Second Symposiumu(Presentation of Tanjung Perak(3):Address of MERATUS Ltd.)

Presenter:Charlie　Merano
　　　　　 Managing　Director of MERATUS Ltd.

 

TITLE:Perspective of Indonesian Maritime Industry
Into The Third Millennium
(Program title:Potential Shipping Link in Domestic and
International Trading in Indonesia)

A. Background

For Indonesia with its ancient culture and about 13,000 islands, the transport at sea is not a new or unknown concept. The Bugis pirates in a bygone era frightened Western sailors sufficiently to contribute a new word to the English language, the "boogeyman".

For a prolonged period in the colonial era, domestic sea trade was discouraged, as this was the domain of the colonial power.

When Indonesia gained independence a little over half a century ago, this was also the beginning of the Indonesian Maritime Industry, although with a lot of aspects to develop for a newly independent country, Maritime trade was not given high priority.

Unfortunately for Indonesia as well as for a number of other developing countries, independence and the time they started to look to developed countries for models for their institutions, came in a period when leftist models of high degrees of regulations, subsidies and taxes were in fashion.

While this model has later shown itself rather unproductive in most industries and countries, compare productivity in the former European East Block countries with Western Europe, it is particularly so for the Maritime industries. The shipping industry is perhaps the most International of all industries, and somewhat unique in the sense that it's main production unit can move under it's own power around the globe. It is worth noting that also among developed countries, the ones which have tried the highest degrees of regulating their maritime industries, have been the least successful developing the same. By contrast Hong Kong and Singapore, who have left it open to competition without undue government interference are among the most successful, both in trade, port development, and developing shipping fleets. It is perhaps worth noting that the heads of both those governments have their background in the maritime industry.

Shipping is nothing more than the sea-transport arm of the trade. A strong maritime i nd ustr y th eref o re stre ngth ens th e competitiveness of each country as a trading nation. For an archipelago nation like Indonesia it is also imperative to build up the domestic economy, and holding the country together.

B. Prospects

Both trade and technology have developed more rapidly in the last half century than ever before. There is also no sign of this development slowing.

With the general globalization and free trade, it will be more difficult for countries to cushion their own industries with protectionism, as this will be in breach of International agreements. It also gives new opportunities for a country's export trades, and new importance to competitiveness here, where the Maritime industry plays an important role. This again requires ability by the maritime industry to move fast with the changes, for instance changes f rom conventional to container preferences in trade can happen quickly, and demand major changes both in types of ships and port facilities offered. Also changes from for instance conventional bulk carriers to belt-dischargers changes port requirements drastically.

The world trade pattern will be dictated by world trade, not by governments. The ship operator will to a higher degree need to be flexible to respond to changes in trade patterns, and ports need to be more flexible to cater to the requirements of the cargo and the ships. Ship operators have one advantage as compared to Port Authorities, if one area lags behind, they can move their ships to another area. Port Authorities can not.

For many countries, and one of them is Indonesia, a softening up of attitudes is necessary. In the age of modern democratic society, neither the shipowner, nor the Port Authority, nor indeed the government, is so much an "authonty" as a servant to the trade. The real "authority" is the consumer.

This will require changes, not only in types of ships and port facilities, but also in attitudes. l used to wonder why the United States, a relatively new country, came to gain the position of economic strength. A friend gave me part of the answer, and the story is worth citing here :

Running a shipping line in American Samoa, one Saturday afternoon he had a chartered ship arriving when the master had "lost" his outwards clearance document from previous port, Papeete. Under strict inter pretation of the rules, inwards clearance under these circumstances were not permitted.
Unable to reach the Director of Marine, my friend went up to the acting Governor's residence, and explained the situation. The Covernor went with him to the wharf and gave orders for discharge to commence, giving his personal guarrantee that if a fine was imposed it would not exceed US$ 500, which was considerably less than a day's delay would cost. He explained this with saying that a delay of the ships would make shipping to Samoa more costly, requiring higher freight rates, which would hurt the economy. The Director of Marine when contactable instructed that port authority in Pa peete be co ntacted to telex him confirmation that port clearance was given, which was done, and the problem solved.

The message is that for Indonesia to compete in this changing world, we have to learn from the masters, and become as effective as our competitors are. Exporters, forwarders, Port Authorities, shipping lines and governments have to work together as a team for a cost efficient trade to make Indonesia strong.

Not all port authorfties have been able to change their attitudes in time. The Port of London was once the biggest in the world, and thought they would remain so. They became however rigid, authocratic, bureaucratic, and too costly. The port of Felixstowe took a very different attitude, shipping lines and trade switched. The Port of London was for all practical purposes shut down, there being no business for them, the area turned into real estate, and nobody seem to miss them.

Two key words will define the future success or fai.lure of players on the maritime scene: "efflaency" and "cost effectlveness". This will apply also on the wider scene to regions and economles.
 

C. Indonesian Picture

As an archipelago nation not yet having reached it's full potential in International trade, a major proportion of seaborne trade is domestic trade between regions. With gradual increase in industries in some areas and purchasing power in others, this trade is likely to gradually increase. There has been a fairly rapid development to containerization for parts of this trade in recent years, however for some ports conventional shipping is likely to last for some time, due to lack of facilities, volume of throughput, and economics of sea transport. A lot of the cargo from these areas, which are for exports will have to be containerized in transshipment ports.

International trade has grown rapidly. However, most of this trade is presently carried on foreign flag vessels, (about 87.5%). The immediate reason for this is the lack of suitable Indonesian flag tonnage, which again has resulted from regulatory frame-works which has not encouraged the building up of a strong shipowning industry. Our friends in the US and japan may here wlsh us "welcome to the club". However, for Indonesia the country can hardly afford the loss of hard currency this entails.

To give a couple of examples where the law and regulations have actually worked directly against the development of Indonesia as a Maritime nation, foreign vessels can ply between the same Indonesian ports, uplifting the same cargo without paying freight tax, where Indonesian ships have to pay such tax.

For an operator chartering in international ships to operate, Indonesian operator had to pay 10% VAT on entire charterhire.

Obviously no Indonesian company had a chance to be competitive and therefore no operator ever developed in Indonesia. The country has to rely on foreign shipping.

The freight rates in hard currency being paid to foreign shipping companies is equal to a major part of Indonesia's balance payment deficit.

To develop a competitive fleet, and one that also foreign traders are willing to deal with, a number of problems have to be solved. The legal system has to be made efficient in line with International Maritime laws and principles. Substandard ships must be eliminated, and the fleet in general brought up to International standard. Corruption and piracy must be come to grips with.

We have to follow strictly the International rules which Indonesia is a signatory to on ships safety. If not, the ships will be stopped by Port State Control as soon as they venture outside Indonesia and Indonesia will get a bad name.

Another point is a proper set of bankruptcy law. While some people actually think present system protects them, International finance world is not that stupid, and the effect in reality is that neither solvent nor insolvent Indonesian shipowners can get finance for any ship under Indonesian flag. We have a job to do.

As an archipelago nation, the maritime industry will be the only venue for Indonesia's trade, and its competitiveness will depend not least on the cost-efficiency of the industry as a whole. The greatest enemies of cost-efficiency are monopolies, Iack of competition, and excessive regulations. Taxes and fees not directly corresponding with actual cost of a service are of course extra expenses directly affecting competitiveness. Most maritime nations have now come to realize that if their shipping industries are to com pete internationally, they have to compete on a level playingfield with the main shipping nations. It may be noted that in this competition, the "runners that ran with handicaps" have mostly been eliminated, and the by far larger section of the world fleet is today belonging to countries which do not tax nor try to regulate shipping, except where the safety of ships, personnel and cargo is concerned.

Shipping costs however also reflect port costs, and the time spent in port, as well as loading costs, cost of documentation processing etc as well as cost of bringing cargo to/from the port, which depends on efficiency of existing i nf rastructu re. One d rawback i n the Indonesian picture, is the lack of efficient hinterland infrastructure, which limits each shipper's choice of port to use. This reduces competition between ports, which is not good for efficiency. It is worth pointing out here, however, that a situation of competition is now coming up between Surabaya and jakarta for transshipment cargo between outports and foreign destinations.

Trade union disputes, strikes etc. have not been major problems in Indonesian ports. However labour regulations have in some cases created virtual monopolies, with the extra costs and inefficiencies this entails. As an example we may mention that while the cost of unstuffing a container in Surabaya is Rp. 20,000,-, in some outports, where labour should be cheaper, asking price is Rp. 200,000,-

For exports of among other coal and ores, a number of private single purpose port facilities have been built by the users.
 

D. Meratus Position

Meratus, on our side, is the main player trying to make Surabaya the hub port for transshipment of cargo, linking other provinces to the Intercontinental shipping net. I would like to show you a map of the routes we presently serve.
 

E. Summary

At 1997 figures, about 386 million tons of cargo was discharged at Indonesian ports, while a slightly higher tonnage figure was Ioaded. These figures included a high number of small ports and small inter-island vessels operating, and for general cargo ports in Indonesia would constitute a far higher number of ships calls than what would be the case with similar cargo quantities in most other countries. As' trade grows, ship sizes are also likely to increase somewhat. However, with 13,000 islands to serve a number of small vessels will remain.

These trades, both foreign and domestic, are likely to increase considerably with the development of Indonesia over the next few years. This will test Indonesian ports abilities to rationalize and increase effectiveness.

The central government will have to reevaluate past and present policies, both in view of desirability and necessity of building up the Indonesian merchant fleet, as well as needs of Indonesia's export and domestic trades.

With removal of duties and trade restrictions in most countries, including Indonesia, consumers will have the freedom of choice, while producers have to be competitive on quality and costs. This will lead to increased sea trade, both for exports and imports. For Indonesia with relatively low cost levels and improving quality control, this should particularly be a boost to export of manufactured goods, most of which will go containerized. Here it is however delivered costs that matter and the nation is dependent on the maritime industries to be competitive. A lot will depend on industry's capabilities and flexibility to meet this challenge.