US government to intervene in shipping sector. Shouldn’t ours do the same?
Since 2020, shipping container prices worldwide have surged past normalcy, spurred by the high volume of online purchases as well as restrictions placed on port authorities due in part to the Covid-19 pandemic lockdowns sanctioned around the world.
This has affected not only the Malaysian logistics industry, but a multitude of global corporations and commerce lines including ports, cargo shippers and small businesses.
As of February this year, the freight rates have skyrocketed to a historic level of between US$6,000 and US$10,000 per container compared to US$55 to US$300 per container before the pandemic.
Recently however, the US government administration championed under its current President, Joe Biden, have announced that an executive order for a government intervention into several supply chain sectors will be passed down sometime this July.
According to Freight Right, this decision comes after many months of sky-high rates, port congestion, and weeks of cargo delays that have put excessive pressure on US shippers and consumers.
“Exporters, in particular, have been looking to regulators for help as carriers pass up their cargo in their haste to get empty containers back to China for much more lucrative Chinese exports,” the website wrote.
The Wall Street Journal wrote that according to a person familiar with the situation, the Biden administration will push regulators to confront consolidation and perceived anticompetitive pricing in the ocean shipping and railroad industries as part of a broad effort to blunt the power of big business to dominate industries.
“The administration, in a sweeping executive order expected in early July, will ask the Federal Maritime Commission and the Surface Transportation Board to combat what it calls a pattern of consolidation and aggressive pricing that has made it onerously expensive for American companies to transport goods to market. The administration says the relatively small number of major players in the ocean-shipping trade and in the US freight rail business has enabled companies to charge unreasonable fees,” the article said.
Despite this government intervention, there are industry parties that feel Biden’s intervention is too little to amend the immediate situation.
According to More Than Shipping.com, a shipping industry news portal, the intentions laid out by the Biden administration appears to point to infrastructure improvements – and whilst such would be beneficial, they will take years to implement and hence not be of assistance in the immediate situation.
But the discussion remains, the US government is intervening in an industry that is raising a white flag and asking for assistance. Shouldn’t the Malaysian government be doing the same thing?
After months of high freight costs, ports functioning at a fraction of their normal workforce and cargo companies bypassing our ports because of the long delays, shipping councils like the Malaysian National Shippers Council (MNSC) have been forced to ask the Malaysian government to intervene.
According to Focus Malaysia, from as early as 2020, the MNSC had come out with a statement requesting for government intervention.
“Our businesses are affected badly due to containers shortage and the government must intervene to resolve the matter,” MNSC said in the article.
This comes after Asia had been hit hard due to container and vessel capacity shortage due to the Covid-19 pandemic, which is now causing serious problems for importers and exporters, as well as the logistics industry.
According to Datuk Andy Seo, Chairman of the MNSC, the container and space shortage on board shipping lines during the second half of the year (2H 2020) has led to the increased container freight rates for both export and import shipments, between 300% and 400%.
“Following our discussions with the Shipping Association of Malaysia (SAM) and individual shipping lines, we were told that the container shortage issue is due to the economic recovery in China. Chinese exporters are willing to pay premium rates to secure containers and space, attracting shipping lines to move their inventory there to cater for the soaring demand. Plus, large volumes of cargoes are sent from China to North America for Christmas businesses since September (2020),” he said.
He added, “as a result, Malaysia is badly affected by the shortage of containers and space to meet shippers’ demands. The problem was also compounded when 19 shipping lines reduced the number of vessels and demand due to the first wave of the pandemic. And due to low demand, coupled with the inability to collect empty containers in countries that have imposed movement control restrictions, has led to a backlog of demand across North Asia. To fulfil our contractual obligation and continue production, shippers have no choice but to purchase containers at higher prices. And we are concerned that the skyrocketing shipping costs will be passed to consumers, which will increase cost of living in these touch times,” Seo said in the article.
Providing suggestions to the government , Seo added that this problem is expected to persist during the holiday peak seasons and that the government needs to step in and request shipping lines to increase capacity and allocate equipment to the more critical trade lanes, where rates are soaring.
“This measure will discourage liners from skipping port calls to move to the more lucrative transpacific lanes. My suggestion is nothing new as the US Federal Maritime Commission and South Korean Authority have done the same,” Seo suggested.
He added to Focus Malaysia that the government should also offer more tax incentives such as rebates and double tax deductions to enable exporters to pay premium rates, which will enable them to compete with international exporters.
“And please remove the cap of 30% of total logistics costs for export subject to a maximum of RM15,000 per shipment from the current conditions, under the temporary relief granted through Market Development Grant (MDG) for the reimbursement of logistics costs including the cost of transportation, warehousing and freight. MDG funding must be expanded to allow importers to claim reimbursement of the logistics costs for import shipments,” Seo added.
With requests and suggestions from Malaysian industry council members and the US government as well as the South Korean Authority being able to intervene in their local shipping industries respectively, shouldn’t the Malaysian government be able to do the same?