FMM SECOND SURVEY SHOWS WEST ASIA CRISIS WORSENING FOR MANUFACTURERS AS RAW MATERIAL SHORTAGES, CASH FLOW PRESSURES AND JOB RISKS INTENSIFY

Kuala Lumpur, May 7, 2026 — The Federation of Malaysian Manufacturing (FMM) today released the findings of its second survey on the impact of the West Asia crisis on Malaysian manufacturing. The survey confirms that conditions have continued to deteriorate since the first findings were published on April 7, 2026. What began as a freight and logistics cost disruption has now spread across the manufacturing value chain, affecting raw material availability, order volumes, cash flow, investment decisions and employment.

72% of 225 respondents reported that their overall operating conditions have worsened since early April 2026, with 22% describing the deterioration as significant. Only 5% reported some improvement, mainly companies that had managed to secure alternative supply sources. The remaining 20% reported no change, reflecting that they continue to operate under the same severe pressures highlighted in the earlier survey rather than any stabilisation in conditions.

FMM commends the Government for the seriousness and urgency with which it has responded to the West Asia crisis. The establishment of a Crisis Management Taskforce and the weekly convening of the National Economic Action Council (NEAC) chaired by the Prime Minister, reflects a whole-of-government commitment that the industry has both welcomed and actively supported. Since March 2026, FMM has engaged directly with Yang Berhormat Akmal Nasrullah Mohd Nasir, Minister of Economy, as well as officials from the Ministry of Finance (MOF), Ministry of Transport (MOT), Ministry of Investment, Trade and Industry (MITI) and members of the Prime Minister's Advisory Council (PMAC). FMM has also been actively exploring alternative raw material supply sources across multiple markets to support the Government's efforts to diversify away from disrupted supply chains. Three measures recommended in the first survey have since been announced and implemented: an exemption from import duty and sales tax on reimported Malaysian goods that could not complete delivery due to the conflict, which is currently being operationalised by Royal Malaysian Customs Department; government-facilitated supply arrangements to secure critical raw material feedstocks from alternative origins; and the Bank Negara Malaysia SME Stabilisation Relief Facility of RM5 billion, with applications opening through participating financial institutions from May 15, 2026. FMM will continue to engage the Government actively as this situation evolves.

Notwithstanding the above efforts, the survey findings released today show that conditions across the manufacturing sector have continued to deteriorate and that further urgent action is needed.

Raw Material Shortages Are Reaching Critical Levels

70% of respondents report that their raw material supply situation has worsened since early April. 20% describe the deterioration as significant. The most widely affected categories are resins and polymers, petrochemical feedstocks including naphtha and benzene, industrial chemicals and solvents, metals and alloys and packaging materials. These are core production inputs with no ready substitute. The inventory position is of immediate concern. 40% of respondents hold only one to two months of their most critical affected materials. 29% hold between two and three weeks. 6% hold less than two weeks.

72% of respondents cite China as their primary alternative sourcing country. Domestic Malaysian suppliers are being explored by 40%. India and Thailand are cited by 16% each. Even with alternatives being actively pursued, the transition is constrained. The most common barrier is quality or specification mismatch, cited by 48%. Customer approval requirements before switching affect 40% and long qualification timelines constrain 32%. 13% have fully secured an operational alternative supplier. 18% have identified an alternative but say the cost premium makes it commercially unviable. 13% have found no viable alternative despite active efforts.

Freight and Logistics Costs Remain Severely Elevated

87% of respondents report higher freight costs than before February 28, 2026. 50% report increases of 20% to 50% above their pre-conflict baseline. 86% are experiencing additional transit times due to vessel rerouting via the Cape of Good Hope, with routes to Europe now taking 35 to 45 days compared with 25 to 30 days previously. 12% report additional delays of more than 30 days on specific routes, effectively doubling transit times on those lanes.

49% of respondents report increased domestic transport costs, making this the single most widely cited logistics problem in this survey, ahead of port congestion, cargo rollovers and container shortages. Hauliers in key industrial corridors are prioritising higher-paying cargo and declining existing rate contracts. The breakdown in haulage connectivity between Pasir Gudang and the Port of Tanjung Pelepas is specifically cited as a serious bottleneck. The root cause in many cases is diesel quota exhaustion. When hauliers exhaust their subsidised diesel allocation, operating costs rise sharply and less profitable routes are abandoned, with the cost falling on the manufacturer who cannot move goods to port on schedule.

37% of respondents report unregulated port fuel adjustment surcharges imposed by shipping lines. 41% report cargo rollovers, 30% report container shortages, 26% report shipment cancellations by carriers and 23% are dealing with elevated detention and demurrage charges. 34% are managing active or unresolved force majeure claims. 10% have had export cargo returned, abandoned or redirected due to port access restrictions in the Gulf, with commercial losses per company ranging from several hundred thousand US dollars to over USD 1 million.

Working Capital and Cash Flow Under Increasing Stress

68% of respondents are under working capital or cash flow pressure. 13% say the pressure is severe enough to affect their ability to pay suppliers or fulfil orders. Pressure is building from both ends of the business cycle simultaneously. 46% report that suppliers have shortened payment terms or requested advance payment since February 28, 2026. 44% report that buyers have delayed payment due to shipment disruptions or order uncertainty. Extended transit times compound this further, as payment from buyers can only be triggered upon delivery. For manufacturers with limited cash reserves, the resulting shortfall is increasingly difficult to bridge, with some banks reported to have tightened lending conditions or requested additional collateral.

68% of respondents report reduced or deferred orders from customers. 20% say orders have been significantly reduced. 50% report that the conflict has affected demand within Malaysia, as higher retail prices weaken consumer purchasing and squeeze manufacturer margins. 60% have deferred or cancelled investment, automation or expansion plans. These effects will not be felt immediately, but they will show up in productivity and industrial competitiveness over the next two to three years.

Jobs Are at Risk and the Trend Is Worsening

28% of respondents have made or are planning workforce adjustments as a direct result of the crisis. The most common responses are reduced overtime or shortened working hours, implemented by 40% of respondents, and hiring freezes in place at 33%. 5% have announced or implemented retrenchment. If cost and supply pressures continue without adequate relief, reduced hours and partially suspended operations will move toward permanent workforce reductions.

The risk is most acute among small and medium enterprises (SMEs) with fewer than 75 employees, who make up 35% of survey respondents. These companies carry a narrower cost base, fewer products and fewer customers, which means a drop in orders or a surge in input costs hits proportionally harder. Among respondents in this size category, cutting output or partially suspending production lines is the most commonly cited primary response, with direct consequences for their employees.

FMM's Recommendations to the Government

The following recommendations are drawn directly from the survey data. FMM calls on the Government to act on all of them without delay.

1. Duty and Tax Exemptions on Alternative-Origin Raw Materials — MOF should issue a formal exemption order covering five critical categories: resins and polymers, petrochemical feedstocks, industrial chemicals and solvents, metals and alloys, and packaging materials, where a Malaysian manufacturer can demonstrate that its established supply source was in the West Asia region and that sourcing from an alternative origin has become necessary due to the conflict. The order should specify eligible tariff codes, define the qualifying period and require the manufacturer to declare their previous supply origin as part of the claims process, tied to their manufacturing licence. Clear operational guidance must be issued to Customs stations at all entry points. 65% of respondents cite this as the most urgent outstanding measure.

2. Further Tax Deduction on Crisis-Related Freight and Insurance Costs — MOF should introduce a further tax deduction on qualifying crisis-related freight surcharges, war risk insurance premiums, rerouting charges and demurrage fees for the 2025 and 2026 tax years, implementable through a Ministerial exemption order under the existing income tax framework without new legislation. As an immediate interim step, the Inland Revenue Board (IRB) should issue a public ruling confirming that these costs are deductible in the year they are incurred. 61% of respondents cite this as urgently needed.

3. Targeted Industrial Fuel Subsidy or Cost Stabilisation Mechanism — 50% of respondents use diesel directly in production processes including kilns, dryers, furnaces, boilers and ovens. These manufacturers are excluded from the Sistem Kawalan Diesel Bersubsidi (SKDS) and are absorbing full market-rate fuel price increases with no offset. MOF and the Ministry of Domestic Trade and Cost of Living (KPDN) should design a targeted relief mechanism, for example a capped rebate per unit of industrial fuel purchased, administered through existing manufacturing licences. 52% of respondents cite this as urgently needed.

4. Expand Diesel Quota for Domestic Hauliers on Key Industrial Corridors — The capacity breakdown on the Pasir Gudang to Port of Tanjung Pelepas corridor and other key industrial routes is a direct consequence of diesel quota exhaustion. Expanding quota allocations for licensed hauliers serving documented industrial and port feeder routes would reduce surcharges and route refusals.

5. Defer All Remaining Port Tariff Increases — Freight costs are already 20% to 50% above pre-conflict levels for most manufacturers. Proceeding with planned port tariff increases compounds the burden without improving service levels. MOT should instruct that all remaining phases be paused for a minimum of 12 months or until freight rates return to pre-conflict levels, whichever is longer.

6. Freight Surcharge Monitoring and Disclosure Under MOT — Shipping lines continue to impose port fuel adjustment surcharges outside contracted rates and without prior notice. MOT should require shipping lines operating at Malaysian ports to publicly disclose all surcharge categories, applicable rates and basis of calculation and establish a formal complaints channel for cargo owners to contest charges not supported by documented cost justification.

7. Fast-Track Regulatory Approvals for Alternative Raw Material Sources — MITI and relevant technical agencies should establish a specific fast-track pathway for manufacturers seeking to qualify alternative-origin raw materials during the conflict period, with defined response timelines, acceptance of equivalent quality certifications and risk-based assessment. FMM also urges the Government to extend government-to-government supply arrangements to additional origins including Kazakhstan, Canada and other potential sources for sulphur, ammonia, fertiliser inputs and selected polymer grades.

8. Introduce Targeted Employment Retention Support — FMM proposes for the government to introduce targeted, time-bound wage or employment retention support for affected companies, particularly SMEs and export-oriented manufacturers, conditional on retaining employees during the crisis period. Without adequate support, companies facing sustained cost and cash flow pressure may find it increasingly difficult to maintain their current workforce levels. Direct employment retention support, tied to a commitment to keep workers on, gives manufacturers the breathing room to hold their workforce while the broader relief measures take effect.

Conclusion
The second survey shows that the conflict is no longer affecting only freight rates and logistics costs. It is now reducing production, weakening order books, straining company finances and putting jobs at risk. The Government has demonstrated through its actions, including the weekly NEAC sessions and the Crisis Management Taskforce that it is treating this as a national priority. FMM will continue to support that effort with data, engagement and concrete proposals. The measures above are targeted, proportionate and implementable within existing frameworks.

Malaysia's manufacturing sector contributes significantly to the country’s economy, accounting for 23.4% of GDP. Acting on FMM’s recommendations now will help manufacturers hold that position until the broader disruption resolves.

Mr Jacob Lee Chor Kok
President, Federation of Malaysian Manufacturing
FMM Advocates Transparency, Integrity, Accountability and No Corruption

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About FMM
The Federation of Malaysian Manufacturing (FMM) has been the voice of the Malaysian manufacturing sector since 1968. Representing over 13,300 member companies (4,200 direct and 9,100 indirect) from the manufacturing supply chain, FMM is actively engaged with government and its key agencies at Federal, State and local levels. FMM is also well-linked with international organisations, Malaysian businesses and civil society. Apart from benefitting from FMM’s advocacy, FMM members enjoy value-add services, including training, business networking and trade opportunities as well as regular information updates.

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