CABOTAGE – Y… DII BIKOS POLICY?

Cabo-what Policy?

19 April 2012: A West Malaysian acquaintance of mine called me up this morning. He said, “Justin! I’m still in KL but I called up one of my friends who is in the shipping line and asked him whether he knows anything about the Cabotage Policy and he said he has no idea what it is!”

Before I proceed further, allow me to give a shoutout to this West Malaysian acquaintance of mine who will remain nameless in this writing to protect his privacy. This man is in semi-retirement. He has been visiting Sabah frequently for the past 30 years and has decided to make Sandakan his retirement abode. He embedded himself among the Orang Sungai in some remote area in Sandakan and took it upon himself to learn their way of living, to research on their history and culture because he said most of the Orang Sungai he encountered did not know their own history and he wants to help improve their socio-economy! Kudos to you sir!

My acquaintance told me that something must be done about the high cost of living in Sabah and Sarawak. His zeal and conviction for the poor natives of Sabah moved me. So I went plunging in into the subject. I must admit that I do not have an in depth knowledge of this National Cabotage Policy (NCP). It is a dry subject and I am more of a history buff than a business policy kind of guy.

The first time I heard about NCP, I thought it was odd that the government had to have a policy on a vegetable and specifically a cabbage? What did they have against cabbage? Was there a cabbage epidemic? Encyclopedia.com explained the origin of the word as such:

“cabotage, the French name for the coasting trade. Many people believe that it is derived from cabo, Spanish for cape, as coasting ships generally sailed from cape to cape, but a more likely derivation is the French word cabot, a small vessel. .”

NCP is a form of monopoly. It was introduced by the government on 1 January 1980 to protect the national maritime industry. Its purpose was, foremost, to make Malaysia into a maritime nation and not to be dependent on foreign shipping companies. To facilitate that end, Malaysian ship owners must be protected from open competition by more established foreign shipping companies. The policy stipulate that the transportation of goods from one point to another point within Malaysia could only be done by Malaysian owned or Malaysian registered shipping companies.

West Malaysians have not been affected by the negative aspect of this policy for the past three decades as we in Sabah and Sarawak had. Therefore, it is understandable how some West Malaysians could be in the dark about this.

For years now, political and business leaders in Sabah, namely from the Federation of Sabah Manufacturer (FSM) have been appealing for a review of the NCP. The Federal Minister of Transport, Datuk Seri Kong Cho Ha’s dismissal of Sabahan’s concern over the NCP in March 2012, incurred the wrath of political leaders including Barisan Nasional (BN) leaders from Sabah. On the ground, most Sabahans that I had the chance to speak to on the matter viewed his comment as brusque and bordering to chauvinistic. Read what he was reported to have said in the Borneo Post.

To be fair, Datuk Seri Kong, was not lying. Foreign ships are allowed to go direct to Sabah port now. He has his predecessor, Datuk Seri Ong Tee Keat to thank for this. However, I find the former’s choice of words in the said report rather amusing, an oxymoron. Somehow I do not think “very liberal practice” go well with the NCP in a sentence. NCP itself is a monopoly, there is nothing very liberal about a monopoly. At least former Transport Minister Datuk Seri Ong Tee Keat was forthcoming about it in his interview with The Daily Express on 12 April 2012, he said:

“I am referring to it as so-called partial liberalisation because there is no such terminology of partial liberalisation. Either you have it or you don’t.”

Datuk Seri Ong Tee Keat was responsible for this so-called liberalisation, part of his road map to the eventual liberalisation of our country’s aviation and maritime sectors. Unfortunately, he could not follow through with his plan when he had to step down in June 2010 due to MCA leadership tussle.

What Datuk Seri Kong failed to mention though, was that foreign vessels are only allowed to go direct to Sabah (or Sarawak) with unopened containers. Most foreign traders would repackage their goods together with goods from other companies to ensure enough load for shipping to Sabah. He was right to say that there was an element of business decision in the matter but it is no comforting words for the people of Sabah and Sarawak.

Datuk Seri Kong was also right to say that ‘almost’ all of the countries in the world practices Cabotage but again, he neglected to mention that some of these countries have actually relaxed their grip on the monopoly and how about the geographical differences between these countries and Malaysia. Well, that is unless he only considers the Peninsula Malaysia as Malaysia.

It was reported in the Daily Express dated 14 April 2012 that the President of the Kota Kinabalu Forwarding Agents Association (KKFAA), Johnson Dai, revealed that it costs RM3,179 to send a 20-footer container from Kota Kinabalu to Port Klang but RM4,122 to ship similar container from Port Klang to Kota Kinabalu. In his talk at the Public Lecture on Cabotage Policy at Sabah Trade Centre on 12 April 2012, Dai also revealed the disparity of the Emergency Bunker Surcharge (EBC) imposed by our shipowners with that of foreign shipowners.

The EBC on a 20-footer and 40-footer containers from Port Klang to Kota Kinabalu are USD330 and USD600.97 respectively. In comparison, to ship similar containers from Guangzhou, China to Kota Kinabalu, the EBC are USD200 for a 20-footer and USD400 for a 40-footer!

Another speaker, the Chairman of Malaysian Plastic Manufacturers Association, Sabah Branch, Datuk Alan Ang, concurred that the NPC does have an effect on Sabah’s export. He revealed that the cost of shipping a 20-footer container from Kota Kinabalu to Auckland would cost RM5,033 but only RM4,197 from Penang to Auckland for a similar container. My geography knowledge is not that sharp but I could have sworn that Sabah is nearer to New Zealand than Penang. To prove it, I used this online app to determine the distances www.searates.com.

Penang to Auckland                        Kota Kinabalu to Auckland

Distance : 5,206 nautical miles           Distance : 4,455 nautical miles

Vessel Speed : 14 knots                    Vessel Speed : 14 knots

Time : 15 days 12 hours                    Time : 13 days 6 hour

On 17 April 2012, the Chairman of the Labuan Chamber of Commerce (LCC), Datuk Francis Tee Chee Hok, also came out and voiced out the plight of Labuan people and business community caused by the NPC. In Labuan’s case, although they have a port of their own, they could not get direct supplies from Port Klang. This is because for the most part, their orders do not have the volume to fill up the space in a 20-footer container. Labuan only has a population of 83,500 (2005). As a result, Labuan has to source goods from mainland Sabah. Datuk Francis said that the situation is undermining Labuan’s status as a free port. Goods sold in Labuan should be cheaper than those in Sabah but this is not the case.

I could agree with the Malaysian Ship Owners Association (MASA) argument that our national shipping companies could not be blame solely for the high price of goods in Sabah, Sarawak and Labuan. I think it is plausible that the higher prices of goods in East Malaysia could be caused partly by profiteering activities by some rogue elements within our business community in East Malaysia and inefficient delivery system.

I also agree that Malaysia has to have a strong and viable maritime industry, one that is able to go head to head, toe to toe, against any heavyweight foreign shipping companies out there. However, it seems to me that East Malaysians are doing most of the heavy lifting towards the upkeep of our maritime industry! NCP is not solely to blame for the higher cost of living here but it certainly is part of the problem.

Not only is the NCP contributing to the high cost of living in East Malaysia, it is also ridiculously illogical in logistical sense. Case in point, let’s say I am importing some goods from China and let’s say that I could not have my container shipped directly to Kota Kinabalu because it is an opened container, it then has to be shipped to Port Klang first before it is shipped to me in Kota Kinabalu.

Guangzhou to Kota Kinabalu

Distance : 1,128 nautical mile

Vessel Speed : 14 knots

Time : 3 days 9 hours

Guangzhou to Port Klang

Distance : 1,668 nautical mile

Vessel Speed : 14 knots

Time : 4 days 23 hours

Port Klang to Kota Kinabalu

Distance : 991 nautical miles

Vessel Speed : 14 knots

Time : 2 days 23 hours

With the current policy, the goods that I have imported from China would have to travel 2,659 nautical miles before reaching me in 7 Days and 22 hours! I am no shipper but I can hazard a guess that upon reaching Port Klang, the goods would be unloaded and reloaded unto a Malaysian owned ship. I am sure that entails service fee and I wonder what other fees would be incurred for my container to be handled in Port Klang. So how much should I sell these goods to recover my transportation costs and earn a decent profit margin at the same time? And that is assuming that I financed the whole importation in cash! What if I had to take an Overdraft to finance it? I must take into consideration the daily interest that is being levied on me by my financier. I would have been able to put the goods that I have imported, on the shelves for sale within a week if I was allowed to ship the goods directly from Guangzhou to Kota Kinabalu but that is not the case. Therefore now, I have incurred about 8 days of interest on my Overdraft as oppose to only about 4 days of interest had I been allowed to ship direct.

And what if the goods are perishable……..?

While no one is questioning the NCP as a conventional tool applied by many countries towards the building of their maritime industry, the practicality of its application in East Malaysia is sometimes doubtful. Due to the location of the Borneon Island, circumstances has cast the NCP quite akin to a tool of oppression against East Malaysian. It is like we are back to being colonized. Working hard under the yoke of our colonial masters to fill up their coffers. In the old days, our ancestors were even required to pay taxes just to cross a river to trade. Presently, whenever East Malaysians need to trade be it importing or exporting, we must first stop by Port Klang, even when it is totally out of the way and help fatten its treasury. It is not like there is not already income tax imposed on our business activities. Is Kuala Lumpur our new colonial master?

NCP has inevitably became part of the problem that made doing business in East Malaysia challenging. Goods are generally 20% more than what it cost in West Malaysia. For example, the Straits time is sold at RM1.20 in West Malaysia but RM1.80 in East Malaysia, 50% more! Same number of pages, same news and no bonus gossip pages. Sabah and Sarawak are rich in resources but we could not do anything with it because we have all these roadblocks placed in front of us, making the viability of any venture questionable. Our competitiveness is suppressed. We cannot even compete with businesses in West Malaysia, much less compete globally.

An excerpt from United Nation Economic and Social Commission for Asia and the Pacific Country Report of Malaysia in year 2000,

“Efficient, fast and cheap transport contributed directly to MNCs fragmented production. As such transport is considered as a unique service, which facilitates the international exchange of products. Thus it cannot be denied that liberalization of trade in services can bring down the real cost of trade.Liberalization of maritime sector has the potential to reduce the transport cost and by opening up the market to players with the best comparative advantage. But this also implies that we might be swamped by giant players, the mega-players with all their economies of scale. The Malaysian maritime transport related operators still do not have the capacity, skill and technological capabilities to compete in the so-called level playing field. Liberalization therefore may not allow for a free-for-all situation”

The following is what the Deputy Minister of Transport, Datuk Abdul Rahim Bakri, was reported to have said when asked about NCP:

“If the government allows foreign shipping lines to dominate or control the country’s transportation system, our local shipping companies will go bankrupt and eventually the nation will have to depend on foreigners forever”,

Abdul Rahim said many shipping companies that had received incentives under the National Shipping Policy were those from Sabah and Sarawak such as Johan Shipping, Hubline, Shin Yang and Chong Fui Shipping. – Bernama”

East Malaysians are not against our Malaysian shipping fraternity. Their success is of paramount concern but equally paramount, if not more, is East Malaysians’ god given right to pursue wealth and happiness in which present time, is impeded for the past 30 years! If the government could not even accede to such a basic human right, then East Malaysians would be compelled to think that there is something sinister behind its refusal to heed to our outcry.

I will end this post by inviting our esteemed Datuk Seri Kong Cho Ha, the Federal Minister of Transport, to have an open and four eyes dialogue with our business communities, in particular with FSM and with our respective state governments in Sabah and Sarawak. Explain to us how we have misunderstood the NCP.

Posted by Justin Sunam-Wong