Cabotage policy affecting Sabah & Sarawak

Shipping rates not the only factor in high prices of goods in Sabah, Sarawak

THE higher prices of consumer goods in Sabah and Sarawak, compared with the peninsula, should not be conveniently attributed to the high shipping cost to east Malaysia in relation to the implementation of the cabotage shipping policy, said Malaysia Shipowners Association (Masa) chairman Nordin Mat Yusoff.

The Federation of Sabah Manufacturers recently urged the Government to remove the policy on account of its adverse effects on the prices of goods in Sabah.

Nordin Mat Yusoff

Under the cabotage shipping policy, implemented since 1980, domestic trade between any two ports in the country can only be served by Malaysian-owned shipping companies with Malaysian-flagged ships.

Nordin said that if the high prices of consumer goods in east Malaysia were caused by high shipping cost, the current downtrend in freight rates should have lowered prices of the goods, but this was not the case.

“Total ocean freight rates declined by about 41% in the last six months in Peninsular-east Malaysia trade but this has not been reflected in the landed prices of the current consumer goods there.

“Also, total freight rate comprising basic freight rate and bunker adjustment factor has actually dropped quite dramatically by about 10% and 300% respectively due to the slide in oil price.

“But, it is unfortunate to note that consumers in east Malaysia are not beneficiaries of our lower prices,” he told a press conference last week.

Masa, in its recent study that compared the retail prices of goods between August and February in Sabah and Sarawak, found that the prices there had either been maintained or increased.

Furthermore, Nordin said shipping rates were only one of eight components in a total supply chain involved in the transportation of goods.

Among other costs involved in total supply chain are charges related to port, forwarding, trucking, storage and terminal handling services.

Vessels often return to Port Klang from east Malaysia with empty containers

“We have always maintained that the shipping cost is only one component of the total transportation and logistics cost and that it makes up 46% of the total transportation cost.

“From this, shipping freight makes up between 5% and 7% of the retail price of consumer goods.

“It is therefore unfair to assume that shipping cost is the only arbiter of the landed cost of consumer goods,” he said.

Explaining why freight rates from Port Klang to places such as Hong Kong are cheaper than to east Malaysia, Nordin pointed out that the Port Klang-east Malaysia trade route often resulted in vessels coming back from east Malaysia to Port Klang with empty containers as east Malaysia had more imports than exports.

“The Port Klang-Hong Kong freight rate is cheaper because Hong Kong is usually lacking in containers due to its high volume goods transportation activities while vessels from Port Klang need to bring extra empty containers to carry goods out of Hong Kong.

“And these extra containers going there are usually given low freight rates by shipping companies as the cost will be covered by the higher freight rates transporting goods out of Hong Kong to Europe and many other places,” he said.

It was also misleading for anyone to suggest that shipping charges from Kota Kinabalu to Southampton were twice that of similar charges from Port Klang to Southampton because of the cabotage policy, he added.

“In fact, the argument is wrong because the policy only involves domestic shipping among local ports,” he said.

Describing it as “barking up the wrong tree,” he said the removal or relaxation of the cabotage policy would in no way change the situation.

This is because the question of freight rates between Kota Kinabalu and a foreign port of destination would be influenced by, among other factors, volume of cargo, geographical factors such as the remoteness of a market, port infrastructure and performance.

Nordin said Masa would resist any attempts to remove the cabotage policy, as it could cause huge collateral damage to the Malaysian shipping industry and also undermined national interests.

Source: Star Online

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Local shipping trade not under any cartel

THE domestic shipping trade operating under the cabotage policy is not controlled by shipping cartels, said Malaysia Shipowners Association (Masa) chairman Nordin Mat Yusoff.

“There is no such thing as cartels – Masa is not a cartel and neither are shipping companies serving the cabotage trade.

“There is an open market out there for shippers (importers/exporters) to shop around for freight rates which suit them from the several companies providing shipping services,” Nordin told a press conference last week.

There are about 3,400 Malaysian-owned ships engaged in the domestic trade with 85% of the tonnage belonging to 10 shipping companies, according to Masa.

Under the cabotage policy, the domestic shipping industry had grown significantly since 1980 and a relaxation of the cabotage policy which allowed foreign ships to serve the domestic market would have negative impact on local shipping companies, Nordin said.

The larger national interest of Malaysia as a maritime nation was served under the cabotage policy as employed, he added.

On the claim that the cabotage policy had resulted in the high prices of goods in east Malaysia compared to the peninsula, Nordin said it was evident that the prices of consumer goods had not gone down in tandem with the current lower freight rates and that the cause of this must be investigated by the relevant government agencies.

Masa is willing to sit down with the relevant government agencies as well as manufacturers in Sabah and Sarawak to help determine why the costs of goods are higher in east Malaysia, Nordin said.

Source: Star Online