New cabotage policy a boost for Sabah, Sarawak

This month Prime Minister Datuk Seri Najib Tun Razak announced that the exemption of the cabotage policy for Sabah and Sarawak as well as Labuan would start from June 1 this year. This is very good news for industries in as well as the people of East Malaysia.

The cabotage policy was introduced in the 1980s as a way to promote Port Klang as the nation’s main transhipment hub. At that time it was a good decision to position Malaysia as transhipment hub and resulted in Port Klang being still ranked today as one of the top transhipment hubs in Asia due to its excellent location, infrastructure, service level and costs.

However, the result of this policy was that very few international liners are calling ports in Sabah and Sarawak and would just be calling a port in West Malaysia. But if you study today the global shipping routes mapped by Global Positioning System (GPS), which you can easily find on the internet, you can better understand the full potential of both East and West Malaysia along these busy sea freight highways. You will notice that the high intensity shipping lanes pass the Straits of Malacca (Penang Port, Port Klang, Port of Tanjung Pelepas, Johor Port, Singapore), but then from Singapore spreading in a thick bundle to the North East: towards Vietnam, Philippines, China, Korea, Japan. This means that many shipping lines are just passing in relative short distance (often less than 200 km) East Malaysia’s leading seaports with solid container handling facilities such as Kuching Port, Bintulu Port, Miri Port, and Kota Kinabalu Port. For shipping lines this is a feasible distance to add an additional port in an established shipping route. This is a business opportunity for ports in Sabah and Sarawak to serve these shipping lines passing by Borneo Island.

Over the last years trade between West and East Malaysia was served by mainly local operators. This provides less competition and less choice of shipping lines visiting East Malaysian ports, resulting in limited reliable fixed shipping schedules and high transport costs for sea transport to and from East Malaysia. This situation effected logistics lead-times and logistics costs for industries in East Malaysia. Today industries determine production location based on total supply chain lead-times and costs, which is heavily effected by the logistics situation. This made it less attractive for industries to be located in Sabah and Sarawak as compared to West Malaysia, leading to simply less foreign direct investment in East Malaysia.

This decision by the Prime Minister supported by the Minister of Transport will therefore provide a boost for the economies in East Malaysia and will result in more industries to be located in Sabah and Sarawak leveraging on their rich diverse natural resources, water quality & availability, as well as their large well educted workforce with good English language skills. With the completion of the Pan Borneo Highway, linking Sabah, Sarawak and Brunei with advanced modern road highway network, East Malaysia will be on par with logistics infrastructure and supply chain cost levels of West Malaysia and certainly be one of the preferred top investment locations for industries in Asia.

Dr. Marco Tieman

This article was published on Wednesday 17 May 2017 in the New Straits Times (Malaysia), Malaysia's leading newspaper.