Let’s lower shipping costs

Amendments to the Cabotage Law would help do it. There’s a bill in Congress—and has been there since the late 1990s. As expected, approval of the bill is being opposed by local shipping companies, one of which had too many accidents that resulted in the death of more than 4,000 passengers yet is still allowed to ply its deadly trade. I’ve no idea why. Perhaps someone at the transportation department can tell me.

With 7,107 islands to connect, efficient and cost-effective shipping is an obvious requirement. Last year 50 million passengers took to sea and 194 million metric tons of cargo were moved. This is big business. This is high cost.

Since about 1992 a series of deregulation steps have been made increasing competition and creating more competitive rates, but there’s still a long way to go. Among comparable Southeast Asian countries, the Philippines is second highest (Thailand is worse) in import costs, and second longest (Indonesia takes longer) in processing a container through a port. On export costs Indonesia is higher, while the Philippines is worst (equal with Thailand) on the time to get that container out.

According to the competitiveness ranking by the World Economic Forum, the Philippines ranks 116th out of 133 countries in terms of quality of seaport infrastructure. You can’t do much worse than that. Among Southeast Asian countries we’re only ahead of Laos (137th); other Asean members have much better rankings: Singapore is second, Malaysia 24th, and Thailand 56th.

So it’s heartening to see that Manila North Harbor Port Inc. has just opened the new North Port Passenger Terminal Complex. It’s a terminal that can stack up against today’s modern airport terminals: It has an area dedicated to smooth and easy baggage handling and orderly ticket processing, and is equipped with world-class security measures, air-conditioned lobby, PWD (persons with disability)-friendly floors; drinking fountains, playrooms, nursing rooms, prayer rooms, and a WiFi-ready VIP area. It’s definitely a dramatic improvement in looking after sea passengers (you should see what other terminals look like). So let’s hope it extends to other ports—and expands to better handling of cargo, too, where the Philippines does not compare well.

There are several reports (“Service Liberalization in East Asia” conducted by the New Zealand Institute for Economic Research in 2008, “Restrictiveness of International Trade in Maritime Services” by McGuire, Schuele, and Smith in 2000, and “Case Study on Ports and Shipping Services in the Philippines” by Dr. Rafaelita Aldaba and commissioned by the International Trade Center) showing that the Philippines has some of the most restrictive barriers on maritime trade services—which, sadly, is not surprising. These barriers include the requirements to have a commercial presence in the domestic market, foreign equity limits (the infamous 60:40), mandatory use of ports services like towing and pilotage, cargo-sharing ratios, restrictions on the movement of people and the number of foreign workers permitted, and prohibition of cabotage (coastal shipping) services.

The latter is what’s being addressed now by Senate Bill No. 1359. The others have yet to be addressed. The proposed measure will allow foreign vessels to transport passengers and cargo between ports or places within Philippine territorial waters even when a domestic vessel is available or suitable to provide the required shipping service. SB 1359 also stipulates that passengers or goods arriving from abroad on a foreign vessel may be carried by the same vessel through any port of entry to the port of final destination in the Philippines. At present they must be unloaded in Manila (or the other eight international ports) and transferred to a Philippine ship, which adds expense and time. Export may also be done directly without transshipment as long as there are reciprocal privileges. These eminently sensible provisions will be another step in bringing the Philippines into the modern world.

To improve the country’s ports sector, changes have been recommended, but are yet to be done.  Among these is to separate the Philippine Ports Authority’s regulatory functions from its development and operations functions. Also needed is to allow more competition in foreign cargo operations and cargo handling, and removing the 60:40 rule on foreign participation in port services. Deregulation of the domestic shipping industry, including the fares charged, is likewise needed. The design of ports and ships must be standardized to promote flexibility and avoid port-ship mismatch.

Then there’s the need to remove the prohibition of cabotage so costs go down and efficiency goes up. And costs must go down if the Philippines is to attract the export companies needed to provide more jobs. It costs $450 to ship a 20-foot container from Davao to Taiwan, and $560 to ship it to Manila.

SB 1359 is still pending on first reading, but during the Wallace Business Forum’s Aug. 12 roundtable, Senate President Frank Drilon and House Speaker Sonny Belmonte expressed their support and said that while this sensible bill will face stiff opposition from domestic players, everyone else supports it. Just like the Sin Tax Reform and Reproductive Health Laws, Senator Drilon expects President Aquino to utilize his massive popularity to get the bill through Congress (it’s one of his priority bills).

Allowing foreign vessels to engage in coastwise trade within the Philippines will open up the market, intensify competition, and lower the cost of transporting goods. Time to do it.