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
Part 3: The Fragile Recovery
KOTA KINABALU: For 37 years, the system was an immutable feature of Malaysia’s economic landscape—a structural constant that dictated the cost of living and the pace of business in Sabah. However, in 2017, sustained and forceful advocacy from Sabah’s business community and political leaders finally forced a critical crack in the dam. The federal government granted a landmark exemption to the Cabotage Policy, permitting foreign-flagged vessels to sail directly between ports in Peninsula Malaysia and the state of Sabah.
This single legislative shift dismantled, overnight, the compulsory transshipment model that had funnelled all containerized trade through Port Klang. The protected monopoly that had governed the sea lane across the South China Sea was broken, marking the most significant change to Sabah’s logistics framework in nearly four decades.
The First Breaths of Freedom: A Surge of Competition
The immediate aftermath of the exemption was a textbook demonstration of market forces being unleashed. The reintroduction of competition initiated a rapid and dramatic correction.
Plummeting Costs: The sudden ability for shippers to choose between the protected domestic fleet and competitive international carriers triggered a fierce price war. Freight rates on the key Peninsular Malaysia-Sabah route collapsed, falling by an estimated 30 to 60 percent almost overnight.
This represented a direct and substantial reduction in the “logistics tax” that had burdened the state for generations.
The Return of Speed: The convoluted “double-handling” process was rendered obsolete for a significant portion of cargo. Transit times were slashed by more than half, as goods moved directly from Port Klang or Tanjung Pelepas to Kota Kinabalu in a matter of days, rather than languishing for weeks in the transshipment limbo of the National Load Centre model.
For the first time in a generation, there was a palpable sense of economic possibility. Businesses could plan with greater certainty, and consumers felt the initial relief of reduced prices on imported goods. Yet, this initial euphoria soon gave way to a more sobering realization: a single policy change, however significant, could not instantly erase four decades of structural damage and strategic neglect. The victory was real, but the recovery was—and remains—profoundly fragile.
The Unfinished Battle: The Enduring Legacy of Neglect
The cabotage exemption solved the problem of the route, but it did not solve the deeper, systemic problems forged during the long years of isolation.
The Infrastructure Deficit: Sabah’s ports, particularly the primary gateway at Kota Kinabalu, had been designed and operated for decades as feeder terminals. They were accustomed to handling smaller vessels on a domestic schedule. They now faced a critical infrastructure gap, lacking the deep-water berths, advanced ship-to-shore gantry cranes, and extensive yard capacity required to operate as efficient, cost-competitive international hubs. This physical limitation acts as a natural brake on efficiency and scalability.
The Persistence of the “Feeder” Mentality: While the exemption allowed direct calls from the peninsula, it did not magically restore the global mainline vessel services that called on Sabah in the 1970s. The fundamental architecture of global shipping has shifted to a hub-and-spoke model. Without a massive and sustained increase in export and import volumes, Sabah remains a “spoke” in a larger network, now connected more efficiently to regional hubs but not yet a direct destination for Asia-Europe or major intra-Asia routes.
The Embedded Cost of Living: The high costs of the preceding decades had spread into every layer of the Sabahan economy. From the price of commercial real estate and warehouse storage to the markup on retail goods, the historical inefficiencies had become structurally embedded. Lowering shipping costs was a vital first step, but unwinding this deeply ingrained cost structure requires a prolonged period of competitive pressure and economic diversification.
The Road Ahead: From Regulatory Relief to Strategic Sovereignty
The 2017 exemption granted Sabah a fighting chance, but the future of its trade and economic prosperity depends on deliberate, strategic efforts to overcome the legacy of its past.
The Borneo Hub Ambition: A visionary pathway forward lies in strategically positioning Sabah’s port as a regional hub for Brunei, Eastern Indonesia, and the Southern Philippines.
By attracting and consolidating cargo from this broader economic zone, Sabah can generate the critical volume of container throughput necessary to make direct calls by international mainline vessels commercially viable.
This would fundamentally alter its role from a peripheral endpoint to a central node in a new, Borneo-centric network.
Investing in Port Sovereignty:
For the “Borneo Hub” ambition to be realized, major public and private investment in port infrastructure is not merely an upgrade—it is a strategic necessity. Dredging channels, installing modern cranes, and optimizing terminal operations are essential to break the final chains of physical dependency and compete for the largest and most efficient vessels.
Economic Diversification: Ultimately, the most powerful solution is to generate demand. Growing robust, export-oriented manufacturing and value-added industries (e.g., in agro-processing, aquaculture, and specialized manufacturing) is the only sustainable way to produce the consistent, high-volume cargo streams that make direct international calls commercially irresistible to global shipping lines.
Conclusion
The 2017 cabotage exemption did not mark a simple return to the golden age of direct calls. Rather, it signified the return of something equally critical: agency. Sabah is no longer merely protesting its external constraints. The challenge has now evolved. The state is tasked with the complex work of building its own future—transforming a fragile recovery into a resilient and self-determined economic destiny through strategic investment, regional leadership, and deliberate industrial policy. The monopoly was broken, but the opportunity must now be seized.
