JAKARTA (TheInsiderStories) – Indonesia delayed implementing cabotage regulation, which makes it mandatory for all exports and imports activities to use local transport operators amid criticism from the local business community.

According to Trade Ministry Regulatoon Number 82/2017, all exports and imports activities must use local shipping operators. This regulation later was criticized as it pose threats to disrupt shipment of key commodities – coal, crude palm oil and rice – as local shipping industry is not ready to meet a sharp jump in demand for their services should foreign vessels are banned.

“We will postpone it [the regulation] until 2 years from now,” said Trade Minister Enggartiasto Lukita as quoted from Antara News Agency, Tuesday (10/4), adding the postponement will be regulated via a ministerial decree.

The cabotage regulation was criticized by domestic coal and CPO producers, and some importers who consider Indonesian shipping companies are not capable, be it from the quality or quantity to serve the entire export and import activities.

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.