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.