ABSTRACT

Malaysia's maritime economy can be defined as the production and manner of use of the
range of goods and services that are linked to the maritime sector. The strategies for growth
as enunciated in the Seventh Malaysia Plan (7MP) have major implications for the
management of Malaysia's maritime sector and indirectly, the maritime economy. Amongst
others, the strategies include adopting a global approach to industrialization, maintaining and
enhancing (global) competitiveness and the development of an outward oriented services
sector.

Such a vision is commendable but its achievement requires that the resources of the maritime
economy be utilized in an optimal manner. The onset of the Asian economic crisis has served
to emphasize the important role of the maritime economy as a facilitator of the growth
process. The slowdown has resulted in lower domestic consumption and investment; growth
it is hoped will be forthcoming from the external sector, mainly export growth.

Over the past few decades, the Malaysian economy has been transformed from one based on
the production and export of agricultural and mining products to one that is manufacturing
driven. The future of Malaysia's maritime economy is mainly concerned with the future of
Malaysian trade, since the nation's foreign and even domestic trade are almost completely
dependent on maritime transport facilities.

Beginning with the shipping and port industry and then extending over the entire transport
chain, Malaysia's ultimate goal should be the building of competitive advantage by
minimizing transportation costs to the Malaysian exporter and importer. Malaysian shipping,
for example, should continue to build its competitive advantage and outreach in the oil and
gas industries through strategic partnerships that can provide the sector with marketing
leverage.

In the marine resource sector, the extraction of oil and gas is carried out as an offshore
industry. Natural gas will replace oil as a major foreign exchange earner as natural gas is
widely favoured to be the engine of growth to drive the indusrialization process in the Asian
countries. Marine fisheries have always been important to Malaysia, both as a source of high
quality protein and in the provision of employment opportunities for coastal fishermen. The
challenge here is to sustain the level of fisheries output through careful monitoring and
conservation measures.

The contributions of the marine tourism sector similarly are potentially significant. It is
opportune that the government recognized the need to develop Malaysia's marine assets as
marine tourism has gained popularity both domestically and inter-nationally, especially with
the growth of the cruise shipping industry.

With the growing significance of Malaysia's trade sector, which in turn is inextricably tied up
with the industrial growth policies, the future of Malaysia's maritime economy is good. What
is needed is the realization that the achievement of a developed nation status will materialize
faster if the concepts of constant and never-ending improvement are fully comprehended and
even more important, believed in and practised by all concerned.

INTRODUCTION
From centuries past, the sea has always been important to Malaysia. The Straits of Malacca is
the gateway to the Indian Ocean and Western Europe to the West while the passageway to
Asia through the South China Sea lies to the East. Economic activities have blossomed based
on the maritime sector, which has contributed significantly to Malaysia's economic growth.
In this paper, I will discuss in turn the sectors that comprise Malaysia's maritime economy
and their role in economic development. From there, I will outline proposals for enhancing
the potential contributions of the maritime sector.

Before we focus on the future of Malaysia's maritime economy, let us first broadly define the
meaning of maritime economy. Malaysia's maritime economy refers to the production and
use of the range of goods and services based on the maritime sector. It would thus cover the
activities that are resource based, including fisheries, oil and gas, marine biotechnology and
those that are service based such as shipping ports, shipbuilding and repair and the myriad
range of ancillary maritime services.

The challenges to sustain economic growth for the Malaysian economy are clearly laid out in
the Seventh Malaysia Plan (1996-2000). Three of the challenges facing the nation which have
implications in the management of the maritime sector are:

A global approach to industrialization allowing firms to venture into large-scale operations to

gain scale economies by exporting to world markets.

Maintaining and enhancing competitiveness in the face of changing market preferences

which require reinforcing the nation's competitive foundation and strengthening
infrastructure.

Developing a modern, dynamic and outward-oriented services sector to become a major

catalyst for growth and a potential for the export of services in international trade.

If Malaysia wants to adopt a global approach to industrialization, maintain and enhance

competitiveness and develop an outward-oriented services sector, then we need to focus on
improving the linkages between each of the maritime sectors. Ports and shipping cannot be
developed in isolation but have to be linked with policies for industrial development and
infrastructure development - all coordinated and keeping pace with developments both on a
national and global basis. The priority areas of Malaysia's maritime sector are the port and
shipping sectors, together with the oil and gas sector.

Economic circumstances can change drastically over a short period of time. In early 1997, the
fundamentals of Malaysia continued to remain strong as real GDP growth moderated and
the external balance narrowed. The Government strategy for the
medium term was export oriented and directed at improving
productivity. In 1997, the economy expanded at 7.8%. However,
with the financial turmoil in the region, the full impact of
these developments on the Malaysian economy will only unfold
in 1998 and 1999. Growth of the Malaysian economy in 1998 is
expected to slow down to 2 - 3%. With the slowdown leading to
lower domestic consumption and investment, growth, it is
hoped, will be forthcoming from the external sector, mainly
exports.
Previous episodes of large devaluations such as the Mexico
crisis, the CFA-Franc devaluations in West Africa, and the
Swedish and Italian devaluations in the early to mid-1990s
featured rapid export growth for the three years following the
devaluations and import contraction in the first year after
devaluation, before import growth resumed (WTO, 1998). Such a
scenario may or may not repeat itself in the Asian scene. In
1997, the Malaysian Balance of Payments current account
deficit increased to RM13.1 billion, which is higher than the
deficit recorded in 1996. But as a proportion of GNP, however,
the deficit still remained at 5.1% (BNM, 1998). The Balance of
Payments services account also did not improve in 1997 as had
been expected.

Management of the current account deficit requires a

combination of measures including export promotion, import
reduction and review of projects with high import content. An
effective way would be the reduction or postponement of lumpy
imports. In 1994, lumpy imports amounted to RM7.4 billion. In
1995 it was 7.3 billion and moderated to RM3.9 billion in 1996
(Vijayaledchumy, 1998). The prospects for export-led recovery
for the Malaysian economy appear to be reasonably good.
Malaysia has a good track record as a successful exporter. Its
export growth rate for the period 1992-1996 averaged 16%, much
higher than the world average (Economic Report 1997/98).

MALAYSIA'S MARITIME ECONOMY AND ITS ROLE

A study on the contribution of the maritime sector to the

Malaysian economy was carried out by the Maritime Institute of
Malaysia (MIMA) in 1994. The study found that the maritime
sector contributed 13% of the total value of output to the
economy in 1990 (Abdul Aziz, Jamli and Wong, 1997). About 5%
of this was contributed by the petroleum refineries and other
petroleum and coal products and inland marine related
industries. Excluding these, the sector's contribution
amounted to around 8% only.

The Malaysian manufacturing sector has be-come increasingly

important since 1957, registering rapid growth in the 1970s
and 1980s. From a share of 13.1% of GDP in 1970 it grew to
take up 28.8% in 1992. In 1996, the share amounted to 34%.

Manufacturing has grown in significance as a foreign exchange

earner in line with the government's intention of reducing
Malaysia's dependence on primary exports. From 11.9% share of
exports in 1970 it grew to 69.8% in 1992 (Jomo, 1994) and to
about 80% in 1997.

From a producer and exporter of raw materials for the

industrial economies, Malaysia now exports mainly manufactured
goods, of which electrical and electronic items are
particularly important. The future of Malaysia's maritime
economy is mainly a function of the future of Malaysian trade,
since the nation's foreign trade and even domestic trade
between Peninsular Malaysia and East Malaysia are almost
completely dependent on the availability of maritime transport
facilities. It would not be an exaggeration to say that
perhaps around 90% of the total value of the country's
external trade is shipped by way of maritime transport. In
terms of volume, an even higher proportion would be dependent
on maritime transport (Othman, 1996).

SHIPPING AND PORTS

The shipping industry plays an essential role in the maritime

economy because most of Malaysian exports are manufactured
goods. The aspiration to become a global exporter with the
advantage of economies of scale requires that Malaysia
develops port and shipping services that ensure fast
turnaround for ships, minimum waiting time and high
productivity, all at competitive costs. The Malaysia-Singapore
region is served by almost every major shipping line
connecting this pivotal area to more than 300 ports worldwide.
It forms part of the network of three major liner routes,
namely:

The East-West Transpacific Trade serving N. America - Far East

making up 20% of world trade in 1996.

The East-West Europe - Far East Trade with 13% share of world
trade.

The Intra-Regional Asia Trade with 18% of world trade

(Stopford, 1997).

This region, therefore, has the potential to share in the

benefits of high trade growth both on an intra regional and
interregional basis. But the contribution of the shipping
industry, especially the liner shipping industry cannot be
seen in isolation as a cog in the wheel but as the
indispensable part of an integrated system.

The focus is not just to emphasize creating efficient ports or

efficient shipping but to see the entire system as a chain,
and ports and shipping are vital links in the
trade-shipping-inland transport-port-supporting services
network. A country with such a high dependence on
manufacturing and trade for its economic prosperity has to
manage its transport system with the ultimate goal of
minimizing transport costs to exporters and importers. Then,
manufacturing and trade can become the effective engine of
growth for the Malaysian economy. The maritime economy is an
indispensable part of the entire economic system.

The government has made commendable efforts to improve port

infrastructure, emphasized direct shipments and expansion of
the Malaysian fleet, streamlined regulations and introduced
technical innovations. These are steps in the right direction.
But in a world of constant change, there is a need to keep
pace with competition in the region; this is especially so as
Malaysian ports and Singapore are constantly weighed as
possible alternatives by liner companies.

The government should focus on policies that will create

competitive advantage to shippers. Thus transport planning
should emphasize infrastructural facilities that lead to cost
minimization for exporters and importers such as transport
cities where manufacturers have ease of access to suppliers,
warehousing and storage, and rail and road access is both
convenient and cost effective. Rate increases for tolled
highways must be kept minimal by using construction materials
and maintenance systems that lead to predictable increases
over any given time period. Efficiency levels of Malaysian
service providers have to be monitored constantly and compared
with regional competitors. Even more necessary is consistency
and service quality rather than uneven record-breaking
performances.

LINER SHIPPING

Liner trades in 1997 continued to suffer from declining

freight rates, stiff competition and overcapacity. One of the
major difficulties that the trades face is imbalance in the
cargo utilization levels in the liner trades. Due to the
effects of the currency depreciation, the export trade from
Asia to Europe and North America remains good but the import
trade has excess capacity. For example, in the transpacific
arena, it is estimated that 35% of all containers moving
Westbound are empty. That the liner trades are facing a
cyclical downturn can be shown from MISC's 1997 annual report.
The only liner service to show positive returns was the
Australia service. And even this sector has attracted new
players, creating an overcapacity situation. MISC continues to
add new container-ships, taking delivery of four new
containerships ranging from 350 to 700 TEU in 1997.

In the medium to longer term, we have to bear in mind that the

Intra-Asia trade forms the second largest trade in the world
with 5.1 to 5.3 million TEU per year. Depending on the pace of
economic recovery for the Asian region, this trade could well
become the largest liner trade in the world in the next five
to seven years.

Malaysian shipping should be encouraged to establish itself in

this important trade. Through the operation of a profitable
service, this would assist in the reduction of freight and
services payments. Consumers in Asia predominantly source
their finished goods from other Asian countries. Although
these volumes have slowed, they will recover in the medium
term, as these goods will be cheaper to purchase, locally
rather than overseas where tariffs are often fixed in US
dollars and or other hard currencies. This trade is even
larger than the transpacific trade, as can be seen from Table
1.

Of the two major trades, the transpacific and the Intra Asian
trades, the Intra Asian trades offer Malaysian liner operators
the possibility of incremental involvement. From events that
have been taking place in the major East-West trades, it would
appear that the overcapacity situation in the trades would
continue in the current year. Shipping is a cyclical business
and no doubt the major East-West trades will see recovery with
trade growth and regional economic recovery. However,
Malaysian liner shipping should resist any temptation to
invest heavily in this area as returns on investment are not
known to be attractive under current conditions. In the
Intra-Asia trades, Malaysian liner shipping should consider
strategic alliances with established regional operators to
offer joint services to reduce operational risks offering
point to point shipping services linking the
Malaysia-Singapore region to growth areas in ASEAN and Asia
with the goal of becoming a low cost operator. This would
eventually establish its competitiveness in the trade. The
timing of vessel purchases is another important consideration
for competitive advantage as low cost purchases would confer a
head start.

TANKER AND BULK SHIPPING

The Malaysian tanker sector began experiencing the slowdown in

1996 and 1997. The Asian economic crisis brought down rates
even further and Asian countries have seen oil demand fall
substantially from pre-crisis levels.

For MISC, the major petroleum tanker operator in Malaysia,

there has been a major shift in trading strategy from serving
the traditional domestic markets to serving the international
spot markets.
The smaller Malaysian shipping companies operating tankers may
be more adversely affected if all their earnings are in
ringgit and if they have to meet certain obligations in US
dollars. More likely, however, earnings of Malaysian companies
are in a mixture of currencies. Halim Mazmin, for example, has
indicated that 65% of its earnings are in US dollars and the
remaining 35% in ringgit (Zety, 1998). Although the value of
the ringgit has depreciated, oil companies are unlikely to
agree to any upward revision of tanker charter rates.

In Malaysia, export volumes for palm oil for January to

February 1998 grew by 27.1% while export unit price increased
by 65.3% due to the weaker ringgit. Another commodity that is
expected to perform well this year is LNG. The Malaysian
Institute for Economic Research (MIER) said that in January -
February 1998, revenues from LNG exports surged 50.2% compared
with the same period last year. The export unit price for LNG
is forecast to stay firm at RM650 per tonne in 1998,
moderating to RM560 per tonne in 1999 (Banoo, 1998).

The bulk carrier business of Malaysian shipping is expected to

be difficult for 1998. Industry sources estimate a drop in
revenue by 30% since the middle of last year till the present
time (April 1998). It is understood that MISC would be paying
US$1.575 billion for the five Petronas LNG tankers and US$55
million for the thirty PNSL bulk carriers (Sidhu, 1998). It is
clear that the bulk business requires deep pockets to ensure
continued operations at this time.

CRUISE SHIPPING

The leisure sector of the shipping industry is well developed

in Malaysia. Japan entered this sector in the 1980s when the
major Japanese shipping companies such as NYK operated cruise
services. Now, Malaysia's Star Cruise is rapidly becoming an
important operator in the international sector. Since 1993,
the company has deployed a fleet of six ships carrying some
400,000 passengers annually. The potential in this sector
exists especially for cruises that can cater to the more
discerning tastes of Japanese, Taiwanese and Hong Kong
markets.

There is also the rising middle class of South-east Asian

countries who are beginning to enjoy short regional cruises as
an alternative to the longer overseas trips. The cruise
shipping industry has the potential to earn foreign exchange
for the country because it serves people of many
nationalities. Innovative marketing systems such as the
time-share type of membership could be one way to increase the
load factor on cruise vessels. Tapping the corporate sector to
hold more of their conferences on board cruise ships could be
another.

Indeed, short duration cruises have grown in popularity over

the years although the cruise operators who hope to succeed
must be prepared to provide good on-board sports and
entertainment facilities for the entire family, quality food
and a high steward to passenger ratio. Singapore, for example,
has registered a total of 1,301 cruise ship calls in 1996, 69%
of which or 910 calls were multi-destination calls compared
with 42% in 1995. Of the total passenger throughput of some
794,000, 68% or 540,000 passengers went on such
multi-destination cruises compared with 47% in 1995 (Shipping
Times, 1997).

Again, the cruise industry is one that is more suited to

companies with strong financial positions as they are
expensive to maintain and require comprehensive planning of
on-board activities to sustain the level of bookings.

THE PORT SECTOR IN MALAYSIA

The concerns that are often voiced over Malaysian ports are
whether we have too many ports and whether Malaysian ports are
competitive. Every state wants to build its own port, some
want to build two. Apparently, they can come up with the
justification. The question really is whether the ports allow
shippers to be competitive in export-import activities. If
shipping direct provides firms the competitive advantage, then
that activity contributes to the maritime economy. But if
direct services are not available, cargo should be transhipped
through a Malaysian port that offers such services as far as
is practicable. Third country ports can be used if they offer
competitive advantage to shippers.

Under the Sixth Malaysia Plan, major expansion projects at the

main ports increased port capacity from 120.5 million tonnes
in 1990 to 174.1 million tons in 1995 (7MP). For the Seventh
Malaysia Plan, port development will continue to focus on
expanding capacity, upgrading and increasing equipment as well
as enhancing efficiency of port and port-related services.
Table 2 projects the berths, port capacity and throughput at
Malaysian ports up to the year 2000. Throughput at Port Klang
is expected to more than triple over ten years. Recognizing
the growing prevalence of multi-modalism, the government is
adopting an integrated planning approach to promote
multimodalism and developing a comprehensive range of landside
facilities and services (7MP).

Modern technologies using faster and cheaper construction

methods are being used to accelerate expansion of port
capacities and to contain project costs. These include the
construction of the new port at Ranca-Ranca, Labuan, five
berths at the privatized Tanjung Pelepas Port, the third LNG
terminal in Bintulu Port, a dangerous cargo jetty in Kemaman
Port, development of an additional three berths at West Port
as well as Phase II of the NBCT project (7MP).

It is in the area of containerization that the future of the

Malaysian port sector is especially bright. In 1987, Malaysian
ports handled 461,956 TEU. By 1990 the figure had risen to
881,132 (+90.7%), and to 2.5 million TEU in 1996 (+442% over
1987) (Fossey, 1998). Analysts expect the Peninsular Malaysia
ports of Port Klang, Johor and Penang to move well over 5
million TEUs in the year 2000, although this projection may
now be too optimistic in the light of the current downturn.
Table 3 shows growth of container traffic at major Malaysian
ports. For container traffic the fastest growing ports are
Port Klang, Johor and Kuantan. Table 4 also projects that
container cargo is expected to overtake every other kind of
cargo, at 18.8% growth per annum over the 7MP.

Malaysian ports have met with success in recent years. For

example, Port Klang has attracted new business particularly
from mainline operators serving the European and US trades.
More than 30-operators/consortia offer mainline services
directly to/from the port. Its costs all in are said to be 30%
lower than Singapore and Malaysia's load centring policy has
borne fruit. However, as a study initiated by the Ministry of
Transport (Coopers and Lybrand, 1996) has pointed out,
supporting port services play a crucial role in port
competitiveness. These are in the area of quality of services,
complexity of port legislation and ancillary services.

In an era of global competition, business services, including

port business, come from having efficient services and
marketing leverage. This requires the nation to employ the
resources of the electronic super highway to link up
manufacturing establishments with foreign buyers and providers
of shipping and port services. The Internet should be used as
a tool for marketing leverage to turn Malaysia into an
exporter of much higher profile than what it is today.

In a MIMA study, it was pointed out that cargo represents the

tangible element of trade. Empowering Malaysian ports means
increasing the volume of trade through the ports. Malaysian
port policies need to focus not just on the hardware of
building port capacity but also the software, as it were, of
encouraging terminal operating companies to be more customer
oriented, for example, looking to making arrangements for
exclusive/dedicated terminal services with operators of large
scale liner services.

OIL AND GAS SECTOR

Extraction of oil and gas is carried out as an offshore

industry. The future of this sector of Malaysia's maritime
economy has been good since the pioneering days in the 1970's
with the incorporation of Petronas.

Under the 7MP, the mining sector is expected to grow at 2.3%

per annum. The gas and quarrying subsectors, which expanded
significantly in the 6MP, will continue their momentum in the
7MP period. Export earnings from crude oil for the first seven
months of 1997 declined by 8.6% to RM3,759 million from an
export volume of 8.83 million tonnes (January - July 1996:
RM4,110.9 million from 10.47 million tonnes) (Economic Report
1997/98). Oil prices appear to be on a down trend and domestic
consumption is increasing so the sale and exports of crude oil
is decreasing. For 1997, export earnings are expected to
decline by 1.7% to RM7,090.1 million from earnings of
RM7,211.8 million in 1996 (Economic Report 1997/98). Without
the discovery of major new outfields the medium-term prognosis
for crude oil production and exports will remain stagnant at
best.

On the other hand, the picture for earnings from gas exports
appears much more attractive. During January to July 1997
receipts from LNG rose by 49.7% to RM3,810.2 million (January
- July 1996: RM2,545.3 million) with an export volume of 9.11
million tonnes. Countries representing major importers of
Malaysia's LNG in the first seven months were Japan, Korea and
Taiwan. For 1997 as a whole, export volumes of LNG are
expected to increase by 18.8% in 1997 to 15.6 million tonnes
(1996: 13.13 million tonnes) (Economic Report 1997/98). By the
year 2000, the value of LNG exports is expected to be much
higher, at RM7.6 billion, compared with oil exports of RM5.8
billion (7MP). (See Table 5).

Indeed, natural gas is widely favoured to be the engine of

growth to drive the industrialization process in Asian
countries. The power sector has been the major contributor to
the consumption of natural gas accounting for more than half
the total. There are two good reasons for this:

The growing pressure for a cleaner burning and environmentally

friendly fuel, as gas fired generation is free from ash and
sulphur compounds and has lower levels of carbon dioxide
emissions.
The development of the combined cycles gas turbine (CCGT)
technology, which provides greater thermal efficiency and
shorter installation time frame (A Rahim).

On a global basis, oil consumption is expected to rise by 2%

per year. Malaysian oil demand on the other hand is expected
to grow at 8% per year (Kang, 1997). The immediate challenge
for the oil and gas sector is to manage its way successfully
through a period of excess capacity and to cope with
international pressures for a cleaner environment.

Tapping Malaysia's oil reserves means keeping up with the

advances in technology in oil exploitation. Oil companies are
exploring the feasibility of deep-water wells. Shell, for
example, has pursued this possibility and has brought its
fourth deepwater field into production in 890 metres in the
Gulf of Mexico (Kang, 1997). Other possible technologies and
advances can be transferred to Malaysian oil exploration and
development.

Malaysia is uniquely positioned to take advantage of the oil

and gas transportation requirements. As one of the world's
largest producers of natural gas with ownership of a large LNG
fleet, Petronas and MISC are in a strategic position to cater
to the needs of the Asian region when industrial growth
recovers. Most if not all countries in Asia are involved in or
plan to import natural gas. The challenge to Malaysia is to
find ways to keep pro-duction and distribution costs at
competitive levels.

MARINE TOURISM INDUSTRY

Tourism became the third largest foreign exchange earner for

Malaysia in 1990. Last year in 1997, the performance of the
tourism industry was affected by the prolonged haze in the
Southeast Asian region. The net surplus in the travel account
declined by almost RM1 billion to RM3.5 billion, the first
such decline since 1991 (Bank Negara Malaysia, 1998).

Nevertheless, tourism continues to contribute to government

revenue, generates employment opportunities, and brings
foreign shoppers to Malaysia. In more recent times, the
development of Malaysia's marine assets (e.g. the coastline,
islands, and coral reefs) has subsequently been given priority
by both the government and the private sectors in the country
(Mohd Nizam, 1994). Offshore islands are becoming increasingly
important as tourist destinations. Activities such as sports
fishing, boating and sailing and scuba driving, and ecotourism
have all grown in importance. MIDA reported that in 1993, a
total of RM1.6 billion was invested in hotel and tourism
projects, with nearly 80% of the projects located in coastal
areas and islands. The National Tourism Policy Study, 1992
identified six Primary Tourism development zones with four
having facilities for marine tourism (Mohd Nizam, 1994).

The marine tourism industry has much to contribute to national

economic growth. But to play its role effectively, there is a
need for:

Significant improvement to the availability of data on the

industry as it is difficult to assess the contribution of
marine tourism to the economy.

Preservation of the condition of natural assets for the

industry to be sustained.

Adherence to regulations, especially for activities such as

recreational boating and sailing.

MARINE FISHERIES

Marine fisheries can be classified into inshore and deep-sea

fisheries. The landing of marine fisheries in 1995 was 1.245
mt with a value of RM3.15 billion constituting about 1.47% of
GDP (Tan, 1998). Marine fish landings have shown an increasing
trend from 1988 to 1992 with an annual growth rate of 5.5%
p.a. In terms of value, the annual growth rate is much higher
for the same period at 14.7%. Inshore fisheries operate within
12 miles from the coastline. In 1992, inshore fisheries
contributed 86% of the total marine fish landing, deep-sea
fisheries contributing the remainder (Hashim, 1994).

While inshore fisheries have reached a state of saturation in

terms of exploitation, the declaration of the Exclusive
Economic Zone (EEZ) has enlarged the waters under Malaysian
jurisdiction from 47,000 to 160,000 sq. nautical miles, with a
substantial increase in the fisheries resources. With value
added projected to increase in the 1991 - 2010 period at the
rate of 5.5% per annum, the industry would surpass the
contribution to GDP from rubber and sawn logs (Hashim, 1994).

Sustaining the level of fisheries output will be a challenge.

The exploitation rate of inland and inshore fishing has to be
carefully monitored and conservation measures undertaken to
sustain fisheries resources.

THE FUTURE OF MALAYSIA'S MARITIME ECONOMY: FUTURE DIRECTIONS

AND PERSPECTIVES

Malaysia's maritime economy is an indispensable sector of the

entire economic system. Its macroeconomic performance is
largely influenced by external developments and the capacity
of the economy to quickly adapt and adjust to these
developments. Global competition in trade and services will
intensify as growth slows. The GDP of the industrial countries
as a group is projected to grow more moderately by 4.4% in
1998 (cf. 2.8% in 1997) reflecting slower economic expansion
in the United States and the United Kingdom as well as
continued weak growth in Japan (Bank Negara Malaysia, 1998).

With the economic prospects for the Malaysian economy and the
region being in such a lacklustre state, the performance of
the Malaysian export sector, especially for export oriented
industries has become more crucial. One of the areas that has
been identified as having potential for development into a new
engine of growth is the services sector. In the maritime
sector the "tradable" services would include port, shipping
and ancillary services.

If Malaysia is serious about implementing productivity-driven

growth and reaping the rewards of economies of scale from
global manufacturing, it needs to start with the policies for
maritime sector administration. A segmented and uncoordinated
approach towards the administration of the maritime sector
will result in wastage of time and resources and duplication
of the services of agencies administering the sector. The
desired objective of making Malaysia a maritime nation can be
accelerated if the linkages of each subsector of the maritime
economy can be seen as essentially inter-related and systems
thinking be universally adopted in formulating programmes for
the advancement of the sector.

What is the outlook for Malaysian shipping? The short-term

priorities for the industry should focus on the preservation
of Malaysian shipping. Having invested so much in developing
the shipping sector, Malaysia should not allow the present
austere economic circumstances to decimate the industry.
Shipping companies should be given every encouragement to
merge in the same manner as the banking sector to build up
financial strength and resilience. Cash flow rather than
profitability per se is the concern of many companies.
Shipping being an international industry, shipping companies
not only earn revenues mainly in US dollars but also have to
meet many operating expenses in US dollars. The profitability
of shipping at this time would depend on the percentage of
revenues received in US dollars and whether the company is
basically an international or domestic operator, with the
latter being relatively worse off. Results reported by the
smaller Malaysian shipping companies show that they have been
adversely affected by the Asian crisis.
Combining the resources of Petronas and MISC in production,
marketing and distribution of LNG, LPG, crude petroleum and
products is a step in the right direction. As a premier
producer of gas coupled with an efficient distribution
(shipping) network, Malaysia should aim to be the most cost
effective gas supplier to the ASEAN and Asian regions. A high
capacity gas carrier fleet would confer economies of scale
with the reputation of being a specialist in this field and
thereby setting the stage for even greater marketing successes
to other parts of the world.

In the words of a prominent port operator, the aspirations to

become a maritime nation are linked to the task of planning
the nation's economy (Abdul Samad, 1997). Thus, there is the
need for effective policies that will result in increasing the
size of Malaysian tonnage and the use of this tonnage both by
Malaysian exporters and importers and for cross trading
purposes. Beginning with the public sector bodies, a policy of
exporting c.i.f. and importing f.o.b. is a good beginning to
change trading practices among the community. But it cannot
stop there. To be effective, this has to be linked with
policies that will provide incentives for private sector
consolidators and controllers of cargo, the freight
forwarders, the warehouse operators and the manufacturers to
opt for the use of Malaysian vessels. Although exporting
c.i.f. may be more difficult to implement, Malaysian importers
have more control over cargo and should be encouraged to
nominate Malaysian vessels for carriage of imports wherever
possible. Malaysian shipowners, too, must place priority on
becoming customer focussed and cater to the schedules and
logistics requirements of manufacturing companies, such as
Just-in-Time manufacturing systems.

The government should institute measures to support Malaysian

shipping under the current conditions. Measures should be
taken to reduce the operating costs for Malaysian shipping.
Bunkers traded in Malaysia should be made available by
Petronas and other oil majors in ringgit terms. Spares and any
equipment imported for use on Malaysian ships should be
exempted from duties. Due to the fact that shipowners need to
join alliances due to the high cost of maintaining scheduled
liner services, freight earnings from slot exchange should be
exempted for Malaysian shipowners. The existing circumstances
in the liner-shipping sector require both innovativeness and
flexibility in vessel operations, and the authorities in tax
administration should support these developments.

Instead of purchasing new buildings at this time, Malaysian

owners should be encouraged to avail themselves of the
opportunities available to charter in vessels if they have
cargoes to be moved, as the charter rates for new and
secondhand vessels have substantially declined.

In managing the balance of payments, Malaysia needs to

institute much more precise monitoring of the foreign exchange
implications of shipping investments, as ships, together with
aircraft are highly expensive investments. Shipping consists
of different sub sectors and as such proper and timely
monitoring of the inflows and outflows which have foreign
exchange implications in the form of vessel earnings,
operational expenses and capital gains and losses is needed.
By so doing, it would be possible to structure policies to
provide appropriate incentives to those sectors, which have
greater potential for contributing to the economy. As it is at
the moment, the foreign exchange gains from one sub sector of
the shipping industry may be negated by leakages in the form
of losses made by other sectors of the industry. With such
comprehensive information it would also be possible to
determine the rates of return on investment for each sub
sector over any time period, enabling policy makers to channel
resources towards the most successful shipping sectors.

In the port sector, the major Malaysian ports have great

potential for developing their role as exporters of port
services, and therefore, earning valuable foreign exchange for
the country. What is the unique selling proposition (USP) of
Malaysian ports? Malaysian ports have cheaper tariff
structures when compared to regional competitors such as
Singapore and Hong Kong, yet do not fall far behind in terms
of their performance standards. In trying to build Port Klang
into a regional hub, the government recognizes that a major
priority is in building the port's capacity to concentrate on
cargo.

There is a window of opportunity for Port Klang to achieve its

vision of becoming a regional hub even in the regional crisis.
Port users from the shipping lines to the trading community
will seek new ways to save costs and Port Klang has to rise to
the occasion by addressing not just the issue of cost
competitiveness, but just as important, the question of
service reliability, speed of operations, safety of cargo and
consistent quality service, so essential to all exporters and
importers. With the currency realignments taking place,
shipping operators in ASEAN will be more inclined to shift to
Port Klang if strong efforts are made to expound the
advantages of using Port Klang as a transhipment centre for
the ASEAN and Indian sub continent regions. This requires the
combined efforts of shipping companies, the port terminal
operating companies, the port authority and the shipping
community.

The Minister of Transport took an important step by personally

leading road shows and discussions at Penang and Kuching with
shippers to feeder their containers through Port Klang.
Terminal operators have also been encouraged to carry out
marketing activities in their regional niches. Malaysian
shipping companies should be encouraged to pool their
resources to set up a network of feedering services to and
from Port Klang, as this is an essential requirement if the
calls of mainline vessels are to be sustained. The focus
should be on building up the regional hub status of Port Klang
but the requirements of trade and the competitive status of
the trading community should come before the interests of port
operators. In the case of Penang and Pasir Gudang, direct
shipping services between these ports and East Asia are well
established, and shippers are afforded a competitive advantage
by shipping direct.

Malaysian shippers should be given the most cost effective

options for shipping their cargo, thus in specific cases cargo
transhipped through Singapore should be seen as a plus to the
Malaysian economy, as otherwise the particular transaction may
not have materialized. The frequency of direct services at
Singapore is much higher than at Malaysian ports and this
frequency level is important for Just-in-Time shippers.
Singapore also offers a wider range of shipping destinations.
A study made on the Malaysian port policy has shown that there
is a need to induce a cost advantage for the shipper for
direct shipment of cargo via Port Klang (Robinson and Everett,
1997). Indications are that the shipper bears no extra cost to
feeder cargo via the port of Singapore. By including some cost
advantage in shipping direct this would induce a relative cost
disadvantage to the shipper in feedering to Singapore. The
second important policy is to build cargo volumes at Port
Klang which will have the effect of developing economies of
scale for the port leading to lower per unit costs of
shiphandling and cargo costs, thus making the port even more
attractive to shipping lines and shippers.

For the hub port strategy to succeed, there is a critical need

for Malaysian ports and especially Port Klang terminal
operators to wholeheartedly embrace the powerful dynamics of
marketing leverage. But marketing to be effective has to be on
going. The government has already taken an important step in
establishing the Multimedia Super Corridor (MSC). Being in the
forefront of software and systems development, the government
should encourage the interface between MSC companies, ports,
shipping companies and the trade sector to modernize
marketing, operations and administrative systems.
A study by the WTO on electronic commerce has examined the
potential trade gains from the rapidly increasing use of the
Internet for commercial purposes. In 1991, there were less
than 5 million Internet users. By the turn of the century,
there are likely to be 300 million users. And the value of
electronic commerce is predicted to reach US$300 billion by
that time (World Trade Organization, 1998). Although problems
of electronic commerce still need to be solved, Malaysia has
the infrastructure to maximize the gains on all fronts, from
production to distribution for the benefit of the maritime
economy.

There is a need to upgrade legislation pertaining to the

maritime sector in view of the changes that have taken place
in ports and shipping over the last thirty years. It is
heartening to note that legislation to cover new activities in
the sector such as marine tourism, offshore industry and the
industry's impact on the environment is being examined and
drafted. Malaysia needs to keep track of international
developments and provide facilities that meet international
standards in the maritime sector.

In managing the development of intermodalism in Malaysia, an

illustration of the need for inter agency coordination and
cooperation can be seen. This is an industry that can provide
Malaysian shippers a competitive edge in world export markets.
The ships that provide container services grow ever larger and
require more efficient services at ports. Ports require to
constantly upgrade their cargo handling equipment. But
nationwide EDI systems are still being developed. Road systems
need to be operational when the ports are operational. Toll
charges on road users including container haulage operators
must not be so high as to reduce the competitiveness of
Malaysian exports.

Ancillary services such as bunkering, fresh water supplies,

vessel repair and spare part supplies need to be available at
economical cost and speed in order to make calls at Malaysian
ports attractive to international shipping lines and to
maintain their degree of satisfaction with Malaysian service
providers.

CONCLUSION

If Malaysia is to achieve the goals of industrialization,

productivity-driven growth and enhancing competitiveness, much
will depend on how the maritime sector is managed. The
maritime sector has a major role to play in enhancing
productivity-driven growth. An important element that will
affect efforts to sustain international competitiveness is
productivity.

Through establishing the proper management information systems

for the contributions from the transport sector and using this
information to guide external sector management, the correct
incentives and policies can be introduced in managing the
maritime sector.

Malaysia was ranked 37 out of 43 countries by the World

Competitiveness Report in terms of research and development.
Not only is product research lacking but also research on
trade competitiveness, transport sector management and the
meeting of global marketing challenges. A good start has been
made with the MSC, which will help in the transformation of
the economy from an "input-driven" mode to a
"productivity-driven" mode. Undoubtedly, new technology and
investment can raise the total factor productivity of
manufacturing, services and other sectors of the economy,
including the maritime sector.

What is needed is the political will to effect a change to

systems-centred thinking in planning the future of the
maritime economy.

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