KUALA LUMPUR, May 7 — Malaysia’s manufacturing sector is facing a deepening crisis as the ongoing conflict in West Asia cripples supply chains, inflates costs, and now threatens jobs, according to a new survey by the Federation of Malaysian Manufacturing (FMM).

In its second survey on the crisis, FMM revealed that conditions have significantly worsened since early April.

What began as a logistics disruption has now spiralled into a full-blown economic challenge, impacting raw material availability, cash flow, and employment stability.

A staggering 72 per cent of the 225 companies surveyed reported that their operating conditions have deteriorated, with 22 per cent describing the decline as “significant.” The findings suggest that the initial government relief measures, while welcome, have not been enough to shield the sector from the escalating fallout.

Raw material shortages at ‘critical levels’

The most urgent threat is the scarcity of essential production inputs. 70 per cent of manufacturers reported a worsening supply situation, particularly for resins, polymers, petrochemicals, industrial chemicals, and metals.

The inventory situation is dire: 40 per cent of companies hold only one to two months’ worth of critical materials, while a worrying 6 per cent have less than two weeks’ supply remaining.

While many are exploring alternative sources from China, India, and Thailand, progress is slow. Key barriers include quality mismatches (48 per cent) and the need for lengthy customer approvals before switching suppliers (40 per cent).

Freight and logistics costs remain severely inflated. Nearly nine in 10 respondents are still paying higher shipping rates than before the conflict began, with half reporting increases of 20 per cent to 50 per cent.

Vessel rerouting via the Cape of Good Hope has extended transit times to Europe by up to 20 days.

The crisis has also hit home. Nearly half of the respondents (49 per cent) cited rising domestic transport costs as their single biggest logistics problem, largely due to diesel quota exhaustion among local hauliers.

The report specifically flagged a “serious bottleneck” in haulage connectivity between Pasir Gudang and the Port of Tanjung Pelepas, as truckers abandon less profitable routes once their subsidised diesel runs out.

Jobs on the line

The financial strain is intensifying. 68 per cent of companies are facing cash flow pressure, with 13 per cent stating it is severe enough to affect their ability to pay suppliers.

This is compounded by suppliers shortening payment terms and buyers delaying payments due to shipment uncertainties.

This has a direct impact on employment. 28 per cent of companies have already made or are planning workforce adjustments.

While these are currently limited to hiring freezes and reduced overtime, 5 per cent have already implemented retrenchments.

FMM warned that if conditions do not improve, temporary measures will likely escalate to permanent job cuts, particularly among small and medium enterprises (SMEs).

In response to the escalating crisis, FMM has called for immediate government action on several fronts.

The federation is urging the government to introduce duty and tax exemptions for critical raw materials sourced from alternative, non-conflict regions.

It is also seeking further tax deductions for crisis-related freight surcharges and insurance costs for the 2025 and 2026 tax years.

To address rising fuel costs, FMM has proposed a targeted relief mechanism for manufacturers who use diesel in their production processes but are excluded from the current subsidy system (SKDS).

The federation also recommends expanding the subsidised diesel quota for hauliers on key industrial and port routes to ease domestic transport bottlenecks.

Finally, FMM proposed the introduction of a targeted, time-bound wage subsidy for affected companies, particularly SMEs, conditional on them retaining their workforce.

FMM president Jacob Lee Chor Kok stressed that the manufacturing sector, which contributes 23.4 per cent to Malaysia’s GDP, needs these targeted and proportionate measures to weather the storm.

“The conflict is no longer affecting only freight rates,” Lee said.

“It is now reducing production, weakening order books, straining company finances, and putting jobs at risk.”