Indonesian government temporary banned all air, sea, and land transportation to reduce the spread of COVID-19 across the nation - Photo by Transportation Ministry Office

JAKARTA (TheInsiderStories) – The Indonesian government on Wed. 21 has hinted it might delay the implementation of the Trade Ministry Ruling Number 82/2017 which mandates the use of national shipping for exports and imports of key commodities – coal, crude palm oil and rice – and insurance companies; the objective is to ensure that the ruling does not interrupt exports.

Transportation Minister Budi Karya Sumadi told reporters at Coordinating Minister for the Economic Affairs Office said that the minister wants assurance that the ruling would not be implemented at the cost of exports. There should reportedly be an adequate transition period of six months to one year, so that exporters have enough time to adjust to the ruling.

He said the Coordinating Minister has asked Trade Minister Enggartiasto Lukita to summon all related parties, in particular, national ship owners and exporters, to determine an optimal time to implement the new ruling.

“Later on, we will set an optimal time for both parties. Let’s say, they (exporters and shipowners) are given six months or one year. There should be assurance that our shipping industry can handle the task and exports will not be disrupted,” the Transportation Minister said.

The ruling, issued in October last year and scheduled to be implemented from May 1, 2018, obliges exporters and importers of certain commodities to exclusively use national maritime transportation companies and national insurance companies. The ruling applies to the import of rice as well as exports of coal and crude palm oil, the main contributors to the country’s commodity export revenues.

In addition, the ruling obliges exporters and importers of certain commodities to file monthly electronic reports on their utilization, during the previous month, of maritime transportation services and insurance coverage services; reports are to go to the Director General of Foreign Trade at the Ministry of Trade, by the 15th of each month.

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. Unlike exporters, domestic shipping operators welcome the government’s decision, arguing that the ruling will support the growth of the national shipping industry.

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

Executive Director of Indonesia Coal Producers Association 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.

The ruling may provide new business opportunities for national maritime service providers, which may be seen as consistent with the government’s stated commitment to making Indonesia an international maritime power. Mandating national maritime services providers for certain exporters and importers could be a strategy of the Trade Ministry for facilitating the development of a vibrant national maritime industry.

Bill Sullivan, Senior Foreign Counsel with Christian Teo & Partners and Senior Adviser to Stephenson Harwood LLP, said that the government should make a comprehensive ‘cost and plus’ analysis before issuing or implementing the rule.  He said supporting the domestic shipping industry should not be at the expense of undermining the competitiveness of Indonesia’s coal and CPO industries.

According to him, Indonesia is already one of the world’s most important producers of coal and CPO. He views that it would not be a sensible industrial strategy for the government to risk Indonesia’s existing dominance in the world coal and CPO industries just to advance the very speculative and highly uncertain of realization objective of eventually making Indonesia a dominant force in the world maritime industry.