High
local shipping costs may be attributed
largely to the absence of competition in the local shipping industry, thus the
need for a comprehensive review and amendment of the Philippine cabotage law.
This was according to a recent study published by state think tank Philippine
Institute for Development Studies (PIDS).
Authored by Drs. Gilberto
Llanto, PIDS president, and Adoracion Navarro, senior research fellow, the
study argued for a well-planned review and lifting of cabotage restrictions to
bring down the high cost of domestic shipping rates in the country.
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 (ASEAN) Single Shipping Market.
It cited a study of the Joint
Foreign Chambers of Commerce in the Philippines (JFCCP), which showed the
high cost of domestic shipping compared with the cost of shipping via foreign
transshipment.
“It is cheaper to send a
container from Manila to Cagayan de Oro via Hong Kong or Kaohsiung (in Taiwan)
than to simply transport the cargo directly from Manila to Cagayan de Oro.”
A 40-footer container
domestic shipping, from Manila to Cagayan de Oro, costs US$1,860, which is a
lot expensive than foreign transshipment via Hong Kong (US$1,144) and via
Kaohsiung (US$1,044). A local trader could save approximately 43 percent in
shipping costs via transshipment to Kaohsiung than by directly availing of
domestic shipping services.
The ageing domestic fleet of
the maritime transport industry is also a cause for concern. “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 5 to 10
years old in the late 1990s.”
“Even though the Philippines
is the world’s fifth largest ship building country, domestic shipping
lines continue to use smaller and even older vessels in transporting cargo,
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.”
For comparison, the study
cited that the domestic shipping is dominated by vessels that have a capacity
of 200-300 twenty-foot equivalent units (TEUs) compared with those of foreign
container ships that can carry as much as 5,000 TEUs.
Thus, it underscored the need
for the Maritime Transport Authority to examine very closely the likely effects
of the removal of cabotage restriction on domestic shipping, trade, and
movement of passengers and cargo.
Several developed countries
have moved toward a more liberal cabotage regime. In New Zealand, for example,
21 vessels were engaged in coastwise trade in 2000, 19 of which were flying
foreign flags.
Policymakers should seriously
review and consider lifting cabotage restrictions, but in a phased-in and
well-planned approach, the study emphasized.
Fears of foreign players
immediately dominating the local shipping industry may be unfounded. 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)
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