Sea Toll Without Subsidy

KOMPAS/IQBAL BASYARI

Direktur Utama PT Pelindo III Doso Agung (tengah).

The concept of the sea toll, which was first launched by President Joko Widodo in 2015, turns out to be a powerful solution to overcome the price gap between the western and eastern parts of Indonesia.

With this sea toll distribution channel, shipping that has not reached the frontier, outermost and least developed regions often referred to as 3T (terdepan, terluar, tertinggal ) regions is directed to be able to serve the delivery of goods to those points.

Until 2019, the initiative has sailed in 18 routes using 19 boats. The government assigns three companies to operate the routes: 5 routes by state-owned ship operator PT Pelayaran Nasional Indonesia (Pelni), 4 routes by state-owned shipping company PT Djakarta Lloyd, and 2 routes by state-owned ferry operator PT ASDP Indonesia Ferry.

Private shipping is also not left behind as they are involved through the general auction mechanism to operate the remaining 7 routes. In serving the 18 routes, the sea toll vessels berth on 4 base ports, namely Belawan, Tanjung Priok, Tanjung Perak, and Makassar; 6 transshipment ports; and 66 layover ports.

Since its launch on 4 November 2015, prices of certain commodities in eastern Indonesia, which had previously been delivered by air or relying on large ports in the east, have dropped significantly. Prices of goods, such as cement, fuel, rice, cooking oil and meat, decline in a number of regions in eastern Indonesia. Based on PT Pelindo IV\'s records, the significant fall on price of cement happens in the Papuan region. In Wamena, the decline reached 40 percent compared to before operation of the sea toll. In other regions, the percentage decrease reaches 12-28 percent. The price of rice in a number of regions of eastern Indonesia also declines significantly, 13-29 percent, with the highest decline occurring in Biak.

However, the assignment for the operation of the sea toll requires subsidies from year to year. If in 2016 the subsidy reached Rp 218 billion, in 2017 it increased to Rp 378 billion. In 2018, it required subsidies of Rp 448 billion, while 2019 it is Rp 222 billion. Therefore, in four years the total subsidy reaches about Rp 1.26 trillion.

In the second term of President Joko Widodo\'s leadership, the community hope that the benefits of this program will be greater, enable the equal distribution of welfare, and can reduce or eliminate the state budget subsidies, where the objective of the program is to realize Indonesia as the world\'s maritime axis. The question is whether it is possible to organize a national program aimed at reducing price disparity and realizing social justice without relying on subsidies or at least suppressing the subsidies? The answer is that it is possible. And it can! How to do it? By changing the mindset followed by rearranging the regulations that protect it. Before looking for a way out, it should be understood in advance about the two main problems in the logistics and shipping industry in the country.

Cargo imbalance

First, it has become common knowledge in the shipping industry that the cause of the high cost of goods distribution from western Indonesia to eastern Indonesia is the cargo imbalance. Goods originating and produced from the west, especially Java and Sumatra, are transported to eastern Indonesia in large quantities, while the volume of goods from the east that can be transported to the west is very small. The percentage is around 80 percent of the freight to the east and only 20 percent of the payload from east to west. It can be said that the cargo ships sail back to the west in a relatively empty state. In the shipping and logistics industry, the inefficiency of ship travel will be a burden and the burden will be imposed on the prices of goods or the shipping vessels are given subsidies, as happens in the sea toll program.

Second, the rules relating to the provision of shipping transportation have not placed the national shipping industry as the backbone in the Indonesian waters. For example, the transportation of export goods from Indonesia to other countries uses a free on board (FOB) system, while transportation of import goods uses the cost insurance and freight (CIF) system.

What are the consequences of using FOB and CIF in export-import transactions and their relation to the domestic shipping industry? In CIF contracts, insurance and other costs of shipping goods are borne by the sellers. The sellers\' responsibility also includes the delivery of goods to the nearest port point

until the goods are loaded to the ship, including paying for the insurance and its shipping. Meanwhile for FOB, the sellers\' responsibility is only limited to the goods being transported to the port and shipped to the destination of the buyers.

Meanwhile, if there are exporters from Indonesia who will send goods abroad, the contract uses the FOB system so that the ships are also determined by the overseas buyers.

When the ship sails, the buyers bears all costs. If there are importers from Indonesia buying goods from abroad, even though the bargaining position as an ideal buyer is stronger, the contract uses the CIF model so that the foreign sellers determine which vessel they will use. Meanwhile, if there are exporters from Indonesia who will send goods abroad, the contract uses the FOB system so that the ships are also determined by the overseas buyers.

With this kind of contract, the Indonesian shipping industry is put in unfavorable condition twice, both during exports and imports. In fact, importers can determine agreements with the FOB system, while exporters use the CIF. If exporters make contracts using FOB, they can choose shipping services that are available domestically to deliver the goods to the overseas buyers. Likewise if importers make CIF-based contracts. Foreign sellers will tend to choose cheaper transportation provided by the Indonesian shipping. Even, Indonesia as an importer can appoint shipping companies to deliver goods from sellers to Indonesia.

As an illustration, when we import rice from Thailand or Vietnam, thus far its transportation also uses shipping transportation from Thailand or Vietnam because of its CIF contract. In fact, we are the ones who have the money to buy the rice. If using FOB, rice importers from Indonesia can appoint Indonesian-flagged vessels to transport the rice from the port of origin to the destination port. What is the impact to be resulted from the change in the contracts of exports and imports? It is none other than the increasing flow of goods in Indonesian waters by Indonesian-flagged vessels.

With the increase in the flow of goods, the cargo imbalance that has occurred so far in the sea toll lanes and required subsidies from the state can be reduced or even eliminated. The regions in eastern Indonesia are very rich in mining materials, agriculture, plantations and fisheries, as well as most of the export commodities. The export commodities, because they use FOB contracts, are transported by foreign vessels. In fact, these foreign ships sail to the east in an empty state. Imagine if the goods are

transported by Indonesian ships. From the west these ships transport industrial products to the east and from the east they are also full of goods. Going back and forth in Indonesian territory, the ships are loaded with goods.

With the change in the system, the world of shipping in Indonesia will be strong. Indonesian shipping fleet can export abroad, which has thus far been served by foreign-flagged vessels. On the contrary, they will transport import commodities to the needs of the country to Indonesia. Besides strengthening the shipping fleet, it will also be able to develop new economic strength in the domestic insurance sector because both export and import activities use domestic insurance.

Role of SOEs and ”hub and spoke” arrangement

The obstacle in implementing the current sea toll program is the assumption that the sea toll program is more enjoyed by businessmen circles who act as commodity collectors who control distribution and prices in the regions. To avoid this, the sea toll trading and distribution system should ideally be managed by involving state-owned enterprises that function as controllers that ensure the availability of goods and prices at the retail level. Other complaints from the sea toll users are the length of time required by the ships to sail to the targeted ports (turn round voyage/TRV).

A high TRV causes the longer duration of the commodities on board and the risk of a decline, both in terms of quality and scarcity of goods in the destination regions, which in the end affect prices at the destination markets. Traditionally, thus far the hub of sea toll activities utilizes four main ports: Belawan, Tanjung Priok, Tanjung Perak, and Makassar. The determination of these four ports is the same as establishing the hub for other trade.

To reduce the TRV time, the government through the Transportation Ministry can establish several new hubs to serve sea toll routes to better reach the 3T areas as the main target. Several new hub ports should be served by commercial (non-subsidized) vessels. Sea toll shipping with subsidies should only be applied at the spoke port, a port in a certain region which will later utilize the hub port as a transhipment area. For example, in East Nusa Tenggara (NTT), Tenau Kupang Port, can be developed as a sea toll hub that serves spoke routes, such as Sabu, Rote, Waingapu, Kisar, and Kalabahi. Meanwhile, the Ambon port as a hub serves Baubau, Dobo, Tulehu, and Saparua.

With the rearrangement of the hub and spoke ports, the sea toll subsidy will be greatly reduced because it only serves short routes as the long distance routes are served by the commercial shipping. Thus, the way out to reduce sea toll subsidies is to rearrange the system of export-import agreements/contracts that provide space for the shipping industry in the country to take advantage of this opportunity. The substance of the rule is to require exporters to use CIF contracts and importers using FOB contracts. In addition to transforming the rearrangement of hub and spoke sea tolls, changes in the shipping system in trade do not change the total costs borne by the owners of the goods, as they only adjust to the obligations and payment patterns. So is with the transformation of the hub and spoke sea toll.

The arrangement of the shipping system in this trade will at the same time make the embryo for Indonesia to be the world\'s maritime axis. To realize this, the role of several ministries is needed under the coordination of the coordinating the minister in charge of maritime affairs to create synergy and collaboration in overcoming the problem of the sea toll. Whatever it is, the sea toll is a brilliant conception in realizing social justice for all Indonesian people in the field of logistics. What we need now is to make this concept or program a new economic opportunity for the shipping industry in the country to further develop and grow into big players. The opportunity is wide open.

Doso Agung, President Director of PT Pelabuhan Indonesia III