Reducing Unnecessary Regulatory Burdens on Business (Rurb)

REDUCING UNNECESSARY REGULATORY BURDENS ON BUSINESS

(RURB): LOGISTICS SECTOR PAGE Content i Foreword ii Abbreviations iii Glossary vi Overview x Key points xiv

1 About the Review 1 About the review, The 10th Malaysia Plan: Modernizing Business Regulation, What the MPC has been asked to do, Approach and rationale of this review, Conduct of the study, Structure of the report

2 Logistics Economic Performance 10 Introduction, Overview of Malaysia’s economic competitiveness, The Malaysian economy, Trade in goods and the industries, Mode of transportation, Infrastructure

3 Regulatory burdens: Core concepts 32 Why regulation? Regulatory burdens, Unnecessary regulatory burdens, Good governance and best practice regulation, Approach to regulatory design, Government Initiative in best regulatory practice, Complexity of regulations in logistics, Costs of regulatory compliance

4 Logistics value chain 52 Introduction, Overview on Logistics Value Chain, Key Elements for Value Chain Analysis for RURB, The Seven-step Sea Freight Transportation Model, Logistics Value Chain Models, Sea Freight Logistics Stakeholder Analysis, Standard Industrial Classification of Freight Logistics, Logistics Trade Directory, Appendix

5 Logistics stakeholders 85 Introduction, Ministry of Transport Malaysia, Bilateral and International Agreements, Royal Malaysian Customs, Land Public Transport Commission, Road Transport Department, Permit Issuing Agencies for Cross Border Trading, Trade Associations and Chambers of Commerce as Intermediaries, The Logistics Businesses, Conclusion

6 Regulatory issues in freight logistics 116 Introduction, Regulatory issues from shippers, Issues from freight forwarders, Issues from containers hauliers, Issues from Port Operator and Free Zone Operator, Concluding remarks

Appendix – Issue Paper 156

FOREWORD

It is through regulation that the government can leverage its policy interests on businesses. Good regulation and regulatory practices contribute to a range of social, environmental and economic goals. However, many regulations are not implemented efficiently or cost-effectively, and as a result many regulations do not achieve the intention for which they are designed.

In the 10th Malaysia Plan, the Malaysia Productivity Corporation (MPC) is mandated to review those regulations affecting the conduct of business in Malaysia with the aim of modernizing business regulations. This is import for the country to move towards becoming a high-income nation. Here MPC has embarked on the review of existing business regulations focusing on the 12 National Key Economic Areas (NKEA).

In this study, the research team headed by Mr. Goh Swee Seang has been asked to study the unnecessary regulatory burdens in the logistics industry and to recommend options for reducing them. For this particular study, the focus is on the sea freight logistics chain as this is crucial to our export-oriented economy.

The study emulated the approach used by the Australian Government Productivity Commission (AGPC) and the team was guided by a regulatory expert previously from the AGPC, Ms. Sue Holmes. The team selected a sample of logistics players in freight logistics in the major export gateway, i.e. Port Klang, and carried out interviews with the business representatives to identify the issues of concern relating to the various regulations imposed upon the logistics activities. From these issues and using principles of good regulatory practices, the team has formulated feasible options for further public consultation with relevant stakeholders in order to develop concrete recommendations for reducing the unnecessary regulatory burdens.

In the course of the study, the MPC benefited greatly from discussions with the manufacturers, logistics players and their associations. The MPC is grateful to all those who assisted in this. The contributions from all those respondents during the interviews for the Draft Report are duly noted.

Director General MPC

ABBREVIATIONS

AEC ASEAN Economic Community AELB Atomic Energy Licensing Board AFTA ASEAN Free Trade Agreement AMH Association of Malaysian Hauliers AMCHAM American Chamber of Commerce APA ASEAN Port Association APGC Australian Government Productivity Commission ASEAN Association of South East Asian Nations ATIGA ASEAN Trade in Goods Agreement BMI Business Monitor International BOMBA Fire & Rescue Department of Malaysia BOD Board of Directors BOP Balance of Payment CA Current Account CBL Customs Brokerage Licence CE Certified Exporter (ATIGA) CIF Cost-Insurance-Freight CO Certificate of Origin COAG Commonwealth of Australian Government CVLB Commercial Vehicles Licensing Board DAP Delivery-At-Place DB Doing Business Report (World Bank) DCA Department of Civil Aviation DDP Delivery-Duty-Paid DDU Delivery-Duty-Unpaid DG Director General DOE Department of Environment DOS Department of Statistics DOSH Department of Occupational Safety and Health EIU Economist Intelligence Unit ePCO Electronic Preferential Certificate of Origin EPU Economic Planning Unit ETP Economic Transformation Programme EU European Union EUMCCI EU-Malaysia Chamber of Commerce and Industry EURO4 Euro 4 standard fuels that only have 50 PPM of sulphur DG Director General FAMA Federal Agricultural Marketing Authority FCZ Free commercial zone FDI Foreign Direct Investments FIZ Free industrial zone FMM Federation of Malaysian Manufacturers FOB Freight-On-Board FTA Free Trade Agreements FZ Free Zone GATT General Agreement on Tariffs and Trade

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GDP Gross Domestic Product GHS Globally Harmonized System GMP Good Manufacturing Practice GSP General System of Preference GST Goods and Services Tax ICAO International Civil Aviation Organisation ICE International Cotton Exchange IMO International Maritime Organisation IMP Industrial Master Plan IT Information Technology JACTIM Japanese Chamber of Trade and Industry, Malaysia JLOA Johor Lorry Operators’ Association JPJ Road Transport Department (Jabatan Pengangkutan Jalan) JoFFA Johor Freight Fowarders Association KPC Kuantan Port Consortium Sdn Bhd LCL Less Container Load LMW Licensed Manufacturing Warehouse LNG liquefied natural gas LPI Logistics Performance Index LVC Logistics value chain LPB Bintulu Port Authority (Lembaga Pelabuhan Bintulu) LPJ Port Authority of Johor (Lembaga Pelabuhan Johor) LPKTN Kuantan Port (Lembaga Pelabuhan Kuantan) MABC Malaysia Australia Business Council MAQIS Malaysian Quarantine Inspection Services MAFF Malaysian Associations of Freight Forwarders MATRADE Malaysia External Trade Development Corporation MDM Marine Department of Malaysia MDTCC Ministry of Domestic Trade, Co-operatives and Consumerism MGCC Malaysian-German Chamber of Commerce and Industry MHA Malaysian Hauliers Association MIDA Malaysian Investment Development Authority MIMA Maritime Institute of Malaysia MIROS Malaysian Institute of Road Safety Research MITI Ministry of International Trade and Industry MSIC Malaysian Standard Industrial Classification MOF Ministry of Finance MOH Ministry of Health MOT Ministry of Transport MOW Ministry of Works MPC Malaysia Productivity Corporation MTBE methyl tertiary butyl ether myTRADELINK Malaysia Portal for Trade Facilitation MyCC Malaysia Competition Commission MYEG MY E.G. Services Bhd. NDWT New Deep Water Terminal (NDWT NLT National Logistics Taskforce NKEA National Key Economic Area

NPDC National Policy Development Council NPDIR National Policy on the Development and Implementation of Regulations OECD Organisation for Economic Co-operation and Development OGA Other Government Agencies PCO Preferential Certificates of Origin PDRM Royal Malaysia Police (Polis DiRaja Malaysia) PFFA Penang Freight Forwarders Association PEMANDU Performance Management & Delivery Unit PEMUDAH Special Taskforce to Facilitate Business (Pasukan Petugas Khas Pemudahcara Perniagaan) PIA Permits Issuing Agencies PKFZ Port Klang Free Zone PPC Penang Port Commission PTK Customs Orders (Perintah Tetap Kastam) PUSPAKOM PUSPAKOM Sdn. Bhd. QMS Quality Management System R&D Research and Development RAC Railway Assets Corporation RIA Regulatory Impact Analysis RIS Regulatory Impact Statement RMC (JKDM) Royal Malaysian Customs (Jabatan Kastam DiRaja Malaysia) ROO Rules of Origin RSD Road Safety Department RURB Reducing Unnecessary Regulatory Burdens SCPP Self-Certification Pilot Project (ATIGA) SFFLA Selangor Freight Forwarders and Logistics Association SME Small and Medium Enterprise SPAD Land Public Transport Commission (Suruhanjaya Pengangkutan Awam Darat) SOP Standard Operating Procedure TAP Temporary Approved Permit TEU Twenty-foot equivalent units TERAJU Bumiputera Development Agenda Unit UN/CEFACT United Nations Centre for Trade Facilitation and Electronic Business Westports Westports Holdings Bhd. WMS Warehouse Management System WTO World Trade Organisation

GLOSSARY

Bill of Lading (B/L) A freight transport document issued by an ocean carrier to a consignor (the shipper) which serves as (1) a receipt for the goods delivered to the carrier for shipment, (2) an expressed definition of the contract of carriage of the goods and (3) a document of title to the goods described therein. Fundamentally, a B/L is a contract between the Shipper and the carrier. The Consignee needs the original B/L (usually in a set of 3 originals) as proof of ownership in order to take possession of the goods at Destination Port. A B/L is usually drawn “To Order of the Shipper” or to a “named consignee”. The purpose of the endorsement is to protect the Shipper‘s interest against the Buyer’s obtaining the merchandise before the Shipper has been paid or accepted the draft drawn from his bank. Conflict of interest When a registrant allows their personal or private interests to interfere with their patient's best interests they have breached the fiduciary duty of trust and in effect entered into what ethically and legally is referred to as a conflict of interest.

Consignee The person or entity named in a freight transport document (e.g. Bill of Lading) to whom the goods have been consigned to or to be handed over.

Customs (Customs The Customs Department can be regarded as “the key Authority) border agency” responsible for all transactions related to issues arising from the border crossings of goods. Some of these functions are undertaken in close cooperation with other national border agencies, referred to as “Other Government Agencies (OGA) or “Partner Government Agencies (PGA)”.

Customs brokerage Corporations, partnerships and associations must have a licence broker license to transact Customs business. Each of these businesses must have at least one individually licensed officer, partner or associate to qualify the company's licence.

Customs Broker A company approved under section 90 of the Customs Act, (aka forwarding 1967 to make customs entries and obtain customs agents) clearance of the goods on behalf of the exporter or importer. Also referred to as “forwarding agent” under the Customs Act. They are private individuals, partnerships, associations or corporations licensed, regulated and empowered

Customs to assist importers and exporters in meeting regulatory requirements governing imports and exports.

Customs A declaration of the necessary data submitted to Customs Declaration Authority for the procedure to get the cargo released by Customs through designated formalities such as presenting Commercial Invoice, import or export license, approved permits and payment of duties. The formalities may include interaction with relevant border agencies, like health / agricultural / safety inspectors.

Dangerous drug Means any drug or substance which is for the time being comprised in the First Schedule of Dangerous Drugs Act 1952 (Act 234)

Delivery Order (DO) A document issued by a carrier authorizing a third party (like or electronic Port Operator), whom appointed as his subcontractor, to Delivery Order deliver or release a consignment, to a nominated party of (eDO) the cargo (like the Customs Broker). This document is only issued by a carrier upon surrendering a bill of lading and payment of relevant shipping charges by the consignee. This document can also be issued electronically (eDO).

Destination Port or The destination port at which the cargo are discharged from Port of Discharge the vessel. When transhipment is needed, there could a number of intermediate ports of discharge involved until it reaches the final destination port.

Errand-runner … is a personal assistant and concierge service dedicated to improving clients' lives by providing reliable, efficient and confidential service. The person may serve as go-between, messenger, despatch bearer, person assistant, among others.

Exporter (Shipper) The party who contracts with the carrier to carry goods from point of origin to the final destination under agreed conditions and price (freight rate). Also known as “Consignor or Exporter” in certain documents and the party receiving the goods is called “the Consignee or Importer”. The conditions under the carriage of carriage are stipulated in the bill of lading. Depending on the Incoterm chosen, either the Exporter or the Importer (via an intermediary like a freight forwarder) can be a shipper.

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Factors of They are the resources of LAND, LABOUR, CAPITAL and production ENTERPRISE used to produce goods and services.

Freight forwarder An independent service provider (intermediary) who, at the (aka Forwarder) request of the Shipper or Consignee, makes arrangements and provides the necessary services for expediting the shipment to its destination. Generally, a freight forwarder would combine various “Less than Container Load” shipments to make a full container and takes care of documentation needed to move the shipment from origin to destination, preparing and presenting such documentation (e.g. B/L) to the exporter. When a freight forwarder provides the consolidated services, he may issue his “house bill of lading” and in his doing so, would accept responsibility for the cargo.

Gate Pass A document issued by the Port Operator to the party (acting on behalf of the Consignee) authorizing him to take the goods out of the port.

Good Good manufacturing practice (GMP) is that part of quality manufacturing assurance which ensures that products are consistently practice (GMP) produced and controlled to the quality standards appropriate to their intended use and as required by the marketing authorization (WHO).

Logistics It is the process of planning, implementing, and controlling Management the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.

Logistics value It is part of an enterprise’s value chain, which includes such chain external logistics activities as delivery of raw materials and finished goods, and also involves such internal logistics activities as production and selling. National Single “Single Window” is a concept of governance in which Window - NSW traditional structures of government are transformed into (origin) new arrangements that best serve the needs of businesses. Under a “Single Window” approach, businesses would receive government services through a single interface. The single window is essentially government to government (G2G), government to business (G2B), and business to government (B2G) exchanges. Adopted in varying degrees around the world, the single window concept is essential to

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modernizing import and export processes, increasing compliance with various laws and regulations, more closely harmonizing the governmental and business interest in importing and exporting, and breaking down international trade barriers

Origin Port or The origin port at which the cargo is loaded onto the vessel Loading Port upon its arrival.

Poison Means any substance specified by name in the first column of the Poisons List and includes any preparation, solution, compound, mixture or natural substance containing such substance, other than an exempted preparation or an article or preparation included for the time being in the Second Schedule of the Poison Act 1952 (Act 366)

Port Operator Port Operator serves as key role in maritime freight as critical nodal interfaces where maritime transport connects with other modes of transport and where trading, distribution and logistics activities can take place. Port Operator generally is the appointed subcontractor (by the shipping agent) to load and discharge cargo onto or from vessel whilst import.

Rent-seeking When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.

Shipping Agent Either at the port of loading (Origin Port) or discharge (Destination Port), the Shipping Agent acts as an agent to manage marketing service, operations issues and also to liaise with the local authorities; like the local port authority, the customs department, the marine department and the health department. Trade facilitation WTO defines trade facilitation as the simplification and harmonisation of international trade procedures where trade procedures are the ‘activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade’. Trade Facilitation The Trade Facilitation Agreement contains provisions for Agreement expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other

appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.”

Overview

The logistics chain is complex and comprise of many types of business activities. From a logistics value chain perspective, there are two distinct value chains: freight logistics – the transportation, storage and distribution of goods, and passenger logistics chain – the moving of people. This review is about sea freight logistics, i.e. the movement of cargoes from the origin through the ports in exportation and the reverse in importation.

The complexity of freight logistics come about from the vast variety of goods handled, the different modes of transportation, the huge range of logistics activities and the number of businesses involved. Compounding the complexity of the logistics chain is the numerous regulations, regulators and their supporting agencies. Regulatory complexity itself contribute to the many unnecessary regulatory burdens as a consequence of fragmentation (of the value chain), regulatory duplications, spill-over, restrictions and other unintended barriers to higher productivity. This review tries to capture these and to suggest options on mitigating them.

Due to the complexity of the goods economy and with the large number of regulations in logistics the regulatory regime becomes highly complex. The overview of the economic analysis provides the basis for limiting the scope to sea freight logistics chain. The economic analysis also focused the study towards the major gateway for sea freight logistics, that is, Port Klang. However, limiting the focus of the review is not to limit the geographical scope. Should the preliminary result shows the need to extend beyond Port Klang, the study will respond accordingly. As such the study does not cover the total logistics chain nor does it cover the whole country.

The value chain analysis helps to identify the key business stakeholders in the sea freight logistics chain. The logistics value chain identifies the logistics business activities and thereby the key businesses and the intermediaries in the chain. The voices for the logistics businesses are captured from their respective trade associations and their members. Similarly, the value chain analysis also identifies the Government stakeholders. They are the regulators and the outsourcing partners that enforce existing local regulations and international trade agreements.

The central party to the strategic development of logistics in the country is the Ministry of Transport. The MOT formulate policies, develop strategic plans, initiate policy actions, oversees the logistics industry, implement and enforce regulatory requirements and provide the necessary institutional frameworks for public-private collaborations. The MOT are also involve in trade facilitation particularly on international movement of goods. This is to ensure that the national logistics chain are

x harmonized with the global logistics chain. In the local logistics value chain, the main regulatory purview of MOT is on the transportation and handling of goods and services (passengers). This modes of logistics services covered are the road rail, sea and air transportation.

Other ministries and their agencies are also involved in the continuing development of the logistics chain. There are about 27 permits issuing agencies (PIA) under various ministries that enforce specific regulatory requirements for the movement of goods across borders. These PIA ensure that the goods coming into the country do not have negative environmental impacts. The environmental aspects include safety and health of the people, the impact on the physical environment (land, air and water) and the biodiversity of the country. Other PIA act to protect the economic environment which includes the development of local industries, notably the SMEs, and their ability to compete fairly.

The Ministry of Finance has policy influence in a number of areas in the development of logistics activities. Many of the policies are implemented through the Royal Malaysian Customs. The Customs main responsibility for tax revenue collection through Customs excise duties also acts as gatekeeper to the movement of goods across borders.

Until recently, the regulatory regime in the country has not kept up with global good regulatory practices. However, with the launching of the National Policy on the Development and Implementation of Regulations in July 2013, regulators will have to follow a set of principles and processes on good regulatory practice. On this the MPC has been given the mandate in the 10th Malaysia Plan to review all existing business- related regulations with the aim of reducing unnecessary regulatory burdens to business. This study on reducing unnecessary regulatory burdens in sea freight logistics is one of the on-going reviews.

Some regulatory burdens are necessary for the government to achieve national policy objectives. There are three broad areas that comprise the “regulatory burden” on business - time, effort and costs expended in complying with government regulatory and taxation requirements. The main dissatisfaction has been the increased in cost of regulatory compliance and costs associated with the taxes, levies and fees. These are the negative impacts on firms’ productivity arising as significant amount of resources has to be allocated to compliance activities instead of business activities. There are also a variety of other non-economic costs involved such as stress and frustration in dealing with the regulators. Although regulation imposes some burdens on business, concern arises when the burdens necessarily reflect inefficiency in the regulatory regime and point to the existence of “unnecessary regulatory burdens”.

Unnecessary regulatory burdens stifle productivity, undermine business competitiveness and increase consumer prices, leading the chronic economic inefficiencies. As a result, more developed nations are moving to regulations that have

xi been formulated through a Best Practice Regulation process to achieve policy objectives and reduce the unnecessary regulatory burdens on business.

A regulator plays an important role in regulatory regimes by encouraging compliance through education and advice, as well as enforcing laws and regulations through disciplinary means. When regulators are transparent and accountable in their enforcement role and have incorporated good guiding principles into their operating systems they will both assist the achievement of policy goals and impose minimum necessary burden on business.

Many existing regulations in the country have not been crafted using principles of good regulatory process and since existing regulators do not follow established good regulatory practice principles, there are many unnecessary regulatory burdens in existing regulatory regimes. It is through such regulatory review of existing practices that these unnecessary burdens could be uncovered and eventually removed from the system.

To uncover the unnecessary regulatory burdens in the sea freight logistics the key logistics businesses in the value chain in Klang Valley were interviewed for this draft report. The review emulated the approach used by the Australian Government Productivity Commission and a former regulatory specialist from the AGPC was engaged to advise to the team. From the issues uncovered, various options for the resolution have been formulated using the principles of good regulatory practice and principles for process improvement. This draft report is being released in order to validate these issues and options with interested parties in order to firm up the proposed recommendations for the government to reduce unnecessary burdens.

Altogether, a total of nineteen issues are evaluated and presented in this draft report for further consultation. The issues were captured from the shippers at the beginning of the value chain through the forwards and hauliers to the ports and free zone operations. Although, some of the issues are interrelated and affect more than one parties, overall, the shippers have raised 5 issues, forwarders 4 issues, hauliers 7 issues and the port and free zone operators 3 issues. These issues have been analysed with other supporting evidences and information and the various options for their resolutions are formulated in this draft report. The draft report is tabled for public consultation.

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Key points

1. The MPC which has been mandated to facilitate the implementation of the National Policy on the Development and Implementation of Regulations has taken the initiative to carry out this regulatory review with the aim of reducing unnecessary regulatory burdens on the healthcare sector. The focus of this first initiative is on the review of regulations affecting the freight logistics chain. 2. The logistics economy continues to expand in tandem with the national economy. Together with economic expansion is the continuing change in the competitive environment. International trade facilitation and harmonisation through bilateral, regional and international agreements and advancing technology necessitate the change in local rules in logistics for the country to compete successfully. 3. The objective of the MPC is to uncover and report the regulatory issues which are of most concern the logistics businesses and provide recommended options for further consultation with stakeholders and other interested parties. Interviews have been conducted with key businesses to capture the issues and these are substantiated with other evidences to formulate feasible options. Overall, the businesses have raised 19 issues, 5 issues from the shippers, 4 from forwarders, 7 from hauliers and 3 from port and free zone operators. 4. The five main issues from the shippers that are analysed here are: i. Ever increasing logistics costs ii. Regulations not keeping up with technology iii. Exemption applications for export-oriented manufacturers iv. Application for Certificate of Origin (COO) for ASEAN trade v. Inadequate consultation and short notification on new ruling 5. The forwarders have these raised four main regulatory issues of concern: i. Customs Brokerage Licence (CBL) ii. Customs operations and enforcement iii. Inspection Agencies (Other Government Agencies, OGA) iv. Trucking and haulage activities 6. There seven key issues from the containers hauliers (some of which are also of concern to the shippers) are: i. Shortage of heavy vehicle drivers ii. Road-ban iii. Application for renewal of business licence iv. Approval for (purchase of) new vehicles v. Safety inspections of prime-movers and trailers vi. Unregulated containers depot vii. Dealing with Permit Issuing Agencies (PIA) 7. The major issues of concern to the port and the free zone operator at Port Klang are: i. Port Klang Free Zone operation ii. Port Operator’s regulatory constraints to business expansion iii. Verbal commitment by the authorities 8. The analyses on these issues are made with other supporting information from various sources. From the analyses, a number of options are formulated to address each of the issues. This draft report is to table these issues and the

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options for the public consultation with the stakeholders from businesses and regulators.

Recommended Options 9. Issue No. 1: Ever increasing logistics costs This study recommends Option No. 3, i.e. to continue monitoring the cost of doing business in logistics and report to the National Logistics Taskforce for improvement initiatives 10. Issue No. 2: Regulations not keeping up with technology This study recommends Option 2: Greater effort on the implementation of the National Policy on the Development and Implementation of Regulations (NPDIR), i.e. to review existing regulatory regimes on a periodic basis and make changes to meet market demands. 11. Issue No. 3: Exemption applications for export-oriented manufacturers This study recommends Option No. 2: Online application for exemption with immediate approval for repeated applications. 12. Issue No 4: Application for Certificate of Origin (COO) for ASEAN trade This study recommends Option No. 2: MITI monitoring and capturing the on- the-ground issues and ironing them out at the ASEAN level, i.e. industry through the business associations should provide evidence-based feedback to MITI so that issues can be ironed out through trade facilitation initiatives. 13. Issue No. 5: Inadequate consultation and short notification on new ruling This study recommends Option No. 2: Clear and transparent administrative guideline and SOP, i.e. regulators must ensure that their enforcement activities are consistently implemented and their processes are transparent to the business. 14. Issue No. 6: Customs Brokerage Licence (CBL) This study recommends Option No. 3: Change the equity criterion to ASEAN agreement and/or totally remove the requirement, i.e. policy maker should review the existing equity requirements through the RIA process to see if policy objective is achieved. 15. Issue No 7: Customs operations and enforcement This study recommends Option No 2: Initiative to mitigate teething issues, i.e. Customs to ensure that adequate consultation and communication of new administrative initiatives are made to mitigate teething problems. 16. Issue No. 8: Inspection Agencies (Other Government Agencies) This study recommends Option No. 3: Risk-based approach to inspection, where inspections are carried out proportionately, i.e. clearance risks are evaluated on data of past performance of firms. 17. Issue No. 9: Trucking and haulage activities This study recommends Option no. 2: Having transparent policy with clear working guidelines, i.e. to ensure that regulatory operations are carried out consistently and transparently. 18. Issue No. 10: Shortage of heavy vehicle drivers This study recommends Option No. 3: Review the existing format for vocational licensing, i.e. to ensure that current regulatory regimes are meeting market expectations and in keeping with technological changes in the industry. 19. Issue No. 11: Road-ban

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This study recommends the only Option No. 1: Continue the current practice, as current interventions are in tune with good regulatory practice and proper stakeholders’ consultation. 20. Issue No. 12: Application for renewal of business licence This study recommends Option No. 3: Lengthen the licensing period, i.e. business can renew their licences for longer periods, such as 3 or 5 years. 21. Issue No. 13: Approval for (purchase of) new vehicles This study recommends Option No. 2: Carry out one-off programmed improvement on the processes, i.e. to continue with the improvement initiative until industry expectations are met. 22. Issue No. 14: Safety inspections of prime-movers and trailers This study recommends Option No. 3: Increasing the duration between inspections, i.e. to consider risk-based approach thereby increasing the duration between inspections for lower-risk vehicles. 23. Issue No. 15: Unregulated off-dock containers depot This study is not providing any option as the issue is being reviewed by SPAD. 24. Issue No. 16: Dealing with Permit Issuing Agencies (PIA) This study recommends Option No. 4: A single-window online operation. Hopefully, the new online application U-Customs which are in the process of development will match this option. 25. Issue No. 17: Port Klang Free Zone operation This study recommends Option No. 2: Improving the efficiency of permits issuance. Hopefully, the new online application U-Customs which are in the process of development will match this option. 26. Issue No. 18: Port Operator’s regulatory constraints to business expansion This study recommends Option No. 2: A special business development taskforce for Port Klang. Such a taskforce, perhaps under the purview of the National Logistics Taskforce, will be able to oversee the continuous growth of Port Klang in meeting with the national aspiration. 27. Issue No. 19: Verbal commitment by the authorities This study recommends Option No. 2: Improve the websites and its use, i.e. to ensure that information are easily accessible and transparent to business and potential investors.

Concluding remarks 28. It has to be noted here that the issues captured from the various businesses are not exhaustive. Only a sample of the companies involved are interviewed. The companies involved are key members of the various trade associations that arranged to meet with the study team. They nevertheless represents the major players in sea freight logistics. 29. This draft report treats these nineteen issues as common concerns among the logistics businesses in the freight logistics chain. The analyses will be the basis for the next stage of consultations with the respondents, the key regulators and other interested parties. 30. The options and recommendations are only feasible and potential solutions to the issues. To ensure the practicality of the recommended options,

xv regulatory impact assessments with adequate cost-benefit analysis and public consultation must be carried out on each of them.

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CHAPTER ONE: About the Review

Contents: About the review, The 10th Malaysia Plan: Modernizing Business Regulation, What the MPC has been asked to do, Approach and rationale of this review, Conduct of the study, Structure of the report

Key points: 1. The purpose of this review is to assess unnecessary regulatory burdens on logistics businesses with the aim of formulation options for mitigating them. Reducing unnecessary regulatory burdens will facilitate the ease of doing business and improve firms’ productivity thereby improving their competitiveness. The final outcome would be enhanced economic growth and at the same time achieving national policy objectives. 2. The 10th Malaysia Plan (2011-2015) calls for the modernisation of business regulations. The objective is to achieve sustainability and to ensure a comprehensive environment for ease of doing business. The main focus is the process of intensive reviews of business regulations, starting with regulations that have significant impact on the NKEAs. 3. On this the Plan has mandated MPC on:  Review existing regulations with a view to removing unnecessary rules and compliance costs. Regulations affecting NKEAs will be prioritised;  Undertake a cost-benefit analysis of new policies and regulations to assess the impact on the economy;  Provide detailed productivity statistics, at sector level, and benchmark against other relevant countries;  Undertake relevant productivity research (e.g. the impact of regulations on growth of small-medium enterprises (SME));  Make recommendations to the Cabinet on policy and regulatory changes that will enhance productivity; and  Oversee the implementation of recommendations. 4. The investigations have involved collection, review and analysis of data and information from two sources: secondary data from literature reviews and primary data from interviews with key stakeholders. A significant part of this study will be based on literature reviews of laws and regulations in the country, studies made by other regulatory review agencies, national plans, policy papers and reports, statistical reports and research literature within the country and official web-sites of relevant professional bodies, non- governmental organisations, regulatory agencies and business organizations. 5. Primary data were collected through the interviews of key stakeholders comprising the business players, representatives of trade associations and the regulators. The study is being carried out in two stages: the fact-finding stage to prepare this draft report with possible options and the public consultation stage to improve on and identify the best options for recommendation.

6. For the fact-finding stage, a call-for-information paper or issues paper was prepared and disseminated through the MPC website and also sent to selected business stakeholders who comprise the shippers and the logistics players. 7. In the preparation of the draft report, reviews are carried out for every chapters by an external experts engaged for the purpose. This is to ensure quality output and adequacy of the study. The completed draft report will follow an established protocol for its release for public consultation before the final report is published. 8. The draft report is structured into six chapters as follows: 1) About the review 2) Logistics economy 3) Regulatory burdens – Core concept 4) Logistics value chain 5) Logistics stakeholders 6) Regulatory issues in freight logistics

1.0 About the Review

Malaysia has embarked on the journey to modernise its business regulations with the aim of improving the institutional framework for business competitiveness and performance. This is in line with the trend taking place in most developed economies.

There are regulations that were formulated way back even before independence which are still being enforced. New regulations are being introduced at an unprecedented pace in Malaysia over the past few years. Policy makers are still stuck with the paradigm that control and command regulation is the solution for any problems affecting the public, the economy or the environment

Good and well implemented regulations deliver economic, social and environmental benefit but they also impose substantial costs. Some costs are the unavoidable secondary impact of pursuing legitimate policy objectives although a significant proportion is not. In many cases, the costs have exceeded the benefits. Moreover, regulations have not always been effective in addressing the objectives for which they were designed, including some regulations designed to reduce risk1.

Until recently no systematic effort has been made to review the relevance and effectiveness of existing regulations, even though new regulations are being formulated. The growing recognition of these costs and other deficiencies of regulation has led the government to decide that major reforms have to be made. An early focus of such efforts was the removal of many regulations that are obsolete and not relevant anymore. Further waves of reform will follow, and this review is one of such that is

1 AGPC 2011, Identifying and Evaluating Regulation Reforms, Research Report, Australia Government Productivity Commission

2 focused on the regulation of key economic initiatives and regulatory compliance burdens generally.

The 10th Malaysia Plan: Modernising Business Regulation

The trend today is to relook at the role played by Government in achieving economic growth in a competitive global environment. Much government policy intervention is made through regulations. As such, Malaysian businesses are faced with a tangle of regulations and regulatory regimes that have accumulated over the years, many of which can constrain growth.

As a developing economy, Malaysia is in an enviable competitive position, ranking in the top twenty among 180 over economies. It is in 18th position in the World Bank Doing Business Report (DB) 2015 up from 20th position in 2014. However, this enviable position should not lull the country into thinking that everything is hay and sunshine at the ground level. The Doing Business Methodology is merely “case studies” representations on 10 key aspects of the legislative and institutional framework of the country.

To achieve sustainability and to ensure a comprehensive environment for ease of doing business, the Government has begun the process of intensive reviews of business regulations, starting with regulations that have significant impact on the NKEAs. Regulations that contribute to improved national outcomes will be retained, while redundant and outdated regulations will be eliminated. The reviews are being led by the Malaysia Productivity Corporation (MPC), which was restructured in 2010 to ensure it has strong capabilities and resources for this effort. MPC capacity is complemented by out-sourcing with relevant expertise from business and academia. Its work will complement the efforts of PEMUDAH.

What the MPC has been asked to do

The 10th Malaysian Plan has mandated MPC to carry out regulatory reviews to facilitate the ease of doing business in Malaysia. These reviews will draw on the expertise and perspectives of different representative stakeholders from the public and the private sectors. These stakeholders will help identify issues and assist in the formulating of appropriate solutions. Figure 1.1 below illustrates the regulatory review framework in MPC. Mandated in the 10th Malaysia Plan specifically, MPC will2:

 Review existing regulations with a view to removing unnecessary rules and compliance costs. Regulations affecting NKEAs will be prioritised;

2 Malaysia 2010, Tenth Malaysia Plan: 2011-2015, The Economic Planning Unit, Prime Minister’s Department, Government of Malaysia

 Undertake a cost-benefit analysis of new policies and regulations to assess the impact on the economy;  Provide detailed productivity statistics, at sector level, and benchmark against other relevant countries;  Undertake relevant productivity research (e.g. the impact of regulations on growth of small-medium enterprises (SME));  Make recommendations to the Cabinet on policy and regulatory changes that will enhance productivity; and  Oversee the implementation of recommendations.

Figure 1.1: MPC Regulatory Review Framework

RMK-10 Implementation Framework: Modernizing Business Regulation Initiative to Enhance Productivity

Modernizing business regulation

Improve quality of Ensure good quality of existing regulation new regulation (PEMUDAH) (NDPC)

Ministry Business Transparency Thematic Adequacy Perspective Perspective Gate-Keeper & (e.g. WBDB) criteria (Vertical) (Horizontal) Accountability

Processes to realize the desired objectives Key Activity: & outcomes: – Develop gate-keeper function – Baseline Study – Develop assessor audit function – Assess & Provide Recommendation – Promote adequacy criteria – Monitoring & Evaluation

Source: Malaysia Productivity Corporation (2013) www.mpc.gov.my

The government formalized and institutionalized the mandate given to MPC with the introduction of a national regulatory policy through the policy document National Policy on the Development and Implementation of Regulations (NPDIR). This document was formally launched by the Chief Secretary of the Government of Malaysia in July 2013. The objective of the national policy is to ensure that Malaysia’s regulatory regime effectively supports the country’s aspirations to be a high-income and progressive nation whose economy is competitive, subscribes to sustainable development and inclusive growth. The policy is to ensure a regulatory process that is effective, efficient

4 and accountable as well as to achieve greater coherence among policy objectives of government (Malaysia 2013)3.

Approach and rationale of this review

The government has identified 12 National Key Economic Areas (NKEAs) to focus the economic growth towards a high-income nation. The NKEAs will be the drivers of economic activity that has the potential to directly and materially contribute a quantifiable amount of economic growth to the economy4.

The NKEAs were chosen on the basis of their contribution to high income, sustainability and inclusiveness. An initial set of 12 potential NKEAs have been identified comprising 11 sectors and one geographic area - Kuala Lumpur. Kuala Lumpur was chosen because it accounts for almost one-third of Malaysia’s total GDP and urban agglomeration can be a major driver of economic growth. As the NKEAs involve export- oriented industries, the logistics sector will affect their growth. Hence, this sector is viewed as a significant cross-cutting component for regulatory review. Regulations that stifle the competitiveness of logistics will invariably adversely impact on the NKEA sectors.

A significant part of this study will be based on literature reviews of laws and regulations in the country, studies made by other regulatory review agencies such as the Australia Government Productivity Commission (AGPC), national plans, policy papers and reports, statistical reports and research literature within the country and official websites of relevant professional bodies, non-governmental organisations, regulatory agencies and business organizations.

The other part of the study will involve the analysis of primary data obtained from direct interviews and consultations with logistics players, businesses, professional bodies, trade associations and regulatory agencies involved in the sector. The study will establish the key regulatory issues which the logistics business views as the more burdensome. Their views, experiences and evidence of will help identify unnecessary regulatory burdens for options for improvement will be formulated and publish in a draft report. This draft report addresses issues and options for public consultation. This consultation will be carried out across businesses and user along the logistics chain, their associations, professional bodies and the regulatory agencies. The consultation outputs is analysed and used for the final report.

3 Malaysia 2013, National Policy on the Development and Implementation of Regulations, Malaysia Productivity Corporation

4 ETP, Economic Transformation Programme, http://etp.pemandu.gov.my 5

Conduct of the study

The investigations have involved collection, review and analysis of data and information from two sources: secondary data from literature reviews and primary data from interviews with key stakeholders. Secondary data which were reviewed and used as inputs for this study are from many sources and are grouped as follows:

 Research papers published by international agencies and other countries such as the OECD, World Bank, the Australian Government Productivity Commission and international logistics agencies and associations.  Local research papers and reports commissioned by the government such as Economic Planning Unit (EPU), Ministry of International Trade and Industry (MITI), Ministry of Transport (MOT) and Ministry of Domestic Trade, Co- operatives and Consumerism (MDTCC) among others. Reference to these inputs are cited in this report.  Laws of Malaysia, the various Acts and Regulations relevant to logistics players and users.  Statistical data relating to the logistics sector are from international sources and local sources, primarily the OECD, World Bank, Malaysian publications, Department of Statistics Malaysia publications, logistics web-sites and trade associations.  Information from local government agencies, quasi government bodies, professional bodies, private businesses and the relevant associations on policy matters, news, reports and statistics for analysis are input into this study. Much of these were accessed from their web-sites and the sources are listed in the final report.

Primary data were collected through the interviews of key stakeholders comprising the business players, representatives of trade associations and the regulators. The study is being carried out in two stages: the fact-finding stage to prepare this draft report with possible options and the public consultation stage to improve on and identify the best options for recommendation.

For the fact-finding stage, a call-for-information paper or issues paper was prepared and disseminated through the MPC website and also sent to selected business stakeholders who comprise the shippers and the logistics players. The stakeholders met and interviewed are members of the logistics and trade associations and individual companies. The associations include the Federation of Malaysian Manufacturers (FMM) representing the shippers, the Malaysian Associations of Freight Forwarders (MAFF) and the Selangor Freight Forwarders and Logistics Association (SFFLA), the Malaysian Hauliers Association (MHA) and a Port operator and a Free Zone operator. These interviewees were represented by their executives and trade members.

This paper identified some initial issues and listed a set of relevant questions for fact- finding. The respondents were selected from the members various logistics

6 associations and businesses. The interviews were carried out until no new issues were being raised. From these inputs, detailed analysis was made at three levels:

1. at the individual level where the principal researcher carried out his analysis on the inputs and drafted discussion paper for further deliberations 2. at the team level (various researchers) where the inputs and discussion paper were deliberated and analysed to achieve further insights 3. from the adviser, Ms. Sue Holmes who provided her expertise inputs and insights derived from working in the AGPC

Figure 1.2 Summary of Study Process.

Conceptualize the Logistics Value Chain

List all Acts and map them onto

the Value Chain

Scoping & Target Selection

Develop issue paper with list of

sites,Articles & Statistics) - questions

Conduct interviews

Analyse information gathered

Draft report (proposed options)

Public consultation

CONSULTATION AND EXPERT’SADVICE (From AGPC)

Final Report and submission LITERATUREREVIEW INPUTS (Reports, Web

Source: Malaysian Productivity Corporation

After the analysis, the draft report was prepared by the principal researcher and was subjected to review by the research team before submission to MPC management.

The feedback from the public consultation on this draft report will be incorporated into a final report. Figure 1.2 summarizes the study process for this research.

The release of the draft report in the public consultation process will follow an established protocol to ensure that stakeholders are kept in the loop and will not be surprised by any outcomes. The established protocol is as follows: 1. Clarify outstanding issues with regulators 2. Finish review on the draft report (including overview, recommendation, key points) 3. Circulate the draft report internally in MPC and draw attention on sensitive issues; and meet and brief the Board of Management of MPC 4. Respond to all comments 5. Clear media release with Director General MPC 6. Brief government bureaucrats and politicians 7. Prepare Report Release Note to BOD member 8. Prepare the launch on the MPC web site with the media release and contact (with officer appointed to take questions and Invite interested parties to comment via email) 9. Email all participants (in the study) and provide web-link to the published draft report 10. Organize and implement consultation workshops with key stakeholders (to be chaired by top management of MPC)

Structure of the report

This report on the Review of Unnecessary Regulatory Burdens (RURB) on the logistics sector has been organized into six chapters, starting with Chapter One – About the review. Here, the rationale of the review is highlighted and the approach to the study emulates the Australian Government Productivity Commission (AGPC) methodology. An Australian expert previously with the AGPC was engaged by MPC to provide the advisory input to the study team throughout the study duration.

Chapter Two – Logistics economy, dwells on the logistics economy of Malaysia. It looks into the growth trends of the country trade and on the contributions from logistics. It also briefly shows the growth trends of logistics capacities over the last few years. This analysis reflects the importance of logistics in the national economy.

Chapter Three - Regulatory burdens: Core concepts, deals with the rationale of best practice regulation. This chapter looks at regulatory burdens and the potential sources of unnecessary regulatory burdens. It also highlights the complexity of regulations in the logistics chain.

In Chapter Four - Logistics value chain, the overview of the logistics sector is analyzed via the value-chain concept. The logistics chain is mapped out and this is

8 used as the guide to identify which businesses are involved. Reference is made to the Malaysia Standard Industrial Classification 2008 Version 1 on this.

This is followed by Chapter Five - Logistics stakeholders, looks at the different stakeholders involved across the logistics chain. The chapter identifies the businesses, their intermediaries or the voice of the logistics trades, the regulators and their intermediaries or out-sourcing partners and highlights their roles in the logistics activities. The chapter looks at the national policy on logistics and the governing Acts and regulations. This chapter gives some background on the overarching intent of the government in regulating this sector.

Chapter Six - Regulatory issues in freight logistics, concentrates on the outcome of the reviews. It captures the issues faced by the main logistics businesses in sea freight logistics, starting from the importers and exporters to the forwarders and haulage operators to the ports and free zones. The chapter gives the analyses of the issues raised by the businesses across the logistics chain. From the analyses, various feasible options are formulated for the next stage consultations with businesses, regulators and other interested parties prior to publishing the final report.

With the completion of these six chapters, this draft report is ready for tabling to the management and Board of MPC for their decision on the next stage, that is, to publish the draft report following the established protocol mentioned above.

CHAPTER TWO: Logistics Economic Performance

Contents: Introduction, Overview of Malaysia’s economic competitiveness, The Malaysian economy, Trade in goods and the industries, Mode of transportation, Infrastructure

Key Points

1. Malaysia’s economy recorded a value of GDP at RM1,106.6 billion in 2014 (2013: RM1,018.8 billion) at current prices. The economy has strengthened to 8.6 per cent in 2014 as against 4.9 per cent in the preceding year with all sectors posted a better growth. 2. Malaysia Global Competitiveness Report (2014-2015) 2nd pillar on Infrastructure has assessed the country logistics competitiveness as follows:

Score Rank 2.01 Quality of overall infrastructure 5.6 20 2.02 Quality of roads 5.6 19 2.03 Quality of railroad infrastructure 5.0 12 2.04 Quality of port infrastructure 5.6 19 2.05 Quality of air transport infrastructure 5.7 19

3. Malaysia ranked 25th out of 160 countries in the World Bank Logistics Performance Index (LPI) Report 2014; 12th out of 60 economies in the World Competitiveness Yearbook (WCY) 2014, 18th position out of 189 countries in the World Bank Doing Business (DB) 2015 and ranked 34th as the most complex economy in Economic Complexity Index (ECI) report. 4. The total freight volume transported by sea in 2014 was 98.4% or 539.2 million tonnes. The annual growth rate between 2005 and 2014 for sea freight volume was 5.4%. 5. Rail cargo recorded 7.8 million tons in 2014. Aggregate rail payload throughput in Malaysia came to 7.8 million tons, with 30% of cargo volume from South Thailand. 6. In 2014, 1.2 million new heavy vehicles were registered, indicating its contribution to the increasing road freight. The number of drivers issued for LA class licence was approximately 200,000 for year 2014 showing high demand for lorry drivers. 7. Number of ships arrival at Malaysian ports has shown the downward trend where the value has decreased by 33 per cent over the last four years (and -46.7% decline for international shipping) compared to 2010. 8. Malaysia’s top five export destinations in 2014 were Singapore (US$31.8 billion), China (US$30.7 billion), Japan (US$25.3 billion), the USA (US$18.4 billion), Thailand (US$12.6 billion). 9. Malaysia’s top five import in 2014 were from China (US$115.5 million), Singapore (US$85.6 million), Japan (US$54.7 million), the USA (US$52.3 million), Thailand (US$39.6 million). 10

Introduction

“Logistics services as one of “drivers of growth” to propel the country into high income economy”5. The transportation and logistics industry forms the backbone of modern global supply chains. Airlines and airports, shipping companies, logistics service providers and other transportation companies are all part of the process to keep people and products on the move. Ultimately, an efficient and dynamic logistics system is crucial to delivering a world-class economy, well integrated with other countries and delivering high growth.

Logistics is a crucial contributor to Malaysia’s trade and economic growth. The importance of an efficient logistics system to facilitate cross border trade (growth) cannot be overemphasised. The demand drivers for logistics services and facilities in Malaysia stem from the capability of companies to be competitive by delivering the right products, in the right quantity, to the right place, at the right time, and at the lowest cost possible. The productivity of logistics is influenced not only by the quality infrastructure and effective management but also by good regulatory practices which otherwise may slow the movement of goods and/or reduce their marketability. An important issue in Malaysia is whether duty-free zones and similar arrangements has improved logistics and the competitiveness of Malaysian products. Malaysian Government has allocated RM3 billion to stimulate the development of the logistics industry under the Third Industrial Master Plan 2006-2020 (IMP3)6. The Plan has set a target of 36 million TEU or 751 million tonnes of cargo to be handled by Malaysian ports as the growing trade volumes and strong economic performance over the years. For as long as the nation’s economy remains robust and its trade volumes grow, the logistics sector continues to have a bright future. The outlook for the demand for Integrated Logistics Services (ILS) and multimodal transport is especially bright as the country capitalises on growing intra-regional and international trade.

Overview of Malaysia’s Economic Competitiveness Malaysia has a population of 30.5 million and therefore is the 44th most populated country in the world. Malaysia has a birth rate of 2.55 per cent while the death rate is 5.03 per 1,000 population. According to the projection of the United Nations the population of Malaysia in the year 2050 will rise to 42.11 million and in the year 2100 to 42.40 million.7 The average life span of Malaysian is 74.9 years. On economy, the World Competitiveness Yearbook (WCY) 2014 ranked Malaysia in 12th position out of 60 economies; 20th out of 144 countries in the Global Competitiveness Report (GCR) 2014/2015 and 18th position out of 189 countries in the World Bank Doing Business (DB) 2015 (Figure 2.1).

5 10th Malaysia Plan 6 The Third Industrial Masterplan was launched by Prime Minister Datuk Seri Abdullah Ahmad Badawi on Friday August 18, 2006 consist of 15-year economic blueprint that maps out Malaysia's growth strategy from 2006 to 2020 7 11

Figure 2.1: Competitiveness ranking for Malaysia

16th 14th 15th 12th

10th

World World

Yearbook (WCY) Yearbook Competitiveness Competitiveness

26th 25th

21th 24th 20th

Global Global

Report (GCR) Report Competitiveness Competitiveness

21th 18th 20th 18th

12th

Business (DB) Business World Bank Doing Bank World 2011 2012 2013 2014 2015 Source: WCY 2014, GCR 2014/2015 and DB 2015

According to The Economist Intelligence Unit’s report (2014), Malaysia is among the top 20 friendliest countries in the world to do business for the years 2014 to 2018. This ranking rose from 23rd in 2008-12 to 19th in 2013-17. The country's regional ranking is unchanged at sixth position. Malaysia is ranked 34th most complex country with an Economic Complexity Index (ECI)8 of 0.693 based on economic complexity for a year 2013 (Figure 2.2).

Figure 2.2: Malaysia Ranking in Economic Complexcity, 2008-2012

39 34 32 31

Rank 24 Economic Economic complexity 2009 2010 2011 2012 2013

Source: EIU 2014

8 A measure of the knowledge in a society that gets translated into the products it makes. The most complex products are sophisticated chemicals and machinery, whereas the world’s least complex products are raw materials or simple agricultural products. The economic complexity of a country is dependent on the complexity of the products it exports.

According to The Economist Intelligence Unit (EIU 2014) it is forecasted9 that market opportunities will improve in the future amid sustained economic growth and relatively strong external demand. There will be improvements in policy towards private enterprise and foreign investment, largely because the government will continue with its efforts to raise private-sector investment levels. The higher global ranking is an indication that the government's reforms will overcome many of the structural and political impediments to its ambitious plans to transform Malaysia into a high-income country. Its unchanged regional position, in turn, shows that Malaysia faces strong competition in its own backyard (Table 2.1).

Table 2.1: Overview of Malaysia Business environment ranking, 2008-2017

Value of indexa Global rankb Regional rankc 2008-12 2013-17 2008-12 2013-17 2008-12 2013-17 7.14 7.56 23 19 6 6 a Out of 10. b Out of 82 countries. c Out of 17 countries: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam. Source: EIU 2014

Malaysia’s economic freedom score is 70.8, making its economy the 31st freest in the 2015 Index. Its score has increased by 1.2 points since last year, with improvements in corruption, business freedom, and trade freedom which outweigh the declines in labor freedom and the management of government spending. Malaysia is ranked 8th out of 42 countries in the Asia–Pacific region, and its overall score is above the world and regional averages. Malaysia has risen to the “mostly free” category. Since 2011, its economic freedom has advanced by 4.5 points, the third largest point increase in the Asia–Pacific region.

Despite the enviable achievement in competitiveness rankings, the productivity performance of the country is considerably low. Productivity of Malaysia is far behind the Asian economies like Hong Kong, Singapore, and Taiwan. In 2013, Malaysia’s productivity levels in PPP (US$39,790) are significantly below those of Hong Kong (US$100,487), Australia (US$88,913), Chinese Taipei (US$ 83,496), Japan (US$73,112), New Zealand (US$66,140), and Korea (US$61,664).10 Productivity of Singapore at (US$ 96,239) in PPP recorded the highest productivity among ASEAN countries, approximately 2.4 times higher than Malaysia (Productivity Report 2013/2014). On logistics, the World Bank ranked Malaysia 25th in the Logistics Performance Index, with a score of 3.59 out of the maximum 5, which has only slightly

9 The Economist Intelligence Unit. http://country.eiu.com/malaysia 10 IMD World Competitiveness Yearbook 2014

13 improved over the past 5 years Figure 2.3 shows the comparison with the benchmarked economies.

Figure 2.3: Malaysia and Top 5 LPI Ranking; 2007-2014

35 29 29 30 27 25 25 20 15 12 9 10 9 LPI LPI Ranking 10 8 7 5 5 4 3 4 3 4 5 1 2 1 2 2 1 1 0 Malaysia Singapore United Kingdom Belgium Netherlands Germany

2007 2010 2012 2014

Sources: http://lpi.worldbank.org/

Malaysia share in world total imports of goods and services is 1.09 per cent out of which transportation services contribute 31.7 per cent, while Malaysia’s share in world total exports is 1.21 per cent where 11.7 per cent is contributed by transportation services.

The Malaysian Economy

Real GDP grew 6.0 per cent in 2014, driven mainly by robust private consumption, which grew by 7.1 per cent, underpinned by favourable labour market conditions. However, public consumption recorded a slower growth rate of 4.4 per cent while public investment contracted by 4.9 per cent. Meanwhile, private investment grew by a robust 11 per cent Malaysia has benefitted from higher external demand particularly from US.11

Malaysia’s international trade experienced tremendous growth throughout the last four decades with total trade from merely RM 9.45 billion in 1970 to RM 1.45 trillion in 2014. Malaysia has managed to maintain a positive trade balance, exporting more goods than it imports except the years 1982, 1991 and 1994 – 1997. In 2014, Malaysia posted a trade surplus of RM 83.11 billion. The highest was recorded prior to the global recession in 2008 at RM143.21 billion. Malaysia’s total trade in 2014 continued on an upward trend, expanding by 5.9 per cent to reach RM1.45 trillion, compared with RM1.37 trillion in 2013. Table 2.4 shows the projection of trade growth.

11 Bank Negara Malaysia Annual Report 2014;http://www.bnm.gov.my

Figure 2.4: Malaysia International Trade and GDP from 2000 to 2019

Source: The Economist Intelligence Unit. http://country.eiu.com/malaysia

Exports expanded by 6.4 per cent, while imports grew slightly slower at 4.5 per cent during the period. Consequently, balance of payments (BOP) current account surplus improved substantially, registering RM47.3 billion (2013: RM35.5 billion), supported by substantial improvement in external trade accounts. Overall BOP registered a surplus RM36.5 billion in 2014 (2013: -RM14.7 billion), underpinned largely by a strong merchandise balance. Financial account has also improved in the recent quarter, but has been offset to a large extent by continued deficit in "net errors and omissions12" recorded at -2.5 billion (2013: 0.61 billion).

Current account (CA) surplus of BOP is projected to remain in surplus, albeit at a smaller amount in 2015, on the back of J-Curve effects on trade balance and also improving services deficit. Falling commodity prices are expected to lower exports value, while Ringgit depreciation is expected to increase import bills, but at the same time enhance export competitiveness in the medium-term and long-term. With generally improving financial account, overall BOP is expected to remain favourable this year. BOP and CA surplus is projected to moderate further in 2016, escaping to a large extent the "twin-deficit" problem, as predicted by many analysts.13

The major obstacles to economic progress and higher productivity are insufficient educational and skills levels. Nevertheless, Malaysia is well placed to make rapid progress in the next 20 years. Malaysia will continue to have a young, expanding and racially diverse labour force that has relatively good English language proficiency. Average annual economic growth is forecast to slow from 5.4% in 2013-20 to 4.2% in

12 What is “net errors and ommissions”? It is the showing of any statistical discrepancies in balance of payments accounting. This includes any inaccuracies in the collection of the data, an example of which might be adding an extra 0 in a column that included payments due vs. payments collected. http://www.businessdictionary.com/definition/net-errors-and-omissions.html

13 Malaysian Economic Outlook; https://www.mier.org.my/outlook/archives/000133.html

2021-30 as the rate of expansion in the working-age population slows (Table 2.2). The major obstacles to economic progress and higher productivity are insufficient educational and skills levels. Nevertheless, Malaysia is well placed to make rapid progress in the next 20 years.14

Table 2.2: Average annual economic growth forecast; 2013-30

Growth and productivity 2013-20 2021-30 2013-30 (% change; annual average)

Growth of real GDP per head 3.9 3 3.4 Growth of real GDP 5.4 4.2 4.7 Labour productivity growth 3.1 3.3 3.2

Sources: The Economist Intelligence Unit, 2014

Trade represents a sizeable portion of Malaysia's economic output, with exports of goods and services averaging more than 100% of GDP over the past 15 years and resulting in sustained trade surpluses. This cushion of foreign reserves has allowed the government to run continued budget deficits while maintaining a current-account surplus. However, as the export-oriented economy has evolved from excessive reliance on the electrical and electronic (E&E) products chain to hydrocarbon-intensive industries, the mix of products that Malaysia exports has become less valuable and more volatile, leaving the country vulnerable to global market sentiment. Figure 2.5 shows the contributions from the three key economic sectors.

14 The Economist Intelligence Unit. http://country.eiu.com/malaysia 16

Figure 2.5: Share of economic sector to GDP, 2003-2014

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Agriculture Industry Services

Source: Department of Statistic Malaysia (DOSM)

Malaysian economic growth moderated in 2013, dropping to 4.7% from an impressive 5.6% in 2012 and 5.1% in 2011. Growth is more than 6% for the first half of 2014. Bank Negara Malaysia (Malaysian Central Bank) has changed its full year 2014 growth forecast to 5.5% and forecasts almost the same growth for 2015. Figure 2.6 shows the summary of trade volume and GDP growth.

Figure 2.6: Percentage change of Export, Import and GDP annual growth, 2000-2014

60.0 10.0 8.9 40.0 7.4 8.0 5.8 5.6 4.7 5.1 5.4 5.3 5.6 5.1 6.0 20.0 6.8 6.3 4.0 0.0 4.8 2.0 -20.0 0.0 0.5 GDP Growth -40.0 -2.0

Volumeof Goods (%) -1.5 -60.0 -4.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Import volume of goods (Percent change) Export volume of goods (Percent change) GDP growth (annual %)

Source: Department of Statistic Malaysia (DOSM)

Malaysia’s growing trade volumes and strong economic performance has seen freight volumes growing and demand for logistics services increasing. Exports in 2014 rose by 6.4% or RM46.14 billion to RM766.13 billion, surpassing the forecast export growth of 6% in the 2014/2015 Economic Report (Table 2.7).

Figure 2.7: Malaysia Total Trade and Trade Balance; 2009-14 2,000,000

1,500,000

1,000,000

500,000

0 2009 2010 2011 2012 2013p 2014p

Total Trade Trade Balance

Source: Department of Statistic Malaysia (DOSM)

Total trade exchange in 2014 was RM1.45 trillion or 174.9% of GDP, a 5.9% expansion when contrasted with 2013. Amid the same period, aggregate cargo volume transported via ocean, rail and air came to 548 million tons, a 6.6% expansion when contrasted with 2013. Major trading partners that contributed to the growth in trade were 15:

 ASEAN, growing by RM14.54 billion or 3.9%;  The European Union (EU), RM8.35 billion or 6.2%;  The United States of America (USA), RM8.01 billion or 7.4%;  Australia, RM7.48 billion or 16.4%;  Hong Kong, RM6.05 billion or 14.5%;  Taiwan, RM5.94 billion or 11.2%; and  The Republic of China (PRC), RM4.54 billion or 2.2%.

Malaysia ranks 28th globally in terms of proven crude oil reserves, and 14th in terms of its natural-gas endowment. Exports from the sector, which includes crude oil, petrol, refining by-products such as industrial coke, and liquefied natural gas (LNG), have been rising quickly in the course of the most recent 20 years, bouncing from 6.2% of fares in 1998 to more than 22% in 2014. Malaysia is presently the world's second-biggest LNG exporter behind Qatar, with trade totalling over M$64bn in 2014, over 8% of all exports.

Malaysia’s top five export destinations this year were Singapore, valued at US$31.8 billion, China US$30.7 billion, Japan US$25.3 billion, the USA US$18.4 billion, Thailand US$12.6 billion (Figure 2.8). Highest value Malaysian export products range from petroleum and palm oil to sophisticated electronic components and telecommunication devices.

15 www.matrade.gov.my 18

Figure 2.8: Top 5 Malaysia Export Destinations (millions of US$); 2014

Source: Department of Statistic Malaysia (DOSM)

Table 2.3 shows that by 2030 China will overtake Singapore as Malaysia’s most immensely colossal export destination. Exports to China are expected to grow by 12% per annum in 2021-30.

Table 2.3: Malaysia Top 5 Export Destinations

Rank 2014 2030

1 Singapore China

2 China Singapore

3 Japan Japan

4 USA USA

5 Thailand India

Source: https://globalconnections.hsbc.com

Figure 2.9: Top 5 Malaysia Major Import Destinations (millions of US$); 2014

Source: Department of Statistic Malaysia (DOSM)

Imports increased by 5.3% or RM34.32 billion to RM683.02 billion. The growth impetus of exports had resulted in a trade surplus of RM83.11 billion, representing Malaysia’s achievement of 17th consecutive years of trade surplus. The trade surplus in 2014 registered a double-digit growth of 16.6%, a remarkable achievement compared with negative growth in 2012 (-22.8%) and 2013 (-25.7%).

Table 2.4: Malaysia Top 5 Import Origins Rank 2014 2030f

1 China China

2 Singapore Singapore

3 Japan USA

4 USA Indonesia

5 Thailand Vietnam

Source: https://globalconnections.hsbc.com

China was the largest import source, followed by Singapore, Japan, the USA, Thailand and Taiwan. These countries accounted for 55.9% of total imports. ASEAN contributed RM175.45 billion or 25.7% of Malaysia’s total imports for the year 2014. These import and export statistics show the significance of road freight in trading across borders as Singapore and Thailand are among Malaysia’s top five trading nations.

Figure 2.10: Malaysia import export percentage to Thailand and Singapore; 2014

IMPORT EXPORT

5.90% 5.10% Import Export US$ US$ 170,754 191,532

14% 13%

SINGAPORE THAILAND SINGAPORE THAILAND

Source: Department of Statistic Malaysia (DOSM)

Figure 2.10 shows the significant role of logistics services on trading across border between Malaysia with Singapore and Thailand. This indicates the importance of land transportation in order to move the goods efficiently.

Trade in goods and the industries

For centuries, Malaysia has profited from its location at a crossroads of trade between the East and West, a tradition that carries into the 21st century. Geographically blessed, peninsular Malaysia stretches the length of the Strait of Malacca, one of the most economically and politically important shipping lanes in the world. Capitalizing on its location, Malaysia has been able to transform its economy from agriculture and mining in the early 1970s to a relatively high-tech, competitive manufacturing economy. Today services and manufacturing now account for 75.8% of GDP (52.9% in services and 22.9% in manufacturing in 2014)16.

Malaysia’s economy expanded 5.8 per cent in the fourth quarter of 2014, largely due growth in Services, Manufacturing and Mining sectors. For 2014, GDP rose to 6.0 per cent with a value added of RM835 billion at constant prices and RM1,070 billion at current prices. Figure 2.11 shows the contributions to GDP by sectors.

16 http://www.bnm.gov.my/index.php?ch=statistic_nsdp&uc=2 21

Figure 2.11: Malaysia Gross Domestic Product (GDP) By Sector, 2014

462.0 Agriculture, Forestry and Fishing

Mining and Quarrying sector

Manufacturing sector

33.0 34.1 Construction 57.5 Services sector 205.2 65.7 Transport, Storage and Communication

Source: Department of Statistic Malaysia (DOSM)

Figure 2.12: Top 10 Major Export Products, 2014

Source: http://www.matrade.gov.my/

The Top 10 export product for 2014 shown on Figure 2.12. The total export for 2014 stood at RM 766.13 billion, which was an increased 6.4%. E&E product contributed the most representing 33.4% of total export, and followed by Petroleum product and LNG at 9.2% and 8.4% respectively.

Figure 2.13: Top 10 Major Import Products, 2014

Source: http://www.matrade.gov.my/

Total imports for 2014 registered at RM683.02 billion, and increased of 5.3% from 2013 as shown in Figure 2.13. E&E products remained the highest imports at 27.9% followed by Petroleum products, Chemical & chemical products and Machinery appliance & parts at 11.7%, 9.1% and 8.4% respectively.

Mode of transportation

Sea Mode

Sea transportation has always been an important feature in Malaysian logistics, as the country has been in the major sea trade route over the last many centuries. Table 2.5 gives an overview of the country sea transport facilities.

Table 2.5: Summary of Malaysia sea transport facilities

Waterways: (Peninsular Malaysia 3,200 km; Sabah 1,500 km; 7,200 km Sarawak 2,500 km) (2011)

Country comparison to the world 20

Merchant marine: 315 By type: Bulk carrier 11, Cargo 83, Carrier 2, Chemical tanker 47, Container 41, Liquefied gas 34, Passenger/Cargo 4, Petroleum tanker 86, Roll on/roll off 2, Vehicle carrier 5 Country comparison to the world (Merchant marine) 31

Foreign-owned: (Denmark 1, Hong Kong 8, Japan 2, Russia 2, Singapore 13) 26

Registered in other countries: 82

(Bahamas 13, India 1, Indonesia 1, Isle of Man 6, Malta 1, Marshall Islands 11, Panama 12, Papua New Guinea 1, Philippines 1, Saint Kitts and Nevis 1, Singapore 27, Thailand 3, US 2, unknown 2) (2010)

Ports and terminals (30 Seaport; 14 Container Terminal) 44

Major seaport(s): Bintulu, Johor Bahru, Penang, Port Klang, Tanjung Pelepas Major container terminal(s) (TEUs): Penang (1,202,180), Port Klang (9,435,403), Tanjung Pelepas (7,302,461)

Source: The World Factbook; www.cia.gov

Sea freight is the preferred choice due to its lower cost and ability to handle bulky shipments. Figure 2.14 illustrates that continuing growth of freight volume over the last decade with sea freight dominating the trade volume. The total freight volume transported by sea in 2014 was 98.4% or 539.2 million tonnes. Ports that contributed significantly to shipment of goods were Port Klang, Port of Tanjung Pelepas, Penang Port, Kuantan Port, Johor Port and Bintulu Port. The annual growth rate between 2005 and 2014 for sea freight volume was 5.4% and the growth momentum is expected to continue until 2020 at 5.6%.

Figure 2.14: Malaysia freight volume transported (Million Tonnes), 2006-2014 10 600 8 500 400 6 300 4 200 2 100 0 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 Air & Air Rail (Million Tonnes) Air (RHS) Rail (RHS) Sea (LHS)

Source: Ministry of Transport, RMK11

Number of ships arrival to Malaysia however, is showing a downward trend where the value has decreased by 33 per cent (46.7% decline in international ships arrival) compared to that of year 2010. From Figure 2.15, it can be seen that the number of ships arrival has fallen over the last five years, although the trend has stabilised after 2012.

Figure 2.15: Number of ships arrival at Malaysia Ports, 2010-14

200,000

150,000

100,000

50,000

0 2010 2011 2012 2013 2014

Domestic International Total

Source: Ministry of Transport, Malaysia

Figure 2.16 shows the volume handled by all the key ports of the country with Port Klang accounting for the largest share of cargo handled totalling an average of 60 per cent of the freight volume. In 2012 alone, Port Klang handled 195.9 million tons of sea freight.

Figure 2.16: Key ports and cargo throughput in Malaysia; 2011-2014

120% 500000 99% 100% 450000 100% 89% 91% 400000 81% 84% 99% 97% 350000 80% 69% 88% 90% 84% 300000 79% 60% 250000 60% 200000 40% 150000 100000 20% ('000) FREIGHT WEIGHTTONNES 50000 0% 0

Total Cumulative %

Source: Ministry of Transport, Malaysia

Port Klang, well-located in the Straits of Malacca is the 13th busiest container port in the world. In 2014, Port Klang handled 10.9 million TEUs, an increase of 13.9% as compared to 2010. Almost 63% of the port's container throughput was for transhipment. Moving forward, investment in port (basic equipment needed for a business or society to operate) must attract more international vessels, and this has to be supported with efficient handling at the port and with good connectivity. Only then will this enable Port Klang to 16.4 million TEUs in 2020. Figure 2.17 shows that the import-export shipment has plateaued over the last seven years. However, transhipment continues to growth at a steady but marginal pace.

Figure 2.17: Total cargo throughput by sea freight in, Malaysia, 2009 – 2014

25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - 2009 2010 2011 2012 2013 2014

Export Import Transshipment Total

Source: Ministry of Transport, Malaysia

Malaysia is developing as a transhipment centre in the region. With 60 percent of the country’s container throughput coming from other countries, mainly at Port of Port Klang (51%) and Penang ports (9%). In recent years, the number of vessels entering Port Klang has increased considerably. As a result, the existing port facilities have become congested especially at Pintu Gedong where ships have to anchor outside the port limits while awaiting berthing instructions.

Port Klang, the home of Westports and Northport terminals, remained the leading ports in the country last year, holding a 48.5 per cent share of the total number of containers carried by all Malaysian ports. Port Klang handled 10.94 million TEUs (20-foot equivalent units) last year, against the 10.49 million TEUs handled by all Malaysian ports last year. Westports led the way with a 15.2 per cent increase in container volume from 2007, handling some 4.96 million TEUs, while Northport saw a 7.1 per cent increase to three million TEUs last year (Table 2.6).

Table 2.6: Container port traffic (TEU: 20 foot equivalent units) Container port throughput, 2008-13

2008 2009 2010 2011 2012 2013f

Malaysia 16,093,953 15,922,800 18,267,475 20,139,382 20,897,779 21,426,791

Sources: Worldbank data; data.worldbank.org

Land Mode

Land transportation comprises railways and roadways, is another important feature in logistics. The railways for freight logistics has not improved much over the industrialisation era. However, road infrastructure has improved by leaps over the last three decades. Table 2.7 shows the summary of the current rail and road availability.

Table 2.7: Summary of Malaysia Road Transport facilities Railways 1,849 km Country comparison to the world 75 Standard gauge: (1.435-m gauge (57 km electrified)) 57 km Narrow gauge: (1.000-m gauge (150 km electrified) (2010)) 1,792 km Roadways (does not include local roads) 144,403 km Country comparison to the world: 33 Paved: (includes 1,821 km of expressways) 116,169 km Unpaved: (2010) 28,234 km Source: The World Factbook (www.cia.gov)

The local area goods logistics involves rail and road transport. Rail cargo volume achieves consistent growth at a rate of 7.3% between 2005 and 2014, and recorded 7.8 million tons handled in 2014. Containerised freight, concrete and clinker the main cargo transported by rail. Road transport provides the connectivity and the last-mile delivery to and from rail depot to destination. In 2014, aggregate rail payload throughput of 7.8 million tons from which 30% of cargo volume is from South Thailand. Rail based freight transportation service in Peninsular Malaysia is operated by KTMB covering a total track length of 2,262 km includes the terminal facilities at 11 locations comprising dry-port, inland container terminal, seaport and freight terminal.

Tolled highways has expanded by more than 200% since 1992. Among the tolled highways is the North-South Expressway (846km) which is connected to other highways, industrial regions and port with the usage spreads of 81% of populace and 89% of trade in GDP for Peninsular Malaysia.

Figure 2.18: Lorry operators and licensed drivers, 2014

250,000

200,000

150,000

100,000

50,000

0 LA LC LA LC Licence Driver Lorry Operator

Note: Licence Class A (LA); Licence Class C (LC)

Source: Ministry of Transport, Malaysia

The number of licences issued for class A drivers (LA) at approximately 200,000 for year 2014 as compared to the number of class A lorry operator shows high demand for professional drivers (Figure 2.18). In 2014, 1.2 million heavy vehicles were registered, indicating its contribution to road freight logistics.17

Air Mode

Malaysia has good airports for both international and domestics travelling and transport. The air transport infrastructure is summarised in Table 2.8. The international airports in the country have the necessary facilities to cater for air freight logistics where high added value, low volume/weight products are handled.

The total air freight volume in 2014 was 987,362 tonnes, of which 91.2 per cent was handled by the Kuala Lumpur International Airport (KLIA), Penang Airport, and Subang Airport. The annual growth rate between 2005 and 2014 however declined by a marginal 0.8 per cent. Major factors contributing to this decline were limited connectivity and frequency of air cargo flights, low cargo volume as well as competition from neighbouring countries.

Table 2.8: Summary of Malaysia air transport facilities Airports (2013) 114 Country comparison to the world 51 Airports - with paved runways 39 Paved runways (over 3,047m) 8

17 Ministry of Transport; http://www.mot.gov.my/en/resources/quarterly-statistics-of-transport

Paved runways (2,438 to 3,047m ) 8 Paved runways (1,524 to 2,437m ) 7 Paved runways (914 to 1,523m) 8 Paved runways (under 914m) 8 Airports - with unpaved runways 75 Unpaved runways (914 to 1,523m) 6 Unpaved runways (under 914m) 69 Source: The World Factbook (www.cia.gov)

KLIA handled 76.3% or 753,900 tonnes of total air cargo volume in 2014, which is far below the original projection and cargo capacity of 1.2 million tonnes. This suggests significant potential to grow the air freight sector in KLIA. Concerted effort will be undertaken to boost KLIA as the preferred gateway for air cargo from domestic and neighbouring countries.

INFRASTRUCTURE

With a land area of 329,847 sq km, Malaysia ranks 67th among all countries in the world. The border of Malaysia with its neighbour countries is 2,669 km in total length. Also, it has a coastline (length between land and sea including islands) of 4,675 km (Peninsular Malaysia 2,068 km, East Malaysia 2,607 km). Malaysia share 2,669 km land boundaries with a border countries Brunei 381 km, Indonesia 1,782 km and Thailand 506 km.18

Malaysia ranked 25 out of 160 countries in the World Bank Logistics Performance Index (LPI) Report 2014 and attained top position among the upper middle-income countries. The quality of the logistics infrastructure also has been ranked in the top 25 positions as shown in Figure 2.19.

18 The World Factbook (https://www.cia.gov)

Figure 2.19: Quality of Malaysia Infrastructure, 2014

0 Quality of overall Quality of roads Quality of railroad Quality of port Quality of air infrastructure infrastructure infrastructure transport infrastructure

Value Rank/148

Source: World Economic Forum, Global Enabling Trade Report 2014

Malaysia Quality of port infrastructure has not much changed where in 2014 the quality was assessed at 5.6 which is lower than the previous report 5.7 (2007-08; 2011). However, liner shipping connectivity performance, has been improving indicating good connectivity in global networks (Figure 2.20).

Figure 2.20: Malaysia Quality of port infrastructure, 2007-1419

Sources: Worldbank data; data.worldbank.org

The Liner Shipping Connectivity Index captures how well countries are connected to global shipping networks. It is computed by the United Nations Conference on Trade and Development (UNCTAD) based on five components of the maritime transport

19 The Quality of Port Infrastructure measures business executives' perception of their country's port facilities. Data are from the World Economic Forum's Executive Opinion Survey. Data are collected online or through in-person interviews. Responses are aggregated using sector-weighted averaging. Scores range from 1 (port infrastructure considered extremely underdeveloped) to 7 (port infrastructure considered efficient by international standards). Respondents in landlocked countries were asked how accessible are port facilities (1 = extremely inaccessible; 7 = extremely accessible). 30 sector: number of ships, their container-carrying capacity, maximum vessel size, number of services, and number of companies that deploy container ships in a country's ports. The Malaysian shipping connectivity continues to improve over the last fifteen years measured at slightly above 60 points to above 110 points in 2015 as shown in Figure 2.21.

Figure 2.21: Malaysia Performance in Liner Shipping Connectivity Index, 2004-15 20 120.0

100.0

80.0

60.0

40.0

20.0

0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source:World Economic Forum: Global Enabling Trade Report 2014; www.weforum.org

20 The Liner Shipping Connectivity Index captures how well countries are connected to global shipping networks. It is computed by the United Nations Conference on Trade and Development (UNCTAD) based on five components of the maritime transport sector: number of ships, their container-carrying capacity, maximum vessel size, number of services, and number of companies that deploy container ships in a country's ports. For each component, a country's value is divided by the maximum value of each component in 2004, the five components are averaged for each country, and the average is divided by the maximum average for 2004 and multiplied by 100. The index generates a value of 100 for the country with the highest average index in 2004. The underlying data come from Containerisation International Online. (Source: Worldbank)

CHAPTER THREE: Regulatory burdens: Core concepts

Contents: Why regulation? Regulatory burdens, Unnecessary regulatory burdens, Good governance and best practice regulation, Approach to regulatory design, Government Initiative in best regulatory practice, Complexity of regulations in logistics, Costs of regulatory compliance

Key points

1. Regulation on business is intended to achieve certain desired objectives which otherwise would not concern business, such as the protection of consumer health and/or safety, protection of the environment, ensuring market efficiency. As such government uses regulation as the principal means to address risks to society, the economy or the environment which are not adequately addressed by individuals and markets. 2. Where requirements from regulation create a change in business behaviour and practices, a regulatory burden can be said to exist. Businesses invariably experience some costs in complying with regulations that would otherwise not arise. 3. However, where regulation is poorly designed or written or it is not administered or enforced well, it may impose greater burdens than necessary. As such poor governance is the principle cause of unnecessary regulatory burdens, resulting from poorly designed or written regulation and/or poor administration or enforcement regulation. 4. Regulations that have been formulated through a Best Practice Regulation process can achieve policy objectives without imposition of unnecessary regulatory burdens on business. Policy objectives can be achieved by regulatory or non-regulatory means. 5. The Government has implemented the initiative on best regulatory practice with the launching of the document on National Policy on the Development and Implementation of Regulations on July 2013. This policy document applies to all federal government ministries, departments, statutory bodies and regulatory commissions. The policy document spells out the objective, operating principles, responsibilities, requirements and process for the regulatory process management. 6. Regulations in logistics are influenced by several endogenous factors, which make a regulatory framework complicated, namely, the multi-sectoral nature, fragmentations, national political priorities, and historical legacies and cultural norms. Yet these many local statutory regulations do not cover every aspects of logistics activities. Logistics operators are subjected to international agreements when moving goods across borders. With the combination of these factors, there is no simple model for logistics regulations across countries. 7. There are multiple costs in regulation to achieve policy objectives. However, poor regulation may not achieve its objectives and can impose unnecessary

costs, impede innovation, or create unnecessary barriers to trade, investment and economic efficiency. Given the pervasiveness of regulations in the country, it is not surprising that regulation and red-tape continue to impose significant compliance costs. Compliance cost in logistics is particularly important to businesses as it will increase their unit cost and thereby reduce cost competitiveness

Why regulation?

Regulation on business is intended to achieve certain desired objectives which otherwise would not concern business, such as the protection of consumer health and/or safety, protection of the environment, ensuring market efficiency.

Regulation may be defined differently depending on the context. The “generic” definition embodies all written legal and quasi-legal instruments ranging over primary legislation, secondary instruments, guidelines, circulars, codes, standards and others. As well as the content of written regulations, the way they are implemented, administered and enforced is an important aspect of regulation and can have significant impact on compliance burdens for businesses and the effectiveness of regulation.

In general, the government uses regulation as the principal means to address risks to society, the economy or the environment which are not adequately addressed by individuals and markets. It is important that the extent and intrusiveness of regulation is commensurate with the risk and, where individuals, communities and businesses are able take actions to address the risk adequately, additional government intervention may not be needed.

Regulation encompasses the diverse set of instruments used by government to:  influence people or control the way people as individuals or groups behave  achieve a diverse range of economic, social, safety and environmental policy objectives

Traditionally, ‘regulation’ has been seen as establishing formal legal requirements (written regulation) by government by way of acts, regulations and rules. A broader view of regulation takes in non-legislative policy tools such as information campaigns, education, persuasion, self-regulation or quasi-regulation (codes of practice, guidelines, etc., that can also influence behaviour).

Written regulation, which reflects a rational approach to risk, focuses on the sources of risk, provides instruments which will address them effectively without putting heavy requirements on business unless the size and the severity of the impact is large enough to justify this. The more severe the impact of a particular hazard, the more likely it is

33 that written regulation will be prescriptive and impose higher penalties for non- compliance21.

There are non-regulatory options to manage risks relating to security, safety and health and the environment, such as:  quality accreditation scheme like the Good Manufacturing Practice (GMP) accreditation  products standards and traceability standards recognised globally  the strong commercial and ethical incentives for manufacturers, importers, suppliers, etc. to ensure safety and quality standards are maintained  promoting and educating businesses on unwelcome outputs such as pollution and environmental standards and practices

Regulatory burdens

Where requirements from regulation create a change in business behaviour and practices, a regulatory burden can be said to exist. Businesses invariably experience some costs in complying with regulations that would otherwise not arise. Most fall under the following four categories of cost impacts:

1. administrative and operational requirements, such as:  reporting, record keeping  getting legal advice, training 2. requirements on the way goods are produced or services supplied, such as:  requiring the use of certain forms of transport  restrictions on access to certain carriers  the use of specified type of handling or storage 3. requirements on the characteristics of what is produced or the services supplied, such as:  handled, stored and transported  bonded warehouse requirements  specifications on containers or bulk/liquid cargoes 4. lost production and marketing opportunities due to prohibitions, such as  when certain products are banned from being transported  limiting hours of service (e.g. for haulage drivers)  not allowing large haulage vehicles to use certain roads or at certain times

21 MPC 2014, Reducing Unnecessary Regulatory Burdens – A Guide to Reducing Unnecessary Regulatory Burdens: A core Concept, Malaysia Productivity Corporation 34

Unnecessary regulatory burdens

While it is usually necessary that some burden is placed on business for regulation to achieve objectives, where regulation is poorly designed or written or it is not administered or enforced well, it may impose greater burdens than necessary. Businesses that pose high risks to consumers tend to be more highly regulated and thereby experience more regulatory burdens. In this review of regulation on logistics, unnecessary regulatory burdens are of primary interest. The types of unnecessary regulatory burdens are many as illustrated in the Box 2.1 below.

Box 2.1: Types of Unnecessary Regulatory Burdens22  excessive coverage by a regulation — that is, the regulation affects more activity than was intended or required to achieve its objective (includes ‘regulatory creep’)  subject-specific regulation that covers much the same issues as other generic regulation  prescriptive regulation that unduly limits flexibility such as preventing businesses from: o using the best technology o making product changes to better meet consumer demand o meeting the underlying objectives of regulation in different ways  overly complex regulation  unwieldy licence application and approval processes  excessive time delays in obtaining responses and decisions from regulators  rules or enforcement approaches that inadvertently result in businesses operating in less efficient ways  unnecessarily invasive regulator behaviour, such as overly frequent inspections or irrelevant or duplicative information requests  an overlap or conflict in the activities of different regulators  inconsistent application or interpretation of regulation by regulators Source: MPC 2014

In general, the logistics chain covers the management of goods handling from the point of origin to the point of destination. It involves the transportation, warehousing and management of goods. Given the immense variety of economic goods and the different modes of transportation, there will be many different regulations involved in the governance of logistics. Invariably all goods will be subject to regulatory burdens in one form or another.

Corruption, the widespread and deep-rooted abuse of entrusted power for private gain, is the greatest obstacle to economic and social development around the world. High regulatory burdens tend to foster corruption, as businesses try to avoid them.

22 MPC 2014, Reducing Unnecessary Regulatory Burdens – A Guide to Reducing Unnecessary Regulatory Burdens: A core Concept, Malaysia Productivity Corporation 35

The logistics industry, particularly freight forwarding, is very vulnerable to corruption as it is closely engaged with customs officials. In developing economies, government employees are often poorly paid with an understanding that they will make their wages up from ‘facilitation’ payments made by forwarding and express companies to ensure fast clearance of goods. Should such corruption become deeply engrained within the system it can simply be seen as a regulatory cost to be absorbed within the cost of moving goods. The result is that government objectives are not achieved and businesses and the community lose faith in the application of law.

The survey by Transparency International has shown that countries which have exceptional records in addressing corruption, such as Singapore (ranking 5th), Hong Kong (14th) and the United Arab Emirates (27th) have been successful in transforming themselves into global logistics hubs, with efficient administration and customs processes which are largely untroubled by corrupt practices23. In the Transparency International Corruption Perception Index24 Malaysia scores 52 out of 100 points in 2014 (50 points in 2013) ranking it at 50 out of 184 economies. Malaysia is improving its corruption perception index but slowly.

To rid of perception of corruption, regulators must be highly transparent in their decision-making, administrative processes and delivery. They must be efficient in dealing with those they serve and be accountable. Understanding how corruption creates uncertainty and cynicism for businesses and undermines the achievement of government objectives will hopefully increase government and society’s resolve to eliminate the unnecessary burdens arising from corruption.

In summary, poor governance is the principle cause of unnecessary regulatory burdens, resulting not only from poorly designed or written regulation and/or poor administration or enforcement regulation. This frequently provides opportunities for corrupt practices.

Good governance and best practice regulation

Over the years, analysts have identified the more important characteristics which regulation must satisfy to pass this test. Some important characteristics of well written regulation are as shown in Box 2.2.

23 Kogan Page: Innovation and Best Practice for Business Success, 2014, Endemic Corruption in Global Logistics, http://www.koganpage.com/article/endemic-corruption-in-global-logistics 24 Transparency International, Corruption Perception Index 2014 36

Box 2.2: Characteristics of well-written regulation 1. The requirements placed on business are proportionate to the risk being regulated, in particular low risks are not addressed by imposing onerous requirements 2. the regulations make appropriate use of prescriptive, performance, in-principle and process-based requirements 3. the regulatory requirements are the minimum necessary to effectively achieve the objective(s) being targeted by the regulation 4. in line with responsive regulation (discussed in chapter 5), the regulations provide an adequate range of enforcement instruments to allow regulators some flexibility in addressing non-compliance 5. the regulations are consistent with other regulation and do not create conflict, inconsistency or duplication 6. the regulations are transparent, communicated effectively and readily accessible by everyone 7. the regulations place accountability requirements on the regulator such as reporting, appeal and review provisions including some that address probity Source: MPC (2014)

These important characteristics is achieved when regulations are made according to good practice principles. There are these six core principles (Box 2.3) that would provide guidance to regulators.

Box 2.3: Six Core Principles for Assessing Regulation and its Administration Principle 1: have a proportionate and targeted response to the risk being addressed Principle 2: minimise adverse side-effects to only those necessary to achieve regulatory objectives at least cost Principle 3: have a responsive approach to incentivize compliance with regulation Principle 4: ensure consistency across regulation and consistency in the application of regulations across businesses and industries Principle 5: adopt transparency criteria, so interested parties are regularly consulted, it is clear to businesses what are their legal obligations and that all regulations are easily accessed by anyone Principle 6: accountability so that businesses can seek explanations of decisions made by regulators, as well as appeal them and there are probity provisions in order to reduce corruption (National Integrity Plan, 2004). Source: MPC (2014)

There is, of course, other mix of options including self-regulation, quasi-regulation or co-regulation (MPC 2013) to achieve the same purpose. Regulations that have been formulated through a Best Practice Regulation process can achieve policy objectives without imposition of unnecessary regulatory burdens on business. Policy objectives can be achieved by regulatory or non-regulatory means. According to the OECD, ‘good’ regulation should:  serve clearly identified policy goals, and be effective in achieving those goals

 have a sound legal and empirical basis  produce benefits that justify costs, considering the distribution of effects across society and taking economic, environmental and social effects into account  minimise costs and market distortions  promote innovation through market incentives and goal-based approaches  be clear, simple, and practical for users  be consistent with other regulations and policies  be compatible as far as possible with competition, trade and investment- facilitating principles at domestic and international levels

Way back in 1995, the OECD Council has come out with a ten-question checklist reflecting good principles for regulatory decision-making25 (Box 2.4). These questions provide guidance to the authorities whenever there is a need to consider government intervention in business.

Approach to regulatory design

A common approach for regulating particular activities is the use of rules or standards. There are four main categories:  prescriptive rules focus on the inputs and processes of an activity, specifying the technical means used in undertaking an activity. They are rules which prescribe how an outcome is to be achieved where the focus is on the methods of operation or inputs (as in the mandatory installation of speed limiters or restrictions on vehicle engine capacity)  performance-based rules performance-based rules which specify a particular outcome without prescribing the method to be used to achieve it (as in a speed limit of 60kph)  principle-based standards outline the desired outcomes by specifying the spirit or broad intention of the regulation and require interpretation according to the circumstances (requiring drivers to travel at a speed ‘appropriate to the conditions’ or ‘not in a manner dangerous’)  system-based or process-based; or management-based regulations where businesses develop their own risk management strategies which are audited by regulators26

25 OECD 1995, Recommendation of the Council of the OECD on Improving the Quality of Government Regulation, Organisation for Economic Cooperation and Development, Paris. OECD Report (1995), Alternatives to Traditional Regulation; http://www.oecd.org/gov/regulatory- policy/42245468.pdf 26 MPC 2014, Reducing Unnecessary Regulatory Burdens – A Guide to Reducing Unnecessary Regulatory Burdens: A core Concept, Malaysia Productivity Corporation 38

Box 2.4: The OECD Reference Checklist for Regulatory Decision-Making 1. Is the problem correctly defined? The problem to be solved should be precisely stated, giving evidence of its nature and magnitude, and explaining why it has arisen (identifying the incentives of affected entities). 2. Is government action justified? Government intervention should be based on explicit evidence that government action is justified, given the nature of the problem, the likely benefits and costs of action (based on a realistic assessment of government effectiveness), and alternative mechanisms for addressing the problem. 3. Is regulation the best form of government action? Regulators should carry out, early in the regulatory process, an informed comparison of a variety of regulatory and non- regulatory policy instruments, considering relevant issues such as costs, benefits, distributional effects and administrative requirements. 4. Is there a legal basis for regulation? Regulatory processes should be structured so that all regulatory decisions rigorously respect the “rule of law; that is, responsibility should be explicit for ensuring that all regulations are authorised by higher level regulations and consistent with treaty obligations, and comply with relevant legal principles such as certainty, proportionality and applicable procedural requirements. 5. What is the appropriate level (or levels) of government for this action? Regulators should choose the most appropriate level of government to take action, or if multiple levels are involved, should design effective systems of co-ordination between levels of government. 6. Do the benefits of regulation justify the costs? Regulators should estimate the total expected costs and benefits of each regulatory proposal and of feasible alternatives and should make the estimates available in accessible format to decision-makers. The costs of government action should be justified by its benefits before action is taken 7. Is the distribution of effects across society transparent? To the extent that distributive and equity values are affected by government intervention, regulators should make transparent the distribution of regulatory costs and benefits across social groups. 8. Is the regulation clear, consistent, comprehensible and accessible to users? Regulators should assess whether rules will be understood by likely users, and to that end should take steps to ensure that the text and structure of rules are as clear as possible. 9. Have all interested parties had the opportunity to present their views? Regulations should be developed in an open and transparent fashion, with appropriate procedures for effective and timely input from interested parties such as affected businesses and trade unions, other interest groups, or other levels of government. 10. How will compliance be achieved? Regulators should assess the incentives and institutions through which the regulation will take effect, and should design responsive implementation strategies that make the best use of them. Source: OECD (1995), Recommendation of the Council of the OECD on Improving the Quality of Government Regulation, OECD/GD (95) Paris

The temptation for a regulator is to lay down a prescriptive rule that must be adhered to. This encourages certainty, particularly in the short term and will suffice when dealing with issues for which limited alternatives exist for achieving the objective of the regulation (such as outright prohibitions). Against that though, a major problem with

39 prescriptive rules is that they can limit flexibility in meeting regulatory objectives and can retard innovation. Other problems with prescriptive rules are that they can be rendered superfluous by technological change or encourage wasteful by-passing tactics by industry.

Such ‘black letter’ prescriptive rules are falling out of favour because regulators will never be as smart as those they seek to regulate. Regulators limit themselves when they define behaviour by prescription. Business who has met the limits of prescribed behaviour will take it as meeting their obligations, and behaviour which falls outside their limits, whether fitting the intent of the law or not, is acceptable. At the other extreme, business may take the prescribed limit as a challenge “to find ways to get around it”.

Malaysia has traditionally followed the prescriptive approach in regulation, more so in areas where safety and health is concern. However, there is now interest in pursuing the performance-based rules as is being done in other benchmarked countries like Australia. Performance-based rules are most suited to areas for which the desired outcome is easily quantifiable. In specifying the desired outcome, individuals and firms can seek out the optimum cost for achieving it.

However, performance-based rules also have their limitations. Firstly, while allowing firms flexibility in achieving an objective, performance rules provide no flexibility in the objective itself. For example, emission controls generally specify a maximum amount that can be emitted from a particular factory, but the effect on the receiving medium will vary according to a variety of factors, including weather conditions, time of day, and the level of emissions from other factories at the same time. Secondly, as with prescriptive standards, once an individual or firm has met the performance-based standard, there is little incentive to go beyond that standard even when it would be socially desirable. For example, firms may reduce emissions to levels prescribed in a performance standard but would have little financial incentive to reduce them further, even if further reductions could be achieved at little cost.

Apart from both prescriptive-based and performance-based rules, some regulators have considered the use of principle-based standards. The use of principle-based standards assumes that the detailed preventative rules cannot possibly anticipate and prescribe the inexhaustible variety of human heartlessness and negligence, and at the same time will be often be harshly over inclusive. From this perspective, the appropriate strategy is to draft broadly worded statutes and regulations, laced with words such as “reasonable” and “so far as feasible,” enabling regulatory officials to “custom tailor” regulatory requirements and penalties to particular enterprises and situations27.

27 AIC 1995, Regulation and its Review: 1994-1995, September 1995, Australia Industry Commission 40

Government Initiative in best regulatory Practice

The Government has implemented the initiative on best regulatory practice with the launching of the document on National Policy on the Development and Implementation of Regulations (NPDIR)28 on July 2013. This policy document applies to all federal government ministries, departments, statutory bodies and regulatory commissions. It is also applicable for voluntary adoption by state government and local authorities. The policy document spells out the objective, operating principles, responsibilities, requirements and process for the regulatory process management.

The national policy also specifically mandates the MPC, through its responsibility to the National Development Planning Committee (NDPC), to implement the functions of the national policy. MPC is to assist in the coordination for implementing this policy.

The Best Practice Regulation Handbook29 as launched together with the national policy. This handbook provides the detail guidance on carry out best practice regulation – the systematic process to the development of regulations. Basically, a regulator has to carry out regulatory impact analysis (RIA) and produced a comprehensive report, the Regulatory Impact Statement when it is introducing any regulation that may impact upon businesses. MPC role here is to ensure that the RIS is adequately prepared before it is submitted to NPDC for further. This RIA for best practice regulation involves seven core elements as shown in Box 2.5.

Complexity of regulations in logistics Logistics is largely concerned with managing, handling, storing and transporting goods and materials from one destination to another destination. As the types of goods are almost infinitely large in numbers, so are the regulatory requirements to manage the logistics chain. Depending on the characteristics of the goods and the risk they pose to human beings and the environment, there will be highly variable needs for the level and type of regulatory intervention to ensure the security, safety and health of the public and the preservation of the environment.

28 Malaysia 2013, National Policy on the Development and Implementation of Regulations, Malaysia Productivity Corporation 29 MPC 2013b, Best Practice Regulation Handbook, Malaysia Productivity Corporation

Box 2.5: Seven elements of RIA in best practice regulation Seven Elements of RIA: 1. Problem statement: RIA should clearly identify the problem/s that need to be addressed 2. Objectives: The “objectives” element should state the intent of the proposed regulatory action in concrete terms and relate this to the broader policy of the agency and Government 3. Options: This element describes the range of regulatory and non-regulatory options to be considered in addressing the issue or risk identified including the proposed regulatory action and the key differences between options 4. Impact analysis: To conduct a comprehensive assessment of the expected impact (costs and benefits) of each feasible options 5. Consultation: Any proposed new regulation or changes to regulation will involve consultation with relevant stakeholders, including the main parties affected by the proposal: Business, non-governmental organisations, the community, regulators and other government agencies 6. Conclusion & recommendation: should include a clear statement identifying the preferred option based on the impact analysis. The recommendation for the selection of this option must be supported by the preceding analysis and a comparison with other options provided. 7. Strategy for implementation: It is necessary to consider how the option will be implemented and enforced, and to establish a review strategy that will allow the option to be evaluated after it has been in place for sometime Source: MPC (2015); http://www.mpc.gov.my/home/?sstr_lang=en&cont=ds&id=8i2&item=d8&t=3

Regulations in logistics are influenced by several endogenous factors, which make a regulatory framework complicated; namely, the multi-sectoral nature, fragmentations, national political priorities, and historical legacies and cultural norms. With the combination of these factors, there is no simple model for logistics regulations across countries.30

Logistics regulations spread over multiple sectors (and types of goods) and are often not transparent to service providers and shippers. One can hardly find all regulatory requirements, say for licensing, which are published in one place. For example, the logistics service providers need to obtain the business premise licence from the Local Authorities, the trucking licence from the Road Transport Department, the Brokerage Licence from Customs and such.

Apart from licensing requirements, logistics have to deal with operation permits, approvals, inspections and certifications requirements. These multitude of regulations

30 Maika Watanuki (August 2015), Review of Logistics Service Regulations for Freight Forwarding Businesses, What Should Be Addressed for a Better Logistics Regulatory Framework?, World Bank; http://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/08/21/090224b08308af57/2_0 /Rendered/PDF/Review0of0logi0ulatory0framework000.pdf 42 are administered by different ministries, agencies, departments, divisions and their outsourced partners. For example, imports permits are required for many types of goods such as automotive strategic goods from MITI, agriculture produce and products from Malaysian Quarantine Inspection Services, MAQIS, pharmaceuticals for MOH, and radioactive materials from Atomic Energy Licensing Board, AELB, and so forth. As for operations of logistics services, operators should comply with environmental requirements from Department of Environment, DOE, safety and health from Department of Occupational Safety and Health, DOSH, fire safety from Fire & Rescue Department of Malaysia, BOMBA, and on. Goods clearance from ports frequently are subjected to quarantine and inspections, again by different agencies according to the applicable regulations.

Yet these many local statutory regulations do not cover every aspects of logistics activities. Logistics operators are subjected to international agreements when moving goods across borders. These agreements are meant to facilitate the movements of goods, but unnecessary burdens can result from poorly harmonised implementations.

In the ASEAN context, for example, the logistics market has expanded significantly along with the implementation of Free Trade Agreements within ASEAN as well as with ASEAN Dialogue Partners such as China, Korea, Japan, India, Australia and New Zealand. ASEAN Economic Ministers decided Logistics Sector as the twelfth Priority Sector in ASEAN for accelerated economic integration in 2006. The Roadmap for the Integration of Logistics Services was adopted in 2007. It contains specific measures which were formulated in consultation with both, government and business sectors with the aim to:  create an ASEAN single market by 2015 by strengthening ASEAN economic integration through liberalisation and facilitation measures in the area of logistics services, and  support the establishment and enhance the competitiveness of an ASEAN production base through the creation of an integrated ASEAN logistics environment31

The extreme difficulty with its multi-sectoral nature is to find all regulatory information, nowadays especially online, results in lack of transparency. There is no “one stop centre” to pull out all logistics-related regulations as different logistics regulations are administered and enforced by various separate entities. Some regulatory information is restricted to members of trade associations and not available to the public thereby compounding the problem.

With these many statutory regulations and international agreements, there are still many other aspects of logistics activities which are “self-regulated”. The various trades in logistics have their own trading conditions, standards and codes of practice which

31 ASEAN Trade Facilitations; http://www.asean.org/communities/asean-economic- community/category/logistics-services 43 logistics operators have to adhere to. These governance aspects are not in the scope of this review.

Moving goods across national borders is a major logistics case. Trading across borders, the World Bank term for cross borders logistics, is a measures of logistics efficiency between counties. The World Bank ranking of 189 economies in 2014 is based on the criteria of cost, time and number of documents involved. The sample used is based on a set of assumptions (see Box 2.6).

Box 2.6: World Bank Trading Across Borders Criteria and Assumptions Assumptions about the traded goods: The traded product travels in a dry-cargo, 20-foot, full container load (1). It weighs 10 tons and is valued at $20,000. The product:  Is not hazardous nor does it include military items.  Does not require refrigeration or any other special environment.  Does not require any special phytosanitary or environmental safety standards other than accepted international standards.  Is one of the economy’s leading export or import products Assumptions about the business: The business:  Is located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city (see cities list).  Is a private, limited liability company.  Does not operate in an export processing zone or an industrial estate with special export or import privileges.  Conducts export and import activities but does not have any special accreditation, such as an authorized economic operator status.  Is 100% domestically owned Trading Trading Cost of Cost of Documents Time to Documents Time to Across Across export: import: Economy to export export to import import Borders Borders US$ per US$ per (Number) (days) (Number) (days) Rank DTF container container Malaysia 11 89.94 4 11.0 525.0 4 8.0 560 Source: World Bank 2014; http://www.doingbusiness.org/methodology/trading-across-borders

Malaysia 11th position in this ranking is commendable. However, it should be noted that the World Bank analysis should be viewed with caution as the reality of logistics activities and processes are very complex. For example, the documents presented at the cross-border transaction have gone through many other processes involving many parties. The hidden costs, other related documents and actual time involved are camouflaged.

In the case of Malaysia, only four pieces of documents are required for export (see Box 2.5); the Bill of Lading, Commercial invoice, Customs Export Declaration, and Packing list. A typical shipper’s export declaration, for example, may require more than 25 data inputs, some of which may require supporting documentation (see a sample in Figure 2.1).

Figure 2.1: Sample of export document filing requirement

Source: https://www.unzco.com/basicguide/figure5.html

As for the Bill of Lading which functions as; a receipt for the goods shipped, evidence of the terms of the contract of carriage, and a document of title to the goods specified in the Bill. The filing requirement includes information for both shipper and consignee, terms of sale, reason for export, description of the item, tariff codes, quantity (number

45 of units and packages, weight) value (price), country of origin, and shipper’s signature and date (see sample in Figure 2.2).

Figure 2.2: Sample of Bill of Lading

Source: http://www.morethanshipping.com/bill-of-ladings/#sthash.7BsfezqO.dpuf

The probability of data-filing error and discrepancy, minor or otherwise, is always there. When errors detected by regulatory gate-keeper, suspicion arises, calling for verification and validation of the documents. Importers and exporters must always be ready to produce further evidences whenever demanded for the release of goods as the regulators are empowered to do so. As such one should not be lulled into believing that the need to submit only four pieces of forms means that there is less regulatory burden.

As such, the reality need to be reviewed from the total logistics chain. Just to illustrate, importation of goods can involve a multitude of processes by different parties from shippers to the port (see Figure 2.3)32. Almost if not all the processes involve informational transactions and these cumulated to the final four documents required for goods clearance at Customs.

The transport industry in logistics is similarly governed by many regulations. This is not surprising, considering the serious consequences of system failures – road, sea, air and rail accidents, environmental disasters and even food poisoning. As such all stakeholders in the logistics industry strive to reach a common goal: safe and efficient transportation of freight by road, air, rail, inland waterway, or ocean-going marine vessel.

Regulatory fragmentation exists to a great extent in the logistics service industry and contributes to unnecessary regulatory burdens. Each segment of logistics services is often restricted by a different license, such as for a customs clearing agent, trucking, warehousing, handling dangerous goods, and fire safety. This fragmentation gives logistics operators a high hurdle to provide integrated door-to- door services under their control, therefore, operators often outsource some services to several service providers. Moreover, setting up a logistics service business may need to have external partners. If foreign companies intend to provide door-to-door logistics services, foreign companies are often required to partner with local enterprises (joint venture), which impedes the establishment of integrated logistics business. Furthermore, institutional fragmentation among relevant ministries and agencies causes less transparency in terms of compliance to regulations.

Market fragmentation adds more complexity due to having different levels of engagement by operators in freight forwarding activities. To provide seamless logistics services in the fragmented environment, logistics operators combine possible activities along the supply chain that they can arrange under the existing legal system. There are three tiers to logistics service activities: tier 1 involves core logistics services offered by the majority of logistics service providers; tier 2 is the transportation services that are integral to the movement of goods; and tier 3 is the input or value-added

32 Royal Malaysian Customs: Atiga National Guideline (8 JAN 2015)(13) MITI 15.1.2015; http://www.customs.gov.my/en/pg/Pages/ang_8115.aspx 47 services. Logistics services provide one or combined pieces of services from tiers 2 and 3, depending on the capacity of operators, and more importantly, on their legal status as service providers for each service.

Figure 2.3: Example of Import Processes

Source: Customs; http://www.customs.gov.my/en/pg/Pages/ang_8115.aspx

Then there are national priorities at the policy level. Beyond the multi-sectoral issue, national prioritization influences domestic regulations and bilateral/international transport agreements, such as transit regimes. Developing countries in particular are often keen on regulating international transport services since the taxes from international movement of goods generate a large share of the national revenues. Therefore, policy makers use their political power upon deciding transport related agreements. They will take account of economic interests when they open the industries to foreigners. There are instances that policy makers attempt to protect certain sectors from foreign investors. While entry of foreign operators in the logistics service industry can generate economic development of a country local operators are exposed to the risk of losing their business. As a result of economic favours towards

48 local service operators, foreign operators often encounter higher hurdles in various requirements to enter the industry.33

Costs of regulatory compliance

There are multiple costs in regulation to achieve policy objectives. These costs impact upon business, consumers and the government in general (Figure 3.1)34. What is important is that the benefits accrued from achieving the regulatory objectives must be greater that the total cost of regulation. Some regulatory costs are inevitable as can be viewed as the price of the benefits which the regulation brings. High quality regulation is both effective in address an identifiable problem and efficient in terms of minimizing unnecessary compliance and other costs imposed on business. The best regulations achieve their objectives at acceptable level of cost.

By contrast, poor regulation may not achieve its objectives and can impose unnecessary costs, impede innovation, or create unnecessary barriers to trade, investment and economic efficiency. Given the pervasiveness of regulations in the country, it is not surprising that regulation and red-tape continue to impose significant compliance costs. Direct compliance costs can include the time taken to comply with regulations, the need for additional staffing, the development and implementation of new information technology and reporting systems, external advice, education, advertising, accommodation and travel costs.

As well as having a direct impact on regulated businesses, compliance costs also impact indirectly on the community, by changing pricing and distorting resource allocation, impacting on international trade and delaying the introduction of new products or services. There remain concerns that such costs are excessive)35.

In an international study in 1998, the OECD estimated from survey responses that taxation, employment and environmental regulations imposed over US$17 billion (2.9 percent of GDP) in direct regulatory compliance costs on small and medium-sized businesses in Australia. The cost components are:  employment regulations accounted for 40 percent (OECD average was 35 percent)  compliance with tax regulations accounted for 36 percent (OECD average, 46 percent)

33 Ibid 10 34 APGC 2008, Performance Benchmarking of Australian Business Regulation: Cost of Business Registration, Australian Government Productivity Commission Research Report, November 2008

35 Argy S. and Johnson M. 2003, Mechanism for Improving Quality of Regulations, Australia in an International Context, Australia Government Productivity Commission, Staff Working Paper, July 2003

 environmental regulations accounted for 24 percent (OECD average, 19 percent)

Figure 3.1: Multiple costs of regulation

Types of costs Who bears these costs?

Deadweight loss arising from distortions caused by regulation: • prices • access Costs to the economy in forgone economic activity (return to capital Uncertainty impacts: and to labour • defensive behaviour • inertia • resistance to innovation Ben efit Delay costs: s of • deferred investment reg • change in competitive position ulat • underutilisation of resources ion nee Cost to business and consumers: d to Time and other costs to discover and (depends on ability to pass on costs exc comply with regulatory requirements: to consumers) eed • internal resources cost • external resources s

Fees and charges levied by government Net cost to government expenditure (cost to taxpayers) Administrative costs by government agencies

Costs should be minimised for any given benefit achieved

Source: AGPC 2008

The more advanced countries like Australia have taken measures to improve the cost- effectiveness of regulations and to reduce compliance burdens and red-tape. Some of the measures include:  the increased adoption of performance-based regulation  the consideration and adoption of implementation options that minimize red- tape  the improvement of regulatory services through the employment of new technology

 increased electronic publication of regulatory information  licensing reforms and/or reduction in number of licences  streamlining of government paperwork requirements  privatization of certification and inspection functions  stakeholders consultation to improve implementation and compliance

Compliance cost in logistics is particularly important to shippers as it will increase their unit cost and thereby reduce cost competitiveness. The cost eventually will be passed on to the consumers thereby paying higher prices for no additional value add.

CHAPTER FOUR: Logistics value chain

Contents: Introduction, Overview on Logistics Value Chain, Key Elements for Value Chain Analysis for RURB, The Seven-step Sea Freight Transportation Model, Logistics Value Chain Models, Sea Freight Logistics Stakeholder Analysis, Standard Industrial Classification of Freight Logistics, Logistics Trade Directory, Appendix

Key Points 1. This chapter has identified the various conceptual frameworks that have been developed for logistics studies. The frameworks are generally process or activity-based, focusing on the chain of activities involved in import-export logistics. The number of different frameworks shows the complexity of logistics activities, as each framework focuses its own specific purpose. 2. This RURB study focuses on sea freight import-export logistics. It is using the process-based model that resembles the industry’s perspectives of logistics activities. As such the industry Seven-step Sea Freight Transportation framework provides clarity on the analysis of the logistics value chain. To support value chain analysis, consideration is made on the product-based perspective of logistics activities. 3. The WTO Trade Facilitation framework’s main purpose is to ensure a common understanding of trade rules between economies so that goods can move smoothly and efficiently between them. 4. The World Bank Trading Across Borders framework serves to benchmark between economies in the import-export sea freight logistics. This particular benchmark indicator is one of ten indicators to rank economies by the ease of doing business. 5. Another World Bank benchmarking framework is the Logistics Performance Indicators that measures and benchmarks logistics quality among economies. The measures are made from perception studies of freight forwarders in the import-export activities. 6. The UN/CEFACT Buy-Ship-Pay framework provides a process-based perspective of the international supply chain. The purpose is to have a model that can be used as a reference for all parties engaged in the supply chain in order to assist in harmonization of trade processes and data, use of best practice, promotion and training. 7. The Frost and Sullivan Framework is specially developed is a snapshot study of the logistics infrastructures and capacities to analyse the “as-is” logistics capability of the country. The aim is to propose the strategic development of the logistics sector in the medium-term. 8. The review of these frameworks enables a compressive stakeholder analysis to be made. The MISC2008 provides the industrial classification of the logistics business activities of interest.

9. The Malaysian Logistics Directory portal provides a large samples of logistics businesses, while the Malaysian Trade Facilitation portal is able to identify four categories of stakeholders in sea-freight export-import logistics.

Introduction

Malaysia is a fast developing economy that has been dependent on its capacity to trade globally. Since the early eighties, until recently, the economic emphasis has been on industrialisation through the manufacturing industry and the export of manufacturing. The earlier years of industrialisation was focused on employment growth through low cost labour intensive industry. As the country achieved full employment, the continuing growth of the economy was supplemented by imported foreign labour.

The country also began to focus on higher added value output and the need to improve the capacity of manufacturing-related services in the Second Industrial Master Plan (1996-2005). The emphasis was on the Manufacturing++ Strategy36 (Figure 4.1). The emphasis of the Manufacturing++ Strategy is to encourage the investment into high technology, high added value industry. It also calls for the development of more knowledge-based manufacturing-related services industry. Distribution or logistics is also the focus of Manufacturing++. This strategy continues into the third Industrial Master Plan (2006-2020).

Being a highly export-oriented economy, Malaysia has a mature export logistics sector. The emphasis over the last many years has been on the continuous growth of ports and airports, which are the main across-border trading outlets. The World Bank’s Logistics Performance Index 2014 puts Malaysia at the top ranking of the upper income economies. Malaysia is grouped together with many high income economies as a “logistically friendly” country37.

36 MITI (1996), Second Industrial Master Plan, 1996-2005 – Executive Summary, Ministry of International Trade and Industry, Malaysia, pp. 10-13 37 World Bank (2014), Connecting to Compete 2014 – Trade Logistics in the Global Economy 53

Figure 4.1: IMP2 - Manufacturing++ Strategy

Continuous Productivity Improvement (High technology emphasis)

Backward integration IMP-1 Forward integration of value chain Emphasis of value chain

R&D Product Assembly & Distribution Marketing Design Production

Source: MITI (1996)

Overview on Logistics Value Chain Logistics is basically concerned with moving physical goods from one location to another for the purpose of trade. It may be from business to customers within the country’s borders or across borders. When it involves cross border trade, trades facilitation becomes crucial to economic growth. Logistics, according to the Council of Logistics Management38, “is the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements." Note that this definition includes inbound, outbound, internal and external movements, and return of materials for environmental purposes.

The logistics value chain39 is one part of an enterprise’s value chain, which includes such external logistics activities as delivery of raw materials and finished goods, and also involves such internal logistics activities as production and selling. Logistics is used to optimize and integrate the resources, while the logistics value chain is used to design and plan the value-added activities in the logistics process. Figure 4.2 illustrates a conceptual view of a logistics value chain.

38 Council of Logistics Management, http://www.clm1.org/mission.html , 12 Feb 98 39 Xingjian Zhou (2013), Research on Logistics Value Chain Analysis and Competitiveness Construction for Express Enterprises, American Journal of Industrial and Business Management, 2013, 3, 131-135, (http://www.scirp.org/journal/ajibm) 54

Figure 4.2: Logistics Value Chain

Source: Zhou (2013)

Import and export procedures largely refer to: "the activities (practices and formalities) involved in collecting, presenting, communicating and processing the data required for movement of goods in international trade"40. Trade facilitation41, which is the simplification and harmonisation of international trade procedures including import and export procedures, is an important aspect of cross border trading activities. Trade facilitation is a key policy for customs. Customs has a major role to play at all levels of facilitation, in particular: i. helping to define the policy space ii. drawing up the framework and rules of implementation, and then iii. putting into place the tools and processes at operational level

The OECD believes that trade facilitation agreements can reduce trade transaction costs by 13% to 15% in developing countries. However, there are the immediate costs of implementing measures covered by a trade facilitation agreement. According to the World Bank, this would cost from $7million to $11million. It is argued that the costs of not implementing the agreement may be far higher than the immediate implementation

40 European Commission: Trade Facilitation http://ec.europa.eu/taxation_customs/customs/policy_issues/trade_falicitation/index_en.htm 41ITC 2013, WTO Trade Facilitation Agreement – A Business Guide for Developing Countries. International Trade Centre, Geneva 55 costs, in terms of how trade facilitation can contribute to reaching development goals as illustrated in Figure 4.3.

Malaysia has focused its trade facilitation42 efforts on developing a new agreement on trade facilitation aimed to address issues relating to:  freedom of transit of goods  fees and formalities connected with importation and exportation  publication and administration of trade regulations

Figure 4.3: Outcome of Trade Facilitation Agreement43

Source: ITC 2013

Such an agreement would ensure reform in multilateral rules and bring benefits in terms of providing faster and more efficient clearance of goods, reduction in cost of doing business and more transparent and predictable international trade. These efforts would contribute to the efficiency of the logistics chain. Trade facilitation in Malaysia is closely aligned with the World Trade Organisation, WTO definition which states that:

“The Trade Facilitation Agreement contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade

42 MITI: Trade Facilitation: http://www.miti.gov.my/ 43 Note: The ultimate objective of Trade Facilitation Agreement is poverty reduction. In the case of Malaysia, the objective outcome would be achieving a high income status. 56 facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.”

Key Elements for Value Chain Analysis for RURB

There are different logistics chain or models that have been develop for various studies with their respective defined objectives. These objectives include benchmarking logistics performance, examining policy implementation and strategy improvement, facilitating international harmonisation of trade, and so forth.

The purpose of value chain analysis here is to review the regulatory framework and identify those aspects which have contributed to or stifled the efficiency and growth of the logistics chain. The focus is on reducing the unnecessary regulatory burdens (RURBs) imposed on businesses across the logistics chain. These unnecessary burdens will be identified by getting the perspectives of businesses in the logistics chain.

The key outputs of this study will be the identification of the unnecessary burdens, and options to reduce or eliminate them. The options identified will be aimed at both short- term solutions (quick-wins) and long-term solutions. The recommendations will be forwarded to the appropriate committees for their decision and action.

As we are concerned with the growth of our trading economy, the study will focus on the movement of goods across the country’s borders, that is, the import and export of goods by sea. It is crucial to the analysis that the value chain approach used here has three key features:

1. The value chain should enable the analysis of the regulatory interventions along the entire length of the total value chain. This will facilitate identifying on which stages of the logistics chain the various regulatory regimes and their implementation impact 2. The processes in the value chain are identified in order to facilitate the analysis of the flow of physical goods from shippers (exporters) to consignees (importers). This enables the identification of unique requirements for handling different types of goods 3. The value chain identifies all the logistics stakeholders – logistics business players, their customers and suppliers, and the regulators. This enables identifying how regulation impacts on these stakeholders

The Seven-step Sea Freight Transportation Model

Freight forwarders play the important role of managing the transportation of goods across the globe for exporters and importers. They provide the services that ensure

57 goods to be moved meet all necessary conditions to pass through customs and that all the necessary paperwork is in order, as well as ensuring that goods are properly handled. In other words, freight forwarders ensure the safety, efficiency and effectiveness of cargo packing, handling and delivery as well and managing the paperwork and customs clearance for exporters and importers.

The involvement of the freight forwarders can be illustrated in the transportation chain as in Figure 4.4 below44. The involvement starts with the shipper (exporter) until the goods reach the consignee (importer) of the country of destination.

Figure 4.4: Export-Import Cargo Transportation Chain

Source: Transporteca, https://www.transporteca.com/information/shippingsteps

There are many players involved in the transportation of goods across borders (the logistics chain). These involve basically five physical and two documentation steps, starting from the shipper (goods exporter) to the consignee (goods importer). Costs and time (delays) are key factors in the supply chain. Costs incurred in these steps and have to be borne by either the shipper or the consignee. As such clear agreement is crucial to avoid surprises and disruption. Figure 4.5 illustrates the five physical steps of transportation. The freight forwarder remains the main player who frequently provides the integrated logistics of managing the other players and the documentation requirements across the logistics chain from shipper to consignee. In other words, the freight forwarder arranges and provides all physical services and the management services for the shipper or the consignee.

Export haulage which is the movement of cargo from the shipper’s to the forwarder’s premise (origin warehouse) is the first physical part of the logistics chain. The goods are moved by truck (can be by rail or a combination). The origin warehouse is not only a temporary storage but also acts as an export consolidation centre in the case of “less container load” or LCL cargo. There are many different costs involve in the export and import of goods and who pays for which costs will depend on the sales agreement. The importer (buyer) may be paying ex-factory or ex-works price and the purchase

44 Transporteca: The Seven Steps of International Shipping, https://www.transporteca.com/information/shippingsteps

58 may be Freight-On-Board (FOB). Agreement may be made under such terms as Delivery-At-Place (DAP), Delivery-Duty-Paid (DDP), Delivery-Duty-Unpaid (DDU), costs of goods and insurance (C&I), Cost-Insurance-Freight (CIF), among many others45. The terms in the import-export agreement will define who pays for which costs involved.

Figure 4.5: The Seven Steps of International Shipping

Source: Transporteca, https://www.transporteca.com/information/shippingsteps

Export customs clearance is customs formalities imposed to meet regulatory requirements of the exporting country. Customs clearance is the transaction whereby a declaration is developed and required documents are submitted to authorities (the Customs), and is performed by companies holding valid customs licences, so-called customs house brokers. Many forwarding companies provide customs brokerage services as part of their total logistics services. The export customs clearance step must be completed before the cargo can leave the country of origin, and if not performed by the freight forwarder, often required to be completed before the cargo enters the forwarders origin warehouse.

Once the cargo reaches the origin warehouse, origin handling can go ahead. It covers all physical handling and inspections of the cargo from receiving until it is loaded on a ship in a container. There are many activities involving many parties in origin handling but the freight forwarder has the responsibility of managing these activities. The physical activities include receiving the cargo, inspecting them (tallying), planning for loading, consolidating for LCL cargo, stuffing the container, moving to port for loading onto ship. Who pays for the work will depend on the agreement made between the shipper and the consignee.

On the ocean freight the freight forwarder decides on the shipping line to ship from origin to destination in order to meet the specified timeline for the shipment. Shipper and consignee do not have any interaction with the shipping line as the forwarder has contact of carriage for the container with the shipping line. The cost of the ocean freight will be charged to the shipper or consignee depending on the terms of the agreement.

45 How To Export Import.Com: http://howtoexportimport.com/default.aspx 59

There are other surcharges and costs involved such as bunker adjustment factor, currency adjustment factor, insurance, which will be passed to the shipper of consignee.

Import customs clearance can typically begin before the cargo arrives at its destination country. As for export customs clearance, it is a formality where a declaration is developed and submitted together with relevant documents enabling authorities to register and levy any customs duty on the shipment. Import customs clearance is performed by the freight forwarder or an agent of the freight forwarder, or by a customs broker appointed by the consignee. The import customs clearance process must be completed prior to the cargo leaving a customs bonded area in the country of destination. Typically, that means before the cargo leaves the destination warehouse of the forwarder or the forwarders agent.

As for the destination, cargo handling is also required to meet requirements of the destination country before it can be released to a consignee. In short, destination handling includes transfer of the container from the ship to shore and from the port to the forwarder's destination warehouse. It also includes unpacking of the container and preparing the cargo for the consignee to collect. Destination handling is covered by multiple destination charges and always performed by the freight forwarder or an agent appointed by the freight forwarder. It can be charged to the shipper or consignee, but will always need to be paid in full before the cargo can be surrendered to the consignee. Again, if the agreement is that the shipper pay for ocean freight, and the consignee pay for destination charges, it is in fact the shipper who decides who the consignee uses to do the destination handling. As discussed for origin charges that can create some friction or surprises for the consignee who has not planned for it.

Import haulage is the last leg of the transportation is the actual delivery of the cargo to the consignee. It can either be performed by the freight forwarder or a local transportation company appointed by the consignee. If this part of the transportation is being arranged by the shipper, it would normally make sense to use a freight forwarder which can also arrange for import haulage. The import haulage typically covers transportation to a specific address, but not unloading from the truck, which is the responsibility of the consignee.

This transportation model illustrates the crucial logistics processes and the primary documentation requirements for import and export of goods by sea. The processes will enable the identification of the key businesses in the logistics chain and then the regulations and regulatory regimes affecting them.

Cold Chain Logistics

A specialised area in freight logistics is the cold chain. The cold chain refers to the management of the temperature of perishable products in order to maintain quality and safety from the point of slaughter or harvest through the distribution chain to the final

60 consumer46. A cold chain is a temperature-controlled supply chain. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a given temperature range. It is used to help extend and ensure the shelf life of products such as fresh agricultural produce, seafood, frozen food, photographic film, chemicals and pharmaceutical drugs. Such products, during transport and when in transient storage, are called cool cargo. Unlike other goods or merchandise, cold chain goods are perishable and cannot be stored for indefinite periods of time. They always en route towards end use or destination, even when held temporarily in cold stores and hence commonly referred to as cargo during its entire logistics cycle.47 Cold chain logistics incorporate temperature control (refrigeration) in the normal logistics chain. The major sectors served are the food and beverages and the bio-pharmaceuticals.48 A typical cold chain logistics infrastructure is shown in Figure 4.6 below.

Figure 4.6: Cold Chain Logistics Infrastructure

Source: Sapra R. and Joshi S. (2013)

Logistics Value Chain Models There are many different logistics chain models developed for different purposes of analyses. In this section an overview examinations of the various models are made. The WTO Agreement on Trade Facilitation49 is a complex model which involves and analyses many different aspects of international trade. The simplified framework showing the various aspects is illustrated as in Figure 4.7. The aspects that have direct impact on logistics include:

46 Global Cold Chain alliance; http://www.gcca.org/about-us/the-cold-chain/ 47 European Business Journal, Premiere Logistics Netherlands B.V., http://www.european-business- journal.com/premiere_logistics_netherlands_bv/company_news/our_very_own_unit_of_cold_chain_m anagement/ 48 Sapra R. and Joshi S. (2013), Cold Chain Logistics, Welingkar Institute of Management and Research; http://www.slideshare.net/businessdesign2011/cold-chain-logistics?related=1

49 WTO: Implementing the WTO Agreement on Trade Facilitation: http://mpoverello.com/2014/04/29/implementing-the-wto-agreement-on-trade-facilitation/

 Import, Export and Transport Formalities  Release & Clearance of Goods  Movement of Goods under Customs Control  Border Agency Cooperation  Publication & Availability of Information  Customs Cooperation

The WTO Trade Facilitation Agreement50 is based in four principles or pillars as illustrated in Figure 4.8. The fundamental principles are transparency, simplification, harmonization, and standardization. To achieve these principles, full cooperation between government authorities and with the business community is essential.

Figure 4.7: WTO Agreement on Trade Facilitation Framework (Simplified)

Source: http://mpoverello.com/2014/04/29/implementing-the-wto-agreement-on-trade-facilitation/

50 UNECE, WTO Trade Facilitation Agreement, http://tfig.unece.org/contents/what-involve.htm 62

Figure 4.8: Principles for Trade Facilitation

Trade Facilitation Principles

Transparency Simplification Standardisation Harmonisation

The Four Pillars

Source: UNECE, http://tfig.unece.org/contents/what-involve.htm

Transparency within government promotes openness and accountability of a government's and administration's actions. It entails disclosure of information in a way that the public can readily access and use it. This information may include laws, regulations and administrative decisions of general application, budget, procurement decisions and meetings. Regulatory information should be published and disseminated, when possible, prior to enforcement to allow parties concerned to take note of it and make necessary changes. Furthermore, relevant stakeholders and the general public should be invited to participate in the legislative process, by providing their views and perspectives on proposed laws prior to enactment. Simplification is the process of eliminating all unnecessary elements and duplications in trade formalities, processes and procedures. It should be based on an analysis of the existing or current practices, the “as-is” situation.

Harmonization is the alignment of national procedures, operations and documents with international conventions, standards and practices. It can come from adopting and implementing the same standards as partner countries, either as part of a regional integration process or as a result of business decisions.

Standardization is the process of developing formats for practices and procedures, documents and information internationally agreed by various parties. Standards are then used to align and, eventually, harmonize practices and methods.

Based on these principles the United Nations Centre for Trade Facilitation and Electronic Business, UN/CEFACT formulated the Buy-Ship-Pay Model to describe the main processes and parties in the international supply chain. The supply chain

63 ensures that goods are ordered, shipped and paid for while complying with regulatory requirements and supporting trade security. The Buy-Ship-Pay model identifies the key commercial, logistical, regulatory and payment procedures involved in the international supply chain and provides an overview of the information exchanged between the parties throughout its various steps. The model presents a "top-down" view of the supply chain linking the detailed "bottom-up" actions derived from the business requirements specified in the UN/CEFACT standards development process. The Figure 4.9 illustrates the business processes and transactions that are included in the Buy-Ship-Pay model. Only the SHIP part is shown with the two top levels. Below that level, business process views of the named transactions are stored in the model.

Figure 4.9: UN/CEFACT BUY-SHIP-PAY Model

Source: UNCEC, http://tfig.unece.org/contents/buy-ship-pay-model.htm

The model facilitates Business Process Analysis efforts in various ways. It can be used in the scope phase by providing an overview, i.e. guidelines and schemata at a higher level. Next, it can be used during the process development or the “to-be modelling” in the detailed process modelling phase. The model identifies four main business partner types: Customer, Supplier, Intermediary and Authority. The types or organizations that make up these four categories, and the roles they play, are described. The Table 4.1 below identifies the main ones.

Table 4.1: Main Business Partners in International Trade Customer Supplier Intermediary Authority Buyer Seller Transport Service Supplier Customs Importer Exporter Freight Forwarder Environment Consignee Consignor Bank Agriculture Ship to Ship from Insurance Provider Standards Payer Payee Customs Agent Consular Broker Health Commission Agent Port Intervention Board (EU) Chamber of Commerce Source: UNCEC, http://tfig.unece.org/contents/buy-ship-pay-model.htm

Logistics Performance Index (LPI): Inefficient logistics raises the costs of trading and reduces the potential for global integration. This is a hefty burden for developing countries trying to compete in the global marketplace. Since 2007, the World Bank has been monitoring the Logistics Performance Index to inform countries on the role of logistics for growth and the policies to support it in such areas as infrastructure, service provision, and cross-border trade facilitation.51

Figure 4.10: World Bank LPI Model

Input and Outcome LP Indicators

Customs Timeliness

Supply International Infrastructure chain shipments service delivery Service Tracking quality and tracing

Service delivery Areas for policy performance regulations (Outcomes) (Inputs) Time, cost, reliability

Source: World Bank: Connecting to Compete 2014

51 World Bank (2014), Connecting to Compete 2014 – Trade Logistics in the Global Economy 65

The World Bank LPI Model is illustrated in Figure 4.10. The LPI analyses countries in six components (international and domestic): i. The efficiency of customs and border clearance (“Customs”). ii. The quality of trade and transport infrastructure (“Infrastructure”). iii. The ease of arranging competitively priced shipments (“Ease of arranging shipments”). iv. The competence and quality of logistics services—trucking, forwarding, and customs brokerage (“Quality of logistics services”). v. The ability to track and trace consignments (“Tracking and tracing”). vi. The frequency with which shipments reach consignees within scheduled or expected delivery times (“Timeliness”).

The LPI allows 166 countries to benchmark each other on their logistics performance and thereby provides the basis and incentive to continuously improve the key logistics component for better economic performance. Based on the LPI, Malaysia is ranked in the top position of upper middle income economies for 2014 with a LPI score of 3.59 (3.49 in 2012). With the score, Malaysia can be classified as a “logistically friendly” together with the high income economies. Although the LPI for Malaysia continued to improve over the last few years, there is still much to be done to ensure that the country becomes a stable performer as a logistically friendly country. The high income economies still out performs the upper middle income economies by 30%. Although the LPI provides useful information and benchmarks, it is based on the survey of freight forwarders, rather than the shippers and the other logistics players in the supply chain who have the key interest in the movement of goods. It nevertheless focuses attention on improving the logistics chain. The country is moving in the right direction as it continues to focus on soft infrastructure enhancements based on regulatory reform, and less on basic hard infrastructure investments. It is crucial to ensure that hard infrastructure is improved as the volume of goods grows as the economy grows. More important may be the need to improve logistics capacities and to ensure a balanced growth. The human resource capacities across the logistics chain continues to be a challenge in the areas of knowledge, skills and numbers. With the enhancement of the operating systems with information technology, new knowledge workers are needed to ensure the effectiveness and efficiency of the logistics chain.

A recent study in 2014 conducted by Frost and Sullivan for the Economic Planning Unit (EPU) on “Developing an Empirical and Diagnostic Base to Support Strategic Planning for the Freight Logistics Industry” takes the strategic view of the Malaysian freight logistics industry as consisting of eight distinct components, namely:

1) Air Transport Infrastructure 2) Sea Transport Infrastructure 3) Rail Transport Infrastructure 4) Road Transport Infrastructure

5) Warehousing 6) Trade facilitation 7) Sabah and Sarawak 8) Others – Halal logistics and ASEAN Economic Community

This study defines logistics as “an ecosystem of economic activities that involves the sourcing and procurement, assembly and packing, storage, handling and transportation of freight. Freight logistics activities also involve managing the process of documentation and information flow between production and consumption points in the country as well as globally.” Frost and Sullivan Analytical Model is a 5-stage Modular perspectives of the freight logistics industry52. Figure 4.11 below illustrates the 5-stage Module.

Figure 4.11: Frost and Sullivan Analytical Model

(5) Strategies for the Development of Freight Logistics Industry

(3) Performance Indicators for (4) International Competitiveness of Freight Logistics Industry Freight Logistics Industry

(2) Qualitative and Quantitative Assessment of Freight Logistics (a) Operators and (b) End Users

(1) Profile of Freight Logistics Industry

Source: Frost and Sullivan, 2014

The World Bank methodology on Trading Across Borders53 focuses on regulations and regulatory practices that impact on the economy, i.e., “whose governments have managed to create a regulatory system that facilitates interactions in the marketplace and protects important public interests without unnecessarily hindering the development of the private sector—in other words, a regulatory system with strong institutions and low transactions costs.” Specifically, it measures how much time, how many documents and what it costs to export and import by sea transport. The World Bank Model is illustrated in Figure 4.12 below. The focus on land and sea transportation is largely because they are the major modes for the export and import

52 Frost and Sullivan 2014, Developing an Empirical and Diagnostic Base to support Strategic Planning for the Freight Logistics Industry – Final Report, Economic Planning Unit Malaysia 53 World Bank (2013), Doing Business 2014, Understanding Regulations for Small and Medium-size Enterprises, http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-reports/English/DB14- Full-Report.pdf 67 of goods. Export and import through air transport represents relatively a smaller fraction of the overall volume.

Figure 4.12: World Bank Trading Across Borders Model

Time Time To To export Cost Cost import Full 20-foot container Documents Documents

Import

Export

Port and Customs and Inland terminal border transport handling agencies Source: World Bank Doing Business 2013

In this analytical framework, the concerns of businesses across the logistics chain are costs, time (delays), and documentation (information). These three parameters are key challenges for the management of productivity in logistics from the regulatory perspective and are significant burdens on businesses.

This Doing Business methodology for trading across borders measures the time and cost (excluding tariffs) associated with exporting and importing a standardized cargo of goods by sea transport. The time and cost necessary to complete 4 predefined stages (document preparation; customs clearance and inspections; inland transport and handling; and port and terminal handling) for exporting and importing the goods are recorded; however, the time and cost for sea transport are not included. The World Bank Doing Business provides snap shots of a selected case to calculate the ranking score for a country and for Malaysia, Port Klang (West Port and North Port) is used as the case. The methodology makes two sets of assumptions54.

Assumptions about the traded goods: The traded product travels in a dry-cargo, 20- foot, full container load. It weighs 10 tons and is valued at $20,000. The product:  Is not hazardous nor does it include military items.  Does not require refrigeration or any other special environment.

54 World Bank Doing Business Methodology (2014), http://www.doingbusiness.org/methodology/trading- across-borders

 Does not require any special phytosanitary or environmental safety standards other than accepted international standards.  Is one of the economy’s leading export or import products

Assumptions about the business: The business:

 Is located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Is a private, limited liability company.  Does not operate in an export processing zone or an industrial estate with special export or import privileges.  Conducts export and import activities but does not have any special accreditation, such as an authorized economic operator status.  Is 100% domestically owned

These assumptions are necessary for comparative ranking across economies at different levels of development. The measures of documentation, time and costs are as illustrated in Table 4.2.

Table 4.2: What do the Trading across Borders indicators measure? Documents required to export and import (number)  Bank documents  Customs clearance documents  Port and terminal handling documents  Transport documents Time required to export and import (days)  Obtaining, filling out and submitting all the documents  Inland transport and handling  Customs clearance and inspections  Port and terminal handling  Does not include sea transport time Cost required to export and import (US$ per container)  All documentations  Inland transport and handling  Customs clearance and inspections  Port and terminal handling  Official costs only, no bribes Source: World Bank, http://www.doingbusiness.org/methodology/trading-across-borders

Sea Freight Logistics Stakeholder Analysis

Stakeholder analysis can be analysed from two aspects. The first aspect is the process or activity of the flow of the goods, which is analysed through the transportation or logistics value chain. This will identify of the logistics stakeholders for the import-export trade and the logistics activities within the country. The key stakeholders are businesses and regulators. The other aspect concerns the types or characteristics of product being handled. The product types will define the management, handling, storage and transportation requirements of the cargo. Table 4.3 summarises the analysis framework for stakeholder.

Table 4.3 Analysis Framework Aspect Framework Stakeholder Data collection & analysis regulatory analysis Process & Transportation/Logistics  Businesses  Acts & regulations activity Value Chain  Trade associations  Regulatory regimes  Shippers  Regulators  Forwarders  Standards Product Types of cargo/services  Hauliers  Guidelines  Dangerous goods  Ports  Reports  Dry bulk  Intermediaries  Statistics  Liquid bulk  Supporting  News and blogs  Containers industries  Web reviews  Break bulk  Regulators  Public consultation  Ro-ro  others  Expertise inputs  Special others  others Source: Analysis framework

And every product requires its own method of transport, or packaging. Five types of cargo can be distinguished: container cargo, liquid bulk, dry bulk, break bulk and ro- ro.

Container cargo form the most integral part of the entire shipping industry, trade, and transport. The shipping containers are the structures that store various kinds of products that need to be shipped from one part of the world to another. Moving containers protect the contents on the long journeys they make and ensure they make it in one piece. Depending on the type of products to be shipped or the special services needed from them, container units may vary in dimension, structure, materials, construction etc. Various types of shipping containers are being used today to meet requirements of all kinds of cargo shipping. Marine Insights (http://www.marineinsight.com) lists 16 types of container units and designs for shipping cargos, the most common being the ISO dry storage container. The others are flat rack, open top, tunnel, open side storage, double doors, refrigerated ISO,

70 insulated or thermal, cargo storage roll, tanks, half height, car carriers, intermediate bulk shift, special purpose, and swap bodies containers55.

The refrigerated ISO containers temperature regulated shipping containers that always have a carefully controlled low temperature. They are used for shipment of perishable substances like fruits and vegetables over long distances.

Liquid bulk56 a commodity carried in specially built vessels, loaded and unloaded via pipelines. The liquid products which are often transported on big tankers or through a pipeline to the next destination. This includes liquid chemicals, petroleum products and crude palm oil.

Dry bulk refers to grain, coal, iron ore, cement, sugar, salt and sand. They are not packaged separately, but transported in large quantities in the hold of a ship, wagon or lorry.

Break bulk cargoes, such as iron, steel, timber, plywood, paper, sawn wood, bags of cocoa, rolls of steel, machineries and parts, are all products that can be transported in a container or simply put on a vessel. As the name suggests, it breaks easily. To be able to lift this general cargo, it is often packaged on pallets, in crates or racks. A crane or forklift truck can easily load or discharge the goods.

Ro-ro refers to 'roll on / roll off'. This name explains how the cargo is discharged and loaded. This concerns cargo that can be driven which is only done by especially trained drivers. Ro-ro is used for cars, busses, trucks, agricultural vehicles and cranes. To transport as many of these vehicles in one go, enormous ro-ro vessels have been built.

Dangerous goods or hazardous materials: The handling, transportation and storage of hazardous materials or dangerous goods have special safety, health and environmental requirements. Dangerous goods will include prohibited products such as dangerous drugs. Hazardous materials is defined as “A substance or material, including a hazardous substance, which has been determined by the Secretary of Transportation to be capable of posing an unreasonable risk to health, safety and property when transported in commerce, and which has been so designated.”57 This means any material that, because of its chemical properties, may cause injury, loss of life, damage to property or the environment if involved in an accident during transportation. A minor transportation accident can quickly escalate into a major catastrophe when hazardous materials are involved. There are basically two sets of regulations covering the shipping of hazardous materials: a. International Maritime Dangerous Goods Code regulations and b. various local regulations governing production, handling, transportation, storage and sales of hazardous materials

55 Marine Insights; http://www.marineinsight.com/ 56 Port of Antwerp; http://www.portofantwerp.com/en/types-goods, North Port, Klang; http://www.northport.com.my/ 57 The U. S. Department of Transportation definition of hazardous materials 71

The shipper or their agent is responsible for having their Hazardous Material cargo in compliance with all the regulations at the time the cargo is offered for transportation (at the time of pick up from the shipper’s facilities, or at the time of delivery to the carrier’s terminal). The carrier’s (highway, ocean, rail, air) responsibility is to determine that the shipper has, in fact, complied to the regulations before the carrier transports the cargo. A signed “shipper’s certification” statement is required.58

To achieve the harmonisation of local regulations with international codes, the Ministry of International Trade and Industry (MITI) acts as the principal facilitator on the Globally Harmonized System (GHS) implementation59. The Globally Harmonized System of classification and labelling of chemicals is an internationally agreed-upon system, created by the United Nations.

Dangerous goods are grouped into different classes and subdivisions. There are nine main classes listed as Class 1 to Class 9 with some classes having further subdivisions. The ASEAN Protocol for Dangerous Goods60 listed the classes as follows: i. Class 1: Explosives ii. Class 2: Division 2.1: Flammable gases Division 2.2: Non-flammable, non-toxic gases Division 2.3: Toxic gases iii. Class 3: Flammable liquids and liquid desensitized explosives iv. Class 4: Division 4.1: Flammable solids, self-reactive substances and solid desensitized explosives Division 4.2: Substances liable to spontaneous combustion Division 4.3: Substances which in contact with water emit flammable gases v. Class 5: Division 5.1: Oxidizing substances Division 5.2: Organic peroxides vi. Class 6: Division 6.1: Toxic substances Division 6.2: Infectious substances vii. Class 7: Radioactive material viii. Class 8: Corrosive substances ix. Class 9: Miscellaneous substances and articles

58 Malaysia Shipping “Hazardous material handling for transportation”; http://malaysiashipping.info) 59 MITI, Status on GHS (Globally Harmonized System) implementation (As at November 2012); http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_32bac800-c0a8156f- 34c634c6-b5a59050 60 ASEAN Protocal Dangerous Goods; Article 3 –Classification; http://www.asean.org/communities/asean-economic-community/item/protocol-dangerous-goods 72

Standard Industrial Classification of Freight Logistics

At the industry level, the movement of goods and materials in freight logistics is classified into four modes of transportation: air, sea, rail, pipeline and road. The Malaysian Standard Industrial Classification 2008 (MSIC2008)61 codes these activities under the heading Transportation and Storage in Section H. Although pipeline is in the classification, this is not a major logistics concern in this study, and as such is left out of the analysis. This Section H includes the provision of passenger or freight transport, whether scheduled or not, by rail, pipeline, road, water or air and associated activities such as terminal and parking facilities, cargo handling, storage, etc. Included in this section is the renting of transport equipment with driver or operator, and postal and courier activities.

This section excludes maintenance and repair of motor vehicles and other transportation equipment, the construction, maintenance and repair of roads, railroads, harbours, airfields, as well as the renting of transport equipment without driver or operator. The Table 4.4 below gives the classifications of activities for freight transport together with the MSIC2000 codes.

Table 4.4: MSIC 2008: TRANSPORTATION AND STORAGE62 Class Item Description MSIC2000 DIVISION 49: LAND TRANSPORT AND TRANSPORT VIA PIPELINES Group 491: Transport via railways 4912 Freight rail transport Excludes: (a) storage and warehousing, see 52100 (b) freight terminal activities, see 52211 (c) cargo handling, see 5224 49120 Freight transport by inter-urban, suburban and urban 60100p railways DIVISION 49 : LAND TRANSPORT AND TRANSPORT VIA PIPELINES Group 492 : Transport via roads 4923 Freight transport by road Includes: (a) logging haulage (b) stock haulage (c) refrigerated haulage (d) heavy haulage (e) bulk haulage including haulage in tanker trucks (e.g. palm oil tanker) (f) haulage of automobiles (g) transport of waste and waste materials, without collection or disposal (h) furniture removal (i) renting of trucks with driver (j) freight transport by man or animal-drawn vehicles (k) transport of water, liquids, etc. by trucks Excludes: (a) log hauling within the forest, as part of logging operations, see 024 01 (b) distribution of water by trucks, see 36001 (c) operation of terminal facilities for handling freight, see 52211 (d) crating and packing services for transport, see 52299

61 Department of Statistics Malaysia, Version 1.0, Malaysian Standard Industrial Classification 2008 62 Transportation activities via pipelines has not been included in this table. 73

(e) post see 53100 and courier activities, see 53200 (f) waste transport as integrated part of waste collection activities, see 3811, 3812 49230 Freight transport by road 60230 DIVISION 50 : WATER TRANSPORT Group 501 : Sea and coastal water transport 5012 Sea and coastal freight water transport Excludes: (a) storage of freight, see 52100 (b) harbour operation and other auxiliary activities (e.g. docking, pilot age, lighter age, vessel salvage), see 5222 (c) cargo handling, see 5224 50121 Transport of freight overseas and coastal waters, whether 61102 scheduled or not 50122 Transport by towing or pushing of barges, oil rigs 61103 DIVISION 50 : WATER TRANSPORT Group 502 : Inland water transport 5022 Inland freight water transport Includes: transport of freight inside harbours and ports 50220 Transport of freight via rivers, canals, lakes and other inland 61202 waterways Includes: transport of freight inside harbours and ports DIVISION 51 : AIR TRANSPORT Group 512 : Freight air transport 5120 Freight air transport 51201 Transport freight by air over regular routes and on regular 62109 schedules 51202 Non-scheduled transport of freight by air 62209p Includes: (a) launching of satellites and space vehicles (b) space transport 51203 Renting of air-transport equipment with operator for the 62201p purpose of freight transportation DIVISION 52 : WAREHOUSING AND SUPPORT ACTIVITIES FOR TRANSPORTATION Group 521 : Warehousing and storage 5210 Warehousing and storage Includes: (a) operation of storage and warehouse facilities for all kind of goods: operation of grain silos, general merchandise warehouses, freight, refrigerated warehouses, storage tanks, etc. (b) storage of goods in foreign trade zones (c) blast freezing Excludes: (a) parking facilities for motor vehicles, see 52213 (b) operation of self-storage facilities, see 68102 (c) rental of vacant space, see 6810 52100 Warehousing and storage services 63020 DIVISION 52 : WAREHOUSING AND SUPPORT ACTIVITIES FOR TRANSPORTATION Group 522 : Support activities for transportation 5221 Service activities incidental to land transportation Excludes: cargo handling, see 5224 52211 Operation of terminal facilities 63039p, Includes: operation of terminal facilities such as railway stations, bus 63031 stations, stations for the handling of goods, freight terminal activities, etc. 52212 Towing and road side assistance 50201p, Excludes: maintenance and repair of motor vehicles with towing 50202p, services, see 45201 60100p

52213 Operation of parking facilities for motor vehicles (parking 630 32 lots) Excludes: parking meter coin collection services, see 82990 52214 Highway, bridge and tunnel operation services 63033 52219 Other service activities incidental to land transportation 63039p n.e.c. Excludes: liquefaction of gas for transportation purposes, see 19201 5222 Service activities incidental to water transportation Excludes: (a) cargo handling, see 5224 (b) operation of marinas, see 93292 52221 Port, harbours and piers operation services 63035 Includes: navigation, pilotage and berthing activities 52222 Vessel salvage and refloating services 63034

52229 Other service activities incidental to water transportation 63039p n.e.c.(3) Includes: lighterage and lighthouse activities 5223 Service activities incidental to air transportation Excludes: (a) cargo handling, see 5224 (b) operation of flying schools, see 8530, 8549 52231 Operation of terminal facilities (2) 63036p Includes: the operation of airway terminal, etc. 52232 Airport and air-traffic-control activities 63036p 52233 Ground service activities on airfields 63036p 52234 Fire fighting and fire-prevention services at airports 63036p 52239 Other service activities incidental to air transportation n.e.c. 63036p 5224 Cargo handling Includes: the loading and unloading of goods or passengers' luggage irrespective of the mode of transport used for transportation and stevedoring services Excludes: operation of terminal facilities, see 5221, 5222 and 5223 52241 Stevedoring services 63011 52249 Other cargo handling activities n.e.c. 63019 5229 Other transportation support activities Includes: pickup and delivery of goods and grouping of consignments – Integrated system Excludes: (a) courier activities, see 53200 (b) provision of motor, marine, aviation and transport insurance, see 65 12 (c) activities of travel agencies, see 79110 (d) activities of tour operators, see 79120 (e) tourist assistance activities, see 79900 52291 Forwarding of freight 63049p, Includes: 63091p, (a) arranging or organizing of transport operations by rail, road, sea or air 63092p, (b) organizing of group and individual consignments (c) issue and procurement of transport documents and waybills 63099p (d) activities of customs agents (e) activities of sea-freight forwarders and air-cargo agents 52292 Brokerage for ship and aircraft space 63092p, 63099p 52299 Other transportation support activities n.e.c. 63092p, Includes: 63099p (a) goods-handling operations (e.g. temporary crating for the sole purpose of protecting the goods during transit, uncrating, sampling, weighing of goods) (b) packaging activities incidental to transport

DIVISION 53 : POSTAL AND COURIER ACTIVITIES Group 531 : Postal activities 5310 Postal activities Excludes: postal giro, postal savings activities and money order activities, see 64 19 53100 National postal services 64110p Includes: the pick-up, transport and delivery (domestic or international) of mail and parcels. The activity includes sale of postage stamps, collection of mail and parcels from public letter boxes or from post offices and distribution and delivery. Also includes such activities as mail sorting, mailbox rental, poste restante, etc. 5320 Courier activities Excludes: transport of freight, see (according to mode of transport) 49120, 49230, 5012, 50220, 5120 53200 Courier activities other than national post activities (2) 64120 Includes: the pick-up, transport and delivery of letters and mail-type, usually small, parcels and packages. One or more modes of transport may be involved and the activity may be carried out with either self- owned (private) transport media or via public transport Excludes: all postal activities carried out by Pos Malaysia Bhd. which are classified in Item 53100 National postal services Source: MSIC 2008

The MSIC2008 codes enables the identification of the logistics activities and businesses of interest in this study. However, at the local business level, the logistics business activities have their own taxonomy or classification of business.

Logistics Trade Directory

The Malaysia Logistics Directory classification (msialogistics.com)63 lists the logistics industries into four categories; sea freight, land and rail transport, air freight and supporting industries. This logistics directory is a comprehensive list of freight and shipping services directory in Malaysia and the directory website is managed by a private entity - Marshall Cavendish (Malaysia) Sdn. Bhd. The directory is also supported by the major logistics associations in the country - the MAFF, JoFFA, PFFA, SFFLA and the AMH. This is a practical directory for identifying the key logistics businesses and companies in the country.

The logistics businesses or companies are listed into these four categories as illustrated in Table 4.5 below. There are five categories of businesses for sea freight logistics, six for land and rail transport and six of air freight logistics. These logistics businesses are supported by 112 different supporting logistics industries. There is a total of 3078 companies listed in msialogistics.com, http://www.msialogistics.com.

63 Malaysian Logistics Directory (msialogistics.com), A comprehensive list of freight and shipping services directory in Malaysia; http://www.msialogistics.com/indexMLD.aspx

Table 4.5: Malaysian Logistics Directory (msialogistics.com) Classification Sea Freight Logistics (5 records) 1. Containerised freight services (7 records) 4. Sea freight forwarding agents (144) 2. Ports of Malaysia (sea and inland) (29) 5. Dry ports (0) 3. Shipping lines/agents (124) Land & Rail Transport (6 records) 1. Container hauliers (22 records) 4. Refrigerated transport (5) 2. Movers (51) 5. Railway services (6) 3. Lorry transport (402) 6. Railway signalling equipment (1) Air Freight Logistics (6 records) 1. Air freight forwarding agent (148 records) 4. Airports – International (5) 2. Airports – Domestic (10) 5. Airlines (25) 3. Airport Ground Handling Agents (3) 6. Courier Services (27) Supporting Industries (112 records) ■Airport Equipment Parts and Supplies (13 records) ■Banks (32) ■Blasting contractors (9) ■Bunker Fuel (1) ■Asset tracking systems (7) ■Boilers - Distributers and Manufacturers (6) ■Bunker Suppliers (8) ■Boiler repairing and cleaning (4) ■Bar code equipment (10) ■Cabins (15) ■Battery - repairing and rebuilding (16) ■Boxes – corrugated and fibre (22) ■Canvass – lorry (2) ■Battery – storage, wholesalers & manufacturers (9) ■Boxes – insulation, metal, paper, wooden (11) ■Chemical cleaning – industrial (14) ■Bio-pharma packing (1) ■Bulk handling (10) ■Cleaning equipment (3) ■Container lifting equipment (10) ■Cranes accessories and parts (6) ■Communication equipment & supplies (9) ■Containers – cargo & freight (40) ■Diving & undersea services (0) ■Computer software – freight & forwarding (39) ■Container leasing (0) ■Dockboards & ramps (1) ■Computer software consultancy (1) ■Container maintenance & repairs (4) ■Electronic commerce services (4) ■Container desiccant – silica gel (4) ■Conveyors & conveyor systems (1) ■Event organiser – air show (1) ■Container hauliers (5) ■Cranes (44) ■Generators (13) ■Integrated logistics solutions (21) ■Forklifts (43) ■Free commercial & industrial zone (3) ■Fenders (2) ■Fire protection systems (6) ■Fumigation (21) ■Gas generators (2) ■Inspection services (9) ■Insurance (35) ■Fleet management systems (14) ■Hand trucks & trolleys (1) ■Freight forwarding agents (411) ■Hardware (19) ■Heat exchangers (2) ■Hoists (15); Lawyers (2) ■Labour contractors (0) ■Leasing services (2) ■Lubricants (22) ■Marine repairs (8) ■Machineries (8) ■Marine contractors (10) ■Marine engineering (5) ■Marine engines (0) ■Marine equipment & supplies (20) ■Marine propellers (0) ■Material handling equipment (68) ■Navigational equipment & supplies (2) ■Packaging materials (22) ■Packing & crating services (10) ■Pallets & skids (37) ■Pest control (1) ■Piracy reporting centre (1) ■Racks (21) ■Radio communication equipment & systems (13) ■Relocation & storage services (15) ■Safety equipment & supplies (13) ■Scrap metal (13) ■Security services (12) ■Shelving – industrial & commercial (3) ■Ship brokers (5) ■Ship chandlers (5) ■Ship classification societies (2) ■Ship management (4) ■Ship builders & repairers (14) ■Shipowners (0) ■Shipping equipment & suppliers (33) ■Slings (1) ■Stevedoring contractors (3) ■Strapping equipment (5) ■Surveyors – marine (16) ■System integrator (1) ■Transport equipment (70) ■Truck – bodies (18) ■Truck – parts (11) ■Truck – repairing & services (3) ■Truck dealers (140 ■Truck distributors (19) ■Truck mounted cranes (0) ■Tugs, barges & salvage companies (7) ■Tyre machinery (2) ■Tyre manufacturers & distributors (38) ■Warehouses – public (40) ■Warehouses equipment & supplies (9) ■Warehouses services – bonded (9) ■Warehouses services – cold storage (6) ■Warehouses services – general (46) ■Waste reduction & disposal services (16) ■Wheels & rims (3) ■Wire ropes (8). Source: msialogistics.com: http://www.msialogistics.com/indexMLD.aspx

Malaysia Portal for Trade Facilitation: myTRADELINK64: The myTRADELINK65 is a Malaysia's trade facilitation web-portal that connects trading communities with the relevant government agencies and also other businesses involved in global trade and logistics. An initiative of the Malaysian Government, led by the Ministry of Finance of

64 myTRADELINK: http://www.mytradelink.gov.my/aboutus 65 Note that myTRADELINK portal has shut down on 7th February 2014 and their e-services are now available at Dagang.Net website; http://www.dagangnet.com/ 77

Malaysia - and operated by Dagang Net Technologies Sdn Bhd. It is a one-stop single window where the trade community can exchange documents required to fulfil regulatory trade processes for import, export or transit via the Internet.

Apart from facilitating trade transactions, myTRADELINK serves as a trade information hub and allows users to streamline their transactional activities. The portal is able to provide the listings of main stakeholders of the import-export logistics communities. The communities identified are in four different categories as:  Trade associations  Port operators (sea and inland ports)  Port authorities  Permit issuing agencies The trade associations are those logistics players involved in cross border trading activities for air, land and sea trade. These are listed in the Appendix as Table 4.6.

Port Operators

Before the advent of port privatisation with the Port Privatisation Act 1990, the ports in the country were operated and managed by ports authorities themselves. With the new Act many of the ports have been privatised and they are operated by private companies and holding companies listed in the stock market. Some of the smaller ports especially those located in East Malaysia have not been privatised and are still being operated by the port authorities themselves. The list of ports operators and the ports authorities are listed in the Appendix as Tables 4.7 and 4.8.

Permits Issuing Agencies Many products are classified as controlled products that will require import permits to bring into the country. There are various categories of these products and they are controlled for various reasons. For example, there are products which are of strategic interest to the country and under the Strategic Trade Act, the approval has to be obtained from the Ministry of International Trade and Industry, MITI. There are altogether 12 ministries involved in dealing with controlled products and the various agencies or divisions under them are responsible for issuing the necessary permits for such imports. There are the permit issuing agencies (PIA) and Table 4.9 in the Appendix shows the list of them.

Appendix:

Table 4.6: Import-Export Trade Associations (as of 31 August 2014) No. Name & address Contact 1 Airfreight Forwarders Association of Malaysia Mr. Walter Culas, Chairman (AFAM) 6012-208 2464/03 2284 2000 16-B, Level 2 [email protected] Jalan Kemuja, Bangsar Utama www.afam.org.my 59000 Kuala Lumpur 2 Central Region Shipping Association (CRSA) Mr Santhasagaran A/L Kannu No 149A, 149B, 151B, President Persiaran Raja Muda Musa 03 31673830 42000 Port Klang, Selangor [email protected] 3 Conference of Asia Pacific Express Carriers En Kamarul Azman, President (CAPEC) 03 2241 8550 DHL Express (M) Sdn Bhd, Level 27, Menara TM, [email protected] Jalan Pantai Baharu, 59200 Kuala Lumpur 4 Ejen Penghantaran Sandakan Mr Loo Yat Kiang, President Peti Surat 1735, 90702 Sandakan, Sabah 019-833 6228/089 220331 [email protected] 5 Federation of Malaysia Manufacturers Tan Sri Datuk Yong Poh Kong Wiama FMM No 3, Persiaran Dagang PJU 9 President Bandar Sri Damansara 03 62761211 52200 Kuala Lumpur [email protected] www.fmm.org.my 6 Federation of Malaysian Freight Forwarders Mr Alvin Chua Seng Wah (FMFF) President Wisma SFFLA, [email protected] No 23, Jalan Cemerlang 03 31653082 42000 Port Klang, Selangor 7 Johor Freight Forwarders Association (JOFFA) Mr Toon Teng Fatt, President Wisma Joffa No 71, 07 5125900/01 Jalan Jaya Mas 1 Taman Jaya Mas [email protected] 81300 Skudai Johor www.joffa.com 8 Johor Port Shipping and Forwarding Association Mr Michael Cheah, President (JPSFA) 012-7807128/07 3568531 Wisma JPSFA, 19A Jalan Rosmerah 2/5, [email protected] Taman Johor Jaya, 81100 Johor Bahru 9 KK Forwarding Agents Association Mr Johnson Dai, President Lot 16, Block D, Lorong Buah Salak 3 6012-208 2464/088 388275 Hiong Tiong Industry Centre, 11.5 Kilometer Jalan [email protected] Tuaran, 88450 Kota Kinabalu, Sabah 10 Labuan Logistics Association Mdm Prunella Phoong, AB Enterprise, SU 3414 Jalan Kolam President P.O Box 75, 87008 Wilayah Persekutuan Labuan 087 422902 [email protected] 11 Malaysian Shipowners' Association En Nordin Mat Yusoff, F1/18 Level 1 Citypoint, Kompleks Dayabumi, Chairman Jalan Sultan Hisyamuddin, 50050 Kuala Lumpur 03 22752136 12 North Malaysia Shipping Agent Association Mr Franco Ong, President (NMASA) 04-261 6287

c/o Pantas Freight Services Sdn Bhd [email protected] No 2-5-19, Harbour Trade Centre GAT Lebuh Macallum, 10300 Penang 13 Padang Besar Forwarding Association Mr Tan Wei Chang, President Yong Seng Chan, No 7 Jalan Station 04 9490239 Padang Besar 02100 Perlis [email protected] 14 Penang Freight Forwarders Association (PFFA) Mr Krishnan Chelliah, President Block A Unit 9, MAS Air Cargo Complex 04 6440514 Penang International Airport, Jalan Garuda [email protected] 11900 Penang 15 Perak Freight Forwarders Association Mr Poon Yoke Sang, President Lot 25886 Gudang KTMB, Jalan Tun Abd Razak 05 5270268 30100 Ipoh Perak [email protected] 16 Persatuan Perkapalan & Penghantaran En Muzamil Abdul Rahman Pelabuhan Kuantan President Aras Marine Services Sdn Bhd, Lot 4.2 Bangunan 012 9837456 / 09 5833150 Perdagangan, Lembaga Pelabuhan Kuantan [email protected] 26080 Kuantan 17 Persatuan Agen Penghantaran Bukit Kayu Hitam En Mohd Johari B Sukaimi D/A Utara Forwarding Agency S/B Chairman No 2 Seri Temin 04 9222155 06050 Bukit Kayu Hitam, Kedah Darul Aman [email protected] 18 Persatuan Agen Perkapalan & Penghantaran En Mat Nawi Mohd Taib, Pelabuhan Terengganu President PT 10734 Aras 1, Taman Chukai Utama, Fasa 4, 09 862 3540/ 3543/ 3544 Jalan Jubang Kurus Chukai, 24000 Terengganu 012 9760570 [email protected] 19 Persatuan Pengusaha Logistik Bumiputra Dato' Samsudin Abd Rahman Wisma SA, No.50, Jalan Anggerik Chairman Mokara 31/47, Seksyen 31 Kota Kemuning, 03-5125 0015 / 03-5125 0186 40460 Shah Alam, Selangor Darul [email protected] [email protected] 20 Sarawak Forwarding Agencies Association Mr Joseph Chung, President Lot 8704, 1st Floor Section 64 082 484778 / 019 8862323 Jalan Pending, 93450 Kuching Sarawak 21 Selangor Freight Forwarders & Logistics Mr Alvin Chua Seng Wah, Association (SFFLA) President Wisma SFFLA, No 23, Jalan Cemerlang 03 31684363 42000 Port Klang, Selangor [email protected] 22 Shipping Association Malaysia (SAM) Mr Ooi Lean Hin, Chairman C/O No 7, Jalan Jurutera U1/23 03 78832600 / 77293778 Section U1 Hicom Glenmarie Industrial Pak ooilh@evergreen- 40150 Shah Alam, Selangor marine.com.my 23 Tawau Forwarding Agent Association 013 8932002 C/O Perkhidmatan Umum Forwarding Agent Jalan Dunlop P.O Box No 2063 91045 Tawau Sabah Source: myTRADELINK; http://www.mytradelink.gov.my/trade-associations

Table 4.7: Port Operators (as of 31 August 2014) No Company name (port) & address CEO contact Bintulu Port Sdn Bhd (Bintulu Port) Managing Director: Lot 15, Block 20, Kemena Land District 12th En Mior Ahmad Baiti Mior Lub Mile,, Tanjung Kidurong Road Ahmad P.O. Box 996, 97008 Bintulu Sarawak. (086) 251001/20 http://www.bpsb.com.my/ Johor Port Berhad (Johor Port Tanjung Executive Director: Pelepas) En.Abdul Khalid Lal Khan JOHOR PORT BHD 07-2535888 P.O. Box 151, 81707 Pasir Gudang, Johor http://www.johorport.com.my Westport (M) Sdn Bhd (West Port) Executive Chairman: P.O. Box 266, Pulau Indah, Tan Sri Datuk G. Gananalingam 42009 Port Klang, Malaysia 03-31694000 / 31694200 [email protected] http://www.westportmalaysia.com.my Kuantan Port Consortium Sdn Bhd (Kuantan Chief Operating Officer: Port) Mr. Wong Soon Fah Wisma KPC, Km 25, Tanjung Gelang, 09-5833205 P.O.Box 199, http://www.kuantanport.com.my/ 25720 Kuantan, Pahang. Langkawi Port Sdn Bhd (Dermaga Tanjung Muhd Nasir Hj Abdul Aziz Lembung) 04-9665905/9665915 Kompleks Dermaga Tanjung Lembung, Bukit [email protected] Malut, Mukim Ulu Melaka 07000 Langkawi, Kedah Lumut Maritime Terminal Sdn Bhd (Lumut CEO: Maritime Terminal) En. Amin Halim Rasip Pulau Lekir Satu, Jalan Teluk Rubiah, 605-6889166 32040 Sri Manjung, Perak [email protected]

Pelabuhan Tanjung Pelepas Sdn Bhd (Port Chief Executive Officer: of Tanjung Pelepas) En Harun Johari Bangunan Pentadbiran Pelabuhan 07-5042222 Jalan Pelabuhan Tanjung Pelepas TST 507, 81560 Gelang Patah Johor Darul Takzim Penang Port Sdn Bhd (Penang Port) Managing Director: No.1. King Edward Place, YBhg Dato' Ahmad Ibnihajar Georgetown, 10300 Penang 04-210 2211 [email protected] http://www.penangport.com.my Pengkalan Bekalan Kemaman Sdn Bhd 609-8631590, 09-8631707 (Kemaman Supply Base) Bangunan Dermaga Timur, Telok Kalong, P.O.Box 66, 24000 Kemaman, Terengganu Northport (M) Berhad (North Port) CEO / Managing Directo: P.O Box 234, Jalan Pelabuhan YBhg Dato' Basheer Hassan 42009 Port Klang, Selangor 603-31698888 www.northport.com.my Syarikat Perkhidmatan Pelabuhan Gabungan Port Manager: Sdn Bhd (Pelabuhan Tanjung Bruas) Mr.Chua Yew Ling 06-3511766

MALACCA PORT, Pelabohan Tanjung Bruas, Tanjung Kling, 76400 Malacca @Kuching Port Authority (Kuching Port) General Manager: Jalan Pelabuhan, P.O. Box 530, Mdm Liu Mui Fong 93710 Kuching, Sarawak 082-482144 @Miri Port Authority (Miri Port) General Manager: Jalan Miri Port, Kuala Baram Industrial Mr.Shebli Bin Hairai Estate, Kuala Baram, P.O. Box 1179 085-609009 98008 Miri, Sarawak @Rajang Port Authority (Sibu/Sarikei/ General Manager: Bintangor) Mr.Chong Siew Yang Sibu 084-319009 @Sabah Port Authority (Kota Kinabalu/ General Manager: Sandakan/Tawau/ Sepangar Bay/Dahat En Ramli Amir Datu/Kunak Kudat) 088-256155 Sabah Ports Authority Building, Jalan Tun Fuad, Tanjong Lipat, 88617 Kota Kinabalu @ Note: These Authorities are also operating the ports. Source: myTRADEINK; http://www.mytradelink.gov.my/port-operators

Table 4.8: Port Authorities No. Authority (port) & address CEO & contact Bintulu Port Authorities (Bintulu Port) Managing Director: Lot 15, Block 20, Kemena Land District, En Mior Ahmad Baiti Mior Lub 12th Mile, Tanjung Kidurong Road Ahmad P.O. Box 996, 97008 Bintulu Sarawak. (086) 251001/20 http://www.bpsb.com.my Johor Port Authority (Johor Port Tanjung Pelepas) 07-2517721 No 6A, 1-8A1, Jalan Bandar Puat Perdagangan 81700 Pasir Gudang, Johor Kemaman Port Authority (Kemaman Port) Bangunan Dermaga Timur, 609-8631590, 09-8631707 Telok Kalong, P.O.Box 66, 24000 Kemaman, Terengganu. Kuantan Port Authority (Kuantan Port) Executive Vice Chairman: Wisma KPC, Km 25, Tanjung Gelang, Dato' Shamsudin Md Dubi P.O.Box 199, 09-5833205 25720 Kuantan, Pahang. http://www.kuantanport.com.my/ Kuching Port Authority (Kuching Port) General Manager: Jalan Pelabuhan, P.O. Box 530, Mdm Liu Mui Fong 93710 Kuching, Sarawak 082-482144 Marine Department (Dermaga Tanjung Lembung) 604-9666134 Pejabat Pelabuhan Tanjung Lembung [email protected] 07000 Langkawi Miri Port Authority (Miri Port) General Manager: Jalan Miri Port, Kuala Baram Industrial Mr.Shebli Bin Hairai Estate, Kuala Baram 085-609009 P.O. Box 1179 98008 Miri, Sarawak

Penang Port Commission (Penang Port) Managing Director: PENANG PORT SDN BHD YBhg Dato' Ahmad Ibnihajar No.1. King Edward Place, 04-210 2211 Georgetown, 10300 Penang [email protected] http://www.penangport.com.my Port Klang Authority (Port Klang) Mail Bag Service 202, 03-31688211 Jalan Pelabuhan, http://www.pka.gov.my 42005 Port Klang Rajang Port Authority (Sibu/Sarikei/ General Manager: Bintangor) Mr.Chong Siew Yang Sibu 084-319009 Sabah Port Authority (Kota Kinabalu/ General Manager: Sandakan/Tawau/Sepangar Bay/Dahad En Ramli Amir Datu/Kunak Kudat) 088-256155 Sabah Ports Authority Building, Jalan Tun Fuad, Tanjong Lipat, 88617 Kota Kinabalu Source: myTRADELINK: http://www.mytradelink.gov.my/port-authorities

Table 4.9: Permit Issuing Agency (as of 31 August 2014) No. Ministries Agencies/Sections 1 Ministry Of Home Affairs  Film Censorship and Enforcement Division  Royal Malaysian Police 2 Ministry of Works  Construction Industry Development Board 3 Ministry of Health  Pharmaceutical Services Division 4 Ministry of International  Import and Export Control Section Trade and Industry  Trade Cooperation and Industry Coordination Section  Strategic Trade Secretariat 5 Ministry of Agriculture and  Paddy and Rice Industry Division Agro-based Industry  Malaysian Quarantine and Inspection Services (MAQIS)  Department of Veterinary Services  Agriculture Department (Pesticides Control Division)  Agriculture Department (Crop Protection and Plant Quarantine Division)  Federal Agricultural Marketing Authority (FAMA) 6 Ministry of Plantation  National Kenaf and Tobacco Board Industries and  Malaysian Cocoa Board Commodities 7 Ministry of Science,  Atomic Energy Licensing Board Technology and  SIRIM QAS International Sdn Bhd (Civil and Innovations Construction Section)  SIRIM QAS International Sdn Bhd (Communication and Multimedia Certification Section) 8 Ministry of Natural  Department of Environment Resources and  Department of Wildlife and National Parks Environment

9 Ministry of Energy, Green  Energy Commission Technology and Water 10 Ministry of Information,  Malaysian Communications and Multimedia Communication and Commission (MCMC) Culture 11 Ministry of Resource  Sarawak Timber Industry Development Planning and Corporation Environment  Forest Department Sarawak 12 Ministry of Modernisation  Department of Agriculture Sarawak (Veterinary of Agriculture Division) Source: myTRADELINK: http://www.mytradelink.gov.my/permit-issuing-agency

CHAPTER FIVE: Logistics stakeholders

Contents: Introduction, Ministry of Transport Malaysia, Bilateral and International Agreements, Royal Malaysian Customs, Land Public Transport Commission, Road Transport Department, Permit Issuing Agencies for Cross Border Trading, Trade Associations and Chambers of Commerce as Intermediaries, The Logistics Businesses, Conclusion

Key points: 1. The Ministry of Transport Malaysia is fundamentally a policy formulating, planning and supervising entity and its regulatory and policy implementing functions are carried out by various statutory agencies under its purview. The functional responsibilities are structured into three divisions – Land and Logistics, Maritime, and Aviation. These agencies oversees the development of the all aspects of logistics economy, from its infrastructure development, international harmonisation of flow of goods, governance of logistics activities to policy development. 2. Malaysia is a signatory to various bilateral and international agreements, conventions and protocols, which are aimed at enhancing efficiency of cross- border trade. The responsibility of planning, formulating, negotiation, implementing and managing these agreements is under the purview of MOT. 3. Royal Malaysian Customs is the government agency responsible for administrating the nation's indirect tax policy. JKDM administers seven main and 39 subsidiary laws. Besides this JKDM implements 18 laws for other Government agencies in its gatekeeping function for the flow of goods across national borders. 4. The Land Public Transport Commission is empowered under the Land Public Transport Act 2010. Its function covers the drawing up policies, planning, regulating and enforcing all matters relating to land public transport and for Peninsular Malaysia. Land public transport covers train, bus and taxi services as well as road- and rail-based freight transport. It works in close cooperation with other enforcement agencies such as the Royal Malaysian Police and the Road Transport Department. 5. The Road Transport Department Malaysia, under the Land and Logistics Division, is responsible for licensing of vehicles and drivers and the enforcement of the Road Transport Act 1987 Act 333 to ensure safe drivers and safe vehicles. Its enforcement activities also include provisions from the Commercial Vehicle Licensing Act 1987. 6. There are over 20 agencies under 12 different ministries that exercise regulatory controls on the import and export of controlled goods. They are the permit issuing agencies having the regulatory aim of protecting the environment, the biodiversity of the country, health and safety of the people, local businesses and national security and sovereignty. Permits are also used to protect local industries, particularly manufacturing, against practices such as anti-dumping

protection. Control is also exercised on strategic trade items to protect the national interest. 7. Intermediaries here are the organisations that assist communication and coordination between the logistics businesses and the regulators. They provide services and/or build relationships for regulatory compliance and issue resolutions between regulators and the businesses. These are the trade associations and chambers which act as go-betweens between the businesses and the authorities to deal with regulatory and other issues of concern to businesses. The authorities regularly consult with these bodies on government policies and their implementation. 8. To cope with business demands and constraints on government capacity expansion and to improve service delivery, the Government outsources some of its functional activities to private firms or privatises specific functional activities or sets up a private commercial entity or appoint trade associations to deliver the services. These services may be inspection, testing, certification, data processes among others. 9. Ports and shipping are major links in the logistics chain and are essential in facilitating trade in Malaysia and the port operators assumed a critical role in trade and transport, providing a link between the shipping service and the inland transport system. The ports act as crucial points of interface with other transport modes - road, rail, river and air. The port operators are regulated by the Port Authorities under the respective Port Authorities Acts. 10. Warehousing is an important intermediate activity in the logistics chain. The warehouse activities include receipt of product, storage, shipment, and order picking. Managing warehouses efficiently ensures that goods flow from the manufacturers or producers to consumers in without interruptions and undesirable delays. Except for bonded or licensed warehouses, there is no specific warehousing regulation for this activity.

Introduction

The Seven-step Transportation Chain model, referred here as the logistics value chain (LVC), provides a process-based framework for analysis on reducing unnecessary regulatory burdens (RURB) on the logistics industry. This framework focuses on sea freight import-export logistics activities.

The LVC analysis guides the search and identification of stakeholders of interest for this study. The stakeholders may be as two main groups – the businesses and their trade associations, and the regulator which is represented by the ministries and their agencies. Many Government agencies also out-sourced some of their regulatory activities, such as inspection and certification activities. The trade associations and these Government outsourcing entities will be referred to as intermediaries of

86 businesses and regulators. Many industry and government websites are able to provide pertinent information on the stakeholders. Two notable web portals have been most helpful in identifying these key stakeholders. They are the Malaysian Trade Facilitation portal (myTRADELINK; www.mytradelink.gov.my) and the Malaysia Logistics Directory portal (www.msialogistics.com).

This chapter provides relevant information on the stakeholders who have major roles in this LVC. A number have been approached to help identify unnecessary regulatory burdens of this particular logistics sub-sector. The stakeholders are analysed as three separate groups being (a) the regulators represented by the ministries and the agencies, (b) the businesses representing the logistics businesses and the consignees/consignors, and (c) the intermediaries.

Ministry of Transport Malaysia66

The four modes of transportation – air, land, rail and sea – are the core elements in the LVC. These modal activities in freight transportation have varying degrees of hazardous impacts on people and the environment. To mitigate any potential hazardous impacts regulatory interventions are deemed necessary on these activities. The Ministry of Transport (MOT) takes on the responsibility of ensuring the country’s freight transportation is safe and efficient and facilitating economic growth. The role of MOT is as defined in its various functions as shown in Box 5.1 below.

Box 5.1: Functions of Ministry of Transport Malaysia The functions of the Ministry are:  Plan, devise and implement policies with regards to rail, maritime, aviation transportation and ports.  Implement physical development projects which involve rail, maritime, port and civil aviation infrastructure.  Manage the integration of intermodal transportation to achieve seamless travel.  Provide Licensing Services : . Service provider licenses and concessionaires (albeit commercial vehicles). . Individual vehicle licenses - private cars, business, pilot for aviation and maritime and others . Domestic Shipping Licenses  Registration of all modes of vehicle.  Determining the pricing policy (except for land commercial vehicles).  Monitoring of policies and concessionaire / government linked companies.  Identifying and monitoring legal issues, service and safety standards.  Conduct regional and international cooperation programmes in the transport sector. Source: Ministry of Transport Malaysia; http://www.mot.gov.my

66 Ministry of Transport Malaysia; http://www.mot.gov.my 87

The MOT is fundamentally a policy formulating, planning and supervising entity and its regulatory and policy implementing functions are carried out by various statutory agencies under its purview. These agencies ensure that the policy and various regulations are implemented to ensure the economic objectives of the country are achieved. The various agencies are illustrated in the MOT organisation chart in Box 5.2 below. The policy and regulatory operations in MOT are implemented by three distinct divisions namely, a) Land and Logistic Division, b) Maritime Division, and c) Aviation Division. Each of these divisions has its own defined functions and objectives under the responsibility of different functional units. Box 5.3 summarises the roles and functions of these three divisions.

The enforcement and regulatory duties for land transport are under the responsibilities of agencies such as the Road Transport Department (JPJ), Department of Railways, Railway Assets Corporation (RAC), Road Safety Department (RSD) and the Malaysian Institute of Road Safety Research (MIROS). Their statutory authority is defined by two main Acts: a) the Road Transport Act 1987 b) Railways Act 1991. As for maritime transport, enforcement and regulatory duties are under the responsibilities of different agencies such as the Marine Department of Malaysia, MDM, Penang Port Commission, PPC, Port Authority of Johor, LPJ, Port Klang Authority, PKA, Kuantan Port, LPKTN, Bintulu Port Authority, LPB, Maritime Institute of Malaysia, MIMA.

These maritime agencies are empowered under their respective regulations:

a) Cargo Transport by Sea Act1950 [Act 527] b) Merchant Shipping Ordinance 1952 [Ord. 70/1952] c) Federal Fire Dues Act 1953 [Act 243] d) Penang Port Commission Act 1955 [Act 140] e) Port Authorities Act 1963 [Act 488] f) Bintulu Port Authority Act 1981 [Act 243] g) Privatization Port Act 1990 [Act 422] h) Langkawi International Yacht Registry Act 2003 [Act 630] i) Gazette On The Exemption Of Foreign Cruise Vessels From The Domestic Shipping License Requirement

Box 5.2: Agencies under the Ministry of Transport

Source: Ministry of Transport Malaysia; http://www.mot.gov.my

The regulation of civil aviation is under the purview of the Department of Civil Aviation. Unlike the maritime agencies, DCA is a standalone authority which governs all aspects of aviation activity. The governing function is to maintain and enhance the safety, security and efficiency of aviation activities. Aviation activities and transport under the DCA are governed by the following regulations: j) Civil Aviation Act 1969 [Act 3] k) Carriage By Air Act1974 [Act 148] l) Aviation Offences Act1984 [Act 307] m) Act Airport and Aviation Services (Operating Company)1991 [Act 467] n) International Interest Act in Mobile Equipment (Aircraft) 2006 [Act 659] o) Civil Aviation Regulations 1996

Box 5.3: Functional Divisions of MOT The Land and Logistics Division is responsible for the development and implementation of National Transport Policy. The policy is designed to ensure that public land transport sector remains safe and efficient, based on current needs. The main functions are:  To formulate policies on driving licenses, driving schools, vehicle registration, road safety and technical standards of vehicle conforming to international standards.  To formulate transport policies in order to increase the quality of land transport services.  To ensure policies/processes are aligned with National Key Result Area (NKRA) initiatives.  To develop an integrated rail transportation infrastructure network and multi- modalism  To implement Malaysia obligation under the ASEAN agreement and cross border related to road and rail transportation.  To ensure all rules under Railways Act 1991 and Road Transport Act 1987 are in line with current needs.  To monitor and coordinate infrastructure development projects in the rail-based transport sector.  To formulate policies on fare rates for railway services. The Maritime Division consist of 5 units: Port, Maritime Safety, Economy Maritime, Domestic Shipping Licensing Board Secretariat and International Convention. Maritime Attache Office is currently attached to High Commission of Malaysia in London to oversee the debate and discussion held at the International Maritime Organization which involves Malaysia’s maritime interest. The main functions are:  To encourage Malaysian entrepreneur participation in the shipping industry both locally and abroad.  To plan and implement policies on navigational safety, pollution prevention from ship, ship security, property and life at sea.  To frame and implement policies, coordinate and oversee activities of federal ports.  To process application for domestic shipping license.  To review and update existing laws or formulate new laws relating to ports and shipping, as well as to ratify international conventions related to maritime sector. The Aviation Division is responsible for all civil aviation affairs in Malaysia. This division is made up of five units as follow: Air Transport, Airport Services, Aerospace & Industrial Hubbing, Licensing & Rural Air Services, and Safety/Security & Convention. The main functions are:  To plan and review the policies relating to air services from time to time.  To expand the international air services network through air negotiations.  To ensure the planning, building and maintenance of airport infrastructure is in accordance with the specified standards.  To ensure that all existing rules and regulations in air transport / aviation are in accordance with the guidelines stipulated by the International Civil Aviation Organisation (ICAO). Source: Ministry of Transport Malaysia; http://www.mot.gov.my

Bilateral and International Agreements67

In order to achieve enhanced efficiency for cross-border trade, Malaysia is a signatory to various bilateral and international agreements, conventions and protocols. The responsibility of planning, formulating, negotiation, implementing and managing these agreements is under the purview of MOT. For land transport, MOT is activity involved with other countries and relevant international organisations in programmes related to land transport and safety, through the: i. coordination, monitoring and management of the land transportation industry for enhanced efficiency and effectiveness within the ASEAN region ii. provision of platforms for international discussions and negotiations iii. coordination and simplification of procedures for the operation of transit transportation iv. updating global changes into the legal framework governing the land transportation system v. formulation of infrastructure development policies and review of the domestic legal framework in order to adopt and adapt the best global practices

Malaysia is a signatory to a list of protocols and working frameworks with the ASEAN neighbours. The Box 5.4 below illustrates.

Box 5.4: Agreements and Protocols with ASEAN 1) ASEAN Framework Agreement on the Facilitation of Goods in Transit, AFAFGIT (16 December 1998) a) Protocol 1 Designation of Transit Transport Routes and Facilities (8 February 2007) b) Protocol 2 Designation of Frontier Posts (Negotiation Stage) c) Protocol 3 Types and Quantity of Road Vehicles (15 September 1999) d) Protocol 4 Technical Requirements of Vehicles (15 September 1999) e) Protocol 5 ASEAN Scheme of Compulsory Motor Vehicle Third-Party Liability Insurance (8 April 2001) f) Protocol 6 Railways Border and Interchange Stations (Negotiation Stage) g) Protocol 7 Customs Transit System (Negotiation Stage) h) Protocol 8 Sanitary and Phytosanitary Measures (27 October 2000) i) Protocol 9 Dangerous Goods (20 September 2002) 2) ASEAN Framework Agreement on the Facilitation of Inter-State Transport, AFAFIST (10 December 2009) 3) ASEAN Framework Agreement on Multimodal Transport, AFAMT (17 November 2005) 4) MoU Between The Government of Brunei Darussalam, Indonesia, Malaysia and The Philippines on Cross-Border Movement of Commercial Buses and Coaches (2 November 2007) 5) MoU Between The Government of Brunei Darussalam, Indonesia, Malaysia and The Philippines on Transit and Inter-State Transport of Goods (25 June 2009)

67 Ministry of Transport Malaysia; http://www.mot.gov.my 91

Source: Ministry of Transport Malaysia; http://www.mot.gov.my Box 5.5: Bilateral and International Maritime Agreements Bilateral Shipping Agreements with the following countries (effective date) 1) Bangladesh (19 April 1983) 7) China (9 September 1987) 2) Turkey (8 September 1983) 8) Indonesia (17 June1988) 3) Belgo - Luxemburge (12 February 1985) 9) South Korea (21 July 1988) 4) Sri Lanka (17 June 1985) 10) Romania (26 February 1991) 5) Pakistan (24 August 1985) 11) Vietnam (31 March 1992) 6) Union of Soviet Socialist Republics - 12) South Africa (7 March 1997) Russia (31 July 1987) Internal Maritime Conventions (effective date) include: 1) International Convention on Load Lines (LL) 1966 (12 April 1971) 2) Convention on the International Maritime Organization 1948 (17 June 1971) 3) Convention on the International Regulations for Preventing Collisions at Sea (COLREG) 1972, as amended (23 December 1980) 4) International Convention for the Safety of Life at Sea (SOLAS) 1974, as amended (19 January 1984) 5) Protocol of 1978 relating to the International Convention for the Safety of Life at Sea 1974, as amended (19 January 1984) 6) International Convention on Tonnage Measurement of Ships (Tonnage) 1969 (24 July 1984) 7) Convention on the International Mobile Satellite Organization (INMARSAT) 1976, as amended (12 June 1986) 8) Operating Agreement on the International Mobile Satellite Organization 1976, as amended (12 June 1986) 9) International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) 1978, as amended (30 April 1992) 10) Protocol of 1978 relating to the International Convention for the Prevention of Pollution from Ships, MARPOL 1973, as amended - Annexes I and II (31 January 1997) 11) Protocol of 1978 relating to the International Convention for the Prevention of Pollution from Ships, MARPOL 1973, as amended - Annexes V (31 January 1997) 12) International Convention on Oil Pollution Preparedness, Response and Co-operation, OPRC 1990 (30 October 1997) 13) Amendments Adopted in November 1991 to the Convention of the International Maritime Organization - Institutionalization of the Facilitation Committee (9/9/ 2004) 14) International Convention on Civil Liability for Oil Pollution Damage, CLC 1992 (9 June 2005) 15) International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, FUND 1992 (9 June 2005) 16) The International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 - Bunkers Convention 2001 (12 February 2009) 17) The International Convention for the Limitation of Liability for Maritime Claims, 1976 as Amended by Protocol of 1996, LLMC Convention 1996 (10 February 2009) 18) International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, FUND (16 October 1978) 19) MARPOL 73/78, Annex III: Regulations for the Prevention of Pollution by Harmful Substances Carried by Sea in Packaged Form (1 July 1992) 20) MARPOL 73/78, Annex IV: Regulations for the Prevention of Pollution by Sewage from Ships (27 September 2003) 21) MARPOL 73/78, Annex VI: Regulations for the Prevention of Air Pollution from Ships (19 May 2005) 22) International Convention on the Control Harmful Anti-fouling Systems on Ship (17 September 2008) 23) The Control and Management of Ship’s Ballast Water 2004 (Yet to Enter Into Force) Source: Ministry of Transport Malaysia; http://www.mot.gov.my

As for maritime transport, Malaysia has concluded agreements with a number of countries since the eighties to strengthen bilateral cooperation in the maritime sector. The main provisions of such agreements are:

a) On special treatment clause b) Confirmation of ships and seafarers certificates c) Bilateral consultation mechanism to strengthen cooperation. Currently, Malaysia has concluded a total of 12 bilateral agreements on shipping and has ratified many international conventions adopted by the International Maritime Organisation (IMO). These are listed in Box 5.5. In the case of aviation, Malaysia is a member of the International Civil Aviation Organisation, ICAO. Here, a number of international conventions have been ratified. These are listed in Box 5.6 below. Box 5.6: International Civil Aviation Conventions 1) Convention for the Unification of Certain Rules Relating to International Carriage by Air (1929) 2) Convention on International Civil Aviation (1994) 3) Convention on the Privileges and Immunities of the Specialized Agencies (1947) 4) Convention on Offences and Certain Other Acts Committed on Board Aircraft (1963) 5) Convention for the Suppression of Unlawful Seizure of Aircraft, Hague Convention 1970 6) Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation, Montreal Convention 1971 7) Convention on International Interests in Mobile Equipment (2001) Source: Ministry of Transport Malaysia; http://www.mot.gov.my

Royal Malaysian Customs (Jabatan Kastam DiRaja Malaysia, JKDM) 68

Royal Malaysian Customs (Jabatan Kastam DiRaja Malaysia, JKDM) is the government agency responsible for administrating the nation's indirect tax policy. JKDM administers seven main and 39 subsidiary laws. Besides this JKDM implements 18 laws for other Government agencies. Customs duty is a tax levied on imports by Customs to raise state revenue and/or to protect domestic industries from overseas competitors. In Malaysia, all goods dutiable on import are put through customs duty according to Customs Duties Order, 1996. The types of duties are import duty, goods and services tax (replacing the previous sales tax) and export duty. In other words, the core business of JKDM is to collect tax revenue in line with the established regulations. JKDM is to collect the tax revenue efficiently and help the expansion of trade and industry through continuous facilitation whilst enhancing legal compliance in order to safeguard the nation's economic, society and security interest.

The principal regulations which comes under the purview of Customs are, a) Customs Act 1967 b) Goods and Services Tax 2014 (replacing the Sales Tax Act 1972)

68 Royal Malaysian Customs (Jabatan Kastam DiRaja Malaysia, JKDM); http://www.customs.gov.my/

c) Excise Act 1976, and d) Free Zone Act 1990. Subsidiary regulations known as Customs Orders are formulated and issued to administer the requirements of these Acts. Box 5.7 gives the list of Customs regulations currently in force.

Box 5.7: List of Customs Regulations The Gazettes of Acts and subsidiary regulations (titles in Bahasa Malaysia) as listed in Customs Websites (as of 8/1/2015): http://www.customs.gov.my 1. Akta Cukai Jualan 1972 Perintah Cukai Jualan (Pengecualian Pindaan) 2009 2. Akta Cukai Jualan 1972 Perintah Cukai Jualan (Kadar Cukai No.2) (Pindaan No.2) 2009 3. Akta Cukai Jualan 1972 Perintah Cukai Jualan (Kadar Cukai No2) (Pindaan No.3) 2009 4. Akta Cukai Jualan 1972 Perintah Cukai Jualan (Pengecualian Pindahan No.2) 2009 5. Akta Kastam 1967 (Bhg I) 6. Akta Kastam 1967 (Bhg II) 7. AKTA ZON BEBAS 1990 Pemberitahuan Zon Bebas (Pindaan) 2009 8. Akta Zon Bebas 1990 Pemberitahuan Zon Bebas (Kawasan yg Diisytiharkan (Pindaan) 2009 9. Peraturan Cukai Jualan (Pindaan) 2009 [P.U.(A) 361] 10. Peraturan Cukai Perkhidmatan (Pindaan) 2009 [P.U.(A) 363] 11. Peraturan Perintah Kastam (Pindaan No4) 2009 Pindaan Peraturan 11A 12. Perintah Duti Eksais (Pindaan) 2009 13. Perintah Duti Kastam (Barang Negeri ASEAN) (Tatanama Tarif Berhamonis ASEAN dan Tarif Keutamaan Samarata)(Pindaan No.3) 2009 14. Perintah Duti Kastam (Barang Negeri-Negeri ASEAN) (Tatanama Tarif Berhamonis ASEAN dan Tarif Keutamaan Samarata)Pindaan No,4 15. Perintah Duti Kastam (Pengecualian) (Pindaan) 2009 16. Perintah Duti Kastam (Pindaan No.3) 2009 17. Perintah Duti Kastam (Pindaan No.4) 2009 18. Perintah Duti Kastam(Barang-Barang Perjanjian Perkongsian Ekonomi Malaysia- Jepun) (Pindaan) 2009 19. Perintah Kastam (Duti Anti-Lambakan) 2009 20. Perintah Kastam (Larangan Import) 2009 21. Perintah Kastam (Larangan Mengenai Import) (Pindaan No.2) 2009 22. Perintah Kastam (Larangan Mengenai Import) (Pindaan No.3) 2009 23. Perintah Kastam (Nilai-Nilai Kenderaan Motor Pasang Siap yg Diimport) (Baru Pindaan) 2009 24. Perintah Kastam (Nilai-Nilai Kenderaan Pasang Siap yg Diimport) (Pindaan Baru No.2) 2009 25. SENARAI WARTA 2009 (listing of Amendments) Source: Royal Malaysian Customs; http://www.customs.gov.my

As the sole “gatekeeper” for goods entering and existing the country’s points of cross border trade, Customs is also responsible for ensuring that the requirements of 18 other laws for the clearance of goods are met. These requirements are implemented by the Permit Issuance Agencies (PIA). Legitimate documentation, good references (codes, guidelines, notices, etc.) and strict procedures become the core regulatory control instruments for Customs clearance of goods into and out of the country. Any

94 inefficiency in Customs operations could become serious bottlenecks in import-export trade logistics.

Land Public Transport Commission (Suruhanjaya Pengangkutan Awam Darat, SPAD) The Land Public Transport Commission (SPAD) was officially established on 3 June 2010 following the enactment of the Suruhanjaya Pengangkutan Awam Darat Act 2010 in May 2010 (Act 714) and the function of SPAD is empowered with the gazetting of the Land Public Transport Act 2010 (Act 715). Through Act 715, SPAD takes over the functions of Commercial Vehicles Licensing Board (CVLB), Department of Railways and licensing of tourism vehicles of the Ministry of Tourism in Peninsula Malaysia. The Acts and subsidiary legislations under the purview of SPAD are: a) Land Public Transport Act 2010 b) Suruhanjaya Pengangkutan Awam Darat Act 2010 c) Commercial Vehicle Licensing Board Act 1987 d) Commercial Vehicle Licensing Board (Amendment) Act 2010 e) Land Public Transport (Compounding Of Offences) Regulations 2011. f) Land Public Transport (Compounding Of Offences) (Amendment) Regulations 2013. g) Land Public Transport [Motor Vehicles (Commercial Transport) (Amendment) Rules 2013] Regulations 2013. h) Land Public Transport [Motor Vehicles (Commercial Transport) (Amendment) Rules 2013] Regulations 2014 - Corrigendum. The function of SPAD covers the drawing up policies, planning, regulating and enforcing all matters relating to land public transport and for Peninsular Malaysia. Land public transport covers train, bus and taxi services as well as road- and rail-based freight transport. SPAD enforcement is carried out in close cooperation with other enforcement agencies such as the Royal Malaysian Police and the Road Transport Department69. For the long term, SPAD has developed a 20-year master plan – the National Land Transport Master Plan in 2012 (currently available for public comment). The Master Plan has established eight key objectives for freight transport as shown in Box 8 below.

According to the National Land Transport Master Plan, the strategic objectives of developing land freight in Malaysia are to increase efficiency and flexibility, strengthen reliability and to promote safety and social wellbeing. SPAD already has plans to develop the land freight sector along these objectives. These are:  Strengthening rail infrastructure and strengthening connectivity across modes, as well as the implementation of city logistics strategies  Enhancing the regulatory framework to raise standards of reliability

69Land Public Transport Commission (SPAD); http://www.spad.gov.my/ 95

 Enforcing emissions standards and holding both the drivers and operators accountable for their safety records70.

Box 5.8: Objectives for Freight Transport National Public Transport Master Plan – Eight Objectives for Freight Transport: 1. Competitive framework that strikes a balance between sustainability and reliability 2. Cohesive and rigorous planning of routes and networks, which are diligently reviewed and regularly updated 3. Implementation of multi-modal integration initiatives and programs, which may include ports, airports and other points of entry to the LFT network 4. Diligent administration, regulation and monitoring of service standards 5. Coordinated enforcement with relevant authorities on land freight transport matters 6. Coordination and cooperation with relevant authorities to amalgamate land freight transport planning with spatial matters to achieve cohesive plan 7. Skilled and competent human capital and services in the land freight transport sector 8. Lower environmental impact of land freight transport through reducing omissions of noise and pollutants, use of technology, and optimal use of resources. Source: SPAD; http://www.spad.gov.my/projects/national-master-plan/final-draft-national-land-public- transport-master-plan-nlptmp

Road Transport Department (Jabatan Pengangkutan Jalan, JPJ) Malaysia The Road Transport Department (JPJ) Malaysia71 is one of the departments under the Land Division, Ministry of Transport Malaysia. It is responsible for licensing of vehicles and drivers and the enforcement of the Road Transport Act 1987 Act 333 to ensure safe drivers and safe vehicles. Its enforcement activities also include provisions from the Commercial Vehicle Licensing Act 1987. There are two primary aspects to JPJ’s regulatory role: safety and revenue collection. On safety the focus is on the competence of vehicle drivers and the reliability of the vehicles. Revenue is generated from the collection of road tax and administrative charges such as fees from licensing, testing and permits issuance. These regulatory aspects are provided in Act 333 and the various subsidiary legislations and administrative rules arising from this Act. Act 333’s primary aim is to regulate motor vehicles, road traffic safely and revenue from the use of public roads. The Act has various provisions covering:  The regulation of motor vehicles and traffic on the streets and other matters with respect to streets and vehicles  The protection of third parties against risks arising from the use of motor vehicles  The coordination and control of the means and facilities for transport

70 SPAD: National Public Transport Master Plan (16 October 2013); http://www.spad.gov.my/projects/national- master-plan/final-draft-national-land-public-transport-master-plan-nlptmp 71 Road Transport Department (Jabatan Pengangkutan Jalan, JPJ) Malaysia; http://www.jpj.gov.my/ 96

 The coordination and control of the means and facilities for the construction and adaptation of motor vehicles  Any related purposes on road safety. To achieve its regulatory responsibility effectively, JPJ has established its primary objectives as:

 To establish and regulate the registration and licensing of motor vehicles in a systematic, reliable and innovative manner to produce competent, law abiding and prudent drivers of motor vehicles  To enforce and administer the road transport law with integrity and commitment to create a society that has a culture of adherence to the rules of the road  To monitor and administer motor vehicle safety standards with efficiency and integrity to meet the needs of the environment and the country's automotive industry.

Permit Issuing Agencies for Cross Border Trading There are over 20 agencies under 12 different ministries that exercise regulatory controls on the import and export of controlled goods. Table 5.1 lists the permit issuing agencies and regulations enforced for international trade. The complete list of other Government agencies issuing permits, the Permits Issuing Agencies (PIA) is given in the Appendix. The regulatory interventions aim at protecting the environment, the biodiversity of the country, health and safety of the people, local businesses and national security and sovereignty. Prohibited products such as explosives, arms and dangerous drugs are subjected to strict controls. Import/export licences and permits are required for various types of cargo and these can be obtained from various PIA. A general list of these licences and permits from the different PIA is shown in Table 5.2.

Table 5.1: Permit Issuing Agencies Agencies Enforced Regulations Ministry Of Home Affairs; www.moha.gov.my  Customs Act 1967  Film Censorship and Enforcement Division  Film Censors 2002 (Act 620)  Royal Malaysian Police; www.rmp.gov.my  Explosives Act 1957 (Act 207) Ministry of Works; www.kkr.gov.my  Customs Act 1967  Construction Industry Development Board;  Construction Industry Development www.cidb.gov.my Board Act 1994 (Act 320) Ministry of Health; www.moh.gov.my  Poisons Act 1952 (Act 366)  Pharmaceutical Services Division;  Sale of Drugs Act 1952 (Act 368) www.pharmacy.gov.my  Dangerous Drugs Act 1952 (Act 234) Ministry of International Trade and Industry;  Customs Act 1967 www.miti.gov.my  Strategic Trade Act 2010 (Act 708)  Import and Export Control Section  Countervailing and Anti-Dumping  Trade Cooperation and Industry Duties Act 1993 (Act 504) Coordination Section  Strategic Trade Secretariat Ministry of Agriculture and Agro-based  Customs Act 1967 (Act 235) Industry; www.moa.gov.my  Akta Lembaga Kemajuan Ikan  Paddy and Rice Industry Division Malaysia (LKIM) 1971 (Act 49)  Malaysian Quarantine and Inspection  Akta Lembaga Pemasaran Pertanian Services (MAQIS); www.maqis.gov.my Persekutuan (FAMA) 1965 (Act 141)  Department of Veterinary Services;  Pesticides Act 1974 (Act 149) www.dvs.gov.my  Plant Quarantine Act 1976 (Act 167)  Agriculture Department (Pesticides Control  Control of Padi and Rice Act 1994 Division); www.doa.gov.my (Act 47)  Agriculture Department (Crop Protection  New Plant Variety Protection 2004 and Plant Quarantine Division) (Act 634)  Federal Agricultural Marketing Authority  Animal Act 1953 (Amendment 2006) (FAMA); www.fama.gov.my (Act 647) Ministry of Plantation Industries and  Customs Act 1967 Commodities  National Kenaf and Tobacco Board  National Kenaf and Tobacco Board; 2009 (Act 692) www.lktn.gov.my  Malaysian Cocoa Board  Malaysian Cocoa Board; www.koko.gov.my (Incorporation) Act 1988 (Act 343) Ministry of Science, Technology and  Customs Act 1967 Innovations  Strategic Trade Act 2010 (Act 708)  Atomic Energy Licensing Board;  Atomic Energy Licensing Act 1984 www.aelb.gov.my (Act 304)  SIRIM QAS International Sdn Bhd (Civil and Construction Section); www.sirim- qas.com.my  SIRIM QAS International Sdn Bhd (Communication and Multimedia Certification Section)72 Ministry of Natural Resources and  Customs Act 1967 Environment  Environmental Quality Act 1974 (Act  Department of Environment; 127) www.doe.gov.my  National Parks Act 1980 (Act 226)

72 SIRIM QAS International Sdn Bhd is a Government-own business entity. 98

 Department of Wildlife and National Parks; www.wildlife.gov.my Ministry of Energy, Green Technology and  Customs Act 1967 Water  Strategic Trade Act 2010 (Act 708)  Energy Commission; www.st.gov.my  Energy Commission Act 2001 (Act 610) Ministry of Information, Communication and  Customs Act 1967 Culture  Strategic Trade Act 2010 (Act 708)  Malaysian Communications and Multimedia  Malaysian Communications and Commission (MCMC); www.skmm.gov.my Multimedia Commission Act 1998 (Act 589) Ministry of Resource Planning and  Customs Act 1967 Environment  Sarawak Timber Industry  Sarawak Timber Industry Development Development Corporation Ordinance Corporation; www.sarawaktimber.org.my 1973  Forest Department Sarawak;  Forests (Amendment) Ordinance www.forestry.sarawak.gov.my 2003 Ministry of Modernisation of Agriculture  Customs Act 1967  Department of Agriculture Sarawak  Veterinary Public Health Ordinance (Veterinary Division); 1999 www.doa.sarawak.gov.my Source: MPC compilation

Table 5.2: Import/export Licences and Permits Types of Cargo Permit Issuing Agency General goods and motor vehicles Ministry of International Trade and Industry Pesticides Pesticide Board, Plant Protection Section, Department of Agriculture Animals (domestic) and animal Department of Veterinary Services, products Ministry of Agriculture Malaysia Wild animals and corals Department of Wildlife And National Park Arms and explosives The Royal Malaysian Police Telecommunication equipment Ministry of Energy, Telecommunication And Posts, Department of Telecommunication Malaysia Electrical goods Electrical Inspectorate Department Energy Commission of Malaysia Live fish Ministry of Agriculture Malaysia, Fisheries Department Pharmaceutical goods Ministry of Health, Pharmaceutical Services Division Toxic and hazardous wastes Department of Environment Plants and Plant Products Department of Agriculture Source: Shipping in Malaysia; http://malaysiashipping.info/

Permits are also used to protect local industries, particularly manufacturing, against practices such as anti-dumping protection. Control is also exercised on strategic trade items to protect the national interest. The regulation is also meant to facilitate trade and industry. A document - Certificate of Origin (CO) - to certify the place of growth,

99 production or manufacture of the goods is frequently needed for export of goods by a country. The CO identifies goods and contains a certification by a government authority, or other empowered body, that the goods in question originate in a specific country. The main criteria used in determining the origin of goods are:  Manufacturers, exporters or traders must be registered with Suruhanjaya Syarikat Malaysia (Companies Commission of Malaysia)  Products that manufactured in Malaysia and use 100% local content, or  Manufactured in Malaysia through a transformation process which changes the tariff code classification at six (6) digit level, or  Manufactured in Malaysia and contains at least 25% local content Certificates of Origin can be broadly classified into types, namely Preferential Certificates of Origin and Non-Preferential Certificates of Origin. The issuance and acceptance of Certificates of Origin is governed by the International Convention on the Simplification and Harmonisation of Customs Procedures. Preferential Certificates of Origin (PCO). The PCOs are used to apply for preferential tariff reduction for products offered under the Free Trade Agreements (FTA) between Malaysia and partner countries, provided the rules of origin are fulfilled. The certifying authority for all the preferential certificates of origin is the Trade Cooperation and Industry Coordination Section of MITI. Table 5.3 lists the types of PCO available to Malaysian industries. To improve the efficiency and capacity for issuance of PCO, MITI appoints chambers of commerce and trade associations to be issuers of PCO. These intermediaries must meet the following criteria:  Appointed by Ministry of International Trade and Industry (MITI)  Legally registered under The Registrar of Associations and is not dormant  Membership must not be less than 150 (including members at branch office)  Fee charged must not exceed the ceiling rate determined by MITI  Sufficient number of staff, office space and equipment for issuing NPCOs73. There is also a web-based facility for the application of PCO online, the Electronic Preferential Certificate of Origin or ePCO. This facility is operated by dagangnet.com (http://www.dagangnet.com/). The application allows manufacturers/ exporters to obtain the PCO in the form of an official online document.

For agriculture produce, CO is issued by the Federal Agricultural Marketing Authority, FAMA (http://www.fama.gov.my/). Producers/exporters need to apply using the CO form from FAMA and submit the form together with the completed Export Permit Application (PK 2 Form). This can be done FAMA offices (include state offices).

73 MITI - Guidelines On Issuance Of Non-Preferential Certificates Of Origin (06 Sep 2010); http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_bad14748-c0a81573- aba0aba0-215a2171 100

One particular initiative of importance to local exporting industries is the General System of Preference (GSP). The GSP is a system whereby developed countries grant preferential treatment to eligible products imported from developing countries, so that export of developing countries would be competitive in the developed countries markets. The preference-giving country is also known as the donor country, and the preference-receiving country as the beneficiary country.

Table 5.3: Types of Preferential Certificates of Origin Type Application Generalised System of Preference (GSP) Preference giving countries are Austria, Trade document used to obtain reduced or Belgium, Bulgaria, Cyprus, Czech Republic, duty free tariffs on eligible products Denmark, Estonia, Germany, Greece, exported by the preference receiving Norway, Switzerland, Belarus, Russian countries to markets of the preference Federation, Turkey, Finland, France, giving countries on the general rates of duty Hungary, Ireland, Italy, Latvia, Lithuana, normally applicable. Luxembourg, Malta, Netherlands, Poland, Romania, Slovakia, Slovenia, Spain, Sweden and United Kingdom. ASEAN Trade in Goods and Agreement Effective in 1993 (ATIGA) ASEAN China Free Trade Agreement Fully implemented – July 1, 2005 (ACFTA) ASEAN Korea Free Trade Agreement Entered into force on June 1, 2007 (AKFTA) ASEAN Japan Free Trade Agreement Entered into force on February 1, 2009 (AJFTA) ASEAN India Free Trade Agreement Entered into force on January 1, 2010 (AIFTA) ASEAN Australia New Zealand Free Trade Entered into force in January 1, 2010 Agreement (AANZFTA) Malaysia Pakistan Closer Economic Fully implemented – January 1, 2008 Partnership Agreement (MPCEPA) Malaysia Japan Economic Partnership Entered into force on July 13, 2006 Agreement (MJEPA) Malaysia New Zealand Free Trade Entered into force on August 1, 2010 Agreement (MNZFTA) Malaysia India Comprehensive Economic Entered into force on July 1, 2011 Cooperation Agreement (MICECA) Malaysia Chile Free Trade Agreement Entered into force on February 25, 2012 (MCFTA) Malaysia-Australia Free Trade Agreement Entered into force on January 1, 2013 (MAFTA Source MITI; www.miti.gov.my

The Rules of Origin (ROO) are an essential parts of the GSP scheme in order to ensure that the benefits of Preferential Tariff treatment under the GSP are confined to products genuinely produced by or substantially transformed in the preference receiving countries. Strict enforcement of rules of origins necessary to prevent products originating from third countries and traded in transit or products which are only slightly worked upon and do not undergo a true process of manufacture from

101 benefiting under the GSP. The main elements of the rules of origin under the GSP are (a) origin criteria, (b) consignment conditions, and (c) documentary evidence74. The regulatory intervention that aims at protecting local industries is anti-dumping. Dumping is said to occur when goods are exported at a price lower than its “normal value”. This is deemed an unfair trade practice, particularly when the firms from the exporting country are suspected selling at subsidised prices, which is deemed to undermine the competitiveness of local firms. The WTO allows anti-dumping measure to be applied only under the circumstances provided for in Article VI of GATT 1994 with pursuant to investigations conducted in accordance with the provisions of this Agreement75. Malaysia's international rights and obligation in this area are governed by her membership in the WTO and of the WTO Agreements on Anti-Dumping and Subsidies & Countervailing Measures. In Malaysia, there is the Countervailing and Anti-Dumping Duties Act 1993 (Act 504) that empowers the Investigating Authority to take remedial measures against unfair trading by foreign manufacturers/exporters and to provide a framework for investigating allegations of injury caused by dumped or subsidized imports. The Investigating Authority is the Trade Practices Section of MITI. When a Malaysian domestic industry is of the view that there is evidence of subsidy and/or dumping and that the subsidy and/or dumping is causing injury, a written petition may be submitted to commence the process of a countervailing and/or an anti-dumping action to the Investigating Authority of MITI. Under Act 504, a written petition must be filed by or on behalf of the domestic industry and should contain sufficient evidence of dumping (or in the case of a countervailing action, evidence of subsidized imports), injury and a causal relationship between the dumped (or subsidized) imports and the alleged injury. In this context the petitioner must be supported by the domestic producers whose collective output/production constitutes more than 50% of the total production of the domestic producers expressing either support or opposition to the petition and the domestic producers expressing support to the petition amount to 25% of the total production of the domestic industry76.

74 MITI – General System of Preference (17/2/2014); http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_697f7757-c0a81573- 66466646-1561dbc6 75 WTO, Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, Uruguay Round Agreement; http://www.wto.org/

76 MITI, Anti-Dumping and Countervailing Measure (21 Aug 2014); http://www.miti.gov.my/

102

Trade Associations and Chambers of Commerce as Intermediaries

Intermediaries here are the organisations that assist communication and coordination between the logistics businesses and the regulators. They provide services and/or build relationships for regulatory compliance and issue resolutions between regulators and the businesses. These include the trade associations and chambers which represents the various business communities.

Trade associations and chambers act as go-betweens between the businesses and the authorities to deal with regulatory and other issues of concern to businesses. The authorities regularly consult with these bodies on government policies and their implementation. The trade association intermediaries for the import-export trade logistics are given in Table 4.6 of Chapter Four. Any regulatory issues arising in the logistics value chain are communicated and discussed between the respective associations and the authorities.

Table 5.4: The Key National Business Chambers and Associations Name Address Contact Associated Chinese Chamber Lot 6.05 & 6.06, 6th Floor, Ms.Chong Mon Yee of Commerce and industry Menara Promet, Jalan Sultan Tel : 03 2145 2503 Malaysia (ACCIM) Ismail, 50250 Kuala Lumpur. Email: www.acccim.org.my [email protected] Federation of Malaysian Wisma FMM, No.3, Shamini Sakthinathan Manufacturers (FMM) Persiaran Dagang, PJU 9, Tel : 03 6276 1211 www.fmm.org.my Bandar Sri Damansara, Email: [email protected] 52200, Kuala Lumpur International Chamber of Wisma FMM Commerce Malaysia No. 3 Persiaran Dagang, Tel: +603-62867200 www.iccmalaysia.org.my/ PJU 9, Bandar Sri Damansara, Email: 52200 Kuala Lumpur [email protected] Malay Chamber of Commerce 33-35, Jalan Medan Setia 1, Malaysia (MCCM) Plaza Damansara Tel : 03-20962233 http://www.malaychamber.com Bukit Damansara 50490 Kuala Lumpur Malaysian International C-08-08, Plaza Mont'Kiara, 2 Stewart Forbes Chamber and Industry (MICCI) Jalan Kiara, Mont Kiara, 50480 Executive Director http://www.micci.com/ Kuala Lumpur, Malaysia Tel: +603-62017708 Email : [email protected] National Chamber of MENARA MATRADE, Secretary General Commerce and Industry of Level 3, West Wing, Dato Syed Hussein Al Ha Malaysia (NCCIM) Jalan Khidmat Usaha, Off Tel: 603-6204 9811 http://nccim.cmshosted.net/ Jalan Duta, Email: [email protected] 50480 Kuala Lumpur Malaysian Associated Indian JKR 3190, Jalan Ledang Dato' M.Davendran Chambers of Commerce and Off Jalan Duta Hon. Secretary General Industry (MAICCI) 50480, Kuala Lumpur Tel: 603 2011 0478 http://www.maicci.org.my/ Email : [email protected] Source: Author’s compilation

The exporters and importers or shippers are represented by their associations and chambers. There are also many other community-based, industry-based, foreign industry-based associations, both at the national and state levels. The community–

103 based associations representing the three communities are the Chinese, Indian and Malay Chambers. The Ministry of International Trade and Industry, MITI has a directory listing of 73 of these entities (includes the Arab, China and German chambers). Table 5.4 is a list of the major local chambers and associations.

Multinational companies and foreign-based industries are also represented by the country-based chambers. The notable chambers are the American Chamber of Commerce (AMCHAM), the EU-Malaysia Chamber of Commerce and Industry (EUMCCI), the Malaysia Australia Business Council (MABC), Malaysian-German Chamber of Commerce and Industry (MGCC), and the Japanese Chamber of Trade and Industry, Malaysia (JACTIM). Table 5.5 lists some of the key foreign chambers in the country. The industry-based associations are many representing the different industries and trades in the country, such as those representing electrical and electronics industry, the textile industry, the steel and foundry industry, the automobile industry, the construction industry, pharmaceutical industry, among others.

Table 5.5: List of Key Foreign Business Chambers in Malaysia Name Address Contact American Malaysian Suite 6-1A, Level 6 Jesselynn Lai Chamber of Commerce Menara CIMB, Jalan Government Affairs Manager (AMCHAM) Stesen Sentral 2, KL Tel: +603 2283 3407 http://www.amcham.com.my Sentral, Email: 50470 Kuala Lumpur [email protected] Arab Malaysian Chamber of Suite 21.02 – 21.03, Carlotta Elena Cawalleri Commerce Berhad (AMCC) 21st Floor Menara Haw Tel : +(60)3 2078 9990 http://amcc.com.my Par, Jalan Sultan Ismail, Email : [email protected] 50250 Kuala Lumpur British Malaysian Chamber 4th Floor, East Block, of Commerce (BMCC) Wisma Selangor Tel: +60 3 2163 1784 http://www.bmcc.org.my Dredging, Email: 142-B, Jalan Ampang, [email protected] 50450 Kuala Lumpur, EU-Malaysia Chamber of Suite 10.01, Level 10, Rozitaayu bt Zulkifli Commerce and Industry Menara Atlan, 161B Corporate Communications (EUMCCI) Jalan Ampang, 50450 Manager: http://www.eumcci.com/ Kuala Lumpur. Tel: +603-2162 6298 Email: [email protected] Japanese Chamber of Suite 6.01, 6th Floor, Trade & Industry, Malaysia Millennium Office Block, Secretary-General (JACTIM) Peti #4, 160, Jalan Bukit TEL (03)2142-7106 http://www.jactim.org.my/ Bintang 55100 Kuala E-mail: [email protected] Lumpur Kazakhstan-Malaysia Box No.43, Level 17, Bakhtiyor Abdulloev Chamber of Commerce West Block, Wisma International Relationships http://www.kmcc.com.my/ Selangor Dredging, Manager 142C, Jalan Ampang, Tel: +603 2181-1676 50450 Kuala Lumpur Email: [email protected] Malaysia Australia Business C-26-3A, 3 Two Square Shaun Miranda Council (MABC) No 2 Jalan 19/1 MABC Secretariat http://www.mabc.org.my/ Tel: +603 7960 9490

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46300 Petaling Jaya Email: [email protected] Malaysia Canada Business 29-5 Jalan PJS 5/30 Natasha Abu Al-Ashari Council (MCBC) Pusat Dagangan Petaling Office Administrator http://www.malaysia- Jaya Selatan (PJCC) 4 Tel: 603 7785 0799 canada.com/ 6150 Petaling Jaya Email: mcbc@malaysia- canada.com Malaysia-China Chamber of No.8-2, Jalan Metro Mr.Ting Chin Ching Commerce (MCCC) Pudu, Fraser Business Tel: +603-9223 1188 http://www.mccc.my Park, Off Jalan Yew, Email: [email protected] 55100 Kuala Lumpur Malaysian French Chamber Unit No. 2B-10-3, 10th Tel: + 60 3 2035 6970 of Commerce and Industry Floor, Plaza Sentral, Email: [email protected] (MFCCI) Jalan Stesen Sentral 5, http://www.mfcci.com/ 50470 Kuala Lumpur, Malaysian-German Suite 47.1, Level 47, Ms Cheryl Sim Chamber of Commerce and Menara Ambank Communications Officer Industry (MGCC) 8, Jalan Yap Kwan Seng Tel: +60-3-9235 1800 http://www.malaysia.ahk.de/ 50450 Kuala Lumpur Email: info(at)malaysia.ahk.de Malaysian Italian Chamber 32A, Jalan Ampang, Munindran al Vasuthavan of Commerce and Industry 14M,14th Floor, Plaza P.R for Asia (MITCCI) Ampang City Tel: 006.03.42566121 http://www.mitcci.org.my/ 50450 Kuala Lumpur Email: [email protected] Malaysia New Zealand Level 21, Menara IMC Chamber of Commerce No. 8, Jalan Sultan Ismail Tel: +60 3 2724 0354 (MNZCC) 50250 Kuala Lumpur Email: [email protected] http://www.mnzcc.org.my/ Malaysian Spanish 20th Floor, Menara Tel:- (60/3) 2148 7300 Chamber of Commerce & Boustead, 69, Jalan Raja E-mail:- [email protected] Industry, (MSCCI) Chulan, 50200 Kuala http://www.lacamara.org.my/ Lumpur Source: MPC compilation

Aside from these industry-based associations, there are also services business-based associations which play a major role in mediation and negotiation with the Government on logistics matters. A summary listing of many these trade intermediaries is shown in Box 5.9.

Box 5.9: Summary List of Trade Intermediaries of Logistics Businesses Trade Associations and Chamber of Commerce 1. Airfreight Forwarders Association of Malaysia (AFAM) - www.afam.org.my 2. Associated Chinese Chamber of Commerce and Industry of Malaysia – www.acccim.org.my 3. Association of Consulting Engineers Malaysia – www.acem.com.my 4. Association of Malaysian Hauliers - http://www.amh.org.my/ 5. Association of Private Hospitals of Malaysia (APHM) - www.hospitals-malaysia.org/ 6. ASEAN Ports Association, Malaysia - http://www.apamalaysia.com 7. Building Materials Distributors Association of Malaysia – www.bmdam.org.my 8. Cement and Concrete Association of Malaysia – www.cnca.org.my 9. Central Region Shipping Association - http://www.crsa.com.my/ 10. Commercial Vehicles Rebuilders Association Malaysia ( CVRAM) - www.cvramrebuilt.com

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11. Electrical and Electronics Association of Malaysia (TEEAM) - www.teeam.org.my 12. Federation of Malaysian Consumers Associations (FOMCA) - www.fomca.org.my/ 13. Federation of Malaysian Foundry & Engineering Industries Association of Malaysia – www.fomfeia.org.my 14. Federation of Malaysian Freight Forwarders – www.fmff.net 15. Federation of Malaysian Manufacturers – www.fmm.org.my 16. Johor Lorry Operators’ Association - http://www.jloa.org.my 17. Machinery & Equipment Manufacturers Association – www.mema.org.my 18. Malay Chamber of Commerce Malaysia – www.dpmm.org.my 19. Malaysia Hardware, Machinery & Building Materials Dealer’s Association (MHMBA) - http://www.mhmba.org.my 20. Malaysia Steel and Metal Distributors’ Association (MSMDA) - http://www.metaldealer.org.my/ 21. Malaysian Air-Conditioning & Refrigeration Association (MACRA) - http://www.macra.org.my/ 22. Malaysian Association of Convention and Exhibition Organisers and Suppliers (MACEOS) - www.maceos.com.my 23. Malaysian Association of Pharmaceutical Suppliers (MAPS) - www.i-maps.my/ 24. Malaysian Associated Indian Chamber of Commerce and Industry – www.maicci.org.my 25. Malaysian Automotive Association (MAA) - http://www.maa.org.my 26. Malaysian Employers Federation - www.mef.org.my/ 27. Malaysian Footwear Manufacturers Association (MFMA) - http://wms2.malaysiafootwear.com/ 28. Malaysia Furniture Entrepreneur Association (MFEA) - www.mfea.org.my 29. Malaysian Gas Association (MGA) - http://www.malaysiangas.com 30. Malaysia Heavy Construction Equipment Owners' Association (PAJPBM) - http://pajpbm.com/ 31. Malaysian International Chamber of Commerce and Industry – www.micci.com 32. Malaysian Iron & Steel Industry Federation – www.misif.gov.my 33. Malaysian Knitting Manufacturers Association (MKMA) - http://www.mkma.org/ 34. Malaysian Organisation of Pharmaceutical Industries (MOPI) - http://mopi.org.my/ 35. Malaysian Oil & Gas Services Council (MOGSC) - http://www.mogsc.org.my/ 36. Malaysian Palm Oil Association (MPOA) - http://mpoa.org.my/ 37. Malaysian Plastics Manufacturers Association – www.mpma.org.my 38. Malaysian Rubber Glove Manufacturers Association (MARGMA) - http://www.margma.com.my 39. Malaysian Rubber Products Manufacturers’ Association – www.mrpma.com 40. Malaysian Shipowners’ Association – www.malaysianshipowners.org 41. Malaysian Structural Steel Association – www.mssa.org.my 42. Malaysian Textile Manufacturers’ Association (MTMA) - http://www.fashion-asia.com/ 43. Malaysian Tin Products Manufacturers' Association (MTPMA) - http://www.mtpma.org.my/ 44. Master Builders’ Association Malaysia – www.mbam.org.my 45. Metal Dealers’ Association – www.metaldealer.org.my 46. National Chamber of Commerce and Industry of Malaysia - http://nccim.cmshosted.net/ 47. National ICT Association of Malaysia (PIKOM) - http://www.pikom.org.my/ 48. Palm Oil Refiners Association of Malaysia (PORAM) – http://poram.org.my 49. Pan-Malaysia Lorry Owner’s Association (PMLOA) 50. Pharmaceutical Association of Malaysia (PhAMA) - www.phama.org.my/ 51. Persatuan Insurans Am Malaysia (PIAM) - http://www.piam.org.my/ 52. Real Estate and Housing Developer’s Association Malaysia – www.rehda.com 53. SME Association Malaysia - www.smemalaysia.org/ 54. Sabah Timber Industries Association (STIA) - http://www.stia.com.my

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55. Sarawak Chamber of Commerce and Industry (SCCI) - http://www.scci.org.my 56. Sarawak Timber Association (STA) - http://www.sta.org.my/ 57. Shipping Association Malaysia (SAM) - http://www.sam.org.m 58. Steel Wire Association of Malaysia – www.swam.org.my 59. Timber Exporters' Association of Malaysia (TEAM) - http://www.team.org.my Source: Author’s compilation (also from Malaysian Spanish Chamber of Commerce & Industry; http://www.lacamara.org.my/)

Government Intermediaries

The country’s external trade has been expanding continuously over the last three decades. As such, the demand on government services also increases annually. To cope with business demands and constraints on government capacity expansion, the government outsources some of its functions, by privatising specific government functions, setting up or appointing a private and commercial entity to run the outsourced function. These entities are monopolistic outsourced service providers.

In the case of Customs, the online customs clearance activities have been outsourced to a company Dagang Net Sdn. Bhd. which is an e-commerce service provider. Dagang Net has performed over 275 million electronic transactions and RM1.8 billion worth of Customs duty payments and serves more than 5000 customers77. The road transportation authority – Department of Road Transport Malaysia (Jabatan Pengangktan Jalan, JPJ) - has outsourced vehicle inspection to a private company PUSPAKOM Sdn. Bhd. (http://www.puspakom.com.my). Established in 1994, PUSPAKOM is a wholly-owned subsidiary of DRB-HICOM Bhd., a conglomerate that is listed on the Kuala Lumpur Stock Exchange. It is the only vehicle inspection company appointed by the Malaysian Government to undertake all mandatory inspections for commercial and public vehicles, as well as private vehicles for hire- purchase financing, ownership transfer and insurance purposes78. As the individual authorities have serious limitations in both capability and capacity in managing ICT systems and applications, many electronic data processing functions are outsourced to a privately incorporated entity, MYEG. MY E.G. Services Bhd., MYEG is a concessionaire for Malaysian Electronic-Government (e-Government) MSC Flagship Application. MYEG builds, operates and owns the electronic channel to deliver services from various Government agencies to Malaysia citizens and businesses. MY E.G. Services Bhd. was incorporated in Malaysia as a private limited company on 17 February 2000 as I.T. Marvel Sdn. Bhd.

The e-Government Initiative is a Government programme which focuses on delivering improvements of Government internal operations and its service delivery. The initiative

77 Dagang Net Sd. Bhd. (February 2015), About Us - Commerce the Dagang Net Way; http://www.dagangnet.com/index.php/about-us/about-us.html 78 PUSPAKOM Sdn. Bhd.; http://www.puspakom.com.my 107 focuses on allowing citizens to retrieve information and perform transactions with various service suppliers in a convenient and timely manner by utilizing its Electronic Services (e-Services)79.

The Logistics Businesses

Freight forwarders play an important role in the logistics chain as they manage the transportation of goods across the globe for exporters and importers. They provide the services that ensure goods, to be moved, meet all necessary conditions to pass through customs and that all the necessary paperwork is in order, as well as ensuring that goods are properly handled. These are firms specializing in arranging storage shipping of merchandise on behalf of its shippers. It usually provides a full range of services including: tracking inland transportation, preparation of shipping and export documents, warehousing, booking cargo space, negotiating freight charges, freight consolidation, cargo insurance, and filing of insurance claims.

In Malaysia, the freight forwarding business is represented by geographically-located associations affiliated to the national Federation of Malaysian Freight Forwarders80 (see Box 10). These geographically-located associations are:

i. Selangor Freight Forwarders and Logistics Association, SFFLA - 589 company members; http://www.sffla.com/ ii. Johor Freight Forwarders Association, JOFFA - 241 company members; http://joffa.net/ iii. Penang Freight Forwarders Association, PFFA - 115 company members; http://pffa.org.my/ iv. Kota Kinabalu Forwarding Agent Association, KKFAA - 52 company members. v. Sarawak Forwarding Agencies Association, SFAA - 84 company members; http://sfaa.ent.my/ vi. Labuan Freight Forwarders Association, LFFA - 10 company members.

As can be seen the Selangor Freight Forwarders and Logistics Association, SFFLA, which is based in Klang is the largest in the region as Port Klang remains the largest port in Malaysia. The association was formed and registered in 14th June 1973 under the Societies Act 1966. Initially, the name of the association was "Association of Forwarding Agents Port Klang" and in May 2003 the association changed its name to SFFLA. SFFLA mission is to promote its members’ activities (upstream businesses) and to enhance the awareness of Port Klang as the premier port in Malaysia, promoting

79 MY E.G. Services Bhd, MYEG; https://www.myeg.com.my 80 Federation of Malaysian Freight Forwarders; http://www.fmff.net/

108 the services and incentives available in the port and promoting more activities for the business community and logistics players (downstream businesses)81.

Box 10: Federation of Malaysian Freight Forwarders

FMFF was registered in September 1987 as a National Association representing the Freight Forwarders in the logistics industry. In 2000, the Ministry of Transport endorsed and recognized FMFF as a national Association to represent the logistics industry.

Current membership in FMFF nationwide is about 1091 members with several applicants pending approval. FMFF membership as per State association is as follows’-

 Selangor Freight Forwarders and Logistics Association, SFFLA - 589 company members.

 Johor Freight Forwarders Association, JOFFA - 241 company members.

 Penang Airfreight Forwarders Association, PFFA - 115 company members.

 Kota Kinabalu forwarding Agent Association, KKFAA - 52 company members.

 Sarawak Forwarding Agencies Association, SFAA - 84 company members.

 Labuan Freight Forwarders Association, LFFA - 10 company members.

FMFF is affiliated to FIATA (International Federation of Freight Forwarders Association), AFFA (ASEAN Freight Forwarders Association), FAPAA (Federation of Asia Pacific Air Cargo Associations, MNSC (Malaysian National Shippers Council).

FMFF participates in many government forums such as Dialogues with MITI and MOF, Customs Liaison meeting, MOT, MLC, Trade and Facilitation Action Council (MITI) and provides industry views and inputs for policy makers’ consideration.

FMFF was established in 1987 as a National Association with the following objectives:-

 To unify all freight forwarders in the country through the promotion of co-operation and understanding among members

 To protect and represent the interests of members at the National and International levels.

 To improve the quality and standards of services of members through information and data exchange, documentary simplification systems and organisational development and internationalisation.

 To establish, maintain and promote ethical standards within the profession.

 To arbitrate in the settlement of disputes and difficulties arising between members.

81 Selangor Freight Forwarders and Logistics Association; http://www.sffla.com/ 109

 To foster the growth and awareness of freight forwarding through appropriate publications and promotions.

 To foster and improve relations with shippers, carriers, governmental bodies and other related and interested parties.

 To provide for vocational training at the national level.

Source: Federation of Malaysian Freight Forwarders (16/2/15), http://www.fmff.net/

Hauliers are persons or companies employed in the transport of goods or materials by road. Trucks carry the major volume of the freight tonnage moved in the country, maybe as much as 80 per cent. With industry relying this heavily on road carrier transport, changes and efficiency in the trucking industry can have major ramifications for shippers. Shippers need to be aware of truck-related regulation and legislation. These regulations and how they are implemented can influence how shippers and their road carriers do business together. The road carrier transport business is represented by two main trade associations in Malaysia, (a) Association of Malaysian Hauliers, AMH and (b) Johor Lorry Operators’ Association, JLOA.

Ports Authorities and Ports Operators: Ports and shipping are major links in the logistics chain and are essential in facilitating trade in Malaysia and hence crucial to its economic prosperity. On this, the country’s ports have assumed a critical role in the overall pattern of trade and transport, providing a link between the shipping service and the inland transport system. Today, with world-class facilities, Malaysia’s ports act as crucial points of interface with other transport modes - road, rail, river and air.

In 1987, the Economic Planning Unit (EPU) in the Prime Minister’s Department commissioned a study and drew up a blueprint for a national port policy. Outlining recommendations and action plans to enhance the growth and development of Malaysia’s ports, it set the pace for rapid port development. Central to the policy was port privatization and the establishment of a national load centre featuring modern terminal facilities and large cargo volumes to attract large container vessels.

Prior to the enactment of the Port (Privatisation) Act 1990, Act 422, ports in the country were operated by Port Authorities. With the advent of the Act 422 the major ports in the country were privatized and these entities are regulated by their respective Port Authorities. Table 5.6 shows the privatised major sea ports. Ports in the country are either under the purview of the Federal Government or the State Government. Those administered by the Federal Government, under the jurisdiction of the Ministry of Transport, can be categorized into major and minor ports. The major Federal ports are

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Port Klang, Penang Port, Bintulu Port, Kuantan Port, Kemaman Port, Johore Port and Tanjung Pelepas Port, all regulated by port authorities.

In addition, there are around 80 minor ports or jetties under the regulation of the Marine Department. The ports in Sabah are governed by Sabah Ports Authority, while Sarawak has three separate port authorities supervising the ports in Kuching, Rajang and Miri.

Table 5.6: Major Sea Ports under the Port (Privatisation) At 1990 Penang Port Penang Port Commission Penang Port Commission Act 1955 Port Kelang Kelang Port Authority Port Authorities Act 1963 Kuantan Port Kuantan Port Authority Port Authorities Act 1963 Pasir Gudang Johore PortAuthority Port Authorities Act 1963 Bintulu Port Bintulu Port Authority Bintulu Port Authority Act 1981 Malacca Port Malacca Port Authority Port Authorities Act 1963 Kemaman Port Kemaman Port Port Authorities Act 1963 Tanjung Pelepas Johor Port Authority (Tanjung Port Authorities Act 1963 Port Pelepas) Source: Act 422, Schedule (Section 2)

The largest seaport in the country is Port Klang, serving the Klang Valley which is the most well-developed and industrialized region in Malaysia. For its strategic location, it is designated as the load centre for both local and regional containers to generate critical mass at one port making it an attractive destination for Main Line Operators. This has resulted in the diversion of cargo from other ports to Port Klang, which handles sixty over per cent of Malaysia’s container trade and is a major regional distribution and transhipment hub82. It is the world’s 13th largest container port83, handling 10,350,409 twenty-foot equivalent units (TEU) out of the total of 20,876,442 TEU handled in the county in 2013. This represent almost 50 per cent TEU handled in the country. Port Klang has two of its terminals, operated by two companies, Westports Malaysia Sdn. Bhd. (www.westportsmalaysia.com) and Northport (Malaysia) Bhd. (www.northport.com.my), together both boast of world-class facilities that can cater to the world's largest ships and have trade connections with more than 500 ports around the world.

Port of Tanjung Pelepas (PTP), Malaysia's transhipment port at the southern tip of Peninsular Malaysia, began operations in 1999 but has grown spectacularly to become the 20th largest container port in the world (2015). As the trans-shipment hub for the southern region, PTP achieved an annual cargo volume of 7.63million TEUs in

82 Nazery Khalid (2005), The Development of Ports and Shipping Sector in Malaysia,Marine Institute of Malaysia (MIMA) 83 World Shipping Council (2015), Top 50 World Container Ports; http://www.worldshipping.org/about- the-industry/global-trade/top-50-world-container-ports

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2013. PTP has attracted two of the world’s largest container service operators, Moller-Maersk and Evergreen, to become its shareholders. The port operator is Pelabuhan Tanjung Pelepas Sdn. Bhd. (www.ptp.com.my/)

Johor Port was established in 1977 and features diverse cargo, storage and logistics facilities. It enjoys a strategic location in a busy transport hub in the south-eastern tip of Peninsular Malaysia, attracting major carriers such as Evergreen, Wan Hai and PIL. The port operator is Johor Port Bhd. (www.johorport.com.my)

Penang Port, the gateway port to Peninsular Malaysia’s northern region, is an established port serving one of the region’s busiest trade routes. The port serves as the main gateway for shippers in the northern states of Malaysia and also the southern provinces of Thailand. Penang Port is well connected with land and air modes and is accessible to and from all the major economic regions in Peninsular Malaysia. The port operator is Penang Port Sdn. Bhd. (www.penangport.com.my Penang Port is the oldest and longest established port in Malaysia. Capable of handling 25 million tons of cargo annually, it enjoys connectivity with over 200 ports worldwide. Penang Port is fully equipped to handle all types of cargo such as containers, liquid, dry bulk, break bulk and others and provides a multitude of services to cater for their safe and efficient transit via the port’s various terminals and facilities.

Kuantan Port serves the Eastern Corridor of Peninsular Malaysia stretching from Kelantan to Pahang, focusing on the cluster of international chemical plants in the Gebeng Industrial Estate. As such, its port facilities feature palm oil berths, liquid chemical berths, mineral oil berths and a MTBE (methyl tertiary butyl ether) terminal. The port operator is Kuantan Port Consortium Sdn Bhd (KPC); http://www.ijm.com/ KPC is jointly owned by IJM Corporation Berhad and Beibu Gulf Holding (Hong Kong) Co. Ltd on a 62:38 equity holdings with the Government of Malaysia having a special rights share. KPC is given the concession period of thirty years since 1998 to manage, operate and develop Kuantan Port. With the development of the New Deep Water Terminal (NDWT) a new Privatisation Agreement shall be entered for a period of thirty years. Kuantan Port is an all-weather port and a multi-cargo deep sea port facing the South China Sea. Strategically located on the eastern seaboard it serves the industrial and the petrochemical industries in the East Coast Industrial Corridor. Supported and has a vast market outreach and a strong network of global shipping connections.

Kemaman Port is located on the East Coast of Peninsular Malaysia, serving the steel plants, crude oil terminals, gas processing plants, refineries and petrochemical complexes. The facilities at this port, one of the deepest seaports in Malaysia and the gateway to the Asia-Pacific region, include three multipurpose berths, one liquid chemical berth and one LPG export terminal. It is also a supply base catering to the needs of petroleum companies operating off the shores of Terengganu.

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Bintulu Port, located on Sarawak’s north-eastern coast, is the only export gateway for the country’s biggest export earner – liquefied natural gas (LNG) produced off the Bintulu coast. Commencing operations in 1983 and privatised in 2001, its facilities include an LNG terminal, LPG jetty and a new dedicated container terminal equipped with the latest and most modern port equipment and other supporting facilities. It is recognised as the world’s largest single LNG port featuring three LNG jetties capable of handling up to 25 million tons per year.

Also in Sarawak there are two riverine ports, Kuching Port and Miri Port, which serve the southern and northern part of the state respectively. As for Sabah, The Sabah ports deal mainly with exports of timber, petroleum-based products, palm oil, cocoa beans, rubber and mineral oils. These cargos are moved via the seaports at Kota Kinabalu, Sepanggar Bay, Sandakan, Tawau, Lahad Datu, Kudat, Kunak and Labuan, all accessible to international shipping. A new container terminal at Sepanggar Bay will handle the whole of state’s container operations except for general cargo.

All these ports and their respective Port Authorities are members of the ASEAN Ports Association Malaysia with the aim of fostering friendship and extending support and cooperation to promote the interest of ports. The founding members of ASEAN Port Association (APA), originally known as the ASEAN Port Authorities Association, consist of government agencies in the ASEAN countries, which are recognized and functioning either as a corporate body or as a bureau. The Port of Singapore Authority, Indonesia Port Corporations, Kelang Port Authority (Malaysia), Port Authority of Thailand and Philippine Ports Authority function as corporate bodies84.

Warehousing: A warehouse is a storage place for products. Principal warehouse activities include receipt of product, storage, shipment, and order picking. Managing warehouses efficiently ensures that goods flow from the manufacturers or producers to consumers in without interruptions and undesirable delays. These days, seller of goods generally outsource warehousing function to third parties - Third Party Warehousing. A good Warehouse Management System (WMS) is crucial to efficient warehousing. The WMS is used in effectively managing warehouse business processes and direct warehouse activities, including receiving, put-away, picking, shipping, and inventory cycle counts. WMS will have support of radio frequency communications, allowing real-time data transfer between the system and warehouse personnel. It will also maximize space and minimize material handling by automating receiving and put-away processes85.

Warehousing is an important elemental link in the logistics chain. Although the main function is storage and distribution, to ensure cost efficiency of the logistics chain, warehousing also functions as repacking and packaging, goods receiving and stocking, processing shipments, picking and consolidating, regulatory inspections,

84 ASEAN Ports Association Malaysia; http://www.apamalaysia.com/ 85 Inbound Logistics, Glossary of Supply Chain Terms; http://www.inboundlogistics.com/cms/logistics- glossary/ 113 tariff assessment and customs clearance, and so forth. Warehousing remains a cost function and as such its functional efficiency is crucial to logistics.

Some countries have special Acts for warehousing such as the Uniform Warehouse Receipts Act86 that sets forth the regulations governing public warehousing. The regulations define a warehouse manager's legal responsibility and define the types of receipts he or she issues. There is no such Acts in Malaysia but warehouses are government under the Street, Drainage and Building Act 1974, Act 133, which covers the construction and use of the structure. As for warehousing operation, there are different regulations and authorities governing them depending of the types of goods handled. For general goods or consumer goods, governance is generally through the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC).

For drugs and pharmaceuticals, the storing, handling, distributions, labelling and packaging, traceability and re-calling among others are govern by the Pharmaceutical Services Division of the MOH. The MOH also has various guidelines such as the Good Manufacturing Practices (GMP) and Good Distribution Practices that industries need to follow.

Dangerous goods and radioactive materials are strictly regulated and the governing authorities include the Department of Safety and Health (DOSH), the Atomic Energy Licensing Board (AELB), the Fire & Rescue Department of Malaysia (BOMBA) and the Department of Environment Malaysia (DOE).

There are also warehouses under the direct control of Royal Malaysian Customs, such as the Licensed Manufacturing Warehouse (LMW), which is a premise licensed under section 65A of the Customs Act 1967. It is control by way of documentation and subject to all customs rules and regulations. Licensed manufacturing warehouse is a facility provided for export oriented companies too87.

Warehouses located in the free zones are governed by the Free Zone Act 1990. A free zone is a designated, secured area in which commercial and industrial activities are carried out and gazetted by the minister of finance as stated under the section 3(1) Free Zone Act 1990. There are two types of free zone that is the free industrial zone (FIZ) and free commercial zone (FCZ). Free Zone Authority is appointed by the minister under section 3(2) of the Free Zone Act 1990 to manage the zone. Customs control at the free zone is at the minimum and basically only at the gate point. FIZ is a place where most of the manufacturing activities carried out are for export purpose. It is a facility meant for export-orientated companies. Besides that, FIZ can also carry out other activities such as evaluation, testing of goods, research, designing etc.

86 Warehouse Receipts Act, Victoria, British Columbia, Canada; http://www.bclaws.ca/civix/document/id/complete/statreg/96481_01 87 Royal Malaysian Customs (Draft as at 5 January 2014), Goods and Services Tax, Guide on free Industrial Zone and Licensed Manufacturing Warehouse; http://gst.customs.gov.my/en/rg/SiteAssets/industry_guides_pdf/Bi%20FIZ%20and%20LMW%20- %20271013_to%20upload5.1.14.pdf 114

Another type of warehouse located in a designated area and approved by the Royal Malaysian Customs (RMC) under Section 65 of the Customs Act 1967, for storing dutiable goods is the bonded warehouse. Since 1981, its function has been enhanced for other activities such as break bulking and trading to facilitate commercial activities as well as to make it a distribution hub within the ASEAN region. Its creation also helped to reduce port congestion and for convenience of the importers88. Warehouses are generally third party warehouses serviced by logistics companies. Some freight forwarders also manage warehouses largely for receiving, put-away and consolidating functions. Interested parties can contact trade associations representing freight forwarders, hauliers and lorry for information on relevant logistics service providers.

Other intermediaries for logistics and warehousing include msialogistic.com which is under the Marshall Cavendish Business Information Private Limited and a member of Times Publishing Group. As a leading publisher of niche industry directories, it publishes more than 40 trade directories annually covering a wide spectrum of key industries. Its website http://www.msialogistics.com/ is a good search engine for logistics providers in Malaysia. Another intermediary which is useful for searching is the Alibaba.com http://www.alibaba.com/countrysearch/MY/logistic-service.html. The search engine can locate most logistics service providers in the country.

Conclusion This chapter gives the overview of the key stakeholders in sea freight logistics. The Ministry of Transport oversees all aspects of the country logistics covering the development of the logistics economy and infrastructure to the regulation and enforcement of established regulators. The importation and exportation of goods are governed by many regulations depending on the types of goods. The Royal Malaysian Customs has the role as gatekeeper for all goods traded across the country’s borders through the various ports, airports and border crossings. Some of the regulatory activities have been outsourced to improve efficiency of regulatory enforcement. The key stakeholders in the logistics chain are the importers and exporters (shippers) and the logistics services providers. The shippers who comprise manufacturers and goods traders are those involves in trading of goods across the national borders. Most of these businesses have established trade associations and chambers to represent their voice to the Government on regulatory, policy and other economic issues.

88 Royal Malaysian Customs (Draft as at 27 October 2013), Goods and Services Tax, Guide on Warehousing Scheme 115

Appendix LIST OF THE 26 OGAS ISSUING PERMITS (also known as PIAs) 1. Film Censorship & Enforcement Div., Min of Home Affairs (MOHA) 2. Royal Malaysia Police, MOHA 3. Construction Industry Development Board, Min of Works 4. Pharmaceutical Services Div., Min of Health 5. Import & Export Control Sec., Min of International Trade & Industry (MITI) 6. Trade Cooperation & Industry Coordination Sec., MITI 7. Strategic Trade Secretariat, MITI 8. Paddy & Rice Industry Div., Min of Agriculture (MOA) 9. Malaysian Quarantine & Inspection Services, MOA 10. Department of Veterinary Services (MOA) 11. Department of Fishery, MOA 12. Pesticides Control Div., Dept. of Agriculture (DOA) 13. Crop Protection & Plant Quarantine Div., DOA 14. Federal Agriculture Marketing Dept., MOA 15. Malaysian Pineapple Industry Board, MOA 16. National Kenaf & Tobacco Board, Min of Plantation Industries (MOPIC) 17. Malaysian Cocoa Board, MOPIC 18. Atomic Energy Licensing Board, Min of Science, Tech & Innovations (MOSTI) 19. Civil & Construction Sec., SIRIM 20. Communication & Multimedia Certification Sec., SIRIM 21. Dept. of Environment (DOE), Min of Natural Resources & Environment (MONRE) 22. Dept. of Wildlife and National Parks, MONRE 23. Energy Commission, Min of Energy, Green Tech & Water (MOEGTW) 24. Malaysian Communications & Multimedia Commission (MCMC), Min of Information, Communication and Culture (MOICC) 25. Sarawak Timber Industry Development Corporation, Min of Resource Planning and Environment, Sarawak 26. Forest Department, Sarawak 27. Veterinary Div., Department of Agriculture, Sarawak.

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CHAPTER SIX: Regulatory issues in freight logistics

Contents: Introduction, Regulatory issues from shippers, Issues from freight forwarders, Issues from containers hauliers, Issues from Port Operator and Free Zone Operator, Concluding remarks

Key Points 1. This chapter explains and analyses the issues raised by the key businesses in sea freight logistics value chain. With the feedbacks from these businesses and other background information and evidences, various options to mitigate them are formulated for consideration. A total of nineteen issues are analysed and various options are formulated. 2. The first section – Introduction, discusses the aspects of flow, effectiveness and efficiency in logistics value chain. The inability to achieve uninterrupted flow of goods in the logistics chain invariably reduces the effectiveness and efficiency of logistics performance. The focus is on causes arising from logistics regulations that result in unnecessary regulatory burdens. 3. The second section focuses on the issues raised by the shippers, representing both importers and exporters of goods. Five main issues raised are analysed here are: i. Ever increasing logistics costs ii. Regulations not keeping up with technology iii. Exemption applications for export-oriented manufacturers iv. Application for Certificate of Origin (COO) for ASEAN trade v. Inadequate consultation and short notification on new ruling 4. The third section focuses on and analyses the issues raised by the freight forwarders. The forwarders have raised many concerns but the four main regulatory issues of concern are on: i. Customs Brokerage Licence (CBL) ii. Customs operations and enforcement iii. Inspection Agencies (Other Government Agencies, OGA) iv. Trucking and haulage activities 5. The forth section analyses the issues raised by the containers hauliers. There are seven key issues of concern and some of them are also raised by the shippers. The issues analysed are: i. Shortage of heavy vehicle drivers ii. Road-ban iii. Application for renewal of business licence iv. Approval for (purchase of) new vehicles v. Safety inspections of prime-movers and trailers vi. Unregulated containers depot vii. Dealing with Permit Issuing Agencies (PIA) 6. This section deals with the issues raised by one major port operator and the free zone operator at Port Klang. The issues of concern are:

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i. Port Klang Free Zone operation ii. Port Operator’s regulatory constraints to business expansion iii. Verbal commitment by the authorities

Introduction

The nature of business in general is centred on the total purchase cost or the price of the goods sold to the consumer. This total cost will depend on the factors of production and the logistics involved for the goods to reach the consumer at the right time and place. The factors of production add value in the transformation of raw materials to the final products – the goods purchased by the final consumer. The availability of the key factors of production and their costs together with the availability of good logistics systems are crucial considerations for where the goods will be produced. This means that the production may not necessarily be located where raw materials are available or where the market is located.

Logistics itself does not change the characteristics of goods but rather ensures they reach businesses and consumers efficiently at the right time and place. Logistics is “…is the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements." The key point here is “efficient, effective flow from point of origin to point of consumption”.

Effectiveness in logistics has to be viewed from the perspectives of the consignee (or the customer) and has four fundamental aspects. Effectiveness refers to the smooth and free flow of the goods along the logistics chain, which means that goods has to arrive at the intended destination – the right place, at the right time (according to the planned schedule) and in the right condition (fit for use). The logistics chain identifies the many different activities and the differently parties and entities (individuals, businesses, regulators and their intermediaries) involve and the complexity, which makes it difficult to perfectly match and synchronise the activities to ensure smooth uninterrupted flow.

The logistics chain involves many businesses, starting with primary producers and ending with final consumer. In between, intermediary businesses take inputs to supply an output which in turn is an input into the next business in the supply chain. While economic advantages derive from specialization and economy of scale, fragmentation presents a challenge to coordinating inputs and outputs. This interrupts the flow of goods. Skilful integration of the logistics services, such as ‘just-in-time’ delivery of inputs and outputs, improves effectiveness and reduces costs.

Efficiency refers to the efficient allocation of resources to achieve the smooth and free flow of goods along the logistics chain. Goods should flow smoothly with the minimum

118 of interruption at optimum cost or expected cost (cost efficiency). When businesses pay more than the minimum price it should be because they are getting a commensurate increase in the value of the service, such as faster delivery or products arriving in good condition. When the logistics chain is fragmented, total cost tends to go up. Some degree of integration and good management is important to achieve the optimum cost. Interruptions in the flow of goods, such as from additional inspection, handling, stoppage and waiting time, will usually increase costs, delays and require additional storage management. These interruptions can arise from the mismatch of transactions between businesses or from regulatory requirements (approvals, quarantine, inspections and clearance).

Unfortunately, “rent-seeking” takes advantage of the inefficiencies in logistics and the need of businesses for timely approval and delivery. These rent-seeking activities become side businesses which thrives on inefficiencies in the logistics chain. Probably the most significant cause for rent-seeking are regulatory controls which delays the flow of goods. Hence, it is important to ensure that any regulatory burdens are fully justified by the size of the risks and the benefits from the activities.

Reducing unnecessary regulatory burdens (RURB) requires the examination and evaluation of regulations and regulatory activities that have serious implication on the effectiveness and efficiency of the logistics chain. This Chapter Six captures the regulatory issues raised by the different business entities from the engagements made with them. These regulatory issues are assessed from the standpoint of unnecessary regulatory burdens that affects the effectiveness and efficiency of the logistics chain. There are many different types of goods and many different types of businesses involved in the logistics chain and as such the issues captured may not be exhaustive. The focus is on the common concerns as to be as practicable within the duration and scope of the study.

Unnecessary regulatory burdens frequently arose as a result of conflicts of interests or rather conflict of objectives between businesses and regulators which is a constant feature in regulatory governance. It is important that these conflicts of interests are mitigated to ensure the national objective of increasing prosperity for the country. The important consideration is to ensure that any unnecessary burdens are reduced and are not exacerbated when changes are made to regulations. Recognising this concern, the Government initiated the Malaysia Incorporated Concept89 way back in 1983 to mitigate such problems. Unfortunately, in Malaysia, the dominant form of regulation is “command and control”. Regulators have not been exposed to nor encouraged to consider other approaches. Unnecessary burdens on business could

89 International Trade Centre, Public-Private Sector Collaboration For Improving The Business Environment In Malaysia; http://www.intracen.org/uploadedFiles/intracenorg/Content/Trade_Support_Institutions/Business_voice_in_p olicy_making/How_to_influence_trade_negotiations/Public_private_sector_collaboration_business_environme nt_Malaysia.pdf 119 be significantly reduced when regulators consider the adoption of risk-based regulation90 and responsive regulation91.

Regulatory issues from shippers

The shippers are the parties who initiated the logistics process and represents the inputs into the logistics chain. As the main parties are those in the manufacturing sector, the focused shippers are represented by the Federation of Malaysian Manufacturers (FMM). The FMM is also the main intermediary and key collaborator between manufacturing businesses and the Government and thus is able to raise regulatory issues that impact on the effectiveness and efficiency of the logistics chain. These issues are further elaborated with specific case examples whenever the appropriate information is available.

Issue No. 1: Ever increasing logistics costs

Shippers complain that the costs of doing business are increasing because they face many different kinds of charges for moving goods along the logistics chain. They feel they are held ransom by the logistics players and have to entertain whatever payments (charges) as demanded. They also feel that many of these charges are over-lapping in nature (similar charge by different parties for the same activity, such as gate-entry charge into storage depot to pick up containers) which they consider as unnecessary for achieving business objectives. They also claimed that they are unable to discuss or question these charges on an Association-to-Association basis, citing the Competition Act 2010 as the constraint. The FMM also claimed that the logistics associations are reluctant to discuss these charges with shippers. The only regulatory issue here is the presumption that the Competition Act 2010 forbids collaborative engagement between businesses.

This will include the specific issue on trade at Langkawi and Kuching Ports. Shippers consider that the movement of cargo at these two ports are monopolised by a few forwarders and as a result these forwarders are able to impose higher than normal charges for services, thereby increasing logistics costs. However, the association has not been able to provide case evidences which can be brought to the attention of the Malaysia Competition Commission, MyCC.

When regulatory requirements interrupt the flow of goods along the logistics chain, many additional non-value adding activities result, such as temporary storage in depots, security gate-keeping, “errand-runner” services, additional handling and moving service, etc. The fragmentation of the chain results in many addition costs to

90 World Bank, Introducing a risk-based approach to regulate businesses: How to build a risk matrix to classify enterprises or activities; https://www.wbginvestmentclimate.org/advisory-services/regulatory- simplification/business-regulation/introducing-a-risk-based-approach-to-regulate-businesses.cfm 91 John Braithwaite, The Essence of Responsive Regulation, https://www.anu.edu.au/fellows/jbraithwaite/_documents/Articles/essence_responsive_regulation.pdf 120 shippers. As a result, businesses arise and resources are used up in providing services which may not be adding to Malaysia’s economic growth.

Option No. 1: Do nothing on this and passed the costs to the customers

This is to let the economics of business takes its course as it moves toward some sort of equilibrium. However, the escalating costs with negatively impact short-term competitiveness in export manufacturing. Doing nothing here also will impact on the cost of import, which means that Malaysians will have to pay more for goods and services. The Government though will benefit from GST collection from the additional costs.

Option No. 2: Engaging the Malaysian Competition Commission (MyCC)

The intention of competition regulation is to prohibit businesses for collaborating to fix prices of goods and services to the disadvantage of the consumers. As such, the MyCC does not encourage the engagement between business associations to discuss charges and prices of goods and services. Currently, the FMM and its members are not able to provide details (assessments) on the excess impositions by logistics players for deliberations. This is something the FMM must address before they seek to engage with MyCC for solution. The option is to establish a platform for engagement between business associations that is facilitated or overseen by officials from MyCC. Such engagement platform is useful as there will always be issues between types of businesses across the logistics chain.

FMM as a representative of many manufacturers which are dependent on logistics services ought to seek assistance from MyCC should they feel that their members are subjected to abuse by the enterprise having dominant position in the logistics chain. FMM should do so with facts and figures of cases of such abuse so that MyCC can initiate investigation. MyCC has published guidelines such as MYCC Guidelines on Complaint Procedures and Malaysian Competition commission Guidelines Chapter 2 Prohibition92 which businesses can refer to for such purpose.

Option 3: Monitoring the cost of doing business in logistics

Issues on costs, delays and wastes continue to plague businesses in the logistics chain. Currently, RURB in logistics is done in a piece-meal manner. It may be important to consider a permanent mechanism to monitor logistics cost of doing business on a periodic basis from the regulatory aspect. MPC which represents one of the work group to the National Logistics Taskforce (NLT) in MOT may be mandated with this responsibility.

Under the Malaysia Incorporate Concept, many Government agencies have established consultative panels where businesses can engage with the agencies to

92 MyCC publications; http://mycc.gov.my/guidelines/ 121 resolve issues. Such panels also provide the possibility for resolving business-to- business issues with the Government as the facilitating agent.

Recommendation

This study recommends Option No. 3, i.e. to continue monitoring the costs of doing business in logistics and report to the National Logistics Taskforce for improvement initiatives. MPC may be mandated with this responsibility.

Issue No. 2: Regulations not keeping up with technology

Shippers feel that regulation has not changed to keep pace with advances in haulage technology and as a result businesses are not able to achieve lower haulage costs. For example, it is claimed that new prime-movers are able to haul heavier loads but the current licensing regime does not allow carriage for heavier loads.

Shippers are also concerned with the many old vehicles being used in the haulage industry. Old vehicles cause a lot of inconvenience due to downtime from frequent breakdowns, accidents on the road, poor fuel efficiency, problems with enforcement agencies and frequent inspections, all of which result in reduced efficiency and unnecessarily higher cost to doing business. While the high cost of replacing haulage prime movers is a disincentive, regulatory inconveniences on purchasing of new vehicles, such as the difficulty in getting approvals, also constrains the replacement of prime movers even when hauliers consider worthwhile.

Another factor is the low grade diesel fuel available. Currently, Euro 2 grade diesel is the common fuel supply in the country. Euro 2 has a high sulphur content of 500 ppm while many developed countries have already adopted Euro 4 with 50 ppm sulphur and even Euro 5 (with only 10 ppm). Euro 2 grade is considered dirty fuel that pollutes the environment and has corrosive effect on engines resulting in higher maintenance and operation costs. It also means the newest prime movers Euro 4 specification cannot be fuelled in Malaysia as they cannot operate on Euro 2 grade.

It was reported in May 2015 that the Minister of MITI announced that Euro 4 RON 97 petrol will arrive first in September 2015, followed by Euro 4 RON 95 petrol in October 2018. Diesel fuel, meanwhile, will be upgraded straight to Euro 5 standard, but its introduction has now been delayed further to September 2020. The Minister said the government has been engaging with various oil companies in the last two or three years, but they are reluctant to implement the new standards as the costs involved are “quite exorbitant” for the oil companies. Since 2014, the oil companies have claimed that it’s going to cost them a lot of money to upgrade their system, factories and plants. They have asked for postponement and the Government through PEMANDU continues to pursue this.

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However, with the removal of fuel subsidies for petrol and diesel, the reluctance to move to higher grades of diesel has reduced. It was reported that BHPetrol has since introduced Euro 5 diesel fuel in Johor, a good six years ahead of schedule. An expedited introduction in the southern region is required due to tightening emissions regulations in Singapore. The fully-imported (from Singapore) Infiniti Euro 5 Diesel is sold at a price of RM2.30 per litre which is 10 sen more than regular Euro 2M diesel.93 In August 2015, it was reported that imported Euro 5 grade diesel is now available at selected BHPetrol stations in the Klang Valley. It is priced at RM2.05 per litre, 10 cent higher than the Euro 2M grade diesel. Euro 5 grade diesel results in improved air quality due to its significantly lower sulphur content. The company representative reported that the Euro 5 is biodiesel blend B7 at the moment and will move to B10 when the government confirms its directives (Box 6.1). This development will encourage haulage companies to change to new high performance vehicles in due time and at the same time will be able to reduce their maintenance on their existing vehicles.

Box 6.1: BHPetrol Takes the Lead Once Again BHPetrol Recent News, 6th August 2015 BHPetrol is proud to introduce Euro5 diesel to the Klang Valley for the first time ever, putting Malaysia on par with the world’s most advanced countries The introduction of Infiniti Euro5 Diesel in the Klang Valley comes after its November 2014 debut in Johor, where BHPetrol became the first petroleum company to offer Euro 5- grade fuel in Malaysia. It was an initiative we took to ensure that diesel-powered vehicles entering Singapore could comply with the country’s tighter emission regulations that came into effect mid-2014. Infiniti Euro5 Diesel is fully-imported, with advanced fuel specifications that meet the stringent Euro5 standard established in Europe. It is an ultraclean fuel, with an extremely low sulphur content of only 10ppm – the standard specification for this higher-grade fuel – as sulphur causes vehicles to emit harmful pollutants, while also causing damage to the engine and emission control systems. With an ultra-low amount of sulphur, Infiniti Euro5 Diesel ensures your vehicle’s advanced engine and emission control systems perform optimally, just as they were engineered to. The result is reduced emissions that are detrimental to our health and environment, extended engine life and improved vehicle performance. To further protect modern diesel engines, the already powerful fuel is strengthened with superior German additives at the manufacturer’s recommended maximum dosage, keeping your engine clean, with less engine problems and better fuel economy. Source: Extracted from http://bhpetrol.com.my/infiniti-diesel-euro5.html

93 News 1: http://paultan.org/2014/11/17/malaysia-get-euro-4-petrol-next-year-euro-5-diesel-delayed-2020- says-mustapa-mohamed/ News 2: http://paultan.org/2014/07/09/oil-companies-asking-euro-4-postponement-miti/ 123

Another case where existing regulations cannot cope with new ways of transportation relates to the use of B-double trailers94. Shippers claim that current regulation does not allow for the use of B-double trailers or road trains. Such issues could be raised in special platforms such as the National Logistics Taskforce (NLT) or the Malaysian Institute of Road Safety (MIROS) for further study. It would be important that any studies provide feasible options to be subject to regulatory review using Regulation Impact Analysis.

Option No. 1: Do nothing and continue with existing regulations

Doing nothing here need not necessary mean that the industry competitiveness will not be progressing. What it means here is allowing the existing institutional and regulatory frameworks to work at their own pace towards greater progress. However, more pro-active options ought to be considered for the economy to progress faster towards the national aspiration of Vision 2020.

Option 2: Greater effort on the implementation of the National Policy on the Development and Implementation of Regulations (NPDIR)

Since the beginning of 2014, the NPDIR has been implemented at all Federal Agencies and Ministries. The implementation circular from the Chief Secretary to the Government has even stated that all regulations need to be reviewed after every five years of implementation. The basis is simple - to ensure that the regulation continues to be relevant and/or to update the requirements to meet the changing needs of the economy. However, to do this effectively, regulating agencies should have some institutional mechanism to continuingly monitor the changing needs of the industry. The institutional structure for private sector-Government collaboration for logistics is the National Logistics Taskforce (NLT) and the various work groups established to support its role. What is needed here is confirmed commitment to effectively implement the NDPIR through this established institutional framework. MIROS which is a member of the NLT may be mandated with the responsibility for monitoring the technology changes and regulatory relevance in road transport, thereby providing inputs for the necessary reviews.

Recommendation

This study recommends Option 2: Greater effort on the implementation of the National Policy on the Development and Implementation of Regulations (NPDIR), i.e. to review existing regulatory regimes on a periodic basis and make changes to meet market demands and technology changes. MIROS may be mandated for this responsibility.

94 B-double trailer is made up of a prime mover which pulls two semi-trailers, which are linked by a fifth wheel and can be up to 26 metres long. The fifth wheel coupling can be found at the end of the first semi-trailer and provides more stability to the unit. http://www.vintageroadhaulage.com.au/faq/what-is-a-road-train/ 124

Issue No. 3: Exemption applications for export-oriented manufacturers

Many companies need to apply for allowable exemptions on raw materials used for production of exports goods and on machinery spare parts used in production. The companies have to do these applications to MIDA on a regular basis. As the exemptions are always given, export businesses feel that these applications constitute regulatory burdens which unnecessarily increase the cost of doing business. Also, as MIDA has a fixed processing lead time of one week, this poses unnecessary problems when there is an urgent need for importing spare parts. It has to be noted that it may not be possible for the company to determine the requirements of importation to enable early application for exemption as many production requirements cannot be forecasted adequately such as machine breakdowns.

Option No. 1: Continue as it is

Manufacturers to continue with the required application for exemption, however, MIDA ought to improve its internal processing of such applications and shorten the waiting time to meet industry needs.

Option No. 2: Online application for exemption with immediate approval for repeated applications

Since such application is straight forward (from the regularity of the approvals), online application should be considered where immediate or automatic exemption given to repeated applications. The responsible agency can always check back later on the validity of the application on a random manner thereby eliminating the waiting time for the applicants.

Option No 3: Annual approval or permit be considered for registered exporting industries

MIDA in collaboration with Customs can considered changing the regulatory instrument for this purpose. Exporting industries needing such facility can be registered and given such permit on a fixed duration basis. Every importation with this facility can be reported to MIDA for record purpose and random checks. This will reduce the need for industry to apply for approval for every transaction.

Recommendation

This study recommends Option No. 2: Online application for exemption with immediate approval for repeated applications. MIDA should work on this option. Option No. 3 should also be considered to reduce the frequency of application.

Issue No 4: Application for Certificate of Origin (COO) for ASEAN trade

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Another issue relates to applying for a Certificate of Origin (COO) from MITI. It is claimed that MITI takes up to a week to issue a COO whereas shipments from ASEAN ports takes less than three days. This means that goods often get struck at the ports as they cannot be cleared. The options raised for Issue No. 3 above are applicable for the issuance of COO.

Although Malaysia is a signatory to this agreement, shippers have experienced problems with clearing exports to Thailand and Indonesia where documents issued in Malaysia are rejected by Thai and Indonesian Customs. Shippers are concerned this problem on non-standard documents unnecessarily hinders the free flow of goods across borders. Together with this is the implementation of ASEAN Trade in Goods Agreement (ATIGA)95. According to FMM companies exporting to Thailand, Singapore or Brunei that are registered with MITI for the ATIGA Form D could opt for Self- Certification, a system that enables the certified exporter to make out an Invoice Declaration for the export of goods by their own. There were cases where Thailand Customs refuses to accept the self-certification invoices and requested company to apply for the normal Form D which MITI refused to authorise once the company is registered under the Self-Certification Scheme. Also, there is the requirement to submit hardcopy trade forms for endorsement although online systems are in place.

ATIGA is formulated and signed in 2009 with the objective to achieve free flow of goods in ASEAN as one of the principal means to establish a single market and production base for the deeper economic integration of the region towards the realisation of the AEC by 2015. The agreement is a comprehensive coverage of provisions to ensure the free flow and smooth flow of goods in ASEAN. With regards to Customs, the objectives are to:

a. ensure predictability, consistency and transparency in the application of customs laws of Member States b. promote efficient and economical administration of customs procedures, and expeditious clearance of goods c. simplify and harmonise customs procedures and practices to the extent possible d. and promote cooperation among the customs authorities For ASEAN-6 countries, 99.65% of duties have been eliminated since Jan 1, 2010 and for Cambodia, Laos, Myanmar and Vietnam, 93% duties have been eliminated since Jan 1, 2015 and the remaining 7% is expected by 2018. Although many goods have been exempted form duties, properly authentication of documents for Customs clearance still post challenges, particularly on other non-tariff barriers to trade such as technical standards. The ASEAN countries continue to work out issues on Technical

95 ASEAN Trade in Goods Agreement - ATIGA: http://www.miti.gov.my/miti/resources/fileupload/Write- up%20on%20ASEAN%20Trade%20in%20Goods%20Agreement%20%28ATIGA%29.pdf 126

Barriers to Trade between member countries according to the framework shown in Box below.

ASEAN also have established economic agreements and instruments in various areas in facilitating free flow of goods in the region, including the Agreement on ASEAN Preferential Trading Arrangements (1977), the Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area (1992), the ASEAN Agreement on Customs (1997), the ASEAN Framework Agreement on Mutual Recognition Arrangements (1998), the e-ASEAN Framework Agreement (2000), the Protocol Governing the Implementation of the ASEAN Harmonised Tariff Nomenclature (2003), the ASEAN Framework Agreement for the Integration of Priority Sectors (2004), the Agreement to Establish and Implement the ASEAN Single Window (2005).

More important is perhaps the ASEAN Customs Cooperation Framework which have formulated the ASEAN Customs Code of Conduct, which was first signed by the ASEAN Directors-General of Customs in 1983. The Code was subsequently revised in 1995 to reflect the latest developments in ASEAN, particularly AFTA. Through this Code of Conduct, member countries committed to facilitate intra-ASEAN trade by simplifying and harmonizing trade procedures and to enhancing regional cooperation in Customs. This Code of Conduct is to facilitate the implementation of the ASEAN Agreement on Customs.

One of the key points to ASEAN Customs Cooperation is to “Continuously simplify and harmonize customs procedures, so as to ensure the expeditious clearance of goods in order to cut the time taken and transaction costs at customs point. In this connection, customs procedures shall be aligned to standards and recommended practices of the Kyoto Convention on the simplification and harmonization of customs procedures.” To facilitate Customs procedures, MITI through ATIGA has established the Self- Certification scheme to facilitate goods clearance at importing member country. Box 6.2 shows the requirements of the scheme.

Box 6.2: MITI (ATIGA) Self Certification Requirements Self-Certification  The Self-Certification Scheme is a system which enables the Certified Exporter (CE) to make out an invoice declaration for the exports of goods. The CE will no longer be required to apply for ATIGA Form D. The invoice declaration is sufficient to obtain preferential tariff concession under ATIGA. The information in the invoice declaration is less than what appears in ATIGA Form D.  The implementation of the Self-Certification Scheme is aimed at facilitating intra- ASEAN trade; reduce costs and time of doing business; and maximise the efficiency of the government limited resources.  Currently, there are two pilot projects for the Self-Certification that has been approved by the ASEAN Economic Ministers and ASEAN Free Trade Area Council. The First

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Self-Certification Pilot project (1st SCPP) is participated by Malaysia, Brunei Darussalam, Singapore and Thailand. Meanwhile Cambodia and Myanmar will be joining the 1st SCPP and are in the midst of getting their domestic approvals. The Second Self-Certification Pilot project (2nd SCPP) between Indonesia, Lao PDR and the Philippines was implemented beginning 1 January 2014.  The criteria’s for appointing Certified Exporters are:  Manufacturers who are also exporters;  Good past track record;  Not blacklisted by any agency i.e. Customs or MITI; and  Be able to comply with the Rules of Origin (ROO).  Efforts are being undertaken by ASEAN Member States to implement a single ASEAN Wide Self Certification by 2015 towards facilitating intra-ASEAN trade.  Companies are encouraged to apply to become a CE. Interested companies can contact: Trade Cooperation & Industry Coordination Section Trade Cooperation Division Ministry of International Trade and Industry (MITI) Tel : 03-6200 0140 / 133 / 131 Email : [email protected] / [email protected] Website : www.miti.gov.my Source: http://www.miti.gov.my/miti/resources/fileupload/Write- up%20on%20ASEAN%20Trade%20in%20Goods%20Agreement%20%28ATIGA%29.pdf

Option No.1: Continue as it is

These seem to be teething problems in the implementation of ATIGA. Exporters facing problems with the self-certification need to continue sorting out the problems themselves with their counterparts at the importing countries.

Option No. 2: MITI monitoring and capturing the on-the-ground issues and ironed them out at the ASEAN level

As MITI is the trade facilitation body for the country the onus will be MITI to capture the issues experienced by Malaysian companies on the ground and iron them out with the ASEAN partners in trade. This will resolve systemic problems for the relatively young scheme. To improve the situation, some formal mechanism is needed for exporters, perhaps through their associations (e.g. FMM) to monitor and capture these issues for MITI to act upon.

Option No. 3: ASEAN Customs Code of Conduct.

This facility, first established in 1983 and then revised in 1995 and later incorporated into the ASEAN Agreement on Customs by the First ASEAN Finance Ministers’ Meeting held on 1 March 1997. The institutional framework has been set up to deal with cooperation activities. For example, there is the ASEAN Directors-General of Customs forum that oversees all customs cooperation activities in ASEAN and is held

128 annually. There is also the ASEAN Secretariat that provides the necessary support for supervising, coordinating and reviewing the implementation of the cooperation activities. Problems arising from the self-certification scheme can be sorted out through this mechanism. The issue is whether there is a local monitoring mechanism for monitoring and capturing on-the-ground issues for such facilitation to work!

Recommendation

This study recommends Option No. 2: MITI monitoring and capturing the on-the- ground issues and ironing them out at the ASEAN level, i.e. industry through the business associations should provide evidence-based feedback to MITI so that issues can be ironed out through trade facilitation initiatives.

Issue No. 5: Inadequate consultation and short notification on new ruling

Permits Issuing Agencies (PIA) and Inspection Authorities frequently impose new rules with inadequate consultation and/or giving short notice businesses resulting in insufficient time to meet compliance. For import trade, transactions and shipping may take place months in advance, so when short notice of regulatory changes is given, imports transacted earlier may already arrive at the port which are not in compliance with the new ruling. MAQIS is cited as an authority that introduced a new rule for the import of processed leather which resulted in a company (previously compliance) leather import being fined for non-compliance.

This also include the issue of exports permits required by MAQIS. Shippers also questioned why do MAQIS requires export permits when the importing countries do not. However, respondents are unable to provide specific cases when these occurred.

This issue demonstrates the inconsistency in enforcement or administration of regulation even though the written regulation is clear. At times during the initial stage of preparing import documentation, the particular administrative official may be lax on the requirements. Some months later when the goods arrived at the port for clearance, a different and more diligent officer may be enforcing the full requirement for the imported goods. At other times, importers may experience lax enforcement over time until the day the regular officer is transferred or retired. The replacement may be a more diligent officer who will enforce what is correct but is then viewed as new requirement by the importers.

Option No. 1: Continue with existing situation

This occurrence may be a one-off occurrence or experience infrequently. Such experience is costly and frustrating to the importers. As such, enforcement agency ought to have some sort of “recovery” SOP to cater for such infrequent occurrences.

Option No. 2: Clear and transparent administrative guideline and SOP

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Having a good SOP in place in the management system can provide greater assurance in practice consistency, particularly with a certified ISO 9000 Quality Management System (QMS), which many agencies have in place. This has to be complemented with an easy-to-read and transparent guideline for the importers and exporters. These guidance must be made transparent to the users, both enforcement officers and business. The importance of a certified system ensures that the practices are periodically audited to ensure consistency over time.

Recommendation

This study recommends Option No. 2: Clear and transparent administrative guideline and SOP, i.e. all PIAs must ensure that their enforcement activities are consistently implemented and their processes are transparent to the business.

Issues from freight forwarders

Freight forwarders are firm specializing in arranging storage and shipping of merchandise on behalf of its shippers. It usually provides a full range of services including: tracking inland transportation, preparation of shipping and export documents, warehousing, booking cargo space, negotiating freight charges, freight consolidation, cargo insurance, and filing of insurance claims. Freight forwarders usually ship under their own bills of lading or air waybills (called house bill of lading or house air waybill) and their agents or associates at the destination (overseas freight forwarders) provide document delivery, deconsolidation, and freight collection services.96 Freight forwarders are particularly concerned with any hindrances to cross- border trade. They manage most of the logistics chain and have to deal with different businesses, intermediaries and authorities and the issues they raise appear to be interrelated to those raised by others.

Issue No. 6: Customs Brokerage Licence (CBL)

Freight forwarders cannot obtain a CBL unless the company has a 51% Bumiputera equity as required under Customs Orders No. 45 (Perintah Tetap Kastam – PTK),97 issued on 1 July 2014 to all Directors of State Customs. Forwarders without this facility are not able to carry out transactions with Customers such as clearance of goods. Hence, logistics entrepreneurs create low capital brokerage enterprises (shell

96 Freight forwarders definition: http://www.businessdictionary.com/definition/freight-forwarder.html 97 Customs-Private Sector Consultative Panel Meeting: MINIT MESYUARAT PANEL PERUNDINGAN KASTAM- SWASTA BIL.2/2014 130 companies98) with 51% Bumiputera equity to address this requirement. This is another example of how policy requirement when built into regulatory instrument results fragmentation the logistics chain.

The Customs-Private Sector Consultative Panel Meeting99 No. 2/2014 was informed that a study on withdrawal of CBL and the 51 percent equity issue is being conducted by the Ministry of Finance (MOF), Customs and the Bumiputera Development Agenda Unit (TERAJU). Forwarders are concerned that convoluted regulation to achieve Bumiputera participation in the logistics economy results in rent-seeking, reduces logistics efficiency and slows productivity and growth in the economy. This policy is also in conflict with the new policy of allowing up to 70% equity participation (ASEAN)100 in logistics (see Box 6.3). This issue has been discussed in TERAJU101 (http://www.teraju.gov.my/) but, so far, no decision has been made.

Box 6.3: ASEAN Economic community Blueprint 2008 According to Part A2. Free flow of services, Section 20 Free flow of trade in services is one of the important elements in realising ASEAN Economic Community, where there will be substantially no restriction to ASEAN services suppliers in providing services and in establishing companies across national borders within the region, subject to domestic regulations. Liberalisation of services has been carried out through rounds of negotiation mainly under the Coordinating Committee on Services. Negotiation of some specific services sectors such as financial services and air transport are carried out by their respective Ministerial bodies. In liberalising services, there should be no back-loading of commitments, and pre-agreed flexibility shall be accorded to all ASEAN Member Countries. And Section 21 part v.: In facilitating the free flow of services by 2015, ASEAN is also working towards recognition of professional qualifications with a view to facilitate their movement within the region. Schedule packages of commitments for every round according to the following parameters:

98 A shell corporation is a company which serves as a vehicle for business transactions without itself having any significant assets or operations. https://en.wikipedia.org/wiki/Shell_corporation 99 Note: Consultative Panels in each Ministry/Department/Office at Federal State and district levels are established for facilitating public-private sector cooperation and consultation under the Malaysia Incorporated Concept. (see: International Trade Centre, “Public-private sector collaboration for improving the business environment in Malaysia”; http://www.intracen.org/uploadedFiles/intracenorg/Content/Trade_Support_Institutions/Business_voice_in_p olicy_making/How_to_influence_trade_negotiations/Public_private_sector_collaboration_business_environm ent_Malaysia.pdf ) 100 ASEAN (2008), ASEAN Economic Community Blueprint, ASEAN Secretariat, Jakarta 101 TERAJU (Unit Peneraju Agenda Bumiputera) was established as a strategic unit in the Prime Minister’s Department with the purpose of leading, driving and coordinating the Bumiputera agenda as part of the National Transformation Plan; www.teraju.gov.my/ 131

 No restrictions for Modes 1 and 2, with exceptions due to bona fide regulatory reasons (such as public safety) which are subject to agreement by all Member Countries on a case-by-case basis;  Allow for foreign (ASEAN) equity participation of not less than 51% by 2008, and 70% by 2010 for the 4 priority services sectors; not less than 49% by 2008, 51% by 2010, and 70% by 2013 for logistics services; and not less than 49% by 2008, 51% by 2010, and 70% by 2015 for other services sectors; and  Progressively remove other Mode 3 market access limitations by 2015; Source: ASEAN Economic Community Blueprint 2008

Option No. 1: To continue with the existing policy

The forwarding industry players have been able to overcome this policy restriction by creating a separate business entities (shell companies) with Bumiputera participation which is in meeting with the policy intention.

Option No. 2: Change the requirement to individual licence holder on quota basis

Instead of business equity as the criterion, licence may be considered for individuals instead, as a quota basis be considered. In this way, forwarding firms who do not meet the existing equity criterion can always engage/employed Bumiputera licence holders to perform the function.

Option No. 3: Remove this policy requirement and/or change the equity criterion to ASEAN agreement

Obviously, the criterion is the result of regulatory capture by some influential parties. The policy authority should consider a post-RIA evaluation on this requirement to evaluate the policy intention. Since this requirement has been enforced for a number of years, the post-RIA will enable a more sensible policy decision for the logistics economy.

Recommendation

This study recommends Option No. 3: Remove this policy requirement and/or change the equity criterion to ASEAN agreement, i.e. policy maker should review the existing equity requirements through the post-RIA process to see if policy objective is achieved.

Issue No 7: Customs operations and enforcement

As the main “gate-keeper” of the flow of goods into and out of Malaysia, Customs is having the most impact on the cost of doing business across borders. Forwarders

132 frequently experience difficulty with Customs clearance and these can be summarised into four key issues:

1) New Customs Orders are issued without prior consultation with forwarders and as a result they are caught by surprises when they want to clear their containers. One major incident was when Customs suddenly imposing 100% inspection on K3-cargoes which normally do not require this. Forwarders are caught by surprise and the result is huge delays and held-up of containers at the port. 2) Forwarders also experienced changes in Customs procedures aimed at improving Customs processing that have not been discussed with forwarders before implementation. As a result, they are caught by surprise, particularly on new requirements, when clearing their goods. This results in confusion and delays particularly when other documents are required. 3) At times, there are cases of existing Customs Orders being interpreted differently or inconsistently, especially when new officers man the post, or different clearance practices are performed at different ports. These seems to be a common inconsistency cited by forwarders. 4) Introducing additional exit-inspections (at the gate) for cargo that has been cleared (ostensibly to catch hanky-panky practices at clearance). These surprise checks tend to result in serious delays and congestions. Forwarders consider that initiatives to improve internal operations should not cause delays in goods clearance. The intention of Customs is to catch a few bad hats but the negative impacts affect the majority of genuine businesses. Option No. 1: Continue with existing practices

There will always be new Customs orders and changes made in Customs procedures over time. Businesses have to bear with such dynamic changes and adjust their activities accordingly.

Option No 2: Multi-initiatives to mitigate teething issues

With new orders and changes in procedures or requirements, Customs might take these sample actions to mitigate potential confusion, unpleasant surprises and other teething issues:

a) Making any change transparent with extensive communication through different channels - web-sites announcements, dialogues and briefings, memorandum to trade associations, notifications and circulars, media announcements, etc. FAQ should be published to address common concerns. b) Systematic introduction of any changes through pilot testing, special initial hands-on assistance, use of help-desk, and even training of uses. The degree of preparation will depend on the complexity of the change requirement.

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c) Adequate training of operating officers and anticipating potential issues that may arise to facilitate on-site decision-making. Internal training should include simulation exercises and role plays on the changes to address potential issues. d) Transparent and clear guidelines for both operating officers and users should be developed and tested first through internal stakeholders’ consultation and then external stakeholders consultation will help anticipate issues from different perspectives. e) As for surprise checks (additional exits inspections), random checks would be an option to considered instead of 100% checks which tend to affect the majority of complying operators. f) Another option is to use risk-based approach to target the suspected parties. However, risk-based approach requires extensive analysis to establish patterns of behaviour of firms and profile them. Unless there is already such an analytic system in operation, risk-based decision will be difficult to implement. The key point of Option no. 2 is thorough preparation for the introduction of any change or requirements.

Recommendation

This study recommends Option No 2: Multi-initiatives to mitigate teething issues, i.e. Customs to ensure that adequate consultation and communication of new administrative initiatives are made to mitigate teething problems.

Issue No. 8: Inspection Agencies (Other Government Agencies, OGA)

Inspections of cargo before clearance is another serious interruption to the smooth flow of logistics. Unlike Customs which is permanently located at the ports, OGAs have their own work schedules and cannot coordinate inspection for Customs clearance. This results in double handling and delays. The forwarders consider that MAQIS should function as the one-stop agency to coordinate all inspection activities to coordinate inspections and clearance. However, it is a misperception that MAQIS is a one-stop agency. Its function is quarantine and inspection services for agriculture products102. However, MAQIS should be able to assist in coordinating agencies involving agriculture products as part of the quarantine activity.

Option No. 1: No action on existing practices

Generally, once a firm is familiar with the practices of these inspectorates, and have established working relationships with them, it will be able to pre-plan for the inspections as shippers will have information on the arrival of the goods. Should there

102 Malaysian Quarantine and Inspection Services; http://www.maqis.gov.my/en/profile 134 be multiple inspections by different inspectorates, the scheduling can get a little complicated and may not be optimum.

Option no. 2: Clearance-first-and-inspection-later

Inspectorates could consider the approach of clearance-first-and-inspection-later to allow for speedy clearance of goods from the port thereby enabling smooth uninterrupted flow of goods. These goods is then quarantined (security tagged to prevent unauthorised use) at an intermediate warehouse or the company’s warehouse where then schedule inspections can be made.

Option No. 3: Risk-based approach to inspection

There will be many companies importing the same types of goods again and again. A Pareto analysis will be able to identify the regulars for the non-regulars. Inspectorates should capture the behaviour profile of these companies for risk-based approach to inspection thereby reducing their workload. For low risk firms, random inspections and lower frequency may be used while the high risk companies may is subjected to frequent inspections.

Option No. 4: Permanent office at goods clearance (port)

For those agencies that depend on inspection revenue and have inspection economy of scale should consider a permanent inspection officer at the goods clearance operation. What is needed is one such agency who can then be given the responsibility to coordinate the other inspectorates’ activities, for a fee.

Recommendation

This study recommends Option No. 3: Risk-based approach to inspection, where inspections are carried out proportionately, i.e. clearance risks are evaluated on data of past performance of firms. All OGAs should adopt a standardised risk-based approach for inspections and may even share databases for improved effectiveness.

Issue No. 9: Trucking and haulage activities

Many forwarders have their own delivery trucks and also provide haulage services. On these, forwarders raised issues relating to licensing and regulatory hindrances to improving trucking productivity as they are also involved in goods delivery and haulage activities. These hindrances are said to slow down expansion and the adoption of new trucking technology by the haulage industry. Three key issues are of concern with forwarders.

1) Forwarders have experienced difficulty in obtaining new licences for trucks. The authority often rejects applications which do not include Bumiputera participation, which according to forwarders is not a regulatory requirement.

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They claimed that applications could be approved when they employed “errand runners who know their way around” the authorities. 2) Currently a trucking licence is issued for a single-type haulage operation, e.g., prime-movers for containers haulage, prime movers for open trailers, etc. This means a prime-mover for containers cannot haul other types of trailers and vice versa. This inflexible licensing prevents the efficient utilisation of prime-movers. 3) Empty containers are light-weight and can be carried by other 7-ton trucks, but this is currently illegal because of the single-type haulage licensing. This means that truckers have to use expensive, heavy-duty prime-movers to haul empty containers.

Option no. 1: Continue as it is

Forwarders will have to bear with the idiosyncrasies of licensing officers and find their way around them as they are doing using errand runners. Sometimes licensing officers are themselves confused with unclear policies decisions handled down and therefore have to make their own judgement. It is always the case of be-safe-then-sorry-later decision-making.

As for changing the single-type haulage operation, this may result in more efficient use of prime movers for forwarders, but this will be in conflict with the operations of containers haulage operators. The same will apply for the hauling of empty containers, which will of course benefits the forwarders as they can then utilise their unused trucking capacity. It will be difficult to mitigate such conflict of interest.

Option No. 2: Having transparent policy with clear working guidelines

As with many regulatory and policy enforcement, clear and transparent policy guidelines are necessary to ensure efficient and effective administration of regulation. With good administrative instruments, many of the idiosyncrasies including hanky- panky practices at the workplace can be avoided.

Recommendation

This study recommends Option no. 2: Having transparent policy with clear working guidelines, i.e. to ensure that regulatory operations are carried out consistently and transparently.

Issues from containers hauliers

Containers hauliers face a lot of capacity problems as a result of regulatory hindrances to capacity utilisation, downtime due to regulatory restrictions and compliance, and regulatory constraints to capacity expansion.

Issue No. 10: Shortage of heavy vehicle drivers

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The containers hauliers association claimed that most of its members have a serious shortage of drivers by up to 30%. The reason being that it is difficult to qualify for the E-class heavy vehicle competency licence.

The current requirements require new drivers to obtain the D-class licence and have a two-year driving experience in this class before they can proceed to the provisional E- class licence and with further two-year driving experience before eligibility for the full E-class licence. This process of getting the E-class licence is expensive as the training cost is high. It is claimed that this also discourages new entrants (school leavers) to the profession. The hauliers claimed that such a qualifying process is unnecessary because new heavy vehicle drivers can be trained in six months to achieve adequate proficiency. In a sense, the authority has not kept up with human resource development and review existing rules and regulations to keep up with technology.

Option No. 1: Continue as it is

Haulage will have to do their best to develop their requirements for E-class drivers. To do so will incur inefficiency into the logistics chain and containers haulage is a key activity for moving many types of goods. Shortage of drivers will cause delays in delivery and eventually increase the cost of logistics.

Option no. 2: Use of foreign drivers

Authorities may consider allowing foreign (E-class qualified) heavy vehicle drivers to be recruited for the industry. This will require the review of existing regulation to recognised foreign trained heavy vehicle vocational qualification. There will be negative outcomes to this as the country is already flooded with foreign workers in many sectors. Already there are too many locally trained foreign workers working in the logistics industry.

Option No. 3: Review the existing format for vocational licensing

It would be a good time for the authorities to review the existing vocational training and qualifying schemes and the regulatory regimes of heavy vehicle drivers and other types of commercial vehicle drivers. A taskforce represented by various agencies such as JPJ, SPAD, Police, MIROS, etc. together with private sector representations may be formed to study this issue. MOT may provide the leadership for this initiative. Alternatively, a taskforce under the NLT may be mandated to take up this issue.

Recommendation

This study recommends Option No. 3: Review the existing format for vocational licensing, i.e. to ensure that current regulatory regimes are meeting market expectations and in keeping with technological changes in the industry.

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Issue No. 11: Road-ban

Hauliers claim that there is inadequate public consultation on road-bans and they are imposed with very short notice. Road-bans are imposed on heavy vehicles at certain highways during “rush” hours. The authority usually only seeks the views of the association after decisions have been made and action taken. So AMH feels that their views were not being seriously considered and no impact studies are carried out to inform such decisions.

The import-export trade at Port Klang operates 24/7 so having a three hour road ban is equivalent to shutting down haulage activity in the logistics chain for three hours. This reduces haulage capacity and increases congestion, delays and the costs of operation. The FMM also is also concerned about road bans during festive seasons and school holidays as they interfere with transportation of manufactured products including the distribution of goods to retailers in the cities. According to FMM, Malaysian roads are always congested during these times and road bans make little difference (see Box 6.4).

Box 6.4: FMM feedback on road bans

Road Ban for Lorries and Heavy Vehicle during Festive Seasons (Hari Raya & Chinese New Year)  There are grey areas in the type of vehicles being exempted from the ruling. There is no general clause to allow vehicles that are not listed in any of the category to move during the period. Manufacturers from various sectors are in dilemma if they can move during the period every year.  Different interpretations of the enforcement officer at roadblocks i.e. there were complaints from members when JPJ officer refused to accept tissue as sundry items, and refused to accept mineral water as beverages as listed in category 4 of exempted sundry items and beverages. This provided excuse for drivers to demand for petty cash to pay for summons. Suggestion given by FMM: JPJ to re-evaluate whether it is relevant as it is only applicable on Hari Raya and Chinese New Year to reduce road accidents during “balik kampung” rush. Looking at the current trend, highways, states road, etc. are always congested during every extended holidays, school holidays or any combined public holidays – not necessary Hari Raya and Chinese New Year. Ban should be imposed on major highways only. Vehicles should still be allowed to operate on old roads. There should be better definition of exempted products i.e. beverages, sundry items. Source: FMM written input

Road restriction is a common practice in many countries as many roads and bridges are designed to cater for limited load. Roads upgrading is a difficult and slow process

138 so restrictions on road use is necessary to reduce damage to roads by heavy commercial vehicles (see Box: 6.5).

Another area of concern is on the road restriction for heavy vehicles. According to FMM, the Minister of Works (MOW) in 2008 announced that all lorry could carry the 20% extra load on Federal roads. However, the ruling was not applicable to state roads in Peninsular Malaysia and Sabah and Sarawak as the states were not confident that their bridges would be able to withstand the extra load. Due to this anomaly, lorry and tankers would be considered overloaded when they ply state roads and would be penalised. In many areas maximum load bearing for roads and bridges are indicated on road signs which truckers should comply with.

On July 4, 2013, the MOW advised that MOW and JPJ would identify roads and bridges that could withstand the extra 20% load in order to advise businesses to reschedule transportation of their goods along these approved roads. The Secretariat of the FMM logistics unit has written to MOW on August 23, 2013 to obtain the list of the approved roads but as yet to receive a response on this at the time of reporting.

Box 6.5: Weight Restriction Order in Malaysia Restriction Order published by MIROS  Weight restriction order is necessary to help protect road from damage that can cause untimely and expensive delays for road user who rely on the road network. Weight restrictions also help to avoid higher road maintenance costs as well as vehicle wear and tear. In addition, the restriction also restricts access for heavy vehicle from unsuitable area for it size such as narrow village roads, bridges or the place may pose danger to pedestrian.  In Malaysia, all vehicle design and construction must comply with the Malaysia Weight Restrictions (Federal Roads) (Amendment) Order 2003. The entire vehicle must comply the maximum axle rating stated in that order. In Malaysia for the bus construction, the manufacturer usually used a two or three axle’s configuration, which stated that the maximum permissible load for each axle is 18 and 25 tonnes respectively. However, the load is depending on dimension of wheelbase and axle spread. The maximum load for each vehicle is different for Peninsular and East (Sabah and Sarawak) Malaysia. Generally, the maximum permissible load in Sabah and Sarawak is less due to the condition of the roads. Weight Restriction Orders are enforced across the county by the Road Transport Department (JPJ) and the Royal Malaysia Police (PDRM).  In addition, in Road Transport Act 1997, Section 86: Restriction of vehicles on the bridges stated that vehicle used bridge could not exceed the permissible load specified in regulation based on their construction. Furthermore, the need of conspicuous notice at each end of the bridge also stated in the act and the notice should reflect the allowable weight and the speed limit. Source: MIROS: http://www.miros.gov.my/1/publications.php?id event=88&idxs page=23

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According to the Malaysian Highway Authority, road bans for heavy vehicles in highways are necessary during the morning peak hours when the working population are rushing to get to their work in order to reduce traffic congestion and ensure smoother traffic flow in certain stretches of roads. It considers more than 250,000 vehicles head towards Kuala Lumpur during morning rush hours. The affected areas are the New Klang Valley Expressway (NKVE) between Shah Alam and Jalan Duta (from Km9.3 to Km31), North-South Expressway (NSE) between Sungai Buloh and Bukit Lanjan (Km456.05 to Km459.32) and Federal Highway Route 2 between Subang and Sungai Rasau (Km5.6 to Km19.2)

The authority claimed that at least five heavy vehicles break down in the affected areas each day and are three times more likely to break down in traffic jams which further exacerbates the traffic jams. Heavy vehicles are classified under the Class 2 and Class 3 categories and weigh 10,000kg and above whether laden or unladen. These comprise tipper lorries, six-wheelers and trailers. Accidents involving heavy vehicles can delay other motorists as removing the vehicle, and its load, requires heavy machinery.

The authority took a year to study alternative routes for heavy vehicles going to Port Klang and has identified two routes for their use. The alternative routes would not incur extra costs to the operators as they are parallel routes which are less congested. Heavy vehicle drivers have been advised to make use of the parking facilities provided at rest and service areas on the highways during the restricted period. Before implementing the order, the authority has consulted with the Association of Malaysian Hauliers and Pan Malaysia Lorry Owners’ Association’s opinions on the ban.103

The FMM representing the manufacturing industry is positive on this initiative as it perceives little impact on lorry transport for alternative routes are available. It also views that getting stuck in traffic jams would increase fuel cost. On the other hand, the Pan Malaysia Lorry Drives Association is unhappy with the road ban it sees the banning as unfair (insisting that truckers also pay highway tolls) and consider this a major hassle to the drivers, particularly if they have to apply for special permits to use the highway.

Road bans are viewed as necessary evil by truckers and hauliers. Authorities need to look at the balance between the needs of logistics and the working population. Although the existing regulation allows for road bans, continued monitoring and consultation with stakeholders should mitigate any unhappiness by the parties affected. At the moment, there is no objective monitoring and information on the outcomes of road bans initiatives.

103 Malaysia Heavy Construction Equipment Owners' Association, The Star Report 4/8/2010; http://pajpbm.com/ban-on-heavy-vehicles-during-peak-hours.html 140

Option No. 1: Continue the current practice

Although there are dissatisfaction by certain parties, the practice is for the best of all road users, particularly road ban for heavy vehicles during the rush hours. Truckers can reschedule their deliveries as they would also not want waste their time in traffic snares. Also, the authorities have made efforts to identify alternative routes heavy vehicles can use during the banned hours. Most importantly, the authorities have made efforts to consult with affected stakeholders and taken their views into consideration before implementing any actions.

Recommendation

This study recommends the only Option No. 1: Continue the current practice, as current interventions are in tune with good regulatory practice and proper stakeholders’ consultation.

Issue No. 12: Application for renewal of business licence

The industry has to comply with a number of local regulations that reduce the ease of doing business in the locality:

1) Renewal of business licence (yearly): The industry feels that it is unnecessarily burdensome to renew business licences each year as it involves submitting documents every year. The licensing authority demands the same information and documentation for every renewal. 2) Approval for open space for parking: Hauliers need large open spaces to park/store their heavy vehicles and trainers. They find that the need of getting “development orders” to develop open parking space is expensive as it is costly to do planning submission. Option No. 1: Continue as it is

This is a common practice for most local authorities and the issue raised seems to be also a common complaint. Local authorities ought to continue the practice if requiring the same documentation for every renewal serves some important objective. Collecting a lot of application documents will mean increase filling and records management work of the authority and this should be considered unnecessary burden on regulatory implementation.

Option No. 2: Use IT for application submission for licence renewal

This will reduce the amount of physical documents to be handled and will possibly reduce document administration for both applicants and authority. With the use of IT, it will eventually evolve towards the use of online application. However, large amount of documentations may reduce the efficiency of IT systems and system reliability will be an important consideration. Once IT or online systems become a norm, any

141 breakdowns will cause stoppage of renewal process and inconvenience the businesses involved.

Option No. 3: Lengthen the licensing period

Licensing also contributes to the revenue of local authorities. However, the authorities can always consider allowing for multi-years licensing. The Company Commission Malaysia, for example, allows sole proprietorship registration for up to five years. Most firms are unlikely to change their business or operations over short period and it should not be necessary to demand for corporate information yearly. The licence can always specify the condition that the licensee need to re-submit new documentations should there be any major change in the firm’s business.

Recommendation

This study recommends Option No. 3: Lengthen the licensing period, i.e. business can renew their licences for longer periods, such as 3 or 5 years.

Issue No. 13: Approval for (purchase of) new vehicles

Regulatory requirements hamper business expansion as the approval for new vehicles is burdensome and takes too long. The hauliers claimed that approval may take three to six months and approvals are required different authorities e.g. SPAD, Local Authority. The lengthy approval means that hauliers cannot effectively respond to business opportunities speedily. Delays occurs when the processes are lengthy and involves a number of units within an agency and further exacerbated when more than one agency is involved.

Option No. 1: Continue as it is

Continue with the existing regulatory regime but continually improve the operating process as the example described above. However, the improvement has to be carried out continually, which means that there must be some sort of feedback monitoring of existing processes in order that new initiative can be activated. The improvement initiative above is ad-hoc or one-off and would not be adequate for dynamic change in the business environment.

Option No. 2: Carry out one-off programmed improvement on the processes

The trade association can monitor the situation and with evidence submit proposal to the appropriate committee to review and improve application process. The NLT is the appropriate body to raise this issue. The appropriate taskforce of working group would then be able to take up the assignment.

As an example on this, an improvement initiative under the Malaysian Logistics and Supply Chain Council was carried out in 2011 to tackle the issue of long delays in

142 vehicle licensing. In that initiative, the Malaysian Productivity Council (MPC) engaged SPAD, JPJ, PUSPAKOM, local authorities, Association of Haulage Malaysia and logistics companies to formulate possible solutions to resolve the issues (see Box 6.6 on Case Study).

As can be seen from Box 6.6, applicants have to deal with at least six different parties – government agencies, government intermediaries and private businesses to get licensing application approved. To complicate matters, there are different departments to deal with within one agency. For example, applicants have to deal with three different departments within JPJ itself. Even though regulators may have agreement, at the organisational level, over objectives, these may not be adequately implemented operationally, such as where departmental “silos” becomes barriers to decision making. Beyond this, even when individual agencies have achieved consistency, inadequate interfacing between regulatory agencies will impose burdens on the applicants.

The case study illustrates the key issues as poor coordination and communication impacts on the time between regulatory changes and regulatory implementation. An option to overcome such issues is to have a specially set-up taskforce under the Logistics Council given the responsibility to bridge the time gap between regulatory decision and implementation. The case study illustrates one way that this could be achieved. A taskforce would be able to engage the affected operating units together to formulate the implementation requirements thereby reducing the burdens to businesses. However, such arrangements may only be appropriate for resolving significant issues and may not be effective for regular changes.

Box 6.6: Case study of improvement initiative on vehicle licensing To carry out the improvement initiative, the MPC engaged with the local authorities of Klang, Sepang and Kuching to identify the possible causes of the long application process and together worked with the licensing authorities SPAD and JPJ (BKA) to understand the causes of delay for approvals. The figure below summarises the existing complicated process for vehicle licensing.

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In summary, there is lack of coordination between regulators/government agencies in the licensing process and this led to communication breakdowns resulting in confusions to businesses on the application requirements. Recommendations include:  Streamlining the process and guidelines with local authorities.  Providing a standard operating process to get the permit. The SOP is to be published in the website of all related agencies.  Communicating the ease of application for permits and discouraging the use of errand runners.  Advising applicants on the alternatives available on parking approvals  Publishing guidelines on getting approvals and having special meetings to resolve issues.  Sharing information between local authorities through intranet links.  Providing a standard guideline for approving vehicle technical plan by JPJ and updating the requirements as necessary. Source: MPC RURB Report on Vehicle Licensing 2013 (unpublished)

Option No. 3: A “one-stop centre” for application for new vehicles

Another alternative is to establish a “one-stop centre” for vehicle licensing. Business applicants should be able to work with “one-Government” instead of dealing with multiple disparate regulators and agencies. There are already one-stop centres established for other types of regulatory regimes such as in “dealing with construction permits” in some local authorities. Ultimately, the most efficient option to deal with this is likely to be a “single-window” application, where vehicle licensing can be done online anywhere and at any time. Again, there are good examples of single-window online applications for many government services.

Another consideration of importance is the effect of changes that may take place over time. Changes in operating objectives, personnel, procedures, information

144 requirements, decision-making, and so forth will affect interface agreements. When changes occur, new interface agreements must be re-established if the requirements are affected. Sometimes changes are made and agreed upon at the organisational levels between agencies but system changes at the operating levels may take time. For example, the head office at Customs may have decided on a change and send a circular to operations across the country to implement the new requirements with immediate effect. However, operating systems at the service interface may not have changed to meet the new requirements, resulting in unnecessary burdens to businesses. With the establishment of the one-stop centre, changes can be better facilitated, thereby mitigating future burdens on businesses.

Recommendation

This study recommends Option No. 2: Carry out one-off programmed improvement on the processes, i.e. to continue with the improvement initiative until industry expectations are met. NLT can mandate MPC to carry out such improvement initiatives.

Issue No. 14: Safety inspections of prime-movers and trailers

Vehicles have to be inspected every six months for safety and emission compliance. Hauliers claimed that they have to deal with different inspectorates to get their vehicles approved for use. The main authorities are PUSPAKOM, Environmental agency, local authority, and DOSH.

The number of inspections results in serious downtime for hauliers. AMH feels that a one-stop inspection by PUSPAKOM would be adequate as it is capable of doing all types inspections and this should be sufficient without the duplications from other regulators. AMH estimated that there are 7000 prime movers and seven times the number of trailers currently and these have to be inspected by PUSPAKOM. The trailers have to be pulled by the prime movers to get to the inspection site at Shah Alam (about 20 km from the depot). This contributes to significant downtime for the hauliers and high costs in fuel and drivers and create congestion on the road. AMH has suggested that the inspection facility be located at the port areas as there are sufficient number of vehicles and trailers to have economy of scale.

FMM also raised the issue on PUSPAKOM inspection of older commercial vehicles. PUSPAKOM continues to be a monopolistic intermediary of the Government and businesses continue to see inefficiency in the inspection services. FMM has suggested that the Government review the policy on the use of “too-old” vehicles or liberalise the vehicle inspection activities to encourage competition for greater efficiency. This seemingly makes sense as the Government ought to review such monopolistic practice before enforcing anti competition regulation on businesses.

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Option No. 1: Continue as it is

It will be difficult to change a well-established business model of this sort without significant impact and opposition. Even it is a monopolistic model, the Government has the necessary regulatory controls that monopolistic tendency does not occur. Companies experiencing problems should continuously give feedback to the authority so that any irregularity can be “nipped in the bud”.

It is true that there are many prime movers and trailers have to be sent all the way from Port Klang (where most of the companies are located) to Shah Alam for the half-yearly inspection. To suggest that a special inspection centre be set up at Port Klang may not be a feasible solution to PUSPAKOM.

Option No. 2: Setting up a PUSPAKOM branch at Port Klang

PUSPAKOM can do a feasibility study on such a potential and consider the viability of setting up an inspection centre at Port Klang, or somewhere more convenient that traffic flow is not such a hassle as that in Shah Alam.

Option No. 3: Increasing the duration between inspections

PUSPAKOM is only an intermediary to the Road Transport Department (RTD). It will be the onus of the RTD to review this possibility and implement it. RTD may (using appropriate statistical or risk-based analysis) to classify vehicles according to, say, age. The newer vehicles may be given longer period between inspections, for example, yearly instead of half yearly. This will substantially reduce the number of prime movers and trailers for inspection and will also encourage companies to maintain newer vehicles in their fleet.

Recommendation

This study recommends Option No. 3: Increasing the duration between inspections, i.e. to consider risk-based approach thereby increasing the duration between inspections for lower-risk vehicles. RTD should take up the initiative to look into this option.

Issue No. 15: Unregulated off-dock containers depot

AMH feels that these unregulated off-dock depots are imposing all kinds of charges on truckers and also creates delays that resulted in truckers being unable to achieve the number of trips made per day. As truckers earning is dependent on delivery trips made, this means lost earnings for them. A trucker strike happen a few years back because of this and trade was badly affected (also the image of the country logistics services). This issue was debated a number of years ago. AMH stated that the MOT has decided that SPAD become the principle regulator for the depot business, but the necessary

146 regulation will need to be formulated and passed in Parliament and this is taking a long time.

SPAD has been given mandate and capacity to ensure orderly development and regulation of off-dock depots through licensing and standard guidelines. A centralised container management system will be established to enhance the efficiency of cargo operations.104 An organised off-dock depot management will help to decongest the ports and deliver efficient cargo operations at competitive cost. In addition, SPAD will also undertake a study to map the origin-destination flow matrix by commodity for road freight.

However, since the initiative has been taken by MOT by appointing SPAD to come up with the appropriate regulation to address the issue, no option will be suggested here.

It should be noted here that imposition of a new regulation should be a last resort for resolving business issues. The decision is to look into the effectiveness of the existing regulation and improving on it if necessary. Then only should a new regulation be considered with adequate impact analysis. Introducing another regulation and another regulator will only compound the problem.

Recommendation

This study is not providing any option as the issue is being reviewed by SPAD.

Issue No. 16: Dealing with Permit Issuing Agencies (PIA)

The FMM also raised the issue on dealing with PIAs. According to FMM, manufacturers have to deal with over 37 PIAs in Malaysia and they tend to face with problems of overlapping requirements in permits issuance. An example cited is on the MAQIS Act which is aimed at coordinating permit issuing bodies under one umbrella (one-stop centre) but this has led to even more difficulties as companies now need to apply for import and export permits for items which were previously not required.

Another issue is that MAQIS would not issue any permit without the submission of actual invoice from a company. The validity of each permit is short (for 30 days). FMM highlighted that company should be allowed to apply for advance permit with longer validity of 3 to 6 months. MAQIS should release all perishable items by requesting company to provide a bank guarantee if the company do not comply with any of their regulations.

104 Eleventh Malaysia Plan 14-12 Strategy Paper 14: Unleashing Growth of Logistics and Enhancing Trade Facilitation

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Option No. 1: Continue as it is

It is impossible to avoid the number of agencies businesses have to deal with because of the complexity of the national economy and institutional framework. No single agency has the capability to exercise all types of regulatory interventions for all types of products. What is important is that there are not overlaps and duplications of regulatory controls from the many regulators.

Option No. 2: Improving the efficiency of permits issuance or approvals

Permits issuance should not take days but be immediate and carried out online whenever feasible. Unless it is a new business application, there should not be any reservation on the permit issuing agencies to process permit applications immediately. If permits can be issued immediately upon application, few businesses will consider it burdensome when complying with any requirements made by any authorities.

Option No. 3: A one-stop centre for permits and approvals

It would be worthwhile to study the feasibility on a single business centre for imports and exports where key permits issuing agencies are physically housed. It can be expensive but such a centre would improve regulatory efficiency and significant reduce regulatory burdens on business.

Option No. 4: A single-window online operation

This is even a better solution to a one-stop centre for regulatory intervention. The power of modern ICT dictates that such solution should be considered for any information processing systems such as in regulatory permits and approvals. Isolate examples of such applications are already in existence for regulators to copy. The latest initiative, the U-Customs is said to be able to the single-window solution, but will only be pilot testing on a limited scope in 2016.

Recommendation

This study recommends Option No. 4: A single-window online operation. Hopefully, the new online application U-Customs which are in the process of development will match this option.

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Issues from Port Operator and Free Zone Operator

Ports and free zones businesses are complementary in nature. The development of free zones is to encourage foreign investment in the country by providing special provisions relating to tax exemptions at the zones. When more businesses are located at the free zone, increase transhipment activities will follow thereby increasing the ports activities.

Issue No. 17: Port Klang Free Zone operation

From the FMM, the understanding is that free zone is a geographic area where goods may be landed, handled, manufactured and re-exported without the intervention of the customs authorities. FMM is of the opinion that Customs meddles too much with companies’ operations in the FZ and causing more documentation on exporters for goods declarations. This increases the waiting time and cost before re-exportation of goods.

Although it is the role and responsibility of Customs to ensure compliance to Customs and FZ regulations, too much intervention on the part of Customs defeats the concept of FZ. Customs need to adopt risk-based practices for intervention to ensure unsavoury practices by recalcitrant businesses. Regular consultation with businesses on compliance issues would also mitigate non-compliance and unhappiness.

From the operator, Free Zone is defined by Customs and “land outside Malaysia” which means that business operations at FZ has exemption from certain regulatory requirements. In reality, this is not always so as many authorities impose similar requirements as those outside the zone. Two main regulators are cited to be have introduced “unreasonable” requirements - MITI and MAQIS.

1) MITI imposes the requirement of AP (in this case called Temporary Approved Permit, TAP, with specific condition of 30 days expiry) for vehicles (cars) brought through the FZ. Also TAP can only be obtained in one working week posing problems for vehicles imported from Thailand which only take 3 days to come in. This resulted in business being penalized when cars arrived earlier than the issuance of TAP. 2) MAQIS is cited as another agency that imposed many regulatory controls relating to agriculture produce and commodity, e.g. unprocessed cotton. MAQIS is said to be demanding that raw cotton at the FZ need to undergo expensive pesticide treatment for storage. 3) The recent imposition of GST continues to be a debatable issue for businesses in the Free Zone (FZ). Many requirements are said to be ambiguous and confusing to businesses in FZ. Customs officers at the sites are said to be unable to provide satisfactory answers to business queries. This is probably a temporary teething problem in the GST implementation and

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should resolve itself in due course. MOF and Customs are reported to be discussing this issue at the federal level (The Edge December 2015). Option No. 1: Continue as it is

Authorities will intervene and introduce more controls whenever they are deemed necessary. When MITI or MAQIS introduced new measures, they are because there are complaints arising from firms carrying out unscrupulous practices to avoid compliance with regulation, particularly in trying to evade Customs duties. For example, ATP is made a requirement because there are incidences of imported vehicles being sneaked out of free zones to evade Customs duties.

Option No. 2: Improving the efficiency of permits issuance

Recommendation

This study recommends Option No. 2: Improving the efficiency of permits issuance. Hopefully, the new online application U-Customs which are in the process of development will match this option.

Issue No. 18: Port Operator’s regulatory constraints to business expansion

The main concern of port operators at Port Klang is their ability to continue their business expansion by becoming the transhipment hub of the region. The location at Port Klang has certain strategic advantage in the region. The ports have modern facilities (although the containers is yet to be fully automated) and has synergistic relationships to the free zone which is able to provide storage space at competitive costs. However, the port operators felt that there are serious regulatory hindrances to bringing in new transhipment business into the country (see Box 6.7 on case issue).

Ports are important contribution to the country’s gross national income as it brings in a lot of foreign exchange revenue. Westports Holdings Bhd. for example, generated significant income through its container services. Westports is a major gateway for the country’s imports and exports for the main economic sectors e.g. the manufacturing, mining and agriculture sectors.

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Box 6.7: Case issue on the development of a cotton distribution hub One such case is on the regulatory constraints posed by the Department of Agriculture on cotton. a. According to the respondents, the International Cotton Exchange (ICE) wishes to make Port Klang Free Zone as its storage hub for cotton trade and distribution in the region because of the excellent port facilities and the cheaper storage facilities and the availability of free zone. However, the DOA wanted to impose a number of stringent requirements as cotton is deem a sensitive agriculture produce and imposing these requirements will incur significant delays, high handling costs at the port and other impractical documentation requirements, making the business non- viable. b. Accordingly, the cotton is to be landed at ports in Klang, temporary stored at the port until reshipment (short duration), or transported to PKFZ for longer storage until reshipment. DOA treats these as importation and wants to impose full regulatory controls as importation of cotton into the country for processing or consumption. c. As a result, this cotton hub is being moved to Taiwan, and the business is considering using Colombo port, which means that Malaysia will lose out this important transhipment trade. This business is estimated to be around RM200million, the expected spin-off businesses are projected to be much bigger as more ships will call at the port. d. The perspective of the respondents is that regulators has poor understanding of international trading practices for commodities. Ports operators are concerned that the authorities are not responding seriously to business concern on the issue. e. The respondents also are concerned with differences in views by different authorities. The example cited is that the regulator like DOA may say that something cannot be done while the enforcing agency MAQIS may say that it can be done creating confusion for businesses. f. Ports operators have approached MITI, MOA, MOT, DOA, and MAQIS on the issue and have gotten different kind of responses from these agencies. Source: MPC - Inputs from respondents

However, the imports and exports of goods have plateaued over the last few years and in some cases the contributions to the economy are on the decline. Services contributions on foreign exchange earnings has taken over since. In the case on Westports, the major services contribution to foreign exchange earnings comes from transhipment containers operation (see Box 6.8 on Westports Holdings Bhd. Performance).

For Westports to continue its growth in transhipment services, more international shipping lines has to call at Port Klang. The PKFZ provides the attraction for foreign businesses to locate their distribution hubs. However, the attraction will depend on the cost of doing business and the ease of doing business here. PKFZ is able to provide lower cost of doing business here as it has the advantage of large land area with competitive rental cost and the free zone is a customs-free area.

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Box 6.8: Case of Westports Holdings Bhd. Westports Holdings Bhd. Operational Performance

Westports in Port Klang is a major gateway for the country’s imports and exports of goods. It is also a major transhipment ports as over seventy percent of the containers operation is transhipment containers. The port’s revenue for containers operation grew 12.2% while other conventional cargoes grew by 8.7%. The total containers TEU over the period 2011 to 2014 grew by 10.3% with transhipment growing at 8.6% and imports-exports growing at 14.9%. In terms of containers handling capacity, as at the end of 2014 the capacity has increased to 11 million from 9.5 million TEUs per year. Source: http://ir.chartnexus.com/westportsholdings/docs/highlight/q4_2014.pdf

The definitions for imports and exports in Section 7 (a) and (b) of the Free Zone Act 1990 is restricted to the payment of customs duty, excise duty, sales tax or service tax as defined in Section 4 of the same Act. The general definitions of import is “to bring or cause to be brought into Malaysia by land, sea, inland waters or air…” and for export is “to take or cause to be taken out of Malaysia by land, sea, inland waters or air any plant, animal, carcass, fish, agricultural produce, soil, micro-organism, or food” as in the Malaysian Quarantine and Inspections Services Act 2011 (Act 728). This means that free zones are still subjected to other regulatory restrictions and requirements. Therefore, to bring into Malaysia any agricultural produce, processed or otherwise are subjected to Act 728.

According to Section 9 (h) of Act 728, the Director General of MAQIS is empowered to declare any premises a quarantine premise to any quarantine procedures. Whether such controlled area can be exempted from quarantine procedures are not clear.

In the case of establishing a cotton distribution hub at PKFZ, the requirements of Act 728 will definitely constrains the ease of doing business and thereby increases the cost of doing business. Here development objective of encouraging foreign direct investments, FDI and enhancing economic growth and regulatory intention environmental safety is in obvious conflict. The option is to look for a business solution through a regulatory impact analysis (RIA) for this specific case.

In general, regulators have low appetite for risks and the main risk concern is that the agency will not achieve its objectives. Risk-based regulation requires regulators to explicitly define their regulatory objectives, and to translate their statutory mandates

152 into operational objectives. Unfortunately, they tend to be driven by changes in the political and social context to address risks that they might otherwise have regarded as low priority. A regulator will not be pro-active in looking for a business solution. There must then be a third party framework to bring the two parties with the conflicting interest together for the RIA option to be effective.

Option No. 1: Continue as it is

Westports can continue to pursue the initiative to get foreign investment to relocate at Port Klang. It will be hard work and time consuming to achieve results and many opportunities will be lost because of policy delays.

Option No. 2: A special business development working group for Port Klang

A special working group may be formed involving the ports operators, Port Klang Authority, Free Zone Operator and Free Zone Authority, economic development agencies, such as MITI, MIDA, MATRADE, MOT among others, may be formed to facilitate business development at Port Klang. The same may be made for other major ports in the country. It is insufficient to formulate economic development blueprint and strategy without establishing the institutional framework and mechanism to implement them.

Recommendation

This study recommends Option No. 2: A special business development working group for Port Klang. Such a taskforce, perhaps under the purview of the National Logistics Taskforce, will be able to oversee the continuous growth of Port Klang in meeting with the national aspiration.

Issue No. 19: Verbal commitment by the authorities

Relating to the Issue No. 19, the port operator claims that it is difficult to obtain formal and documented commitment from the authorities. It is highlighted that authorities are generally reluctant to issue official document on specific ruling. For example, when businesses wanted to know, say whether corporate tax are imposed in the free zone, officials may verbally give the conditions of exemption but would not issue an official documented ruling. International business will only accept documented commitment if they are to do business in any country.

When dealing is that authorities, they tend to claim that regulatory guidelines are on their websites. This is frequently found to be untrue. Companies also feel that it is not reasonable for authorities to presume that rules and guidelines are deemed to have been communicated once they are published on the web. Communication has to be direct as businesses do not have the luxury of browsing web-sites regularly. Web information should be a reference only. It is deemed unreasonable when all information

153 are in Bahasa Malaysia when dealing in international trade. At least the English language should also be used.

Option No. 1: Continue as it is

As long as companies continue to give feedbacks to the authorities, improvement will continue to take place albeit slowly and incrementally. Authorities tend to move at snail pace from the business point of view, and therefore have to bear the burdens of inefficiency. It is difficult if not impossible for the operating official to issue documented commitment as they do not have such authority at their level. Any formal commitment must come from the top. Thus the port operator in this case get such written commitment from the top decision maker.

Option No. 2: Improve the websites and its use

Regulators has to make their websites as a mission-critical channel of communication for regulatory intervention. Their websites has to focus on assisting businesses in regulatory compliance. At the same time, it is important that companies start to use regulators web facilities at the means of business-regulator communication and information-sharing. In the not too distant future, online transaction will be the norm for regulatory compliance.

Recommendation

This study recommends Option No. 2: Improve the websites and its use, i.e. to ensure that information are easily accessible and transparent to business and potential investors.

Concluding remarks

It has to be noted here that the issues captured from the various businesses are not exhaustive. Only a sample of the companies involved are interviewed. The companies involved are key members of the various trade associations that arranged to meet with the study team. They nevertheless represents the major players in sea freight logistics.

This draft report treats these nineteen issues as common concerns among the logistics businesses in the freight logistics chain. These analyses will form the basis for further consultations with businesses, the regulators and other interested parties.

The options and recommendations are only feasible and potential solutions to the issues. To ensure the practicality of the recommended options, regulatory impact assessments with adequate cost-benefit analysis and public consultation must be carried out on each of them.

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APPENDIX

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ISSUE PAPER

Reducing Unnecessary Regulatory Burdens (RURB)

An Independent Review of Malaysian Logistics

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CONTENTS

FOREWORD FROM GOH SWEE SEANG ...... 158 INTRODUCTION ...... 159 ABOUT THIS ISSUES PAPER ...... 159 Who is this Issues Paper aimed at? ...... 159 Purpose of the Review ...... 159 Scope for the Review ...... 160 Duration on the Review ...... 160 HOW TO RESPOND ...... 160 Queries about this Issues Paper ...... 160 Confidentiality ...... 161 WHAT HAPPENS NEXT? ...... 161 Summary of the Review Process ...... 162 CONTEXT ...... 163 What is a Regulatory Burden on Business? ...... 163 Unnecessary Regulatory Burdens ...... 163 Regulation and Policy ...... 164 Principal Logistics Regulation ...... 165 QUESTIONS ...... 167 SOME ISSUES OF CURRENT INTEREST ...... 167 ANNEX 1 ...... 169 ANNEX 2 ...... 170

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FOREWORD FROM GOH SWEE SEANG

I was asked by The Director General of MPC to carry out this study on reducing unnecessary regulatory burdens in the logistics industry as part of the regulatory review initiatives of MPC under the Tenth Malaysia Plan 2011-2015.

I am very conscious that this is the first time such a regulatory review has been undertaken for this particular sector and this is in the early stage of review. While much of the information about the sector is not yet well established, the review offers the opportunity to make recommendations at a formative stage of modernising regulatory environment of logistics. I intend using the Terms of Reference (Annex A) as a framework to allow me to take a broad look at all aspects of the logistics regulatory regime.

Any review can of course only be as good as the quality of the information on which it is based. In carrying out this review, I therefore hope that everyone who is in the position to provide me with relevant and robustly-based information will do so. I will use this to formulate options and make recommendations on how to reduce unnecessary regulatory burdens in your business activities. Thank you in advance for your help.

Goh Swee Seang

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INTRODUCTION 1. The Malaysia Productivity Corporation (MPC) has appointed Goh Swee Seang to undertake the review on how to reduce unnecessary regulatory burdens (RURB) in the Malaysian logistics industry. 2. The Tenth Malaysia Plan 2011-2015 has mandated MPC to review all business regulations with the aim of modernising the Malaysian regulatory environment. 3. This Issue Paper is to spread the word that the review is being conducted and to ask stakeholders in the logistics business to provide information. The information collected will be used to inform the Government on the options to improve existing regulations and/or regulatory practices.

ABOUT THIS ISSUES PAPER Who is this Issues Paper aimed at? 4. This Issues Paper is aimed at logistics business stakeholders who have information and experience in regulatory affairs relating to logistics. This review will cover any issue relating to the existing regulations, the regulatory regimes and compliance with the requirements. 5. We are interested in everyone’s views, so please provide as much information as you can on the questions asked in this review. We know that people and businesses will have different experiences in regulatory compliance at this stage, so do not feel you have to answer the questions that are not relevant to you, for example where you do not have personal experience. We would welcome any other views not raised in the questions. 6. We have sent this Issues Paper document to many people and organisations but may not have reached everyone who may be interested in this area. Please share this document with, or tell us about anyone you think will want to be involved in this review.

Purpose of the Review 7. The review will analyse the regulatory environment of the logistics industry and formulate options to reduce unnecessary regulatory burdens (RURB). The options will then be submitted to the Government through various committees such as PEMUDAH, Malaysian Logistics Services Council (MLSC) and Malaysia Services Development Council (MSDC) for their response and action. The review

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is advisory only and it is up to the Government to decide which of the options it will adopt and implement.

Scope for the Review 8. This review applies to all states of Malaysia. This will cover the logistics players, their supporting services and their customers. 9. We define logistics here as the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. This definition shall include inbound, outbound, internal, and external movements, and return of materials for environmental purposes.

Duration on the Review 10. This review comments with a period of collecting information from interested parties and other sources which begins on March 2015 and runs until end of May 2015. After this information has been assessed and researched, a draft report will be released later in the year.

HOW TO RESPOND 11. We shall be organising focus group meetings with your trade associations in month of April 2015 to discuss and gather issues relating to unnecessary regulatory burdens to the logistics industry. We shall send the invitation to your trade associations on the meetings. 12. Should you wish to have a one-on-one meeting on this review, please contact us to fix a date and time. We would be pleased to meet you at your convenience. 13. Should you wish to write your response to us, please email us at [email protected] or [email protected] Please ensure your response reaches no later than 1st June 2015. We will acknowledge your response.

Queries about this Issues Paper 14. Please direct any queries about this Issues Paper to: Phone : 03 – 7960 0173 (Ms. Ruslina and/or Mr. Mohd Zulkifly)

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Fax : 03 – 7960 0211 Email : [email protected] or [email protected] Appreciate if you indicate your interest to this notification using the EXPRESSION OF INTEREST form attached (Annex 2).

Confidentiality 15. The information from you may need to be passed to colleagues within MPC, published in a summary of responses received and referred to in independent report. However, individual names will be kept confidential and will not be published in the report. We will acknowledge your organisation with your consent.

WHAT HAPPENS NEXT? 16. The RURB project timetable is as follows:  Preparation of Issues Paper and data collection from March to May 2015 This will include: o A literature review o Formulate a set of questions o Focus group discussions with stakeholders o Interviews with stakeholders o Discussions and verifications with regulators/authorities  Analysis and interpretation of information/data beginning in June and completing in September 2015. This includes the data analysis, options development, consultation with logistics players/experts, testing of options with regulators/authorities  Preparation of publication of final draft report for pubic consultations will take place between October and November 2015. This will cover: o Public consultation to obtain feedback on options and other views o Present recommendations to various committees for decisions  Preparation and submission of final report in January 2016.

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Summary of the Review Process 17. The RURB process is summarised in the schematic diagram below. You can refer to other RURB reports on the MPC website to see hose this review process has been used in other reviews.

Conceptualize the Logistics Value Chain

List all Acts and map them onto the Value Chain

Scoping & Target Selection sites,Articles & Statistics) - Develop Issues Paper with list of questions

Conduct interviews

AND AND EXPERT’SADVICE (From AGPC)

Analyse information gathered

Draft report (proposed options) CONSULTATION

Public consultation LITERATUREREVIEW INPUTS (Reports, Web

Final Report and submission

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CONTEXT What is a Regulatory Burden on Business? 18. Regulatory burdens arise from the costs imposed by regulation and its enforcement that would otherwise not arise for businesses. Regulatory requirements create a change in business behaviour and practices and can adversely impact on businesses in various ways. These costs or impacts include: a. Administrative and operational requirements such as reporting, record keeping, getting legal advice and training b. Requirements on the way goods and/or services are managed and handled, such as prescriptions on transportation and handling methods, occupational registration requirements, requiring professionals to use particular techniques c. Requirements on the characteristics of what is transported or handled, such as dangerous and restricted goods d. Lost opportunities due to prohibitions, such as ban on import/export of certain goods.

Unnecessary Regulatory Burdens 19. While it is usually necessary that some burden is placed on business for regulation to achieve objectives, where regulation is poorly designed or written, or it is not administered or enforced well, it may impose greater burdens than necessary. In reviewing existing regulation, it is those regulatory burdens which can be considered ‘unnecessary’ that are of primary interest. 20. The common types of regulatory burdens experienced by business are as follows: a. Excessive coverage by a regulation – that is, the regulation affects more activity that was intended or required to achieve its objective b. Subject-specific regulation that covers much the same issues as other generic regulation c. Prescriptive regulation that unduly limits flexibility such as preventing businesses from: i. Using the latest technology ii. Making changes to better meet customer demand iii. Meeting the underlying objectives of regulation in different ways d. Overly complex regulation e. Unwieldy licence application and approval processes, excessive time delays in obtaining responses or duplicative information requests 163

f. An overlap or conflict in the activities of different regulators g. Inconsistent application or interpretation of regulation by regulators. 21. It is important to note that the relative burden placed on small businesses may be greater than that imposed on larger businesses as they may have to devote proportionately more effort to achieve equivalent compliance. They may also be disadvantaged where regulations are anti-competitive. 22. You can read more on this from: A Guide to Reducing Unnecessary Regulatory Burdens: A Core Concept. This booklet can be downloaded from www.mpc.gov.my

Regulation and Policy 23. The study will address both written regulation and its implementation by regulators. Written regulations cover primary and secondary legislative instruments (gazetted Acts and Regulations) and quasi regulation such as guidelines, standards, circulars, written instructions, procedures and forms, etc. 24. The implementation of written regulation is frequently neither effective nor efficient. It will be wrong to assume that once a regulation is approved everyone complies, or that regulators administer and enforce the written regulation. 25. How regulators implement regulation crucially influences whether it achieves the Government’s intended policy objectives and the compliance costs imposed on business. 26. However when regulators follow best practices, they are likely to implement regulation effectively and efficiently. These practices include: i. uses risk analysis to identify areas of intrinsically potentially high adverse impacts and/or possible low compliance ii. maximises the potential of voluntary compliance iii. uses a range of enforcement instruments flexibly in order to respond to different types of non-compliance as in responsive regulation iv. applies regulations consistently across businesses and industry sectors v. displays sufficient transparency to enable business to know the requirements of the law vi. maintains an on-going dialogue between government and the business community vii. have sufficient accountability to enable business to question and appeal decisions and to address possible cases of corruption

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viii. monitors compliance in order to assess the effectiveness of enforcement activities ix. is adequately resourced and has the skills to be able to fulfil its responsibilities

Principal Logistics Regulation 27. There are many players involved in the transportation of goods, in particular, between countries - the import-export logistics chain. This international logistics chain involves basically five physical and two documentation steps, starting from the shipper (goods exporter) to the consignee (goods importer). 28. Costs and time (delays) are key factors in the supply chain. Costs that are incurred in these steps and have to be borne by either the shipper or the consignee. The figure below illustrates the physical steps of transportation in this primary logistics chain for land-sea transportation of goods.

29. The regulation of logistics and its related businesses in Malaysia is administered by different ministries and agencies. The governing regulations and the principal regulators on the primary logistics chain are as shown in the table below (Note that this listing is not exhaustive).

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Businesses Acts, Regulations & Licences Regulators Shippers &  Promotion of Investment Act 1986 Permit Issuing Consignees  Industrial Coordination Act 1975 Authorities  Customs Act 1967 Examples:  Goods and Services Tax Act 2014 MITI, AELB,  Acts governing imports and exports SIRIM, MIMA etc. Forwarding  Customs Act 1967 Customs, SSM, Agents  Goods and Services Tax Act 2014 MOT  Companies Act, 1965  International Integrated Logistics Services (IILS) Licence Hauliers &  Road Transport Act 1987 MOT, SPAD, Transporters  Commercial Vehicles Licensing Board Act 2010 RTD(JPJ),  Land Public Transport Act 2010 Puspakom  Land Public Transport Regulations (2011/2013/2014)  Suruhanjaya Pengangkutan Awam Darat Act 2010  Companies Act, 1965 Railways  Railway Act 1991 MOT, KTM Warehousing  Customs Act 1967 MIDA LMW  Goods and Services Tax Act 2014 Local Authorities  MIDA Act 1965 Customs  Dealing with Construction Permits  Ordinary Warehouse Licence  Certificate of Completion and Compliance (CCC)  Public Bonded Warehouse Licence  Private Bonded Warehouse Licence Ports  Customs Act 1967 Marine Operators  Goods and Services Tax Act 2014 Department  Port Authorities Act 1963 Customs  Ports (Privatisation) Act 1990 Ports Authorities  Bintulu Port Authority Act 1981  Johor Port Authority By-Laws 2011  Kuching Port Authority By-Laws 1961  Kuantan {Port Authority By-Laws 1980  Penang Port Commission Act 1955  Port Klang By-Laws 2012 Free Zones  Customs Act 1967 MOF Operators  Free Zone Act 1990 Local Authorities  Exclusive Economic Zone Act 1984  Construction Permits (Local Authorities Act) Ships  Langkawi International Shipping Registration Act MOT Operators 2006 MMEA  Carriage of Goods by Sea Act 1950  Federation Light Dues Act 1953  Maritime Act 2004  Merchant Shipping Ordinance Act 1952  Federation Light Dues Act 1953

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QUESTIONS 30. We would like to gather views, experience and feedback on your dealing with regulation. We would welcome any suggestions to improve the current regulations and regulatory practices. Below is a list of questions which we would like you to think through and provide us with your views and feedback. 1) Which regulations concern you the most? Why? 2) Which regulations are the hardest to comply with? In what way? 3) Which regulations do you think are too onerous given what they are trying to achieve?  What do you think of the current costs involved in getting your application to maintain your business?  How about the application’s processing time? Which exact processing stage is the most burdensome to maintaining the business? 4) Do you think any regulations are not justified at all? 5) Are some regulatory requirements inconsistent? 6) Do you consider inspectors and other regulatory administrators do a good or a poor job? In what way? 7) Do you find inspectors and administrators are consistent in their decisions? 8) Do you find they are helpful or unhelpful in advising you how to comply? Are there any publicly available guidelines? 9) How long do regulators take to respond to applications, queries, etc.? 10) Do you have any suggestions for reducing the burden of compliance of regulations? 11) Are there any other issues you want to suggest we should cover in our review?

SOME ISSUES OF CURRENT INTEREST 31. In general, the country has not made purposeful effort to review existing regulations over the years. There exist regulations which may be deemed obsolete as they no more serve the original purpose. For example, the need for Interstate Transfer Permit for rice is questionable in our current state of development.

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32. Customs in its gate-keeping role for import-export operations is frequently a bottleneck in the logistics chain. Importers and exporters frequently experience delays and burdens in customs clearance due to various reasons such as: a. Tariff codes issues - HS Code for new parts b. Different requirements by different Permit Issuance Agencies c. Still not fully automated, industry estimates on 70% electronic d. Dagangnet applications is not user friendly e. Too much data-entry required for Customs compliance f. New GST concerns 33. Permits Issuance Agencies contribute a big share of issues on import-export logistics. For example, some permits can only be applied from the head offices as the states offices are only doing enforcement duties. Also permits issuance is not in sync with business requirements for speed and timeliness. 34. The preference by some importers and exporters to use Singapore ports is testimony that many inherent problems exists in logistics regulations, whether they are on permits applications, Customs clearance, licensing applications, or information submissions. There are many underlining burdens in terms of additional overheads, delays, avoidable costs, and inconveniences due to poor regulations and the regulatory regimes. 35. We hope that you will be able give us clear pictures on these issues and other problems you face in logistics. It would be preferable if you can cite real-case examples, provide quantitative evidences and qualitative explanation on any issues raised.

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ANNEX 1 Terms of Reference Reducing Unnecessary Regulatory Burdens on Business: Logistics

1. What the MPC has been asked to do The 10th Malaysia Plan has mandated the Malaysia Productivity Corporation (MPC) to carry out regulatory reviews in order to make it easier to do business in Malaysia. Towards this end, the MPC has embarked on reviews of existing regulations which primarily impact on the 12 National Key Economic Areas (NKEA). The NKEAs were chosen on the basis of their high growth potential. Although the logistics sector is not identified in the NKEA, its efficiency and growth directly impact on the NKEA sectors. This review process will draw on the expertise and perspectives of the public and private sectors to help identify key issues and the appropriate solutions.

2. Conduct of the review The study will emulate the approach used by the Australian Government Productivity Commission (AGPC) and the team will be guided by a regulatory expert Ms. Sue Holmes. The team will select a sample of businesses from the logistics chain operating in Malaysia and across the National boundary. The team will interview the senior management personnel to identify the regulatory issues of concern. Based on the principles of good regulatory practices, the team will formulate feasible options for further deliberation. These issues and options will be subject to further consultation with relevant stakeholders in order to develop concrete recommendations that will reduce unnecessary regulatory burdens.

Interested parties are welcomed to participate in this review. You can contact the persons below on matters relating to this review.

Ms. Ruslina Mohd Ghazali En. Mohd Yazid Abdul Majid Tel: 03- 79600173 Tel: 03- 79600173 Email: [email protected] Email: [email protected]

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ANNEX 2 EXPRESSION OF INTEREST

MALAYSIA PRODUCTIVITY CORPORATION (MPC)

REDUCING UNNECESSARY REGULATORY BURDENS IN LOGISTICS

Please complete and submit this form with your submission (if any):

By email : [email protected] By Fax : (03) 7960 0206 Or mail to : Malaysia Productivity Corporation (MPC) A-06-01, Tingkat 6, Blok A, PJ8 No.23, Jalan Barat, Seksyen 8 46050 Petaling Jaya, Selangor

Principal contact (name) :

Position :

Organisation :

Address :

City : Postcode : Telephone (off) : Mobile :

Email address :

Please indicate your interest in this review: ( √ ) i.) Would like to be interviewed by the MPC ( ) ii) Would like to make a submission ( ) iii.) Be informed of development of study including receiving the draft report ( )

Please describe your area of specialisation:

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This publication is available from www.mpc.gov.my Any enquiries regarding this publication should be sent to: Regulatory Review Department Malaysia Productivity Corporation P.O.Box 64, Jalan Sultan 46904 Petaling Jaya, SELANGOR.

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