More wishes for the shipping industry

In our last column, we enumerated some “wishes” for the country’s domestic shipping industry. With the coming changes in government, we hope that these concerns would be given attention given the strategic importance of our local shipping companies to the well-being of the economy.

In today’s column, we continue to call the attention of our lawmakers, politicians and readers to more issues that beset the shipping industry.

Reducing number of Philippine flag ship operators

There is a continuing downward trend in the number of shipping operators that carry the Philippine flag. According to the Maritime Industry Association (Marina), the situation has affected the country’s fleet size which has been shrinking since the 1990s.

There is a dearth of vessels operated by Philippine shipping operators to carry government import and export of cargoes. Since most Philippine-registered vessels, particularly those in overseas deployment, are trading on a worldwide tramping basis, those vessels seldom call at Philippine ports and hardly carry Philippine cargoes whether inbound or outbound.

Local shipping operators are thus able to capture only 10 percent of Philippine export and import cargoes. To date, there are only about five of these operators left.

Unfavorable shipping terms

One other deterrent to having more Philippine vessels carrying government cargo can be traced to the shipping terms being used, which is the freight tender on FOB (free-on-board) basis where the FOB buyer or importer elects the vessel that would carry his cargo.

Instead of opting for FOB basis where the FOB buyer or importer elects the vessel that would carry his cargo, government importers prefer the usual CIF (cost, insurance, freight) where the seller is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain the goods from the carrier.

The Filipino Shipowners Association (FSA), the local ship owners’ group, says that local ship owners cannot match the bid of foreign carriers. Philippine vessels are subject to a 6 percent value added tax and 2 percent contractor’s tax while the foreign-flag vessels are not. When these taxes are inputted in the bid price, the final value is uncompetitive.

FSA is asking for a change in shipping terms from CIF to FOB to give Philippine ships a chance to compete. A shift of preference from foreign- to Philippine-flagged vessels will provide the local shipping industry a much needed boost.

Philippine flag ships

Despite the enforcement of Presidential Decree No. 1466 which promotes the use of Philippine-flag ships under certain exemptions, the use of foreign-flag vessels has been ongoing because the buyers and government importers make use of CIF terms and are unable to nominate Philippine flag ships for the carriage of the imported goods.

Marina should strictly implement the Flag Law as mandated by PD No. 1466. This entails better coordination and representation with government agencies and government-owned corporations involved with imports of government cargoes to ensure that shipping terms and conditions would provide a bigger share of inbound cargoes reserved for Philippine flag ships.

As with regards outbound cargoes, a plan needs to be laid out for Philippine ships to enable them to get a bigger share of the country’s export trade. Supporting carriage of government export and import cargoes by vessels under the operation of Filipinos should be a top priority.

Vessel acquisition

Another area that needs attention is government support in the acquisition of vessels for domestic and overseas operations, whether through importation or local purchase.

Buying new ships entails substantial capital investment. Financing schemes for vessel acquisition which have easy paying terms and low interest rates should be put in place for the shipping companies to enable them to expand and modernize their fleet.

The NDC National Maritime Leasing Corp. (NMLC) is the only government financial institution solely dedicated to the maritime industry. It is supposed to provide an alternative financing arrangement to shipping operators in the form of lease versus the traditional borrowing for the acquisition of vessels.

However, the terms of the lease are the same as the ordinary banks, thus there is no incentive to ship owners to get their financing from the NMLC. Perhaps it is appropriate to look at the development of new programs or financing schemes that will really encourage vessel acquisition.

Upgrading port facilities and safety standards

Finally, there is an urgent need for the country to modernize its port facilities in order to be competitive. Why is the freight to move wheat from the US to Manila so much cheaper than the carriage of wheat from Southern Mindanao to Manila? Because we lack the modern bulk loading and discharging facilities that will shorten the period of time to load and discharge the cargoes.

Port facilities, including those for roll-on-roll-off (RORO) vessels, must be modernized. There is also a need for the construction of bulk cargo loading and discharging facilities in order to hasten loading and unloading. The national government should ensure the cooperation of the local government units with the modernization program.

While there are enough laws in the Philippines to ensure the safety of passengers at sea, the proper implementation thereof is another matter. One clear example is in determining the actual capacity of a vessel when sailing out. A clear and logical review of the local regulations is therefore needed.

Needed: A champion

We hope that the local shipping industry will find a champion who will truly push forward the improvement of shipping laws and conditions, thus improving the lives of the many Filipinos who toil in the fields under the heat of the midday sun or who bring their boats in the dark of the night to haul in fish or those who wish for a safer, reliable and cost efficient means of water transport over our eight thousand islands.

Who do you think among the presidentiables has concrete plan of action for the uplifting of domestic shipping industry?

Should you wish to share any insights, write me at Link Edge, 25^th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.