Kota Kinabalu (Thursday, Feb 26, 2009):  Sabah is unlikely to achieve its ambition to become a leading port hub in this region, despite its great potential to take over the role of Port Kelang and even Singapore port, if the cabotage policy for East Malaysian states continues to exist.
The Federation of Sabah Manufacturers (FSM) believes Sabah ports actually have more potential than Port Kelang, and even the Singapore port, as a hub not only for Malaysia but also countries within this region.

Its President, Datuk Wong Khen Tau, said this is among the reasons the federation is supportive and proposing the abolition of the cabotage policy for Sabah and Sarawak, as well as the designation of Kota Kinabalu Sepangar Container Port as a port hub or regional port.

He said the other main benefit expected from the abolition of the cabotage policy in Sabah is the reduction of the trade imbalance between Sabah and the peninsula resulting from the cargoes generated from manufacturing growth as manufacturing will be more competitive due to the elimination of the shipping barriers.

Sabah can also position itself as the port hub to cater to the Brunei-Indonesia-Malaysia-Philippines East Asian Growth Area (BIMP-EAGA) market, which has a population of 60 million, he said, adding doing so can also reduce unemployment and uplift the status of Sabah as the poorest state in the country.

He said a reduction of shipping cost will reduce the prices of consumer goods and strategic items (construction materials, machinery, tools and equipment, foods, etc). "We are not totally against the cabotage policy because in other countries there are also such policies...we are just hoping for the cabotage policy between the peninsula and Sabah and Sarawak be lifted or abolished," he said.

Wong was speaking to reporters in a press conference held at the Federation's office at Wisma HCS, Jalan Kolam, Luyang, here, Wednesday afternoon, after he chaired a meeting with committee members. The cabotage policy, which is meant to reserve the domestic shipping sector for vessels owned and operated by national companies, has resulted in the creation of a huge shipping cartel.

There are less than 15 shipping companies still depending on this policy for their survival, said Wong.

He said the process of shipping goods from Sabah ports to ports in the peninsula or Bintulu Port by feeder vessels owned by local shipping companies is currently highly inefficient and ineffective.

"MIDA has identified that the shipping problem is the most chronic problem that is hampering the growth of industrialisation in Sabah. The State manufacturing sector's contribution to the Gross Domestic Product (GDP) has been stagnant at approximately 11 per cent for the last 10 years compared to the national level of 28 per cent," he said.

He said the manufacturing sector of developed areas in the peninsula such as Kuala Lumpur, Selangor, Penang and Melaka, contribute more than 30 per cent to their State GDP.

"As a result, Sabah has the highest level of unemployment in Malaysia, and is the poorest state in terms of per capita GDP despite having abundant natural resources - large reserves of oil and gas, being the largest producer of rubber, palm oil, cocoa and was the largest producer of timber," he said.

A decision by the Transport Ministry on the cabotage policy is crucial for Sabah, said Wong, adding it has a direct and wide impact on the livelihood of 2.8 million Sabahans.

Sabahans have been adversely affected by the cabotage policy since the establishment of Port Kelang as the national load centre in 1984, he said, adding the costs of goods are higher due to higher shipping costs.

"Local products are not competitive in the international market due to exorbitant shipping cost and longer delivery time compared to competitors from the Asean region. Consumers in Sabah are paying more on essential imported goods, which are mostly produced in the peninsula," said Wong.

Wong said the cabotage policy has adverse impacts on Sabah, which include highly unreliable services provided by the operators of feeder vessels. He said although fixed schedules are provided, feeder vessels plying between Sabah ports and ports are always between one and three days late and frequently make last minute cancellations.

"With the sailing time of three to four days from Sabah to ports, the actual time taken is actually seven days," he said.

He said the problem is further aggravated by the fact that most mother vessels in the ports do not accept booking connection from shippers in Sabah before containers' arrival at ports due to the unreliable schedule of feeder vessels. Extra costs are also incurred at hub ports for temporary storage, extra shipping document fees and other charges, he added, saying the cabotage policy has thus made it more costly, lengthy and complicated for exporters in Sabah to export.

Container availability is also another problem, he said, citing an example on Jan 2, this year when shipping companies in Kota Kinabalu informed exporters that containers for export shipment would not be available on Feb 13.

"The shipping companies get away with such inefficiencies since they have the blanket monopoly of the local market under the pretext of cabotage," he said. Wong said higher shipping costs result in not competitive exports, higher prices of consumer goods and higher costs of raw materials for manufacturing.

He said as of Jan 3, this year, shipping freight from Kota Kinabalu to Southampton, United Kingdom, is US$1,400 (about RM5,180) per 40 footer container whereas shipping cost from Port Kelang to Southampton is only US$750/40 (about RM2,775) per 40 footer container.

"Such a difference is significant considering the total profit margin per container is only US$2,000 (abour RM7,400)," he said.

Wong said furniture manufacturers in Kota Kinabalu had informed that they have been advised by their overseas buyers to relocate their factory to either Peninsular Malaysia, Vietnam or Indonesia due to the huge difference in freight cost and shorter shipping time.

The huge difference in freight cost is always blamed on the imbalance of trade between Sabah and the peninsula, he elaborated, saying the eastbound trade from the peninsula to Sabah/Sarawak, generally, has higher load factor as much as 90 per cent (for certain operators) but on the backhaul westbound trade to the peninsula, the load factor may drop as low as 20-30 per cent.

"There is no control mechanism on pricing, and prices are arbitrarily decided by the shipping cartel since it is a protected market," he said.

He said as a result, most general goods that are produced in the peninsula and marketed in Sabah are normally labelled with two prices, for example, a baby milk powder is priced as follows - West Malaysia at RM24.80, while in East Malaysia it is RM26.90, a difference of 8 per cent.

Wong said the shipping cost of importing raw materials for manufacturing is also exorbitantly high, putting the manufacturers in Sabah at a disadvantage against the manufacturers in Peninsular Malaysia and the Asean countries.

The Federation also claimed that the cabotage policy has created a giant shipping cartel and that Malaysia lacks the regulation to regulate indiscriminate price fixing.

Wong said Malaysia does not have a competition act, nor is there any government body overseeing or administering competition rules or regulations, which is known as Anti-Trust Law in the United States, including the monitoring of abuses in the market or restrictive business practices.

"Thus, consumers are at the mercy of the giant shipping cartel," he said.

A typical example is the drastic increase in Emergency Bunker Surcharge (EBS), thrice in 2008 from RM320 per 20-footer container to RM853 in June, and then to RM1,253 in September the same year.

"Fortunately, due to strong protest by shippers, the hike announced in September last year was not implemented. The Government should act as the balancing authority of various interest groups and should not favour the cartel and put the future of the 2.8 million Malaysians in Sabah at stake," he said.

The Federation also argued that the strategy of creating one port hub has not worked in the peninsula.

Wong said the cabotage policy and the strategy to centralise cargoes in one regional port does not work even in the peninsula where the 11 states are well connected by good road networks, let alone in Sabah which is 2,000 kilometres away from the peninsula and separated by the South China Sea.

"This is evident by the fact that after the establishment of Port Kelang as the load centre in 1984, four other load centres such as Johor, Penang, Kemaman and Kuantan were established.

"The latest load centre established in Bintulu, Sarawak and thus Sabah should not be forced to transship shipment to the hub ports in the peninsula knowing that this strategy does not even work in the peninsula," he said.

Wong said the cargo volume in Sabah is too small to have significant impact on the national shipping industry.

"The fear that has been created is that once cabotage is lifted, the local shipping companies will be wiped out of the market, and thus will jeopardise the shipping industry," he said.

He said the fact is out of the nation's 15 million containers throughputs in 2007, only 400,000 or so were from Sabah ports, a meagre 4 per cent of the nation's shipping volume which is too marginal to have a significant impact on the nation's shipping industry.

"Malaysia's biggest shipping company is amongst the Top 20 largest shipping companies in the world with annual cargo turnover of three to four million containers yearly, and derives most of its income from international operations," he said.

Moreover, it would be illogical to assume that the local players would totally be wiped out of the local market since they have been around for the last 24 years, he said.

"It is simply not justified for 2.8 million Sabahans to be penalised for the inefficiencies of less than 10 local shipping companies, and continuously subsidise the operation of these few shipping companies," he said.

Quoted from Daily Express