KUALA LUMPUR: RAM Rating Services Bhd expects the government’s move to ease the cabotage policy to have a minimal immediate impact on port activity in Malaysia, although the position of local shipping carriers may come under competitive pressure.
The policy, which requires all domestic transshipment of goods to be made using Malaysian ships, will be abolished from June 1.
“From a cargo handling perspective, the key component of the cabotage policy is that it restricts foreign vessels from moving goods between domestic ports without the use of a local shipper,” said RAM in a statement.
The relaxation of this requirement will hence permit foreign vessels to ply domestics ports (including Port Klang) en route to other regional shipping hubs, it noted.
“Despite the policy move, consolidation and the pursuit of scale remains a central theme among shipping liners,” said RAM’s head of infrastructure and utilities ratings, Davinder Kaur Gill.
“As such, any uptick in East Malaysia’s port activity from the current level will be gradual and long-term in nature, and would have to be accompanied by port capacity building that offers volume, connectivity and improved productivity,” she said.
Policy concerns notwithstanding, RAM said growth in port activity is closely aligned to economic growth and trade developments in the locality served by the port.
On that note, Sarawak’s economic diversification into heavy industries via the Sarawak Corridor of Renewable Energy had resulted in port capacity expansion via the construction of the Samalaju Industrial Port — which has an initial handling capacity of 18 million tonnes — at a cost of RM1.9 billion even prior to the policy change, said RAM.
On the other hand, the agency said the local shipping sector may be affected by the new development.
“The question is to what extent foreign-flagged vessels impact conventional trade routes (via Port Klang) and whether new trade flows will be established subsequent to the easing of the policy.
“As it is, foreign vessels have been able to ship directly to Sabah and Sarawak, without calling at Port Klang, albeit infrequently,” said RAM.
RAM said that given limited shipping options available for smaller import and export quantities, stopping at Port Klang is currently unavoidable.
“That said, we do not preclude a longer-term shift in cargo handling activity between Peninsular and East Malaysia ports should foreign vessels decide to directly call at domestic ports (and bypass Port Klang),” it said.
The agency noted that there is currently insufficient outbound cargo from Sabah and Sarawak, rendering certain trade routes uneconomical, which would discourage some foreign vessels from joining the fray.
“In conclusion, foreign vessel owners could establish new profitable trade flows for certain products, while shipping operations between Port Klang and East Malaysia will not disappear overnight.
“However, more players eligible to serve local ports would mean a smaller pie for local shippers and/or depressed charter rates,” said RAM’s head of consumer and industrial ratings, Kevin Lim.
