KUALA LUMPUR: The Federation of Malaysian Manufacturers (FMM) has warned Malaysian exporters and importers that freight rates are likely to triple in 2024, compared with 2023, due to the Red Sea shipping crisis.
Several of the world's largest shipping firms have diverted vessels away from the Red Sea route to a much longer route around the southern tip of Africa because as escalation of securitiy issues in the region.
"Circumnavigating Africa adds one to two weeks to voyage time, and this will not only drive-up cost to export goods to North Africa, the Middle East and Europe as freight rates are expected to triple compared to last year but also cause delays in ships returning to Asia. Malaysian exporters will have to brace for the possibility that the availability of empty containers will be in tight supply again due to the crisis in Middle East," FMM president Tan Sri Datuk Soh Thian Lai said in a statement today.
FMM urged Malaysian exporters and importers to refine their business strategies to safeguard their supply chains and reduce delays to better meet customer demands to reduce the impact of the escalating situation in the Red Sea.
Measures that can be taken include preparing containers bookings and shipping schedules one month in advance for exports affected markets.
"For goods that are not time-sensitive, it is advisable to wait until first few weeks of February 2024 during the Chinese New Year holiday as freight costs is expected to decrease during this period," Soh said.
FMM also called on shipping companies to honour the pre-booked freight rates given to Malaysian shippers without adjustment.
"Any announcement on new increase in freight rates or introduction of surcharges should be communicated transparently and negotiated directly with shippers to allow exporters to plan and negotiate with their importers," Soh said.
FMM is also advocating that manufacturers shift their dependence to ASEAN by nearshoring and sourcing from within the region which is not just about cost savings, but also supply-chain security due to geopolitical uncertainty including the Israel-Hamas war.
The varying levels of economic development in ASEAN coupled with each country's industry specialisation allow for a complementary relationship between member countries, especially on labour force and natural resources.
"As ASEAN supply chains are also deeply integrated with Northeastern Asian neighbours, Malaysian manufacturing companies can build resilience by working closely with our ASEAN counterparts not only as a source for inputs and a market for Malaysian manufactured exports but also to integrate deeper for trade and investment regionally by leveraging on Regional Comprehensive Partnership Agreement of which ASEAN is core and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership of which four ASEAN countries are members of," Soh said.
FMM also asked manufacturers to consider combining different modes of transportation (sea, air, rail, road) to optimise shipping routes to reduce delays and lower shipping costs.
Air freight although may not cater for large volume of cargo, can still offer more flexibility and reduce transit time exponentially for urgent shipments of high-value cargo.
"As we progress into 2024, the shipping disruption stemming from the Red Sea crisis may be compounded by other threats such as extreme weather events or shifting geopolitical tensions which will further damage already distressed global supply chains," Soh said.
He urged the Malaysian government to keep a close watch on the situation to ensure that the impact does not escalate and further burden businesses and the economy.
"As supply chain turbulence is likely to persist, Malaysian manufacturers will continually need to be vigilant and proactively plan their operations to withstand additional shocks," Soh said.