Photo credit : APBI-ICMA

JAKARTA (TheInsiderStories) – The Ministry of Trade is most likely to move ahead with its plan to require the use of Indonesian-flag vessels in the export of commodities such as coal and crude palm oil (CPO), as well as the import of basic commodities (in particular, rice and sugar). The move has raised concerns among exporters and industry players as it could potentially disrupt the country’s export trade.

The Trade Ministry’s Decree Number 82/2017 on the Use of Vessel and National Insurance for Exports and Imports of Certain Goods is to be implemented from May 1, 2018. The Trade Ministry has stated that the ruling will help promote the role and contribution of domestic vessels in commodity exports and imports, reduce the cost of logistics, speed up the flow of goods at the country’s ports, improve the balance of payments as well as supporting domestic vessels and the Indonesian shipping industry.

According to the Ministry, the ruling could boost the demand for new vessels by 70-100 units per annum.

The Ministry has said that the total logistic value, including goods exports, reached Rp2,400 trillion in 2016 and is projected to rise by 15.2 per cent in 2019. Domestic vessels will now potentially be able to secure a significant portion of this logistic market.

Currently, approximately 90 per cent of Indonesia’s commodity exports are carried by foreign vessels, with the remaining 10 per cent transported by national ships.

Based on Trade Ministry data, Indonesia’s export volume of CPO in the period of 2012-2016 reached 6.53 million tons per annum. Most of the CPO exports, including derivative products, were carried by foreign-owned chemical tankers. Indonesia, along with Malaysia, contributed 85 per cent the world’s CPO production.

Currently, Indonesian logistic costs remain steep compared to those of other countries. Of the logistic costs, transportation, warehousing and delivery contributed Rp 489.3 trillion to the national logistic system in 2016.

However, the question whether the ruling will help reduce logistic costs remains to be seen.

Implications

The decision is likely to affect the country’s coal and CPO exports, given that so far some of those commodities have employed foreign vessels. Exporters have argued that they have to use foreign vessels for certain commodities due to lack of domestic capacity.

The Indonesian National Shipowners Association (INSA) has welcomed the government’s decision, while recommending implementation should take place in stages. Deputy Chairman of INSA Darmadi Go pointed out that in the case of CPO exports, a vessel must meet the food grade standards; only a certain proportion of domestic Indonesian vessels have met the required CPO transport standard.

Shipowners have explained how vessels have usually tied up with exporters under long-term contracts; therefore, the implementation of the ruling should be in stages.

Coal producers, however, have expressed their concern over the implementation of the new ruling, arguing that they customarily export coal utilizing a ‘free-on-board’ (FOB) scheme; this means that it is the buyers who will be responsible for selecting vessels to deliver the coal product from Indonesia.

Executive Director of APBI Hendra Sinadia also mentioned how coal producers have voiced their disagreement over the implementation of the ruling, reasoning that the capacity of domestic vessels to export coal in large volumes is still insufficient.

Indonesia exported around 380 million tons of coal last year using an FOB scheme. If the government forces the implementation of the ruling, it could interrupt coal exports.

In order to tone down concerns, prior to implementation of the ruling, the Trade Ministry will hold a meeting with the Indonesian National Shipowners’ Association (INSA) and the Indonesian Coal Producers Association (APBI), Director General for Foreign Trade at the Trade Ministry Oke Nurwan announced.

Given the above scenario, it is clear that the government needs to perform a more thorough assessment before implementing any regulation. It should ensure that domestic vessels have the capability and meet demand and fulfill requirements to export commodities (in particular coal and CPO). Failing to do that, the ruling could boomerang back on Joko Widodo’s government, at the time it ostensibly attempts to boost exports.

Email: roffien@theinsiderstories.com

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