Opening up the domestic shipping industry to foreign players through the passage of a bill amending the Public Service Act (PSA) would hurt local carriers, especially small- and medium-sized shipping lines, warns a shipping executive.
Removing domestic shipping as a public service and allowing 100% foreign ownership “will totally wipe out the small- and medium-sized companies, which are really the backbone of island province” shipping, according to Asian Marine Transportation Corp. chief executive officer Raul Rodriguez during a recent forum organized by The Manila Times.
Foreign ship owners will surely take over the industry once the bill seeking to amend the definition of public service and exclude domestic shipping as a public service is signed into law, said Rodriguez, who is also president of the Philippine Coastwise Shipping Association, Inc.
The House of Representatives (HOR) on March 10 approved on third and final reading House Bill (HB) No. 78, which seeks to amend the definition of public service in PSA, or Commonwealth Act No. 146.
HB 78 aims to limit the definition of public utility to any person or entity that operates, manages, or controls for public use the distribution of electricity, transmission of electricity, water pipeline distribution, and sewerage pipeline. The bill excludes transportation, telecommunications, broadcasting, and other public services from being defined as public services.
If passed into law, the bill would effectively allow 100% foreign ownership in the excluded industries, including shipping, as these services would no longer be considered public services or be covered by the 60%-40% ownership principle under the Constitution.
The Senate version of the bill remains pending at the committee level and needs to be deliberated on second and third readings.
Locals at a disadvantage
Rodriguez said domestic ship owners “would be very much affected” if the bill is passed as they would be unable to compete with foreign players, who have the advantage of availability of capital in their own countries.
Filipino ship owners “could not easily afford to acquire brand new or relatively young vessels because the cost of capital is so high and you cannot just amortize over a long-term period,” Rodriguez explained.
The entry of foreign players “will really challenge the shipping industry,” agreed Chelsea Logistics and Infrastructure Holdings, Inc. president and chief executive officer Chryss Alfonsus Damuy, during the same forum.
Particularly affected would be shipping operators that invested heavily in the past years only to find that “suddenly some foreign operators which [have] excess ships—the likes of China—will come into the country if that law …will be put into effect,” Damuy said
One of the reasons some lawmakers are pushing to open up domestic shipping is the high cost of domestic shipping, a claim Rodriguez debunked.
He pointed out that the shipping component “is very much lower than the land component” in the overall logistics cost: trucking accounts for a higher percentage than freight itself, and terminal handling charges are also “very expensive.”
Rodriguez said domestic shipping is actually very competitive if looked at from the perspective that all of these costs form the door-to-door package, instead of comparing local costs to the freight rates of international shipping lines. Customers should unbundle the costs to have an “apples-to-apples” comparison between domestic and international shipping rates, he continued.
Even economies like Japan, South Korea, and the United States never opened up their cabotage for reasons of national security and economy, Rodriguez pointed out. Cabotage is the policy of restricting the operation of sea, air, or other transport services within or into a particular country to that country’s own transport services.
Partners in pandemic
Rodriguez said Filipino ship owners are also the country’s first responders during times of calamities and emergencies, such as the current coronavirus disease (COVID-19) pandemic.
Domestic shipping companies have been extending support to local communities and the government by moving essentials goods, rescuers, and sick people during the pandemic. Shipping lines were also tapped by the government after the onslaught of super typhoon Yolanda in 2013.
“We are not sure whether the foreign ship owners or operators would still be around to really go out of the way to help the communities,” Rodriguez said.
Moreover, domestic ships are also used for the onboard trainings of seafarer students. Shipping companies subsidize trainings and provide free meals and allowances for seafarer students.
In addition, Rodriguez said threats to national security and smuggling incidents may be able to “just come in and go if they [foreign carriers] are not controlled by the Philippine government’s maritime authority.”
Maritime Industry Authority (MARINA) administrator Robert Empedrad, during the same forum, said the maritime industry’s position is that opening the industry to foreign players would benefit the public and “even enhance competition.”
However, MARINA also recommends a “colatilla” that ownership should still be on a 60-40 basis, with Filipinos still in control, Empedrad noted.
Rodriguez responded that he didn’t think foreigners “would want to have a local partner who would really run the show.”
“If they are to send their ships here, they will be running their own show, so perhaps this 60-40 will just be a dummy set up,” he added.
“We believe that the Filipino ship owners can very well handle the inter-island trade business,” Rodriguez said, adding that “there is no need really for the foreigners to come in.”
“We know our trade and the foreigners will just be here to take advantage of the Philippine island industry,” he noted.
Other domestic shipping liner groups such as the Philippine Inter-island Shipping Association and Philippine Liner Shipping Association have also been asking Congress to include domestic shipping in the coverage of public utilities under the bill amending the PSA.
The groups also cited national security as a reason, and stressed that domestic shipping is a strategic industry for an archipelagic country in times of national disasters, response and reconstruction, potential conflict over the West Philippine Sea or war, smuggling, drugs, illegal fishing, and piracy.
The groups also said that opening up transportation “will not bring down domestic transport costs so long as foreign corporations will be subjected to the same operating conditions as domestic transport operators.” They noted that among the contributing factors to the high transport cost of domestic trade are the high operational costs, taxes and regulatory fees. – Text and photo by Roumina Pablo
