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The Malaysian Government has implemented a policy which reserves the transportation of goods in the domestic trades to ship flying the Malaysian Flag. This policy was necessary because only a small number of Malaysian registered ships were playing the coastal routes. The policy which reserves the domestic trade to its own flagged vessels is known as Cabotage Policy. It was implemented in Malaysia on 1 January 1980. To implement the policy, the Merchant Shipping Act 1952 (MSO 1952) was amended.

With the amendment to the Merchant Shipping Act 1952, the Government provide for the appointment of a Domestic Shipping Licensing Board (DSLB) to regulate and control the licensing of ship engaged in domestic shipping between any port in Malaysia. The purpose is to encourage local participation in domestic by encouraging local registration of ships and local incorporation  of companies participating  in domestic shipping.

The rationale of the cabotage policy can be seen as part and parcel of the government's policy objectives of;

i.       Making Malaysia a maritime nation;

ii.    Reducing the country's dependence on foreign ships by increasing the level ofparticipation in Malaysia international and coastal shipping business;

iii.   Engaging in shipping commitments through bilateral, regional and other trade agreements;

iv.  Training and development of Malaysians in technical, professional and commercial aspects of   shipping business, especially in regard to the Malaysianization of floating staffand support to higher educational institutions.           

 Domestic Shipping  as defined under the Merchant Shipping Ordinance 1952 means the shipment of goods or passenger:

a.                     from any port or place in Malaysia to another port or place in Malaysia, or

b.                     from any port or place in Malaysia to any place in then exclusive economic zone or vice versa,and includes the towing and pushing in the cabotage trade, a license, per vessel, is required by aMalaysia citizen or company. The DLSB issues three types of license, namely:

Ø  Unconditional
Ø  conditional; and
Ø  temporary

Unconditional license is granted to a Malaysian entity in respect of  a Malaysia flagged vessel on the condition that it:

a.  is qualified to own a Malaysian flagged vessel according to the law stipulated for owninga Malaysian ship;

b.   has 30% bumiputra participation in terms of equity, directorship and office staff; and

c.   employs 75% Malaysian citizen as ratings on the vessels

In order to own a Malaysian ship the person(s) must be a Malaysian citizen(s) or corporation, which satisfy the following requirements:

i.      the corporation is incorporated in Malaysia;

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

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

iv.    the majority, or if the percentage is determined by the Minister, then the percentage so determined, of the shareholding, including the voting share, of the corporation is held by Malaysian citizen free from any trust or obligation in favor of non-Malaysian; and

v.     the majority, or if the percentage is determined by the Minister, then the percentage so determined, of the directors of the corporation are Malaysian citizen.


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