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A Logistics Game Changer

Malaysia is mere months away from the launch of South East Asia’s first electronic world trade platform (eWTP) - the KLIA Aeropolis DFTZ Park, dubbed as a game changer for the e-commerce and logistics play in the country and the region.

The facility, jointly developed by Malaysia Airports with anchor support from the world’s largest e-commerce player Alibaba Group, is the single largest facility of the “KLIA Cargo Village” ecosystem in the vicinity of the KL International Airport (KLIA).

“This marks our entry into the development of large-scale distribution centres, to position KLIA as the preferred hub among global monobrands as well as e-commerce players in the region, where there are many untapped opportunities in the sector,” said Randhill Singh, General Manager of KLIA Aeropolis.

“E-commerce will be driving air cargo growth. We recognise that, and we want to position KLIA to leverage on that growth,” Randhill told The Edge Malaysia in a recent interview.

Built on a 60-acre land, the facility boasts a gross floor area (GFA) of 1.1 million square feet and is projected to help Malaysia Airports double its air cargo volume through KLIA from the current 700,000 tonnes per annum over the next 8 to 10 years.

The eWTP which is within the digital free-trade zone is slated for completion in September this year, before operations go into full swing before the end of 2020.


A more efficient logistics facility

But how is this facility different from other logistics facilities?

KLIA Aeropolis DFTZ Park is not the first logistic facility around KLIA, which contains separate cargo terminals and distribution centres. “But it is the largest to-date,” said Randhill. He added that the facility will serve both functions with its three buildings — a cargo terminal, a warehouse and a sorting centre. “Typically in a cargo terminal, goods are not meant to be stored,” said Randhill. “With this, goods are moved through this terminal into the aircraft, but we also have sorting spaces. You can also undertake value-added activities on-site, such as break-bulk, re-packaging and light assembly, similar to a typical free commercial zone,” he explained.

Another plus point is that KLIA is efficiently connected with Port Klang to allow sea-to-air cargo transfer. The total investments of common infrastructure and construction cost, including the advance technologies e.g. auto parcel sorting system, AGV, smart CCTV, etc is estimated to be worth RM800 million, by Malaysia Airports, Alibaba’s logistics arm, Cainiao HK and other related partners. Alibaba, said Randhill, has undertaken that it will occupy 30% of the facility, and will take on more space when other logistics sites are completed within the KLIA Cargo Village to accommodate other logistics players in the next 10 years. On future tenants, MAHB is expecting to make further announcement by April this year.

For MAHB, the revenue stream that will come from this include land lease revenue, which is charged based on market price. “There is no special grant given to Alibaba. They saw the potential, they came in and put in their investments,” Randhill shared.

Others include the potential dividends from the JV in the long run, and higher aeronautical revenue (such as aircraft landing and parking charges) with more air cargo that is expected to come in. “It also has the potential to help improve airline route profitability, especially along marginal routes which struggle to breakeven without cargo throughput,” said Randhill.

“You also get that awareness among potential tenants which will help improve KLIA’s visibility as a regional distribution hub, which translates to more real estate revenue moving forward,” said Randhill.

Briefly, Randhill explained that Alibaba evaluated over 30 existing free-trade zones in Malaysia through 22 selection criteria before ending up with MAHB. “We saw clear orientation — Alibaba wanted to bring the game to South East Asia where it lacks presence of global e-commerce players. For us, we understood that the best way forward is to get a major player in. “When we saw Alibaba acquiring more of [South East Asia-dominant e-commerce platform] Lazada and shifting its strategy towards investing into logistics infrastructure, we saw the right match,” said Randhill. “What they want to see is more Malaysian exports. That is why Alibaba, MDEC and SME Corp have arranged training programmes and bringing local SMEs to China to learn about the systems and the business, and to help them get their goods out,” Randhill added.


Long-term vision for KLIA Aeropolis

The KLIA Cargo Village ecosystem, which the KLIA Aeropolis DFTZ Park is part of, sits within 215 acres of the free commercial zone located within the proposed KLIA Aeropolis — a long-term development spanning over 8,000 acres envisioned by MAHB which combines industrial, leisure, business, and tourism in a single ‘airport city’.

 “This marks a step for us towards realising our vision of making KLIA Aeropolis as an e-commerce and logistics distribution hub in Asia Pacific,” said Randhill.

KLIA Aeropolis has four components: the logistics park and aerospace park (which make up the bulk of the industrial park), business park and an airport central — the latter being a commercial centre to be erected between KLIA and klia2.

The Aeropolis, in turn, is part of 22,000 acres in Sepang area maintained by MAHB — twice the size of Malaysia’s administrative centre Putrajaya.

With the strategy to go big in industrial and logistics hubs panned out, Malaysia Airports expects to have developed 2,000 acres in the KLIA Aeropolis over the next 40 years or so. At the moment, Malaysia Airports is in discussion with the government to conclude the 99-year lease for the lands, said Randhill. “That is important for us. After we conclude that, only can we further develop the rest of the KLIA Aeropolis. We have the principal approval, and now we are at the final stages of discussion,” said Randhill. “In the next 40 years, we expect to have developed close to 2,000 acres out of this 8,000 acres,” he added.

Apart from the 8,000-acre Aeropolis, the remaining 70% of the 22,000-acre lands will be for airport use, said Randhill. “That allows for future development of one additional runway from the existing 3, and for the airport capacity to grow to 140 million passengers [per annum] in the long term,” said Randhill.

Within that, about 1,000 acres will be earmarked for industrial developments, comprising largely cargo and logistics sites, light manufacturing includingmaintenance, repair and overhaul (MRO) facilities. These high-grade, large scale regional distribution centres will target global monobrands, automotive, aerospace-related, high tech sector – all within an international grade and managed park.