Friday, May 27

Sarawak marine industry group sounds alarm over rising freight charges

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Samin said the rates of shipping companies servicing the trade lanes between China and Malaysia, had increased the prices of raw materials, components and equipment imported by local shipyards. – Bernama photo

SIBU (Jan 26): Sarawak Association of Marine Industries (Samin) is concerned that the high freight rates imposed by shipping companies, especially in the container shipping trade, is adversely affecting shipyards in the state and by extension, Malaysia’s marine industry.

In a press release today, its president Dr Renco Yong said the sky-high rates of shipping companies servicing the trade lanes between China and Malaysia, had increased the prices of raw materials, components and equipment imported by local shipyards.

Renco yong

“Up to 75 per cent of a ship is made of steel and many local shipyards buy from China owing to their competitive prices and relatively good quality.

“With the transportation cost reaching heady levels, the cost of imported raw materials and items have also gone up dramatically as Chinese exporters try to cover their costs,” said Yong.

He noted that bottlenecks along supply chains, which were already forming during the government-imposed Covid-19 movement control order and lockdown, became worse as more cargo tried to find their way from suppliers to end users.

“The closure of some ports in China as a measure to curb the new surge of the (Covid-19) pandemic, the shortage of containers to be repositioned, the shortage of trucks, drivers, warehouse space and workers in the logistics chains which caused massive port congestion especially in the United States, and the re-routing of ships by shipowners to serve more profitable trade routes, combined to contribute to the sharp increase in freight rates in the container trade,” he pointed out.

He said a 40-feet container (FEU) costs a whopping US$17,500 (around RM73,000) in the Asia-Europe trade at the beginning of the year, compared to a mere US$4,000 in December 2020.

“The busy Trans-Pacific and Intra-Asia routes have also seen similar spectacular increases in freight rates,” he said.

Yong recalled that the sudden spike in container rates started since the opening up of economies following the attainment of herd immunity in many countries worldwide.

Supply chains and container shipping operators were ill-prepared for the surge in goods flowing through as demand for commodities and manufactured goods spiked, he added.

Adding on, Yong revealed that many shipyard operators in Sarawak, who are already struggling in these lean times, would suffer further blows if the crunch in container transportation and supply chains do not ease up soon.

“Local shipyards would stand to lose orders for new (ship) building projects as the higher costs of imported materials and items to build and repair ships would erode their competitiveness,” he pointed out.

“As it stands, their business has already been severely impacted by the economic fallout from the pandemic and the slump in the marine industry as a result of that. Another hit like what they are taking now with the high freight rates would cause further pain to them.”

Touching on the liberalisation of the Cabotage Policy for Sabah and Sarawak which has been in place since 2017, Yong lamented that it has not brought much impact in reducing the freight rates of shipping services linking ports in the two states with foreign ports and those in Peninsular Malaysia.

“As a matter of fact, the freight rates have been increasing in the past five years as we continue to depend on foreign vessels to provide shipping services to our ports,” he said.

Additionally, Yong said many local shipowners of cargo ships have sold their vessels due to fierce competition from foreign shipping companies which have more vessels in their fleet, greater economies of scale and more connectivity with ports.

This, he added, had further compounded the nation’s dependence on foreign shipping services and put local consumers, manufacturers, commodities producers, industries and businesses at the mercy of the high freight rates imposed by foreign shipping lines.

“This erodes the competitiveness of our exports, increases the price we pay for goods and services and causes outflow of foreign exchange to Malaysia,” Yong explained.

As a way forward, he said Samin expressed its hope that all parties concerned would quickly clear the backlog along supply chains and ease the bottlenecks to bring container freight rates back to reasonable levels.

“Governments, port operators, container shipping companies, container owners, trucks and warehouses operators and along the maritime supply chain must work together to clear the backlogs at ports and along the supply chains as quickly as possible.

“This is important to ensure trade flows smoothly, economies can grow and players in the marine industry can be relieved from the adverse effects of the freight rates,” stressed Yong.