This article first appeared in The Edge Malaysia Weekly on December 27, 2021 - January 2, 2022

IN 2021, businesses faced various problems such as a shortage of workers, shipping rates going through the roof and enforced shutdowns due to lockdowns when Covid-19 infection rates spiked again as the world was hit by the Delta variant. The reopening of economies worldwide also contributed to a surge in demand, compounding the situation.

The Edge spoke to various industry associations to find out how badly they were affected, what measures they took to address the problems, as well as the challenges and outlook in 2022.

Lee Heng Guie

Executive director Socio-Economic Research Centre, Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)

Businesses are still trying to survive and rebuild after the unprecedented Covid-19 pandemic amid an ­uneven state of recovery. Business cost and domestic price pressures are increasingly a concern and will continue to persist going into 2022. Large, small and mid-size businesses are feeling cost pressures from every angle. Many are trying to manage the same costs and overheads with less revenue.

With the economy reopening, a combination of cost-driven factors — the pandemic-inflicted supply chain disruptions and supply constrictions, inflated shipping and logistics costs, rising cost of raw materials, higher energy costs and commodity prices, weak domestic currency, as well as a shortage of workers — have weighed on businesses’ production and costs, and squeezed margins as well as threatened the profitability of companies.

We caution that these factors can become persistent enough to feed into inflation expectations and create self-sustaining inflationary dynamics. Balancing inflation is key to economic recovery. Too much inflation and not well-anchored inflation expectations can be harmful to the economic recovery. Bad inflation caused by unabsorbed cost pressures, and constricted supply relative to demand, can drive up prices and erode households’ incomes as well as reduce real purchasing power, leading to a weaker economy.

The escalation in raw material prices is a daunting reality. More than 50% of the respondents surveyed in the Associated Chinese Chambers of Commerce and Industry of Malaysia’s Malaysia Business and Economic Conditions (ACCCIM M-BECS) survey have ranked “increase in raw materials” and “high operating costs and cash flow problem” as two of the top five risk factors dampening their business performance in 2H2021.

Up to 71.9% and 69.6% of respondents expect a higher cost of local and imported raw materials respectively in 1H2022. A higher number of respondents in the manufacturing, construction and services sectors anticipate price increases of more than 10%. Building materials such as wire, aluminium, glass, iron and steel, cement and wood products saw price increases of between 21% and 75% in August 2021 compared with end-2020.

Businesses’ growing cost pressures were validated by the Producer Price Index (PPI), which measures the average change over time in the selling prices received by domestic producers for their output. The PPI has been increasing by double-digit rates since April (+10.6% y-o-y) to 13.2% in October. Large increases in prices were reflected in crude materials for further processing (between 30.9% and 55.8% during the review period); and intermediate materials, supplies and components (between 4.8% and 11.6%).

“The shortage of workers” was ranked the fifth factor by about 38% of total respondents. The shortage was caused by foreign workers’ permits expiring, poaching of workers by other sectors as well as the “open and shut” standard operating procedures (SOPs) during the various movement restrictions.

The number of foreign workers now stands at 1.1 million, down by 800,000 from 1.9 million in 2018. Data compiled from the industry associations showed that plantations require 70,000 foreign workers, the rubber glove industry 25,000, furniture 30,000, construction 200,000, manufacturing 25,000, services 45,000 and plastics industry 6,293.

Higher input costs, supply constraints and a shortage of workers are affecting companies and industries very differently, depending on their ability to absorb cost increases. If some businesses are unable to absorb the accumulating costs and to avoid significantly eroding their profit margins, they will have no choice but to pass on these costs to consumers in the form of higher consumer inflation.

We have observed that the food and beverage sector (which includes hawkers and eateries) has raised prices, while food items (such as vegetables, bread, cooking oil and chicken) and consumer durables as well as household goods have also seen a rise in prices.

The ACCCIM M-BECS survey showed that almost 50% of respondents in the manufacturing, construction and services sectors will increase prices in 1H2022, with about 29% of them indicating that they will increase their products’ prices by between 1% and 15%; 12.6% will increase prices by between 16% and 30% while about 15% will lower prices by between 1% and 15%.

Many industries, business operators and associations, including ACCCIM, have raised the issues of rising cost pressures and labour shortage woes with the government. These pressure points, if they stay ingrained, will hurt many businesses’ costs, margins and profitability during this critical time of rebuilding business recovery and recouping consumer demand.

Small business owners are raising concerns about the road to recovery as they encounter challenges such as soaring costs, limited cash reserves and workforce shortages such as difficulty in the hiring of unskilled general workers.

Mitigation actions must be taken to address the situation that looks to put business’ recovery process at risk, amid the threat posed by the Omicron variant. The rising cost of living and higher consumer inflation will erode the average person’s purchasing power.

No business can totally avoid the impact of increasing costs. Companies have to review their cost economics and strategic cost analysis to identify the impact of increasing costs on their competitive positions. These include working capital protection, short-run cost control, and bottom-line preservation.

Besides the lowering of import duties on intermediate goods as well as machinery and equipment, the government can consider the following short-term mitigation actions for businesses and consumers:

a)     Giving compensation if prices of construction materials increase above 10%. The compensation will be funded by contingency funds set aside for the tenders;

b)     Extending the market development grant to cover both export and import shipment logistics costs until end-December 2022;

c)     Double tax deduction on logistics expenses and other related costs;

d)     Price surveillance and controls;

e)     Freeing up imports licensing; and

f)     Addressing temporary occupancy leases to increase the farming of agricultural products.

For medium and long-term sustainability, companies must invest in waste minimisation technologies and cost-savings efficiency programmes; research and development and innovations in processes and product development; and the deployment of sustainable sources of raw materials (recyclables, re-engineered product life cycles, and new green products) to produce cost-efficient and better-quality products.

Datuk Aishah Shaikh Ahmad

President, Malaysian Automotive Association

The many and different phases of Movement Control Orders or MCOs imposed by the government throughout 2020 and 2021 certainly affected the Malaysian Automotive Association (MAA) members’ activities and business operations. While these restrictions hit almost all economic sectors, the impact was more severe for sectors that are considered as non-essential.

The automotive sector is, unfortunately, one of the sectors listed as non-essential products and services.

The nationwide total lockdown, or Full Movement Control Order (FMCO), in June and July 2021 inflicted the most damage on our industry. Under this total lockdown, only essential economic and social services listed by the National Security Council were allowed to operate.

As such, MAA members were forbidden from operating not only their factories, distribution centres (for vehicles and parts), and sales centres, but even their service centres in EMCO (Enhanced MCO) states and areas were forced to shut down.

Thus, besides zero revenue from the sale of new vehicles in the domestic market, MAA members also lost much in terms of revenue from the export of vehicles and components, the sale of spare parts locally, and repair and maintenance services of motor vehicles at their service centres. The losses for the entire automotive industry easily amounted to a few billion ringgit.

The total lockdown affected not only the automotive companies but also went on to have wider repercussions on the entire automotive ecosystem nationwide.

Ancillary and supporting services providers such as component vendors, auto accessories suppliers, insurance companies and banks also suffered lower revenues as a result of the closure of the industry.

Among the big issues faced by MAA members were disruptions to business operations, which impacted production output and service centres owing to the downsizing of the workforce and capacity in line with strict standard operating procedure requirements. The number of workers and customers allowed at the premises were also reduced.

The number of positive Covid-19 cases and the need to observe quarantine at certain companies resulted in worker imbalance.

Tight cash flow owing to low revenue from sales while operating expenses remained high was also a problem for some companies, particularly the smaller distributors and dealers.

Some MAA members experienced depleting inventory of new vehicles because of the shutdown of production plants, especially from June to early August 2021. This in turn caused the deferment of vehicle delivery and consequently the accumulation of back orders and a longer waiting time.

The global semiconductor shortage impacted a few of our members’ production and subsequently sales given the nature of the automotive industry, which has a large supply chain.

Labour was also a real issue as the government does not allow foreign labour to be recruited.

Members still face a container shortage. The cost of shipment has also increased, thus impacting the overall cost of supply.

Addressing the issues

MAA members with production plants have realigned their production in accordance to the conditions imposed during the MCOs and availability of workers, components and parts.

For those affected by the global semiconductor shortage, there was a backlog in the delivery of new vehicles for certain models, with some these seeing a three- to four-month delay. The issue differs between models and carmakers, depending on whether an alternative supply could be sourced quickly.

Some members had to pay extra transportation charges as chips for the completely knocked down units had to be ordered as loose parts, incurring additional transport charges.

Some members had to increase their buffer stock to manage the disruptions in the supply chain, but at the expense of tighter cash flow.

Where possible, most MAA members were seen absorbing the cost impact as we are still in a recovery mode, and worry that a price increase would disrupt market demand. Cost transfer to customers is considered a final resort to ensure prices remain competitive.

The extension of the sales tax exemption by the government, however, helped to lighten the financial burden of companies as there was an increased demand for vehicles when showrooms were allowed to operate.

In general, many believe the situation is expected to improve in 2022, supported by the economy.

While we are expecting Covid-19 infections to subside, the discovery of the Omicron variant has brought with it a lot of uncertainty. As the real effect of this new variant can only be ascertained in a few months’ time, it is difficult to predict the situation for 2022.

Notwithstanding any unexpected surge in Covid-19 cases that result in the re-imposition of movement restrictions, many members are of the opinion that market demand will remain stable for the first half of 2022.

The continuation of the sales tax exemption until June 30, 2022, is a key pulling factor for customers not to hold back on purchases.

The government’s support, for example, through a lower hire purchase loan interest rate because of a low overnight policy rate; Employees Provident Fund withdrawal schemes via i-Sinar and i-Lestari; and B40 assistance programmes remain relevant.

Suppliers are also maximising output for business sustenance and fulfilling back orders.

With the new electric vehicle (EV) incentives provided by the government, certain brands are expected to expand their offerings of such vehicles in Malaysia.

Meanwhile, issues such as foreign workers, chip shortages and shipping are expected to persist in 2022.

MAA will only be able to provide our full TIV (total industry volume) forecast for 2022 in the third week of January 2022 when we review the performance for full-year 2021, and make preparations and plans for 2022.

Joseph Tek Choon Yee

Past president, Malaysian Estate Owners’ Association (MEOA)

The palm oil industry has sustainably generated colossal multiplier effects for Malaysia, with four million jobs created throughout the supply chain, providing a livelihood for 650,000 smallholders and contributing to the economy with 90% of the palm products exported. Amid the pandemic, this sector has contributed to the survival of many townships and channelled much-needed taxes for the government in the fight against Covid-19.

The oil palm supply chain was deemed an essential sector throughout the pandemic and was permitted to operate. Smallholders and communities, especially in rural landscapes and many towns in Malaysia, survive on their oil palm crops. They are the unsung economic frontliners. A negative domino effect caused by the oil palm sector ceasing operations due to Covid-19 would have been devastating to the nation.

However, Covid-19 restrictions imposed on operations, mobility and border controls, coupled with the lack of clarity in the rolled out standard operating procedures (SOPs) did create a ripple effect on the supply chain, from the movement of palm products, inputs (including fertilisers and chemicals), machinery and spare parts to repairs and other support services. The disruptions led to MEOA and the oil palm fraternity appealing to the relevant authorities.

Most Malaysians are probably not aware of the immense role played by palm oil’s unloved “Cinderella” by-product. Palm kernel oil massively contributed to global healthcare in the making of soaps and detergents — literally lifesavers during the pandemic. In support of frontliners’ fight against Covid-19, MEOA contributed to mercy flights with PPEs for hospitals and helped sponsor the setting up of vaccination centres (PPVs). Members also offered estates to serve as PPVs for vaccinating both workers and the surrounding communities. It was a much-needed give-back to Malaysia.

During the pandemic, the oil palm sector’s biggest issue was the acute shortage of workers. Despite battling huge irrecoverable crop losses and experiencing economic opportunity losses set against historical high crude palm oil (CPO) prices, additional taxes were levied on oil palm growers in the form of MPOB cess and windfall profit levy (WPL).

The oil palm sector has offered constructive solutions to stave off Covid-19 by keeping all workers fully employed and secure within the estates’ perimeter, with many implementing “voluntary” lockdowns. MEOA also spearheaded a solidarity platform involving various stakeholders across the supply chain to jointly engage with the relevant authorities to highlight the plight of the industry. Inclusive engagements were necessary in formulating effective and tailored Covid-19 mitigation measures. There must never be blanket restrictions involving all economic sectors. Instead, effective SOPs must appreciate “common but differentiated” and best-fit sectorial-specific measures.

MEOA believes that the Covid-19 situation in the oil palm sector will improve in 2022. This is following the successful rollout of vaccination, with continued adherence to SOPs and incorporating regular monitoring and detection with RTK antigen tests. The concept of herd immunity will beneficially impact all plantation economic frontliners and their dependents. The plantation sector can continue to offer its locations to serve as PPVs. These practical and safer PPVs can offer vaccination to be administered to workers and rural communities instead of transporting them to PPVs in the towns.

The authorities now have a better appreciation for the uniquely safer characteristics of the sector’s operations, including the rural landscape, inherent social distancing in the workplace and the ease of implementing voluntary lockdowns within the perimeters. Based on medical risk assessments, targeted Enhanced Movement Control Orders on clusters should be implemented without rolling out blanket shutdowns. It also helps to acquire accurate information, including transparent statistics, accurate listings and precise locations of all operations.

Outlook and challenges

Palm oil competes in the global market against 16 other edible oils. It is a commodity, thus a price taker and not a price maker. The sector involves long-haul investment, both capital and labour-intensive, set against many uncontrollable factors, including weather, and dealing with an organic and biological product. Crop losses are irrecoverable and a higher cost structure will erode competitiveness. Costs of production are expected to spike in 2022 with higher input costs, including that of fertilisers, and with no certainty of delivery due to logistics woes.

The oil palm sector’s greatest challenge is its substantial shortage of workers, which was markedly impaired by the restrictions. It is not the right time to reset the labour policies amid the pandemic. Relevant inter-ministries must rise up to be proactive in their G-2-G engagements with source countries. Top-level officials must find workable and faster solutions for the recruitment and return of guest workers. It is a known fact that all efforts to entice the locals have clearly confirmed that they continue to shun employment in the plantation sector in what they perceive as a “3D” sector.

The oil palm sector is open for partnerships with the authorities to implement best possible Covid-19 risk mitigation measures. The return of guest workers in stages can be kick-started with having workers located at plantation “workplace bubbles”, either at large-complex plantations or within suitable plantation boundaries. In addition, there should be consideration for functional plantation-specific recalibration or amnesty programmes with the issuance of temporary work permits. This will facilitate getting the undocumented workforce remaining in the country gainfully employed legitimately.

Today, the oil palm sector remains one of the very few thriving economic sectors that are keeping the country’s economic momentum going amid the nation’s recovery plan. Being in a non-level playing field in the global agricultural sphere, the Malaysian oil palm industry continues to be taxed heavily and this can jeopardise its competitiveness. The oil palm fraternity calls for the review of the price threshold and applicable rates of the WPL as tabled for Budget 2022. The double standard of applying the WPL to only the oil palm sector is a sore point for many growers. In addition, both Sabah and Sarawak must be prepared to review their respective State Sales Tax on palm oil considering that they are now getting considerable petroleum sales tax. Growers must be given leeway as they need to recoup and reinvest following a gradual recovery from the prolonged low CPO prices earlier in order to remain competitive.

The oil palm industry has transformed Malaysia into a driving force in the global edible oil market. Amid the pandemic, it is sustaining the national economy and remains an indispensable socioeconomic network, especially in the rural economy. The industry has remained steadfast, providing employment, creating multiplying spin-offs and generating significant revenue for the nation. Our shared destiny must be inclusive: involving all growers and the relevant stakeholders, including the government, towards enabling policies that are pragmatic, just and which safeguard competitiveness. In the pipeline, are there more taxes (for example, the prosperity tax), levies (in addition to levies for the Human Resources Development Fund) or new duties and cess to be expected next year and beyond?

The growers’ earnest plea is that we do not forget our “Golden Crop” nor do we kill the goose that lays the golden eggs. Post-pandemic, the industry will be besieged by many challenges other than the dire scarcity of workers and unabated rising cost of production. This will include market accessibility set against geopolitical tensions, environmental, social and governance-incorporated stewardship, food safety and many other aspects of compliance, while succession of talent across all levels of management will become more critical.

While battling our common adversary in Covid-19, Malaysia is indeed blessed today with a CPO price boom. But caution — favourable prices will not last for any commodity. Today, the focus and directions are clear: to capitalise and maximise yield potential, minimise losses and ride the price wave while it lasts. But without workers, the consequences will be catastrophic.

Dr Supramaniam Shanmugam

President, Malaysian Rubber Glove Manufacturers Association (MARGMA)

Most of the established rubber glove players in Malaysia that have gone through waves and tides of various economic and pandemic seasons over the last 20 years will be able to overcome the issue of rising costs. However, the three main aspects which impacted us in 2020 and 2021 were labour shortage, Covid-19 restrictions and the delayed functioning of our ecosystem.

As Malaysia is the world’s largest supplier of medical gloves, satisfying 68% of global demand for this necessity, our industry has to keep up with global customer orders. The rubber glove industry (RGI) is currently facing a critical shortage in factory workers who are needed to meet increasing global demand in 2021/22. We have the production capacity, but not enough workers to optimise existing capacity.

Operating rubber glove factories at a time like this is most challenging, and 2021/22 will go down historically as an unprecedented operating period for most players. Some of our foreign workers on home leave are still stuck in their home countries and are unable to return to Malaysia. Yet others, for whom levy has already been paid, have yet to arrive. We have also been actively engaging with embassies that are making the same calls as us.

The shortage of manpower creates longer delivery lead times and manufacturers are unable to take in new substantial orders. When we can’t supply within a reasonable delivery time or the desired quantity, buyers will move on to China, Vietnam, Thailand or Indonesia. These countries are notable producers and are our main competitors.

When buyers move away to our competitor nations, despite Malaysia being their first choice, it becomes our loss. And this has been brought about solely by the shortage of workers, despite having the manufacturing capacity. Based on our members’ feedback, we estimate that the losses are as follows: RM7.6 billion (2019), RM11.9 billion (2020) and RM12.2 billion (2021).

When Covid-19 hit our shores, the RGI players had to take extra precautions and adhere to standard operating procedures (SOPs) and Movement Control Order (MCO) operation guidelines. These caused delays in production but we pulled through the challenging situation as worker safety was our immediate concern.

However, a real spanner in the works was the imposition of a total shutdown under the Enhanced MCO (EMCO) in Selangor last June. The state hosts the largest congregation of medical rubber glove manufacturers, which produce about 58% of the global supply of medical examination and sterilised surgical gloves.

The surprise shook the industry as medical gloves are an essential personal protective equipment (PPE) for medical and frontline healthcare workers. This caused a major disruption in the global supply of medical gloves. With MARGMA’s active engagement with the various ministries, the government soon understood our position and lifted the restrictions. We were given conditional approval to operate. We are thankful and grateful for the open engagement with the Ministry of International Trade and Industry, Ministry of Human Resources (MoHR) and the National Security Council.

However, throughout the different phases of the MCO, the entire RGI supply chain was not always allowed to operate simultaneously with glove production. The approval process for them to operate took longer. Hence, the supply of certain raw materials was affected, resulting in higher unit costs and longer lead time to delivery. Fortunately, many of our members held sufficient inventory of raw materials, which mitigated the situation over time.

SOP implementation brought on higher cost of production. This included the sanitisation of work and hostel premises and transport vehicles, frequent rapid and PCR tests, and provision of PPE devices to all workers. All these measures brought on an additional 8% to 12% to our cost of production. Fortunately, we were able to pass on these additional costs to our customers.

Addressing the problems

Several measures have been put in place now, which we hope will solve the labour shortage issue. MARGMA has been engaging with the Ministry of Plantation Industries and Commodities (MPIC) and MoHR and our plight has been heard. Our latest requirement is another 18,730 workers for the purposes of replacement and expansion.

To mitigate the foreign worker shortage, MARGMA has embarked on a twofold approach:

a)    Automation — To date, the industry has achieved an automation level of 90%. The last mile of 10% automation, being the most difficult, is aggressively being pursued. This will reduce the headcounts needed.

b)     Motivate locals to join the RGI — Past attempts have seen little success, but with the new approach of training and incentivising them with career path prospects, it will draw in more locals. This initiative, driven by MARGMA, has the Malaysian Rubber Board (MRB), Malaysian Rubber Council (MRC) and MPIC as its partners. The training programme has been structured by MARGMA experts and MRB-MRC will be the training provider, with certification from MPIC. This programme is scheduled for take-off in the first quarter of 2022.

As for the Covid-19 situation, all our members are already undertaking the needful safety measures and performing RTK tests on our workers, as required by the SOPs. We appeal to the government to carefully consider the timeline and implementation of any future lockdowns. As an industry association, we are always ready to support and engage with the ministries and the government to solve the issues together.

The latest wave of Covid-19 infections in the Northern Hemisphere will increase demand for medical gloves, to some extent. The demand for gloves will see a growth of 10% to 15%, principally propelled by the new norms of personal health and safety, especially in regions with low per capita consumption. Selling prices will stabilise over the first and second quarters of 2022 wherein it is expected to be about 25% to 30% more than pre-Covid-19 prices. Also, we expect increased demand for non-medical gloves as a result of non-medical industrial sectors returning to normal production levels.

Datuk Lim Hong Thye

President, Malaysian Iron and Steel Industry Federation

The steel industry started strongly this year, benefitting from global steel prices hitting an all-time high in early May 2021 amid pump-­priming efforts by the Chinese government since mid-2020. In line with the higher prices and gradual reopening of the economy, most steel companies in Malaysia have reported strong earnings during the first five months, driven by the surge in global steel prices and the recovery in domestic activities from the low base in 2020.

However, the recovery seen in the first half of 2021 was short-lived and the second half of the year was quite challenging, with both external and domestic uncertainties.

On the external front, the surge in global steel prices (see chart) was halted by a series of drastic measures undertaken by the Chinese government to curb rising commodity prices, including that of steel.

The corrective measures by Beijing led to a decline in China’s steel prices, followed by global steel prices and key raw material prices, especially iron ore.

On the domestic front, the steel industry also faced a double whammy as Malaysian authorities announced a nationwide lockdown in June 2021 amid the surge in Covid-19 cases as well as the sudden change of prime minister in August.

Many steel players were unable to operate and fulfil their outstanding orders due to the lockdown despite the robust export market. Aside from that, the construction sector, which supports demand for steel, faced multiple headwinds such as labour shortages following the emergence of Covid-19 cluster cases at construction sites, delays in mega infrastructure projects and a slowdown in housing projects amid property market uncertainty.

In order to facilitate the recovery of the steel industry, the government introduced various measures including the extension of moratorium packages, which allow for the deferment of loan repayments. The Ministry of International Trade and Industry’s (MITI) PIKAS programme also benefitted the industry as Malaysian Iron & Steel Industry Federation (MISIF) members actively participated in the national vaccination drive in Malaysia. Coupled with a strict compliance of Covid-19 standard operating procedures, this has helped the industry players to resume full operations and pave the way for recovery. We are grateful to MITI for their initiatives to push through the PIKAS programme that helped to escalate the resumption of operations in the steel industry.

Going forward, MISIF looks beyond the Covid-19 pandemic in 2022 with cautious optimism and projects domestic apparent steel consumption to expand at a faster rate of 5.5% in 2022 (2021E: 3% to 4%). The faster growth is underpinned by recovery in the construction sector, in line with Malaysia’s projected gross domestic growth in the 5.5% to 6.5% range in 2022.

Meanwhile, the construction sector is projected to grow by 11.5% in 2022 on account of improved performance across sub-sectors focusing on the completion of large infrastructure projects and increased investment in industrial and energy projects. The anticipated domestic recovery is a sustained improvement from the negative growth in economic activities in 2020.

Aside from the recovery of the construction sector and economy in Malaysia, other key drivers for the positive outlook include:

1. China’s pledge for economic reform

Since the massive pump priming in mid-2020, China has shifted its stance and focus to economic growth stabilisation as its top priority in 2022. We expect proactive fiscal and monetary policies to remain supportive of the property sector reform. Property, infrastructure and construction-related manufacturing spending will continue to be growth drivers in China, which would benefit the steel industry as it could drive more than 70% of China’s steel consumption.

2. Global economic stimulus initiatives

The US Congress has passed its US$1.2 trillion (RM5 billion) Infrastructure Bill and the European Union’s US$340 billion Global Gateway Initiative will boost global infrastructure and steel demand.

3. China’s policies to discourage steel exports

The removal of export rebates in China and controlling production outputs signal China’s continued policy on steel production restrictions. Steelmakers in Asia are key beneficiaries.

Despite our cautious optimism, we noticed that the steel industry remains vulnerable to global and domestic developments such as the following:

1. Prolonged Covid-19 pandemic beyond 2022

The emergence of new Covid variants is a key risk to watch out for as a more infectious and deadly virus could lead to lockdowns that could affect production.

2. Policy uncertainty in China

Policy uncertainty in an economic superpower such as China to curtail inflation pressures could lead to a sudden and unexpected derailment of positive growth, similar to what happened in May and August 2021.

3. Prolonged US-China trade tensions

Prolonged US-China trade tensions would be detrimental to global growth and have a negative impact on the steel industry as well.

4. Political uncertainty in Malaysia

The 15th general election, which must be held latest by July 2023, coupled with the fluid political situation create uncertainty that would dampen the progress in the construction sector, especially those involving the mega infrastructure projects. This in turn would have a negative spiral effect on the steel sector.

5. Malaysia’s commitment to become “carbon neutral” by 2050

The industry is eagerly awaiting the details of the plan, which will be finalised by end-2022.

Post-Covid 19, the steel industry will be on a firmer footing. It has been a roller-coaster ride in 2021 and we believe that the journey to recovery and reinvention will continue for the steel industry in 2022 as we work with various stakeholders for the development of the industry and the nation.

We are confident that the steel industry will improve next year as we have become more agile over the last two years.

Alvin Chua

President Federation of Malaysian Freight Forwarders

How have the Covid-19 restrictions affected the operations of your association’s members? What was the biggest issue they faced?

We were fortunate that logistics was recognised as an essential service by the Ministry of Transport (MoT) and our members were able to continue their business throughout the various movement restrictions.

The biggest issue was that many other sectors, deemed non-essential, were not allowed to operate and goods for these companies were stuck in the ports. Later, MoT allowed three days per week for such cargoes to be cleared from ports or for ready stocks to be received or dispatched from their warehouses for the purpose of import and export only.

As the country moved towards fewer restrictions, normalcy in our members’ businesses, mainly in the clearance and delivery of goods to and from ports, quickly returned.

The shortage of containers was a bigger problem for shippers and resulted in higher shipping costs, with rate increases nearly every month from earlier months and a year-on-year increase — for imports, up to 65.5% for the Far East region and an increase of 163.3 % for exports.

How did they deal with these problems?

Our members, who are Non-Vessel Owning Common Carriers (NVOCCs), found that long-term contracts with shipping lines did not mean anything as shipping lines disregarded the contracts. It was a case of take it or leave it. Bookings made earlier were cancelled and fresh bookings came with longer waiting times for containers and space on the ships. Members tried to mitigate the severity by booking with more shipping lines than usual. However, there was little relief as the situation was very bad.

Are these problems expected to persist or get worse, or do you see the situation improving in 2022?

The signs are that for the rest of 2021, the situation will remain very much the same; with container shortages, space shortages and high shipping costs. Though rates have come down from as high as 10 times [the normal rate] during the peak period from June to October to five to six times now, the high cost of shipping is not expected to go down anytime soon.

The expected changes in consumer spending and imports would likely resume in 2022, with inventory building and earlier-than-usual shipping cycles for importers as they have learnt the lessons of supply chain disruptions.

When congestion eases and circulation of ships, containers and chassis improves, capacity may return to the system and there will be downward pressure on shipping rates. Whether this will happen in 2022 is still anyone’s guess.

These issues have led to rising costs. How did the association’s members deal with this? Are they able to pass on the costs to customers or do they absorb them and suffer margin compression?

Our members, with the exception of NVOCC operators, are mainly agents. Rising shipping costs — including related port costs or transport and distribution costs — would eventually be borne by importers and shippers. And these costs would be passed on to the final consumers.

What is the business and operational outlook for the sector you are in for 2022?

There is optimism that there will be more business for our members in 2022. Our business is moving freight and the clearance of imports and exports, which are closely tied to [the country’s] external trade. The external trade for both imports and exports over the last few months, from August to October 2021, has been good with a healthy trade surplus. We expect that for 2022, Malaysia’s external trade will continue to grow, which means good business for our members.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.