IN March 2024, the Federal Transport Minister, Anthony Loke announced that the Malaysia’s National Load Centre policy (‘NLC’) will be abolished. Established in 1993, the NLC was designed to centralise all domestic and international shipping routes and cargo services in Port Klang. 

The effect of this ensured that shipping cargo had to land at Port Klang first before it could be sent to other Malaysian ports. The NLC effectively gave Port Klang an unfair advantage over other Malaysian ports including the Sepanggar container port in Sabah (‘Sepanggar’). 

The NLC’s abolition impacts cargo imports by permitting foreign shipping lines to land directly at any Malaysian port, symbolising a partial liberalisation of Malaysian shipping industry requirements. 

Such partial liberalisation is designed to decentralise international shipping routes, enabling international shipping liners a choice of which Malaysian port they wish to land. 

Some commentators have argued that this was the correct move – decentralisation and liberalisation must be a good thing, surely? But a closer examination reveals an inherent policy bias against Sabah’s interests, impacting again the state’s high cost of living and the viability of its shipping  and container port industries.

Sepanggar was Proposed as a National Load Centre

Since at least 2017, there were calls to designate Sepanggar as a second national load centre as part of an overall policy initiative to revitalise Sabah’s flailing industrial sector  and to bring down overall costs. Other aspects of this initiative were to abolish cabotage and resist Block Exemption Orders which, effectively permit Malayan shipping liners to form cartels, fix prices and dominate the Semenanjung-Sabah route.  

Additionally in 2021, and in anticipation of greater future economic activity, it was announced that Sepanggar will undergo a RM900 million expansion of its container port facilities. This would increased Sepanggar’s viability as a national load centre.

The rationale behind designating Sepanggar as a second national load centre is this: Sabah manufacturers complained then that they could not access direct international shipping routes because of the NLC. The NLC meant that Sabah goods must first go to Port Klang and then overseas. 

This resulted in increased costs due to “double handling” charges. The onward effect of the NLC on Sabah’s manufacturing and value adding industries are two-fold. 

First Sabah goods are pricier and less competitive. Second, less competitive products due to higher shipping and freight costs have a deterrent effect on future investment in Sabah’s industrial sector. A truly binary economic death spiral.

If Sepanggar was granted national load centre status, then Sabah could have directly accessed international shipping routes without having to go through Port Klang. However, this alone would not have been enough.

What also must occur is a proper abolition of the cabotage policy coupled with a cancellation of the competition-killing Bulk Exemption Orders.

Cabotage Never Truly Abolished

Even though the NLC is now abolished, barriers against Sabah’s economic interests remain.

In May 2017, under increased pressure from both the Sabah and Sarawak governments, the then Prime Minister Najib Razak announced that the Federal Government will abolish its cabotage restrictions on the route between East Malaysia (Sabah, Sarawak and Wilayah Persekutuan Labuan) effective June 1, 2017. In his statement, Najib cited the main reason for the decision was that the cabotage policy was being targeted as the main reason why the cost of living in Sabah was higher, among others.

What this meant was that foreign ships could call directly to Sabah’s ports to offload goods. However, there was – and still is – a catch. While, a foreign ship, say from Vietnam can offload Vietnamese goods in Sabah, that ship can only load new cargo in Sabah to either bring back to Vietnam or to send the same to another foreign port.

That Vietnamese ship cannot carry Sabah goods onto Port Klang or any other domestic Malaysian Port. So, the removal of the Cabotage policy was merely a partial and not a complete liberalisation of Malaysian shipping policy. Why was this so? 

It is observed that from day one, Malaysian shipping and cargo policy was designed to promote Malaya at the expense of Sabah. 

First, Port Klang was promoted as a centralised shipping and cargo hub. Second,  East Malaysian exporters were forced to send cargo to Port Klang first, before it could go overseas. 

Third, Malayan shipping cartels, protected by the Malaysian Competition Commission’s Bulk Exemption Orders, were allowed to dominate and set shipping rates between East and West Malaysia. 

And fourth, although cabotage was partially abolished, the Domestic Shipping Licence (DSL) requirements remained the effect of which, was to stifle competition from foreign operators resulting in ever higher cargo costs to Sabahan consumers and exporters.

The effect of the DSL is this: a foreign ship can land at a Sabah port to offload. However, to load Sabah goods for shipment to other Malaysian ports, that ship must obtain a domestic shipping licence.  

The DSL regime, and its requirements, represents a significant and substantial deterrent against foreign vessels competing in the Malaysian domestic shipping landscape.

So while the NLC has been removed, the other three policies remain, impeding competition and ensuring higher costs.

The purpose behind all these Malayan initiatives is to protect the highly lucrative domestic “Trunk Route” which starts at Port Klang on the West coast of Semenanjung and crosses East over the South China Sea after Johor Port towards Kuching in Sarawak. The Trunk Route then progresses North-East towards Sepanggar covering the ports of Bintulu, Miri, Labuan and Kota Kinabalu, among others.  

It must be understood that Sabah ports are closer to certain East Asian trading destinations than Port Klang. Port Klang, it is argued, is less geographically viable than both Kota Kinabalu and Sepanggar Ports in terms of some major East Asian and other destinations.

Ho Chi Min city and Hong Kong are two from many such examples.

Therefore, what prevents Sabah from truly benefitting from its geographical advantage are the combined effects of current Malaysian shipping and container freight policies.

What The Next Sabah Government Must Do

The only reason why the NLC policy has been abolished is because its purpose has been fulfilled: to make Port Klang Malaysia’s primary shipping and cargo hub at the expense of East Malaysia. With that, the NLC is no longer required because Port Klang is seen as being far ahead enough so as to be safe.

This being said, the next Sabah Government must initiate policies to reduce shipping costs and promote international competition in Malaysian domestic shipping.

First, the Sabah Government must retain, be advised by and adopt the advice of proper experts in respect of shipping policy and strategy. Like Sarawak, the Sabah government must now adopt a more aggressive posture to promote steps to lower the costs of freight to and from the state and to promote Sabahan owned and controlled shipping interests.

Second, the detrimental effect of the Bulk Exemption Order must be challenged head on. The Sabah Government should set-up and retain an expert committee to take on the misleading and self-serving representations made by the Malaysia Shipowners’ Association and Shipping Association Malaysia to the Malaysian Competition Commission. 

It is high-time that Sabah fought back with proper expert evidence and arguments against future applications for Block Exception Orders. Afterall in other jurisdictions, block exemptions orders for shipping are a thing of the past. 

As one Malaysian competition law specialist recently communicated:‘In the EU and UK, block exemptions for liner shipping are no longer renewed in 2025, primarily due to no clear benefits for competition in container shipping and its users. This was not highlighted in MyCC’s [Malaysian Competition Commission’s] preliminary assessment.’

Third, revive domestic ship ownership in Sabah. This can be achieved by designating a special purpose government-linked company whose sole objective is to under-cut Malayan backed shipping cartels and bring down freight costs.

This policy must tie into specific Sabah products and cost of living related goods which would otherwise be more expensive due to higher freight charges. Since competition lies at the heart of Malaysia’s Competition Act 2010, the MYCC should take no issue in Sabah throwing its’ hat in the ring.

Fourth, Sabah Ports must tie up with other more economically vibrant port operators and networks. It is observed that Sabah Port’s recent tie-up with UAE based DP World is a step in the right direction. But this insufficient and ignores the fact that Malaysian port operators such as MMC Bhd would have made better strategic partners with Sabah.

MMC Bhd is Malaysia’s largest port operator and the world’s fifth largest private terminal operator in terms of freight through-put volume. When it comes to attracting foreign vessels to Sabah and assisting the state in pressuring the Federal government to further liberalise shipping and cargo policies in Sabah’s favour, MMC Bhd makes a lot more sense as a partner than DP World – the latter itself being a foreign entity with very limited influence on the Federal government. 

That said, DP World as an operator is not that large a concern and itself, relies on MMC Bhd and its global networks, among others

Only through proper strategic partnerships and targeted influence can Sabah position itself properly to take full advantage of its optimal geographic and strategic position vis-à-vis global cargo freight destinations.

Finally, the Domestic Shipping Licence system must be abolished in full. The next Sabah Government ought to use its fresh mandate to cause the Federal government to abandon DSLs altogether. It was insufficient to abolish cabotage only to have DSLs linger on to protect Malayan shipping concerns. Enough is enough.

Tengku Fuad is a senior lawyer specialising in commercial and public law and has, and continues to, act for the Sabah Government in complex cases. In 2021 Tengku Fuad was appointed as a member of the Federal Government’s Special Task Force to review legal matters related to the sovereignty of Batu Puteh, Middle Rocks and South Ledge and, in 2022, was also appointed to the Federal Government’s Special Task Force to resist the Sultan of Sulu’s (heirs) claim against Malaysia. Prior to establishing his firm, Tengku Fuad served as a public company director and was involved in the corporate sector.