New Straits Times – Courier firms revise targets after fuel price hike

Malaysian air express companies expect their total operation cost to increase about 12-15 per cent, but they have only raised fuel surcharge by 10 per cent

THE recent increase in petrol and diesel prices has forced local air express companies to revise their financial targets for the year and scale down their original expansion plans to keep costs under control.

GD Express Carrier Bhd executive deputy chairman Teong Teck Lean said the diesel price increase has forced the company to scale down its rate of expansion moderately and exploit various and more effective operation processes to achieve cost savings and improve quality.

“We are already seeing a slight decrease in demand, by about five per cent, mainly due to the uncertainty and fluid situation that affects both the domestic and global economies,” Teong told Business Times.

GD Express has also revised its growth forecasts for the fiscal year ending June 30 2009 to factor in the increase in operating costs.

“We expect our total operating cost to increase by 12 per cent to 15 per cent, assuming that the fleet card system remains and international fuel price maintains at current level,” said Teong.

Likewise, PosLaju, the courier unit of Pos Malaysia Bhd, said it will be undertaking a mid-term review of its 2008 business plan next month, where a downward earnings forecast revision is expected to take into account the fuel price increase.

“The rising fuel prices have negatively impacted our bottom line. Our operating and net margins are under tremendous pressure and are envisaged to shrink from our earlier projection,” said PosLaju chief operating officer Nadza Abdul.

“But for now, the fuel price shocks have not impacted our 2008 expansion plans. We are still looking to increase our D+1 (next day delivery) service coverage from 60 per cent to 70 per cent, by December,”

“We are also going ahead with our plans to open new branches in selected areas in the country. Of the six new branches that we had identified to open by June 2008, we have already opened four in Banting, Sri Aman, Limbang and Cheras,” he added.

PosLaju is investing some RM28 million this year to expand its fleet and network.

Teong, who is also the Association of Malaysian Express Carriers president, said as an immediate measure to ensure the viability of the industry, local air express companies have agreed to raise their fuel surcharge by 10 per cent to 25 per cent from July 1 2008.

“Still, we won’t be able to pass on 100 per cent of the fuel price increase to our customers. We expect our total operation cost to increase by about 12-15 per cent, but our fuel surcharge can only increase by 10 per cent. Hence, we need to absorb a certain percentage of the cost increase and try to mitigate the adverse impact through various cost control measures,” he said.

However, the increase in fuel surcharge is not applicable to PosLaju due to the fact that it operates under the postal licence of parent Pos Malaysia and is regulated by the both the Ministry of Communications, Energy and Water and the Malaysian Commission of Multimedia and Communications (MCMC).

“As such, any increase in our fuel surcharge has to be deliberated by both the ministry and MCMC. Other courier companies, however, can increase their fuel charges with immediate effect,” said Nadza.

Incidentally, this situation has resulted in PosLaju having the lowest fuel surcharge in Malaysia.

However, increasing fuel costs has forced PosLaju to commence talks with both the ministry and MCMC to allow it to revise its fuel surcharge quantum.

Meanwhile, Nadza said apart from rising fuel costs, other major challenges that PosLaju faces include the increasing customer demand for more information to be submitted to them pertaining to the delivery of their items and an on-going price war in the local courier industry.

“Customer request has grown in complexity, whereby some large customers are requesting PosLaju to provide them not only information on the successful delivery, but also items pending delivery, re-toured, returned and rejected. This has placed more demand on our management information system.

“In addition, there are many local courier companies whose competitive strategy is based on low-cost offering. As a result, customers are so used to demanding low prices from their courier service providers, pushing everybody’s profit margins down. This is detrimental to the long-term health of the industry,” said Nadza.

For GD Express, Teong said, its concerns include the rising costs of living and travelling allowances which have a major impact on its operating costs as the courier industry is labour intensive, the limited air capacity for movement of goods between Peninsular Malaysia and Sabah and Sarawak, resulting in frequent service failure in Sabah and Sarawak, and higher costs of other services like power and toll.