Locals doubt foreign ships can sustain route

KUCHING: The Sarawak Shipping Association (SSA) are doubtful if foreign ships can sustain servicing the routes between West and East Malaysia.

The statement was made by SSA chairman David Chung Kim Chook in reference to the recent abolishment of the cabotage policy for Sabah, Sarawak and Labuan starting June 1, 2017 by Prime Minister Datuk Seri Najib Tun Razak last week.

Under the cabotage policy, only Malaysian vessels were allowed to undertake domestic transhipment of goods. All imports and exports would have to go through Port Klang first.

The policy was skewed in favour of Port Klang in order to make it the container hub port in Malaysia but has since seen some liberalisation as foreign vessels are currently allowed to transfer their goods directly into ports of East Malaysia.

The reverse however, is still in place for smaller shipment quantities as both domestic and foreign vessels seeking to ship East Malaysian cargo below a certain threshold out of the country will need to go through Port Klang first.

“Based on the announcement, we understand that the policy exemption only applies to shipping between Peninsular and East Malaysia.

“Therefore, existing Malaysia ships plying this route would be the first to face outside competition from this liberalisation.

“But, we doubt foreign ships could sustain under the depressed freight market and unfavourable economic environment at present,” Chung opined.

He pointed out that several Malaysian liners that were previously servicing this route had already exited or closed down their freight operations completely.

Most notably, national shipping line Malaysia International Shipping Corporation Bhd (MISC) exited the route and liner business in November 2011 after suffering a total financial loss of US$191.6 million that year from the segment alone.

MISC completely abandoned the segment on March 2014 with the sale of its wholly-owned subsidiary, MISC Integrated Logistics Sdn Bhd which was involved in domestic and regional liner freight management and warehousing.

“It serves a clear signal that the surviving operators on this route are maintaining their social obligations to state rather than seeking for windfall profit as some quarter might suspect,” Chung said.

According to Chief Minister Datuk Amar Abang Johari Tun Openg, the decision to open the route to the global market is likely to reduce cost of goods in East Malaysia.

Chung, however, is of a different opinion and claims that shipping freight only constitutes a small percentage of the total cost incurred in transport costs.

“Based on our calculation, freight is only about 35 per cent of the total transport costs, which include, besides ocean freight, landside transport, port handling charges, and custom clearance,” he said.

“Most people simply take it for granted that these are ‘shipping charges’ and place the blame on shipping lines.

“If we really want to reduce the price of goods, we should scrutinise the whole cost structure instead and not forget expenses incurred on marketing channels, commissions and mark-ups.

“It is unfair to blame the price disparity between West and East Malaysia solely on shipowners,” Chung declared.

While it has been affirmed that the abolishment of the cabotage policy is merely further liberalisation, Renco Yong, honourary secretary of the Sarawak and Sabah Shipowners Association, is wary of a complete abolishment of the policy which would allow foreign vessels to freely conduct business in domestic waters.

“If foreign shippers are allowed to come in and stay on domestic waters with no restrictions you’re going to create an extremely competitive environment where us shippers will be forced to cut margins just to maintain market share.

“Following that, local ship owners will find the trade less and less profitable and we will end up selling and retreating from the industry,” he said, adding that the events would lead to an economic recession as local jobs will be lost.