New cabotage policy a boost for Sabah, Sarawak
THIS month, Prime Minister Datuk Seri Najib Razak announced that the exemption of the cabotage policy for Sabah, Sarawak and Labuan would start from June 1 this year. This is good news for industries as well as the people of Sabah and Sarawak.
The cabotage policy was introduced in the 1980s as a way to promote Port Klang as the nation’s main transhipment hub. At that time, it was a good decision to position Malaysia as a transhipment hub and resulted in Port Klang still being ranked today as one of the top transhipment hubs in Asia due to its excellent location, infrastructure, service level and costs.
However, the result of this policy was that very few international liners are calling in to ports in Sabah and Sarawak.
But if you study the global shipping routes mapped by the Global Positioning System, which you can easily find on the Internet, you can better understand the full potential of Sabah and Sarawak and Peninsular Malaysia along these busy sea freight highways.
You will notice that high intensity shipping lanes will pass through the Straits of Malacca (passing Penang Port, Port Klang, Port of Tanjung Pelepas, Johor Port, Singapore), but from Singapore are spread in a thick bundle to the northeast towards Vietnam, Philippines, China, South Korea and Japan.
This means that many shipping lanes are passing a relatively short distance (often less than 200km) from Sabah and Sarawak’s leading seaports, such as Kuching Port, Bintulu Port, Miri Port and Kota Kinabalu Port, which have solid container handling facilities.
For shipping lines, this is a feasible distance to add an additional port in an established shipping route. This is a business opportunity for ports in Sabah and Sarawak to serve shipping lines passing by Borneo.
Over the years, trade between Sabah and Sarawak and Peninsular Malaysia was served mainly by local operators. This provides less competition and less choice of shipping lines visiting Sabah and Sarawak ports, resulting in limited reliable fixed shipping schedules and high transport costs for sea transport to and from the two states.
This situation has affected logistics lead-times and costs for industries there.
Today’s industries determine production location based on total supply chain lead-times and costs, which are heavily effected by logistics situations. This made it less attractive for industries to be located in Sabah and Sarawak than the peninsular, leading to fewer direct foreign investments in the two states.
The decision by the prime minister, supported by the Transport Ministry, will therefore provide a boost for the economies in Sabah and Sarawak and result in more industries being located in the states to leverage their rich diverse natural resources, water quality and availability, as well as large and well-educated workforce with good English language skills.
With the completion of the Pan Borneo Highway linking Sabah, Sarawak and Brunei, East Malaysia will be on a par with logistics infrastructure and supply chain cost levels in Peninsular Malaysia and one of the preferred top investment locations for industries in Asia.
The decision by the prime minister, supported by the Transport Ministry, will therefore provide a boost for the economies in Sabah and Sarawak and will result in more industries being located in the two states...
marco@lbbinternational.com The writer is founder and CEO of LBB International, the logistics consulting and research firm that specialises in agri-food supply chains, industrial logistics and third-party logistics. LBB provides logistics diagnostics, supply chain design and solutions and market research in Asia, Europe and the Middle East.