TASCO: Transportation Sector Navigates Headwinds, Logistics Firms Preferred Amid Cost Pressures

The transportation sector is maintaining a Neutral outlook, primarily weighed down by persistent geopolitical risks and tariff-related uncertainties. Despite these headwinds, logistics players are favored due to their inherent earnings stability, underpinned by diversified client bases and the cushioning effect of integrated logistics services tax incentives.

Recent financial performance within the sector has been mixed. While several players reported in-line results, one prominent logistics entity fell short of projections. This was largely attributed to higher-than-expected operational costs associated with its general and regional headquarters, signaling a period of careful cost management.

Persistent Challenges

The near-term outlook for exports remains cautious. RHB Economics forecasts Malaysia’s full-year export growth to ease to 3.1% in the second half of 2025 from 3.8% in the first half. This slowdown is primarily driven by the gradual impact of US reciprocal tariffs and a fading of front-loading activities for shipments to the US.

Geopolitical risks continue to be a significant wildcard, casting a shadow over the global trade landscape. Ongoing tensions, including potential disruptions from the Red Sea bypass, US-China trade disputes, and regional civil unrest, are compelling shipping lines to opt for longer routes. This not only increases transit times and operational costs but also contributes to port congestion across various regions, potentially disrupting critical supply chains and dampening trade flows.

Sector valuations reflect this muted sentiment, with the Bursa Malaysia Transportation Index (KLTRAN) trading below its 10-year mean. Until clearer signs of trade recovery emerge, valuations are expected to remain subdued. Downside risks persist from a continued slowdown in global economic growth and a further weakening of freight rates.

Outlook and Mitigating Factors

Despite the prevailing challenges, certain factors are expected to lend support to exports in 2H25. These include clearer guidance on US tariffs, a gradual easing of US-China tensions, and Malaysia’s diversified product and market mix. Furthermore, a uniform US tariff rate across ASEAN could bolster regional competitiveness.

Positive impacts from port tariff revisions are anticipated in the second half of the year, though not at full force. The effectiveness of these revisions will vary between gateway and transhipment containers, as contracted rates for transhipment often supersede gazetted tariffs. Additionally, the planned IPO of a major port operator, aiming for a USD7 billion valuation, is set to significantly enlarge the transport and logistics sector’s footprint, potentially attracting greater institutional participation.

Overall, the sector’s maintained Neutral rating underscores a cautious yet pragmatic view. While global trade dynamics and geopolitical tensions pose ongoing challenges, the resilience of logistics players with diversified operations and strategic policy support offers some stability within a volatile landscape.