The new law on maritime transportation services will make the shipping industry more attractive to investors and creditors by greatly increasing the cargo volume for national freighters and providing a stronger basis for shipping companies to use their ships as collaterals for bank loans.
The law, which was approved by the House of Representatives last Tuesday, will enforce the cabotage principle -- a maritime term for the prohibition of foreign ships from carrying domestic cargo -- starting in 2011. This policy may by one stroke increase by at least 50 million tons a year the inter-island cargo available for national ships.
As of last year, according to the ministry of transportation, foreign freighters still carried almost 35 percent of the total domestic cargo of around 200 million tons due to the limited capacity of the national merchant fleet. The national shipping companies' share of export cargo is even more negligible, estimated at a mere 10 percent, with the other 90 percent carried by foreign freighters.
National shipping companies simply have no funds for expanding their fleet capacity because banks consider shipping services high-risk, low-yield business. Data at the central bank showed that bank lending to the shipping industry last year was a minuscule part of total loans to the transportation sector.
The Transportation Ministry estimates national liners and shipyards will need at least Rp 34 trillion to supply new freighters to meet the additional demand for freighter space from the adoption of cabotage.
The volume of domestic cargo will rise sharply due to the increasingly bigger demand for inter-island shipments of coal, oil products, palm oil and other commodities.
Domestic coal shipments alone will more than double to hundreds of millions of tons within six to 10 years as a result of the building of new coal-fired power plants on Java, while coal supplies are derived mainly from Kalimantan and Sumatra.
As a vast archipelago country, Indonesia depends heavily on maritime transportation to move goods and passengers between thousands of islands. Logistics is a very complicated business without efficient shipping services.
In another bold measure to improve sea transportation logistics, the law also will end the monopoly and the regulatory function of the four state-owned port management companies in port operations by allowing private national and foreign investors to build and manage seaports.
This competition will certainly force the state port management companies to improve services, thereby decreasing port-handling costs which, various surveys have concluded, are among the highest in the ASEAN countries.
Foreign and domestic shipping companies have long complained about the unusually high costs they have to bear at Indonesian seaports due to inefficient port-handling services and corruption. From the first gate of entry into the port, to docks and even in the waters of the harbor itself, illegal levies seem to arise at every turn. No wonder port-handling costs in Indonesia are often almost twice as high as in other ASEAN countries.
Poor and inefficient port handling services have become one of the main causes of inefficient logistics in Indonesia. Since efficient port handling is key to superior logistics management, the government should treat seaports primarily as basic infrastructure, not as a commercial facility that is tasked with earning as much profit as possible.
Though a seaport should run as a self-financing entity, its biggest contribution to the economy should be a smoother, more efficient flow of goods, not the amount of dividends state-owned port management companies annually pay to the government.
Without efficient, highly competitive logistics management, Indonesia will not be able to become part of the global supply chain, which has become the main engine of the economic globalization process.
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