Thanks for opposing cabotage policy revival
KOTA KINABALU: The Federation of Sabah Industries (FSI) and the Malaysia International Chamber of Commerce and Industry (MICCCI), in consensus with other chambers of commerce and industries and associations, support Minister of Agriculture and Food Industry Datuk Junz Wong, Minister of Health and People’s Wellbeing Datuk Stephen Wong and other Sabah government leaders who have advocated for the abolishment of the cabotage policy, and thank Anthony Loke, the Federal Minister of Transport, for his stance that the cabotage policy will not be reinstated.
“This response is greatly appreciated in the wake of the National Shipping and Port Council and the Maritime Strategic Association of Malaysia, supported by Malaysia Shipowners’ Association, pressuring the federal government to withdraw the exemption of cabotage on transhipment of goods from ports in the peninsular to Sabah, Sarawak and Labuan,” said FSI life president and MICCCI Sabah chairman Datuk Seri Panglima Wong Khen Thau.
“Their stance stated that the exemption or removal of the cabotage on June 1, 2017 contravened the Malaysia Shipping Master Plan 2017-2022, which targeted 90 per cent of domestic sea transportation to use local shipping services.
“They alleged that the survival of Malaysia’s shipping industry was threatened, jeopardizing the entire local maritime industry.
“Cabotage is a regressive protectionist policy with less than ten countries enforcing it. This is the era of the advent of 5G technology that drives business progress with speed of the Internet of Things amidst Industrial Revolution 4.0, and as Malaysia progresses to be a developed nation, it is unfair to other industries and businesses to be held back by the inertia of the local shipping industry to be innovative and progressive.
“It is common business sense that those providing shipping services should take good care of their local clientele better than those services offered by foreign companies to ensure their survival in business as a ‘win-win’ strategy supportive of local industries and citizens with lower costs, rather than through protectionist measures that distort market choices and pricing,” Wong Khen Thau said.
“I do not intend to repeat my much publicised debate discourse on the cabotage issue that was well received and recognised over the last 15 years to humiliate the National Shipping and Port Council and Malaysia Shipowners Association’s claim for reinstatement of the cabotage policy, but I would like to draw public attention to the self-serving nature of the shipowners’ demands behind the new campaign to pressure the new government to accede to their demands,” he said.
“The call by the National Shipping and Port Council and the Maritime Strategic Association of Malaysia, supported by Malaysia Shipowners’ Association is blatantly lop-sided in their favour of more profitability to be enjoyed by certain shipping companies, particularly those serving the oil and gas industry which is seeing volatility in current market pricing. The blanket assertion that entire local maritime industry is in peril is unreasonably alarmist and unwarranted.
“Past analysis shows that the Sabah Ministry of Trade and Industry assessed the average total annual volume of shipped containers to Sabah did not exceed 300,000 TEUs, or estimated to be about RM1.5 billion worth of business revenue to shippers (if including Sarawak totalling up to RM5 billion), and certainly not the exorbitant deficits to local shipping services or losses of RM25 billion in 2016 mentioned by the National Shipping and Port Council to foreign companies that did not reflect the actual situation for East Malaysia and was irrelevant as far as to the economic structure of the Sabah market is concerned.”
Wong Khen Thau said he concurred with Stephen Wong that maintaining the cabotage exemption pending abolishment would at least stop the prices from rising any further since the GST regime was zero-rated.
Historically, once prices have increased across board, not many would decrease.
He noted that the period since the cabotage was exempted or removed was less than two years. More time is needed to evaluate the matter properly since shipping costs did not drop when fuel prices declined. A study on the removal of cabotage has shown slight improvement in the number of ships using Sabah ports.
For more than 30 years, under the cabotage policy, local shipping companies have enjoyed income tax exemption, while other businesses in Malaysia still struggle to contribute tax revenue to the national coffers that helped to develop our ports.
Maritime transport connectivity is an important determinant of trade cost.
This is why China is helping to develop and manage Brunei’s Muara Port as well as Kuantan Port in Pahang.
With the cancellation of the ECRL project, especially for the transport of goods between Kuantan Port and Port Kelang, it is understandable that Malaysian shipowners may eye the business possibility for themselves rather than for foreign ships to gain from the potential opportunity.
Such development in West Malaysia, including the growth of Port Kelang, have not benefitted and advanced East Malaysia’s connectivity to the world for trade growth.
Maritime cabotage restrictions, are regressive by creating hurdles and bottlenecks undermining the smooth delivery of maritime transport services.
They increase operational costs, serve as a deterrent to improving main liner operator (MLO) shipping connectivity for East Malaysia.
It is crucial for Sabah’s Sapangar Bay Container Port to be financed and developed as a hub port for international shipping, which the cabotage policy had impeded, failing which, Muara Port and Bintulu Port can progress to eclipse Sapangar Bay Container Port as a preferred port of call by MLO.
The Sapangar Bay Container Port current handling capacity of one million twenty-foot equivalent units (TEUs) should be upgraded to handle at least three to four million TEUs for the port’s future development, as envisaged by Sabah Minister of Agriculture Datuk Junz Wong.
The cabotage policy has not contributed to the development of ports in Sabah, as for a long time, foreign ships were not incentivized to call and develop business connectivity to and fro Sabah located next to a major shipping routes between East Asia and other parts of the world, unlike Indonesia’s many islands not situated within major trade routes, thus necessitating developing its cabotage policy to build up its fleet of ferry ships.
It was estimated that the government had forgone some RM1 billion in tax revenue from these profitable shipping businesses in oil and gas delivery annually in opportunity cost to benefit the public, and yet these companies now complain that Malaysia’s shipping tonnage had dropped due to the suspension of the cabotage policy for review in 2017.
There were allegations that instead of buying and owning ships from profits and tax savings, many shipping firms prefer to lease ships or use other foreign ships to be reflagged under Malaysia’s shipping licenses to operate their business contracts particularly in the oil and gas sector.
As an example, an executive committee member of the Malaysia Shipowners Association and a Sabah representative based shipping company - Yayasan Sabah Shipping Sdn Bhd owns no ship for many years, but offers shipping services. It is likely that it is in business by using third party ships licensed for its purpose.
Many shipping companies failed to take the opportunity to be more competitive, become more innovative and expand their regional and international footprint. MISC started with partial government held equity and the company even quit plying the bulk and containerized shipping business to and fro Sabah when the cabotage policy was in force when they should be doing national service as a governmentlinked company in a position to offer competitive shipping costs to support Sabah’s industrial development and exporters.
Furthermore, instead of promoting healthy competition among shipping companies, a Block Exemption Order was granted by the Malaysia Competition Commission for liner shipping agreements in December 2013 under Section 8 of the Competition Act 2010 upon application made by the Malaysia Shipowners Association, Shipping Association of Malaysia and Federation of Malaysian Port Operators Council.
The BEO does not exempt or provide immunity in respect of any abuse of a dominant position under Section 10 of the Act or tolerate any price fixing schemes which could have been abused for charging opaque bunkering fee rates that should be investigated in the interest of transparency and accountability for public interest.
Like many island locality states, Sabah is faced with various transport and logistical challenges that the restrictive cabotage policy only served to undermine the level of its only sea transport connectivity avenue and ability to connect to global markets.
Businesses in Sabah are only asking that the containerised shipping, crucial for the import and export of goods and material, not be subjected to high shipping costs that jack up the cost of doing business as well as the cost of living for the public.
The cabotage policy which had promised better shipping services from the development of the Malaysia shipping industry and graduation of more Malaysian shipping crew did not benefit Sabah.
Instead it has impeded business expansion and export growth with lost opportunities in employment for Sabah’s youths, many of whom are working outside the state.
Today, when no Sabah shipping companies own any container carrying ships, it is noteworthy that MISC takes pride in its corporate vision ‘to consistently provide better energy related maritime solutions and services’, it is hardly playing any part in the carriage or transport of consumer goods needed for the public’s modern standard of living.
Connectivity is about possibilities for people, companies and countries to connect with each other, and the cabotage policy has hindered, rather than promoted, this progress desirability.
This is contrary to the noble goals of Asean Community 2025 where Malaysia in March 2012, promised to review non-tariff measures and the removal of its cabotage policy as UNCTAD recommends rethinking maritime cabotage for improved connectivity.
Likewise, Asean members like the Philippines, resolved to amend its cabotage law as the liberalisation opens up its retail trade for foreign ships to call at its ports.
As Asean countries vowed to ensure review of regulations to be pro-competitive and nondiscriminatory, Malaysia shipping companies today instead are still clamouring for business protection under the cabotage policy to be reinstated or reimposed, which had in the past, distorted the economic structure by hiking up cost of doing business and impeded industrialization growth, especially in East Malaysia, particularly Sabah.
After 30 years of tax and market privileges, these shipping companies should have grown and expanded to be resilient and a force to be reckoned with.
It is sad that tax paying citizens have to bear the unfair burden of supporting a few corporations in a cartel-like lobbyist force to be reckoned with, while the majority of businesses and consumers have to put up with higher costs and prices imposed in part by such uncompetitive forces in the economy.
These companies have managed to form a business cartel-like arrangement that has impeded more cost-effective measures to benefit other sectors in the economy. One such dissonance complained by economic players is the non-transparency in high shipping bunkering charges that burdened our exporters with business costing uncertainty.
The open sky policy has lowered the cost of air travel in East Malaysia, so will competition in shipping be able to offer better shipping rates to be enjoyed by Sabah’s exporters, with lower cost advantage to benefit the market and consumers.