Red Sea crisis: Brace for disruption, says FMM
KUALALUMPUR:TheFederation of Malaysian Manufacturers (FMM) are urging businesses to adapt their strategies in view of the escalating security crisis unfolding in the Red Sea region which has forced several of the world’s largest shipping firms to divert vessels away to a much longer route around the southern tip of Africa instead.
Its president Tan Sri Soh Thian Lai noted that circumnavigating Africa adds one to two weeks to voyage time, and this will not only drive-up cost to export goods to North Africa, the Middle East and Europe as freight rates are expected to triple compared to last year but also cause delays in ships returning to Asia.
Malaysian exporters will have to brace for the possibility that the availability of empty containers will be in tight supply again due to the crisis in Middle East.
“FMM urges for Malaysian shippers (exporters and importers) to refine their business strategies to safeguard their supply chains and reduce delays to better meet customer demands to reduce the impact of the escalating situation in the Red Sea,” Soh said in the statement.
“In light of fluctuating freight rates and uncertain transit times, shippers need to prepare container bookings and shipping schedules preferably one month in advance for exports to affected markets.
“For goods that are not timesensitive, it is advisable to wait until first few weeks of February 2024 during the Chinese New Year holiday as freight costs is expected to decrease during this period.”
To facilitate shippers to plan their business operations, FMM called on the shipping companies to honour the pre-booked freight rates given to Malaysian shippers without adjustment.
Any announcement on new increase in freight rates or introduction of surcharges should be communicated transparently and negotiated directly with shippers to allow exporters to plan and negotiate with their importers.
FMM urges manufacturers to shift their dependence to Asean by nearshoring and sourcing from within the region which is not just about cost savings, but also supply-chain security due to geopolitical uncertainty including the Israel-Hamas war.
“The varying levels of economic development in Asean coupled with each country’s industry specialisation allow greater complementation between member countries (labour force and natural resources),” he said.
“As Asean supply chains are also deeply integrated with Northeastern Asian neighbours, Malaysian manufacturing companies can build resilience by working closely with our Asean counterparts not only as a source for inputs and a market for Malaysian manufactured exports but also to integrate deeper for trade and investment regionally by leveraging on Regional Comprehensive Partnership Agreement (RCEP) of which Asean is core and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) of which four Asean countries are members of.”
Manufacturers can also consider combining different modes of transportation (sea, air, rail, road) to optimise shipping routes to reduce delays and lower shipping costs.
“Air freight although may not cater for large volume of cargo, can still offer more flexibility and reduce transit time exponentially for urgent shipments of highvalue cargo,” Soh opined.
FMM urges for Malaysian shippers (exporters and importers) to refine their business strategies to safeguard their supply chains and reduce delays to better meet customer demands to reduce the impact of the escalating situation in the Red Sea.
Tan Sri Soh Thian Lai
“As we progress into 2024, the shipping disruption stemming from the Red Sea crisis may be compounded by other threats such as extreme weather events or shifting geopolitical tensions which will further damage already distressed global supply chains.
“FMM urges the Malaysian government to keep a close watch on the situation to ensure that the impact does not escalate and further burden businesses and the economy.
“As supply chain turbulence is likely to persist, Malaysian manufacturers will continually need to be vigilant and proactively plan their operations to withstand additional shocks.”