‘Liberalization’ is not always the answer

Allowing foreign ships to make calls on our island ports may seem to be in keeping with the spirit of liberalization and global free trade. On second look though, this may not seem to be all that practical.

Should the country’s lawmakers decide to amend the current cabotage law in favor of international shipping lines, we might find ourselves with another piece of legislation that does not work, similar to the liberalization of the power industry.

Remember what had then been touted as the law that would bring down the cost of electricity? The Electric Power Industry Reform Act (Epira) of 2001 today still stands inutile in terms of overhauling the country’s power pricing structure. Next only to Japan, the Philippines continues to have the highest electricity rates in Asia more than a decade after the law was passed.

In the same breath, rushing to overhaul an existing law simply to favor foreign flag carriers may not be the best solution or answer to the current high cost of inter-island shipping that impacts on the retail price of local goods in the market.

The Philippine Inter-island Shipping Association (PISA), the voice of domestic ship owners, has come up with a good position paper arguing against the indiscriminate entry of foreign shipping vessels in the inter-island shipping trade. Below are highlights of PISA arguments.

Feeder economy

Perhaps the biggest argument against the proposed change in the existing cabotage law is the fact that the Philippines remains to be a “feeder economy.”

Simply explained, this means that the entry to and the egress of goods from the Philippines can only be done “economically” by smaller feeder vessels with sizes that range from 2,000 to 3,000 container equivalents TEUs.

It is not quite possible to have such large mother vessels (sizes range from 6,000 to 18,000 container equivalents TEUs) that call on Asian hub ports like Kaohsiung, Hong Kong, Shenzhen and Singapore for the Philippine operations because it will not be profitable for the foreign ship owners.

The smaller feeder vessels that transport cargo from Asian hub ports to the Philippines, of course, are more expensive. The additional cost to freight of $200 on the average is what makes our export and import products cost more to the consumer.

Foreign feeder vessels focus on bulk shipments like bananas and canned tuna from General Santos and Davao, canned pineapple from Cagayan de Oro, or other bulk manufactured products coming from Manila and Cebu.

The transportation of goods that are not economically appealing to these foreign feeders is what domestic lines pick up – of course, for an additional cost.

No economies of scale

The mother vessels, on the other hand, ignore the Philippine ports because there are no bulk shipments for them to carry from the Philippines. We are not large-scale manufacturers, thus even if there is a shift to Batangas and Subic ports, there will still be very little shipping activity in these ports.

A good example cited by PISA is the case of air travel where a passenger is asked to transfer first in Hong Kong, Singapore or Japan to be able to avail of long haul flights where passenger volumes are not enough.

In the shipping business, just like for the airline industry, it is important to abide by economies of scale to achieve lower costs.

This lack of economies of scale will be a reality that any shipping company – foreign or Filipino – would face. A simple way of illustrating this can be seen in the transport sector.

One cannot always replace a tricycle or a jeepney with a more efficient bus because the former is able to pick up passengers at more points, plus there is often a much shorter waiting time for the vehicle to be filled with more passengers. That’s why tricycles charge much more than jeepneys or buses.

Inadequate infrastructure

Domestic ship owners have always been complaining of how ill-kept our ports are. Siltation is a big challenge to moving the ships within the port area, and this causes delays, which in turn means additional costs. There are ships that have reportedly waited from several hours to days to berth in some ports.

The domestic Port of Manila, for example, cannot support a 1000 TEU vessel during low tide because the bottom of a ship or tanker touches the sea floor when fully loaded.

Many ports also lack the proper facilities and equipment. Davao, for example, does not have shore cranes. Ship owners are forced to procure ships with gears to cope, but this also means longer discharging rates.

Other options

Domestic ship owners belonging to PISA are offering solutions for the national government to consider, such as having a national development plan that will cluster manufacturing and production centers adjacent to specific air and shipping ports.

The best solution is not always in liberalizing, and this is a lesson that even developed countries have recognized. For shipping, we must remember that shipping follows trade, and not vice-versa: where there is merchandise to be moved, shipping services will be available; where there is an abundance of merchandise, there will be more ships offering better and lower-priced services.

In the same way that airports as hubs are planned and developed, port hubs with production clusters around it should be identified and promoted with the end goal to make the country competitive in every way.

De La Salle U Green Archers – 2013 National Collegiate Champion

Congratulations to the new National Collegiate Champion – the DLSU Green Archers. After five years of rebuilding, the Green Archers are back on top, winning the UAAP and the National Collegiate titles on the same year.

Kudos to the following special awardees: DLSU’s Juno Sauler for Best Coach of the series, Aniceto Escobido for Best Referee, Jeron Teng for Most Valuable Player in the Finals, and the other fellow Mythical team members (Almond Vosotros and Jason Perkins of DLSU together with Landry Sanjo and Mark Tallo of SWU Cobras).

Visit the PCCL website (CollegiateChampionsLeague.net) for more details/information on the National Collegiate Championship and like our official Facebook fan page (Philippine College Champions League) and Follow us on Twitter (@pccleague2013).

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Should you wish to share any insights, write me at Link Edge, 25th 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.