Chapter II conceptual framework shipping Industry 1 Environment

CHAPTER II CONCEPTUAL FRAMEWORK
2.1. Shipping Industry

2.1.1. Environment
Indonesia as the largest maritime country in the world should have a comparative advantage in the maritime transportation services industry. Yet, the industry has not made a significant contribution to the country's national income. According to Maritime Transportation Directorate General, the total volume of shipping cargo transportation grew 19.5% from 125.17 million tons in 1998 to 149.63 million tons in

2001. Due to limited number and capacity of domestic vessels, it was only 60% of this cargo could be transported by national shipping industry. In spite of the growth, domestic inter island shipping companies have also been facing threats from foreign joint ventures. Total domestic shipping companies in year 2001 is 7,134 companies, which are 126 out of them owned up to 174 Gross tonnage (GT) vessels, 6,070 companies owned 175 GT – 4,999 GT vessels, 129 companies owned 5,000 GT vessels and the rest 809 companies did not own any vessels, instead they charter some vessels. The weakness of national shipping industry condition is believed being caused by unsupportive policy of the government and the central bank of Indonesia. They provide no any fiscal incentive or soft loan for the shipping industry. Lack of infrastructures and facilities such as vessel stocks, spare parts and bunker availability as well as crew competency are other reasons.

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Price war is another issue that has been faced by national shipping industry. Price war usually happens when one or more new entrants enter an existing route that has an attractive market which usually is dominated by one domestic shipping operator. Indonesian National Ship Owners Association (INSA) urged domestic shipping operators to form a consortium for routes that have attractive markets in order to avoid the price wars. However, some operators that enjoyed the benefits of price wars deny joining the consortium.

Along with major deregulation that permitted market-determined freight charges and abolished the special licensed for foreign vessels in late 1980s, the threats of foreign shipping companies have been increasing. Foreign shipping has been dominated inter ocean shipping by 92.5% of total cargo (322.5 million MT), while for domestic inter island shipping foreign shipping companies have 50% portion of total

89.8 million MT cargo. Most of domestic shipping liner also provide agency of foreign shipping companies.
2.1.2. Government Policy
Government policy required that shipping companies established after 1974 be majority-owned by pribumi businesses and mandated firm size and freight charges. Maritime transportation regulations of Indonesia are based on Government Regulation PP. No. 82/1999 regarding Maritime Transportation and Ministerial Decree KM. 33/2001 regarding Regulation and Principal of Shipping Agency. According to PP No. 82/1999, restrictions on new entrants were imposed through five classes of shipping license for the shipping liners:

• Inter island shipping, with a minimum capacity of 175 GT.

• Local shipping, with 35 to 175 GT.
• Traditional shipping, which included perahu phinisi, the two-masted sailing vessels originating among the Buginese in Sulawesi Selatan Province.

• Small-motorized craft; ships chartered by the government to serve remote ports.

• Special vehicles engaged in carrying bulk freight such as crude oil, fertilizer, and other industrial cargo.

PP. No. 82/99 also mentioned a requirement vessel ownership at least one unit
175 GT vessel for national shipping liners.
Besides the Maritime Transportation Directorate General of the government body, there is also another body called Indonesian National Ship Owners Association (INSA) that was formalized and legalized by Indonesia Ministry of Transportation in SK No. KP.B/AL-308/PHB-89 on October 28, 1969. INSA classified its fleet into 6 category: conventional liner vessel, full container vessel, tanker, passenger ship, general cargo break bulk vessel, tug boat and lighter carrier. The objective of INSA is to improve the national shipping industry and to keep economic integration of Indonesia and to reduce dependency of foreign economy in maritime commerce. Main tasks of INSA are:

• To lead and to contend in behalf of the members

• To assist research – development and training management
• To provide an integrated shipping
• To improve the shipping liner efficiency

• To involve in national, regional and international business organization

2.1.3. The Players
The domestic cargo shipping industry involves business activity among many organizations, which include port authorities who is government representative and private companies.

Port authorities consists of:
1. The Port Administrator is responsible for:
a) To arrange operational plans of the utilization of warehouse and other port facilities

b) To control the traffic of cargo and vessels c) To lead the longshoremen

d) To coordinate all parties involved in business activity of a port
2. PT. Pelabuhan Indonesia (Pelindo) is responsible for:
a) To provide the port facility for docking vessels
b) To prepare the port facility for loading and unloading activity c) To allocate resources and schedules for docking vessels

3. Customs Office:
a) To inspect entry and exit traffic of goods and cargos in his coverage area b) To inspect goods and cargos at vessels as well as at the port

c) To collect duties of goods and cargos according to government pre- determined tariff for each type of the cargo content


d) To direct the goods and cargos that haven’t been imposed by taxes into entry port

4. Port Clearance Body:
a) To inspect administrative documents of the vessel before vessels could enter or exit a port

5. Directorate of Immigration is a body under Department of Justice who is responsible for:

a) To inspect passport of people who enter and exit a country
b) To inspect foreign passengers and cabin crews of vessels who are entering and existing territory of Indonesia

c) To issue an immigration clearance
6. Quarantine and Health Service is institutions who are responsible for:
a) To provide health service
b) To inspect deratting certificate and list of cabin crew and passenger c) To issue health certificate and health clearance

d) If it is required, to apply quarantine period of a vessel arriving in port, and suspected of being infected a malignant contagious disease

e) To inspect animals and plants that are carried by the vessel
7. Coast of Guard is a body of men originally employed along the coast to prevent smuggling; now, under the control of the admiralty, drilled as a naval reserve. Meanwhile the private companies involved in domestic shipping industry

include:
1. Shipping Liner: a company whose business operates vessels.


2. Stevedore: a company whose business provide load and unload ships activity.
3. Freight Forwarder: a company whose business is to act as an agent on behalf of the shipper. A freight forwarder frequently makes the booking reservation.

4. Surveyor: a company whose business surveys the quality of a cargo or a vessel.
5. Others: Bank, Insurance company, Land carrier, Supplier.