Lack of vessels haunts domestic shipping industry: Temas Line

Publicly listed PT Pelayaran Tempuran Emas (Temas Line) is one of the first Indonesian shipping companies to offer containerized cargo services. They began operating chartered vessels in 1987 and the company now has expanded to 15 vessels with a total capacity of 5,921 twenty-equivalent units (TEUs). Temas Line's president-director, Harto Khusumo, shared his views with The Jakarta Post in a recent interview on the domestic container shipment industry, which has long been a subject of mismanagement by the government. The following is an excerpt from the interview with him.

How is the domestic container shipment industry doing?

Like in any other country, local shipping lines are granted exclusive rights to provide container shipment services for domestic destinations, known as the "Cabotage" policy. The policy provides the opportunity for local shipping firms to become masters in their own country, because it excludes or limits the operation of foreign shipping companies for domestic destinations.

However, the current situation shows us that local shipping companies are now experiencing a lack of vessel supply, either for rent or purchase, due to higher global demands for vessels in China and Vietnam because both those economies are booming.

On the other hand, our demand for local container shipments has surged by an average of 20 percent every year. There is still actually a gap between supply and demand, which may disrupt the distribution of goods and exports around the country.

Local shipping lines used to have many vessels, but since the economic crisis in late 1997, many of them sold their vessels and preferred to use chartered ones instead.

However, another problem is that the fees for chartering a vessel have just skyrocketed by between 50 percent and 100 percent to an average of between US$7,000 per day from around $4,300, due to the high discrepancy between supply and demand.

To buy a new vessel is also difficult because it would take a shipping line two years for delivery and, moreover, the price has also surged due to the rise in steel prices.

So how should the industry cope with that?

Temas Line prefers to buy second-hand vessels because it is cheaper and the delivery is faster. For a smaller ship, the cost will range from $2 million to $3 million -- that is the cheapest. We cannot afford to buy a new one since the price is so expensive, around $20 million.

We are now still negotiating with state-owned shipyard PT PAL Indonesia, whether they can provide cheaper vessels for the industry with quick delivery. Locally made vessels are more expensive than imported ones due to various taxes the government puts on the raw materials needed to manufacture such a boat. I hope that the upcoming regulations on the local shipping industry can scrap such taxes so we can afford locally made vessels.

For future operations, it is better to own a vessel than to lease one, as it is more profitable. Temas Line plans to have up to 50 vessels in the next couple of years. We plan to purchase the vessels with a loan from banks. Unlike before, now they are willing to accept vessels for collateral.

How does the industry service exporters with smaller ports?

Most local shipping firms prefer to work in large ports, while those at smaller ports are still underserved due to the lack of vessels and port facilities to load and unload the containers, such as cranes, trucks and a container storage depot.

We have asked port authorities and local governments (around the country) to improve their facilities in a bid to encourage shippers to use them. What happens now is that we end up setting up our own infrastructure at their ports, such as cranes, in several places, just so we can improve the loading process. The stevedoring method usually takes two days, but with our own facilities we can do it in one day.

To equip medium-sized ports with sufficient services, local governments and port authorities need at least $2 million to $4 million.

What are the most profitable local destinations right now?

For us, the most profitable routes are Jakarta-Belawan, Jakarta-Pontianak and Jakarta-Makassar. But, all local routes are actually profitable. Temas Line plans to provide smaller vessels to service medium-sized ports and expand our routes.

We even plan to set up a direct call service to Singapore from Makassar, South Sulawesi, to help exporters save costs and time. Usually goods from Makassar are taken first to Surabaya or Jakarta before being shipped to Singapore. We expect the service to be available by the end of this year.

We expect to carry around 120,000 TEUs this year, up from a total of around 90,000 TEUs last year.

How will the surge in oil prices and the fluctuation of the rupiah impact the industry?

For oil, we haven't been impacted yet since the government has not decided yet to increase the price here. For local destinations, shipping companies buy domestic fuel.

As for the weakening of the rupiah, we are not negatively impacted, since our transactions are done in U.S. dollars.

Do you plan to expand your business abroad?

Not at the moment. We are still concentrating on the local market because the potential is still huge. If we decide to expand abroad, it will be just in South East Asia.