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
Episode 3: The Block Exemption Paradox (2014-Present)
KOTA KINABALU: From Cabotage to Coordination. As Sabah celebrated the long-overdue liberalization of the cabotage policy, a more subtle and complex regulatory framework was already entrenching a new disadvantage. Since 2014, the Malaysia Competition Commission (MyCC) had granted block exemptions for liner shipping agreements, legally permitting carriers to coordinate their operations.
Through Vessel Sharing Agreements (VSAs), competing companies could collaboratively set schedules, share vessel space, and rationalize capacity—a level of cooperation typically forbidden by anti-competition law
The regulatory rationale was grounded in operational efficiency: reducing wasted capacity and improving service reliability for the benefit of all. But for Sabah, a region with a stunted industrial base and chronically low export volumes, this well-intentioned framework created a new, sophisticated form of marginalization.
The New Bottleneck
Shipping alliances, operating under these exemptions, are inherently programmed to optimize for profitability and volume. Routes are prioritized based on cargo density. Consequently, with Sabah generating insufficient volume to fill vessels consistently, alliance decisions systematically favoured high-traffic corridors serving the established industrial hubs of Peninsular Malaysia.
The consequences for Sabah were a familiar litany of logistical disadvantages:
Reduced sailing frequency, as carriers bundled shipments to maximize vessel utilization, Persistent cargo rollover, where containers were left on the dock awaiting the next available vessel, Higher per-unit costs, as fixed expenses were distributed across a smaller number of containers, and Weak negotiating power for local shippers facing a consolidated market with few alternative carriers.
Thus, the block exemption, designed to create system-wide efficiency, was in practice systematically reinforcing the periphery status of low-volume regions like Sabah.
The Ghost of Coordination
International experience served as a stark warning. The European Union’s consortia block exemption had demonstrably led to increased market concentration, reduced services for smaller ports, and ultimately higher costs for peripheral shippers. The EU’s decision to let its exemption expire in 2024 was a direct response to these concerns, with regulators concluding the alliances no longer served to help smaller players compete.
Malaysian regulators maintained their framework was distinct—more narrowly scoped, time-bound, and explicitly excluding price-fixing. Yet critics argued this was a fundamental misreading of market dynamics: operational coordination could achieve the same anti-competitive outcomes as explicit cartels, particularly in a market dominated by a few powerful alliances. For Sabah, this meant that the end of cabotage did not signal a return to a free market, but rather a transition to a new, more coordinated form of policy-induced marginalization.
Episode 4: The Manufacturing Deficit and its Consequences
The Numbers Don’t Lie
By 2024, the cumulative toll of decades of political neglect and flawed policy was indelibly etched into Sabah’s economic DNA.
The state’s industrial structure told a story of arrested development:
A manufacturing sector contributing a meagre 7.3% to state GDP, dwarfed by Penang’s 46.5% and Johor’s 29.8%,
Total manufacturing exports of just RM12 billion annually, a fraction of its potential,
A crippling trade imbalance, with 80% of containers being imports and only 20% exports, creating a chronic and costly “container return” problem,
and An export profile dominated by raw materials: crude petroleum (RM21.3 billion), palm oil (RM17.3 billion), and liquefied natural gas (RM4.6 billion).
These numbers reveal a fundamental truth that has been misunderstood for decades: the root problem is not the cost of shipping, but the absence of things to ship. The lack of a diversified manufacturing base means there are simply insufficient export volumes to make frequent, affordable shipping services commercially viable.
The Container Conundrum
The core economics of container shipping are brutally simple and unforgiving to regions like Sabah. When four out of every five containers arrive full but only one leaves with cargo, shipping lines face massive losses on return voyages. To compensate, they must charge exporters a premium, creating a vicious and self-perpetuating cycle.
This is the cruel mathematics of Sabah’s predicament: low export volumes lead to high per-unit shipping costs, which stifle manufacturing investment, which ensures export volumes remain low.
Sabah is not just in a shipping crisis; it is trapped in a low-volume, high-cost equilibrium where industrial development has been rendered economically irrational by the very market dynamics that were supposed to be liberated.
Episode 5: The State Shipping Solution—A Seductive Dead End The Superficial Appeal
Confronted with this intractable cycle, the call for a state-owned Sabah shipping line has emerged as a seemingly logical panacea.
Its advocates promise it could: Subsidize export freight rates to artificially boost the competitiveness of Sabah’s manufacturers, Guarantee service frequency, insulating the state from the commercial decisions of international alliances, Retain shipping revenue within the state’s economy, and Break the oligopolistic control of West Malaysian shipping interests.
This proposal is politically seductive but economically naive. It embodies a profound misunderstanding of causality, attempting to cure a disease of industrial deficit with a band-aid of logistical subsidy.
The International Evidence: A Graveyard of Ambition
The global history of state-led shipping is a cautionary tale of unsustainable subsidies and market realities.
Hanjin Shipping (South Korea): Once the world’s 7th largest container line, this chaebol-backed behemoth collapsed in 2016, stranding $14 billion in cargo globally. Its failure was triggered by crippling debt (over 850% debt-to-equity), expensive charters, and an inability to compete on price in a cut-throat global market—a stark warning that even national champions are not immune to economic gravity.
MISC Berhad (Malaysia): The most relevant case for Sabah. Malaysia’s own national shipping line, majority-owned by petroleum giant Petronas, made a strategic retreat from the container shipping business in 2011. It cited “radical changes in operating dynamics, high operating costs, and rapid changes in global trade patterns.” If a company backed by Petronas could not make liner shipping viable, what hope would a Sabah state venture have?
COSCO (China): Often held up as a success, the reality is more complex. COSCO received over $1.3 billion in direct government subsidies between 2010-2019, demonstrating that even with massive state intervention and scale, continuous financial support is required to stay afloat in this hyper-competitive industry.
The Sabah-Specific Impossibility
For Sabah, a state-owned shipping company would face insurmountable obstacles from its inception: The Network Effect – Established liners thrive on global route networks and vessel-sharing agreements. A new Sabah operator would be an isolated, peripheral player from the start; Crippling Scale Economics – It would face modern vessel acquisition costs without the volume-based negotiating power of global operators; The Same Fatal Imbalance – It would inherit the identical 80/20 import-export imbalance that makes the route commercially challenging.
This mathematical reality would bankrupt a state operator even faster, as it would lack other profitable routes to cross-subsidize the loss-making Sabah service, and; The Perpetual Subsidy Trap – Making its rates competitive would require endless government expenditure, merely transferring the cost of the problem from exporters to taxpayers without ever solving the underlying lack of things to ship.
A state shipping company would become a bottomless pit for scarce public funds, diverting capital and political attention from the true task at hand: building a viable industrial base. It treats the symptom while ignoring the disease.
We will elaborate further on further episodes in the final part 3 of this series.
