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Is the shipping industry heading in the right direction?

Last update: 22/08/2019
By Harizah Hanim Mohamed

KUALA LUMPUR, Aug 22 -- Malaysia may be blessed as one of the chokepoint countries, located in the main shipping channel deemed as one of the most important shipping lanes in the world, but lack of support for the shipping industry and slower action to revitalise it might lead to disadvantages which could surely position the local industry on the brink of becoming a "sunset industry".

(Chokepoint countries- the most strategically located countries due to geography, regional/border influence, and access to vital trade routes)

(Malaysia's Straits of Melaka is a shortcut for oil tankers travelling between the Middle East and the oil-dependent nations of the Pacific Rim.)

Malaysian Shipowners Association chairman Datuk Abdul Hak Md Amin said shipping industry has been recognised as one of the most important sectors in Malaysia, however, minimal efforts were taken by the previous administration to put the industry in the right place where it is supposed to be.

"Malaysia’s shipping industry has reached its peak in the 1980s, however, it is now declining and we are far behind our neighbouring country, Singapore and we also have been overtaken by Indonesia," he told Bernama.

Asked on factors dragging down the industry, Abdul Hak said the absence of direction by the previous government as well as the political pressure for the liberalisation of cabotage policy were the major factors causing the industry to lose its charms.

He believes with fresh and enthusiastic faces at the ministry, the industry will see some light at the end of the tunnel.

"Malaysia has taken a backward step under the previous administration and we need to fix this before its too late, especially in the current low oil price, whereby shipping companies need assistance from the banks as well as the government.

"Malaysian ships that were laid up due to the last recession, were left to rot and some were finally sold as scrap,” Abdul Hak said.

However, some of these vessels he said, may have been reactivated when they were chartered back by the oil majors.

Despite the reactivation of some vessels, there are many more still in the lay-up condition and we hope that these numbers will be reduced when the economy picks up, he explained.

“We don't want to see this scenario to continue, as it would be a sad period for the industry, what is the point of having a thousand ships in our registry but hundreds of them are lying idle or lay-up”, he said.

On the setting up of the National Shipping and Port Council which saw Abdul Hak appointed as advisory council 1 chairman, he believed if the council’s recommendations approved and speedy action is taken to adopt it, it would position Malaysia back in the global maritime map as it used to be.

The recommendations include among others, the full reinstatement of the Cabotage Policy, the complete abolition of corporate tax for shipping companies irrespective whether they are in the downstream, leisure, cruise, container, offshore or port operation.

“For corporate tax, giving a waiver for a short term period will not spur the growth of the country’s shipping tonnage because ship owners will not invest for new ships knowing the waiver is not permanent,” he explained.

Besides that, the government need to provide shipping fund for players to buy new ships at a competitive rate and to encourage Government Linked Companies to sell products like palm oil, petroleum, timber among others on cost, insurance and freight instead of a free onboard method.

"On Cabotage, we are going in the opposite way from our neighbours, including Indonesia, which tightens further their cabotage policy. The liberalisation of cabotage policy would only allow Malaysian waters to be swarmed by foreign ships, which takes advantage of domestic cargoes.

"The notion of cabotage policy liberalisation was to bring down goods prices exponentially in East Malaysia, but in reality, after the liberalisation, prices of basic goods still going up," Abdul Hak said.

He cited that the high costs of goods in the two states were mainly due to the low productivity at the ports, lack of interest in building factories in the two states, cost-added by middlemen, high inland trucking, warehousing costs, and the poor connection of land transportation in the states.

Before the liberalisation of Cabotage Policy, the sea freight from West to East Malaysia has gone down substantially over the years but this reduction was not enjoyed by the consumers.

Abdul Hak further elaborated that Indonesia has tightened its cabotage policy, particularly for vessels carrying strategic cargoes like coal, palm oil and also rice.

“They went much further by enforcing these cargoes to be carried by Indonesian flagged ships not only for domestic routes but also for export.

“This regulation will come into force by May 2021. With this regulation enforced, it is envisaged that their tonnage will increase dramatically because all these vessels’ sizes are handymax and Suezmax types.

"With the regulation in place, coals imported from Indonesia by Tenaga Nasional Bhd (TNB)’s subsidiary, TNB Fuel is required to use Indonesian vessels, the impact is not only limited to TNB but also other Malaysian shipping companies which have been contracted on long term basis to carry the coals by TNB Fuel,” he said.

He further elaborated that if these vessels to be reflagged to Indonesia, then it will be a big loss not only to Malaysia tonnages but also on human capital development and other supporting industries.

"Just imagine, each vessel is about 80,000 deadweight tonnage (DWT) and if each company have between two or three vessels, we are looking at more than half a million DWT losses in the national fleet," he added.

Indonesia has seen its fleet tonnage increases to 30 million DWT with an increase of 3.0 million DWT in just three years after implementing its cabotage policy.

As mentioned earlier, with the new ministerial decree passed on the usage of Indonesian ships, Indonesian tonnage is expected to grow much further.

Commenting on the balance of payment on freight, Abdul Hak also said the figure has ballooned to more than RM30 billion recorded in 2017 as compared with RM15 billion in the 2000s.

"That is why we need shipping fund and the fund can be utilised by domestic players to buy ships to compete with foreign peers so that our cargoes can be carried by our vessels.

“Shipping or maritime fund has been announced few times in the yearly Budget but we haven't seen how it is going to be disbursed or even the processes to apply for it," he added.

-- BERNAMA





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