Enhancing the Contribution of the Shipping Sector to Malaysia’s Economy :

A Ship Owner’s Perspective

By Capt Johari Mohd Noh

Gagasan Carriers Sdn. Bhd.

Contents

• Malaysian Shipping

– The stakeholders

– The Malaysian Fleet

• Contribution to the Malaysian Economy

• The Current State of Shipping and the impact on the Ship Owners

• How can we contribute more?

• Wish List

Malaysian Shipping

The Stakeholders

Category Stakeholders Remarks

Income Charterers, Cargo Interests

Voyage Costs (Variable Costs, Costs of Sale)

Brokers, Ports, ware houses, tank installations, agents, tug boats, pilots, bunker suppliers

Running Costs Crew (Seamen), Spare parts and Stores suppliers, maintenance and repair services providers, insurances, shipyards, Class

Finances Banks, Venture Capitals, Financiers

Administration Costs Managers, Superintendents, Engineers

Others IRS Maritime training institutions

Owners of offshore vessels operating in Oil and gas sector are still paying tax.

Growth of the Malaysian Fleet Year No of

Ships

Increase/ (Decrease)

%

Gross Tonnage

Increase/ (Decrease)

%

2005 3,658 7,189,240

2006 3,878 6.0 7,836,060 9.0

2007 4,291 10.6 9,925,703 26.6

2008 4,452 3.8 10,269,251 3.4

2009 4,677 5.1 11,193,951 9.0

2010 4,466 (4.5) 10,532,465 -5.9

2011 5,145 15.2 11,501,759 9.2

Note: include

unmanned barges

12,000,000

10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

GROWTH OF MALAYSIAN MERCHANT FLEET ( GRT ) 1970 – 2010

The Growth of Malaysian Fleet

• The growth of Malaysian fleet (in term of Gross Tonnage) was phenomenal since 1970s but has stagnated since 2009

• The growth was assisted by government’s fiscal and legislative measures including tax incentives and the introduction of cabotage policy in 1980.

• Malaysia was ranked top 25 maritime countries in the world (UNCTAD Maritime Review 2010)

• Sale of MISC Bhd. dry bulkers and now, the container fleet, has removed substantial tonnage from the Malaysian Fleet

• The current global shipping downturn has and will continue to affect growth.

Contribution to the Malaysian Economy

MALAYSIAN EXTERNAL TRADE ( RM BILLION )

Source: Bank Negara Malaysia

RM

bill

ion

1600

1400

1200

1000

800

600

400

200

0

1980 1995 2000 2005 2006 2007 2008 2009 2010 2011

Export 22.7 194. 358. 494. 539. 574. 594. 508. 608. 636.

Import 28.0 185 427 613. 669. 706. 766. 655. 745. 781.

Transportation Account of Balance of Payments (RM Million)

Year inflow Outflow Total Transportation

Net

1999 9,471 17,935 27,406 -8,464

2000 10,646 22,385 33,028 -11,736

2001 10,443 21,795 10,465 -10,421

2002 10,847 22,419 33,266 -11,572

2003 10,615 24,101 34,716 -13,486

2004 12,147 29,692 41,839 -17,545

2005 15,807 31,687 47,494 -15,880

2006 15,217 34,948 50,165 -19,731

2007 24,548 37,581 62,129 -13,033

2008 22,509 37,938 60,447 -15,429

2009 15,518 32,551 48,069 -17,033

2010 15,096 38,248 53,343 -23,153

2011 15,959 40,421 56,380 -24,462 Source:MASA

MALAYSIA : OUTFLOW AND INFLOW OF TRANSPORTATION ACCOUNT 1999 – 2001 ( RM BILLION )

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010 2011

*

Sh

are

(%

)

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Outflow 18 22 21.7 22.4 24.1 29.6 31.6 34.9 37.5 37.9 32.5 38.4 40.4

Inflow 9.47 10.6 10.4 10.8 10.6 12.1 15.8 15.2 24.5 22.5 15.5 15.1 15.9

Source:MASA

Malaysian Fleet contribution to the Malaysian Trade

• Malaysia is highly depended on its external trade. It is therefore extremely dependent on shipping services.

• Sabah/Sarawak are separated from Peninsular by sea and shipping provides the link.

• Transportation cost is about 4% of the Malaysian external trade

• Deficits - Over 70% of the transportation costs are carried on foreign flag vessels

• Security issues – Transportation of energy products. • The growth of Malaysian fleet will mitigate deficits and

increase contributions in service sector

Current State of Shipping

Tanker market trend

Bulk carriers market trend

Product Tankers Market Trend

Bunker Prices Trend 1 year

Current state of Shipping The Market

• Poor freight market condition Over supply of vessels

Poor demand Political and economic instability – Iranian factor, weak economy of EU/US

• High Bunkers Costs • Weak US Dollars versus RM • High Assets Costs • Rising Operational Costs Crew wages Luboils Port Costs

• Uneven playing fields – Some countries (e.g. China and South Korea) provide bailouts and subsidies to protect their own shipping industry. Negative impacts to other ship owners.

Current State of Shipping Other Issues and Challenges

• Highly regulated - Stringent port state control

- New IMO regulations - ILO - STCW - Ballast Water management System - Charterers stringent requirements especially in the oil and gas industry

• Financing problems – banks reluctant to finance due to -poor market sentiments

-absence of long term contracts -high volatility of the shipping market / shipping is a high risk business -for conventional vessels – return does not justify investment

• Human Capital - shortage of technical employees for both offshore and shore.

Impact on Ship Owners

Since 2008, most ship owners are suffering from

• Low revenues

• High operating costs

• High financing costs

• Cash flow problems

• The ship owners are consolidating – pooling arrangements, mergers, take overs or simply disappear

Is there a silver lining?

• The industry is consolidating naturally - Less number of players

- Pooling arrangement - Mergers - Increase scrapping

- Substantially reduced number of new ships orders

• Demand is slowly increasing while supply of ships is shrinking, albeit slowly in certain sector. Eventually, supply will match demand.

• Malaysian Economy is vibrant - many projects in the pipeline

• My advice - Hang on!

How can the Ship Owners increase their contributions towards the Malaysian economy?

• Expansion of Malaysian fleet will help to reduce deficits in the services account

• Fiscal and Legislative measures - tax exemptions, especially for the offshore vessels - cabotage Policy

• Financing

• Human Capital - expansion of maritime training institute and colleges, attract more candidate - more professionals for offshore and offshore, avoid brain drain - provision of more ship berths to train cadets - training ships

• Development and increase in logistics and supply chain related services

- bunkering services - repair and maintenance facilities - better infra structures i.e. port facilities, shipyard repair facilities

Wish List

• To survive and compete against other players who are having subsidies from their governments, Malaysia to provide similar incentives.

• Banks to be more understanding. Allow restructuring

Shipping market is cyclical – the best time to invest is now.

Understandably the financial books of some companies are not that interesting but this should not be a hindrance to provide financing if the project is sound

• Our GLCs should emulate their Chinese, Korean and the Japanese counterparts. Preference to use local tonnage.

• Availability of good quality crew