A seafaring nation needs a merchant fleet of vessels

A seafaring nation needs a merchant fleet of vessels

By Dirk Vlasblom

This is the second of two articles based on an interview with
prominent shipowner Soedarpo Sastrosatomo.

Question: It seems you were once jailed for weapon-smuggling.
How was that?

Answer: I was accused of having participated in smuggling
weapons for the PRRI (a rebel government with its headquarters in
West Sumatra). That was simple. The U.S. had ties with the PRRI
and the CIA was involved. Ships of Isthmian Lines transported
weapons, officially destined for Bangkok, but the ship in
question moored in Dumai (Riau) with goods for Caltex.

According to me that was a case of collusion. I was the agent,
they arrested me and I was detained in Jakarta by the military
for 40 days. When my wife came to visit me, I said: "Ask for an
audience with Sukarno." My interrogating officer said: "Your
circle of friends crawls with rebels." I replied: "That may be
so, but do you know Nasution? Do you know Yani? (Both were
influential generals at the time) Do you know Sukarno? Surely you
have to weigh which of my acquaintances are more important." I
also said: "If you have sufficient evidence of my guilt sue me."
But on the day the case was to be submitted to Sukarno, I was set
free. A game of chess in itself.

Q: How did you, as an entrepreneur, judge Sukarno?

A: The man didn't know the first thing about economics! What
would he know about that? The man who lead the confrontation with
Malaysia was Soebandrio, not Sukarno. Take the Japanese war
reparations, the person who pocketed the commission was Dewi, not
Sukarno. The man didn't have any notion of commerce. One day he
summoned me for another matter, he asked me to join him for
lunch. Nasi bungkus (a rice dish), no pretension whatsoever.

Q: In 1964 Sukarno stated that Indonesia was a seafaring nation
and he gave instructions to build a national merchant fleet. The
naval officer Ali Sadikin was appointed minister of sea
transport. That was a breakthrough, right?

A: More than that, it was a milestone! Extremely important.
Earlier you mentioned Sumitro. Our group at the time made a
commitment. In the independence movement I was entrusted with the
task to ensure we would become a shipping center, which I tried
to achieve. At that time there was no State Logistics Agency, but
I tried to import a lot of rice. We took part in rice imports
with chartered ships. So we were already running a shipping
venture with the encouragement of the group. Many among them
became military men. Take Daan Jahja (military governor of
Jakarta, 1949 to 1959). During the transfer of sovereignty Daan
was our man in Jakarta.

When Sukarno said that we are a seafaring nation and we should
have a merchant fleet, I joined with experts to develop this idea
and Sukarno became the nakhoda agung (chief captain). Ali Sadikin
was given the task to establish shipping companies. So all firms
in the field were screened. After this screening they were
integrated with stevedoring, trading and warehousing firms. So
shipping companies were established which got the right to
endeavor in these related activities and those are the real cash
cows. In spite of the foreign exchange regime, all our revenues
from agencies and stevedoring were in foreign currency. We were
allowed to use that.

Q: At that time you did not own any ships yet, did you?

A: I obtained them only in 1965. In 1964 I established PT
Samudera Indonesia. The company bought ships cleverly with the
assistance of Hapag-Lloyd, Germany, and after the war built ships
but the speed was restricted by the Allied Forces. Ships could
not exceed 15 knots. In the 1960s this was already obsolete. I
purchased two of these ships. When the selling party asked:
"What's your collateral?" I said: "Our agency is." That is one
case which was settled smoothly and successfully. Actually there
was a great deal of luck involved, but I made use of the existing
connections.

Q: Pak Darpo, what was the initial core of Samudera Indonesia's
fleet. Inter-insular or ocean going ships?

A: We began in 1964 with ocean shipping, that is to say outside
the archipelago. We had permission for that. When this started to
run well, around 1967, we realized that if you do not enter
inter-insular shipping, your company is not integrated. In 1968
we formed a domestic line, which for the sake of the license got
its own name: PT Panurjwan. This daughter company, which still
exists, serves domestic shipping lines in order to supply basic
necessities to all major Indonesian ports such as Jakarta,
Semarang, Palembang and Balikpapan.

Q: To what extent has the Indonesian shipping business benefited
from the New Order?

A: It wasn't the New Order that stimulated shipping, it was
Sukarno who did! Don't you forget that! And the father of the
national merchant marines was Sadikin (now a spokesman for the
dissident grouping Petisi 50).

In fact the New Order was detrimental to what Sadikin had
accomplished. For example the right for shippers to also carry
out stevedoring activities was revoked in 1982. And there was
nothing in its stead.

Sadikin understood that merchant shipping is capital-
intensive, that yields are slow and revenue is low and that
disguised subsidies are required, via simultaneous maintenance of
agencies, stevedoring firms and warehousing.

Because the latter hardly require investments, it is just a
matter of services. That right was revoked by the New Order
because those technocrats, being export-oriented, view our role
as shipowners or shippers in those branches of the industry as a
cost-increasing factor, which shouldn't be stimulated. I can
understand their point of view, but they should offer something
else in exchange!

The more so when the Habibie brothers (former director general
of sea transport Fanny Habibie and his elder brother, minister of
research and technology, Rudy Habibie) entered the scene. Old
ships of over 2,000 tons were no longer allowed to be used, they
had to be scrapped. All this based on the theory that their
replacements would be made by our own shipbuilders.

But they did not take into consideration that if these ships
were to be sent to the scrap heap, their replacements should be
available on time. Ordering ships under 5,000 tons abroad was
prohibited. In general our ships were all old and had to be
scrapped. Thus our merchant fleet and the Indonesian shipping
industry was practically killed. To date this regulation has not
yet been revoked.

Presidential Instruction No. 4/1985 was to facilitate the flow
of interinsular and foreign trade. It was the most radical
deregulation measure since the beginning of the New Order. The
Surat Keagenen Umum (General Agency Permit) was abolished (as was
the permit for discharging and loading and the principle of
domestic cargo on national ships). In the past this Surat
Keagenen Umum (SKU) gave us a kind of protection. If foreign
ships tried to compete, the transport ministry would not issue a
SKU. This rule has been abolished. The more ships, the more cargo
capacity available and transportation becomes cheaper. There is
truth in the theory. But the essential means to compete. An
Indonesian merchant fleet, meanwhile, was lacking. The only
philosophy behind this deregulation was to promote export.

That is where they are wrong. Policymakers thought that with
the hectic global activity we should improve our ability to build
our own ships. In the long run we should be able to also
manufacture for overseas customers. It is a sound idea, but the
ability is not there! The reality is quite different: quality is
bad and prices are high. Well, how do you expect to attract
foreign customers? And the production of our shipbuilders is
slow. The program was finalized in 1995 only, while we needed it
10 years ago.

Q: Does Indonesia keep pace with developments in container
shipping?

A: No. I will give you an example. In the 1980s this company
refused to follow government policy. Conventional wisdom at the
time was to safeguard our shipping companies which in general
dealt in "great bulk", not containers. We should not shift too
fast to containers, we were supposed to import semicontainer
ships first.

I said: "that's wrong". The government's argument was: we now
deal with a lot of projects, and these, are served by "great
bulk" ships. And yet within three years these projects were
finished and subsequently transports were containerized.

Other countries went into container-transport much, much
earlier. I have these associates: Trikora Lloyd, Jakarta Lloyd.
We had great bulk cargo ships, 11 were sold between 1980 and
1985. And in order to meet the qualifications we ordered new
ships in Japan of 6,000 tons to ship forest products, plywood.

Why? Because these boats can sail up river. And southbound we
don't have too much trouble to find cargo. That was the reasoning
behind it. It worked!

We started containerization in 1981. I called on Fanny
Habibie, at the Directorate General of Sea Transport. I said, "I
want to start a feeder service between Jakarta and Singapore." At
the time it could only be done by Pelni and another state-owned
companies.

My personal relationship with Fanny is good. He calls me
"Uncle" and there is no nonsense. "What do you mean, Uncle?"
Fanny asked. I said: "I want to buy a log carrier of about 10
years old, abroad." "Why?" he asked. "It is cheap, I buy it and
then I convert it to start a feeder service." He said OK. I
bought it. I had it converted in the Philippines, by a company
which had already converted eight of our ships. When it was
finished, I came back.

"Oh, it isn't possible," Habibie said. I said "How is that,
Fan, it must be done, otherwise we will lag behind foreign
ships." After all, he was the president commissioner of Pelni. I
said, "Frankly, Pelni is not capable to run this."

He got angry. "Why not?" he asked. "Because in the first
place, our culture is not a container shipment culture. That is a
culture of its own. With all due respect, if you are not careful,
Pelni's 60 percent domestic market share will became peanuts."
That later appeared to be correct, it was like a prediction.

So I chartered that ship, I registered it in Singapore and
used it between Malaysia and Singapore. Samudera Indonesia acted
as its agent here. Consequently, this Singapore-registered
company established a feeder service between Singapore and
Indonesia, for which we became the operator.

That couldn't be prohibited. So we gained experience as to
what is required of an owner and what is required of an operator.
That was an advantage. Now Samudera is one of the four main
players in the feeder business between Singapore and Indonesia.
As far as Jakarta is concerned, we are responsible for about 40
percent.

Q: What is the current composition of the Samudera Indonesia
fleet?

A: To tell you the truth, we need not own ships. Because owning
ships gives you a headache. However, at the moment I handle about
40 ships. In order to avoid, well, all the difficulties here, I
established a company in Singapore because the procedures for a
shipping business are much easier there. For example, to purchase
ships you need no permit, there is no levy to register the ship,
no tax, no inspection, and no corporate tax. We are its agents
here. Furthermore, financing also goes via Singapore. We can sell
the track record. At the moment we have three feeder ships
servicing Bangkok and Singapore. All in all, 18 ships go from
Indonesian ports to Singapore and up to Bangkok. Every week we
handle this shipping route.

Q: If we were to compare the main ports in Southeast Asia, how
would you evaluate Tanjung Priok, Tanjung Perak and Belawan?

A: Far behind. First, the facilities are obsolete. This is also
true for capacity. Tanjung Priok can only handle 750,000 moves
per year. What is needed now is already over one million.

Obsolescence is also apparent in management techniques, so
productivity is low. Recently there were rumors about
"surcharges" in Tanjung Priok. The minister himself had to
intervene to improve the situation. But that's how it is. Because
frankly, without privatization of port management there will be
no change. There is no incentive for them to do their best.

The government of Singapore has already done this
successfully. They applied privatization in order to improve
their productivity and efficiency. We didn't want that. Well, now
the government is just starting to talk about "private
participation", for example in expanding the container port in
Surabaya. We take part in that. There we are forced to go into a
kongsi (share) with Mbak Tutut (president Soeharto's eldest
daughter). We had to cross that bridge because Mbak Tutut holds
the "magic letter".

Q: Does PT Samudera Indonesia cooperate with Pertamina?

A: No. We were interested in the past, but never got the chance.
Pertamina planned to set up a methanol plant while we at the time
already had an affiliate company running chemical tankers. They
said, think about it, prepare yourself for methanol. We did that.
We purchased an extra ship, a 3-year-old tanker.

When we were ready, a decision was issued that all
petrochemical products of Pertamina would be transported by
Humpuss (a business conglomerate owned by Soeharto's youngest son
Tommy). For the methanol, to all directions, Humpuss got US$22.
We carried it out as a subcontractor for Mas Tommy for $19. When
this had been going on for one year he thought: "They make a
profit there, why don't we do it ourselves?"

If I were him I would have done the same thing. He's smart.
Based on that experience, it doesn't pay because you get the
growing pains and he reaps the benefit.

Q: Indonesian shipping and sea transport circles are haunted by
an old obsession, called Singapore. To what extent is Indonesia
capable to compete?

A: Don't talk about competition, cooperate! We should have
discussed this a long time ago with Singapore. In order to
accommodate their overvolume in cargo. Now developments have gone
too far already. But I think with the establishment of the Global
Alliance (a new partnership between American President Lines,
Dutch Nedlloyd, Japanese Mitsu-OSK, OOCL. from Hong Kong and
Nedlloyd's Malaysian partner MISC), there is a breakthrough.

Singapore is a rascal, arbitrarily it has increased
stevedoring rates, already twice within two or three years. This
alliance then explored an alternative to Singapore and submitted
a proposal to us to build a "dedicated terminal" especially for
the Global Alliance, because they have one million moves per
year. That is enough and it might begin operating at the end of
1997. In that case we can cooperate, and we need not compete with
Singapore. Just develop, get integrated.

However, the obsession you mentioned is an impossible dream,
because Singapore does not just mean port facilities. Behind it
there are financial institutions, trading practices; you must
have that support. If you discuss this with Habibie, he doesn't
understand. Anything commercial is a blind spot. He chooses to
listen to other people's opinions only occasionally. When he
invited me to talk I made the following suggestion: Next to the
Global Alliance terminal we should build a public terminal for
our interinsular feeders. He said he would entertain the idea.
The problem is it involves a lot of money.

Q: According to you, what should be Indonesia's priorities?

A: There are two problems. If we want big ships to call at our
ports, we're dreaming. Our ports are only able to serve ships
with limited draft. It could be done, but that would mean around-
the-year dredging to keep the fairway open at this draft. We
don't have that culture here. Belawan (the main port of North
Sumatra) is a case in point. Secondly, our port facilities cannot
serve big ships. We must serve the smaller ones. We should
concentrate on improved feeder container ports, let's not try to
create a hub. Moreover, we don't have the supporting facilities I
mentioned; financial institutions and trading. The capacity of
Priok, if we go on like this, could achieve 2 million moves and
that is still a long way to go. By the time the extension is
realized it will be too small already. So let Singapore be the
hub. As long as we are able to control Singapore together with
the (other companies) so that they cannot arbitrarily raise the
stevedoring rates.

Q: What is the major handicap in ship handling by Indonesia's
main ports?

A: First of all the culture, the way people think must change. At
present Indonesia in general considers information technology as
a luxury. Changing this attitude is the first prerequisite if we
wish to move on. Since 1958 I have been like a voice in the
desert, calling that the Indonesian people should master
information technology. In a lot of offices computers are just
ornamental. It's difficult. The culture is not there. And yet, in
shipping matters handling is no longer manual. We must use
computers. How can you expect to handle things quickly when the
papers to be issued -- like invoices, bills of lading -- still
have to be filled in manually?

Containerization means: on time, accurate, safe. If these
elements are not combined, well, it can't be done. And this
program takes a long time. Information technology should not be
extracurricular in our secondary schools, it should be
obligatory. I tried to breathe life into this idea within my own
community. My grandchildren, at a tender age I gave computer
games as toys, so they learned to live with technology. Now my
eldest grandchild is already selling multimedia (products) at the
age of 19 years. Because it was a toy from childhood!

-- INA Magazine

Window: If we want big ships to call at our ports, we're dreaming.
Our ports are only able to serve ships with limited draft. It
could be done, but that would mean around-the-year dredging to
keep the fairway open at this draft. We don't have that culture
here.