Marine industries association concerned about high freight rates

Dr Renco Yong

SIBU: Sarawak Association of Marine Industries (Samin) has expressed its concern that the high freight rates imposed by shipping companies, especially in the container shipping trade position, is causing adverse effects to shipyards in Sarawak and Malaysia’s marine industries. 

“Up to 75 per cent of a ship is made of steel and many local shipyards buy from China owing to their competitive price and relatively good quality. 

“With the transportation cost reaching heady levels, the cost of imported raw materials and items have also gone up dramatically as Chinese exporters try to cover their costs,” Samin president Dr Renco Yong said here on Wednesday (Jan 26).

According to Yong, the sudden spike in container rates had been experienced since the opening up of economies in many countries worldwide. 

He pointed out that supply chain and container shipping operators were ill-prepared for the surge in goods flowing through as demand for commodities and manufactured goods spiked. 

Bottlenecks along supply chains, he stated, which were already forming during the movement control order and lockdown, became worse as more cargos tried to find their way from suppliers to end-users.

“The closure of some ports in China as a measure to curb the new surge of the pandemic, the shortage of containers to be repositioned, the shortage of trucks, drivers, warehouse space and workers in the logistics chains which caused massive port congestion, especially in the United States, and the re-routing of ships by shipowners to serve more profitable trade routes combine to contribute to the sharp increase in freight rates in the container trade.”

At this point of time, he said a 40-feet container (FEU) cost a whopping USD17,500 (around RM73,000) in the Asia-Europe trade at the beginning of the year, compared to a mere USD4,000 in December 2020.

The busy Trans-Pacific and Intra-Asia routes had also seen similar spectacular increase in freight rates, he said.

Yong said many shipyard operators in Sarawak would suffer further blows if the crunch in container transportation and supply chains did not ease up soon.

“Local shipyards would stand to lose orders for newbuilding projects as the higher costs of imported materials and items to build and repair ships would erode their competitiveness.

“As it stands, their business has already been severely impacted by the economic fallout from the pandemic and the slump in the marine industry as a result of that.  Another hit like what they are taking now with the high freight rates would cause further pain to them.”

Referring to the liberalisation of the cabotage policy for Sabah and Sarawak which has been in place since 2017, Yong lamented that it had not brought much impact in reducing the freight rates of shipping services linking ports in the two states with foreign ports and those in Peninsular Malaysia. 

“As a matter of fact, the freight rates have been increasing in the past five years as we continue to depend on foreign vessels to provide shipping services to our ports.

“Many local shipowners of cargo ships have sold their vessels due to fierce competition from foreign shipping companies which have more vessels in their fleet, greater economic of scale and more connectivity with ports. 

“This has further compounded the nation’s dependence on foreign shipping services and put local consumers, manufacturers, commodities producers, industries and businesses at the mercy of the high freight rates imposed by foreign shipping lines now.

“This erodes the competitiveness of our exports, increases the price we pay for goods and services and causes outflow of foreign exchange too Malaysia.”

He said Samin hoped that all parties concerned would quickly clear the backlogs along supply chains and ease the bottlenecks to bring container freight rates back to reasonable levels.

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