PETALING JAYA: Malaysia’s manufacturing sector is pressing for immediate government intervention as escalating tensions in the Middle East begin to ripple through global trade routes, energy markets and industrial supply chains.
The Federation of Malaysian Manufacturers (FMM) said the conflict, which intensified following US and Israeli military action against Iran on Feb 28, has triggered simultaneous disruptions at two of the world’s most critical shipping corridors – the Strait of Hormuz and the Red Sea.
The resulting shock has driven up costs, delayed shipments and tightened the supply of key industrial inputs.
The Strait of Hormuz alone accounts for roughly one-fifth of global oil and liquefied natural gas (LNG) flows, handling close to 20 million barrels per day last year. Its closure, coupled with continued instability in the Red Sea, has forced vessels to reroute via the Cape of Good Hope, extending transit times by up to two weeks.
For manufacturers, the impact has been immediate. Freight rates have risen sharply, with additional war-risk surcharges and marine insurance premiums climbing between 200% and 400%.
Longer shipping times are straining delivery schedules and working capital cycles, particularly for export-oriented industries.
Energy costs have compounded the pressure. Brent crude is now trading at about US$106 per barrel, up roughly 28% from the start of the year and nearly 50% higher than pre-conflict levels.
This has translated directly into higher fuel and petrochemical feedstock costs across multiple sectors.
At the same time, supply constraints are emerging for petroleum-based raw materials such as naphtha, liquefied petroleum gas (LPG), synthetic resins, rubber inputs and sulphur.
With most manufacturers operating on lean inventories of between two and six weeks, prolonged disruption risks production slowdowns across industries, including plastics, chemicals, electronics, rubber products and food processing.
FMM said the combined effect of rising costs, supply uncertainty and logistical delays is already weighing on output and export fulfilment. It warned that existing policy frameworks are not designed to address externally driven shocks of this scale, and called for targeted, time-bound measures to stabilise operations and preserve competitiveness.
Among its proposals is an exemption from sales tax and import duty for goods reimported after failed export attempts.
Many manufacturers have seen shipments turned back due to port closures, cargo diversions or buyer suspensions, yet are still being taxed upon re-entry.
“These are not commercial imports,” FMM president Jacob Lee Chor Kok said, noting that the goods were produced locally and intended for export.
“Treating them as taxable imports adds an unnecessary burden at a time when companies are already absorbing higher logistics costs.”
The federation is also seeking tax relief for crisis-related logistics expenses, including surcharges, higher freight rates, insurance premiums and port charges arising from congestion.
FMM proposed a double tax deduction on such costs, alongside an interim ruling to ensure they are deductible in the year incurred.
Fuel costs remain another area of concern. While diesel subsidies are currently available for road transport operators, industrial users – including those operating kilns, boilers and marine equipment – pay market rates.
With industrial diesel prices having surged in tandem with crude oil prices, FMM is urging the government to extend targeted subsidies to fuel-intensive sectors such as ceramics, quarrying, glass manufacturing and food processing, as well as to domestic marine logistics operators serving Sabah and Sarawak.
To address supply risks, FMM called for a coordinated approach to secure critical raw materials.
This includes prioritising domestic allocation of key feedstocks by national energy producers and refiners, temporarily easing duties on alternative imports, and establishing a national inventory monitoring system to track supply levels and trigger early intervention where needed.
It also urged the government to defer scheduled port tariff increases, noting that several major ports – including Port Klang, Johor Port, Tanjung Pelepas and Penang Port – have implemented or are planning phased hikes of up to 30% through 2027.
Proceeding with these increases under current conditions would further erode exporters’ cost competitiveness, it said.
In addition, FMM highlighted the need for greater transparency in freight pricing.
Shipping lines have introduced multiple layers of conflict-related surcharges, often outside contracted rates, with limited oversight.
The group called for a formal monitoring mechanism to track such charges and ensure accountability, as well as measures to address congestion caused by the storage of empty containers at Malaysian ports.
“The scale and breadth of the disruption require a coordinated, whole-of-government response,” Lee said, adding that other regional economies have already put in place joint government-industry mechanisms to manage similar pressures.
