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Long overdue reforms for a sustainable maritime sector

Long overdue reforms for a sustainable maritime sector
Andrew J. Masigan - July 20, 2022 |

President Bongbong Marcos and his Presidential Management Staff have made excellent choices in forming the Cabinet. Save for two appointees whom I consider professionally and ethically questionable, the rest are on the top of their game in terms of credentials, integrity and body of work. Overall, the Cabinet line-up exceeds expectations and this inspires confidence.

Among the excellent choices is Transport Secretary Jaime “Jimmy” Bautista. Jimmy is a bona fide technocrat, having assumed various management roles over four decades. In 2015, he assumed the presidency of Philippine Airlines where he transformed it from a perennial money loser to a viable operation. He elevated the flag carrier’s operational standards to a point where it gained four-star status in 2018. PAL would have been among the top ten airlines of the world if not for Jimmy’s sudden retirement in 2019.

Unknown to many, Jimmy is a magna cum laude graduate and a certified public accountant. He also has a doctorate in humanities. But more than that, he and his lovely wife Joji are God-fearing Christians and devoted grandparents. Under Jimmy’s baton, we can be assured that the DOTr will be managed progressively, effectively and honestly.

One of the pressing challenges that face Secretary Bautista is the state of the maritime industry.

Owing to stiff taxes and over-regulation, the Philippines has been bereft of its own international cargo shipping line since 1986 and this has made us vulnerable in many ways. For one, we have become completely dependent on foreign shipping lines for the importation of food and basic essentials. In national security, we are exposed to defense risks as the importation of our military equipment and armaments are carried on foreign vessels. In trade, our exporters are at the mercy of foreign shipping lines in so far as schedules and shipping rates go. Meanwhile, our importers are made victims of foreign shipper’s exorbitant destination charges (unilaterally imposed add-on fees).

The long absence of a Philippine shipping line on international waters was temporarily broken last September. The pandemic caused foreign shipping lines to prioritize more profitable long-haul, high-volume routes like Shanghai to Rotterdam over less profitable routes like Manila. The scarcity of international cargo vessels calling on Philippine ports compelled the Maritime Industry Authority (MARINA) to issue a temporary permit to Iris Logistics, a subsidiary of Royal Cargo. Iris Logistics plies the Manila-Cebu-Davao-Los Angeles-Hong Kong-Ho Chi Minh-Manila route. This brings relief to our exporters who need to meet delivery schedules to avoid penalties and/or order cancellations.

Iris Logistics invested in a fleet of three vessels with a 1,100 TEU capacity, the largest and most modern in the country.

The scarcity of shipping lines allowed Iris to charge premium rates for their services. This permitted them to operate viably despite excessive taxation from the Philippine government, mandatory over-crewing requirements, compulsory use of Philippine shipyards, high cost of dry-docking and, of course, red tape and corruption.

But the situation has normalized and shipping rates have dropped by more than half. Today, local and international Filipino shipping lines are hard-pressed to survive, given the numerous taxes and tedious regulations imposed by MARINA.

The laws, regulations and taxes that govern our shipping industry were written decades ago and they have literally strangled our maritime industry to death. Not only has it killed our last remaining international shipping line, the Maritime Company of the Philippines, worse, it continues to dissuade existing shipping lines from modernizing their fleet, the majority of which are old scrappers and highly pollutive.

As the country aspires to become a more empowered nation under President Marcos, the time has come to review, amend and update our maritime laws. That said, I ask Secretary Bautista to please consider these 12 reforms:

First, establish a one-stop government desk to process all documentary requirements of shipping lines.

Second, Philippine government offices must be made to accept international certificates and/or documents without having to duplicate them with locally issued equivalents.

Third, newly built containers should be exempted from VAT. This is because shipping lines that exclusively serve international routes will never be able to recover or pass-on the VAT. To levy VAT on international carriers erodes competitiveness.

Fourth, domestic suppliers of shipping lines that exclusively serve international routes should not be mandated to charge VAT for the same reason as number three.

Fifth, empty containers positioned in the Philippines should not be subject to VAT either.

Sixth, port charges levied by the Philippine Ports Authority must be made reasonable. At present, they are ten times more expensive than in Vietnam.

Seventh, Philippine shipping lines should be aligned with international standards in terms of crewing formats. They should not be forced to over-crew their ships.

Eighth, Filipino crew on Philippine ships plying domestic and international routes should be recognized as local employment based on Philippine labor laws.

Ninth, the Philippine government must allow Philippine shipping lines to have their ships serviced by internationally accredited shipyards, not forced to have them serviced by local shipyards who typically charge exorbitant rates.

Tenth, the Philippine government must establish a support system to aid Filipino vessels during emergencies encountered in open waters, in and out of the Philippines.

Eleventh, the Bureau of Immigration must reduce the red tape for Filipino crew bound for abroad on board a Philippine vessel.

Twelfth, Philippine-flagged vessels are prohibited to engage in both international and domestic trade at the same time. Government should consider relaxing this law to encourage more investments in the shipping industry. It will also subject domestic shipping lines to competition, pushing them to be more competitive.

A thriving maritime industry is a fundamental need for progressive nations, especially one that is archipelagic. In line with President Marcos’ vision of building an empowered republic, the DOTr must look beyond short-term profits and politically motivated regulations to create a truly competitive maritime industry for the country.