Press Articles

New Straits Times - Courier sector price war turns ‘unhealthy'

Mar 27, 2006

( Kang Siew Li )
 

THE ongoing price competition in the domestic courier market has reached unhealthy levels as the number of players grows to 105.

Association of Malaysian Express Carriers (Amec) president, Teong Teck Lean, said competition has reached a point where it is now "extremely unhealthy".

"Rates for express services have dropped drastically. For instance, a delivery from Kuala Lumpur to other parts of the country that costs RM20 per 500g 20 years ago can go to as low as RM2.50 per 500g today, down by 88 per cent," he told Business Times.

Teong, who is also GD Express Carrier Bhd (GDEX) executive deputy chairman and chief executive officer, reckons that this occur because some players confuse their business with heavy haulage companies that are able to offer low rates because of lower operating costs.

"However, applying this model to the express service business will only make them lose money," he said.

He added that this fixation on low rates is at the expense of service quality.

"Customer service quality is compromised when the courier companies concerned focus on the price. That's because with their margins squeezed, there is not enough money to maintain services," he said.

Compounding the problem is the 30-sen rise in fuel prices.

"However, members of Amec have agreed not to raise the rates until further studies have been conducted," said Teong.

The association hoped that Malaysian Communications and Multimedia Commission, the industry regulator, could help resolve the price war among local courier players by setting a minimum pricing law for express services.

"This will regulate how low express rates can be fixed by courier operators in the country," said Teong.

City-Link Express (M) Sdn Bhd chief executive officer David Tan Ah Ba agrees.

He said courier companies like City-Link are under increasing pressure from customers to lower their rates due to the growing number of courier companies.

The situation is so serious that it has squeezed margins and hit bottomline, he added.

Nevertheless, both Teong and Tan have no plans to leave the industry, and in fact they are optimistic about the future of the local courier industry.

Teong said Malaysia's RMl billion courier industry is still in its infancy, with foreign players capturing a 70 per cent-market share.

"When the industry is fully matured, it can be lucrative. Take Federal Express and United Parcel Service, for example. People could not see these companies' values until after 20 years when their business fully matured."

"As such, for those who want to invest in local courier companies such as GDEX, they have to look long term - five to 10 years. They have to look at the business rather than the company's earnings because it takes time for the business to build up," he said.