Gov't Orders Local Shipping Services to Handle Coal & CPO Exports
Through Trade Ministry Regulation No. 82/2017 on the Terms of Use of National Shipping and Insurance Companies for the Export and Import of Certain Goods the Indonesian government requires exporters of crude palm oil (CPO), coal and rice to use ships that are owned by local sea transport companies as well as to use domestic insurance. This regulation will come into effect, gradually, per May 2018.
In the first year of implementation, coal and CPO shipments from Indonesia will be required to be handled by vessels that are owned by Indonesian companies (and they have to obtain insurance at a national insurance company).
Key goal of this regulation is that domestic shipping services companies benefit more from the (rising) amount of sea trade. Costs of sea trade across Indonesian waters is estimated to be worth IDR 2,400 trillion (approx. USD $176 billion) per year. So far, however, most of these earnings are being enjoyed by foreign shipping services companies.
Similarly, Indonesian insurance companies can expect to see rising income on the back of insurance sold in the context of coal and CPO shipments. Dody Achmad Sudiyar Dalimunthe, Executive Director at the General Insurance Companies Association (AAUI), said insurance premiums for coal and CPO shipments can go as high as IDR 941 billion (approx. USD $69 million) per year.
Oke Nurwan, Director General for International Trade at the Trade Ministry, says it is important to design and implement this regulation because without any encouragement from the government there will be no Indonesian investors or companies preparing vessels to handle sea trade. Meanwhile, Indonesian exporters will also not be encouraged to use Indonesian services. Instead they will continue to use foreign services.
Nurwan added that Indonesian sea transport companies are advised to offer more competitive prices than their foreign counterparts in order to push logistics costs down. Indonesia is known for having very high logistics costs. This undermines the attractiveness of the investment and business climate as well as cuts companies' net profit.
Although there are still many Indonesian companies that have contracts with foreign shipping companies for the export (or import) of specific goods, Nurwan emphasized that these contracts can be rearranged when the government makes new policies that have to be followed. For exporters who fail to comply with the new regulation there will be sanctions, ranging from fines to the suspension or revocation of licenses.
However, as long as domestic shipping capacity is not sufficient to handle all exports of CPO and coal, the Indonesian government will continue to allow foreign companies to handle shipments.
Carmelita Hartoto, General Chairwoman of the Indonesian National Shipowner's Association (INSA), said this new regulation will benefit local shipping companies as currently around 90 percent of shipping in Indonesian waters is handled by foreign vessels. Domestic shipping capacity was only estimated at 67.2 million tons in 2016, while foreign vessels shipped 976.2 million tons that year.
She added that the regulation brings opportunities as well as challenges for national shipping companies. The major challenge for domestic shipping companies is to create enough quantity (capacity) and quality in terms of shipping services. Togar Sitanggang, Secretary General at the Indonesian Palm Oil Producers Association (Gapki), reacted by saying that he is concerned whether local shipping companies can guarantee enough capacity for shipments of palm oil. He is not unwilling to see the breaking off of contracts with foreign shipping services, but palm oil exporters need to be sure that their shipments can be done by local shipping services. Hence, the government has to show a list of local shipping firms, the size of their ships, the names of their vessels, and more details.
Similarly, the Indonesian Coal Mining Association (APBI) urges the government to postpone the implementation of the regulation because the domestic shipping services industry is not ready yet. Indeed the government allows the use of foreign shipping services in case local capacity is insufficient. However, there are few clear details on this topic. If it remains unclear, while the regulation comes into effect in May, then it could damage Indonesia's export performance.