Cabotage Principle: Who exactly stands to benefit from it?

May might be considered a historical month for Indonesia’s maritime community. In it Presidential Instruction (Inpres) No. 5/2005 was signed by then President Susilo Bambang Yudhoyono, marking a new milestone in the country’s shipping industry. With the executive order the cabotage principle came into force. For an industry with limited achievement along its existence such policy is really worth to celebrate.  And, the industry must really celebrate the implementation of cabotage principle because they were the prime mover behind the enactment of it.

The cabotage principle has given more muscle onto domectic merchant fleet posture. Prior to 2005, Indonesia-flagged vessel was only 6,041 units. The available current data indicate that the initial figures has increased by more than two fold to more than 13,244 units soon after the US’ Jones Act-inspired measure adopted. This is equivalent with 19.2 million GT. The existing armada consists of 1,194 (18.7 percent) units of general cargo carrier and 210 (2.02 percent) units of container transporter.

All of those ships have helped the local operators totally dominating the inter-island trade of all commodities. Of them 1.5 million tons of crude palm oil and 110 million tons of coal are hauled annually. In offshore drilling, the cabotage policy has provided the local players chance to seize its upstream and downstream activities transportation by 25 percent and 35 percent respectively.

Elapsing ten years in which time far reaching development happened in the international and local maritime realm, in this case the introduction of maritime axis by President Joko “Jokowi” Widodo, the condition prompts a question: is the cabotage principle still needed or not?

The world’s economy is still contracting due to slowdown in business activities in Europe, North America and other main markets since 2009. Political turbulences across the globe also complicate the situation. As an economically and politically sensitive business, the two troubled fronts send the shipping industry into the swamp of problems, marked by, among other thing, the imbalance of containerized shipment and drop of freight rate for dry bulk commodities transportation.

According to Review of Maritime Transport, a publication released by the United Nations Conference on Trade and Development (UNCTAD), in 2012, containers moving from Asia to the US reached 13.3 million TEUs while the box outflow from the country was 6.9 million TEUs. These boxes were mostly the empty ones. The similar trend also happenend on the Asia-Europe trade route. About the empties, UNCTAD also reported that the maritime shippers spend US$100 billion per year of this US$16 billion is allocated repositioning them.

Dry bulk transportation is more volatile than the container shipping since it is based on spot demand made by the shipper. If we refer to the Baltic Index, the market tends to fall caused by low activity of the bulkers (Panamax, Suezmax, Handysize) worldwide and this is paralel with the cargo owner’s decreased shipment of iron ore, coal, grains. Indonesia is one of the countries that badly hit this business by its coal export ban last year.

According to data available at the Indonesia Coal Mining Association, before the ban, Indonesia exports more than 200 million tones of coal yearly to various destinations. Unfortunately, the shipment of exported coal is wholly controlled by the foreign vessels. The identical fate is also happened in the country’s almost a million barrel oil export transportation; all grabbed by the overseas operators. The two situation are in contradiction to the cabotage implementation success.

Mainly prohibiting foreign-flagged vessels sail between ports in Indonesia, the cabotage principle is now manipulated by the executives of the Indonesian National Shipowners’ Association (INSA) as the main message in their anti-foreign campaign. Within the context, as widely reported by the media, the organization has called for the Transportation Ministry to consistently reject any new request of shipping business permit (SIUPPAL) by a local shipping company whose majority shares held by the foreign interest.

I am not againts nationalism in business, but you cannot speak up abruptly about such spirit in the shipping world. It is one of the only two business sectors heavily regulated by various international regulatory regime. The other is airline. And, INSA has proven what was the meaning of international word. From the existing national merchant fleet after the implementation of cabotage principle, almost all were purchased abroad of which the funding provided by the international financial institutions.

The implementation of cabotage is also being questioned in the US, the country Indonesia intensively refers in formulating the policy for domestic use. Reuters reported that Senator John McCain has filed an amendment to repeal the Merchant Marine Act of 1920, known as the Jones Act. For us in Indonesia the reason for the repeal of cabotage is that we do not want a group of businesspeople to use it for their own interest. After ten years of implementation it only strengthens limited shipping business players, less than twenty companies. The rest of national shipping firms remain undermanned, ill-funded. Consequently, they merely can operate sub-standard vessel with insufficiently paid crew, pushing our waters as dangerous spot for sailing.

Diterbitkan dalam majalah INDONESIA SHIPPING GAZETTE, 1 Juni 2015