Indonesia softens foreign shipping restrictions on international trade

Carmelita Hartoto

INSA chair Carmelita Hartoto. Credit: Zoe Reynolds

 

The Indonesian National Shipowners’ Association (INSA) has adopted a more softly-softly approach to its push to have the national flag fleet carry the nation’s international trade. 

Dubbed ‘Beyond Cabotage’, the controversial plan saw President Joko Widodo's government introduce regulations to exclude foreign shipping from the import and export of key commodities, including rice, coal, and palm oil. This proposal led to an international outcry in shipping circles that Indonesia was using “discriminatory cargo reservation contrary to accepted international practice and maritime free trade principles”.

The International Chamber of Shipping wrote to the Indonesian trade minister to express concerns in February this year and the move was put on hold for 12 months. 

At the time doubts were raised as to whether the Indonesian fleet was equipped for the task.

The ministry has now reviewed the regulations in consultation with INSA. As well as delaying the requirement that Indonesian ships carry its key imports and exports until 2020, the government has introduced controls on Indonesian shipowners touting for government contracts.

Meanwhile INSA is commissioning trade analysis while taking a reassuring approach publicly.

In a recent interview with Fairplay, INSA chair Carmelita Hartoto said the association had commissioned mapping of trades while working with government in revising the regulations.

INSA met with the minister of trade, Enggartiasto Lukita, and agreed the time was not ripe to fully take over exports and imports of key commodities. “We are not ready to take the trade 100%, we just want a share,” Hartoto told Fairplay. “We would not do anything that makes everybody unhappy,” she said. “We don't want to make any problems for the country’s export performance.”

This is a departure from earlier in the year when Hartoto was adamant that the policy would remain unchanged. It was just a stay of execution.

The new Ministerial Decree 80/2018 released in August now replaces the previous decree. It delays the ruling that only Indonesian ships are used for the export and import of coal, palm oil, and rice until 1 May 2020 and introduces surveys on Indonesian vessels. The requirement to use insurance from Indonesian companies, however, still takes effect on 1 February next year.

“The main change in the decree is that a recognised independent inspector/suveyor will verify  the availability and capability of the Indonesian flagged vessels entering the trade,” said Hartoto.

“For now we are still mapping the trades. We will see which ports we will include in Beyond Cabotage, what kind of ships, how much cargo – so we don’t cause any problems for the nation. We are analysing the coal industry. Maybe we will start with shipments to the Philippines, Malaysia, and Vietnam.”

Asked whether INSA would consider bilateral agreements on the carriage of trade, like the Japan-Australia agreement for carriage of oil and gas on the NorthWest Shelf, Hartoto said this could also be considered. “We are open to suggestions,” she said. “This would probably work with the Japanese and Chinese. We have done it in the past.”

Despite the reforms, some industry watchers remain critical of Indonesia’s cabotage policy.  Global law firm HFW claims cabotage would only increase Indonesia’s high rate of loss, damage, collision, and cargo claims – an argument ironically used to argue in favour of cabotage and reducing the use of foreign shipping in some western nations.

HFW noted that Indonesia continues to increase its shipbuilding capacities and in 2017 ranked 22 in the world for fleet ownership. “It will only be a matter of time until these cabotage principles will eventually cover [coal, palm oil, and rice],” it said. 

“Increases in fleet size will, inevitably, increase the likelihood of loss, damage, collision, and cargo claims occurring,” the report continued.

Hartoto has rebutted the HFW claim that ship safety had nothing to do with cabotage. “Safety regulation of shipping fully depends on how flag state control,” she told Fairplay.  “Increasing numbers of ships may increase the risk of incidents but it doesn’t mean it lowers safety. Indonesia is member of IMO and all ratified rules should be implemented to all Indonesian-flagged vessels.”

Insurer Allianz Global Corporate & Specialty SE’s 2018 report found that almost one-third of shipping losses in 2017 occurred in the South China, Indochina, Indonesia, and Philippines maritime region, up by 25% annually.

Beyond Cabotage, remains a key component of Indonesia’s ambitions of becoming a maritime power in the region and beyond. “Soon Indonesian ships will be available whenever they are needed and contract volumes are declared,” said Hartoto. “Shipping is following trade [demands].”

According to the latest government statistics provided to INSA, the Indonesian fleet numbers 36,000 vessels (excluding sailing and fishing boats). Hartoto said that before the introduction of cabotage in 2005, the Indonesian fleet stood at about 5,000 vessels.

Contact Zoe Reynolds