AFTA offers great opportunity to shipping business

AFTA offers great opportunity to shipping business

Rikza Abdullah, Contributor, Jakarta

This Special Page is published in conjunction with the Trans
ASEAN 2002 Conference and Exhibition, which opens at the Jakarta
Convention Center here today.

Over 40 industry leaders in international and regional
transportation-related businesses are expected to participate in
the three-day event held following the Eighth ASEAN Transport
Ministers' annual meeting.

This year's implementation of the ASEAN Free Trade Area (AFTA)
agreement offers Indonesia a great opportunity to expand its
shipping business. But various problems are hindering it from
gaining greater benefits from it.

Before the full implementation of the agreement, the ASEAN
member countries, under their Common Effective Preferential
Tariff (CEPT) scheme, were able to increase trade among their
countries by an annual average of 11.6 percent, or from US$44.2
billion in 1993 to $95.2 billion in 2000, according to the ASEAN
Secretariat in Jakarta.

Bringing forward ASEAN's trade liberalization under its AFTA
agreement to Jan. 1, 2002, will most likely boost trade among its
members further because they will have lowered duties on most of
their products.

Under the agreement, the association is committed to
eliminating all import duties by 2010 for its six original
members (Brunei, Indonesia, Malaysia, the Philippines, Singapore
and Thailand) and by 2015 for its new members (Cambodia, Laos,
Myanmar and Vietnam). To date, about 98.3 percent of the products
from the six original members are included in the CEPT scheme, of
which 92.7 percent either apply no duty or up to 5 percent.

As intra-ASEAN trade increases, AFTA will make ASEAN an
attractive investment location for regional and international
investors, given the expected lower costs of doing business in
the region.

Increased intra-regional trade in goods and services will also
have a trickle-down effect on the service sector, including
shipping services. An increased role of the service sector will
become even more important, particularly when ASEAN becomes
successful in attracting other economies -- including Japan,
South Korea, China, Australia and New Zealand -- to cooperate
more closely.

However, as the volume of intra-regional trade is expected to
increase, Indonesia will find it difficult to take advantage of
the opportunity to improve its role in shipping goods traded with
its partners.

Container production at Indonesian seaports, according to data
released by the United Nations' Economic and Social Commission
for Asia Pacific (ESCAP), is projected to steadily increase from
2.78 million twenty-foot equivalent units (TEU) in 1999 to 6.14
million TEUs in 2011.

For example, Indonesia's capability is too low to expand its
fleet for the transportation of goods into and out of the country
due to the fleet's low competitive edge against other countries.

"Indonesia's shipping companies are generally low in
capability to expand their fleet due to a lack of capital," said
Heru Prasetyo, a spokesman for the Directorate General of Sea
Transportation at the Ministry of Transportation.

He said merchant ships operated by Indonesian companies were
mostly too old and small in size and they, therefore, had a low
capacity and poor performance.

"Banks generally regard shipping companies as unfeasible to
obtain credit because their businesses are capital intensive,
slow yielding and of high risk," he said, adding that banks,
therefore, set tough requirements for shipping firms to obtain
credit.

The requirements, he said, included a prerequisite for
shipping companies to provide collateral worth no less than 150
percent of the proposed credit, to own an equity of no less than
35 percent and to pay high interest.

He said the companies could not procure vessels through
leasing arrangements because these arrangements were not
supported by a law that would allow them to use leased vessels as
collateral.

As a result, he said, the number of Indonesia's merchant fleet
was very limited, compared to its potential to trade goods.
Based on the number of vessels weighing 1,000 dead weight tons
(DWT) and over, Indonesia, as of 2001, had only 592 units with a
total weight of 4.36 million DWT, which is just 0.58 percent of
the world's total fleet of 30,508 vessels with a total weight of
749.6 million DWT.

If calculated on the basis of ships weighing just 100 DWT and
over, Indonesia had 4,262 ships, consisting of 1,287 oil
containers, 523 bulk carriers, 1,971 general cargo vessels, 118
container ships and 353 others.

"It would be helpful for shipping companies if the government
offered them fiscal incentives for the procurement of new
vessels," Heru said.

He said because there were no fiscal incentives from the
government and they found it difficult to obtain loans from both
domestic and foreign banks, a number of companies prefer to have
their ships fly foreign flags. Out of Indonesia's 592 ships, 98,
with a total weight of 1.25 million DWT, flew foreign flags.

Heru said Indonesian vessels with a national flag still thinly
dominated the share of transportation of goods within the country
but they controlled only a very small portion in the
transportation of goods for export and import.

In 2001, out of the 62.8 million tons of dry cargo going to
and from domestic ports, 46.7 million tons (74.33 percent) were
transported by vessels flying the Indonesian flag while the
remaining 16.1 million tons (25.67 percent) were on vessels with
a foreign flag. Meanwhile, out of the 87.1 million cubic meters
of liquid cargo, 43.2 million cubic meters (49.65 percent) were
transported by ships with an Indonesian flag and the other 43.9
million cubic meters (50.35 percent) were ships flying a foreign
flag. This means that in total, vessels flying the Indonesian
flag controlled 59.99 percent of domestic cargo transportation
while vessels with a foreign flag had 40.01 percent.

For comparison's sake, out of the 203.02 million tons of dry
cargo for export and import in 2001, only 22.35 million tons
(11.01 percent) were transported by ships flying the Indonesian
flag and the other 180.67 million tons (88.99 percent) were
transported by ships flying a foreign flag.

Meanwhile, out of the 203.02 million cubic meters of liquid
cargo for export and import, only about 130,000 cubic meters
(0.06 percent) were transported by vessels under an Indonesian
flag and 209.58 million cubic meters (99.94 percent) by vessels
with a foreign flag. This means that in total, vessels under an
Indonesian flag controlled only 5.45 percent of cargo
transportation for export and import and vessels flying a foreign
flag controlled 94.55 percent.

Heru said some of the reasons for the domination of vessels
flying foreign flags was that shipping orders generally came from
foreigners -- who bought Indonesian goods on a free-on-board
basis or sold goods to Indonesia on a commodity-insurance-and-
freight basis -- and that Indonesian shipping companies had poor
partnerships or relations with foreigners.

He said another problem that hindered the development of
Indonesia's shipping business was the poor networking of services
between trunk ports and feeder ports, while port infrastructures
and facilities were very limited. These conditions prolonged the
port days or the turnaround time of vessels serving Indonesian
ports.

This country, according to the Directorate General of Sea
Transportation, currently has 2,109 ports, of which 140 are open
for international shipping and the other 1,973 are merely for
local shipping.

Indonesia also lacks skilled resources. As of the end of July,
the country had only 137,345 seafarers, of whom 117,345 worked
for vessels flying the Indonesian flag and the other 20,000 for
ships flying foreign flags, he said.

Furthermore, he said, Indonesian waters and the Malacca Strait
-- which leads to Indonesian waters -- were prone to piracy, a
crime that might discourage investors from entering the shipping
business. The year 2000 witnessed 119 cases of piracy in
Indonesian waters and 75 cases in the Malacca Strait. These
figures declined to 91 and 17 respectively in 2001.