Monday, August 2, 2010

Seeking a solution to Cabotage Policy row

For years, shippers in Sabah and Sarawak and local shipowners have been at odds with each other over a 29-year-old national policy that allows only Malaysian flagships to carry cargo between domestic ports.

Each time it's the same: Exporters and importers in Sabah and Sarawak, led notably by the Federation of Sabah Manufacturers (FSM), want the controversial Cabotage Policy to be removed, blaming it for the higher prices of goods in the two states on Borneo island compared with the peninsula. Shipowners say it's untrue.

Well, the issue is back this year, with FSM president Datuk Wong Khen Tau firing the latest salvo by reportedly saying that partial liberalisation of the Cabotage Policy in June last year had failed to benefit domestic shipping lines and continues to contribute to the high cost of goods in Sabah and called for Prime Minister Datuk Seri Najib Razak to abolish the policy.

Under the relaxation of the policy, foreign vessels are now allowed to carry containerised transshipment cargo from abroad, between five ports in the country - Sepangar Bay, Bintulu, Klang, Kuching and Tanjung Pelepas.

And though shipowners have experienced such protests before, this time politicians are sharing shippers' criticism of the Cabotage Policy. Shipowners now find themselves in a political fight for survival of the legislation.

Thus far, a host of high-profile politicians and influential voices from the state have appeared to side with Khen Tau's statement about the Cabotage Policy. Among them are Sabah State Industrial Development Minister Datuk Raymond Tan, Sabah Progressive Party treasurer-general Datuk Wong Yit Ming, United Pasokmomogun Kadazandusun Murut Organisation secretary-general Datuk Wilfred Madius Tangau and Sabah Housing and Real Estate Developers Association president Datuk Susan Wong.

They believe that Sabah and Sarawak would notch up in the competitiveness rankings should the policy be abolished, as the exclusionary nature of the policy is blamed for high freight rates, which have led to high prices of goods in Sabah and Sarawak. They said the policy is also to blame for the lack of traffic from foreign liners in Sabah and Sarawak ports.

On its part, the Malaysian Shipowners Association (Masa) has issued three press statements defending the policy's role and saying shippers' accusations are "totally inaccurate" and "baseless".

Who's right, you ask? It is tempting to think that transportation costs are the primary culprit for the different living costs between Sabah and Sarawak and Peninsular Malaysia. And certainly there is an argument to be made that given that it's been 29 years since the Cabotage Policy was introduced in 1981, local shipowners should be much better prepared for eventual full liberalisation of the Cabotage Policy and to compete with their foreign counterparts.

Still, if that is so, we would expect reduced freight rates, in part due to reduced demand precipitated by the recent global economic crisis to be reflected on the consumer goods in Sabah and Sarawak prices. But that doesn't appear to be the case.

Masa executive secretary Captain Imtiaz Hussein said the fact that consumer goods like Sabah Tea bags (loose) of 100 grammes are priced at RM2.59 in Kota Kinabalu and RM2.20 in Kuala Lumpur suggests that there is profiteering or manipulation by certain traders in Sabah, who then hide behind the presumed high shipping cost caused by the Cabotage Policy.

Indeed, association chairman Nordin Mat Yusoff said there is no assurance that shipping cost would decline with the removal of the Cabotage Policy.

"In fact, there is even a bigger threat that shippers and the government will face as they will have no recourse to remedy if shipping rates are high or increase when the trade is open to foreign shipping lines," he said in a July 23 2010 statement.

"And if shippers in Sabah and the FSM are expecting an overnight solution to this low shipping connectivity by simply calling for the Cabotage Policy to be removed then this is simply a case of misinformation," he added.

"Why do you think the freight rate structure for shipments to ports in Sabah and Sarawak is where it is today?" asked Shipping Association of Malaysia chairman Ooi Lean Hin.

"The reasons for this are simply the infrastructure of the ports there (except for Bintulu Port) which deters big, mainline container vessels from calling, the size of the market and the imbalance in trade. Containers arrive in Sabah and Sarawak full, but many return to the peninsula empty," he said.

Ooi pointed out that using the freight rate for a 40-foot container from Port Klang to Miri, which is three times (RM3,150) that of the container from Port Klang to Hong Kong (RM1,020) as example, is bad because shipowners have been selling their vessel space below cost due to intense competition.

It's worth noting that it is common for countries to support the development of local industry through a protectionist policy. Masa had revealed that the Cabotage Policy is applied by more than 50 countries worldwide, including the US, India, China, Japan, the Philippines, Indonesia and Australia.

So, how does the federal government handle this delicate situation? The wrong choice in favour of one group can prove detrimental to the country as shippers and shipping lines are important stakeholders in the maritime industry.

A first step towards resolving this conflict is probably for FSM, Masa and federal agencies like the Ministry of International Trade and Industry, the Transport Ministry and the Sabah State Industrial Development Minister to sit down and find a solution. Masa has started the ball rolling by extending an invitation to shippers in its latest media statement. At the same time, a study can be conducted by an independent third party or the government to ascertain whether the Cabotage Policy no longer serves its purpose to protect the local shipping industry and that its removal can really reduce the cost of goods in Sabah and Sarawak.

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