Liner: Big changes afoot

The ‘Sea Toll Road’, a maritime programme initiated by Indonesian president Joko Widodo, is set to dramatically change the face of the domestic liner trades.

Shortly after taking office last year, Widodo, who has so far shown himself to be a strong supporter of the country’s maritime industry, called for the revolutionising of domestic shipping to increase its productivity.

Widodo’s grand plan details the development of several large transhipment hub ports strategically located throughout the vast Indonesian archipelago.

At present, all sea roads in Indonesia lead to Tanjung Priok, the port of Jakarta. The country’s imports and exports are all channelled through this large and very congested port. Tanjung Priok is operating at maximum capacity and this is affecting the country’s ability to grow its containerised exports.

Numerous domestic liner and general cargoship companies operate extensive route networks out of Tanjung Priok, with a large fleet of smaller vessels making long multi-port voyages. It can take several weeks for cargo to arrive at its final destination in the far-flung corners of the island nation.

The way that Indonesia’s domestic trade moves today is hardly an efficient use of vessel and port resources but given the small size of ports outside of Tanjung Priok and the somewhat rudimentary equipment available in them, there is no alternative.

Six hub ports planned

The Sea Toll Road plan calls for the construction of six large hub ports at Belawan in North Sumatra; Batam, which is close to Singapore; Tanjung Priok near Jakarta; Tanjung Pera near Surabaya in East Java; Makassar in South Sulawesi; and Sorong in West Papua.

Initially, cargoes entering the country in Tanjung Priok will be feedered onto ships that will transport them quickly to these hub ports, where smaller vessels will carry them on to final destination ports close by.

The eventual goal is to have ships carrying the country’s imports and exports calling directly at these ports, thus relieving the congestion at Tanjung Priok even further.

The next step would be to develop industrial zones close to these ports. Another 24 ports in Indonesia will be upgraded to improve their cargo handling capacities.

Expectations are that this more efficient way of moving cargo will reduce the country’s logistics costs by 10% to 15%, and thus help boost the competitiveness of Indonesian companies. Indonesian officials estimate that between 18% and 22% of companies’ production costs in Indonesia are absorbed by logistics, largely due to expensive sea transport. In peer regional countries, this figure is below 10%.

No firm timeline has been given for implementation of the Sea Toll Road project but state-run port-management company PT Pelindo has said it is prepared to allocate $1bn for the construction and upgrading of ports. The Chinese government has also expressed an interest in participating in the project.

It is likely that Indonesian domestic liner companies will re-equip their fleets once the Sea Toll Road opens for business. Currently, their ships trend towards smaller to fit into small ports and the expectation is that they will be looking for larger vessels to operate on what has been called the “super-corridor” routes between the large hub ports.

Tankers: all roads lead to state-owned Pertamina

Indonesian state-owned oil company Pertamina is the one common denominator for the country’s entire tanker industry.

Tanker owners, of which there are many, all acquire ships against long-term charters to Pertamina. There is no other player in the game.

Pertamina’s shipping needs are huge. On the dirty side, the company both imports and exports crude. It has no need to use Indonesia-flag ships for this, as it does not fall within the remit of cabotage. Fixtures are usually made on a spot basis, and the company has recently indicated that for imports it will switch to a free-on-board (FOB) basis, from the cost and freight (C&F) terms used currently, to cut transport costs.

On the clean side, larger tankers bring imported refined products to several key distribution sites where they are then loaded into smaller tankers for distribution throughout Indonesia. Similarly, products refined at Pertamina’s own refineries are loaded onto tankers that ferry the cargoes around the country. For these routes, cabotage rules do apply.

Pertamina itself operates a large tanker fleet covering all types and sizes but it charters in many more. The company currently maintains a mix of approximately 33% owned vessels and 77% chartered tonnage. This ratio may change in the future, as the company recently indicated that it wants to expand from 64 vessels to 90 in the crude, products and LPG sectors as part of a bid to make its overall operations more efficient.

If this happens, it may see Pertamina return to secondhand acquisitions. The company rarely makes such purchases as it has shown a strong preference to build new ships, with orders for smaller tankers placed at Indonesian yards and larger tankers at big yards in Northern Asia.

Reducing its reliance on chartered vessels will have a negative impact on the growth prospects of Indonesia’s private tanker companies, whose development depends entirely on the whims and needs of Pertamina.

These owners say they like working with the oil major, as it gives them a very stable business but in reality, there is no alternative. Woe betide the tanker owner who falls foul of Pertamina as they will have no other business to fall back on.

The dominant tanker players in the country, with the lion’s share of the Pertamina pie, are Soechi Lines and Buana Listya Tama (BULL), the former domestic arm of Berlian Laju Tanker (BLT) that was spun off into a separate publicly listed company several years ago.

Foreign energy players’ ingress

Pertamina is the dominant supplier of energy in liquid and gas form in Indonesia. Other foreign oil companies such as Shell, Total and Petronas do have a foothold in the Indonesian fuel chain but are mostly active in the country’s major cities. They do not cover the smaller towns and island communities, as the returns earned there do not cover the cost of building the required infrastructure.

As they do not have their own refineries in the country, they mostly bring in supplies directly from their refineries in neighbouring Singapore or Malaysia. For this, they do not need to make use of Indonesia-flag ships.

In January, the Indonesian government scrapped subsidies for petrol, letting pump prices rise and fall in line with the cost of crude oil. This market liberalisation puts foreign oil firms — which so far have failed to get much market share because of the subsidies — in a better position to compete with Pertamina. It is hoped that this could allow them to branch out beyond the big cities.

“If they establish distribution networks throughout the country, it would change the tanker market,” said Nick Djatnika, head of shipping at tanker and bulker player Andhika Lines, which has one handysize products tanker and one aframax tanker on charter to Pertamina. The latter vessel is deployed in a storage role.

Kevin Wong, BULL’s president director, believes Pertamina will remain the dominant force in Indonesian tanker shipping and notes there is plenty of potential on the gas side.

“Gas is cheap and clean. Pertamina is pushing for LPG over kerosene. The growth in LPG consumption should provide scope for the growth of Indonesia’s gas carrier fleet,” he said.

Dry bulk: Barges battle it out with bulkers

International dry bulk players working the Indonesian minerals export trade took a major hit from last year’s ban on the export of unprocessed raw minerals. Overnight, an estimated 100 million tonnes of cargo was removed from the market. That situation seems unlikely to change.

The ban may have had a devastating effect on the dry bulk markets and the country’s own mining industry but it has had no impact on domestic dry bulk operators.

As with the tanker sector, Indonesian dry bulk players are mostly beholden to one master, state-owned power producer Perusahaan Listrik Negara (PLN), which operates a network of coal-fired power plants across the nation.

The Indonesian dry bulk fleet, with the exception of a limited number of vessels that carry grains, is used almost exclusively to carry coal from East Kalimantan to PLN power plants scattered around the vast archipelago.

The coal is carried in everything from panamax bulkers to barges. The bulkers serve the larger power stations but at smaller plants, where the monthly coal consumption is relatively low, barging is the best option.

Barges are giving bulkers a run for their money right across the spectrum, however, as the draught restrictions at many power-plant jetties force larger vessels delivering coal to discharge their cargoes into barges for transhipment to shore. This adds significantly to the transport costs, so barging the coal from the mines to the power plants is the preferred option.

But barges have their limitations. During the annual monsoon season that lasts from October to March, rough seas preclude their use on open oceans, so the trade shifts almost exclusively to bulkers.

No eco-tonnage interest

The Indonesian dry bulk fleet is quite old and operators have shown little, if any, interest investing in modern eco-type tonnage. Nick Djatnika, head of commercial shipping at Jakarta-based tanker and bulker player Andhika Lines, who also serves as head of dry bulk at the Indonesian National Shipowners Association (INSA), says there are a number of reasons behind this lack of interest in acquiring newer, more fuel efficient ships.

“We don’t need to own the new eco-type ships in the domestic markets. Indonesian bulkers spend most of the time either loading or discharging. It can be a painfully slow process. The voyage times are very short and the savings would not justify the much higher cost of acquiring a brand new vessel,” he explained.

Another disadvantage with newer bulkers in Indonesia is the increase in their size. Discharging jetties at the larger power stations were built to handle panamax bulkers when the average size was around 65,000 dwt. Modern panamaxes now come in at around 75,000 dwt to 80,000 dwt and are thus too large.

“Economies-of-scale principles do not apply in the Indonesian dry bulk sector. What matters most are the dimensions of the ship and the depth of the port,” Djatnika concluded.