IN 2016, about four years ago, the Maritime Industry Authority (Marina) announced that “it will become a premier maritime administration in Southeast Asia, propelling the maritime industry to become global and competitive.”
It has not happened just yet, but Marina could still do it under this administration as Marina is correct about their expressed views:
• The maritime industry is being an essential logistics and services support sector to sustain economic growth and competitiveness.
• Maritime transport is the backbone of Philippine trade and a key engine driver to the Philippine economy.
• The Philippines counts on the maritime industry as a vital component in attaining inclusive growth. Shipping remains the major infrastructure linking islands and connecting the country to Intra-Asia/Asean and international commerce.
Through Executive Order 75 issued on April 30, 2012, the then Department of Transportation and Communications (now Department of Transportation) Marina, was mandated as the single maritime administration in the Philippines responsible for overseeing the implementation of the Philippine maritime industry.
Why should Marina move now?
For now, only International flag carriers are carrying the growing trade between the Philippines and Asean.
There is no Philippine-flag container service that connects the Philippines and other Asean member nations directly.
Marina should have directed cargo owned by the government or purchased with public funds, or under government guarantee toward Philippine-flagged vessels.
However, the opportunities to enforce this rule do not exist as there is no Philippine container vessel plying on international trade.
This situation has several securities, financial, and commercial implications:
1.) Security
• Overseas lines might withdraw from routes to and out of the Philippines or reduce sailings when they can earn more money elsewhere. Right now, there is a shortage of 40 containers in the Philippine domestic market as many of them were transferred by the lines to China and other lucrative markets.
2.) Commercial
• The international shipping line culture of informal charges and abusive practices has a substantial financial effect on exporters/importers in the Philippines;
• Cost of transport is high due to the absence of a market for charges imposed through coercion in the absence of contracts;
Service stability and availability is unstable.
3.) Financial
All revenues earned, profits made, and taxes collected from freight and other imposed charges of international container shipping lines are remitted abroad.
What should Marina do now to harvest opportunities through change?
Marina could transform the Philippines into the world’s best maritime service provider in partnership with the private sector.
The above brings us to one of the essential urgent steps: The Philippines needs its international shipping line:
There are compelling reasons why Marina should allow and incentivize local shipping lines to expand internationally, initially to Asean ports.
The most urgent reason is that production chains in Asia have evolved from being China-centric to Asean-centric. Thousands of manufacturers have (and continue to) relocate their production facilities from China to different parts of Asean (many to Vietnam). If transport costs for parts and components to and from Philippine shores are expensive, manufacturers would naturally leave out the Philippines from their production chains.
Having international shipping lines under the Philippine flag ensures a maritime connection to the country’s trading partners. This is vital for national survival since the country imports much of its food, oil, and other essential commodities.
Allowing local shipping lines to service international ports concurrently with local ports will enable them to expand their fleets and grow their enterprises.
Fortunately, some local shipping line owners have already expressed interest in doing that, provided that the needed government incentives to go international are available.
What needs to be done by Marina to achieve the potential?
• Attract investments in shipping through incentives and, even more, meaningful work with the Anti-Red Tape Authority, or ARTA , to reduce red tape and adopt investment friendly rules easing self-imposed restrictions.
• Especially remove cost drivers such as mandated over-crewing and mandatory use of local but foreign-owned shipyards
• Enhance a Philippine Ship Registry, which will set the regulations that will encourage and facilitate the registration of safe and environmentally friendly ships, using “green” feedstock, which will attract Philippine and foreign owners to use the flag of this country.
• Allow Philippine flag vessels to operate domestically and internationally in one registration to enhance their competitiveness
• Establish a tonnage tax regime in place of income tax, bareboat tax, common carrier’s tax, and all other taxes to be at par with the ship registries of other countries
• Promote access to foreign financing in the purchase of ships by amending the ship mortgage law
• Encourage and promote the participation of Philippine flag vessels in the carriage of government cargo to and from the Philippines based on existing regulations
• Government imports should be secured on FOB (freight costs are separate from the cargo value of imports) to enable Philippine-flagged ships to participate in the carriage of government cargo and thereby earn foreign exchange for the country, and have the profits of these transactions made taxable in the Philippines
• Simplify port clearance requirements in the entry and exit of ships
• Allow voluntary pilotage services and impose liabilities for ship damage resulting from pilot errors.
What will the Philippines /the Philippine government gain from this?
• Philippine registered companies pay income tax to the government for businesses done here and abroad.
Foreign registered companies supposedly pay income tax on their businesses done locally, but in the case of destination charges/services, none, as they incorrectly don’t declare these as local income. Of course, their freight income generated abroad is not being taxed by the Philippine government as well.
• Freight revenues stay in the country instead of being remitted abroad
• Importers will be protected from abuse of foreign shipping lines through the imposition of excessive surcharges. Importers will now have alternative options to bring in goods at lower costs in a real market environment
• Local consumers will buy imported products at a reduced landed cost as unnecessary surcharges are eradicated.
• This project will pave the way for all domestic carriers to consider going international, thereby giving work to displaced seafarers for as long as the local vessels comply with international maritime safety standards
• Once domestic companies start to engage in international trade, foreign-flagged carriers will have competition from Philippine flag carriers
• Government imports such as rice, sugar, G to G projects can and will be carried by Philippine flags as the flag law requires.
Going back to Marina’s 2016 announcement that “it will become a premier maritime administration in Southeast Asia, propelling the maritime industry to become global and competitive.”
Iris Logistics Inc., owned 80 percent by Royal Cargo Inc. (RCI), them being a major player in logistics in the Philippines and beyond, would like their line to be one of the first Philippine shipping lines to ply ships calling on both domestic and Asean ports seamlessly.
Subject to Marina granting Philippine shipping companies permits to operate with Philippines flagships, both domestic and international routes, Iris Line would like to start as soon as possible connecting all major Philippine ports to Asean directly.
RCI understands that Iris Line, as a local carrier, might find it challenging to match the competitive service offered by international shipping lines, at least on some routes. However, they believe that the newly signed free trade agreement between the Asia-Pacific nations known as Regional Comprehensive Economic Partnership (RCEP) will speed market growth between the Asean nations. As such, they are willing to take on such a challenge. From what we know, they plan to initially commence a service with 3 x1100 TEU, or slightly bigger vessels.
They assure compliance with international standards, under the Philippine flag, connecting main Mindanao, Visayas, and Luzon ports to the nearby Asean countries of Thailand and Vietnam, with more connections to follow.
The opportunities in the Asean market are big enough to benefit them and all Philippine owners of container ships.
The domestic cabotage for strictly intra-Philippine transports will stay and is not in question at all.
The ball is clearly in Marina’s court now!
Feedback is welcome; please contact Henry Schumacher at hjschumacher59@gmail.com