Cutting port handling costs

Cutting port handling costs

The government should deal firmly with foreign liners and
their local agents that refuse to abide by Minister of
Transportation Hatta Rajasa's ruling early this month, which
slashed the terminal handling charges (THC) of containers and the
costs of processing bills of lading.

Cutting the THC on 20-foot containers from US$150 to $95 per
box and 40-foot containers from $230 to $145 was indeed a
significant move that will go a long way in helping businesses
cut their costs amid the high inflation-environment due to the
October increase in fuel prices.

The ruling that was adopted at a meeting of the Coordinating
Team for Facilitating Exports and Imports also cut the processing
fee of bills of lading from $30-40 per document to only around
$10.

However, the government should also thoroughly look into the
grievances raised by foreign shipping companies regarding the
unusually high costs they have to bear at Indonesian seaports.
Foreign liners have always set the THC rates for Indonesia much
higher than those in other seaports in Southeast Asia because of
what they claim to be extra operational costs at Indonesian
ports. And surcharges are a significant part of the THCs slapped
on Indonesian importers or exporters.

Foreign liners have argued that the surcharges reflect the
gross inefficiency and rampant corruption at seaports, pointing
out that 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 anywhere. No wonder, port-handling costs in Indonesia are
often almost twice as high as those in other ASEAN countries.

The fact that the new THC rates still include surcharges
amounting to $25 for 20-foot containers and $40 for 40-foot
containers reflects an official recognition of the high costs and
high risks faced at Indonesian seaports.

Even though foreign freighters control the shipment of almost
80 percent of Indonesian exports and imports, and that it is the
conferences of foreign shipping companies (shipowners) that
usually have the final say in determining THCs for containers at
Indonesian seaports, the government should act firmly to enforce
the new ruling.

In fact, the reform measures should not stop at the THC but
should go further in removing other sources of high costs at
seaports such as the arduous bureaucratic procedures that often
require more than 20 signatures from officials in various
government agencies involved in port operations to clear the
release of an imported consignment. And illegal fees are levied
at almost every stage of this process.

A recent study of 75 large export-oriented industrial
companies at four of Indonesia's largest seaports by University
of Indonesia's Institute for Social and Economic Research
concluded that logistics services accounted for an average 14
percent of total production costs, and inefficiency, illegal
levies and arduous bureaucratic procedures at seaports account
for a significant portion of these high costs.

Low costs of logistics -- meaning low transport costs, short
transit times, reliable delivery schedules, careful handling of
goods in cold storage chains -- are vital for trade and smooth
distribution of goods.

Industrial companies cannot manufacture goods without the
inputs they need, and, in the case of Indonesia, most
manufacturers still rely on imported materials. Hence, if
delivery times are expedient and reliable, manufacturers would
not need to hold large inventories of inputs, thereby cutting
their inventory costs.

Cutting the gross inefficiency, corruption and uncertainties
in cargo-handling and customs clearance procedures that have
caused Indonesian seaports to be classified as high-risk harbors
will greatly facilitate smoother foreign and inter-island trade.
This, in turn, will strengthen the competitiveness of Indonesian
commodities as almost 80 percent of domestic and foreign trade is
done through sea transportation.

Since efficient port handling is the key to efficient
logistics, the government therefore should treat seaports
primarily as basic infrastructure, not as a 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 pay annually to the government.