This article first appeared in The Edge Malaysia Weekly on August 10, 2020 - August 16, 2020

THE government seems likely to intervene in the ongoing dispute between the Shipping Association of Malaysia (SAM) in one corner and the Federation of Malaysian Freight Forwarders (FMFF) and the Malaysian National Shippers’ Council (MNSC) in the other.

At the heart of the dispute lies assertions by FMFF and MNSC that shipping lines are profiteering from them during this challenging period when businesses have been adversely impacted by the Covid-19 pandemic. However, SAM vehemently denies this.

SAM, according to its website, represents up to 75 shipping lines, many of which are established foreign companies.

MNSC’s members include FMFF, the Federation of Malaysian Manufacturers, Malaysian Timber Industry Board, Malaysian Palm Oil Board, Malaysian Timber Council, Malaysian Rubber Exchange, Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM), Chartered Institute of Logistics and Transport and Centre for Logistics Leadership in Business. There are also representatives from government agencies such as the Ministry of Transport (MoT), Ministry of International Trade and Industry, and Malaysia External Trade Development Corp.

At end-June, MNSC called for the MoT’s assistance, asking that shipping lines waive or provide discounts on demurrage and detention charges brought about by delays in the collection of cargoes during the Movement Control Order period. These and other charges were grouped under unfair practices related to landside charges.

In parliament last week, Transport Minister Datuk Seri Wee Ka Siong was nudged by the opposition MP for Klang Chares Santiago, who brought up the issue and suggested the establishment of a Malaysian Maritime Commission under the MoT to better regulate the sector and control what some factions deem as excessive charges. Santiago’s interest could stem from the fact that many of the logistics companies are based in his constituency.

In response, Wee said that the existing administrative structure was sufficient, but added that the government was looking at some of the charges imposed on forwarding companies by shipping lines. “We will look into it. We have our ways [of addressing these issues],” he added.

Wee touched on issues such as the depot gate charges imposed on container storage companies, which is being reviewed by the Land Public Transport Agency (Agensi Pengangkutan Awam Darat or APAD), which comes under the purview of MoT. APAD, he said, was looking to regulate and license off-dock container depot operators. “This is what we are doing to regulate [this issue].”

At end-July, Santiago said in parliament that the depot gate surcharge had gone up from RM5 in 2001 to RM38 currently, with the promise of better efficiencies, or that the handling time would be 45 minutes. However, freight forwarders say it can take two to three hours. He added that shipping lines had imposed arbitrary charges without any government oversight.

Interestingly, in a webinar — The Evolution of Liner Shipping, Containerisation & Impact to Global Trade — organised by the Chartered Institute of Logistics and Transport last week, SAM president Ooi Lean Hin painted a bleak picture for the shipping industry. In a brief telephone conversation with The Edge, he voiced his concerns about the setting up of a commission to oversee the transport industry. “This [setting up of a commission] is going against the grain … in other parts of the world, things are getting more and more deregulated,” he pointed out.

At the event, in response to questions by The Edge on how the issues with FMFF and MNSC could be resolved, Ooi was hopeful, saying, “We [SAM and, FMFF and MNSC] need to coexist. It is in the interest of the global trading community to ensure that the trading conditions are made suitable for trade growth … Both parties have to understand each other, we both need each other.”

In his presentation, Ooi highlighted that with containerisation, shipping lines not only had to invest hundreds of millions on ships but also on containers, which can be 20ft or 40ft. These are transported inland from ports and thus, are slapped with many other charges.

In addition, shipping companies spend a lot on repositioning empty containers on the back haul of a journey.

He added that with shipping companies building vessels capable of carrying in excess of 21,000 containers, capital expenditure (capex) had increased in tandem. In the 1970s, ships carried 1,000 to 2,500 TEUs (20ft equivalent units or a 20ft container). In the 1980s, the norm was 3,400 to 4,500 TEUs. By 2000, the carrying capacity had grown to 6,000 to 8,500 TEUs. Today, ships carrying more than 20,000 TEUs are the norm.

While a 2,500-TEU capacity ship may cost US$35 million, a 21,000-TEU giant container ship would cost slightly below US$150 million. With the larger vessels as well, scrubber systems that clean exhaust gases have to be put in place, which cost between US$8 million and US$10 million. Meanwhile, ballast systems can cost between US$1 million and US$2 million.

Over the past three decades, global trade has charted phenomenal growth, but shipping companies are still bleeding. South Korea’s Hanjin Shipping went belly up while others have sought to consolidate, such as Japan’s Nippon Yusen Kaisha teaming up with Mitsui OSK Lines and Kawasaki Kisen Kaisha to form an alliance called Ocean Network Express. Meanwhile, France-based CMA-CGM took over American President Lines and Neptune Orient Lines, Denmark-based Maersk bought over Hamburg Sud, Safmarine, P&O Nedlloyd and Sealand, and China-based COSCO Shipping merged with China Shipping and took over OOCL, to name a few.

Governments have had to step in as well. Singapore’s state-owned Temasek Holdings bailed out Pacific International Line through Heliconia Capital Management Pte Ltd and CMA CGM secured a €1.05 billion loan from BNP Paribas, HSBC and Société Générale, backed by the French government.

Ooi pointed out that in 2009, the youngest vessel to be scrapped was 24 years old. But in 2016, due to the unfavourable conditions, a seven-year-old vessel was scrapped.

At one time, Bursa Malaysia had several shipping companies, including MISC Bhd, Halim Mazmin Bhd, Nepline Bhd, Global Carriers Bhd, many of which operated container vessels. Today, MISC has ceased container operations. The only two companies involved in container shipping, PDZ Holdings Bhd and Hubline Bhd, remain listed.

Many of the transport companies on Bursa are not pure freight forwarders. Among others, Integrated Logistics Bhd has diversified into solar power generation while CJ Century Logistics Holdings Bhd provides ship-to-ship transfers of oil.

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