Malaysia: Shipping in protected waters

Malaysia’s maritime freight trade could be in for a major shakeup, with the government launching a comprehensive study of shipping laws which bar foreign firms from domestic lines.

Minister of Transport Kong Cho Ha announced on September 12 that the government would review 30-year-old cabotage laws that restrict the carrying of cargo between domestic ports to vessels owned and operated by Malaysian firms.

The business community, especially in the states of Sabah and Sarawak, claim the policy has unfairly raised the costs of living and doing business. However, the local shipping industry says liberalisation would see foreign firms swamp domestic industry.

In mid-September Kong met with the Sabah branch of the Malaysian International Chamber of Commerce and Industry, the Sabah Economic Planning Unit, and the Federation of Sabah Manufacturers (FSM), to discuss the issue.

“As a nation, we want every part of the country to grow economically and that is why we need to look into these issues,” Kong told reporters after the meeting.

FSM president Datuk Wong Ken Thau told Kong at the meeting that the price difference of goods between Sabah and the rest of the country was as high as 20% and that the cabotage policy was a major contributing factor, reported local media.

The announcement of the review came just over a month after Prime Minister Najib Razak told the Sabah business community that the government was willing to review the shipping laws.

The government loosened the restrictions last May, granting permission for foreign carriers to operate a limited service between the ports of Sepanggar in Sabah and Bintulu and Kuching in Sarawak with the ports of Klang and Tanjung Pelepas.

However, some restrictions still applied, with cargo limited to container traffic and specialised and general freight remaining the responsibility of local lines.

The partial liberalising of the cabotage policy meant that foreign vessels did not have to load or unload at mainland facilities such as at Port Klang, in Selangor, which has been designated as a major transport and logistics hub.

However, there has only been a limited response by foreign-flagged lines to the opening up. Some business analysts hold the local shipping industry responsible.

The Malaysia Shipowners’ Association (MASA) has rejected suggestions that it has sought to pressure the government away from fully liberalising inshore freight services, though it has come out in support of local cargo firms.

MASA’s chairman, Nordin Mat Yusoff, told local media in July that the association has no hidden agenda and should not be accused of being responsible for the high cost of goods in regions such as Sabah.

“The domestic shipping industry has grown into what it is today because of the cabotage policy,” Nordin told the Business Times in August. Given the success of the policy, which has seen some 200 shipping lines with more than 4500 vessels now operating under the Malaysian flag, there seems a strong argument in favour of retaining the policy, said the shipping boss.

With its review the government has signalled its intention to re-evaluate the rules. No date has been announced for the results of the study, which will need to steer a careful path to meet the demands of both the Sabah business community and the domestic shipping industry.