AirAsia Hubbing in Sabah, Malaysia

Fulfilling Sabah's quest to boost tourism industry through AirAsia's phenomenal growth

Travel within Sabah is greatly enhanced and made affordable by Air Travels where its city and major towns are connected by air. Much time is saved compared to travelling by road plus the comfort during the journey and reaching its destination unruffled. With low cost airline such as AirAsia it will help making decision to fly even easier by air. Air travel is now available using Malaysia Airlines and or MasWings within Sabah and with AirAsia in the fray, travellers has now the luxury of more numbers of flights available.

AirAsia's phenomenal growth continues with its cheap air travel in Asia being already ASEAN largest budget airline by fleet size after having leveraged its hub-and-spoke model to connect numerous cities. Now with the growth of the  region's middle class, the airline is eyeing new routes and markets, especially China.

AirAsia Bhd has launched three new international routes from Kota Kinabalu, Langkawi and Penang. It has also launched direct flights from Kota Kinabalu to Wuhan, Langkawi-Guangzhou  and Penang-Ho Chi Minh.

"We saw ASEAN before ASEAN saw us," quipped Tony Fernandes, the airline group's chief executive. AirAsia's modest start with just two aircraft in 2002 coincided with the region's economic integration under the ASEAN Free Trade Agreement. AirAsia immediately saw the huge potential in an area with a population of over 600 million, with growing economies but poor connectivity.

AirAsia has associate companies in Asia Aviation Capital, an aircraft leasing company, which is 100% owned, AirAsia Japan at 49%, Thai AirAsia at 45%, Indonesia AirAsia at 49%, Phillipines AirAsia held 49% stake through its associate company. It also owned long distance carriers in AirAsia X in Malaysia, Thai AirAsia X and Indonesia AirAsia Extra

Tan Sri Tony Fernandes noted that the timing was great, reckoning that the airline would not have taken off much earlier. Luck played a big part, but they took advantage of it. Marketing the airline under the banner "Now everyone can fly," AirAsia enhanced air travel with its short-haul, no-frills service, charging for everything from baggage to meals in return for low fares. The theme reflects their focus on making travel available and affordable to everyone.

As demand for budget air travel increased, Fernandes expanded into Indonesia, the Philippines and Thailand, setting up affiliate airlines as a way to go around the countries' strict regulations that prohibit full foreign ownership of companies. This arrangement has worked well, allowing each airline to grow using local talent.

Thai AirAsia the group's largest affiliate by fleet size is led by Tassapon Bijleveld, who built a career in the music industry like Fernandes. If you can manage international artists like Madonna, you can manage anyone, saidTassapon, when asked how he could run an airline without prior experience.

 The Thai affiliate flies to over 52 destinations from six hubs, serving three key markets in Indochina, China and India. Tassapon said he will focus on building more routes to Indochina and India after successfully opening up routes to China on a bilateral, open skies policy. To boost ancillary income, the airline is planning to launch predeparture duty-free sales online next year, capitalizing on the strength of its major shareholder, King Power, Thailand's leading travel retailer.

Indonesia AirAsia is headed by Dendy Kurniawan, a Fulbright scholar with experience in the public and private sectors. After cutting capacity drastically the past two years as the company struggled, Kurniawan wants to develop the existing hub in Medan to complement the Jakarta, Bali and Surabaya hubs.

"It is the time to start our growth story again this year," says Kurniawan, noting that there is an over emphasis on Bali as a tourist destination. There were about 12 million foreign visitors in Indonesia last year, of whom five million went to Bali. The government hopes to attract 20 million visitors in 2019, and Kurniawan says AirAsia can play a significant role through its domestic hubs that already connect to over 100 destinations in nearly 20 countries.

In a recent move, The Ministry of Tourism Indonesia had officially unveiled collaboration plan with AirAsia in promoting the wonders of Indonesia to Malaysian. This is no surprise it has a vast connectivity network across the country and to Malaysia. AirAsia connects to Malaysia through more than 350 flights a week covering 15 cities. Launching of direct flights from Kuching to Pontianak had recently taken place to meet growing demand. Their well established routes within Asia is set to boost connectivity further and boost arrivals of tourist from other countries as well.  As for Sabah we hope this effort by the republics tourism ministry will cover Sabah and at the same time the Tourism Board in Sabah must also push for locals to visit Indonesia. We need the Jakarta, Bandung and Bali connectivity as these are the places where Sabahans normally go.

Similarly, Philippines AirAsia is also stepping up efforts to create new tourist destinations in the country. Its latest route will link Kuala Lumpur to the southern Philippine city of Davao.

Low cost carrier, AirAsia, is here to stay in Sabah, stated Fernandes. Earlier on, a claim that AirAsia would cease operations in Sabah should the airline be forced to move to Terminal 1 of the Kota Kinabalu International Airport was proven wrong as the Airline made its appearance at Terminal 1 of KKIA. He reiterated that he never intended to threaten to pull out AirAsia routes to Sabah. He clarified that it was never the case, and it is not his style. He further stated that he was always been very committed to developing Sabah as a hub.

AirAsia have a very strong relationship with Sabah tourism, are constantly engaging with Sabah Chief Minister, the Tourism, Culture and Environment Minister and Sabah Tourism Board to  further explore growth opportunities for Sabah. Sabah remains key to AirAsia and also a very important hub for AirAsia.

To him the issue at stake then was that it was critical for AirAsia to remain in Terminal 2 where the passenger service charge (PSC) was RM32 and at Terminal 1 where the PSC is significantly higher at RM65, it would affect its ability to offer low fares and in turn cause diminishing demand from the public, lowering passenger traffic into the state. RM30 makes a huge difference in their decision to fly or not. A large number of our passengers travel as families, so paying the higher passenger service charge would be a burden to them he said.

Fernandes added that if demand drops due to the increase, it will make the routes unprofitable which will result in the possibility of route suspensions. This was the reason why he was pushing Malaysia Airports, the Sabah Government, and the Federal Government to either make Terminal 2 an LCC terminal or build a new low cost terminal at that point in time. Sabah is one of the reasons AirAsia exists and it will never abandon Sabah. But he maintained that the harsh reality is, no one will want to fly with rising costs. People who know me know that I have zero arrogance and I am very open for discussions.

According to Fernandes, AirAsia has great plans for Sabah and the airline had invested greatly in developing new routes out of the state and adding more flight frequencies for the benefit of tourism in Sabah. The presentation demonstrated how the LCCT and LCC business model would benefit the economy and spur growth in the aviation industry, adding that outbound and inbound travel in Sabah and Sarawak was increasing and would be a big market for AirAsia. AirAsia operates 504 weekly flights to and from the Kota Kinabalu International Airport (KKIA).

The LCC business model allows AirAsia to grow at a fast rate because all that is required is a simple terminal and simple airport facilities. All these would translate into low operating cost and low charges. This will allow AirAsia to offer low fares and stimulate demand, and generate more revenue for airports. The catalytic impact would be higher contribution to the country’s economy. It does not mean however that safety and basic comfort is not factored in. The laws does provide the safety of airline operations.

AirAsia has been successful in reducing operational cost through service savings (no-frills cabin service), outsourcing and electronic tickets. The carrier is able to offer fares that are 40 to 60 per cent lower than its full-service competitors cost advantages arising from the nature of its operation include higher seating density and higher daily aircraft utilisation flying out of secondary airports.

The formula for low cost is to increase the affordability of air travel. By doing that, budget airlines will be able to attract more people, which will increase the load factor. This, in turn, gives the airlines more money, which they could use for expansion, increasing frequencies and developing more routes. All these would create more growth for the country. However, if travel becomes unaffordable and the load factor decreases, the airlines will suffer and cut back on expansion. As growth level declines, there will also be loss of revenue for the government.

Perhaps as recently announced by Fernandes that a new operator should be allowed to operate our Malaysian airports instead of just Malaysia Airports Holding Berhad. It has been seen that MAHB is not keen at all to operate a low cost carrier terminal, LCCT. The writer is in agreement with Fernandes that the economics of operations of commercial airlines must take precedence over the policies as embedded in MAHB. To prosper, all assistance must be handed over to LCC operators as they are the ones that has opened up the door for air travel markets, as they proposed lower fares maybe as much as 60percent lower than a scheduled commercial airline. Comparing with the maritime sector, even in Port Kelang there are two different operators in North Port and Westport. Such competition is healthy and brings about value for money for clients. It is the same with airport operators, why should we be saddled by one operator in MAHB? If MAHB is open to trends in air travel then they must see that low cost travel is the order of the day. The same principle is applied to passenger travel on the road where Uber and GrabCar e-hailing operation has been allowed in addition to the standard taxi operation because this is the trend. This is how the market wants it. But sadly for air travel MAHB is holding on to monopolised this sector of the industry and do not see the market and its impact created by low cost airlines. This is not a healthy sign as this is against the current trend. Current trends are creations of the market and should not be overlooked.

AirAsia Berhad, which is the largest contributor to the AirAsia Group, displayed impressive operating numbers in the third quarter of this year, with demand growth of 11 per cent year-on-year, outpacing capacity growth of two per cent.

MIDF transport and logistics analyst Tay Yow Ken said this had led to a higher load factor of 89 per cent, increasing the probability that the fourth quarter load factor could breach the elusive 90 per cent milestone. In addition, more rational pricing strategies by competitors have eased pressure on average fares, lending support for AirAsia’s yields to improve.

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"Stronger Together Toards TN50"

A contribution to society from The chartered Institute of Logistics & Transport Malaysia, Sabah Section. Feedbacks can be addressed to ramliamir@cilt-m.com.my

 "Now everyone can fly"

Profiling e-hailing services

Profiling e-hailing services

E-hailing services such as Uber and Grab have now been legalised after the Land Public Transport (Amendment) Bill 2017 was passed in the Dewan Rakyat. Minister in the Prime Minister’s Department Datuk Seri Nancy Shukri said e-hailing services as well as conventional taxis would be supervised by the Land Public Transport Commission (SPAD). It follows therefore that all complaints regarding e-hailing services can now be directed to SPAD and the body will take action accordingly.

All rules and regulations imposed on conventional taxis will be applied to the e-hailing drivers as well and this includes regulations on medical check-ups, periodic vehicle inspections, insurance requirements and drivers’ identification card. e-hailing service providers should be responsible in providing car insurance to the drivers, which also includes insurance coverage for its consumers.

The amendments to Malaysia’s Land Public Transport Act and the Commercial Vehicles Licensing Board (CVLB) Act will allow ride hailing services to operate on an “intermediation business license”, a new category specific for the service. The new license will regulate “the business of facilitating arrangements, bookings or transactions of an e-hailing vehicle whether for any valuable consideration or money’s worth or otherwise”, according to the CVLB bill made available on the Malaysian parliament website.

The Cabinet since last year had agreed to legalise ride-hailing services even as taxi driver associations protested, arguing that their livelihoods were threatened by the private hire services.

                                                                                                                              

This also means that Grab and Uber are set to expand in the region. Grab expects to raise US2.5 billion from investors in a bid to extend its lead over Uber in the region, as major companies aim to tap into Southeast Asia’s developing economies driven by a young and tech-savvy population.

Implementation

On July 27, the Dewan Rakyat passed amendments to the Land Public Transport Act 2010 and the Commercial Vehicles Licensing Board Act 1987. They are scheduled to be gazetted by October for implementation nationwide.

On Aug 1, Land Public Transport Commission (Spad) chief executive officer Mohd Azharuddin Mat Sah held a press conference on the Land Public Transport Act (Amendment) Bill 2017.

The briefing touches on the Taxi Industry Transformation Programme (TITP) that was unveiled on Aug 16 last year, and said the 11 programmes are on track.

The first was to regulate e-hailing as an intermediary service. Azharuddin spelt out the definitions and criteria for e-hailing operators, vehicles and drivers. Many people are not aware that e-hailing included taxi apps such as EzCab, and not just Uber and Grab. All e-hailing operators are required to be locally incorporated, and their vehicles and drivers in Peninsula Malaysia must be registered with SPAD.

The insurance must cover driver, passenger, vehicle and third party. Under the Road Transport Act 1987, all motor vehicles must be insured for legal liability for death or bodily injury to third parties, and this is incorporated in all motor insurance policies. However, the cover could be null and void if the vehicle was driven under the influence of drugs or alcohol, or a private vehicle is used for hire or reward, such as carrying fare-paying passengers. As such, terms and conditions of motor insurance policies for private vehicles must be amended, and premiums adjusted if necessary, when they are used for e-hailing services.

Under the old Motor Tariff, the premium for private vehicles was only RM26 for every RM1,000 under comprehensive insurance, but RM69.80 for painted taxis (metered and non-metered), and RM102.50 for limousine taxis. Insurance cover for painted taxis includes legal liability to passengers. To insure four passengers in a limousine taxi under similar cover, the additional premium was RM78.

As for taxi and e-hailing drivers, they would be covered under the Self-Employment Social Security Act 2017, which was enforced in June. It is compulsory for them to be registered by end of the year, but they will have to pay between RM157.20 and RM592.80 annually.

  

Individual permits

The second programme listed under TITP was issuance of individual permits and cash grant for drivers exiting rental-purchase agreements with taxi companies.

On June 21, 157 metered taxi drivers and 143 non-metered taxi drivers received individual taxi permits, with 43 receiving RM5,000 each for the purchase of a new taxi. Since last September, SPAD has received 3,474 taxi permit applications and approved 1,722.

Since inception in 2010, SPAD had not issued any new permits to taxi companies and this was recently confirmed by Nancy Shukri, when replying to a question in Parliament recently.

The third programme was to liberalise vehicle model for taxis, allowing all vehicle brands and models that achieved a minimum 3-Star safety rating under the Asean New Car Assessment Programme to be used. This move was also in line with small and affordable models, such as the 4-Star Perodua Axia, being used for e-hailing services. But new taxis of various models are not seen on the road.

The fourth programme was to standardise the terms and conditions of rental-purchase agreements between taxi companies and drivers. Half a century ago, the Hire Purchase Act 1967 was passed in Parliament and hire-purchase agreements were standardised.

The fifth programme was to introduce mandatory KPIs for taxi operators. This imposition is certain to upgrade professionalism of taxi companies and drivers but would surely be the death knell for weaker operators and cabbies.

The sixth programme was to impose stringent pre-screening processes on drivers, including health checks, criminal records, traffic offences and violations of SPADs operating licence conditions.

But it would be difficult to filter out those with mental health issues. The National Health Morbidity Survey 2015 by the Health Ministry revealed that 4.2 million out of 14.4 million Malaysians aged 16 and above suffered from mental issues, or over 34 percent.

Use of a merit and demerit system

The prevalence in Kuala Lumpur was higher at 40 percent, and that was for ordinary folk. It would be no surprise the percentage was much higher for taxi drivers, given that many refused to use the meter and were aggressive towards passengers, e-hailing drivers and enforcement authorities.

The seventh programme was to use a merit and demerit system to increase service standards by working closely with RTD to include a full list of offences for taxi drivers under the Kejara Demerit Points System.

The eight programme was to rationalise metered fare structure. The same metered rate would be applicable for all new Teksi 1Malaysia (TEKS1M) and budget taxis. Existing TEKS1M drivers are given the option to migrate or remain with higher fares.

The ninth programme was to rationalise zonal fare using distance-based calculation to ensure consistency and fairness for both taxi drivers and passengers at terminals and airports.

The tenth programme was to allow for dynamic fare for metered taxis providing e-hailing services. While they can continue to collect higher regulated fares as clocked by the meter from street-hailing passengers, taxi drivers may also participate in e-hailing and accept lower fares to run more trips.

The eleventh programme was to implement mandatory training for taxi drivers, which include orientation, entrepreneurship, safety, vehicle maintenance and customer service. Perhaps this is an area where The Chartered Institute of Logistics & Transport Malaysia could play its role by providing for the much needed training to upskill the drivers.

Azaharuddin announced that vehicles to be used for e-hailing services must be lesser than five years from date of registration with RTD, with seating capacity for up to 10 passengers.

These vehicles must be sent for inspections at Puspakom upon reaching their third and fourth year. Taxi drivers too no longer need to send their vehicles for inspections every six months but annually after three years.

E-hailing drivers too are required to have a digital Driver’s Card issued by Spad after they have been certified fit and attended customer service training, in addition to possessing a valid driving licence and free from summonses and criminal record.

Malaysia made history with the passing of the Land Public Transport Act (Amendment) Bill 2017, as it was the first country to legalise e-hailing services. E-hailing operators are now obligated to obtain Intermediate Business Licence from Spad in order to operate legally.

The business scenario

Singapore based Grab operates private car, motorcycle, taxi and car-pooling services across seven countries with 1.1 million drivers, and claims a market share of 95 percent in third-party taxi-hailing and 71 percent in private vehicle hailing in Southeast Asia.

Asia has become the new frontline for U.S. tech companies seeking to grab their share of fast growing markets but the local users still determine which one to go for. Ride-hailing app Uber is one American company confronting local rival in the fight for passengers in Southeast Asia after Singapore's Grab secured $2 billion from Softbank and Didi Chuxing. Uber started offering services in Singapore in early 2013, and expanded to Malaysia later that year. For users already accustomed to the service, the experience was seamless. But for locals, especially in Malaysia, it suffered from three problems. First, it was noticeably more expensive than traditional taxi alternatives. And second, payment could be made via credit card only, despite the fact that consumers strongly preferred using cash. Finally, Uber like other car services in Malaysia suffered from perceptions that it was unsafe, especially for female riders.

Somehow in April 2016 Uber Technologies Inc. was forced  to sell its China operations to rival Didi Chuxing. The brief but spectacular battle between the two ride-hailing operator had cost Uber at least $2 billion. Uber, free of an expensive price war, appears to be able to focus its resources on other markets, including rapidly growing Southeast Asia. That's now going to be a lot harder because GrabTaxi Holdings Pte. Ltd., Southeast Asia's dominant ride-hailing company, announced it had raised $2 billion (with another $500 million on the way) to help it lock up the region. The company was already well ahead of Uber locally, largely due to a deft business plan that focused on meeting the needs of the Southeast Asian consumer, especially in payments. The fresh funds should widen that lead and call into question whether Uber's one-app-fits-all approach to the global ride-hailing business can work. The deal cements an alliance between SoftBank, Didi and Grab, which competes against Uber in markets from Malaysia to Thailand. The Singapore-based ride hailing company said it expects to close another $500 million from unspecified new and existing backers. That would take its valuation north of $6 billion, making it the most valuable startup in Southeast Asia.

On paper, at least, the 10 very different countries in Southeast Asia seems exactly like the kind of market in which a well-capitalized global technology company like Uber should prosper. The region is now the world's fourth largest internet market, with just over half of its  640 million citizens online. The markets are growing rapidly, fuelled by young, middle-class consumers eager to spend.

According to a study conducted by Google and Temasek, Singapore's sovereign wealth fund, the Southeast Asian ride-hailing market is expected to be worth $13.1 billion in 2025, up from $2.5 billion in 2015. Even better, every major Southeast Asian country is expected to have a $1 billion market of its own by then, with ride-hailing making up 15 percent of total travel expenditures in the region.

Uber started offering services in Singapore in early 2013, and expanded to Malaysia later that year. For users already accustomed to the service, the experience was seamless. But for locals, especially in Malaysia, it suffered from three problems. First, it was noticeably more expensive than traditional taxi alternatives. And second, payment could be made via credit card only, despite the fact that consumers strongly preferred using cash. Finally, Uber like other car services in Malaysia suffered from perceptions that it was unsafe, especially for female riders.

Having grown up in Malaysia, Grab's co-founders launched the company in 2012 in large part to solve the security problem. Among other safety related feature, the Grab app allows users to share their journey in real-time with others. The app also includes an emergency button that connects passengers with the nearest police department and, in the interest of protecting female drivers and passengers, the company recently introduced in-car CCTV cameras.

The company accepts cash or credit cards. That appeals to drivers as well as passengers, helping to expand the company's fleet. (Uber begun introducing cash payments as well in major Southeast Asian markets over the last couple years.) Recognizing that many of Southeast Asia's drivers are older and suspicious of technology, and that some can't afford a smartphone, the company has made active efforts to bridge the connectivity gap: The founders themselves have tutored drivers one-on-one at local coffee shops, while the company subsidizes the purchase of smartphones for poorer drivers.

There's no public data available on Southeast Asia's ride-hailing market, but Grab claims it enjoys a 95 percent market share in third-party taxi hailing, and a 71 percent share in private hailing. Indeed, within Southeast Asia, and especially Malaysia and Singapore, it's largely taken for granted that Grab has more cars available.

Grab isn't taking that commanding lead for granted. To further cement its advantage, it has moved into electronic payments. It bought an Indonesian company whose technology allows mobile phone users to pay cash for online credit and its latest round of funding is earmarked to expand GrabPay, an electronic payment system for which customers also buy credits. Grab has been upfront that it envisions transforming itself via GrabPay into a consumer company that offers financial services and shopping, as well as transportation.

It bodes well that at least one other local ride-hailing firm is attempting the same transformation, hoping to fuel its diversification through e-payments. For Uber, however, this is an uphill task in Southeast Asia. With little more to offer than a ride, it's in jeopardy of losing out to smaller companies that has taken advantage of digital technology.

The record financing follows Uber’s retreat from Russia and China, massive markets where Uber spent billions but ultimately giving way to well-financed and savvy local rivals. In Southeast Asia, it’s waging a costly war against not just Grab but also Go-Jek, a motorcycle e-hailing ride, which is holding its own on its home turf of Indonesia. The local players have thus far shown greater initiative in terms of launching services such as digital payments, said Ajay Sunder, vice president of digital transformation at Frost & Sullivan in Singapore.

Grab has been a lot more aggressive than Uber, making new acquisitions and launching new services in the region backed by solid financing. The Grab saga appears to be one of the largest investments in the region.

“Stronger Together Towards TN50”

A contribution to Society from the Chartered Institute of Logistics & Transport Malaysia, Sabah Section. Feedbacks can be addressed to ramliamir@cilt-m.com.my

Sapangar Bay Container Port as National Load Centre to cure Sabah's shipping woes

Sapangar Bay Container Port as a national load centre to cure Sabah's shipping woes

Issues on cabotage has gone quiet for a while. The last that was heard from the Authority is the announcement on exemption to the Cabotage Policy with a lukewarm response from those that has interest in them in Sabah and Sarawak. It has in fact amused the public that there was no details on the mechanism for implementation. What was received from the Ministry of Transport is that, 1.the Prime Minister upon his announcement of the Cabotage Policy Exemption on May 7, 2017, did not set any time frame for the implementation of the exemption. 2. the Minister of Transport also did not set any time frame for the exemption, and 3. that towards this end, the Ministry of Transport has set up a Task Force to assess the effect and impact of the exemption of the Cabotage Policy. These findings will be used as basis for assessment of the effectiveness of the exemption. The assessment exercise is expected to take at least a year.

Looking at it from Sabah's perspective, the author is not at all confident that the Authority will move forward to abolishing the cabotage policy on a probable account that the ship owners association will make a very very strong representation to protect the benefits that they have received as a member of the association, though the public may dispute this that it is time to end the preferential treatment that they have been receiving of which taxation is one that makes for the best part of these benefits which in return there is nothing to show from the association in respect of improving shipping fleets as part of the deal.

The Authority will also be hard pressed to trade off the national interest aspect of the policy in which shipping fleets will be available to the government to make use in time of emergencies where these commercial fleets can be commanded to carry supplies and people as the need be. Sabah for that matter will have to respect this clause in the Ordinance of 1952, that it may help Sabah to resolve issues as it affect them during emergencies.

With the above situation what chance has Sabah got to ensure that its economy can be boosted as a result of the situation that cabotage policy has apparently and in part caused their product becoming uncompetitive for overseas market. I would say lets kiss the issue goodbye and focus on a practical and proven solution to attract shipping activities into Sabah water.

There are basically three interest groups that shipping services and statistics will impact upon in Sabah. They are the ports (Sapangar Bay Container Port specifically), the manufacturers and the government.

Sapangar Bay Container Port

Sapangar Bay Container Port (SBCP) strength is its strategic location along the maritime silk route on the South China Sea. It is midway between the Far East countries and Singapore and Peninsula Malaysia. It can be turned into a transshipment hub for cargoes destined for the East Indonesian market, the Pacific belt and down south to Australia and New Zealand. It is a perfect location for the BIMP-EAGA market.

SBCP is affected in a way that with or without cabotage policy ships will shy away from coming. Although direct shipping services by foreign vessels can visit SBCP even under the cabotage rule, they can only carry such numbers of containers that is required of the Sabah market. However the coming of the ships has to be balanced by the number of containers that they are able to bring back on its return voyage. It has been proven that there is no sufficient numbers that can justify a balanced cargo load for making the trip. What has happened is that, the ship may come but the journey to Sabah can be costly to justify the cost of the voyage. Importers may have to be charged a penalty equivalent to perhaps double the freight cost taking into account the nearly empty load on its return journey. SBCP needs the volume to be considered worthy as a premier port. It can take its time to build on this but it will also take that long for the industry at the backyard to prosper as they depend on the port as their outlet to the market. The question therefore, is there a way to get  those numbers of containers fast?

The answer is YES, not relying on the laws but on a practical solution that has been proven to work. The answer is declaring SBCP as the National Load Centre for cargoes that is carried by ships on the South China Sea route for the Asian market. The Asian market comprises of the groupings or regional cluster of countries of The Far East markets, East Asean region and also the BIMP - Eaga region. These clusters has its own market for the container trades. The capability of the port to handle the number of cargoes that is derived from the cluster will determine which cluster that can best suit the volume that can be effectively handled by SBCP.

On a general assumption, the cluster of the Far East countries comprising China, Japan, Korea and Taiwan will be too large for SBCP to handle in the near future when the expansion project is completed in 2020. SBCP on completion is only forecasted to handle slightly over 1 million teus. The cargoes generated for the far east market account for more than 2million teus. Since it is a big market we have to allow for the freedom of choice for the market to determine which port to use. Ships and shippers are free to choose if to use SBCP or Port Kelang in this situation. A lesser tonnage which will come from the cluster of countries in the East Asean region which comprises basically the Indochina countries of Vietnam and Cambodia, those cargoes generated from the eastern port of Thailand that is port like Laem Chabang and also from the Philippines. It is safe to assume that the cargoes from this cluster will be ably handled by SBCP.

The other cluster comprising of the BIMP-EAGA countries may well be too small a number if this cluster is considered for its cargoes to be handled by SBCP. Further this market has not been fully developed for trading amongst member countries to be commercially realised.

The National Load Centre

National load centre status had been conferred on Port Kelang way back in 1993 via a Ministerial Directive coming from the Minister of Transport. The effect is to cause all cargoes for shipment from the various ports in the country to be shipped via Port Kelang so that there will be a marked improvement of the number of containers handled whilst at the same time each ports will and is free to handle its own container cargoes meant for foreign destinations. The objective of this Directive is to enable Port Kelang to catapult to a higher ranking position in a list of world's busiest ports. This they did and they are now in 12th position and Port of Tanjung Pelepas at 19th position.

Port Kelang has now outlived the necessity of having to rely on the Directive as through the years they have developed their niche market that will enable them to retain their 12th position or so in the world ranking. Will one million teus extracted out of their statistics hurt them? No, as this statistic will still feature in their books only that it may appear in a different category for example either as export or transshipment cargo.

Now to help Sabah's economy to grow, SBCP need the one million teus to enable them to achieve a hive of shipping activities in the shortest possible time to help spur its manufacturing industry, and not rely on building blocks one at a time where it may take a long time to realise the dream of generating this volume of cargo. This reminds us of how Port of Tanjung Pelepas came into being as an international status port with the injection of two million teus brought by Maersk Line when it shift its operation from Singapore. This was immediate. We hasten to think how long would they achieved this status if there was not an immediate injection of the two million teus. The concept is the same here for Sabah. An immediate injection of a sizable volume of container cargo will immediately transform SBCP port to an international status and at the same time spur the economic development of its backyard and manufacturing sector.

Will a Ministerial Directive be had for Sabah? The beauty of this directive is that it doesn’t hinge on the cabotage policy as domestic cargoes will be carried by Malaysian registered ships from ports in Peninsula Malaysia to Sabah and vice versa and the shipment out of Sabah will be a direct shipment to foreign destinations well within the context of cabotage policy. Sabah will therefore be able to operate as a transshipment hub. We take note that cabotage policy does not preclude or prescribe any vessel to make port calls in any port in Malaysia.

With a huge economic potential availed for Sabah as a result of increased shipping activities, investment into the state will also increase and more so for investment for port equipment to enhance its performance to meet new demands and needs due to increased shipping activities.

The Manufacturers

The manufacturers woes is that their product has become uncompetitive overseas as the freight they paid is excessively high due to uneconomic operation of ships without a balanced cargo for both end of the journeys causing the shipping company to charge a higher rate for the container going one way. This means that the freight from say Japan to Sapangar Bay is charged at a higher rate to justify for economics of operations for less than cargo load carried. As is the current situation shipping their products via Port Kelang attracts a far costly freight since there is an element of double handling of the container when it reaches Port Kelang and also the fact is that by going through Port Kelang it will be covering a greater distance compared to shipping it direct from SBCP to the Far East market since distance wise it is much nearer. Journey wise it is tantamount to doubling back to SBCP before proceeding to its destination.

How will the national load centre concept work for them? With increased number of ships plying in and out of SBCP, there is no more issue of penalty to be imposed as there are enough load to carry to and out of SBCP. This will generate increased production for the products and also generate other economic activities for the export market. This is an immediate direct injection of interest in the manufacturing sectors in Sabah arising from an immediate availability of shipping space. If the port were to take its time in coming up with the targeted number of containers to be handled, it will also take time for the manufacturing industry to be rejuvenated.

The State

With increased and improved port performance on handling of arrivals of more ships will denote a vibrant economy. A vibrant economy will attract more investments for the benefit of the state economy.

A national load centre as a concept is the answer to the survival of the state economy especially the manufacturing sectors for both downstream and standalone projects. Reliance on tourism alone as the source of state income and of shipment of crude and raw materials will not provide a broader base for the state economy and therefore lacking in a solid platform for economic survivability.

It will not hurt ship owners in Malaysia as they will still be in business to carry cargoes from within the Malaysian ports. What we need is for ships foreign and domestic alike to bunch into SBCP to create the hives of shipping activities which will allow our local products to be shipped directly to East Asian and including the Far East markets much more cheaply than before. At the same time with opportunities such as this being available for our exporters more investments will pour in to take advantage of this situation and creating more export products and a healthy state economy.

Ramliamir is a member of the Chartered Institute of Logistics & Transport Malaysia. He can be contacted at ramliamir@cilt-m.com.my

Logistics and transport as the catalyst for economic development in Sabah

Our prime minister had made a very important statement regarding the East Coat Rail Link  (ECLR) for the East Coast states in Peninsula Malaysia in that it is a mean to close the gap between the varying development progress between the regions in the country especially between the East and West coast of peninsula Malaysia. So transportation is a critical factor in ensuring development of economic activities. With the implementation of the ECLR the gross domestic product (GDP) of the three east coast states is projected to grow by 1.5%. It will change the economic landscape of Kelantan, Terengganu and Pahang turning them into trade hubs, tourism destinations and new investment focus. It is a game changer that would spur higher growth.

By the same token, Sabah has a mega transport project that would be a game changer for Sabah and that is the Pan Borneo Highway to improve connectivities and spur development along the highways in the hope that it would be a catalyst for economic  activities, especially in manufacturing to take place.

In addition, the construction of the East Coast Rail Line (ECRL) for Sabah's East Coast can change the landscape of Sabah's east coast with the opening up of the district’s economy through rail access.

The same goes for the construction of rail lines in terms of commuter rail service to serve Kota Kinabalu and its suburban districts. A good linkage between Sapangar Bay Port (SBP) and the Kota Kinabalu Industrial Park (KKIP) is an absolute must if we want to see SBP as a new kid on the block in transhipment makes the impact that it had been hoped for. It is however well noted that a tunnel had been dug to provide for a shorter access to the KKIP to make way for faster and cheaper cargo transportation from Sapangar Port to the KKIP. KKIP is an important landside depot as it helps the port to quickly clear space in the port area thereby avoiding congestion of operation within the port.

The creation of a superior port must be supported by a host of related industries and activities and that one cannot wait for the other to exist before it is started. It has to be in tandem so that it would create the lure for investors yearn for bringing in the much needed activities to generate its industries.

Planning is a total and holistic approach to ensure that critical industries and sectors are served.  Investors will look at what is the current status of the economy of Sabah, re the concrete plans that had been approved to make the plan happen. Only then will investor be happy to commit investing in Sabah.

Take for example the palm oil industry. It is a huge business where Sabah produces about 40% of the nation's output but Sabah cannot take advantage of this in developing down streaming of activities of this industry. Since there is no manufacturing activities that will be generated, our logistics industry will also suffer with no land transportation activities to be seen and thereby no port container operation taking place. We are missing on the spectrum of pushing our economic activities to a greater height by not down streaming the palm oil industry.

We use to say that in the transport and logistics sector planning must precede the demand and therefore the supply of the infrastructure must be made available first so that it will generate traffic. There are many a time that activities will only happen when they see that there are facilities available for them to plan and suit their needs and activities.

So in general it is a question of the hen or the egg first. Government would have to be strong in committing to creating an environment that will create a conducive window for development. Such planning frame does not happen here as the budgetary constraints will always be for the obvious necessities but not those that is a future necessity which if done now could make for great savings in cost rather than wait for the time when it is to be implemented at an exhorbitant cost but has to be implemented as it has become a critical need.

Railway is expensive. That is why rail planning must have a parallel development strategy. It has to be measured by the performance of other competitive modes such as road and air. In our case, it therefore requires not only careful planning but also has to be accompanied by long-term strategic policies that will reverse the domination of the road transport sector. We have definitely been road- or highway-biased, preferring to invest heavily on highways and focus more on cars as a mode of transport.

It is therefore quite refreshing when a leader, in reference to our Prime Minister on the development of the East Coast Rail Line, touches on the importance of rail and how it can play a significant role in the future transport sector. A rail system, for its rigidity and fixed route, needs to have other supporting infrastructure that will make it work. With the right support and connectivity, it can, after all, be made to be more efficient than road transport.

Since it can also accommodate more traffic (freight and passengers), a well-planned railway, of an appropriate design, speed and technology, can outperform road mode in terms of better travel time and capacity. It is, after all, a cheaper mode of transport and less polluted.

Planners must incorporate the need to connect the existing network with a new rail network, so that connectivity can be enhanced and the future network expanded.

This is strategic planning for the transport and logistics sector, a statement that  we often find missing and definitely lacking in many transport project planning documents or blue prints.

We are also hoping that projects developed and harnessed under the Sabah Development Corridor (SDC) would all be successful so that it will add to the economic well being of the state. Logistics being one of the pillar in transforming Sabah’s economy in the context of the SDC would provide for a seamless impetus and kickstarts to many projects that is being undertaken privately. Only when state development plans like the SDC is well in placed woul eventually spur investments and development coming into the state.

Graduate Unemployment in Malaysia

"The top industry that leads the job market is in the Manufacturing & Logistics sector"

Every year over 200,000 students graduates from institutions of higher learning. Being a university graduate no longer guarantee a job. As the number of graduates climb each year, students are facing tough competition amidst a shaky economy. This article seeks to state the facts why fresh graduates are unemployed in Malaysia, and what can be done to increase employability.

Unemployment issue in Malaysia

Research has it that one of the factors that contribute to the unemployment problem among the Malaysian graduates is the quality of the graduates.

There are employers in the industry, who gave negative comments on the graduates and mentioned that the graduates do not have suitable skills and qualifications to meet the needs of the industry. The graduates are also weak in respect of employability skills and lack of good quality work performance.

A study conducted by Central Bank of Malaysia in 2002 also found that the Malaysian graduates are less skilled as compared to the international graduates. The skills include technical skills, problem-solving skills and communication skills, especially in English language. Research also found that several primary weaknesses of Malaysian graduates are in the areas of management, problem-solving, communication, leadership, creativity, critical thinking, proactive, self-confidence and interaction skills.

These are obstacles for the graduates in finding jobs. It was also stated the several factors also contributed to the unemployment problem among the graduates such as the lack of the interactions between educational institutions and the industry resulting in the lack of training to prepare graduates for the real world.

Industries has also reported that the reason for job vacancies is because of lack of candidates who are qualified for the posts. This is shown from a report by National Associated of Manufactured (NAM), in which it is revealed that there are gaps exists in the range of skills in almost all of the working fields. Consequently, this is the reason that makes a candidate not selected for failing to meet the requirements of the industry.

A study conducted in 2008 found that graduates of Higher Educational Institutions in Malaysia has minimum preparation in facing the challenges posed by globalization and k-economy phenomena. This situation may result in the hiring of foreign workers.

A good academic achievement therefore is no longer a guarantee for our graduates to land a job. Since there is a big gap between the quality levels of the Malaysian graduates with that expected of an international standard, this provides us with a big challenge in order to ensure that our country has skilled, versatile and marketable graduates.

Human capital theory state that human capital that has a high knowledge and skills contribute to the increase of the country’s economic productivity. It also stated that a high investment in producing useful human capitals is important as long as it give high and positive impacts to the economic productivity.

The Current Scenario

Finding shows that unemployment in Malaysia is concentrated among the youth. About 200,000 students graduate annually where one in four fresh graduates remain unemployed six months after graduation. Six out of 10 of those unemployed are below the age of 24.

Among fresh graduates with tertiary education 31.4% degree holders are unemployed, of which 43.4% come from the arts and social science. The Field of studies breakdown are, Arts & Social Science 43.4%, Technical 24.5%, Science 20.2%, ICT 8.1% and Education 3.9%.

The majority of unemployed fresh graduates are from public universities (IPTA) at 51%, 34% from private Universities (IPTS), 13% from Polytechnics, 2% from Community Colleges. Based on Job Street Survey, 64% of employers said they did not care whether graduates were from foreign, private or public universities.

As per JobStreet survey, employers are saying that 68% of fresh graduates were asking for unrealistic salary and benefits, with 30% expecting a starting salary of RM6,500. Top reasons for fresh graduates unemployment are poor attitude or character 59%, poor command of English 64%, and poor communication skills 60%. Employers also felt graduates lacked adaptability, multitasking skills, decision making skills and problem solving skills.

Job postings on JobStreet only fell 1% in 2015.  88% of employers stated that they are maintaining or increasing hiring in 2016.

The top 5 industries leading the job market are manufacturing and logistics, banking & financial services, construction, ICT, and wholesale & retail.

The top three specialisations that is in high demand are sales & marketing, accounting and engineering.

The technology related jobs that are trending are cloud related jobs, mobile developers, SEO/SEM specialists, UI/UX designers and digital/social media marketing specialists.

How to increase employability

·         Improve proficiency in english. The majority of companies conduct their business in english, so it is critical to be proficient. They must practise both written and oral english, surround themselves with the english language and to keep improving and learning. It is a marathon not a sprint.

·         Gain work experience. This allows one to observe how skills, ideas and knowledge are applied in the working world. This can be done by taking up an internship during semester breaks, participate in job shadowing programmes and to take part in extracurricular activities.

·         Develop skill sets to be more well-rounded. Straight A's, 1st class honours or a CGPA of 4.0 does not guarantee employment.Hard skills in computer literacy, numeracy, writing skills and language skills need to be learned and developed. Soft skills such as communication, problem solving, creativity & innovation, time management and teamwork are also crucial.

·         Be responsible. One in three employers stated that candidates often fail to turn up for the interview. One must prepare well for the interview, must be appropriately dressed and most importantly to show up for the interview.

What it meant is that candidates should develop transferable skills, not just specialist skill, to enable them to do other job roles.