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Indonesia's protectionist shipping rule worries coal importers

Indonesia's protectionist shipping rule worries coal importers
March 26, 2018

Japanese charge violation of trade pacts and warn move will backfire

TOKYO -- Indonesia's decision to mandate the use of domestic shipping companies handling the country's key export commodities of coal and palm oil has drawn criticism, as well as a warning that it will drive up freight costs and hurt the country's economy in the end.

Indonesia is the world's top exporter of thermal coal, a type of coal used widely for power generation. Japan sourced 32.07 million tons, or 17% of its coal imports, from the Southeast Asian country last year.

It now seems that the regulation will be delayed and not take effect in late April as planned. Nevertheless, strict enforcement would have a substantial impact on Japanese shipping companies.

"If we tolerate this regulation, other countries may make similar moves," an official at the Japanese Shipowners' Association said.

Japan's Transport Ministry has urged Jakarta to scrap the regulation on grounds that it is in violation of World Trade Organization rules, as well as the bilateral Economic Partnership Agreement between the two countries. But the Indonesian government has so far ignored Japan's plea.

In reality, Indonesia's shipping industry, made up of small-scale operators, is in no way capable of moving all cargo, an executive at a major Japanese ocean freight company said.

This means that Indonesian shippers will need to tap foreign freighters' resources by leasing vessels or subcontracting cargo transportation.

The addition of another layer to shipping operations is certain to increase costs. "We will closely monitor the development, since it would affect procurement prices in no small way," said Jera, a Japanese fuel importer affiliated with power companies.

Meanwhile, one Japanese shipping industry insider has a warning for the Indonesian government. "If transportation costs climb, Indonesian coal will become less competitive in term of pricing," he noted. "That would drive buyers toward other supply sources, such as Australia, and Indonesia will ultimately suffer as exports decline."