As cabotage policy lifts, Malaysian shipping firms look to relocate overseas

The government has announced the removal of the cabotage policy on Sabah, Sarawak and Labuan from June 1. — Reuters pic
The government has announced the removal of the cabotage policy on Sabah, Sarawak and Labuan from June 1. — Reuters pic

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KUALA LUMPUR, May 11 — Anticipating massive losses, some local shipping companies are preparing to shift their bases out of the country after the government announced removing the cabotage policy on Sabah, Sarawak and Labuan from June 1.

The cabotage exemption means foreign ships — usually larger built vessels — will be able to transport cargo domestically.

To illustrate, under the cabotage policy at the moment, foreign ships are allowed to drop cargo at any port in the country but are not allowed to move them within the country. If a box is unloaded at a Sabah port, only a domestic freight company can then move it to Port Klang another port outside the state, and vice-versa.

Malaysian Shipping Association chairman Ooi Lean Hin said a few of the six local shipping companies have been mulling moving their business to Singapore in the face of such daunting competition.

“Although we will need to submit our application to run a tax-free domestic trade in Malaysia periodically, in Singapore we don’t need to do that and we are free to use any nationalities as our crew,” he told Malay Mail Online.

“But the question is, how many of us can bring our businesses to Singapore and why should we? This move by the government is like allowing Singapore Airlines to compete with AirAsia for our domestic routes is that fair?” he added.

Ooi said it is hard to forecast the losses for local shipping companies, even if it is an estimate, after the cabotage policy is lifted.

“I cannot give a rough figure as well, but what I can tell you is my profit margin to trips to Sabah and Sarawak is only 8 to 10 per cent tell me, is that profiteering?” he asked.

Ooi, who also run MTT Shipping, claimed many other countries practised a similar cabotage policy for national security purposes as well as to protect their local industry players.

The US has the Merchant Marine Act, also known as the Jones Act, enacted in 1920 that generally bars any foreign-built or foreign-flagged vessel from coastwise trading within its territory.

Ooi said Malaysia’s cabotage policy, implemented 30 years ago, similarly requires all domestic transshipment of goods to be made using Malaysian vessels only to protect the sovereignty of the country from potential threats.

“For instance, if there is a large Sulu invasion in Sabah, Malaysian-flagged ships cannot say no to the government’s call to supply necessities to the people there under the cabotage policy, but foreign vessels can decline,” he explained.

“So what happens in a situation as such, and when all local shipping companies have either moved to Singapore or gone bankrupt from this move?” he asked.

He urged the government to again rethink lifting the cabotage policy between east and west Malaysia.

Cargo transshipment between the peninsula and east Malaysia is a currently a “one-way traffic” with most vessels returning with only 20 per cent of the initial load from Port Klang.

“We are not asking the government to give us incentives to sustain our businesses, but allow us, the local flagged-ships, to grow because this move is going to kill us all,” Ooi said.

Besides MTT Shipping, other local shipping companies are AML Shipping, MSC Shipping and Shin Yang Shipping.

Rising cost due to cabotage?

Ooi rejected assertions that cabotage is responsible for the rising cost of consumer goods in Sabah, Sarawak and Labuan. He said several parties, including the government’s Economic Planning Unit (EPU), had disproved such claims.

“The EPU and World Bank have done studies last year to show that the cabotage policy and price of goods in the east Malaysia have no significant relation, so why lift the policy now?” he asked.

Instead, Ooi claimed that some prices of goods will certainly be higher than in the peninsula even without the cabotage policy because traders, particularly in Sabah, have monopolised the consumer market and that these states lack proper road infrastructure.

“For example, why is chicken that is homegrown in Sabah more expensive than here?” he challenged.

Since the 1980s, Sabah and Sarawak have been complaining about paying a higher price ― up to 30 per cent more ― for imported goods, a fact that is seen as adding insult to injury, as the state already suffers from a lower than national average pay scale.

Goods from peninsular Malaysia sent to east Malaysia also go through a longer supply chain which includes shipping agents and forwarders, truckers and shipping lines.

In Sabah, up to nine intermediaries are part of the chain and this contributes to the price of goods, driving prices up further.

Former Port Klang Authority chairman Datuk Lee Hwa Beng criticised the cabotage removal for being a populist move at a great financial cost to local shipping firms, shipyards and seamen.

“This is just a political move to win the hearts of voters in Sabah and Sarawak, but what many don’t see is this move will not actually make much difference to the price of goods there,” he told Malay Mail Online when contacted.

Like Ooi, Lee also pointed out that overhead costs, taxes and other charges to transport goods from Port Klang to the Borneo states or vice versa, may be the same or higher once foreign shipping companies come into the picture.

“These foreign shipping companies have deep pockets and they can afford to sustain losses for a period of time but our local players are not like that.

“So, after our local companies leave the business, what guarantee is there that they will not increase the price?” he asked, referring to foreign shipping companies.

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