Malaysia sees container spillover as shippers divert away from China

The US-China trade tensions have created temporary container spillovers for Malaysian ports, posing both challenges and opportunities for the country’s logistics industry in the long term.

port-of-tanjung-pelepas

Port of Tanjung Pelepas, Malaysia (Photo: Amcham/Phaata)

KUALA LUMPUR: Malaysian ports are expected to maintain high container throughput in the coming months, despite the 90-day “grace period” the US has granted China to renegotiate tariffs.

Maritime scholar and commentator Nazery Khalid said Malaysia has experienced positive spillovers from the US tariffs on China, especially at its ports.

These ports have benefited from the diversion of containers carrying finished and semi-finished goods that were originally destined for the US.

He told the Business Times that many US importers, especially small and medium enterprises (SMEs), are cancelling orders or rejecting shipments from China. As a result, these containers either go unclaimed at US ports or are sent back.

Mr. Nazery explained that when faced with higher costs, these SMEs prefer to abandon their goods rather than absorb the tariffs or pass on the increased costs to their customers, which could hurt their businesses.

At the same time, returned containers or those that never left China for the US are being diverted to other countries, including Malaysia, which also imports a lot of finished and semi-finished goods from China.

“This has resulted in several Malaysian container ports reporting an increase in throughput volumes in the months following the announcement of US tariffs on China.”

“A large share of these containers comes from intra-Asian trade, mainly from Chinese ports, which dominate the list of the world's top 20 busiest container ports by volume,” he added.

While a recovery in containers from China to the US is expected to occur after the grace period ends, Nazery said it is likely to happen by the end of the third quarter of this year.

This is because shippers and shipping companies operating on the China-US route are “frontloading” their shipments and services before the 90-day “breathing period” expires.

In the meantime, he said Malaysian ports are likely to continue handling higher-than-normal container volumes for the next two to three months, until US-China seaborne trade stabilizes after the disruption caused by the tariff standoff.

He noted that the 90-day period granted by the US expires in mid-August, making it unlikely that normal trade flows between the two economic superpowers will resume before then.

However, given the unpredictability of US President Donald Trump, it remains unclear what he will do after the 90-day trade embargo on China ends.

“Should he stick to his 90-day timetable, container bookings, shipping services, and freight rates in the Trans-Pacific trade between China and the US can be expected to rebound from current lows.”

“Malaysian ports will likely cease to enjoy the purple patch of container spillover and return to handling normal container throughput volumes once order has been restored between the US and China,” said Mr Nazery.

Seizing opportunity in uncertainty

Malaysia’s maritime industry may face both challenges and opportunities if global supply chains shift due to US-led efforts to reduce reliance on China.

Mr Nazery said the Trump administration could push US companies to “re-shore” production closer to home in an effort to revive domestic manufacturing and reduce reliance on China.

He said that while such a shift would take time, given the global supply chain order that has been firmly entrenched over decades, Malaysian exporters and logistics providers risk losing long-term business to US companies looking for shorter, localised supply chains.

“Our ports and logistics service providers could also find themselves handling fewer US-bound cargoes should the re-shoring shift of suppliers from Asia Pacific or Southeast Asia to the US or to neighbouring countries or regions materialise,” he added.

However, Mr Nazery said the disruption could also spur Malaysian companies to innovate and move up the value chain. Instead of producing low-cost goods that can be easily replaced elsewhere, he said local companies could focus on higher-value, specialised products.

“The US-China tariff war could also motivate Malaysian ports, shipping companies, and logistics service providers to upgrade their infrastructure and strengthen their human capital.”

“This, in turn, would help them improve efficiency, productivity, service quality, and cost competitiveness, ensuring they remain relevant and are not bypassed, regardless of future developments,” he added.

At the regional level, Nazery said Malaysia could use its ASEAN chairmanship to push forward a number of key initiatives.

These include boosting intra-Asia trade, deepening economic integration, and enhancing ASEAN’s attractiveness as a destination for foreign direct investment.

He added that Malaysia could also work to strengthen governance, reduce trade barriers, harmonize trade rules, and promote good regulatory practices and transparency.

“The decoupling of the US economy from China could become a powerful force that reshapes Asean,” said Mr. Nazery.

“It may allow the region to fully realise its potential, assert itself as a significant player on the global stage, and demonstrate its readiness and resilience in facing shocks such as the tariff war and its geopolitical impacts.”

Strategies to enhance maritime competitiveness

To remain competitive in today’s increasingly borderless, hyper-connected and digitalized global economy, Mr. Nazery said Malaysia must transform into a more value-added, knowledge-based and innovation-based economy.

He noted that despite its strategic location and access to major shipping routes, the country’s economy remains heavily reliant on the assembly of low-value goods and the export of raw materials, missing out on downstream opportunities.

He cited national initiatives such as the National Smart Manufacturing Plan in the New Industry Master Plan 2030 and the National Fourth Industrial Revolution Policy as positive steps to automate and modernize the manufacturing sector and enhance industrial capacity.

However, he stressed that the key success factors identified to achieve the goals of those plans must be consistently implemented to ensure they are met.

These include establishing a supportive ecosystem that provides incentives, improves infrastructure, develops human resources, and promotes the adoption of Industry 4.0 technologies and solutions.

He added that policymakers, ports, shipping companies, logistics service providers, shipyards, and other stakeholders in the maritime industry must collaborate more closely.

Their cooperation is essential to keep Malaysia’s ports attractive to global shipping lines and to enhance the country’s integration into global supply chains.

“In this way, we can shield ourselves better from the vagaries of the VUCA (vulnerabilities, uncertainties, complexities, and ambiguities) landscape and minimise the impact of game-changing global events like the tariff tiff, or even position ourselves to benefit from them.”

“All these must be done without compromising the need to safeguard the environment, practise good governance, and adhere to international standards and rules, as long as they do not conflict with our policies and our national and strategic interests,” said Mr Nazery.

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