Although Shipping is an internationally competitive business, the Cost of Management, Administration and Operations are mainly determined by the country of registration and operation. In terms of gross tonnage (GRT), we are now number three in South East Asia, losing to Singapore by 570 percent and Indonesia has overtaken us to be number two. We only have one (1) major shipping company in this country. Should this company be sold, we will lose over 40% of our national GRT causing us to drop below the Philippines to number four within the ASEAN ranking. Generally, Malaysian ship owners are not doing well, more so since the downturn of 2008.

challeging year ahead for shipmanagerSpecial thanks should be given to the Malaysian Government for its initiatives in creating a special task force and providing incentives in terms of not imposing additional Goods and Services Tax (GST) – implemented in April 2015 in Malaysia nationwide – for the movement of local cargoes and also export-based cargoes from one place to another, especially for cargoes that are in transshipment and packed into containers.

One of the objective for this is to enhance local business competitiveness vis-à-vis external forces (especially compared to Singapore in terms of shipping business sector), as well as international trading vessels that face open competition. All services related to the vessels and supplies provided are GST exempted. However, according to the latest “GST Guide on Shipping Industries” (drafted on 24 March 2014 by Royal Malaysian Customs), only a few incentives are given to shipowners that trade between Sabah/Sarawak and Peninsular Malaysia, having stopovers at Singapore or Indonesia between voyages, to encourage Malaysia as an attractive place for business activities in any part of Malaysia, either Sabah/Sarawak or Peninsular Malaysia. The point of contention here is, if the vessel is trading between Sabah/Sarawak and Peninsular Malaysia, with stopovers at Thailand or other places (not commonly mentioned are Vietnam, Cambodia or Philippines), it is not clearly mentioned in the shipping guide for GST implementation.

There always exists a gap of knowledge between implementers, the public (layman) and the professionals. Implementers are always looking at issues differently from the professionals.

For example, GST is zero-rated on all the supplies or services rendered to the vessel if the vessel is trading between Sabah/Sarawak and Peninsular Malaysia with stopover at Singapore, for example. The liner service has its own business pattern and calling port rotations. A container carrier, for example, has a fixed route and fixed timings of calling at ports in scheduled rotation. If this vessel takes bunkers (fuel or lubricating oil) at its calling port of Port Kelang, then proceeds to Port of Tanjung Pelepas and then onwards to Singapore and eventually en-route to Sabah/Sarawak, it is supposed to be entitled for zero-rating on all the supplies or services rendered onboard.

However, the current practice by the published shipping guide is distorted due to reference to “next port of call” – if it is outside Malaysia, then the vessel is exempted from the GST tax. In the case quoted, it needs to pay additional cost on GST since the next port of call is within Malaysia, even though she is calling at an international port in the next subsequent port rotation. We feel that this is very wrong and is a misleading practice adopted by the shipping agent, ship vendors and the implementers who are unable to understand the nature of shipping business in depth.

For many long years (even before the Merchant Shipping Ordinance 1952 was drafted), there existed only two types of shipping business practice within the industry, which is tramp or liner services. Liner service is peculiar to container, car or passenger carriers which call at ports at a fixed time and with a fixed schedule. On the other hand, the tramp service does not have any fixed port calls and schedule. Examples are voyage chartered oil tankers and bulk carriers. For this type of business, the vessel is trading by referring to the commencement of the voyage or the end of voyage, having an opportunity to call at foreign ports, for example Indonesia or Singapore. They are regarded as “international plying” vessels and enjoy GST exemption.

gstAs GST is implemented within the shipping industry, there are other teething issues -such as how to categorise spares in-transit to the vessel and next port of call, if the vessel is engaged in the tramp business, whilst it is awaiting for instructions for next destination cargo. The verification process should be as simple and as practical as possible to avoid leakages and creating many loopholes for opportunists to circumvent the policy. We need to learn from our neighboring country on this implementation process, which is a very simple process of having a stamp on the delivery notes that permits exemption of shipowners from paying GST. The whole system is working efficiently and effectively, unlike ours.

We urge those concerned to imitate our successful neighbouring countries. Let us take advantage of our unique position. Do a “SWOT (Strength, Weakness, Opportunity and Threat” analysis ourselves. Malaysia’s shipping landscape has changed from one of globally-focused, to that of locally/regionally-focused. Our products and produce are mainly sold FOB (Free On Board) wherein we are no longer in control of the shipping component, unlike in CIF (Cost, Insurance and Freight). To survive we need to compete in pricing and efficiency. The existing protection mechanism, such as the Cabotage Policy, requires improvement.

Various local initiatives have been undertaken to realize Malaysia as a business-friendly country, proud of its maritime services. Previously, the vision was of Malaysia becoming a Maritime Shipping Hub and presenting a competitive business edge within Asean Countries. Why is it that, after many incentives having been offered over many years, the result and success is still hardly seen? Where is the failure?

It always falls back to management, the direction of the company’s business strategies, the lopsided policies and many failures of implementation. Overall, Malaysia’s shipowning companies are not performing well. Various mixed speculations and standard reasons have been explained to the shareholders at the end of their financial reports. When the crude oil price was ascending sky high in year 2008 (at USD148/barrel), all shipping companies screamed foul due to the high bunker costs that directly affected operating cost of charterers.

Bonny-Light-Crude-OilHowever, when the crude oil is at its low end, the shipping industry is, now, facing a stiff challenge relating to oversupply of vessels’ tonnage and a slump in business activities or slow movement on cargoes, causing low profit margins being realised. In the open competition business world, stronger companies will win and dominate the whole industry. Examples are the closing of Hub Shipping’s container service, our national carrier, MISC’s shut down of its container division as well as Geniki Line’s. Who will be the king of local container players, then?
Many say that handling of ship management services will only be successful if the shipowner is willing to spend a reasonable sum and having their business on a sustainable basis. The shipmanager is only acting as intermediaries for the shipowner. We have seen some cases whereby the shipowner exercises a rather tight control on costing, to the extent of ignoring safety and operated the vessels with high risks. We, as a third party ship manager (in which we are yet to own any vessels currently), have gone through all difficult times since our company was established till today. It has been almost eight years since we commenced business. To handle a merchant ship’s management, in terms of technical and crewing management, is “simple” by theory or principle, i.e. to operate the system with a very lean cost and also to expand business activities by having more ships to handle. That is always the objective of a ship managers’ company. We need to work hand-in-hand with sound, competent and deliverable ship’s crews for sure. That is our business strength.

Unfortunately, we have too many seafarers’ training institutions mushrooming all over. Since late 2000 there emerges Univerisiti Kuala Lumpur (UniKL), the Netherlands Maritime Institute of Technology (NMIT), Ranaco Marine, etc. Previously, we only had Akademi Laut Malaysia (ALAM), Universiti Teknologi Malaysia (UTM) and Ungku Omar Polytechnic (PUO) as the pioneer seafarers’ training institutions. Currently, we rarely notice many committed and competent local seafarers engaged on board local ships for a long term. The industry is normally flooded by seafarers from Indonesia, Bangladesh, Myanmar or the Philippines.

With the forthcoming implementation of ballast water management (BWM) plan, likely to be enforced in year 2017 or later (the convention still lacks 2-3% of world tonnage signatories for achieving the minimum quota), there will be another added burden for shipowners in their desperate attempt to remain sustainable in the shipping business. The capital cost of investment is huge – estimated indicative installation of equipment costs itself may reach USD800k for one handy-sized, moderate BWM system. This is almost equal to the cost of one dry-docking expenses. The shipowner needs to fork out double-payments in this case, thus, causing serious financial issues for the shipowner.
Eventually, the additional cost will be transferred to and be borne by end users of the shipments, for sure. Finally, the entire additional expenses will be parked at the shipment point of the material. What is emerging in the world of shipping business is the fact that it will be dominated by the bigger shipowners. Small shipowners will be losing competitiveness due to escalating costs.

The latest amendments to the Standard of Training Certification and Watchkeeping for Seafarers (STCW 2010 Manila Amendments) will come into force by 1st January 2017. It introduced new training requirements for certificate holders, with a more stringent and structured manner, especially on the use of technology and electronic safety gadgets. Therefore, that will be a cost incurred by shipowners. We do expect some surge of seafarer supply and demand within the transitional implementation period. The challenging task here is to set up proper and advanced training facilities able to train seafarers in modern technology, such as electronic charts display information systems (ECDIS). Although part of the seafarers’ training and certificate renewal cost is not directly paid by shipowners, the bottom line is that shipowners will have to bear payment of higher crew wages due to scarcity of qualified and well trained seafarers available in the market.

The maritime regulatory agency should evolve a closer relationship with the shipowners association, MASA (Malaysia Shipowners’ Association), to collate all relevant data aimed towards assisting local shipping companies to perform with the utmost successful result in this unique business and able to continue their sustainability in the long term. It should adopt an approach of facilitating the shipping industry to be the vibrant prime mover in spurring the economic growth for the whole country. If the maritime authority is unable to defend the rights of local seafarers and shipowners, who else will?

Removal of the tax relief to the shipping business in 2016 for international shipping may result in it being more cost effective to register vessels in a tax-friendly country. There exist very few suitable Malaysian-registered Dry Bulk and Chemical vessels available to capture this business segment. These large ships are very costly and are highly capital intensive. We may need another national shipping company to take up these sectors since the existing national line is not focusing on same.

Global energy shipping, in financial terms, is not supportive of local shipping business. Currently, loan facilities require long term contract, which may be available during good economic times, but, this happens when the price of vessels are also high causing a disadvantage in price competition and higher vessel depreciation. Loan facilities to support “Asset Play” and interest rates should be compatible with competing nations. A longer loan tenure, to match the useable age of vessels, should be considered. Payment moratorium and government assistance is critically necessary during periods of shipping down turn, as it is now, to ameliorate the difficult period.

Prepared by,
YONG KH et al.

The main author is an ex-marine chief engineer, graduated from PUO (1989-1993). Currently he is pursuing his DBA, expecting completion in year 2016. He is a MBA holder from the University Utara Malaysia (2000-2012) as well as Class 1 Certificate of Competency (CoC) [Unlimited] holder since year 2000. He has been attached to ship management company, Marine & Offshore Solution S/B (MarOff), since year 2007 till present. He may be contacted at: yong@maroff.com.my