International News: Malaysian manufacturers warn of tripled freight rates due to Red Sea shipping crisis

By Horace Palacio: The Federation of Malaysian Manufacturers (FMM) has issued a warning to Malaysian exporters and importers about a significant hike in freight rates, expected to triple in 2024 compared to the previous year. This escalation is attributed to the ongoing shipping crisis in the Red Sea, as reported by NST.

Major global shipping companies are rerouting vessels away from the Red Sea, opting for a lengthier journey around Africa’s southern tip due to escalating security concerns in the region. “Circumnavigating Africa adds one to two weeks to voyage times, significantly increasing the cost of exporting goods to North Africa, the Middle East, and Europe,” stated FMM President Tan Sri Datuk Soh Thian Lai. The rerouting is likely to result in delays and a shortage of empty containers returning to Asia, particularly affecting Malaysian exports.

FMM urges local businesses to revise their strategies to mitigate supply chain disruptions and meet customer demands effectively. Recommended measures include advance booking of containers and adjusting shipping schedules at least a month prior to exporting to the affected markets. Additionally, during the Chinese New Year holiday in February 2024, freight costs are expected to decrease, offering a window for shipping non-time-sensitive goods.

Soh also called for transparency and direct negotiations with shippers in case of any new increases in freight rates or introduction of surcharges, to allow exporters to plan and negotiate effectively with their importers.

In response to geopolitical uncertainties, including the Israel-Hamas conflict, FMM advocates for a shift towards ASEAN for nearshoring and regional sourcing. This approach not only offers cost savings but also enhances supply chain security. The diverse economic landscapes and industrial specializations within ASEAN countries provide a complementary environment for trade and investment.

FMM suggests manufacturers consider multi-modal transportation (sea, air, rail, road) to optimize shipping routes, reduce delays, and lower costs. Air freight, though limited in volume capacity, offers flexibility and significantly reduces transit times for urgent, high-value shipments.

Soh also highlighted the potential for further disruptions in global supply chains due to other threats like extreme weather events or shifting geopolitical tensions. He urged the Malaysian government to closely monitor the situation to prevent exacerbating impacts on businesses and the economy.

“Malaysian manufacturers must remain vigilant and proactively plan to withstand additional shocks in what promises to be a turbulent period for supply chains,” Soh concluded.

 

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