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Enforce the cabotage strictly: Shippers

Updated: Dec 19, 2022

Published on: Wednesday, June 15, 2022

By: David Thien

Jamalludin (left) receiving a memento from SOGCE co-organising Abdul Kadir.

KOTA KINABALU: The Malaysia Offshore Support Vessels or OSV Owners’ Association (MOSVA) has joined Malaysia Shipowners’ Association (MASA) with big companies like MISC and undersea Internet cable laying ship contractors, Sarawak and Sabah Shipowners Association, to demand strict enforcement of the controversial cabotage policy to protect their business interests.

MOSVA President Jamalludin Obeng said many member companies incurred massive losses and erosion of value when the liberalisation or exemption of the policy for Sabah and Sarawak became effective June 1, 2017.

He said several MOSVA members who are public listed companies, saw market capitalisation drop by more than RM27 billion or loss of more than 85 per cent of their value.

“There are over 350 Offshore Support Vessels (OSV) operating in Malaysia. MOSVA members consist of 41 companies with 266 vessels representing approximately 80 per cent of the Malaysian requirement.

“Total investment by MOSVA members over the years totals more than RM12 billion, many of which are financed by local banks,” said Jamalludin.

“Strict enforcement of cabotage laws to ensure preference in awarding of contracts to Malaysian vessels to increase local vessel utilization is vital against competition from ships from down under (Singapore).”

While admitting to at least a 10 per cent hike in ship rates, he said his food contractors supplying to ship crews have increased their rates by 30 per cent as prices of food like chicken have increased.

Many OSV companies have had to restructure their bank loans due to inadequate cash flow since 2015 due to low vessel utilization and low Daily charter Rate (DCR) which have dropped by approximately 30 to 40 per cent whilst vessel utilization has dropped by as high as 50 per cent. Losses include asset impairments.

It was noted that Scomi Energy Services Bhd had a 99 per cent reduction while Sapura Energy Berhad had 95 per cent erosion of market capitalisation.

Some politicians wanted the government to rescue such companies for their Bumiputra equity interests.

“In the next five years, the industry requires approximately RM5 billion of new investments. Unfortunately the banks are reluctant to fund new investments.

“Lack of new investments by the local vessel owners will impact the local shipbuilding industry considerably.

“Many local shipyards are struggling, surviving only on vessel maintenance and docking due to lack of new vessel construction.

“The OSV companies support a whole value chain of businesses that support the industry, from shipyard, spare-parts suppliers, maintenance services companies, shipping agents, logistic and transport companies, hotels and accommodation sector etc.”

Employment of these Malaysian workers are at risk if the industry collapses,” Jamalludin said, adding the industry employs some 7,000.

“An improvement in Daily Charter Rate is required to stave off the collapse of the Malaysia OSV industry. The recovery of oil prices (since the Ukraine war) means oil companies are able to accommodate the increase in cost.

“The OSV age limit of 15 years set by Petronas for certain categories of vessel need to be extended up to 20 years. The current age limit imposed by Petronas makes the OSV industry uneconomical and unsustainable,” Jamalludin said.

Meanwhile, Head of MISC Commercial Governance Alvin Chang when asked whether as a national shipping company it should be doing national service to serve the shipping needs of Malaysia’s businesses with regular, prompt and affordable services and why MISC quit the goods and container shipping business to focus on petroleum transportation, he said: “National service is costly.”

He elaborated that the containerised business has consolidated to 12 to 20 players and further dwindled to five or six that could do it profitably in current global conditions.

Meanwhile, a logistics business participant Michael Ong said:

“Sabah without its own shipping fleet just had to do with current business conditions just as when there was only MAS flying the high air fare air routes before the advent of cheap airlines.

“Then, SIA was not allowed to operate offering cheaper fares and later was permitted to bring in tourists and business people from Singapore and transport them back on higher fares, not allowed to sell full load to Malaysians with its few flights from Kota Kinabalu to Singapore under limited open sky policy.

Now MAS is under receivership while SIA is profitable.

“Malaysian shippers and bureaucrats are unable to outcompete Singapore without the cabotage policy when it is cheaper for Sabah as the distance is shorter to send transhipments to Singapore than Port Klang as well as to import through Singapore, if forex costs are not an issue.

“Malaysia is a wonderful country for Malaysian shipowners who enjoy tax free business to encourage them to increase Malaysia flagged ships tonnage.

“But the reality is not that helpful to the importing and exporting business community who are footing most of the commercial tax revenue, while having to put up with the costly imperfections of training up a privilege group by the government that is desirous of making them into a world class beaters or competitive achievers with no measurable time frame limits that might last for generations to come while global progresses on fast to build a better world,” Ong opined.



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