Supply shocks squeeze Malaysia’s factories amidst Middle East-driven cost surge

Nine in 10 firms are either hit or are expecting to be affected in the next four weeks.

Malaysia’s manufacturing sector is under mounting strain from global supply chain disruptions and rising energy costs linked to the ongoing conflict in the Middle East, according to a survey by the Federation of Malaysian Manufacturers.

The survey found that nine in 10 firms are either already affected or expect to be within the next four weeks. Shortages of raw materials, sharply higher logistics costs and tightening diesel supplies are placing production continuity at risk, with food, household goods, packaging, chemicals and other consumer-linked industries amongst the most exposed.

Manufacturers warned that production lines are increasingly vulnerable to stoppages, whilst export orders are being cancelled or renegotiated amidst growing financial pressure.

The findings underline Malaysia’s deep integration into global supply chains, with 82.9% of companies sourcing more than 30% of their inputs from overseas. Disruptions across energy, freight, fuel and materials are now feeding through the domestic economy, with knock-on effects on retail supply and prices.

The survey noted that even if geopolitical tensions were to ease immediately, delays in restocking, higher insurance premiums and contract renegotiations would continue to weigh on operations for months.

Nearly 70% of manufacturers expect raw material shortages within a month, whilst 8.2% have less than two weeks of critical stock. Plastics, specialised chemicals, metals, food additives and rubber inputs are among the hardest hit, raising the risk of halted production across both consumer and industrial goods.

Energy and logistics costs have surged sharply. Almost half of respondents reported industrial energy costs rising by 10 to 30%, whilst 21.8% cited increases of 30 to 50%, and 11.8% said costs had jumped by more than half.

Freight rates have also escalated, with 52.7% of firms reporting increases of 20 to 50% and 17.7% seeing rises above 50%, often outside existing contract terms. Diesel shortages for domestic haulage are further delaying shipments and pushing up transport expenses.

The impact on output is already visible, with 48.2% of companies reducing production or suspending lines, whilst 51.8% report export disruptions including delayed deliveries, cancelled orders and buyer-led renegotiations.

Working capital pressures are affecting 74.5% of firms, with nearly one in five warning of constraints severe enough to threaten operational sustainability. The same proportion reported production cost increases of at least 10% compared with pre-crisis levels.

In response, the industry association has called for swift government intervention to stabilise supply chains and ease cost pressures.