume ramp as new alliances and fleet redeployments settle in.

CGS International offers a “hold” on Westports with a target price of RM4.42. The note underscores the potential earnings upside from domestic tariff movements, US tariff scenarios, and China-Plus-One dynamics, while also acknowledging the sensitivity of Westports’ volumes to tariff implementations and macro demand. The firm highlights the long-run growth potential stemming from gateway container volume expansion, supported by higher tariff intensity and an improving regional trade backdrop. The upside risk to CGS’s hold stance would be if tariff hikes accelerate or are larger than expected, providing a tailwind to port volumes; meanwhile, delays and cost overruns in Westports 2 expansion could temper the near-term upside.

Market consensus, as reflected by Bloomberg data, places a RM4.77 target on Westports per share, implying scope for modest upside from the mid-price levels observed on a recent trading day. The stock has performed well over the past year, rising around 22% in the preceding 12 months, reflecting investor confidence in the company’s capacity to capitalise on intra-Asia demand trajectories and gateway volumes, even as the sector faces cyclical headwinds. The value proposition hinges on Westports’ ability to sustain throughput growth, optimize capex, and navigate regulatory changes, all while maintaining cost discipline across the network.

In sum, Westports sits at an inflection point shaped by a backdrop of improving intra-Asia trade and sustained investment activity, balanced against risks from global capacity expansion, tariff policy shifts, and potential disruptions from shipping-network redesigns. The company’s FY2024 performance confirms operational strength, but the medium-term outlook remains tethered to how quickly the market absorbs new vessels and how effectively port operations can mitigate congestion risks as alliances migrate and routes adjust.

Broader regional dynamics: geopolitical risk, logistics equities, and Tasco

Geopolitical risk continues to loom over shipping trajectories and freight rates. In a January 14 note, RHB Research flagged persistent geopolitical uncertainties that could keep ocean freight rates above pre-pandemic levels in the near term. The report points to potential frontloading by shippers in anticipation of anticipated US tariffs, seasonal Lunar New Year demand, and political tensions in the Middle East and Ukraine. RHB also notes the risk of a potential shift from ocean to air freight as disruptions persist, which could pressure air-cargo capacity while maintaining elevated ocean rates. Against this backdrop, RHB maintains a neutral stance on the transport sector, arguing that the sector’s heavyweights are fairly valued. Westports’ share price had risen notably in 2024, a testament to expectations of ongoing volume growth.

The logistics segment also features resilient players amid the volume volatility. Tasco Bhd, a company with exposure to logistics and supply-chain services, is highlighted as a potential beneficiary in an environment of elevated freight rates caused by global route disruptions. RHB’s stance on Tasco is constructive relative to its covered universe, suggesting that improved freight-forwarding activity, increased warehousing capacity, and tax credits from integrated logistics incentives could bolster Tasco’s earnings trajectory heading into the year ahead. At the same time, Tasco reported that its six months ended September 30, 2024 (1HFY2025) net profit fell to RM15.14 million from RM30.07 million a year earlier, a decline attributed to weaker performance across its supply chain solutions, contract logistics, and cold-chain segments. Despite this, Tasco’s deputy group CEO Alan Tan Kim Yong signaled a hopeful outlook for 2HFY2025, emphasizing stabilizing conditions across all segments and the potential for a more favorable year ahead given anticipated improvements in warehousing capacity and logistics throughput.

Tan also highlighted the broader risk environment, noting that developments around US trade policies under a hypothetical Trump administration could influence demand and pricing for the sector. He emphasized continued risk in the Red Sea region and the need to monitor evolving shipping conditions, given that the sector’s performance remains sensitive to global trade dynamics and political developments. The management commentary from Tasco underscores the degree to which macro forces—tariffs, exchange rates, energy prices, and regional conflicts—shape the demand landscape for warehousing and logistics services in Malaysia and the broader Southeast Asian region.

Within this geopolitical and macro context, RHB’s neutral stance on the sector contrasts with a more optimistic tilt toward Tasco, reflecting a belief that the latter could benefit from improved freight-forwarding structures and a return of volume momentum in the near term. The nuanced view among analysts suggests a fragmented sector where the most direct beneficiaries are those with exposure to stable intra-Asia flows and a strong warehousing footprint, while those tied to cross-border routes and tariff-sensitive shipments could face more pronounced volatility.

Swift Haulage, a key player in container haulage and cross-border transport in Malaysia, offers another lens on the sector’s evolution. Its executive leadership anticipates a modest uptick in container-haulage volumes in the current year, driven by stronger domestic consumption supported by higher minimum wages, broader civil service salary increases, and revived tourism activity. These drivers are expected to lift domestic demand and thereby bolster logistics activity, even as external risk factors loom large. Loo Yong Hui, Swift Haulage’s executive director and group CEO, notes that the growth in volumes may be tempered by potential headwinds such as the possible withdrawal of subsidies on RON 95 fuel, which could dampen expansion. He cautions that while volumes could rise, freight-cost pass-through to customers may be constrained by wage-driven cost pressures on transport operators, potentially pressuring margins.

Swift Haulage also discusses the warehousing segment’s evolution, suggesting that customers will increasingly consolidate warehousing operations to cut labor costs and boost efficiency. The company observes a growing demand for larger-scale warehouses in strategic locations capable of handling high volumes, facilitating smoother cross-border and domestic distribution. In this environment, warehousing rates could stabilize as demand and supply balance out, allowing for access to modern, efficient facilities without sharp price movements. Swift Haulage’s own financials reflect the sector’s challenges: net profit declined 27% to RM35.25 million for the nine months ended September 30, 2024, largely due to start-up costs from a new warehouse and reduced scale from global shipping disruptions. The coverage from five analysts shows mixed sentiment, with one rating a buy and four holding, and a consensus target price around 51 sen—a modest upside from recent levels. The stock has experienced a 26% decline over the preceding 12 months, reflecting ongoing capital-market reassessment of near-term earnings drivers.

Analysts also spotlight the Johor-Singapore Special Economic Zone (JS-SEZ) initiative as a potential tailwind for Swift Haulage’s core capabilities in container haulage and freight forwarding. The firm’s market position—holding roughly 5% of the container-haulage volume across major ports such as Port of Tanjung Pelepas and Johor Port—positions it to capitalise on the shift of warehousing and logistics activity toward Johor as companies seek cost efficiencies through the SEZ framework. The local research community, including MIDF Research, suggests a neutral stance with a conservative price target, while noting the strategic significance of Swift Haulage’s Tebrau warehouse, currently at 70% capacity, and its broader capacity expansion plans. The company has outlined a plan to add 100,000 square feet of cold storage by year-end as part of its cold-chain logistics expansion, and to complete the Shah Alam International Logistics Hub project by November this year, with a further 400,000 square feet of ambient storage to bring total capacity to about 2.2 million square feet by year-end. This expansion aligns with the industry trend toward integrated, temperature-controlled logistics solutions that are increasingly in demand across food and pharmaceutical sectors.

Taken together, the sector’s near-term catalysts appear to be a mix of macro-driven demand resilience in intra-Asia, the easing of some geopolitical frictions, and the ongoing push for better scheduling and supply-chain efficiency. The risk of further capacity additions—especially in the form of new vessel deliveries and restructured alliances—could keep freight rates under pressure for longer than some forecasts suggest. Yet the combination of domestic trade expansion, improved gateway volumes, and targeted warehousing growth provides a constructive backdrop for asset-light and asset-heavy logistics operators alike, albeit with a careful eye on cost inflation and policy risk.

Red Sea dynamics, capacity outlook, and global trade forecasts

Industry commentary from S&P Global Market Intelligence points to a nuanced view on the Red Sea reopening. While container shipping rates have softened from prior peaks, the ceasefire’s impact on global trade escalations remains uncertain. S&P Global notes that the Houthis’ capacity to sustain attacks may continue, even if at a lower rate, which could perpetuate risk premiums for shipping lines and influence routing choices. The agency observes that major container lines are adapting schedules to the Cape of Good Hope routes as an alternative to the Suez Corridor, a pattern that is likely to persist through 2025. The reopening of Red Sea routes is anticipated to restore some capacity to the container system, yet the effect is projected to be modest relative to the overall fleet and capacity expansions in the market.

The economics of capacity expansion are a central concern. S&P Global highlights that new vessels will add nearly 24% of new capacity over the next three years, even as capacity is being reintroduced through the reopening of routes and improved sailing speeds. In this context, global container trade is expected to grow by approximately 2.6% in 2025, a modest expansion given the scale of capacity additions. This dynamic underscores the tension between growth in demand and the pace of capacity deployment, with the risk that supply may outstrip demand if trade policy volatility or tariff regimes dampen cross-border flows. In parallel, the Baltic Dry Index, a barometer for dry bulk shipping, slid to a 23-month low of 715 points at the end of January, reflecting softer demand in the seasonal pre-Chinese New Year period. This softness serves as a reminder that the broader transport sector remains sensitive to cyclicality and seasonal effects, even as some segments experience steadier demand.

Industry observers also emphasize that policy and environmental considerations will shape network design and pricing in the years ahead. The container sector’s ability to maintain rate discipline will depend on strategic incentives, regulatory frameworks, and the ability of operators to optimally balance supply and demand in an increasingly complex shipping environment. Against this backdrop, the market remains on guard for external shocks—from tariff policy shifts in the United States and China-Plus-One considerations to potential regulatory changes in trade and environmental standards that could alter the competitive landscape for Malaysian ports and logistics players.

JS-SEZ, warehousing evolution, and Swift Haulage’s strategic positioning

A notable driver for logistics players in the region is the Johor-Singapore Special Economic Zone (JS-SEZ), a framework that is encouraging a shift of warehousing and distribution activities from Singapore into Johor. Swift Haulage sees significant upside from this structural shift, given its presence in container haulage and cross-border logistics. The company maintains a market share of around 5% based on containers hauled at major terminals such as the Port of Tanjung Pelepas and Johor Port. The Tebrau warehouse in Johor Bahru is currently operating at 70% capacity, with the company holding an overall warehousing capacity of 1.7 million square feet in Malaysia. Swift Haulage’s strategic expansion includes adding 100,000 square feet of cold storage this year, extending its cold-chain footprint to meet rising demand for temperature-controlled logistics in food and pharmaceutical sectors. The Shah Alam International Logistics Hub, currently scheduled for completion by November, is a key milestone that will enable Swift Haulage to scale storage capacity further, with an additional 400,000 square feet of ambient warehouse space expected to come online in the Shah Alam project. Together, these expansions aim to lift Swift Haulage’s total warehousing capacity to approximately 2.2 million square feet by year-end, reinforcing its ability to offer integrated logistics solutions across land, air, and sea corridors.

From a financial perspective, Swift Haulage’s nine-month results ending September 30, 2024, show net profit of RM35.25 million, down 27% from RM48.25 million in the prior year. The decline is linked to a combination of start-up costs associated with the new warehouse and a loss of operational scale as global shipping disruptions weighed on the company’s freight- and logistics services. The stock’s coverage by five analysts presents a mixed view: one buy rating and four holds, with an average target price of 51 sen, implying about 15% potential upside from recent trading levels. The corporate narrative for Swift Haulage remains anchored in its ability to capitalise on the JS-SEZ megatrend, leveraging its integrated logistics capabilities to capture rising demand for cross-border transport and warehousing solutions in Johor and southern Malaysia.

Analysts emphasise that JS-SEZ’s impact extends beyond port throughput to warehousing and distribution footprints. As more firms relocate warehousing operations from Singapore to Johor to optimise costs and leverage the SEZ’s incentives, demand for Swift Haulage’s end-to-end logistics capabilities is expected to rise. The company’s Tebrau facility currently operates near capacity, underscoring the need for continued expansion of both ambient and specialized storage capabilities. This trajectory aligns with broader market expectations that warehousing will play a pivotal role in modern supply-chain strategies, as firms seek to consolidate operations and improve efficiency through larger, strategically located facilities.

Tasco and broader sector dynamics: profitability, catalysts, and risk factors

Tasco Bhd appears as a microcosm of the sector’s mixed near-term momentum. While larger macro drivers remain uncertain, Tasco’s exposure to warehousing, logistics, and related services places it to benefit in scenarios of improved freight forwarding and volume recovery. In a January 7 mid-year note from MIDF Research, Tasco was highlighted as a stock with upside potential due to strengthening freight forwarding activity and the prospect of higher contribution from new warehouses and integrated logistics incentives. MIDF assigned a neutral rating on Swift Haulage, with a target price of 46 sen, reflecting cautious optimism about the company’s near-term trajectory.

Tasco reported a notable decline in net profit for the six months ended September 30, 2024 (1HFY2025), with net profit dropping to RM15.14 million from RM30.07 million a year earlier. The decrease was driven by weaker performance in supply-chain solutions, contract logistics, and cold chain segments, even as port strikes and congestion and shipping disruptions in the Red Sea helped lift the air and ocean freight divisions to higher pre-tax profits. Despite the softer first half, Tasco’s deputy group CEO, Tan Kim Yong, stressed a sense of stability entering the second half of FY2025, suggesting that earnings could rebound as conditions stabilize across all business segments. He cautioned that uncertainty surrounding potential US trade policies under a future administration could influence the pace and magnitude of Tasco’s growth, and he stressed the ongoing risk profile tied to the Red Sea’s shipping dynamics.

Tan’s assessment indicates that Tasco’s FY2025 growth would likely be driven by warehousing and the warehousing’s synergy with the air and ocean freight segments, underpinned by strong demand from select customers. He expects the company’s revenue to surpass the RM1 billion mark for FY2025, a level Tasco had attained in each of the past several years (RM1.48 billion in FY2022, RM1.61 billion in FY2023, and RM1.07 billion in FY2024). For the first half of FY2025, Tasco’s revenue rose 4% to RM545.67 million from RM526.83 million in the prior year, reflecting steady top-line momentum even in a challenging macro environment. While the year ahead is likely to present continued volatility, the leadership’s tone suggests a cautious optimism about Tasco’s ability to navigate ongoing supply-chain disruptions and tariff-related policy shifts.

The broader market environment for Tasco and similar logistics players remains sensitive to the outcomes of US trade policies, especially if tariffs or trade barriers become more pronounced. The potential for changes in US import tariffs on Chinese exports or broader ASEAN trade dynamics could alter export patterns and alter demand for logistics services within Malaysia and the region. Moreover, global shipping disruptions in corridors such as the Red Sea continue to pose risk, reinforcing the need for firms to diversify supply chains, strengthen warehousing capacity, and pursue price discipline in transport services. Against this backdrop, Tasco’s strategy to capitalise on warehousing expansion and integrated logistics solutions remains aligned with the sector’s long-run demand drivers, even as near-term earnings may experience volatility due to macro and policy factors.

Conclusion

The transport and logistics sector faces a multi-faceted landscape shaped by a mix of improving intra-Asia demand, ongoing capacity growth, and persistent geopolitical and policy risks. The Israel-Hamas ceasefire provides some relief to freight markets, but the industry must contend with a potential overhang from new vessel deliveries, alliance realignments, and tariff policy uncertainties. Westports, as a key gateway in the region, stands to benefit from higher gateway container volumes and better scheduling efficiency, even as analysts maintain a cautious stance on sector-wide profitability due to potential price pressure from overcapacity. The coming months will be telling for how quickly freight rates normalize, how effectively port operators and logistics players can scale warehousing and cross-border capabilities, and how policy shifts in major economies influence global trade flows.

For Tasco and Swift Haulage, the near-term outlook remains tethered to the balance between demand growth—driven by domestic consumption, wage-driven expansion, and warehousing expansion—and cost pressures from labor, fuel, and regulatory changes. The continued development of the JS-SEZ and Johor’s role as a regional warehousing hub could prove a meaningful tailwind, enabling players to expand capacity and enhance service offerings across integrated logistics networks. Collectively, the sector’s trajectory will hinge on the interplay between demand-led growth, capacity management, and policy dynamics that shape the structure of global trade in the years ahead. The underlying narrative remains that, even as freight-rate pressures recede from crisis-era highs, a measured, strategic approach to capacity, pricing, and capital expenditure will determine which players successfully translate macro improvements into sustained profitability.