Malaysia: The Malaysian Cabotage Policy

Last Updated: 28 April 2015
Article by Chris Metcalf

At a time when many offshore support vessel ("OSV") owning companies are struggling due to the global fall in oil prices and over capacity, those owners with partnerships across the region which allow them access to cabotage areas are perhaps faring better than their competitors. Malaysia in particular is a cabotage area that is still viewed by some as an area of potential growth.

Malaysia consists of three federal territories and thirteen states located in Peninsula Malaysia (bordering Thailand) and East Malaysia in the island of Borneo (bordering Brunei and Indonesia).  On 1 January 1980, the Government of Malaysia implemented a national cabotage policy with an aim to protect and promote a strong national shipping-owning industry. The Merchant Shipping Ordinance 1952 ("MSO") was amended and Part IIB was introduced.

Section 65B of the MSO establishes a Domestic Shipping Licensing Board (DSLB) with the power to issue licenses and Section 65L provides that no ship shall engage in domestic shipping without a license.

"Domestic Shipping" is defined as the use of a ship:

(a)      to provide services, other than fishing, in the Federation waters or the exclusive economic zone; or

(b)      for the shipment of goods or the carriage of passengers:

          i) from any port or place in Malaysia to another port or place in Malaysia; or

          ii) from any port or place in Malaysia to any place in the exclusive economic zone or vice versa.

The MSO further provides that only a Malaysian ship may engage in domestic shipping.  Section 11 of the MSO sets out the requirements of a Malaysian ship as a ship which is wholly owned by-

a)        Malaysian citizens; or

b)       corporations which satisfy the following requirements:

          i) the corporation is incorporated in Malaysia;

          ii) the principal office of the corporation is in Malaysia;

          iii) the management of the corporation is carried out mainly in Malaysia;

          iv) the majority of the shareholding including the voting share of the corporation is held by Malaysian citizens free from any trust or obligation in favour of non-Malaysians; and

          v)  the majority of the directors of the corporation are Malaysia citizens.

The Malaysian cabotage policy includes ships used in the offshore industry within its exclusive economic zone. However, ships under 15 nett tonnes and licensed boats are excluded.

In 2009 there was a partial liberalisation of the policy allowing the carriage of containerised transhipment cargo between certain ports in Peninsula Malaysia and East Malaysia and more recently, in 2012 an exception was made for passenger cruise ships

The master, owner or agent of any ship which contravenes these provisions will be guilty of an offence and upon conviction be liable to a fine. A vessel may be boarded and/or detained by the port officer to facilitate investigations into possible offences.

It is recognised however that in some cases there may be insufficient Malaysian ships to meet domestic demand.  This has certainly been true in the offshore shipping industry.  There are provisions which therefore allow a foreign ship to engage in domestic shipping upon proof that there are insufficient Malaysian ships to meet current demand.  In such cases the applicant for the domestic shipping license must first obtain endorsement from the Malaysian Shipowners' Association (MASA).  However, such licenses are only granted on a temporary basis up to a maximum period of 3 months. For Malaysian ships, licences may be granted either with or without conditions for a period of between 6 months to 2 years.

Clyde & Co's trade & marine team in Singapore acts for a number of OSV owners and regularly advises on Malaysian related matters.  When Malaysian legal advice is required, we work closely with Malaysian correspondent lawyers. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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