By Datuk Ts Dr. Hj Ramli Amir, former President of the Chartered Institute of Logistics and Transport (CILT) Malaysia and Vice-President of CILT International for Southeast Asia
KOTA KINABALU: When nations face deeply rooted logistics bottlenecks, targeted exemptions from cabotage policies have proven to be practical instruments to restore equilibrium in freight transport.
The experiences of the United Kingdom and Indonesia—two maritime economies operating under vastly different geographic and economic frameworks—demonstrate how temporary relaxations of cabotage restrictions can stabilize essential supply chains and reduce cost pressures.
For Sabah, Malaysia’s eastern maritime state long burdened by high shipping costs and import-export asymmetry, these lessons carry urgent relevance.
Sabah’s Case for a Time-Bound Exemption
Sabah’s maritime trade profile reveals structural features that make it especially suitable for a selective, monitored cabotage exemption.
Department of Statistics Malaysia data shows that Sabah’s total trade in 2024 reached RM107.8 billion, yet imports grew at 10.2 percent while exports contracted by 2.3 percent, resulting in a sharp 27.9 percent decline in its trade surplus.
Critically, imports dominate roughly 80 percent of container flows at its main terminals such as Sapangar Bay and Tawau, meaning ships often leave these ports with large portions of their container space empty on the return leg.
The consequence is an import-weighted freight imbalance that drives up logistics costs. Container lines often recover unutilized backhaul costs by raising inbound freight rates, directly inflating consumer prices.
Sabah’s remoteness from Peninsular Malaysia further compounds costs: hauling goods over long domestic sea routes under cabotage protection—where only Malaysian-flagged vessels may operate—creates limited supply and high prices. As highlighted in industry reports, logistics restrictions alone subtract up to 0.3 percent from Malaysia’s overall freight market growth rate, with Sabah singled out for medium-term structural constraints.
This system, designed decades ago to build domestic shipping capacity, no longer serves Sabah’s evolving needs. Instead, rigid application of cabotage now limits regional competitiveness, increases costs of doing business, and discourages export-oriented growth.
Lessons from the United Kingdom
The UK’s 2021–2022 cabotage exemption illustrates how temporary flexibility can avert economic shock and preserve domestic stability. Following Brexit and driver shortages, the Department for Transport allowed EU hauliers to conduct unlimited domestic trips within 14 days of arrival, up from the preexisting two trips in seven days rule.
This emergency waiver, authorized under the Finance Act 2022 and structured through the Motor Vehicles (International Circulation) Order 1975, instantly expanded logistics capacity.
For Sabah, the UK’s response highlights two policy principles: (1) that exemptions can be precision tools to resolve temporary market failures, and (2) that domestic logistics resilience can be maintained—not undermined—by allowing foreign participation within controlled time frames.
Lessons from Indonesia
Indonesia’s pragmatic IPKA (Izin Penggunaan Kapal Asing) permit embodies how a permanent cabotage policy can coexist with supervised exemptions. Governed under Law No. 17 of 2008 on Shipping and refined through Ministerial Regulations PM 100/2016 and PM 2/2021, IPKA authorizes the use of foreign vessels for domestic routes only when no suitable Indonesian-flagged tonnage is available.
In practice, these limited exemptions increased vessel frequency, improved port linkages, and lowered freight rates by 15–25 percent compared to local-only operations.
The system’s success lies in its balance: ensuring foreign participation complements domestic capacity, while building long-term national competence through oversight and sunset clauses.
Why Sabah Fits These Precedents
Sabah’s situation parallels Indonesia’s archipelagic logistics dilemma more closely than Britain’s supply crisis.
The state’s chronic freight imbalance, vessel shortage, and distance from national trade centers mirror precisely the justifications for Indonesia’s IPKA system. Furthermore, both the Department of Statistics Malaysia and local port authorities acknowledge that the cost of shipping to and from Sabah is disproportionately inflated due to return-leg inefficiencies.
Like Indonesia’s deficit provinces, Sabah depends overwhelmingly on sea transport for food, fuel, and manufactured goods, yet generates insufficient backhaul cargo to sustain competitive freight markets.
Consequently, a time-bound exemption to Malaysia’s cabotage law could permit foreign liners to service interregional routes between Sabah, Peninsular Malaysia, and international transshipment hubs. This would immediately enhance frequency of services, drive down rates through competition, and incentivize export diversification.
Sabah stands as one of the clearest candidates in Malaysia for a time-bound cabotage exemption, not because it seeks to bypass national policy, but because its fundamental trade and logistics realities reflect the exact structural imbalances that prompted successful exemptions in Indonesia and the United Kingdom. The data and logistics context of 2025 demonstrate why such a reform is both economically rational and strategically urgent.
Chronic Freight Imbalances and Rising Trade Disparities
The Department of Statistics Malaysia (DOSM) reports that Sabah’s total trade in 2024 reached RM107.8 billion, marking growth of 2.7 percent, but with imports surging 10.2 percent while exports declined 2.3 percent. This widened import-export gap slashed Sabah’s trade surplus by 27.9 percent, shrinking it to RM14.9 billion.
More tellingly, 70 percent of Sabah’s exports come from only three commodities—crude petroleum, palm oil, and liquefied natural gas—none of which use container shipping as their main transport mode.
This means that container vessels arrive in Sabah full of consumer goods but leave two-thirds empty, generating what shippers term an “empty-box economy.” Lines are forced to recover the lost cost of the unutilized backhaul on the inbound leg, hiking freight rates for every imported product—from fertilizer and machinery to grocery goods.
This chronic imbalance mirrors the eastern Indonesian islands that first piloted Indonesia’s IPKA exemptions, where cargo scarcity on return voyages made freight unsustainable without foreign-flag relief.
Structural Isolation from Malaysia’s Logistics Core
Sabah’s geographical reality reinforces the logic for exemption. With its ports—Sapangar Bay, Tawau, Sandakan, and Lahad Datu—located over 1,500 kilometres from West Malaysia’s main shipping and industrial hubs, the state operates at the periphery of national shipping economics.
Unlike Peninsular Malaysia, where multiple land-based alternatives exist, Sabah depends on maritime transport for more than 90 percent of its goods movement.
Currently, Malaysian-flagged carriers dominate the domestic sea-leg between Peninsular and East Malaysia under cabotage, but high operating costs and limited competition translate into freight rates 15–25 percent higher for Sabah’s businesses compared to equivalent distances within Peninsular Malaysia.
International studies, including those by the Malaysian Ministry of Transport, acknowledge that transport inefficiencies account for a measurable drag on Sabah’s manufacturing competitiveness.
This echoes conditions in Indonesia’s eastern provinces, where restrictive cabotage limited delivery frequency and inflamed local prices until targeted IPKA exemptions permitted foreign carriers to operate in deficit corridors.
Economic Costs of Uniform Policy
The “one-size-fits-all” structure of Malaysia’s cabotage framework assumes parity of market maturity across regions—but Sabah’s shipping ecosystem is underdeveloped.
The block exemption order (BEO) for vessel-sharing among liners, renewed multiple times since 2014, has successfully maintained shipping frequency but failed to reduce freight rates meaningfully. This is because the problem is not frequency but imbalance—too many inbound loads, too few exports.
Therefore, rigid protection of domestic operators paradoxically entrenches inefficiency. Over time, logistics asymmetry suppresses industrial diversification, discourages export manufacturing, and keeps Sabah reliant on imported consumer goods. As a result, the very goal of cabotage—to strengthen domestic shipping—is undermined, as the fixed cost of underutilized vessels erodes competitiveness.
Policy Benefits for Sabah
If adapted to Malaysia’s context, a time-bound cabotage exemption focused on Sabah could:
Lower Freight Costs: Allowing foreign liners to operate interregional routes between Sabah and West Malaysia would inject competition, reducing rates by an estimated 10–20 percent within the first year, as seen in Indonesia’s pilot regions.
Enhance Export Capacity: Cheaper backhaul services could make exporting manufactured goods—such as processed palm oil, furniture, or aquaculture products from Sabah’s Blue Economy initiatives—commercially viable.
Stimulate Regional Industry: By reducing logistics bottlenecks, new industrial projects like the Sipitang Oil and Gas Industrial Park (SOGIP) and Esteel Green Steel Project would gain broader market access, locking Sabah into valueadded supply chains rather than remaining a resource exporter.
Integrate Sabah with ASEAN Trade Corridors: Easier foreign vessel entry would link Sabah’s ports with Brunei and Indonesia within BIMPEAGA, positioning it as a regional feeder hub for secondary Southeast Asian routes.
Conclusion
Sabah’s maritime dependency and imbalanced trade profile firmly position it within the logic that justifies targeted cabotage exemptions worldwide. The United Kingdom’s shortterm solution during crisis and Indonesia’s regulatory IPKA
