Imperious

What happens when a government corporation starts losing market share to a more efficient private competitor?

In a competitive market setting, the answer should be fairly simple: the losing government corporation improves its efficiency and woos customers back. At the Cebu port, the answer is different: file administrative charges against the port official for “allowing” ships to choose the private service provider.

The following story tells us why the country is going to the dogs.

There are three players in this unseemly drama: the Cebu Port Authority (CPA), the Oriental Port and Allied Services Corporation (Oriental) and the Cebu South Harbor and Container Terminal Corporation (South Harbor).

CPA administers the bustling Port of Cebu. Oriental operates the government-developed Cebu International Port. South Harbor is a private company enjoying a 25-year permit to operate. The company received its certificate of registration in March 2022.

On May 22, 2024 the global shipping giant Maersk applied for a berthing permit at South Harbor. On May 23, 2024 Maersk wrote the CPA about its intention to transfer its vessel Happy Lucky to the private terminal. On May 26, the shipper informed CPA of its intent to discharge and load cargo at South Harbor.

On May 27, CPA wrote Maersk that its ship was required to make a triple call: first to South Harbor, then to the Cebu International Port and then back to South Harbor. The triple call added costs to the shipper and created complications for importers. No reason was given for why that triple call arrangement was required.

On May 30, the Cebu governor convened the parties in a meeting to discuss the matter. It was agreed that berthing would depend on shipping-line preference – as it is everywhere else.

On May 31, the Cebu governor wrote the CPA to confirm the outcome of the discussions. On June 4, the CPA general manager confirmed the agreement of the parties.

According to CPA general manager Francisco Comendador III, the shipping lines preferred the South Harbor terminal because it offered a deeper draft, depot facilities, easier vessel access and other operational advantages. The shipping lines, for their part, wrote that their choices were based on technical, commercial and customer considerations.

Port terminals are, after all, not popularity contests. Ships go to where they can move cargo more efficiently and economically.

If so, then the Cebu International Port is in danger of losing traffic because a competing terminal offered operational advantages. But should the losing competitor resort to compulsion in order to avoid losing customers?

Oriental claims that CPA revenues are adversely affected by the transfer of shipping lines to the private terminal. That is a false claim.

The CPA says its revenues actually increased in 2024 and 2025. This is because the CPA receives its revenue share from South Harbor. It should be easy to check the records to settle the competing claims.

Last year, Oriental elevated what began as a war for market share into a regulatory war. The company asked the CPA to revoke South Harbor’s license to operate. The CPA obliged, creating a composite audit team to comb through South Harbor’s accounts and eventually elevating the question to the Department of Transportation (DOTr).

Flimsy as the claims were, the DOTr nevertheless compelled South Harbor to reply to Oriental’s allegations. This was an assertion of control over the map of Cebu’s port system.

A fine comb was run through South Harbor’s 25-year permit to operate, with officials looking for the slightest excuse to annul the agreement. They found none.

Failing in that, Oriental filed a complaint with the ombudsman, alleging the CPA practices favoritism towards its competitor. In the most routine manner, the ombudsman suspended Comendador from his post – ahead of any finding of cause.

The most normal practice of a shipping company weighing its costs and benefits in deciding where to berth its ships has now produced an administrative crisis for the Cebu port. What began as a plain economic calculation on the part of a customer has now mutated into some form of “favoritism.”

Strangely, Commendador tried at every step of the way to accommodate Oriental’s unusual demands, which eventually blew up in his face. He has now become respondent to an ombudsman case filed by the company he tried to favor. He is now suspended.

At no time through this sad episode was competitiveness treated as a premise for all corporate and official actions. If a government-sponsored competitor failed, as Oriental did in the face of challenge from a new port play, this was read as administrative failure. Comendador is now penalized because shipping companies made choices according to what was best for them.

This is such an unhealthy signal to investors in our economy. The useless controversy is caused by efforts to curtail the free choice of market players.

There are other discouraging messages implicitly sent to anyone wanting to do business in our economy. Competing against a government-sponsored entity will invite tilting of regulations against the private competitor. Government-sponsored firms, no matter how inefficient they are, will not go down without warping the entire regulatory architecture.

Sadly, we have not seen the end of this. Oriental seems bent on invalidating the 25-year contract of South Harbor. If the competitor is strong, the bureaucratic impulse is to disqualify him. There is no such thing as an even playing field.