KUALA LUMPUR – Malaysia’s manufacturing sector is facing mounting commercial losses as the prolonged West Asia crisis continues to disrupt supply chains, with companies increasingly losing orders, customers and investment opportunities, according to the Federation of Malaysian Manufacturing (FMM).

FMM said findings from its Third Survey on the Impact of the West Asia Conflict on Malaysian Manufacturing, Trade and Supply Chains showed that what began as higher freight and energy costs has evolved into a broader competitiveness challenge affecting business sustainability.\

Its president, Jacob Lee Chor Kok, said 87 per cent of the 196 companies surveyed reported that operating conditions had either deteriorated further or remained unchanged, while 65 per cent saw no improvement across their operations since early May.

He said 74 per cent of respondents continued to face production costs that were between 10 and 50 per cent above pre-conflict levels, with freight and logistics remaining the largest cost driver, followed by raw material shortages and higher energy costs.

“The survey indicates that rising costs are no longer a temporary challenge but have translated into real commercial losses.

“Only six per cent of manufacturers are able to pass on higher costs while maintaining margins, while 58 per cent are operating at or below break-even on affected product lines,” he said in a statement on Thursday.

According to the survey, 39 per cent of manufacturers have already lost orders to competitors in less affected markets, 19 per cent have discontinued unprofitable product lines, while nine per cent have lost at least one major customer or contract. Another 19 per cent expect to lose customers if current conditions persist.

The prolonged disruptions are also affecting long-term business decisions, with 42 per cent of respondents implementing workforce adjustments, including hiring freezes and reduced working hours, while 41 per cent have deferred or cancelled investment, automation or expansion projects.

FMM welcomed the government’s recent initiatives, including Bank Negara Malaysia’s SME Stabilisation Relief Facility and efforts to facilitate alternative raw material sourcing, but noted that many mid-tier manufacturers remain ineligible for existing assistance schemes despite facing significant cash flow and financing challenges.

To strengthen the sector’s resilience, FMM urged the government to implement six key measures, including duty and tax relief for alternative-origin raw materials, double tax deductions for crisis-related freight and insurance costs, industrial fuel cost relief, a dedicated financing facility for mid-tier manufacturers, deferment of remaining port tariff increases, and a government-led domestic supplier matching programmed.

FMM said timely and targeted intervention would be critical to prevent temporary disruptions from becoming structural disadvantages that could undermine Malaysia’s industrial competitiveness, investment climate and employment in the longer term.