Shipowners association wants in-depth study on impact of cabotage exemption
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Shipowners association wants in-depth study on impact of cabotage exemption

By In News On May 26, 2017

KUCHING: Sarawak Sabah Shipowners Association (SSSA) has urged the state government to revisit the cabotage policy and conduct an in-depth study on the impact of the exemption before implementing permanent changes that may cause damage to the local shipping industry without benefiting Sarawakians’ welfare and livelihood.

It stated that freight rates, which have been on a steady decline, have forced at least four listed companies on Bursa Malaysia to exit the industry over the years.

“The domestic containerised shipping industry has gone through a major consolidation  in the last six years, similar to  the global liner consolidation whereby companies were unable to survive the deteriorating market condition of low rates.

“The freight trend from Port Klang to East Malaysia has been on a steady decline for the past decade where companies such as MISC Group, PDZ Holdings Berhad, Swee Joo Coastal, Hub Line and Geniki Shipping were forced to exit the container shipping trade, four of which were listed companies on Bursa Malaysia.

“The consolidation of these companies has left four operators in the business (Malaysian Shipping Corporation, Harbour-Link, Shin Yang Shipping and MTT Shipping),” said SSSA.

SSSA pointed out that if the state government were to abolish cabotage policy permanently at the end of the six-month trial period, the remaining companies are likely to slowly phase out of business.

“Sarawak’s maritime interests should also be protected as 85 per cent of Malaysian-flagged vessels belong to Sarawak companies or individuals. And out of 100 shipyards in Malaysia, 72 are in Sarawak.

“The academy in Sarawak also produces more seafarers than Peninsular Malaysian academies. As a state, Sarawak has more to lose when the Malaysian Maritime Industry collapses as a result of the liberalisation of cabotage,” said SSSA.

It explained that the present cabotage laws have never restricted the direct call of international vessels to ports in Sarawak or Sabah.

“The misconception that cargo from international origins has to be routed via Port Klang to connect to Malaysian flagged vessels to East Malaysia is incorrect as it has never been a restriction imposed by the cabotage policy.

“Foreign vessels have always been allowed to make direct calls to all ports in East Malaysia. Cabotage laws only restrict the international liners from picking up local cargo and delivering it to other local ports; a law that is in effect all over the world.”

SSSA also highlighted freight rate comparison to dispel the common beliefs that foreign players will bring the price down, if they do it will only be temporary predatory pricing to eliminate local players (see table below).

“Port Klang to Kuching is the only cabotage protected trade; it is obvious from the figures below that freight rates on service routes operated by foreign flagged carriers are significantly higher than the cabotage protected trade. “Therefore, it is likely that shipping costs between Port Klang and Kuching will revert to levels currently charged by foreign flagged carriers on the current non-cabotage service routes when local players are eliminated.” SSSA said the elimination of Malaysian operators could result

in supply-chain interruptions. For example, companies such as Apollo Shipping, provide important operating break bulk services between Peninsular and East Malaysian ports carrying both big and small parcels of goods.

“The exemption of cabotage will likely lead to larger shippers/exporters fixing their own charters on foreign flagged ships whenever they have bigger parcels. Over time, these break bulk operators will lose their base cargo and be unable to sustain the continuity of their service and eventually exit the trade.

“When that happens, shippers will then have major problems shipping smaller parcels because they are unable to fix charters on small parcels of goods. This will result in major interruption of the supply-chain,” said SSSA.

The interruption of the supply-chain ecosystem will cause problems for populations of Sarawak and Sabah, as the connectivity of essential consumer goods will be disrupted to smaller/remote parts of our country, it added.

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