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It was recently reported that two shipments of CPO from
Indonesia valued at approximately US$1.6 million were denied entry into
a Malaysian port as they were not being carried by the required
double-hulled vessels.
Starting Jan. 1, 2007, Malaysia introduced the International Maritime
Organization (IMO) regulation requiring the scrapping of single-hulled
vessels, vessels over 25 years of age, and vessels the fail to meet IMO
2 standards.
The IMO also requires certain types of liquid cargo to be carried only
by chemical tankers using double-hulled vessels (two layers of steel)
for better protection.
Officials from Malaysia and Indonesia are currently engaged in
discussions to seek a compromise as most Indonesian vessels are
single-hulled. Indonesia has asked for an exemption from the IMO
requirement to allow time for an upgrading to double-hulled vessels.
But the change can't be delayed forever.
In March 2005, the Indonesian president issued a decree aimed at
accelerating the development of the domestic shipping industry.
As a measure taken to reduce foreign dominance of the industry, the
decree stipulates: (1) that all domestic goods and imports destined for
state-owned companies, and carried between the nation's seaports, must
be carried by Indonesian-flagged vessels; (2) a reduction in the number
of ports open to foreign vessels from 141 to approximately 20 to 30;
(3) the need for fiscal incentives for domestic shippers; and (4) the
necessity of developing financial services tailored to the needs of
domestic shippers.
This cabotage decree is designed to make it easier for Indonesian
shippers to secure contracts since it reduces the likelihood of the
renewal of foreign shippers contracts.
Approaching full cabotage implementation in 2010, the supply of vessels
is expected to tighten as foreign operators are forced to exit the
domestic market. Combined with the IMO regulation, the availability of
vessels will be further narrowed to those with double hulls.
Two years after the issuance of the cabotage decree, there has only
been limited progress to date. Recent statistics show that around 70
percent of domestic and overseas shipping cargoes are still carried
onboard foreign-flagged vessels.
What is actually hindering the implementation of cabotage and hence the
development of the Indonesian shipping industry? Is it actually
something to do with the cabotage decree itself?
Financing problems have been blamed for the slow growth of the
Indonesian shipping industry, as well as slow progress in the
implementation of the cabotage decree.
How many additional vessels does Indonesia need? The Indonesian
National Shipowners Association (INSA) estimates that an additional
400-500 tugs and barges, and 80 Panamax (60k-80k DWT capacity) vessels
will be needed to transport the 140 million tons of coal reserves found
in Kalimantan alone.
Meanwhile, around 50 additional tankers of between 15k DWT and 30k DWT
will be needed to carry biodiesel. Hence, an investment of US$4.5
billion will needed to finance the procurement of these new vessels! A
huge amount, indeed.
Even if financing were to be available, the supply of new and
second-hand double-hulled vessels worldwide is limited.
Many shipping lines have rushed to order double-hulled vessels before
the IMO bans single-hulled ships in 2010. South Korean shipbuilders
(which had a 38 percent share of the global market in 2005) have
experienced a surge in orders for new vessels. But today's new orders
will only be delivered in four years time.
Another problem is that most Indonesian shipping companies prefer to
keep their vessels under foreign flags, which makes it easier to
operate outside Indonesian waters, and to command better rates.
Moreover, the early implementation of the IMO regulation in a number of
parts of the world, such as Malaysia and the European countries, will
further delay the implementation of Indonesia's cabotage rules.
The inadequate supply of suitable Indonesian-flagged double-hulled
vessels to carry liquid and chemical cargoes to Indonesia's overseas
markets leaves little choice to the CPO, crude oil and liquid chemical
producers than to charter foreign-flagged vessels.
Given the limited time left -- only three more years until the full
implementation of cabotage here, and four years for the building of new
vessels -- the government needs to provide real incentives and proper
regulations to help domestic shipping firms procure more vessels,
rather than just verbal encouragement, as has been the case to date.
For instance, the government could provide tax exemptions for those
companies that are willing to reflag their double-hulled vessels as
Indonesian.
Action must be taken quickly, otherwise cabotage will become nothing
more than an unrealistic target.
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