TO bring down domestic shipping cost in the Philippines, state think tank Philippine Institute for Development Studies (PIDS) underscored the need for a comprehensive review and amendment of the Philippine cabotage law.
A recent study, authored by PIDS President Gilberto Llanto and senior research fellow Adoracion Navarro, argued that a well-planned review and lifting of cabotage restrictions will bring down the high cost of domestic shipping rates.
Under the present cabotage law, only domestic shipping lines can serve domestic routes.
The absence of competition has resulted in "high cost of transporting raw materials to manufacturing sites, finished products and agricultural goods to various destinations, and imported products to distribution areas, thereby increasing operational costs that are passed on to consumers as high prices,” the study noted.
The study recommended a serious review of lifting cabotage restrictions, especially in the light of the planned Association of Southeast Asian Nations Single Shipping Market.
It cited a study of the Joint Foreign Chambers of Commerce in the Philippines comparing the high cost of domestic shipping compared with the cost of shipping via foreign transshipment.
Domestic shipping, for instance, sending a container from Manila to Cagayan de Oro via Hong Kong or Kaohsiung (in Taiwan) would be cheaper than to simply transport the cargo directly from Manila to Cagayan de Oro.
Shipping of a 40-foot container from Manila to Cagayan de Oro costs $1,860, which is a lot expensive than foreign transshipment via Hong Kong, pegged at $1,144, and via Kaohsiung, which only costs $1,044.
This means that a local trader could save approximately 43 percent in shipping costs through transshipment to Kaohsiung than by directly availing himself of domestic shipping services.
Aside from the cost, PIDS also said the aging domestic fleet of the maritime transport industry is also a serious cause for concern. The study said domestic vessels for cargo in 2007 were generally 20 years old. Moreover, average age of passenger vessels in 2012 is higher compared to the average age of five to 10 years old in the late 1990s.”
While the Philippines is the world’s fifth-largest shipbuilding country, PIDS noted that domestic shipping lines continue to use smaller and even older vessels, which are uncompetitive compared to those used by their foreign counterparts.
"The small capacity of cargo vessels implies longer transit and more turnaround times in ports, resulting in higher shipping costs,” the study said.
For comparison, the study cited that the domestic shipping is dominated by vessels that have a capacity of 200 to 300 twenty-foot equivalent units (TEUs) compared with those of foreign container ships that can carry as much as 5,000 TEUs.
The Maritime Industry Authority, PIDS said, needs to examine very closely the likely effects of the removal of cabotage restriction on domestic shipping, trade and movement of passengers and cargo.
PIDS underscored the fact that several developed countries have moved toward a more liberal cabotage regime, citing New Zealand, where of the 21 ships engaged in coastwise trade in 2000, 19 were flying foreign flags.
Policy-makers should seriously review and consider lifting cabotage restrictions, but in a phased-in and well-planned approach, the study added.
Local players, the study added, should not be wary that their foreign counterparts will eventually dominate the local shipping industry, saying the lack of familiarity with domestic markets may not allow foreign shipping companies to do business in all sectors of coastwise trade.
"The need for market adjustments by foreign competitors interested in engaging in coastwise transport will also give domestic shipping operators ample time to modernize their fleet and operations to be more competitive,” the study said. "Competition provides a credible threat to those who refuse to modernize and maintain efficient operation.”//
PIDS study calls for comprehensive review, amendment of cabotage law
