Shipowners deflect blame for high costs

Published on: Saturday, August 01, 2009 by Daily Express

Kota Kinabalu: The Malaysian Shipowners' Association (Masa) reiterated its stand Friday that the Cabotage Policy is not behind the high cost of living in Sabah and Sarawak.
Executive Secretary, Captain Imtiaz Hussein, said there were many factors for this but which had been "conveniently labeled as shipping cost".
"We do not find it as the reason for the high cost of living in Sabah and Sarawak," he said when asked to comment on the call by trade organisations in Sabah for Masa to agree to fully liberalise the Cabotage Policy.
His suggestion was that there should be a different tariff for domestic and international shipments.
He said Masa wanted to correct this wrong perception by shippers. "This is important to us because the flawed argument was fundamental in advancing the claims by shippers in the State who wanted the Government to relax the Cabotage Policy because of high shipping costs as the cause."
Speaking to reporters after the dialogue with 19 trade organisations in Sabah at the Marina Sutera, Friday, he said Masa was glad to meet up with representatives from the various trade organisations in Sabah so that they could bridge the gap and create a better understanding on the issue.
Imtiaz led a six-man delegation from Masa at the half-day dialogue that was organised by the Sabah Bumiputera Chambers of Commerce and chaired by Haji Roselan Johar Mohamed.
Imtiaz said Masa wanted the shippers to basically understand that there are other cost components in what shippers eventually pay as total transportation costs but are conveniently labeled as "shipping cost".
"Secondly, we also wanted the shippers to understand that even for the components of ocean freight charges paid to shipping lines, there are major cost components of the charges, which are totally outside the control of shipping lines," he said.
Explaining the total transportation costs in the point-to-point delivery, Imtiaz said the total logistic supply chain involves several interfaces including haulage/trucking, forwarding and shipping agents, warehousing/storage and port handling.
"In this logistic supply chain, ocean freight charges (paid to shipping line) for imports into Kota Kinabalu from Port Klang, only constitute about 40 per cent.
"Therefore, the burden of this shipping cost on the landed price of goods is really much smaller than what has been made out to appear. Nevertheless, freight charges for exports out of Kota Kinabalu to Port Klang only constitutes barely 10 per cent of the total logistic cost!" he said.
Imtiaz said it was not for Masa to tell whether other components costs in the total transportation is high or low but "we feel the other costs must also undergo similar scrutiny by the shippers as much as our cost has been by the shippers".
On the component of ocean shipping charges paid to shipping lines, Imtiaz said a major component of the ocean shipping charge is the bunker costs or cost for fuel oil used by ships.
In his presentation, he said many customers were confused between ship's bunker (marine fuel oil), crude oil and subsidised, retail petrol or diesel prices.
The retailed petrol or diesel are subsidised fuel, while the ship's bunker are traded in the free market.
According to him, shipping lines all over the world apply bunker adjustment factor (BAF) as a variable surcharge to the ocean shipping charge because of the volatility in the prices of fuel.
"We pointed out to the shippers that in view of its price volatility and that fuel is a major component of operational cost, BAF is applied as a surcharge, meaning we adjust the BAF according to market prices of fuel oil," he said.
The BAF surcharge is based on a formula which relates to the exposure of shipping lines on a per twenty-equivalent unit (TEU) container basis of the incremental bunker cost when the market bunker price moves beyond the agreed threshold.
"Masa also wishes to point out that unlike land transport providers (and even manufacturers) who enjoy subsidised fuel, shipping lines do not enjoy such benefits since bunker fuel is not subsidised and are exposed to fluctuations in fuel oil prices," he said.
In the dialogue, the participants had questioned Masa's BAF formula and why shipping lines could not emulate the airline companies, which had done away with the fuel surcharge once the world fuel price went down.
Masa Sarawak representative, James Ong, in responding to the question said based on his own experience the cost for a ship of 500 TEUs to make a one round voyage from Port Klang to Sandakan, which takes about 16 days, is RM750,000.
"Half of the (nine) shipping lines operating in Sabah are making a loss," he said, adding that of the RM750,000 almost 50 per cent was for the BAF, another 10 to 15 per cent for marine cost and port cost, while the rest for charter hire fee paid to the owner.
"So to reduce the BAF would increase the risk for us," he said, adding that Masa was not dictating the BAF or bunker surcharge.
Another trade organisation representative, suggested that the 1Country 1Price, which Imtiaz responded that he would be favourable if it was 1Country, Fair Price.
There was also suggestion that Masa look into the establishment of a Joint-Logistic Council to be chaired jointly by the Deputy Prime Minister and Chief Minister in order to look into all the factors behind the higher cost of goods in Sabah.
ANOTHER proposal put forward to Masa to address the 75 per cent non-revenue container or empty when ships returned from Kota Kinabalu to Port Klang was for its members to look into bigger loop, meaning going to other ports in the region like Philippines and Hong Kong.
The participants were told that Masa was already looking into it although its first venture to the BIMP-EAGA region of Southern Philippines did not go well with the Abu Sayyaf militants among others.
Another destination port that had potential was Ho Chi Minh in Vietnam as it was found that the country's has huge export and less import. Hence the need for more containers at its port.
Masa was looking at paying a call at Ho Chi Minh (after Kota Kinabalu) and discharge its 75 per cent empty containers to capitalise on the country's huge export volume.
However, it would cause more time needed for freights from Kota Kinabalu to reach Port Klang.
Federation of Manufacturers Sabah (FSM) President, Datuk Wong Khen Thau, who had the most questions and suggestions during the dialogue, urged Masa to lobby in support of making Kota Kinabalu as a Hub Port.
Meanwhile, Roselan said the SBCC decided to organise the dialogue because it was aware that many trade organisations in Sabah wanted to talk with Masa.
"So I did this on instruction by SBCC President, Hasnol Ayub Aman," he said. He assured that the SBCC would compile the reports of the dialogue and present it to the State Government.