Maritime industry expects to rally after pandemic shockwave - MIDA | Malaysian Investment Development Authority
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Maritime industry expects to rally after pandemic shockwave

Maritime industry expects to rally after pandemic shockwave

20 Dec 2020

The global maritime trade is expected to plunge 4.1 per cent in 2020, as the health pandemic has taken a toll not only on the supply chains but also shipping networks and ports, resulting in plummeting cargo volumes, of which Malaysia was not spared.

The industry has also been dealing with the knock-on effects of growing trade protectionism and inward-looking policies, according to United Nations Conference on Trade and Development (UNCTAD) in a report last month.

Locally, Malaysia’s port operator, Westport Holdings Bhd said its container volume declined by four per cent for the first nine months of 2020 as compared to the same period last year.

It handled lesser container throughput of 7.73 million twenty-foot equivalent units (TEUs) during the first nine months of 2020 as container volume and demand were affected by various forms of lockdown imposed globally to control the spread of Covid-19.

According to Shipping Association Malaysia (SAM), container throughput for 2020 is expected to reduce by 15 per cent from 25 million TEUs in 2019 due to lower transhipment activities and container volume caused by the disruption in the supply chain.

Malaysia’s maritime sector also witnessed heated debates on the cabotage policy in Parliament in late November, which led to a change of Malaysia’s policy and sparking some industry positivism.

On November 24, Transport Minister Datuk Seri Dr Wee Ka Siong while winding-up his debate on the Supply Bill 2021 told the Dewan Rakyat of his decision to revoke the cabotage policy exemption that allowed foreign-flagged ships to repair undersea cables in Malaysian waters.

The proposed revocation prompted former transport minister Anthony Loke Siew Fook who had granted the exemption then, to question Wee’s rationale for the decision.

Subsequently, opposition lawmakers and giant tech companies quizzed the government’s stance in welcoming investment from international companies as well as Malaysia’s aspirations as a data centre hub.

However, the Malaysia Shipowners’ Association, Malaysian Oil Support Vessels (OSV) Owners’ Association (MOSVA), and Association Of Marine Industries Of Malaysia (AMIM) welcomed the decision to revoke the cabotage policy exemption.

They see it as timely as they felt local companies should be given opportunities and consideration before any tenders for related works were awarded to foreign companies.

MOSVA president Mohamed Safwan Othman said the association supported the government’s decision and emphasised that more measures should be taken to revitalise and protect the local economy as it had heavily borne the brunt of Covid-19.

Citing other countries that are taking similar measures, he said the US, Brazil and even Indonesia have a more stringent cabotage policy than Malaysia.

He also stressed that there were more pressing issues than cabotage, with many pseudo-Malaysian companies operating in the region.

“These companies use proxies to ‘Malaysianise’ their vessels and companies but they are actually owned by foreign companies, especially our southern neighbour.

“Based on our estimate and observations, there are as many as 100 OSVs in Malaysia with Malaysian flags operating under these pseudo-Malaysian companies,” he said.

MOSVA members own about 300 vessels. There is an addition of about 100 vessels in Malaysian waters that are owned by non-MOSVA members including those belonging to pseudo-Malaysian companies.

“That translates into around RM1 billion of charter hires per year and this is actually detrimental to our economy, as much of the money will flow out of the country.

“With the recent controversy about foreign-owned cable-laying vessels working in Malaysian waters, it is time that such cabotage policy is strictly enforced and the practice stopped as otherwise the balance of payments will be further aggravated,” Mohamed Safwan said.

On Covid-19, he said the OSV segment in Malaysia was quite badly hit by low oil prices and the rise of the pandemic, with a number of delays in operations and cancellations of projects.

“Most of the contracts supporting the productions remain as usual and there is no major re-negotiation of contracts from oil majors, including Petronas. The number of projects, including drilling, has been postponed,” he said, adding, the disruptions had resulted in the laying up of about 30 per cent of MOSVA members’ fleets.

On the RM3.7 billion allocation in Budget 2021 for the Maritime Development and Logistics Scheme, he said it was timely.

“MOSVA members will definitely try to utilise the funds that will be managed by Bank Pembangunan Malaysia Bhd (BPMB) and we have had a series of discussions with BPMB on this matter.

“The bank needs to somehow relax the conditions in order for us to expand or renew our fleets during this tough economic climate,” Mohamed Safwan said.

Meanwhile, he said certain types of OSVs including fast crew boats, accommodation workboats, and anchor handling and tug supply vessels (180 tonnes and above) needed to be built to restore depleting supply.

“Most of these vessels are near the age limit of 15 years and out of specifications. That’s the reason for expanding the fleet of certain types of vessels.

“The vessels that were laid up are ones that are already oversupplied in the market, including Anchor Handling and Tug Supply vessels (60 tonnes and below) and Platform Supply Vessels,” he said.

AMIM acting president Soo Jee Main said Malaysia’s shipbuilding and ship repair industry (SBSR) has yet to recover from the world economic downturn and the Covid-19 outbreak compounded the sluggishness resulting in major projects being scaled down particularly in the upstream sector.

“The full impact of Covid-19 remains to be seen, together with the knock-on effects on the SBSR sector, but certain countries tightened their cabotage policy,” he said.

On the Maritime Development and Logistics Scheme, Soo said the association was excited about the fund, although the policies related to supporting the local maritime shipyard industry need to be reviewed.

“Relaunching of the fund does not in any sentence mentioned that the funds will be for vessels that are funded to be built/made by Malaysian shipyards. It would not help the Malaysian economy and local shipbuilding industry if the shipowners buy these funded vessels/ships from countries outside of Malaysia.

“If these subsidised funds were used by shipowners to build their vessels/ships in Malaysia, the contribution to the local economy will be tremendous and the spinoff will contribute to the Malaysian Gross Domestic Product and Gross National Income,” he said.

Soo added, “If the shipowners were to buy vessels/ships from overseas builders, then there is no contribution to the Malaysian economy, and it becomes a foreign exchange outflow”.

According to him, AMIM had approached BPMB on the issue when the fund was first launched, but unfortunately, the response was that there was no Finance Ministry term for (ship) building in Malaysia.

“This resulted in all subsidised funding being used for buying vessels overseas, mainly from China, as BPMB does not take it as a mandate to support the local shipbuilding industry,” he said.

Nonetheless, MOSVA is optimistic about 2021 with the announcement of various successful Covid-19 vaccine trials.

“Oil prices have been quite persistent at the level above US$45 for the past few months. It shows a lot of encouraging signs and we are prepared for higher activities in this segment next year.

“We also anticipate that the big tender for new builds from Petronas will be out by the first quarter of 2021,” Mohamed Safwan said.

His outlook for 2021 is in line with that of UNCTAD’s, which expects maritime trade to also grow to return to positive territory and expand by 4.8 per cent, assuming world economic output recovers.

The industry, however, needs to brace itself for change and adapt and ensure that it is also well prepared to enter the post-Covid-19 era, said UNCTAD.

The 195-member organisation said as the debate on the recovery continues to evolve, it was becoming clear that disruptions caused by the pandemic will have a lasting impact on shipping and trade.

The disruptions may trigger deep shifts in the overall operating landscape, together with heightened sustainability and resilience-building imperative, it added.

Source: Bernama