Malaysia: Lifting Cabotage Laws In Sabah, Sarawak And Labuan - Malaysia

Last Updated: 16 June 2017
Article by Gerald Yee

In May 2017, the Prime Minister of Malaysia, Datuk Seri Najib Tun Razak announced that from 1 June 2017, Sabah, Sarawak and Labuan will be exempt from cabotage laws insofar as the carriage of cargo between Peninsula Malaysia and East Malaysia, and vice versa is concerned. While this exemption will not apply to cargo shipment within Sabah, Sarawak and Labuan, the implications of the cabotage lift for shipments to and from these ports are far-reaching.

National cabotage laws came into effect in Malaysia on 1 January 1980,  and permit only Malaysian vessels to engage in domestic shipping.  Foreign vessels are allowed to discharge cargo at any port in Malaysia but are not allowed to move the cargo within the country.

Section 11 of the Merchant Shipping Ordinance defines a Malaysian vessel as being wholly owned by:-

  • Malaysian citizens; or
  • corporations which satisfy the following requirements
  • the corporation is incorporated in Malaysia;
  • the principal office of the corporation is in Malaysia;
  • the management of the corporation is carried out mainly in Malaysia;
  • the majority of the shareholding including the voting share of the corporation is held by Malaysian citizens free from any trust or obligation in favour of non-Malaysians; and
  • the majority of the directors of the corporation are Malaysia citizens.

Move towards liberalisation

The main objective of the cabotage laws was to safeguard and protect the domestic shipping industry. Following its implementation, this protectionist policy has been liberalised through the years. In 2009, the carriage of containerised transshipment cargo between certain ports in Peninsula Malaysia and East Malaysia was allowed. In 2012, an exception to cabotage laws was made for passenger cruise ships.

Further, there were also exceptions made through the issuance of temporary licenses to allow foreign vessels to engage in domestic shipping when there were insufficient Malaysian vessels to meet shipping demands. However, foreign vessels required an endorsement from the Malaysian Shipowners' Association before these licenses could be obtained. This often left foreign vessels at the mercy of domestic shipowners.

Lifting the cabotage policy

The lift on the cabotage policy is said to be due to the rising cost of consumer goods. Goods exported from East Malaysia are left lying in transit for prolonged periods of time because vessels travelling out of East Malaysia are unable to carry a full load. Consequently, manufacturers in East Malaysia lose their ability to compete in the market because by the time their goods arrive at the port of discharge, the price of those goods are no longer competitive. The delay and issue of vessel frequency has also resulted in increased port charges and the risk of cargo theft.

Additionally, goods transported from Peninsular Malaysia to East Malaysia pass through a long supply chain before being discharged, resulting in increased freight costs. The lack of options and a monopolised shipping industry has led to consumers having to pay the price of a cabotage policy that from the onset sought only to benefit the domestic shipping industry.

Dissenters of the cabotage policy take the position that protectionism discourages the growth of the marine industry in Malaysia and inflates the cost of goods to the detriment of the common man. It is believed that lifting cabotage laws could potentially make East Malaysian ports more accessible, increase trading activities and gain prominence.

Impact of lifting the cabotage policy

The Malaysian shipping industry is not taking well to the lift of the cabotage policy. Shipping companies are anticipating bigger losses following the lift of the ban. The Malaysian shipping industry has been faced with challenges since the 2008 financial crisis and shipping companies are worried that they will not be able to compete with foreign vessel operators.

The real consequences of the lift are yet to be seen. However, the Malaysian Shipowners Association has warned that the increase in external competition will adversely affect Malaysian vessels operating on the previously cabotaged routes. It is anticipated that that domestic shipping companies will likely close shop or relocate their businesses elsewhere.

Cabotage policies are not new and are practiced in numerous other jurisdictions around the world, including the United States. The viability of cabotage policies has consistently been debated but the lift on the policy in Malaysia sends a clear signal that it is not ideal to maintain a policy that functions largely at the expense of domestic consumers. It would be interesting to see if the lift will indeed lower the costs of goods and benefit trade in East Malaysia.

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

To learn more about the progression in relation to Malaysia's Cabotage policy, please click here.

The authors would like to thank Mr James David of Shaikh David Raj for his assistance in preparing this chapter.

Lifting Cabotage Laws In Sabah, Sarawak And Labuan - Malaysia

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

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Gerald Yee
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.