*Cabotage and the Philippine maritime industry (March 1, 2004)

      *Roll on-roll off system (February 16, 2004)

      *Cebu-Manila Door-to-Door Shipment- One TEU (February 2, 2004)

      *Unbundling sea freight, port charges and other service fees (January 19, 2004)

The Seafaring and Manning Sector (March 29, 2004)

THE Seafaring and Manning Sector must urgently face the challenge posed by other seafaring countries that are trying to supplant the Filipino seafarer and take over the pre-eminent position occupied by the Philippines as the number one supplier of seafarers for the world's fleet.

To respond to the challenge, the sector has identified goals and consequent benefits to the economy if the proper legal and economic environment is provided to the sector. History Out of the overseas shipping sector grew the seafaring sector. Seafarers who could not serve on our own tonnage were deployed on vessels of other countries.

Foreign ship owners recognized the competence and competitiveness of our seafarers and steadily accepted and increased deployment of Filipino seafarers on their vessels. The National Seaman's Board Filipino seafarers were recognized by the Government as a special class of overseas workers because they had to comply with the stringent requirements imposed by international convention. They were originally under the jurisdiction of a specialized agency called the National Seaman's Board that supervised and administered their deployment.

The Philippine Overseas Employment Administration. The phenomenon of the 1980s, wherein an upsurge in placement of overseas Filipino contract workers for land-based work was experienced, prodded government to abolish the specialized agency for seafarers and create the Philippine Overseas Employment Administration. This office presently oversees the recruitment and placement of land-based workers and the hiring and deployment of sea-based workers.

Policies of the office, however, provide little distinction between land-based and sea-based employment despite distinct differences in their terms and conditions of employment. The International Maritime Organization Sea-based workers are required to meet the standards of international conventions formulated and implemented by the International Maritime Organization (IMO). The IMO is an agency of the United Nations in charge of overseeing a wide variety of international maritime concerns, such as safety of life at sea, classification requirements for vessels, marine pollution, use of aquatic resources and other similar concerns.

Seafarers enjoy contractual employment following world standards and practices. They are covered by employment contracts that mandate that they should serve on board for a maximum of 12 months only for any given time and must have regular paid shore leaves of at least two months in a year. They are re-deployed once they complete their mandated shore leave.

In recognition of the competence, skill and proficiency attained by our seafarers in meeting the Standards for Training, Certification and Watchkeeping (STCW), the Philippines was included in the IMO's "White List" in 2000. The White List catalogues the list of countries from which qualified seafarers may be sourced.

Challenges faced by the Filipino seafarer. Today, we currently deploy 200,000 seafarers who serve on 20% of the total world fleet. We have become the single biggest ethnic group serving the world fleet. Total official remittances received through allotments to families of seafarers amount to more than US $1 billion. Estimates for unofficial remittances indicate that total dollar inflow from the seafaring sector is US$2 billion.

The multiplier effect on support industries indicates the generation of another P6 billion from schools, training centers, medical arts, tourism and other allied services.

The Philippines today is the premier supplier of seafarers. The Filipino seafarer, however, is in danger of losing this pre-eminent position to foreign competition. In the period from 1996 to 2000, the increase in deployment of seafarers was only 14%. The increase includes new deployment of hotel personnel on cruise vessels. This means that there has been a decrease in deployment for seafarers in the deck and engine departments over the last five years.

The decline has been the source of grave concern to the seafaring sector as it translates to a loss of jobs for our seafarers who have little opportunity for alternative employment locally. What needs to be done? We must find ways to remain competitive against emerging competition and be able to attract foreign ship owners who have started to look for alternatives in other seafaring countries.

We must urgently reverse the emerging reputation of the Filipino seafarer as a troublemaker who does not honor the terms and conditions of his contract. This reputation has come about because of the practice some Filipino seafarers have resorted to at the instigation of unscrupulous foreign lawyers who have influenced our seafarers to renege on their contracts and file cases in other jurisdictions when such cases properly fall within the jurisdiction of Philippine courts.

To ensure the competitiveness of the Filipino seafarer, the Seafaring and Manning Sector has identified the following program of action which requires legislative and executive attention:

* Enactment of the Overseas Seafarers Code that will set the rules for sea-based employment and separate it from the land-based OFW.

*Separation of OWWA fund contributions of sea-based workers from land-based workers.

* Implementation of e-documentation and a one-stop-shop, applicable to both our domestic and overseas seafarers, to reduce the cost of doing business in the Philippines and to have data available to chart our progress and benchmark our growth and competitiveness.

* Development of a special integrated program where the domestic shipping industry can work with the schools to take on students on the third year of college for on board training.

* Development of the expertise of our seafarers to become ship managers.

* Adoption of standards for the training of domestic maritime manpower, the implementation of programs for their continued training and upgrading, and the compliance of domestic seafarers with standards set for the training of seafarers, in order to create a pool of trained manpower.

* Compliance of domestic seafarers with the QDC requirements by June 2003

* Implementation of more stringent rules for schools and the close monitoring of its compliance with international standards.

* Exemptions from tariff for importations of the industry.

* Adoption of an aggressive internal and external promotions campaign.

* Major improvement of the quality of our seafarers education, values and work ethics.

* Reversal of the tendency of our seafarers to be litigious.

* Review and improvement of medical claims system.

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Cabotage in other jurisdictions (March 15, 2004)

COUNTRIES all over the world recognize the need to exercise sovereign control over movements of trade and commerce, and preserve national security within their territorial waters. They have each imposed certain restrictions on the entry of foreign vessels in their territory.

The following charts show a sampling of countries' posture towards cabotage and the authority of foreign vessels to ply coastwise routes.

Comparison of cabotage in ASEAN:

Comparison of cabotage in other Asian countries:

Comparison of cabotage in the United States of America, Canada and Australia:

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Cabotage and the Philippine maritime industry (March 1, 2004)

Definition of cabotage.

Cabotage is taken from the Spanish "cabotaje". Its root word is "cabo" meaning "cape", "promontory" or "headland". "Cabotage" in Spanish refers to "sailing from cape to cape".

In French, its root word is "caboter" which means "sailing along the coast".

In Black's Law Dictionary, cabotage has been defined as "a nautical term from the Spanish denoting strictly navigation from cape to cape along the coast without going out into the open sea. In international law, cabotage is identified with coasting trade so that it means navigating and trading along the coast between ports thereof."

In Webster's International Dictionary, cabotage refers to "1. trade or transport in coastal waters or between two points within a country especially by other than domestic carriers; 2.a. the right to engage in cabotage; b. restriction of the right of cabotage to domestic carriers."

How it applies to RP law?

Under Philippine law, trade within Philippine territorial waters and its inland rivers is restricted to vessels owned by Filipinos or to partnerships wholly owned by Filipinos or to corporations 60% of the capital of which is owned by Filipinos. This restriction is found in Section 16 (a) of the Public Service Act of 1936 and in Section 11, Article XII of the 1987 Philippine Constitution. It has been carried over from the 1935 Constitution to the 1973 Constitution to the present constitution.

The restriction imposed by cabotage is jointly enforced by the Maritime Industry Authority (MARINA) and the Bureau of Customs (BOC). The restriction, however, is not absolute. Our Legislature has given both agencies a degree of discretion to determine foreign vessels may trade in Philippine territorial waters.

MARINA licenses vessels for the domestic trade provided the vessel's operator meets the ownership requirements imposed by the Public Service Act and the Philippine Constitution. It grants special permits to determine when foreign vessels may trade in our territorial waters.

The BOC clears foreign vessels for entry into the Philippines and authorizes it to carry passengers and cargo from its port of entry to its Philippine port of destination. Conversely, the BOC clears the foreign vessel so that it can pick up export cargo from the Philippine port of origin, through any Philippine port to the port of foreign destination.

Historical antecedent.

The present restriction on cabotage in Philippine law, though less restrictive than its legal antecedent, was borrowed from American law, particularly, the Jones Act of 1920.

But even before the Jones Act, Philippine law already had in place a restriction on cabotage. Act 2761 of the Philippine Legislature required that Philippine or US citizens, or companies wholly owned by Philippine or US citizens shall be the only ones authorized to operate vessels in Philippine domestic trade. This was similar to the pre-Jones Act provision of American law that required vessels in the domestic trade to be operated by US citizens or by companies wholly owned by citizens of the United States.

The Jones Act of 1920, which continues in force in the United States today, served to strengthen domestic trade within the continental United States and between the United States mainland and its territories and possessions. The primary reason for the law was premised on national defense considerations, the United States having just come out of World War I.

Further, the US wanted to ensure "the proper growth of its foreign and domestic commerce", "owned and operated under the United States flag by citizens of the United States" and mandated that it must have "the best-equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in times of war or national emergency, ultimately owned and operated privately by citizens of the United Sates" (Section 861, Chapter 24, Title 46, US Code, Merchant Marine Act, 1920 and Section 1101, Chapter 27, Title 46, US Code, Merchant Marine Act of 1936).

A later amendment to the US Code included the carriage of passengers in the restriction on cabotage.

The American fleet was built on government capital and was privatized only after particular routes had attained a degree of viability sufficient to attract the private ownership of vessels plying the route.

The Jones Act of 1920 was initially applied to trade between the United States and the Philippine archipelago while regulatory power over sea transport between ports and places within the Philippines was delegated to Philippine authorities.

The Public Service Act of 1936 as well as the Tariff and Customs laws institutionalized by the Philippine Commonwealth adopted the provisions of the Jones Act and, thus, made permanent the citizenship and ownership restrictions on vessels in the inter-island trade.

Why cabotage was adopted?

Cabotage, as a policy of the State, was adopted by the Philippine legislature during the pre-Commonwealth days. They considered steamship lines as vital arteries of commerce to an archipelago like the Philippines and its viability and continued operation was crucial to the country's geography.

It was implemented to protect national security and prevent foreign interlopers who might take advantage of the Filipino's lavish hospitality to chart Philippine waters, to obtain valuable information for unfriendly foreign powers, to stir up insurrection or to prejudice Filipino commerce.

Cabotage was enforced as a means to regulate the transportation of merchandise and passengers in Philippine waters, encourage trade and navigation by Filipinos, develop Philippine shipping, institute a measure of protection against fraud upon revenue in coastwise trade, safeguard the country’s commerce and promote its prosperity.

The restriction of cabotage stems from the sovereign power of a State to control its domestic affairs and to direct its relation with other states.

This sovereign power of the State to control its domestic affairs includes the power to regulate trade and commerce within its territory. The use of our territorial waters is considered a privilege that may be permitted under conditions imposed by our Legislature.

In regulating our trade and commerce and the use of our territorial waters, our Legislature deemed it proper to nationalize our shipping industry. Thus, it imposed a limit to foreign ownership of vessels to be operated in the domestic trade, and required vessels of foreign ownership to be subject to certain restrictions if it must carry passengers or merchandise through our territorial waters. The provisions of our Public Service Act as well as our Tariff and Customs mirror these restrictions.

In controlling domestic trade, the Public Service Act requires that vessels to be operated in the domestic trade must be owned by Filipinos, or by partnerships wholly owned by Filipinos, or by corporations 60% of the capital of which is owned by Filipinos.

In regulating the operation of foreign vessels in Philippine territorial waters, the Tariff and Customs Code requires that the BOC must clear all foreign vessels for entry into the Philippines. Further, the BOC must give requisite authority to such foreign vessel for it to carry passengers and cargo from its port of entry to its Philippine port of destination, and to clear such foreign vessel so that it can pick up export cargo from the Philippine port of origin, through any other Philippine port to its port of foreign destination.

Under the Tariff and Customs Code, foreign vessels may call at ports of entry or ports open to foreign commerce and navigation. The BOC has enlarged the number of ports of entry. This has resulted in increased ship calls and more of our export cargo being carried directly by foreign lines.

Today, about 80% to 90% of our export cargo is carried directly by foreign lines.

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Roll on-roll off system (February 16, 2004)

The roll on-roll off (RORO) system is a method of handling cargo wherein vessels are designed with a ramp at a stern, which may be lowered at the pier, to allow the acceptance and discharge of cargo moving through their own motive power. The vessel ramp is powered by hydraulic cylinders and ramp hinges.

Lifts as well as other deck equipment are provided to allow vehicles access to upper and lower vehicle decks. Vessels equipped with a ramp are more commonly called "RORO vessels". RORO vessels may either be pure RORO vessels or multi-purpose RORO vessels. Pure RORO vessels usually refer to pure car carriers and are smaller in size, while multi-purpose RORO vessels pertain to vessels with the capacity to carry heavy vehicles, equipment, containers and other heavy loads. Vehicles shipped through RORO vessels may be owner-driven, or self-propelled but not owner-driven. In the first instance, the owner retains control over the vehicle and accompanies the vehicle to its destination. In the latter instance, the vehicle is turned over to the shipping company as unaccompanied cargo.

RORO operations RORO operations catering to owner-driven vehicles require the provision of large vehicle terminal waiting areas where vehicles may park while waiting for the ferry. Traffic management systems are needed to ensure the smooth ingress and egress of vehicles. Connection to established road networks must be considered in establishing the location of the RORO port. There should be regular vessel frequencies to develop customer trust. The corresponding terminal fee and related charges will have to be collected for the maintenance of the traffic management system as well as for terminal maintenance, terminal security, wharf management and port management services.

On-board cargo handling or stevedoring services will be necessary to secure vehicles. Cargo handling and stevedoring services include car lashing and the fixing of wheel chocks to make sure that vehicles do not roll during the voyage. Self-propelled but non-owner driven vehicles require on-dock as well as on-board stevedoring. The corresponding fees for these services will be collected from the shipper at origin and the consignee at destination. What must be done? The RORO system is just one of the means to link our islands.

There is an urgent need to work on an Overall Master Plan for the complete development of our national transport system, which will include:

* The road-RORO network to serve as a seamless highway to bridge the islands;
* The main ports to service the long haul routes;
* The feeder or hub ports to service import and export traders;
* The tramp, liner and RORO operators in the bulk and container trades serving other areas.

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Cebu-Manila Door-to-Door Shipment- One TEU (February 2, 2004)

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Unbundling sea freight, port charges and other service fees (January 19, 2004)

Seafreight

The shipping company's role is to transport cargo from the port of origin to the port of destination.

* Free In-Free Out: Seafreight contracted may be "free in-free out" or FIO. Under FIO terms, the shipper pays the seafreight to the shipping company and the cost for loading the cargo onto a vessel, or stevedoring costs, to the terminal operator. The consignee, or receiver of the cargo, must pay for stevedoring charges for discharging the cargo from the vessel. The stevedoring fees due at loading and discharging ports are paid directly to the stevedores separately from sea freight. This arrangement is more commonly used for the carriage of bulk cargoes, non-containerized general cargo and oil products.

* Liner Terms: Sea freight can also be contracted under liner terms. Under liner terms, the shipper pays to the shipping company the sea freight, the cost of loading cargo onto a vessel or stevedoring costs and the cost for discharging the cargo from the vessel to the shore. The shipping company takes responsibility for remitting payment to the terminal operator or stevedores. Another cost called on-dock stevedoring, or the movement of cargo from shipside onward, was paid for by the shipper at origin and the consignee at destination, whether the carriage was "free in-free out" or on "liner terms".

Evolution of Liner Terms

Before containerization, most shipping services were done on FIO basis with the shipper and consignee paying for costs outside of seafreight.

At the time container operations were introduced, port operators did not have the equipment needed to support container operations. The shipping companies were forced to provide the equipment, like forklifts and stackers, and absorb all the related handling costs for the movement of containers from the terminal gate at origin to the vessel and from the vessel to the terminal gate at destination.

Containerization translated to a marked improvement in service through shorter vessel port stay, streamlined labor requirements for stevedoring and cargo handling, increased frequencies, and lower breakage and pilferage of cargo.

The fee charged to the shipper was called the "basic service rate" and included the freight rate, as well as the on-board and on-dock stevedoring needed to bring the container to the terminal gate. The shipping company also offered to provide the trucking service at both ends of shipment to ensure the quick turnaround of containers. Shipments on these terms were originally called "liner terms".

As container shipping evolved, "liner terms" became restricted to sea freight and on-board stevedoring. Work for on-dock stevedoring and for trucking services were paid for separately from sea freight by the shipper at origin and the consignee at destination.

Terminal Handling Charge

About ten years ago, international shipping companies introduced the "terminal handling charge" or THC. The THC was created in order to simplify the freight structure, veer away from "liner terms" and revert to the traditional practice of port-to-port terms. Further, it was set up to address the impact brought about by the "floating exchange system" for world currencies by charging THC in the local currency.

The Terminal Handling Charge covers all fees pertaining to cargo handling whether on-board or on-dock, including loading and discharging rates for on-board stevedores, local lift on-lift off rate to move the cargo, on-dock stevedoring work, cost for heavy equipment, cost for crane hire, management service fee, local statutory fees, government taxes and charges as well as other similar fees. THC is collected by the shipping company from the shipper or consignee and is paid to the terminal operator or port authority.

Cargo Handling Costs

Items which form part of cargo handling costs and is recovered through the Terminal Handling Charge include the following:

* On board stevedoring
* Lift on-lift off service
* Trucking service
* Heavy equipment use
* Stuffing and stripping
* Sorting and stacking
* Crane hire
* Terminal maintenance
* Terminal security
* Wharf management
* Port management services
* Other services done on the cargo either on dock or on board
* Applicable taxes, fees and other government charges.

2004 Q2 |2004 Q1
2003 Q4 l 2003 Q3 l 2003 Q2 l 2003 Q1

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