| Lautindo |Opinion| Kohe Hasan, Norton Rose (Asia) LLP| Indonesia is a country with great potential and in particular, is blessed with an abundance of natural resources. It is the world’s largest producer of palm oil and a significant producer and exporter of coal, copper, gold, nickel and oil and natural gas. SHIPPING IN INDONESIA: OPPORTUNITIES AND CHALLENGES.
Last year, the Indonesian economy grew by 6% and Bank Indonesia estimates the economy to grow by up to 6.5% this year. This positive outlook is largely driven by the recent boom in the commodities sector which has seen Indonesia becoming one of the largest exporters of natural resources to China and India, the two regional powerhouses. It has also witnessed a significant growth in the strength of its domestic market with a population in excess of 240 million and a growing wealthy middle class. This immense potential consumer base is increasingly providing a strong foundation for sustainable economic growth and resilience against the vagaries of the world’s economy as well as being a hedge against an over-dependence on commodities.
Indonesia’s strong macroeconomic growth has, and is likely to continue to, stimulate growth in the shipping sector in Indonesia. Made up of over 17,000 islands, Indonesia relies heavily on various forms of sea transport to connect the islands and to link to the outside world. Sea transportation carries over 90% of Indonesia’s internationally traded goods.
Recent cabotage regulations
A significant recent and controversial development in the Indonesian shipping sector is the implementation of cabotage regulations. Cabotage involves the reservation of coastal maritime trades for ships registered or licensed in the country concerned. Since 2005, Indonesia has gradually implemented cabotage (with full implementation effective from 7 May 2011) such that domestic shipping routes can only be undertaken by Indonesian flagged vessels or by foreign vessels with a fully Indonesian crew on board.
The cabotage principle, which is implemented by Maritime Law No. 17/2008 (Maritime Law), is a shot in the arm for domestic shipping companies. Leading consultancy firm, Frost & Sullivan, estimates that Indonesian shipping companies could achieve business gains of up to USD 3.2 billion in 2011 alone as a result of this policy and that the share of such companies in both domestic and international freight is expected to increase from 55.5% and 5% respectively in 2005, to 97% and 10.4% respectively in 2011.
There is concern in Indonesia that domestic shipping companies will not be able to meet those sectors’ needs for high-tech vessels, such as FPSOs (floating production storage and offloading), which could adversely affect the Indonesian Government’s planned production target of a million barrels of oil per day (bpd) in 2012.
Following pressure from energy companies, the cabotage regulations have recently been revised to exempt vessels which perform the following functions:-
(i) oil and gas survey, which includes, for instance, a 3D seismic survey vessel;
(iii) offshore production;
(iv) offshore support, which includes, for instance, an anchor handling tug supply vessel larger than 5000 BHP with Dynamic Position (DP2/DP3), a platform supply vessel, and a drilling support vessel;
(v) dredging; or
(vi) salvage and underwater works.
Challenges with infrastructure and causes for optimism
One issue which has traditionally hampered Indonesia’s economic progress is its infrastructure. This sector has suffered from decades of lack of Government investment and inability to attract foreign investment. This is especially true in the shipping sector where there is a significant shortage of large-scale modern container ports and overcapacity at existing ports has given rise to bottlenecks. It is not unusual for vessels to spend lengthy periods of time in berth and/or queuing up outside ports. It is also common for vessels to be forced to leave port even before they are fully loaded in order to meet their subsequent schedules. As a result, much of Indonesia’s non-bulk cargo has to be transshipped through Singapore and Malaysia.
At present, there are about 1700 ports in Indonesia. Of these, 111 are commercial ports while only 11 are container ports. Existing facilities are being stretched to their limits. For instance, Indonesia’s largest container port at Tanjung Priok handles 70% of Indonesia’s total import and export flow and is expected to exceed its capacity of 5 million TEU this year.
As a result of such congestion, shipping costs in Indonesia are the highest in Southeast Asia and the cost of inter-island transport is higher than international transport costs. As an illustration, the cost of shipping a standard 20 foot container from West Sumatra to Jakarta is approximately three times more than the cost of shipping the same container from Jakarta to Singapore.[source : marinemoneyoffshore.com]
Bonus to refferenced: Shipbuilding in Specialised Market : Global Trends and Future Outlook by Mark D R Darley – VP and South Asia Area Manager