Media statement by Dr. Hiew King Cheu in Kota Kinabalu on Tuesday, 3^rd April 2012:

Cabotage policy

The Cabotage policy emphasizes that only vessels registered in Malaysia are allowed to load and unload cargoes in the ports of Malaysia. The whole idea behind this policy is that Port Klang is to be the container hub port in Malaysia, which is the main center. In other words, it means any container from any international port must go through Port Klang before continuing their journey to other ports in Malaysia. All ships that carry containers en-route to other Malaysian ports must be registered in Malaysia. Among the states in Malaysia, Sabah and Sarawak requires the services of feeder vessels from Port Klang. Most, if not, all West Malaysian states only need an inexpensive truck or container train to transport their cargoes to the final destination.

The delivery charges that are incurred by the owners of these vessels shall not be controlled by the government. They are, therefore, allowed to decide the charges at their own monopolistic discretion. The current delivery charges for a 20ft container from Port Klang to Kota Kinabalu is RM2,436.00, to Sandakan is RM3,236.00, and to Tawau is RM3,336.00; from Lahad Datu to Sandakan is RM4,168.00, and from Lahad Datu to Tawau is RM4,386.00. Sometimes a discount of approximately RM200 is given based on the "customer loyalty". It has been strongly argued that the return trip is considered cheap because the containers are empty, and the owners of the ships have to absorb the costs. This is obviously the "reasonable" excuse being used for charging exorbitantly. Their claim has in fact been propagated and supported by the Federal government and so the rights and benefits to East Malaysian have been ignored.

Port Klang is more than 1500km from Kota Kinabalu. The Cabotage policy has ensured that the people of Sabah were force to use licensed feeder vessels registered in Malaysia to deliver their cargoes from Port Klang to Kota Kinabalu. Foreign ships from countries like Vietnam or Hong Kong are not allowed to load and unload their cargoes in Kota Kinabalu although geographically they are closer to Sabah Ports. This is discrimination to Malaysians in Sabah.

The Cabotage policy is the main source (in Sabah) for the big price differences in products pricing between Sabah and West Malaysia. These have slowed down and restricted Sabah economic growth. This means that one Ringgit in West Malaysia buys one Ringgit worth of items, but in Sabah the one Ringgit gets only 70sen worth of items. The price comparison is higher by 20-30 percent in Sabah compared West Malaysia. For example, newspapers like the New Straits Times, Berita Harian and the Star are retailing at 20-30% higher in Sabah compared to West Malaysia. Although we have been independent as a state in Malaysia for almost 50 years, the government is not very serious in the economic integration between East and West Malaysia.

The price of a container from Hong Kong to a Sabah port is only USD240, and it is much cheaper to delivery a container to Hong Kong than to Port Klang. The Federal Government should have allowed ships to unload cargoes at Sabah ports before heading off to Port Klang. The ship charges can then be reduce from RM2,436.00 to less than USD200.00 (RM615) per container. With the big reduction in shipping cost per container, the prices of goods in Sabah would automatically be lowered. The policy has ignored Sabah interest and has hindered the process of development and industrialization in the state.

The Cabotage policy has directly created the high cost of goods from West Malaysia to East Malaysia, thus directly resulting in the high cost of living in Sabah. It has caused an increase in the manufacturing cost in Sabah, which resulted in similar products in Sabah becoming as much as four times more expensive than the similar goods produced in West Malaysia. The increase in manufacturing cost is not directly related to land prices, labor costs, or utilities rates. It is true foreign investors are not so interested to come to Sabah to set up factories.

The government has put effort to develop value added timber downstream industries but this effort failed even though the timber comes from Sabah. The furniture industry in Sabah is another example of an industry that still cannot compete with the furniture industry in Vietnam. USA and Europe prefer to buy from Vietnam even though Vietnam's timber actually comes from Sabah. It is cheaper to export round logs than to put in value added, that is, manufacturing furniture before selling. This is due to the policy that resulted in high shipping costs.

After waiting for more than 28 years, the government does not have any intention to review the policy and issues and the answer remains the same. Sabah furniture makers has been voicing out the difficulties but all these efforts go to deaf ears.

On 13 May 2010, the New Straits Times report even urged the government to review the Cabotage policy and do something about the high shipping cost. It was stated "... sending a 40 foot container from Sabah to Europe takes about USD700, and it is more expensive than sending from Port Klang or from the ports of China or Vietnam to Europe. The cost of sending a container to Port Klang is about RM1000 or USD300. This is the reason why the foreign investors rejects the products made in Sabah, because it is very expensive ... "! Industries will not go to Sabah because they will make a loss.

In addition to disruptions of electricity supply in Sabah, the Cabotage policy is one of the main reasons for factories in Sabah to incur losses. Many products needed imported components that required shipping from West Malaysia, and due to the delivery cost to and fro West and East Malaysia, the finished products became very expensive. The same product being manufactured in the Klang Valley can be four times cheaper than the one made in Sabah. Sabah industries also cannot compete with manufacturers in Melaka or Negeri Sembilan - even though they do not have natural resource. Apart from the timber industry, many other industries such as Palm oil industry (POIC) in Sandakan and Lahad Datu also suffered from the Cabotage policy.

For more than 28 years, the federal government has repeatedly urged the people of Sabah to be patient. The government said they have studied and tried to work out ways to overcome the price differentials between West Malaysia, Sabah and Sarawak. Unfortunately, the situation today remains the same. Perhaps this is one of the reasons the Prime Minister said that "Sabah is still the fixed deposit". In fact, the solution is very simple. The government should allow foreign ships to load and unload their cargoes in Sabah before heading off to the next destination like Singapore or Port Klang.

The owners of Malaysian registered ships under this policy have always objected to the proposal to abolish the policy because they been benefiting from this policy and in the process earned more. The prices of goods in Sabah are expensive not only because of the dealers make a double profit, also because of the high shipping costs! Development rate in Sabah is very slow because of high development costs. Materials costs on basic items such as imported cement, steel, plants and equipments become high resulted from high shipping costs!

The Cabotage policy through the Ministry of Transport is an unfair policy. The Federal government must be aware that this is a policy provided to cronies to milk the market and this has discriminated against the people in East Malaysia. The Sabahans have suffered but also been deprived of their basic rights to enjoy economic development in Sabah.

* Dr Hiew King Cheu, MP for Kota Kinabalu