Business Commentary Economics

It’s more than Cabotage


Written by TheMole

By Salahuddin Hisham

THE people of Sabah and Sarawak rejoiced the announcement by Prime Minister Datuk Seri Najib Razak to abolish the Cabotage policy at a political rally in Sandakan, Sabah last Saturday.

For almost 20 years, the opposition and Sabah rights activists have misled the people of Sabah into believing that it was the Cabotage policy that made prices of goods in Sabah and Sarawak more costly than the Peninsular side.

It fulfils a conspiracy theory of the Federal Government discriminatory policies against them. Furthermore it was an easy concept for politicians to sell.

Salahuddin Hisham was involved in various financial markets but has since, turned political and online.

Goods imported from the East are forced to offload at Port Klang before being transported back to Sabah and Sarawak. The voters could understand the simplistic logic that it is cheaper to just offload the goods in Kota Kinabalu or Kuching. Goods from the West should be offloaded directly without any pit stop at Port Klang.

The dumbfounded government side politicians then could not come up with an equally easily understood answer. The explanation used was the official reason behind Cabotage, which was to protect the local shipping industry.

Cabotage has been the normal practice in the global shipping industry. It is a right under international law to operate sea, air or other transport services within a particular country. The public could appreciate the critical need to not rely on foreign ships for domestic transportation.

However, it did not answer for the simplistic claim of higher cost of goods and doing business due to the extra journey. It is one of those political arguments that common folks could appreciate but the practice is not so simple.

The fact of the matter is that the reason for the higher cost of transportation is more than just Cabotage.

For one, the transportation cost is not just shipping of goods to the nearest port but the whole activity chain of containers or bulk goods lifted out of the ship to the piers and the subsequent transportation until they reach the shops.

For quite awhile, there has been relaxation in the Cabotage policy. Oil and gas from Bintulu port can be exported direct to Japan, Taiwan and elsewhere. Goods from nearby ports in the Philippines and China have reached Sabah and Sarawak ports.

Generally, there must be an economy of scale, a port with sufficient depth and capacity, and efficient port services for those large ocean-going international shipping lines to stop over at Sepangar or Tanjong Manis.

Shipping takes a longer time to transport goods from one country to another than air or land, but it is still the cheapest and an efficient mode of transport due to the economy of scale.

However, the glitch is those massive Panamax with capacity to transport 5,000 twenty-foot equivalent unit (TEU) containers only stop at Port Klang or PTP in Johor. The newer container ship can reach the capacity of 15,000 of higher TEUs. It is not cost efficient to stop over at Tawau to offload 10 containers.

To get the transportation components of cost of goods lower, it needs more than abolishing Cabotage policy. Apart from better ports, it needs network of railway, and roads, and complementing efficient logistical system.

The government could have decided that if this is what they want, they can have it. However, the Cabotage policy has been under review since 2013.

There are plans to turn Sabah ports into transshipment hub or to be more modest, transshipment centre for East Malaysia. This is part of the development of the shipping operations for the BIMP-EAGA (Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area).

The federal government has embarked on the expansion of Sepangar Bay Container Port of Kota Kinabalu.

There is an advanced stage discussion between the Sabah state government and Putrajaya for plans to construct a railway track to link all the eight ports in both East and West cost of Sabah.

Sabah has undertaken a tie-up with Taiwanese parties to increase efficiency of its ports.

Putrajaya realises the potential of Sabah and Sarawak as another strategic growth centre to realise it’s the strategic location to the islands of Borneo, Sulawesi and Southern Philippines.

Under Prime Minister Najib, the current administration has shed the protectionist mindset of the past. Sabah and Sarawak is a partner in the Federation of Malaysia and not a colony of Malaya to be controlled and manipulated on.

Malaysia International Shipping Company (MISC) should not be living off Cabotage policy through monopoly but build their international presence in line with Malaysia as the 16th largest trading nation in the world.

It is both an opportunity and challenge for Sabah and Sarawak shipping companies to take up the role and exploit their presence in the transportation of goods not only to and from Peninsular but to the nearby islands in Southern Philippines, Sulawesi, Brunei, and Kalimantan.

The shipbuilding industry in Sibu, Sarawak can strive further.

As the third largest island in the world, Borneo is abound with opportunities in the areas of extraction of resources, development of agriculture, particular food production, and light industries.

Sarawak is already dedicated to developing industries based on a unique concept of renewable energy source within Sarawak Corridor on Renewable Energy (SCORE). The human resource needs in the future may even outstrip Peninsular Malaysia.

Developing Sabah and Sarawak as another growth area is not seen by the current administration as competition or threat to the Peninsular but harnessing the potential of Sabah and Sarawak within its locality and complementing towards the growth of the nation.

By developing Sabah and Sarawak, it reduces dependence on the federal government funding and induces private investment.

The toll-free Trans Borneo Highway that passes through Brunei will help make Sabah, Sarawak and Brunei closer and attract investment from Brunei.

Off course, it is an initial step at significantly improving land transport for Sabah and Sarawak. That could lead to further development of feeder roads that reachout to the interior areas.

Building a land transport system for Sabah and Sarawak is more costly, extensive and technically challenging due to soil conditions. However, there is political will on the part of the federal government.

For instance, there are seven bridges under construction that will eventually link Song and Kapit, Sarawak by a proper road.

Naturally it will take time.

In the meanwhile, another mode of transport that should be seriously explored for both people and goods is air transport. It is not only for Sabah and Sarawak but for the region. There are technology and systems to be explored to lower the cost of air transport.

Better transportation network attracts foreign investment and brings about growth to the local economy. Larger and growing economy improves the income level of the local population, and economic infrastructure.

That in turn, attracts more domestic and foreign investment.

By then, better transportation serves not only to lower transport component in the cost of good but increases the purchasing power of the people.

So it is more than about Cabotage policy.



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