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August 2008

Current Issues

The government has restricted the use of foreign ships for domestic transports of certain commodities but implementation of the policy is not easy as the country still has large shortage of ships. Chairman of the Indonesia Ship Owners Association (INSA) Oentoro Suryo said domestic shipping companies could not face foreign rivals not only because of the shortage but also because of the fact that most of the ships operated by local shipping companies have been too old.

There is only few  addition of ships operating in the country as part of the additional ships operated by domestic shipping companies are ones  from  shipping companies operating in the country  flying foreign flag.

Domestic shipyards could not be expected to produce many ships to cover the shortage with no support from the banking sector. In addition, various levies make the cost of building a new ships is higher.

Development of shipping companies

The country's shipping companies include those serving domestic routes and international routes for exports and imports. Domestic shipping enterprises include those serving national shipping, local shipping and pioneer shipping and individually operated ships. There is also ones operating special shipping services. transporting goods for own use such as ships operated by fertilizer, wheat  flour, cement  and timber industries.

In 2003-2007, the number of shipping companies operating in the country tended to increase. According to data at the Sea Communication Directorate General, the country had 1,705 shipping enterprises in 2003 including 1,030 companies serving in inter-island routes, 267 serving special shipping and 408 individually operated shipping firms. In 2007, the number of shipping enterprises rose to 2,326 including 1,432 companies serving national shipping, 334 serving special shipping and 560 individually operated shipping firms. The increase was attributable to growing demand for sea transport service including exports and he cabotage principle which bans foreign ships from carrying domestic cargoes starting 13 types of goods since 2005.

Chartered ships and foreign ship agents

Indonesia still relies partly on foreign ships both in chartered ships or ships operated by agents to handle the transport of its domestic cargoes. In 2003-2007 period the number of chartered foreign ships operated by domestic shipping companies declined from 2,447 units to 1,154 units. The number of foreign ships operated by agents rose from 6,629 units in 2003 to 7,227 units in 2007.

Many domestic shipping companies chose to charter foreign ships rather than buying new ones  as buying  or building new ships will  require large investment especially in the country where the interest rates are too high. In addition banks are still not enthusiastic in financing ship procurements.

Even if the import duty is abolished, the buyers have to pay 10% valuea dded tax  and 7.5% income  tax . Payment of VAT could be deferred but  the license for the shipping company or the ship  would be granted the operaitng license. The shipping company could operate with sea certificate that has to be renewed every three months.

Production of Sea Cargoes

Indonesia's sea cargoes have increased from year to year in line with the growing exports of non oil/gas commodities . In the 2003-2007 period,  sea cargoes carried by ocean going ships  from Indonesia rose  from 442 million tons in 2003 to 531 million tons in 2007. Indoensian ships, however, had a small portion of the cargoes. In 2007, Indonesian ships including chartered ships operated by by domestic shipping lines had a share of only 5.8% or 31 million tons of  the outbound  cargoes with foreign ships taking the rest.

The problem faced by domestic shipping lines in seeking to increase their shares is trade terms which always favor foreign ships. Nearly all exports are on FOB (Free on Board) system and imports are on CIF (Cost, Insurance, Freight) system. Foreign trading partner dictate the terms for exports and imports.

The domination by foreign ships in the transport of export import cargoes has been strengthened with the growing presence of foreign ship agents in the country. On the contrary Indonesian shipping companies have no chance of having agents abroad partly because of protections by some countries. for domestic shipping companies.
Even in domestic shipping  local shipping lines have to compete with foreign rivals.  In 2007, domestic cargoes totaled 228 million tons  and local shipping company had a share of only 65% or 148 million tons of the cargoes with the rest  going to foreign ships.

Aware of the unfavorable condition, the government announced the cabotage principle under which foreign ships are banned from carrying 13 types of domestic cargoes.

Main Players  in Sea Transportation Services

In  2007, based on data at the  Sea Transport Directorate General, the country had 2,326  national shipping companies  and 957 of them are members of the  Indonesian Ship Owners Association (INSA).

Outside  INSA, there are shipping companies  operating   foreign ship through  the Indonesian Shipping Agency Association (ISAA) which groups  147 companies. There are also companies such as fertilizer, cement  and wheat flour producers  that use  ships not as core business but only to support  the operation of their core business.

By types of cargoes, shipping companies could be differentiated into four groups liquid cargo shipping companies, container shipping companies, general cargo shipping companies and bulk cargo shipping companies. Some companies handle only the transport of certain type of cargoes but some companies operate different types ships like dry bulk cargo carriers, liquid cargo carriers, gas carriers, chemical carriers, off shore shipping vessels and tug barges.

State-owned shipping company  PT Bahtera Adhiguna has a fleet of  10 ships  with a total capacity of 53,473 DWT in 2007, mostly general cargo  and  bulk cargo carriers. The bulk cargo carriers include  the KM Tarahan  with a capacity of 11,096 DWT operating as a liner  carrying coal of state-owned coal mining company PT Bukit Asam  from  Tarahan  to the  Suralaya coal-fired power plant  under a long term 15 year contract. ..................

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