Phl needs its own int’l shipping line

In this corner last week, I wrote about the abusive practices of foreign shipping lines doing business in the Philippines. Unbeknownst to many, these shipping lines charge Filipino importers exorbitant “destination charges” even if freight was booked on a CIF (pre-paid cost of insurance and freight) or CFR (pre-paid cost and freight) basis.

For those who missed that piece, “destination charges” consist of some 50 auxiliary fees like Congestion Surcharges and Carrier Security Surcharges, all of which were conjured by shipping lines to extract more revenues from local importers. Our importers have no choice but to pay these destination charges – not to do so will cause the shipping lines to withhold the release of the shipment.

The terms and conditions that govern international shipping are standardized in an accord called the International Commerce Terminology (INCOTERMS). These standards were formulated by the International Chamber of Commerce (ICC) and have been in effect since 1936.

The practice of charging local importers “destination charges” is in direct violation of INCOTERMS rules. Yet, it has become standard operating procedure in our ports.

The high cost of shipping is the reason why imported goods in the Philippines are more expensive than they are in other counties. The Filipino people are made to absorb the high prices while foreign shipping companies repatriate scandalous profits to their mother countries.

There are two reasons why this abusive practice persists. The first is because Philippine laws are unclear as to which government agency has jurisdiction over the pricing schemes of foreign shipping lines. This is why pricing is largely unregulated. To this, Malacañang must hand down an executive order naming the agency responsible for pricing oversight. I reckon this should fall under the purview of the Maritime Industry Authority (MARINA), seconded by DTI’s Consumer Protection office.

The second reason is due to the fact that the Philippines has no shipping line that calls on international ports. This leaves the foreigners with no local competition and an opportunity to “cartelize.”

There is no shortage of Filipino companies willing and able to invest in a fleet of vessels to form an international shipping line under the Philippine flag. Unfortunately, government regulations prevent them from doing so.

The MARINA, an agency under the Department of Transportation, has the power to allow local shipping lines to service foreign ports. Problem is, Philippine maritime laws are so antiquated that MARINA only registers local shipping lines as either engaged in domestic trade or international trade, never both. This is explicitly stated in MARINA memorandum circular no. OS-2019-02.

Shipping lines registered for international trade must conform to Philippine cabotage laws. As such, they are prohibited from calling on Philippine ports unless it is an onwards shipment from a foreign destination (e.g. Bangkok to Manila and onwards to Cebu). Other than that, domestic cargo is exclusively reserved for domestic shipping companies.

The prospect of violating cabotage laws is the reason why MARINA is unable to allow local shipping lines to serve international destinations and concurrently be allowed to call on Philippine ports. The law is counter-productive in that prevents our local shipping companies from expanding internationally.

The other reason why MARINA disallows local shipping lines from calling on foreign ports is the fear that they may purchase fuel abroad (where it could cost half the price) and deprive the Philippine government of tax revenues. This myopic view and miser attitude has, in effect, stunted the development of our shipping industry.

While other countries offer great incentives for their local shipping lines to ply international routes, Philippine laws discourage them. This has caused foreign shipping lines to have a monopoly over Philippine foreign trade. As a consequence, importers are abused by having to pay scandalous destination charges while local exporters are made to pay stiff freight charges for their shipments abroad.

The cure is for government to repeal and/or amend MARINA memorandum circular no. OS-2019-02 to permit Philippine registered vessels to concurrently engage in domestic and international trade. While cabotage laws protect Philippine flag vessels from foreign competition in purely domestic trade, it should not come at the cost of barring Philippine flag vessels to effectively compete abroad.

There are compelling reasons why government should allow and incentivize local shipping lines to expand internationally, especially 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) relocated their production facilities from China to different parts of ASEAN. If freight cost for parts and components to and from our shores are unreasonably expensive, manufacturers would naturally leave out the Philippines form their production chains. This problem persists today and is one of the reasons why our share of freight direct investments is among the lowest in the region. Incentivizing local shipping lines to concurrently call on ASEAN ports will drive down freight cost and add to Philippine competitiveness.

Having an international shipping line under the Philippine flag ensures the nation of a maritime connection to our trading partners in case foreign shippers abandon the Philippines for whatever reason. This is vital for national survival since we import much of our food, oil and other basic commodities.

Allowing local shipping lines to concurrently service international ports will cause our carriers to expand their fleets and consequently, grow their enterprises. This translates to more jobs for Filipino seafarers who can work at home rather than in far flung countries. It will translate to more taxes for government. Government imports, especially of sensitive goods like military equipment, can be carried by Philippine vessels, thereby ensuring national security. And, more importantly, a good portion of profits derived from international cargo will stay in the Philippines rather than being repatriated abroad.

Government can better regulate local companies rather than foreign ones.

The Philippines has much to lose and a windfall to gain by allowing local shipping lines to concurrently service international ports.

In a time when we must raise revenues to finance our COVID expenses, create jobs for our displaced countrymen and attract investments to pump-prime the economy, government will do good by revisiting our antiquated laws and begin to earnestly develop an international shipping line industry.