The global supply chain has to face weak supply, missing containers and higher rates. It is no exception in trade-dependent Malaysia, but with a total of three lockdowns and an all-time high number of new Covid-19 cases in July, it means that these challenges will linger a little longer.
When will the worse be over soon? This is the question on top of the mind of every Malaysian. The July 2021 lockdown, the third introduced since the start of the pandemic, appeared not to have slash the number of new cases.
“The impact of the pandemic on Malaysia’s supply chain is like something never seen before,” Commander (Cdr.) Ang Chin Hup, head of the Centre for Maritime Economics and Industries, Maritime Institute of Malaysia, told Maritime Fairtrade.
Commander Ang Chin Hup, head of the Centre for Maritime Economics and Industries, Maritime Institute of Malaysia.
“The world is dealing with the Covid-19 pandemic at different levels with some countries managing better than others. While the western world is gradually reaching normalcy, the Indian subcontinent, Africa, Latin America and parts of Southeast Asia remain in the challenging third and fourth waves of the pandemic.”
Cdr. Ang was speaking at the Fostering Maritime Industry Operation and Management through Digitization Post-Covid 19 conference (June 28 to July 2), organized by the Maritime Institute of Malaysia, which was attended by Maritime Fairtrade.
He highlighted three significant effects of the pandemic on the Malaysian maritime ecosystem.
“For more than a year now, Malaysia has been experiencing a container and vessel capacity shortage, high detention and demurrage (D&D) charges, and rising landside and depot gate charges imposed by shipping lines.”
The container and vessel capacity issues are a direct cause of the shortage of truck drivers, the closure of warehouses and stricter state border controls resulting from movement restrictions placed to stem the spread of the disease.
“It morphs into a vicious cycle. The congestion at ports is causing a serious drop in ship side productivity. The loss of available shipping capacity, meanwhile, is brought on by the longer voyage turnaround, which in turn is due partly to the said disruption at ports.”
By April 2020, China, having contained the spread of the infection, opened its market and thus unleashing a spike in consumer demand. Shipping companies’ rush for containers drove up container building prices and leasing rates.
“Today, prices for a new 20ft container in Malaysia is almost US$4,000 compared to US$1,650 at the lowest market period.”
Issues persist despite government exemption
While Malaysia’s Ministry of Transport offered a special exemption for shippers to clear their containers at ports, the sheer number of cargo volume coupled with a short time frame of three days, the lack of coordination between enforcement agencies and port authorities as well as the limited number of prime movers, made it an almost impossible task to overcome the various challenges.
“Malaysian shippers are still facing container and vessel capacity shortage. Shippers are scrambling to secure containers even at premium rates or are utilizing air freight for urgent shipments,” Cdr. Ang said.
“This raises costs and affects export competitiveness. Shippers must make difficult decisions daily on whether to ship and incur high export costs, or not to ship and lose their export markets. Some foreign buyers are delaying their orders, and losing out on revenues, in the hope that shipment costs will drop in the coming months.”
Cdr. Ang said the backlog issues are also causing shipping lines to impose high detention and demurrage (D&D) charges ranging from RM150 to RM350 (US$35 to US$83) per day based on a tiered pricing system.
“Shipping lines have threatened to hold incoming cargo if shippers do not clear the D&D charges. The same D&D charges are added to the incoming cargo, and the cycle continues.”
Further to this, new landside surcharges such as Damage Protection Plan and Container Damage Protection Scheme have been imposed by shipping lines since April 2020. These range from RM25 to RM105 (US$6 to US$25) per 20ft container.
There are also Port Congestion Surcharge, Equipment Maintenance Fee and Deficit Equipment Surcharge adding to the already high shipping costs.
Penang, Port Klang and Johor ports have increased their Depot Gate Surcharge, imposed by depot operators for the removal and delivery of empty containers to the depots. Haulers now pay RM40 (US$9) per container compared to RM30 (US$7) before March 2020, and just RM10 (US$2) prior to 2017.
Solutions to stay afloat
According to Cdr. Ang, one way of helping companies cope in this difficult period is by offering them tax rebates and even double deductions in corporate tax. The Malaysian External Trade and Development Corporation via its Market Development Grant can also offer assistance and reimbursement.
“Shippers can look at alternative transportation mode, through road, rail and airfreight, to reach neighboring ASEAN countries. The authorities can explore a single land checkpoint to save time and costs for Malaysian exporters.”
The authorities should also create a special committee to address the high D&D charges imposed by shipping lines. He also proposes for the Malaysian Port Authority Act 1963 to be amended so that port authorities can govern all activities and charges resulting from the use of the port.
“Above and beyond these (recommendations), the ongoing efforts in digitalizing the industry in Malaysia will enhance and integrate processes in shipping lines, freight forwarders and shippers, saving costs and time – two factors that can bring back the competitiveness to the industry.”