PIDS pushes review of Cabotage Law

MANILA, Philippines - State think tank Philippine Institute for Development Studies (PIDS) is pushing for a comprehensive review and amendment of the Philippine Cabotage Law to foster competition in the local shipping industry paving the way for lower shipping costs.

PIDS president Gilberto Llanto and PIDS senior research fellow Adoracion Navarro said in a study that revisions to the Philippine Cabotage Law would bring down domestic shipping costs.

A well-planned review and lifting of cabotage restrictions, Llanto and Navarro said, would help bring down domestic shipping rates in the country.

Under the present Cabotage Law, only domestic shipping lines could 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 authors said in their study.

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,” the study said.

A 40-footer container domestic shipping, from Manila to Cagayan de Oro, costs $1,860, which is a lot expensive than foreign transshipment via Hong Kong $1,144 and via Kaohsiung $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 aging 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 five to 10 years old in the late 1990s,” it added.

“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 to 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 said.

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,” Llanto and Navarro said in the study.