Higher haulage rate revisions to be good for Swift

Swift Haulage Bhd’s freight forwarding (FF) earnings in the final quarter of this year (4Q22) may be affected by weakening freight rates as a result of lower demand.

However, this may be countered by higher haulage rate revisions, according to UOB Kay Hian (UOBKH) Research.

In a report yesterday, the research house said FF income may normalise from the strong mid-year performance.

However, for most of 3Q22, Swift Haulage’s FF segment, which was the main earnings driver in recent quarters, is expected to remain strong as guided by the integrated logistics service provider.

To recap, the FF segment contributed slightly more than half of the group’s total pre-tax profit of Rm33.8mil in the first half of its financial year ending Dec 31, 2022 (1H22).

“Based on latest industry data, container freight rates have fallen sharply and this was induced by weakening volume demand and high inventory surpluses as a result of inflation,” UOBKH Research said.

It also noted that global customers and shippers might engage in renegotiations of contract.

Should this trend continue, it may extend to freight forwarders as well.

UOBKH Research expects the upward transportation rate revision, successfully done by the country’s largest haulier and leading integrated logistics service provider on a case-by-case basis, to offset the potential freight forwarding weakness as well as the rising cost.

“A substantial portion of the rate increase will be reflected in 2H22,” UOBKH Research added.

The research house noted that the minimum wage revision, which has been increased by RM300 to RM1,500 since May 1, had the group’s driver cost increasing by 5% year-to-date (YTD) and miscellaneous operating expenditure related to maintenance and vehicle parts increasing by 15% YTD.

Commenting on Swift Haulage’s expansion plan, UOBKH Research said the company was largely on track with the Port Klang Free Zone or PKFZ warehouse.

Measuring 178,000 sq ft, the facility is set to commence operations by end-september.

This also coincides with the group having received the second batch of Volvo prime movers (10 units) on Sept 7 for its subsidiary Tanjong Express, to support additional logistics demand in the Klang Valley.

Meanwhile, its Sabah cold-chain warehouse is expected to add another 30,000 sq ft by 1Q23, UOBKH Research noted.

On Sept 5, Swift Haulage was certified as an Authorised Economic Operator (AEO) by the Royal Malaysian Customs Department.

UOBKH Research expects it to benefit from the AEO licence in the long term.