While the Philippines remains one of the fastest-growing economies in the world, its global competitiveness continues to be in question because of policies that hamper growth, such as cabotage, according to a nonstock, nonprofit government research institution.
A recent study by the Philippine Institute for Development Studies (PIDS), authored by its president Gilberto Llanto and senior research fellow Adoracion Navarro, said the cabotage law presents serious issues that contribute to the slow development of the maritime transport industry and affect the economy’s overall competitiveness.
Cabotage refers to the exclusive of right of a country’s vessels to carry cargo or passengers via sea, air, or land transfer within its borders.
The Philippines’ cabotage law was derived from the US Merchant Marine Act or Jones Act of 1920, which aimed to protect shipping in all US territories from foreign competition. After the American colonial rule, the Philippine government continued the policy through Republic Act 1937, or the Tariff and Customs Code of the Philippines.
That law protects the local shipping industry by allowing only local vessels carrying cargoes and passengers to ply inter-island routes. Foreign vessels can only enter the country’s international ports, such as the Port of Manila and the Port of Subic, and have to transfer to local vessels cargoes for the Visayas and Mindanao.
But the PIDS study said cabotage gives the local shipping industry full control of domestic maritime transport, to the detriment of local exporters and importers who bear the very high cost of domestic shipping services.
Domestic shipping rates from Manila to Cagayan de Oro stands at $1,120 for a 20-footer container, relatively more expensive compared with foreign transshipment rates at $644 for the same container, PIDS cited data from the Joint Foreign Chambers of Commerce in the Philippines.
Past studies attributed the high cost of domestic shipping services to the lack of competition in the industry, which is in the hands of a few players. This concentration results in a lack of competitive drive and initiative to modernize fleets.
In 2013, the Maritime Industry Authority (MARINA) reported that the Philippines was the world’s fifth-largest shipbuilding country as more local shipyards built more ships that can carry larger capacities.
However, Llanto and Navarro’s study revealed that “domestic shipping lines continue to use smaller and even older vessels in transporting cargo, which are uncompetitive compared to those used by their foreign counterparts”.
Domestic shipping lines use vessels with a capacity of at least 200 twenty-foot equivalent units (TEUs), far inferior to foreign container ships with capacity as much as 5,000 TEUs).
This presents additional shipping costs as cargo vessels require longer transit and more turnaround times in ports.
Although high domestic shipping costs can also be attributed to inefficiency and inadequacy of port facilities and policies on the part of the national government, it is evident that global competitiveness lies in the quality of service rendered by shipping companies, the study said.
The lifting of cabotage restrictions is predicted to foster a more competitive environment as foreign vessels provide better-quality services, thus pushing the local industry to modernize and improve its services.
Last year, Cagayan de Oro representative Rufus Rodriguez filed a bill that will allow foreign vessels greater flexibility in the local shipping industry.
House Bill 1789 or the Coastwise Trade Act of 2013 aims to increase competition and strengthen the maritime transport industry by allowing foreign vessels to travel from one local port to another and deliver goods through inter-island routes.
President Aquino, in his State of the Nation speech last July, also endorsed amendments to the cabotage law.
The bill remains in the Lower House awaiting passage, after which it will go to the Senate for approval.––Trish Yap
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