FMM seeks urgent action over Middle East crisis impact

KUALA LUMPUR (March 27): The Federation of Malaysian Manufacturing (FMM) has urged the government to take swift and coordinated action to mitigate the escalating impact of the Middle East conflict on the country’s manufacturing sector.

FMM president Jacob Lee said the simultaneous closure of the Strait of Hormuz and disruptions along the Red Sea shipping corridor have triggered a dual shock to global energy markets and trade flows following United States and Israeli military action against Iran that began on Feb 28.

He said the disruptions have led to sustained increases in freight-related charges, including war risk surcharges, while marine insurance premiums have surged between 200 and 400 per cent.

“Vessel rerouting via the Cape of Good Hope has extended transit times by up to 14 days. This is affecting delivery schedules and working capital cycles across Malaysian manufacturing,” he said in a statement on Friday.

Energy costs have also risen sharply, with Brent crude reaching US$106 per barrel as of March 27 — up 28 per cent from US$82.80 at the start of the year — directly impacting industrial fuel costs and upstream petrochemical pricing.

At the same time, he said manufacturers are facing tighter supply and rising costs for critical petroleum-based raw materials, including naphtha, LPG, resins, synthetic rubber inputs, sulphur and packaging materials.

Lee noted that most manufacturers operate on inventory cycles of two to six weeks, warning that prolonged disruptions could affect production continuity across key sectors such as plastics, chemicals, electronics, rubber products and food processing.

“These pressures are immediate and cumulative. Cost increases, supply delays and operational uncertainty are already affecting manufacturing output and export fulfilment,” he said.

He added that the current policy framework does not provide sufficient relief for externally driven disruptions, calling for targeted interventions to stabilise costs, sustain production and protect export competitiveness.

Among the measures proposed, FMM called for an exemption from sales tax and import duties on the reimportation of previously exported goods returned due to the conflict, provided the goods are not sold or used domestically.

“These goods are meant for export markets and do not enter the domestic supply chain. Taxing them upon return imposes an unnecessary financial burden on companies already facing higher logistics costs,” Lee said.

FMM also proposed a double tax deduction for crisis-related logistics expenses, including war risk surcharges, elevated freight charges from rerouted shipments, higher marine insurance premiums, as well as demurrage and port storage charges linked to congestion.

As an interim step, it urged the Inland Revenue Board to issue a public ruling confirming that such costs are tax-deductible in the year they are incurred to provide immediate clarity to businesses.

In addition, FMM called for the extension of diesel subsidies to fuel-intensive industrial sectors that lack viable energy alternatives.

It noted that while current subsidies cover road transport operators, manufacturers operating kilns, dryers, furnaces, boilers and marine equipment continue to pay market rates.

Marine logistics operators serving Sabah and Sarawak should be prioritised due to limited fuel alternatives, FMM added.

FMM further urged the government to direct national energy producers and domestic refiners to prioritise local allocation of key feedstocks during the crisis. It also called for temporary tax and duty exemptions on critical inputs sourced from alternative markets, as well as the establishment of a national inventory monitoring mechanism to prevent shortages.

On port operations, FMM recommended deferring all remaining phases of planned tariff increases at major ports, including Port Klang, Johor Port, Tanjung Pelepas and Penang Port.

“Manufacturers are already absorbing higher freight costs, insurance premiums and input prices. Proceeding with further tariff hikes will compound cost pressures and weaken export competitiveness,” Lee said.

The federation also highlighted the lack of oversight on shipping surcharges imposed during the disruption, noting that multiple layers of emergency and war-related charges have been introduced outside contracted rates.

It called on the Ministry of Transport to establish a formal mechanism to monitor freight rates and surcharges, ensuring transparency and providing a channel to address unjustified charges.

To address port congestion, FMM proposed the introduction of differential storage charges for empty containers held beyond defined turnaround periods, shifting the cost burden back to shipping lines.

“The impact of this crisis spans energy costs, logistics, raw material supply, tax treatment and port operations simultaneously. It demands a coordinated whole-of-government response, not individual ministries managing their respective areas in isolation,” Lee added