China Plus One: Why Manufacturers Are Moving to Malaysia and What It Means for Logistics

A fundamental shift is underway in global manufacturing. Companies that once relied entirely on Chinese production are now actively diversifying their supply chains across Southeast Asia — and Malaysia is emerging as one of the biggest winners. For logistics providers in Port Klang and across Selangor, this is not a distant trend. It is happening right now, and it is reshaping the demand for freight forwarding, customs clearance, haulage, and warehousing services in real time.

What Is the China Plus One Strategy?

The "China Plus One" (or C+1) strategy refers to companies maintaining their existing Chinese manufacturing base while establishing additional production capacity in at least one other country. The goal is to reduce concentration risk — protecting supply chains from disruptions caused by geopolitical tensions, tariffs, pandemics, or natural disasters.

This is not a new concept. Companies have been talking about supply chain diversification for years. But what has changed in 2025 and 2026 is the speed and scale at which it is actually happening. Three forces have converged to accelerate the shift:

• US tariffs on Chinese goods: The Trump administration's tariff regime — reaching up to 145% on certain Chinese imports — has made China-only supply chains economically unsustainable for many companies serving US markets
• Geopolitical uncertainty: The US-China trade war, combined with the 2026 Middle East conflict and Strait of Hormuz crisis, has reinforced the dangers of concentrated supply chains
• Client pressure: Major Western retailers and OEMs are now requiring their suppliers to demonstrate supply chain diversification as a condition of doing business

Why Malaysia? The Numbers Tell the Story

Malaysia has consistently ranked among the top destinations for China Plus One investment, and in 2024 it moved into second place in manufacturing competitiveness rankings across Asia. Several factors make Malaysia uniquely attractive:

Semiconductor and Electronics Hub

Malaysia's position in the global semiconductor supply chain is unmatched in Southeast Asia. The country already handles approximately 13% of global chip assembly, testing, and packaging. Penang alone attracted RM 60.1 billion in approved foreign investments in 2023, with E&E accounting for 88.7% of this total. As Western and East Asian firms seek alternatives to Chinese chip production, Malaysia is the natural choice.

Strategic Location on the Strait of Malacca

Port Klang sits along the Strait of Malacca — the world's busiest shipping lane. The port has risen from 13th place globally in 2022 to 10th in 2025, handling 14.64 million TEUs in 2024 with projected throughput of 14.98 million TEUs in 2025. Together with the Port of Tanjung Pelepas (PTP), Malaysia is now the fifth largest country in the world for total container handling.

Business-Friendly Environment

Malaysia offers a strong legal system rooted in common law, well-developed telecommunications infrastructure, a bilingual workforce (English and Malay), and competitive labour costs. The country's Free Trade Zones (FTZs) — including the Port Klang Free Trade Zone — provide duty deferment and simplified customs procedures that are particularly attractive to manufacturers importing raw materials for re-export.

Growing Trade with China Itself

Ironically, the China Plus One strategy has also strengthened Malaysia-China trade ties. China was Malaysia's largest source of approved foreign investment in 2022, with RM 55.4 billion (33.9% of total FDI). Chinese manufacturers are themselves relocating to Malaysia to circumvent US tariffs on Chinese-origin goods — a trend that is driving demand for logistics services in both directions.

The Logistics Challenge: What New Manufacturers Face

Opening a factory in Malaysia is one thing. Getting your supply chain running smoothly is another. New manufacturers entering the Malaysian market consistently encounter the same logistics challenges:

1. Customs Registration and Compliance

Every manufacturer importing raw materials or exporting finished goods needs to register with Royal Malaysian Customs (JKDM). This involves obtaining a customs code, understanding the Sales and Service Tax (SST) obligations, applying for relevant exemptions (such as Schedule C for raw material imports), and navigating the MyCIEDS digital documentation platform. The process is straightforward if you know what you are doing — but full of delays if you do not.

2. Finding the Right Port and FTZ

Port Klang operates through two terminals — Westport and Northport — each with different strengths. Westport handles the majority of transshipment cargo and serves major shipping alliances, while Northport is strong in conventional and domestic trade. For manufacturers, the choice of which terminal to use — and whether to utilise FTZ warehousing — can significantly affect costs and clearance times.

3. Haulage and Last-Mile Transport

Container transport from Port Klang to industrial areas across Selangor, KL, and beyond requires reliable haulage. New manufacturers often underestimate the complexity of this: truck availability fluctuates seasonally, peak-period surcharges apply, and without an established relationship with a haulage provider, you may find yourself waiting days for a pickup during busy periods.

4. Warehousing and Inventory Management

The influx of new manufacturers has tightened warehouse availability in the Klang Valley. Bonded warehouse space is particularly competitive. New entrants need to secure warehousing arrangements early — ideally before their first shipment arrives — and understand the regulatory differences between bonded storage, FTZ storage, and general warehousing.

5. Understanding Transshipment Scrutiny

This is critical and often overlooked. US Customs and Border Protection (CBP) has expanded inspections of shipments from countries commonly associated with transshipment risks — including Malaysia. If your finished goods are destined for the US market, you need watertight documentation proving Malaysian origin. Goods merely routed through Malaysia without substantial transformation may be flagged and subjected to anti-circumvention duties at the Chinese tariff rate.

The Logistics Opportunity: What This Means for Malaysia

The Malaysia freight and logistics market is projected to expand from USD 29.7 billion in 2025 to USD 40.1 billion by 2031, driven largely by FDI-fuelled manufacturing growth. For the logistics industry, this means:

• Increased demand for customs clearance services as new manufacturers begin importing raw materials and components
• Higher haulage volumes from ports to new industrial zones across Selangor, Penang, and Johor
• Growing need for FTZ and bonded warehousing as manufacturers take advantage of duty deferment schemes
• More complex documentation requirements driven by US anti-circumvention enforcement and rules of origin compliance
• Demand for integrated logistics — manufacturers prefer a single forwarding agent who can handle customs, haulage, and warehousing rather than coordinating multiple vendors

Port Klang has already responded to this growth. In 2025, a 24/7 customs clearance pilot programme reduced average container dwell time from 5.2 days to 2.8 days — demonstrating that procedural improvements can keep pace with volume increases.

What Should New Manufacturers Do?

If your company is setting up or expanding manufacturing operations in Malaysia, here is a practical logistics checklist:

1. Appoint a forwarding agent before your first shipment. Do not wait until cargo is on the water. A good forwarding agent will handle your customs registration, advise on tariff classifications, and set up your import/export procedures from day one.
2. Understand your SST obligations early. Manufacturers with annual turnover exceeding RM 500,000 must register for Sales Tax. Schedule C exemptions for raw materials must be applied for before cargo arrives — not after.
3. Secure warehousing arrangements in advance. FTZ and bonded warehouse space in Port Klang is competitive. Start your search at least 2-3 months before you need the space.
4. Establish haulage contracts. Spot-market haulage rates during peak season can be 30-50% higher than contract rates. Lock in a haulage arrangement with a reliable provider early.
5. Document everything for rules of origin. If your goods are destined for the US, maintain comprehensive records of substantial transformation in Malaysia. Your forwarding agent should be familiar with the documentation requirements to withstand CBP scrutiny.
6. Plan for both Westport and Northport. Your choice of terminal affects shipping line options, clearance speed, and costs. An experienced Port Klang forwarding agent can advise on the optimal routing for your specific cargo type and trade lane.

How DNE Forwarding Supports Manufacturers Entering Malaysia

DNE Forwarding has been operating at Port Klang since 1999 — through economic cycles, trade policy shifts, and logistics disruptions. We have helped dozens of manufacturers set up their Malaysian logistics operations from scratch, and we understand the specific challenges that new entrants face.

Here is what we offer:

• End-to-end onboarding: From customs registration and tariff classification to your first import clearance, we handle the entire setup so you can focus on production
• Customs clearance expertise: Our team processes thousands of declarations annually at both Westport and Northport. We know the MyCIEDS system, SST exemption procedures, and agency permit requirements inside out
• Dedicated haulage fleet: GPS-tracked container transport from Port Klang to industrial areas across Peninsular Malaysia, with guaranteed availability even during peak periods
• Warehousing and FTZ access: We help manufacturers secure the right storage solution — whether bonded warehouse, FTZ, or general warehousing — based on their specific import/export patterns
• Real-time tracking: Our WizForwarding portal gives you visibility of your shipment status at every stage, from vessel discharge through customs clearance to warehouse delivery
• Transparent pricing: No hidden fees, no surprise charges. Every cost is explained upfront before we start

The China Plus One wave is the biggest opportunity in Malaysian logistics in a generation. Whether you are a multinational opening your first Malaysian plant or an existing manufacturer expanding your operations, the right logistics partner can mean the difference between a smooth launch and months of costly delays.