KUALA LUMPUR: With other countries tightening their cabotage policies, Malaysia’s recent move to lift it will affect the domestic maritime industry despite it being said to be in adherence with free market dynamics.
The industry may be affected in such a way that there would be no business for local ship builders and ship repairers (SBSR), the sub-unit of the maritime industry.
With the lifting of the policy, Malaysian ship owners would be able to order ships from and repair ships in foreign yards if it is cheaper or more convenient for them to do so, or if it fits their business strategies.
Meanwhile, the cabotage policy is being imposed by countries to prevent foreign vessels from operating within their sovereign waters.
Globally, the European Union has introduced rules to limit cabotage journeys undertaken by foreign carriers within the waters of member states, while Australia too has tightened cabotage restrictions on coastal shipping.
Nearer home, Indonesia extended its cabotage rules to include offshore support vessels (OSVs) in support of its oil and gas (O&G) industry to encourage the development of the local shipbuilding sector.
These moves have had positive spillover effects on the business of shipyards in those countries and regions.
However, the tightening of cabotage rules in Indonesia had an adverse effect on several Sarawakian yards which used to undertake new building projects for Indonesian ship owners, which includes passenger vessels, tugs, barges and offshore support vessels.
Indonesia’s move has reversed the tide, with many shipyards in Indonesia getting more business from local ship owners, as Sarawak yards reel from the loss of business.
The lifting of the more than 30-year-old cabotage policy had stirred the market and received mixed views, with some supporting the change, while others said the industry was losing its support.
Effective June 1, Sabah, Sarawak and the Federal Territory of Labuan will no longer be bound by the policy imposed on all cargo shipping services between Peninsular Malaysia, Sabah, Sarawak and Labuan.
Shipping expert, Nazery Khalid, explained that local yards could have made more with the imposition of cabotage policy.
“For example, local yards would have benefited had there been a requirement for local ship
owners undertaking jobs for government-linked companies (GLCs) to carry cargo or provide offshore shipping services, to order ships meant for those jobs from local yards.
“With the application of cabotage on SBSR in place, local yards could flourish along with the shipping sector, and this could trigger a virtuous multiplier effect to other sub-sectors in the local marine industry,” he said.
Nazery said this could in turn help achieve the targets set in the Malaysian Shipbuilding / Ship Repair Master Plan 2020, which includes the aim for Malaysia to gain two per cent share of total global new building market by 2020.
He also opined that tightening the policy would boost Malaysia’s SBSR sector, especially at a time when several yards are suffering from thin orderbooks and are struggling to replenish them against the backdrop of low demand for shipping services, overcapacity in certain shipping segments, low oil prices and tight financing that has added to the cost of building ships in local yards.
“Perhaps for a start, local ship owners pitching for jobs offered by GLCs in local waters should be required to place orders for the ships at local yards to qualify for the contract.
“Similarly, such a requirement can be imposed on ship owners buying ships using public funds, such as financing offered by development financial institutions like Bank Pembangunan.
“They can also set a timetable to impose cabotage rules on certain types of vessels for use in Malaysian waters which local shipyards are not able to build currently, with a view to compel local owners to place orders from them,” he said.
Meanwhile, Muhibbah Marine Engineering Sdn Bhd (MMESB) Director, Ooi Kien Chuan, said local shipyards were suffering from low to zero orderbook as offshore ship owners shelved fleet expansion plans, due to oil majors scaling back capital expenditure and offshore projects following uncertainty in the global market.
“The industry is facing headwinds arising from low demand for new ships and offshore structures amid the global recession and downturn in the shipping and oil and gas markets, thus the relaxation of the policy may not be a good choice for the future of the local maritime industry,” he said.
Ooi suggested that the cabotage policy should be taken more seriously for the sake of the country’s maritime industry.
“It has to start somewhere, the policy can be a good start to build the internal market – ships that are built in Malaysia and owned by Malaysians,” he said, noting that the price of locally-made vessels were about 15 per cent higher compared to those from China, whose shipyards were subsidised by their government.
“Without the cabotage policy, ship owners are free to build and repair ships at foreign yards, which will lead to funds flowing out from Malaysia, and we don’t know when the market is going to recover,” he said.
Meanwhile, the Labuan Shipyard & Engineering Sdn Bhd (LSE) believes that the policy change may have some positive impact, with the hope that ships travelling within Malaysian waters would drop by its shipyard to use the facilities or for maintenance or repair services.
“As many of these large-built vessels are big in capacity, weight and dimension, we have no problems in accepting these vessels in our yard as we are capable of handling vessels up to 16,000 deadweight tonnage (DWT), and possess 900 metres length of wharf space,” said LSE Director, Darhim Dali Hashim.
Darhim noted that vessels would be attracted to Labuan as it is a duty-free island and is well protected from monsoon winds all year round.
“This might be a new business opportunity for us to capitalise on, and one which we are currently exploring,” he said.
Asked on its performance for the first half of 2017, Darhim said, the marine and especially O&G industry is expected to continue at its current pace in the short-term.
Similarly with most players in the industry, LSE’s order book has been adversely affected by the slowdown in the economy, especially since this part of the region is heavily dependent on the O&G industry.
“That is why we have refocused most of our business towards diversifying our clientele base and taking proactive measures to tailor our offering, resources and service performance to changing industry conditions.
“We are refocusing our business strategy to look into clients from non-oil and gas industry, such as government and commercial vessels, as well as private ships including leisure boats,” he said, pointing out that catamarans and yachts as among the popular types of leisure boats that continue to frequent its yard. – Bernama