Capacity Building Workshop on Strengthening Transport Connectivity - - PowerPoint PPT Presentation

Capacity Building Workshop on Strengthening Transport Connectivity UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC (October 9-10, 2018, Yangon, Myanmar)

By: PEDRO G. AGUILAR Executive Director

Outline of Presentation ―

❑ National Maritime Transport Strategy ❑ Traffic volume: Cargo and Passenger ❑ Sustainable transport ❑ Infrastructures and operation ❑ Institution ➢ Governance system ➢ Legal system ➢ Safety

What is PISA?

PISA is the umbrella organization of domestic shipping and shipping-related associations. Established in 1977, PISA represents a cross- section of the Philippines’ maritime industry. Its membership includes domestic shipowners, as Regular Members, from the following sectors: (a) Dry Cargo (container/ bulk/ breakbulk), (b) tankers; (c) Ro-Ro and Ro-Pax; (d) Harbor Tugs,

What is PISA?

and Associate Members from marine related companies such as:

• a. Deep sea fishing
• b. Classification societies
• c. Protection and indemnity insurance
• d. Ship building and ship repair

What is PISA?

PISA is the recognized domestic shipping

• rganization by different agencies of the

Philippine Government which regulates the maritime industry such as:

✓ the Maritime Industry Authority (MARINA) ✓ the Philippine Ports Authority (PPA) ✓ the Philippine Coast Guard (PCG) ✓ the Office of Transport Security (OTS) ✓ the Department of Transportation (DOTr) ✓ the Department of Labor & Employment (DOLE)

What is PISA?

PISA, through its Chairman and President, sits as a private sector representative in the Board of Directors of MARINA which is the flag state administration in the Philippines PISA is also a member of the Maritime Industry Tripartite Council (MITC) of the Dept.

• f Labor & Employment. MITC is a

consultative body on matters pertaining to labor issues involving seafarers.

Institutions

Governance system ― Maritime Administration

✓ There are more or less twenty one (21) government

agencies that directly and indirectly regulate the maritime/shipping industry in the Philippines

✓ Agencies that directly regulate the maritime/shipping

industry:

• Department of Transportation (DOTr), and
• Department of Labor & Employment (DOLE

Both headed by a Secretary, the equivalent of Minister in countries with parliamentary system of government.

Maritime Administration

DOTr Agencies that directly regulate the Philippine maritime/shipping industry

Agency Legal Authority Maritime Industry Authority (MARINA) Created under Presidential Decree No. 474, and Republic Act No. 9295 Philippine Ports Authority (PPA) [Cebu Ports Authority (CPA); Subic Bay Metropolitan Authority (SBMA)] PPA - Created under Presidential Decree No. 857, as amended CPA – Created under Republic Act No. 7621 SBMA – Created under Republic Act No. 7227 Philippine Coast Guard (PCG) Republic Act No. 9993 Office of Transportation Security (OTS) Created under Executive Order 277 as amended by Executive Order No. 311

Copies of the above-cited Presidential Decrees, Republic Acts and Executive Order may be obtained from the following website: https://www.officialgazette.gov.ph/

Maritime Administration

Maritime Industry Authority (MARINA) ‒ is the Philippine Flag State Administration; has general jurisdiction and control over all persons, corporations, firms or entities in the maritime industry of the Philippines; constituted as the single maritime administration in the Philippines tasked to implement the STCW Convention under the provision of Republic Act No. 10635

Maritime Administration

Philippine Ports Authority (PPA) ‒ tasked with the development, management and operation of all seaports in the Philippines; mandate includes regulation of private ports, and supervision, control, regulation, maintenance, operation and provision of facilities or services necessary in public ports (except the Province of Cebu which is under the CPA, and the Subic Freeport Zone

which is under the SBMA).

Maritime Administration

Philippine Coast Guard (PCG) ‒ performs Port State Control functions; implements MARPOL 73/78; likewise mandated to conduct Maritime Law Enforment functions and implement laws on fisheries, immigration, tariff and customs, forestry, firearms and explosives, human trafficking, dangerous drugs, and to implement all other applicable laws within the Philippine maritime jurisdiction.

Maritime Administration

Office of Transportation Security (OTS) ‒ the single authority responsible for the security of the transporation systems in the Philippines; for sea transport – it implements the International Ship and Port Facility Security (ISPS) Code

Maritime Administration

Department of Labor and Employment (DOLE) ‒ mandated as the primary policy- making, programming, coordinating and administrative entity of the Executive Branch

• f the government in the field of labor and

employment; for the maritime industry; it implements the provisions of the Maritime Labor Conventio (MLC) 2006

Legal System

Policies and rules to promote maritime transport/ coastal shipping ‒ “The Philippines needs a strong and

competitive domestic merchant fleet owned and controlled by Filipinos or by corporations at least sixty percent (60%) of the capital

• f which is owned by Filipinos and manned by qualified Filipino
• fficers and crew which shall: (a) bridge our islands by ensuring

safe, reliable, efficient, adequate and economic passenger and cargo services; (b) encourage the dispersal of industry and the economic development of our regional communities by ensuring the availability of regular, reliable and efficient shipping services; (c) ensure the growth of exports by providing necessary, competitive and economical domestic sea linkage; (d) serve as a naval and military auxiliary in times of war and other national emergencies; and (e) function as an employment support base for our Filipino seafarers.” (Section 2, Republic Act 9295)

Legal System

“To attain these objectives, it is hereby declared to be the policy of the State to; (a) promote Filipino ownership of vessels operated under the Philippine flag; (b) attract private capital to invest in the shipping industry by creating a healthy and competitive investment and operating environment; (c) provide necessary assistance and incentives for the continued growth of the Philippine domestic merchant marine fleet; (d) encourage the improvement and upgrading of the existing domestic merchant marine fleet and Filipino crew to meet international standards; (e) ensure the continued viability of domestic shipping operations; and (f) encourage the development of a viable shipbuilding and ship repair industry to support the expansion and modernization of the Philippine domestic merchant marine fleet and its strict adherence to safety standards which will ensure the seaworthiness of all sea-borne structures.”

Legal System

(Cabotage Rules)

In General ‒

“Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is

• wned by such citizens x x x . The participation of foreign

investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation

• r

association must be citizens

• f

the Philippines.” Section11, Article XII, 1987 Constitution

Legal System

Philippine Maritime Cabotage requires ‒

✓ 60% Filipino Ownership; ✓ Philippine flag; ✓ 100% Filipino crew.

U.S. Cabotage – Ship must be built in the U.S. (same as Brazil)

Legal System

Cabotage Rules on Maritime Transport ‒

➢ “Vessels Eligible for Coastwise Trade.- The right to

engage in the Philippine coastwise trade is limited to vessels carrying a certificate of Philippine registry.” (Section 902, Republic Act No. 1937 – Tariff and Customs Code of the Philippines)

➢ “No foreign vessel shall be allowed to transport

passengers or cargo between ports or places within the Philippine territorial waters, except upon the grant Special Permit by the MARINA when no domestic vessels is available or suitable to provide the needed shipping service and public interest warrants the same.” (Section 6, Republic Act No. 9295)

Legal System Cabotage Rules

“Upon registration of a vessel of domestic ownership, and

• f more than fifteen tons gross a certificate of Philippine

registry shall be issued for it. "Domestic ownership“ x x x means ownership vested in citizens of the Philippines, or corporations or associations

• rganized under the laws of the Philippines at least

seventy-five per centum of the capital stock of which is wholly owned by citizens of the Philippines, and, in the case of corporations or associations which will engage in coastwise trade the president or managing directors thereof shall be such citizens.” (Section 806, Republic Act No. 1937)

Legal System Cabotage Rules

“No franchise, certificate or any other form authorization for the carriage of cargo or passenger, or both in the domestic trade, shall be granted except of domestic ship

• wners or operators.” (Section 5, Republic Act No. 9295)

"Domestic Ship Operator" or "Domestic Ship Owner" may be used interchangeably and shall mean a citizen of the Philippines, or a commercial partnership wholly

• wned by Filipinos, or a corporation at least sixty percent

(60%) of the capital of which is owned by Filipinos, which is duly authorized by the Maritime Industry Authority (MARINA) to engage in the business of domestic shipping;” (Section 3(c), Republic Act No. 9295)

Legal System

Cabotage Rules Why Maritime Cabotage?

✓ As an archipelagic country where 90-98% of cargo is

transported by ship, and with ships providing connectivity between islands, shipping is a strategic industry that should be left to those who are committed to the trade – the Filipinos themselves

✓ For national security - to give government the right to

requisition ships, with Filipino shipowners willingly working with government in times of war and disaster. This was clearly demonstrated during the aftermath of Typhoon Yolanda when our member-companies from the liner sector transported relief goods to the typhoon- stricken areas in the Visayas.

Legal System

Cabotage Rules

Why Maritime Cabotage?

✓ In times of political instability or economic adversity,

Cabotage mitigates the risk of ships, not committed to the country, to leave and wait for better times before coming back. This happened during the 1980’s after the Aquino assassination, continuing in the early years of the Cory Aquino-administration, when foreign ships trading to the Philippines redeployed to other trades, only to come back during the Ramos-administration when the political situation stabilized.

✓ Unlevel playing field between foreign and domestic

ships.

Comparative Analysis of Factors Influencing Operating Costs of Foreign and Domestic Vessels Plying Philippine Waters –

Legal System

Related policies for domestic ships ‒ MARINA Circulars on:

✓ Double Hull requirements for tankers regardless of

size and cargo being transported;

✓ Age cap of 20 years old for importation of passenger

ships;

✓ Age cap of 15 years for importation of tankers; ✓ Age cap of 10 years high speed passenger crafts; ✓ Phase out of wooden hulled vessels; ✓ Classification of ships 500 GT and above by

government accredited classification societies;

✓ Proposed retirement age for unclassed vessel of 35

years old and above.

Infrastructures and Operations

Ports/terminals (international, domestic) for cargoes and passengers

• No. of Ports
• No. Ships Calls

PPA 282 (RoRo – 66) Domestic: 25,382 (Q2, 2018) Foreign: 1,204 (Q2, 2018) CPA 6 Domestic: 135,367 (2017) Foreign: 1,138 (2017) SBMA 1 (No data) (No data) Private Ports 269 (No data) (No data)

Infrastructures and Operations

(PPA Managed Ports: Cargo/Passenger Traffic)

Infrastructures and Operations

(CPA Managed Port: Cargo/Passenger Traffic)

Cargo Throughput (MT) Container Traffic (in TEU) Passenger Traffic (2017) Domestic (2017): 31,438,008 548,910 Total: 29,945, 736 Foreign (2017): 7,974,893 365,610

Disembarked: 19,737.455

Import

(Not indicated) (Not indicated)

Embarked: 10,208,281 Export

(Not indicated) (Not indicated)

Cruise Ships: (No data)

Source:http://www.cpa.gov.ph/index.php?option=com_content&view=article&id=147&mId=116&mItemId=117

Infrastructures and Operations

Fleets/Vessels – Statistics on Ship type, Size and Age

All ships above 3 GT have to be registered with the MARINA Ships 3 GT and below must be registered with the local government unit (LGU) where they are located Total number of ships registered with the MARINA – 26,224 (inclusive of fishing boats, pleasure yachts, motorbancas, motorboats and wooden hulled vessels)

Infrastructures and Operations

Fleets/Vessels – Statistics on Ship type, Size and Age

Infrastructures and Operations

(Passenger Carrying Ships – Size and Age)

Infrastructures and Operations

(Roll-On/Roll-Off - Size and Age)

Infrastructures and Operations

(Cargo Steel-Hulled: 50.1% 25 yrs. Old and below; 53.5% below 500GT)

Infrastructures and Operations

(Tankers: 57.3% below 500GT; 67.9% 25 yrs.

• ld and below)

Infrastructures and Operations

(Fastcrafts: 77.1% 100GT and below; 68.6% 25 yrs old and below)

The Philippines

(An archipelago of 7,600+ islands)

Infrastructures and Operations

Major Shipping routes for cargo and passenger

Infrastructures and Operations

Major Shipping routes for cargo and passenger

Infrastructures and Operations

Major Shipping routes for cargo and passenger

Infrastructures and Operations

Major Shipping routes for cargo and passenger

Infrastructures and Operations

Major Shipping routes for cargo and passenger

Infrastructures and Operations (Challenges and difficulties on coastal/domestic

shipping in the Philippines)

High Cost of Doing Business Lack of Economies of Scale Lack of Connectivity, Network Planning, and Consolidation Poor Port Infrastructures Conflict of Interest of Port Regulator

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic shipping in the Philippines)

High Cost of Doing Business ― ➢High cost of vessel acquisition ➢High fuel cost ➢High cost of drydocking

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic shipping in the Philippines)

High Cost of Fuel ─

Domestic shipping companies pay more for fuel compared to their counterpart in other countries. Fuel is the largest cost item at 27 percent of total revenues, and at 41 percent of total operating expenditures. In contrast, comparator companies, such as Maersk Group, OOCL Hong Kong, and NOL Singapore, registered lower share of fuel cost at around 20 percent

• f revenues. Philippine fuel is more expensive since it is not

subsidized and a 12 percent VAT is imposed on top of excise tax and import tariff, while fuel in Singapore, Malaysia, and Indonesia are subsidized and are levied lower tax rates. (Source: draft World Bank-

IFC study entitled POLICY OPTIONS FOR LIBERALIZING PHILIPPINE MARITIME CABOTAGE RESTRICTIONS)

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic shipping in the Philippines)

High Cost of Drydocking ─

Same World Bank-IFC study reveals that “dry docking, repairs, and maintenance can reach as high as 26 percent of revenues. In contrast, the average dry docking cost in the region was 50 percent cheaper and up to 3.5 times cheaper in the case of China. The high share of dry docking, repair, and maintenance to total cost reflects government regulation (Presidential Decree

• No. 1221) that mandate Philippine-registered ships to

dry dock in the Philippines. This has resulted in higher repair and maintenance cost and slower repair time.”

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic shipping in the Philippines)

Lack of Economies of Scale ─

“One of the key reasons for high shipping costs is small trade volumes that do not justify big ships that can benefit from economies of scale. Economies of scale in shipping are derived not from operating cost, as the difference in

• perating cost between a small vessel and a large vessel is

not substantial, but on the carrying capacity of the vessel. In the international picture, the Philippines is a feeder destination, not a hub or main destination. Feeder vessels are generally a fourth of the size of mother ships that serve hubs, and feeder ships add around USD 200 in additional unit freight cost.”

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic shipping in the Philippines)

Lack of Economies of Scale ─

“The majority of domestic shipping routes have very small volumes.─ x x x majority of routes account for less than 1 percent of total domestic sea trade. Small volumes do not warrant a further increase in capacity or size of ships. x x x a large number of ships are very small craft, many of them wooden-hulled, that operate very localized service. Some 1,582 vessels or roughly 42 percent of total vessels have sizes that are less than 50 gross register tonnage (GRT). For passenger and passenger/cargo vessels, this proportion is much higher at over 80 percent (1,556 out of a total of 1,943 vessels). This in turn adds to high cost of shipping.”

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic in the Philippines)

Lack of Economies of Scale ─

Trade imbalance between Northbound-Southbound traffic and vice versa “Moreover, many routes have predominantly one-direction traffic. For example, ships plying the Manila to Cebu route are often filled to capacity, but the reverse route is filled way below capacity. In terms

• f price, the Manila-Cebu leg amounts to around PHP 36,000 per

20-foot container from pier to pier but the Cebu-Manila route amounts to only PHP 14,000, reflecting weak demand. Moreover, most domestic shippers do not consolidate cargo, contributing to unfilled capacity.”

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic shipping in the Philippines)

Lack of Connectivity, Network Planning, and Consolidation

“The lack of market scale is exacerbated by the lack of connectivity, network planning, and consolidation. In general, national and regional transport planning is weak, resulting in significant infrastructure gaps, such as missing regional arterial roads and farm to market roads to connect farms to ports and ultimately to markets. These infrastructure gaps have, in turn, contributed to the proliferation of public and private ports that spread the market too thinly and therefore reduce scale. For example, Northern Mindanao from Ozamis to Surigao, with a total coastline of around 497 kilometers, has 7 public ports: Cagayan de Oro (CDO), Mindanao Container Terminal (MCT), Iligan, Nasipit in Butuan, Surigao, Bislig, and Ozamis, alongside 29 private ports. Consolidating commercial traffic in the largest port in Cagayan de Oro (MCT) can help increase scale and reduce cost, while allowing private ports to deal with private cargo.”

Infrastructures and Operations

(Challenges and difficulties on coastal/domestic shipping in the Philippines)

Poor Port Infrastructure

“The majority of the country’s major domestic ports are not equipped with modern port facilities to handle today’s larger and more advanced vessels.─ In many of the country’s ports, cargo handlers cannot deploy modern cargo handling equipment such as quay cranes and other heavy equipment due to the poor condition of ports and weight limitations. In these ports, vessels must rely on on-board cranes. As a result, the shipping industry is constrained to use geared vessels (i.e., vessels with on-board cranes) to handle port cargo. These vessels are more costly to construct and are increasingly short in supply, and consequently more expensive to buy or charter, leading to higher cost of

• perations and inefficiencies in both port and shipping operations.”

Challenges/Current Situation in the Domestic Shipping Industry

Conflict of Interest of Port Regulator

“The PPA is both a regulator and an operator of ports. It sets cargo handling rates for all its ports but also receives at least 10 percent of all cargo handling fees. This not only raises the cost of shipping, but also gives rise to real or perceived conflict of interest. This conflict

• f interest could be removed by shifting away from its

port operations mandate so that it can focus exclusively

• n its regulatory mandate.”

THANK YOU!