INSA: A tough or weak player?

This month (March) is the ninth anniversary of cabotage principle implementation in Indonesia. Since its enactment on March 8, 2005, the policy has been contributing a lot to the national shipping business. The Indonesian Shipowners’ Association (INSA) claimed that the cabotage principle had helped their members to double Indonesia-flagged fleet posture to the existing number of 12,000 vessels from previously 6,000 in 2005. In terms of money, the achievement totally valued US$14 billion while before the cabotage principle being implemented the figure was US$1.5 billion. 

The cabotage principle entered into force through the Presidential Instruction or INPRES No. 5/2005 in which INSA was its main proponent. It was then integrated into the Shipping Act No. 17/2008. For Indonesia the cabotage principle is not a new one because the country ever practised it in 1960s, not long after Prime Minister Djuanda declaring his famous declaration, the Djuanda Declaration, in 1957. We can see the implementation, for instance, in the Government Regulation (PP) No. 5/1964 or PP No. 1/1969 that obliged all seaborne domestic cargo transportation to be haulaged by the the national shipping lines using Indonesia-flagged vessels. 

On the other hand, for Indonesia’s ocean going commodities those regulations required that they must be shipped jointly between the national shipping lines and foreign counterparts under the spirit of fair share. This requirement was in accord with the United Nations Convention on Code of Conduct for the Liner Conference 1975.

Unfortunately, all the PP were badly executed due to the government’s own inconsistency where, in 1984, the Transportation Ministry issued a ministerial decree, No. 57/1984, ordering all vessels above 20 years to be scrapped and their replacement would be made available by the government. This promise, however, did not work since it was never materialized until the national shipping community wanted the cabotage principle to be revitalized in 2005.

With what it had done INSA, with the support of the Transportation Ministry, now launches a new initiative called beyond cabotage program. It is a measure to expand share of the local shipping lines in transporting Indonesia’s export. For the first phase, it targets the coal and palm oil shipment. Our shipping history records that portion of the national shipping players continuously declining after the implementation of the abovementioned scrapping policy. In terms of coal transportation, available data indicate that from more than 200 millions ton of exported coal almost all being shipped by the handysize-class vessels of foreign countries annually. Handysize-class includes of Supramax (50,000-60,000 DWT) and Handymax (40,000-50,000 DWT). 

To make its effort runs smoothly, INSA is currently requesting the government to exempt, among other thing, the value added tax (VAT) on cargo handling and bunker purchasing. Previously, the association had been able to bargain the Financial Ministry lifting VAT on the waters transportation services through a Ministerial Decision, i.e. No.80/2012. In general practice in the shipping business across the globe special treatment to the operators is a common thing. France, for example, provides operating, construction subsidies, depreciation and low interest rate for its shipping operators, but not tax exemption. Meanwhile, Germany only gives low interest rate and depreciation to its operators.

INSA’s demands are acceptable. The problem is only that it does not retribute for what it wants to get. In case of VAT exemptation INSA cannot suggest alternative revenue source to substitute financial loss the state will suffer if their request granted. Not like its counterparts overseas, INSA members’ income mostly comes from the freight rate. They do not yet try to set up the port business to complement it whereas the chance for that is widely opened by the government. Shipping is a capital intensive business yet slow yielding, you cannot completely rely on the freight rate to payback your investment.

Indeed, if we look at the big harbors like Tanjung Priok in Jakarta or Tanjung Perak in Surabaya, East Java, members of the association, via their subsidiary, has been involving in the terminal handling services. But, they are only the operator, the owner of the terminals are state-owned port corporation, PT Pelabuhan Indonesia or Pelindo. This kind of cooperation is called the terminal operator scheme where Pelindo only provides billing for the services. What we want to see is that members of INSA can operate new ports or terminals at the new developed areas.

Except for unable to intensify complementary revenue outside the freight rate, INSA members are also not yet increasing their presence nationwide; their services are limited at the big ports. It seems that shipping operators hide behind the adagium “ship follows the trade”. In other word, this means that they will not serve certain region, especially a remote one, no matter how badly it requires shipping connection unless the service is financially sound.

Such attitude is of course not wise. As a group of individuals with vision above the average level, shipping executives should be brave to challenge the uncertainty. Indonesia urgently needs connectivity for its huge islands and this cannot solely be expected from the government. Businessmen have share to fill in the gap since they have money, networks, etc for that. So, you need to give in order to get, INSA guys. Don’t always ask, ask and ask. Are you a tough or a weak business player? Hopefully you are the first one, not the later.

Diterbitkan dalam Majalah INDONESIA SHIPPING GAZETTE, Senin, 7 April 2014