Malaysia as a maritime nation: Punching above its weight
The tremendous growth of shipping activities in Malaysia over the years underlines the value of the maritime sector to its economic well-being and the importance of the seas to the lives of its people. Malaysia has emerged as a leading maritime nation in terms of merchant shipping capacity, contributing 1.05 percent or 11.56 million DWT to the global merchant fleet capacity as of January 1, 2009.
The United Nations Conference on Trade and Development (UNCTAD) ranked Malaysia 21st in a list of 35 most important maritime countries and territories as of January 1, 2009, in terms of deadweight tonnage (DWT) of its merchant vessels (including national and foreign flagged).
Malaysia's national shipping line, MISC, is a major player in global energy transport and is the world's largest owner/operator of LNG tankers.
Port Klang and the Port of Tanjung Pelepas were ranked sixteenth and eighteenth respectively among the world's top container ports by way of throughput in 2008 by Containerisation International.
In addition to this, Bintulu Port is the world's largest export terminal for LNG and Johor Port boasts the world's largest palm oil storage facility.
The phenomenal growth in global trade in recent decades has had a huge impact in the development of the maritime infrastructure in Malaysia to support its increasing trade with the world's nations. The shipping sector has especially benefited tremendously from the nation's trade boom. Underlining the maritime sector's importance to the nation, an estimated 95 percent of Malaysia's international trades are transported by ocean-going vessels (Malaysian Shipowners Association, 2008).
Shipping is therefore a vital facilitator of Malaysia's trade, hence crucial to its economic prosperity. Demand for shipping services in the country is rising fast, in tandem with its growing trade. Malaysia is now in the league of the largest trading nations in the world, as evidenced by its ranking by World Trade Organisation as the twenty-first largest exporter of merchandise trades and the twenty-eighth largest importer of merchandise trades in 2008. This is a remarkable achievement for a country whose economic growth was largely powered by commodities and agriculture only three decades ago.
Malaysia's shipbuilding industry
Despite its stature as a maritime nation, it has been a matter of concern for the government and stakeholders in the local shipping industry that the level of national merchant shipping tonnage leaves much to be desired. There is a mismatch between growing demand for shipping services in the country and its increasing volume of maritime trade with the available capacity of local tonnage.
According to the Malaysian Shipowners Association, an estimated 85 percent of the nation's international trade is carried in whole or part by foreign-flagged ships, causing a huge outflow of payments for foreign shipping services.
This situation inevitably puts the spotlight on the adequacy of the shipbuilding sector to provide the tonnage to support the nation's ever-growing trade volumes. The shipbuilding industry has been identified as a crucial sector to support the development of the country's shipping sector and the growth of its trade. Given that Malaysia has set an ambitious target to achieve long-term industrial competitiveness on a global basis through the transformation and innovation of its manufacturing and services sectors, industries such as shipbuilding must come to the fore to help the country to attain global competitiveness.
The shipbuilding industry in Malaysia provides the backbone for the development of merchant shipping in Malaysia. Developing adequate tonnage in merchant shipping is a matter of national importance as 80 percent of Malaysia's international trade depends on seaborne transport, and the nation depends on foreign-built vessels to carry much of its trade.
The industry is also an important source of employment and provides a platform on which skills in various activities such as naval architecture, engineering, welding and fabrication, are developed. Additionally, it also has extensive linkages with many other industries such as steel, glass, logistics, storage, bulk-breaking of goods, and services such as port services, financing, insurance and consultancy.
In the Third Industrial Master Plan 2006-2020 (IMP3), the shipbuilding industry in Malaysia is identified as a strategic industry by the Malaysian government. However, local shipyards in general, have limited shipbuilding and ship repairing capabilities, mostly specialising in low-value and small vessels. Local yards are confronted with many issues, including lack of qualified personnel, high operational costs, and face stiff competition from shipyards in countries such as Vietnam and Thailand that offer low labour costs.
To boost its growth and development, the IMP3 has outlined several strategic thrust for the Malaysian shipbuilding industry:
The number of shipyards in Malaysia with manufacturing licenses has grown over the years, but the industry in general is fragmented and the majority of the players are small shipyards which are labour-intensive and operate on a small-scale basis, building vessels mainly for the local market and for use in the shallow waters.
Reputable local yards are capable of building and servicing vessels of considerable size. Some can build patrol vessels, OSVs, passenger vessels and leisure craft for the export market, producing reliable vessels at very competitive costs. Large fabricators can build specialised vessels such as FPSO and provide high-end services for the offshore oil and gas sector. However, local orders for larger and more sophisticated vessels are still placed with foreign shipyards which have the capacity and are technically more adept at building such vessels.
Challenges faced by Malaysian shipyards
As mentioned earlier, local tonnage in certain shipping trades such as container and palm oil is still insufficient to support the nation's growing trade. It is therefore not surprising that the Domestic Shipping Licensing Board under the Ministry of Transport Malaysia has to give exemption to foreign shipowners to serve domestic trades despite Malaysia having a cabotage policy in place.
This situation arises partly due to the inability of local shipyards to cater to the demand for vessels servicing those trades. This stems from their technical and capacity limitations to build big, sophisticated ocean going vessels. Labour-intensive and inefficient shipbuilding methods and processes deployed at many local yards render them uncompetitive and inhibit the production of high quality vessels.
At small yards, welding techniques and processes are still done manually or with semi-automated machines. Launching of vessels using pressurised rubber rollers or steel pipes without a need to build dry dock, and slipways are widely used to lower costs. These prevent small local yards from undertaking more ambitious jobs and from expanding their business.
Most local shipyards do not have the capacity to undertake the construction, repair and maintenance of large and technically challenging vessels. Due to the limitation of local yards to build and service bigger vessels, many local shipowners order ships from shipyards abroad and prefer their vessels to be repaired and maintained there. Many regional yards are now capable of offering products and services at highly competitive costs, hence posing a threat to Malaysian shipyards.
This creates a cycle from which players in the marine industry have found difficult to escape. Lacking in lucrative and sustained orders, many local shipyards see no point in investing on capacity, technology and manpower. This erodes their competitiveness, hence discourages local shipowners to commission local yards to build and repair their vessels.
Malaysia also lacks strength and depth in the ship machinery manufacturing and servicing sector, especially in original design and manufacturing. In certain instances, the cost of locally made ships could be higher compared with ships purchased from abroad due to the higher cost of imported materials such as steel plates and other major equipment and components. For example, certain types of steel plates have to be imported by local shipyards as local steel mills are not capable of producing these materials in the quantity and quality required for certain types of vessels. In the case of aluminum plates, most, if not all, are fully imported.
The same goes with major onboard equipment such as big-capacity main engines, generator sets and gear boxes which have to be brought in by local agents and suppliers. The equipment that are locally manufactured and produced are less sophisticated ones such as small propellers, simple anchor and mooring windlasses, towing winches, main switch boards, control panels and fire doors. Due to the small domestic market and lack of economies of scale, Malaysian made ranges of onboard equipment are not competitive compared to manufacturers from huge countries like China.
There are also very few local ship designers in Malaysia. Most local ship designers are located in Sibu and they only cater for the local needs for small, simple boats. Due to the lack of local designers, most local shipyards procure designs from designers based in Singapore, Australia or Canada. Although some yards have in-house design offices, they mostly produce only simple shop drawings for internal use.
Silver line on the horizon
Despite these, there are bright prospects for Malaysian shipyards in several segments in the shipping trade. For example, there is a high demand for new vessels in the OSV sector thanks to the spate of exploration and production activities in offshore oil and gas sites, especially in the deep waters off the coasts of Sabah and Sarawak.
These projects are poised to generate a high demand for various types of offshore vessels. The growing popularity of marine tourism will also see growing demand in leisure craft such as yachts, catamarans, sailboats and passenger vessels which some local yards are capable of building. The demand for these vessels and shipping services also provides opportunities not only for shipyards but for equipment manufacturers and maritime support services providers alike.
Players in the shipbuilding industry should look at the disadvantages and the shortage of local shipping tonnage as presenting a great opportunity for them to reap. Local shipyards have to improve the product and service offerings to convince shipowners that they are capable of building quality vessels and servicing them at competitive rates and fast turnaround time. The onus is on the yards to increase their efficiency and productivity and put in place well-trained and skilled manpower to enhance their competitiveness and product/service offerings.
As the shipbuilding industry is crucial to facilitating the growth of trade and economic development in Malaysia, it is essential that efforts are made to bolster the capacity and performance of the sector by way of learning from the successful experience of leading shipbuilding nations. All the stakeholders in the shipbuilding industry, including policymakers, financiers, manufacturers, service providers, shipowners and shippers must close ranks to support local shipyards and spur the development of the industry.
With more incentives, strong institutional support and well thought-out policies to boost the development and growth of the industry, shipbuilding can indeed play a key role in helping Malaysia fulfill its ambition of becoming a competitive trading and maritime nation.
