Fleet Development and the Control of Shipping in Southeast Asia 9789814376709

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Occasional Paper No. 77

Fleet Development and the Control of Shipping in Southeast Asia

Institute of Southeast Asian Studies The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multi-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, corning under the overaJI supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit. Research on shipping is one of the main concerns of the ASEAN Economic Research Unit and several studies are usually under way in any one year. It is the Unit's intention to strengthen such work in the years ahead, both on its own and in collaboration with other organizations with similar interests.

Fleet Development and the Control of Shipping in Southeast Asia

by Mary R. Brooks

-

INSTITUTE OF SOUTHEAST ASIAN STUDIES

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved . No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the Institute of Southeast Asian Studies.

©

1985 Institute of Southeast Asian Studies

ISBN 9971 - 988- 11- 9 ISSN 0073- 9731 The responsibility for fa cts and opinions expressed in this publication rests exclusively with the author and her interpretations do not necessarily reflect the views or the policy of the Institute or its supporters. Typcscl by Type Gra phic Pic Lid. Si ngapore

Prin1ed by Sinpporc Na1ional Primers (Pte) Lid.

Contents List of Exhibits List of Acronyms and Abbreviations Acknowledgements Map of Southeast Asia

VI Vlll

IX X

I

Rationale and Legislative Mechanisms for Fleet Development

II

Fleet Development in Singapore

26

III

Fleet Development in Thailand

35

IV

Fleet Development in Malaysia

44

V

Fleet Development in Indonesia

58

VI

Fleet Development in the Philippines

70

VII

Fleet Development and Control of Shipping in ASEAN: A Commentary

84

A Global View

98

VIII

Appendix: Summary Files

109

Bibliography

110

The Author

114

List of Exhibits Page l.l

Balance of Payments Selected Items

Malaysia Current Account 9

1.2

Indonesian Seaborne Trade -

2.1

Size of the Singapore Flag Fleet

26

2.2

Growth in NOL Fleet

27

2.3

Allocation of Seafarers by Flag of Employment

29

2.4

Allocation of Seafarers on Singapore Flag Ships

30

2.5

Ownership of Largest Singaporean Shipping Companies

31

2.6

Neptune Orient Lines Selected Financial Information

32

3.1

Size of the Thai Flag Fleet

35

3.2

Ocean-Going Vessels Registered Under Thai Flag

36

3.3

Thai Maritime Navigation Co. Ltd. Financial Review

40

4.1

Size of the Malaysian Flag Fleet

44

4.2

Profile of Malaysian Fleet, 1983

45

4.3

MISC versus Malaysian Register

46

4.4

MISC Corporate Ownership

48

4.5

The MISC Fleet

49

4.6

MISC -

53

5.1

Size of the Indonesian Flag Fleet

58

5.2

Indonesia versus World Fleet Growth

59

5.3

Characteristics of Indonesian Fleet

60

5.4

Indonesian Fleet Capacity in '()()() Dwt

61

5.5

Indonesian National Fleet Capacity, 1981

62

5.6

Ownership of the Indonesian Fleet, 1982

66

6.1

Size of Philippine Flag Fleet

70

1981

Financial Performance Selected Indicators

12

6.2

Philippine Registered Fleet

71

6.3

Philippine Flag Fleet Profile, 1974 and 1983

72

6.4

Registry of Philippine-Owned Vessels

74

6.5

Foreign Trade of the Philippines By Flag of Vessel

75

6.6

PNOC Ocean-Going Tankers

76

6.7

Ownership of the Philippine Fleet, 1983

77

6.8

Foreign Trade of Four ASEAN Countries, 1981

78

7.1

Chairmen of the Far Eastern Freight Conference

85

7.2

Far Eastern Freight Conference Members

87

7.3

Philippine Shipping Financial Performance Indicators, 1979

90

7.4

Debt as Percentage of Total Assets

92

7.5

Facilities for Courses and Training Compliance with 1978 STCW Convention

95

8.1

Shares of the World Fleet

99

8.2

Financial Performance Indicators in UK Shipping

104

Acronyms and Abbreviations ASEAN

Association of Southeast Asian Nations

B& C

British and Commonwealth Shipping PLC

c.i .f.

Cost, insurance, freight

ESCAP

United Nations Economic and Social Commission for Asia and the Pacific

FASA

Federation of ASEAN Shipowners' Associati ons

FASC

Federation of ASEAN Shippers' Councils

FEFC

Far Eastern Freight Conference

FMC

Federal Maritime Commission (US)

f.o.b.

Free on board

f.o.c.

Flag of convenience

IMO

International Maritime Organisation (previously IM CO)

IN SA

Indonesian National Shipowners' Associa ti on

KPM

Koninklijke Paketvaart Maatschappiji (a Dutch shipping company)

MARINA

Maritime Industry Authority (Philippines)

MCP

Maritime Company of the Philippines

MISC

Malaysian International Shipping Corporation Berhad

MMPC

Mercantile Marine Promotion Commission (Thailand)

NOL

Neptune Orient Lines

OCL

Overseas Containers Ltd.

OECD

Organisation of Economic Cooperation and Development

P&O

Peninsular and Oriental Steam Navigation Company

PNOC

Philippine National Oil Company

PNSL

Perbadanan Nasional Shipping Line Berhad (Malaysia)

PNL

Philippines National Lines

Shippercon

Philippines Shippers' Council

SSA

Singapore Shipowners' Association

STCW Convention

1978 IMO Convention on Standards of Training, Certification, and Watchkeeping

UNCTAD

United Nations Conference on Trade and Development

Acknowledgements This research has become an obsession. It all began with J. Graham Day and his search for a Canadian shipping policy. I took up his cause in June 1981 when he decided to leave the Canadian Marine Transportation Centre for a second adventure in industry, leaving me behind in academia. For the next two years my efforts were focused on Canadian shipping policy, and I found myself comparing it with U.S. policy and, as the universe expanded, those of other developed countries. The picture was not complete. There certainly were other perspectives to consider. Meanwhile, Dr Chi a Lin Sien was also grappling with a similar problem in Singapore. The Regional Shipping Project group at the Institute of Southeast Asia Studies (ISEAS) was studying ASEAN and ASEANAustralian shipping and trying to answer many of the same questions. This occasional paper, the product of our consultations, examines international shipping by ASEAN countries, and is limited to evaluating ASEAN government policy as it relates to mechanisms to promote fleet development and controL Shipping policy is so much more than just this. I would like to thank both J. Graham Day and Dr Chia Lin Sien, the former for his inspiration and the latter for his warm welcome to ISEAS and for his valuable assistance in collecting materiaL Dr Chia introduced me to many of the people I interviewed, gave me access to the materials already collected under the Regional Shipping Project and made me feel very welcome so far away from home. I would also like to thank the many people who consented to be interviewed and/or provided materials to me. In particular, I appreciated the editorial guidance received from Dr Bernhard Abrahamsson, who agreed to review the manuscript, and Marilyn MacKenzie's typing efforts throughout its numerous revisions. Finally, the work would not have been possible had it not been for the funding provided by both Dalhousie University and, more importantly, by the Social Sciences and Humanities Research Council of Canada. The administrative support provided by ISEAS and its director, Professor Kernial Sandhu, was much appreciated. I dedicate this book to my husband who gave up his work to travel to Southeast Asia with me and play the role of travel agent and research assistant.

Mary R. Brooks February 1985

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SOUTHEA ST ASIA

I

Rationale and Legislative Mechanisms for Fleet Development

Introduction Shipping has been in the domain of the developed world since the earliest days when European s,ailors braved the uncharted seas in search of new worlds and trade. The Europe-Far East trades became increasingly competitive during the 1800s and that era saw the advent of Europeandominated shipping cartels called liner conferences. Even the development of the Panamanian flag of convenience was evidence of the United States' entrepreneurial spirit in shipping in the 1920s. Today, for the countries of the developed world, shipping is a mature industry with slow growth, and the focus of many traditional shipowning nations has changed accordingly. Beginning in the early 1970s, many developing nations aspired to participate equitably in world prosperity and achieve a redistribution of world income; these aspirations culminated in calls by the United Nations for a New International Economic Order. In shipping and trade, the way was paved for the governments of the developing world to undertake fleet promotion strategies as one means of achieving wealth redistribution. The particular reasons why many developing countries have become interested in fleet promotion are varied but are often related to real or perceived inequalities in the International ocean transport system. This chapter will address these reasons for five of the ASEAN countries and detail the subsequent legislative measures each has taken to promote national flag shipping. Each country has followed more than one course of action, some with a greater degree of success than others; fleet growth and the use of government equity to achieve that growth will be discussed in later chapters. In the last chapter, some comparative comments on the approaches of developing and developed countries to shipping policies will be made.

Singapore's shipping policy in general reflects the country's overall government economic policy, which is to promote free enterprise with a minimum of official interference} In keeping with this philosophy, Sinppore has chosen a mechanism for fleet development unique among ASEAN nations, that of establishing a "flag of convenience". 2 In addition to this, the government has provided state support for the development of a I

2

FLEET DEVELOPMENT AND THE CONTRO L OF SHIPPING

national flag operator but on the condition that it eventually become a commercially viable public company operated under free enterprise principles. Three objectives of fleet development in Singapore have been identified: I. to increase the employment of Singaporean seamen; 2. to increase Singaporean participation in the provision of international shipping services; and 3. to exert greater control over Singapore's foreign trade and development. The objective of ameliorating a balance of payments difficulty was not considered as a rationale for fleet development by the Singapore government. The United Nations Conference on Trade and Development (UNCTAD) has often argued that participation by developing nations in international shipping provides employment opportunities for nationals. Chia (1982) has suggested that increased employment is one reason for the opening of Singapore's register to foreign shipowners in 1969.3 This objective is seen to be a non-starter by Abrahamsson. In his 1966 study of the contribution of fleet development to the national economy of the nations in Southeast Asia, Abrahamsson concluded that "even a relatively large merchant marine does not per se contribute appreciably to general employment - the industry is capital intensive". 4 Over the past decade. technological innovation has reduced the manning complement required for the safe operation of modern ships even more. Employment of nationals has become an even less defensible rationale for a fleet development policy in recent years. The last two objectives are related and , in combination, provide the best single rationale for Singapore's venture into fleet development , particularl y as seen in its participation in Neptune Orient Lines (NOL). Throughout the 1960s, Singaporean shippers were faced with a series of freight rate increase by the Far Eastern Freight Conference (FEFC) . At a time when their newly-independent republic was formulating a national industrialization strategy, Singaporeans felt that control of their economic destiny lay in large part in the hands of liner shipping conferences. particularly as there were no non-conference alternatives to any of the fortynine conferences operating between Southeast Asia and Europe. 5 The liner conferences determined the freight rates charged and hence the competitiveness of Singaporean goods vis-a-vis those of Hong Kong, Malaysia or India. Conference members were, for the most part, British and were often politically influential. Many Singaporeans considered conference policy and British international trade policy to be inextricably linked, thereby posing a serious threat to trade development for the newly independent republic. 6

RATIONALE AND LEGISLATIVE MECHANISMS

3

Early studies done by academics and government consultants convinced the government that a case could be made for participation in the FEFC by a Singapore national carrier. Abrahamsson, for example, concluded that tonnage engaged in independent liner operations and supported by the government ... [would result) ... in the short run, [in] a downward pressure on conference rates.'

He also concluded that long-term pressure on conference freight rates would not come from non-conference operations. The government decided that such pressure could only come from conference participation. As a conference member, a Singapore national flag operator would be a party to the decision-making process and therefore, it was anticipated, have a greater influence on conference decisions. The decision to support a fleet was seen, therefore, to be one of economic necessity. 8 Mechanisms for Supporting Fleet Development Open Register; Tax Benefits

The Merchant Shipping Ordinance was amended by the Merchant Shipping (Amendment) Act 1968 to provide an open registry of ships in the Republic of Singapore. Under this act, which came into force in January 1969, there was to be no restriction on the nationality of shipowners registering their vessels under the Singaporean flag. Shipowners were granted an exemption from income tax on the profits generated by those ships and, as an additional benefit of registry, 50 per cent of the annual tonnage fee for a ship was refunded if one quarter of the ship's crew in that year were of Singaporean nationality. Although the registry rules were "tightened" in 1980 with respect to age and ownership disclosure, • an open registry provided the means by which the number of Singaporean seafarers could be increased, and the first objective achieved. Financing Assistance

The government of Singapore has introduced a ship financing scheme9 which offers shipowners. who may or may not be Singaporean, financing for the purchase of newbuildingsfrom Singaporean shipyards at rates intended to match offers possible from other Asian yards. Registry of the financed vessels

• To some. this "tightening" meant Singapore was no longer a ftag of convenience. If the true mark of such a ftag is the tu benefits from an open registry, then Singapore remains a convenience ftag.

4

FLfET DFV EL PMFNT A 'D T H E CONT ROL OF SHIPPI NG

Singapore i not req uired . but mo re favo ura ble term s a re ava ilable to co mrani cs inco rpora ted in Singa pore. 10

Th e p urp 0se 0 f the Progra m is to a ss ist loca l shipya rd s in securin g co ntacts under the co mpe titive w ndi tio ns in th e shipbuild in g indu stry .... 10

T hi s ·che me promo tes the use of Singaporean shipyards over others in the Asian Pacific a rea a nd is not intended to support fleet development d irec tl y. In fac t. as few loca l owners a re in a fina ncial position to purchase newbuildin gs, 1 1 coverage must be extended to second-hand purchases if thi s mecha nis m is to be used to promote local fleet expansion by local shipowners. Cargo Reservation and Cabotage

Co nsistent with Singapore' s "free ma rket" philosophy is its aversion to cargo alloca ti o n. Singa pore has not signed the UNCTAD Code of Conduct fo r Li ner Conferences a nd is unlikely to do so . Although cargo allocation practices a re a fea ture of Indonesia-Singapor e trade, that is more because of Indonesia 's preference for it. One problem facing Singapore, should cargo a ll oca tion become more prevalent in the world, is determining what is meant by " na ti onal cargoes" . As a major transshipment port, cargo allocation practices threa ten the national economy rather than assist it. Ca botage, the policy of limiting coastal trade between domestic ports to national flag vessels, is used by many nations to support their national flag fl eet. Singapore supports the "freedom of the seas" principle and , given the size of the republic a nd the current trading patterns, the introduction of a ca botage policy would make little sense. Provision of Labour

Given Singapore's position as a major flag, the government accords a high priority to the training a nd certification of seafarers, and intends to comply with the 1978 IMO Convention on Sta ndards of Training, Certification, and Watchkeeping (hereinafter cited as the 1978 STCW Convention). The training syllabus for deck officers, mates and masters is similar to tha t used by other Commonwealth Countries, 1 2 and for marine engineering officers is identical to that required by Britain; both are considered to be sound and adequate. The Marine Department of Singa pore has actively been trying to upgrade its practices, drastically reducing the number of dispensations given to home-trade officers to work in foreign-going trades. Originally these dispensations were given because of shortages in the foreign trades of qualified seafarers and the declining demand in the home trades; recently the

RATIONALE AND LEGISLATIVE MECHANISMS

5

pattern of demand for seamen is changing and the Marine Department is faced with discontented seafarers. 13

Thailand Thailand provides a direct contrast to Singapore in its philosophy and approach to shipping policy. Whereas Singapore has become the supplier of shipping services to many countries, Thailand remains primarily a user nation. An exporter of bulk commodities, Thailand follows a philosophy similar to that of other user nations- one based on the economic allocation of the nation's resources. However, in the past few years, the Thai Government has been more actively promoting the Thai fleet. The creation of the Office of the Mercantile Marine Promotion Commission (MMPC) is of particular note. Although some support has been provided through government equity participation, the extent of support for fleet promotion has been limited by largely economic considerations and has been mainly legislative in nature. Fleet promotion mechanisms are still evaluated for their costs and benefits, and must be shown to be fiscally advantageous. In spite of this recent interest in fleet promotion, it was estimated that Thai ships transported only 6--7 per cent of the country's 1983 trade. 14 Mechanisms for Supporting Fleet Development Cargo Reservation; Shipper Incentives

Thailand has instituted a cargo reservation scheme for government cargoes, which are defined as those purchased by government departments or private companies which have contracts to import goods for use by these agencies. In 1983, this cargo reservation scheme only applied to those routes regularly served by Thai operators. such as Thailand/Europe, Thailand/Japan. Thailand/Singapore, and Thailand/Hong Kong/Korea. (The government has granted waivers of the cargo reservation rule on other routes.) In spite of this, the Thai Shipowners' Association complains that only small cargoes remain available and that " all the choice freight is carried under waiver by foreign lines". 15 Although it aftects very little cargo, some tightening of this scheme is planned. 16 In early 1984, the Thai Government allocated a share of the government-to-government sales of rice (made to Senegal and the Ivory Coast) to Thai shipowners 1 7 and. at the same time, announced that ThaiASEAN cargoes would be allocated on a 50:50 basis. This followed on the heels of a Korean-Thai agreement in late 1983 that 40:40:20 cargo allocation rules apply to Thai-Korean trade; prior to this agreement, Thai vessels

()

II TFT DFVFLOPM EN T AND THE CO NT ROL OF SHIPPI N G

carri ed 1.) per ce nt o f thi s trade while Korean vessels had a 46 per cent share . 1 " In gene ra l. however, Th ai shippers are no t pa rticularly supportive of ca rgo- sha rin g schemes. Both the Th ai Shippers' Council and the MMPC a ppea r to agree tha t comprehen sive ca rgo reservation would not be desirable. "There would not be enough competition, no free market and ra tes wo uld ri se." 10 This would reduce the competitiveness ofThai exports, threa tening the national economy. In addition to cargo reservation , the government supports national shipping through the offering of "packing credits'' . If a Thai exporter specifies a Thai carrier for his shipment. a 10 per cent "packing credit" is provided by the Bank of Thailand . This credit effectively reduces the interest charge on the transaction from , for example, the commercial rate of 18 per ce nt to a new rate of 8 per cent. However, the use of "packing credits" has, the MMPC admits, had little impact on the usage ofThai vessels 20 and they offer no explanation for this effect.

Tax Benefits: Financial In centives Thai shipowners have lobbied for preferential tax treatment unsuccessfull y to date. Although there is a discretionary provision in the Merca ntile Marine Promotion Act. allowing the government to rebate 50 per ce nt of the freight bill to Thai exporters who use Thai ships, it has not been implemented 2 1 Acco rding to the MMPC, the Thai shipping industry is not trea ted differently than any domestic industry for the purpose of tax calculation, and such incentives are not used as a method of fleet promotion. The Thai Department of Finance believes that the granting of tax ince ntives for the marine industry would encourage other industries to seek similar benefits, thereby eroding the Thai tax base. 22 Tax incentives are, however, being used for the development of ship repair capability in Thailand 23 and so a precedent has already been established that indicates government attitudes might change in future . Although Thailand's ship mo rtgage laws a re considered to be ASEA N 's most attractive to ship financing , 24 Thai shipowners believe financing arrangements to be the stumbling block in private sector fleet develo pment. Shipowners, lobbying through the Thai Shipowners' Associa ti o n, have been unsuccessful to date in gaining subsidization of the commercial lending rate. The government recognizes that Thai companies may be unable to enter the industry by buying ships, for lack of sufficient capital, but rea lizes that Thais still may be able to participate through chartering. Therefore, the 15 per cen t charter tax has now been reduced to I per cent, in the hope that the reduced charter tax will improve the chances for a successful market entry by loca l companies.

RATI ONA L E AND LEG ISLAT I VE M ECH AN ISM S

7

In addition to financial incentives, other government policies are aimed at alleviating some of the financi al difficulti es facing shipowners by reducing some of the expenses of operating ships under the Thai flag. For example, draft legislation to limit the liability of shipowners for ca rgo dam age is being developed. If the Carriage of Goods by Sea Act being submitted to the cabinet 25 is successfully legislated, some of the costs of ca rgo damage will shift from the shipowner to the marine cargo insurance industry, thereby reducing the risk now faced by shipowners altho ugh perhaps rai sing the premiums they must pay . Similarly, the MMPC has decided to rel ax the regulations which require an annual inspection fo r Thai vessels. A bienni al inspection will save the shipowner the cost of a n inspection 26 every second year; these savings will, however, only be realized if Thai vessels can still meet the inspection requirements of the classification society under which they a re insured.

Provision of Labour In the past, the government has given low priority to training 2 7 and the Merchant Marine Training Centre within Bangkok's Harbour Department (established in 1972) was still the sole maritime academy in Thailand at the beginning 1984. Enrolment in 1983 totalled 129 cadets; of the 59 cadets which have previously graduated, 55 are working in the Thai mercha nt fleet. The development of a National Seamen's Board is planned 2 8 for 1985 a nd so, at present, there are no firm figures on the number of seamen employed on Thai or foreign ships, on wages, on length of service, and so forth . It is known that many Thai officers are retired naval officers and that shipowners, not under pressure to hire Thais, prefer to hire foreign officers with commercial shipping experience. One estimate indicates that 45 per cent of the crew on Thai vessels are non-nationals of which 52 per cent are employed at the officer level. 2 0 The quality of the training will have to be improved if Thailand is to comply with the conditions of the 1978 STCW Convention. Investments in new facilities, a training ship, and a navigation/radar simulator are planned 30 but whether they materialize remains to be seen. Technical assistance in improving the programme for training Thais has been provided by various international agencies, and International Maritime Organization has provided funding for the training of instructors, but it appears that Thai ships will require some foreign manpower for the years ahead. Malaysia

Unlike Singapore, Malaysia's register has remained closed, but the only restriction placed on foreign flag operators serving Malaysia has been the reservation of domestic shipping to national flag ships (cabotage). Like

8

FLEET DEV ELOPM ENT AND TH E CO NTROL OF SHIPPING

Singapore, Malaysia has supported the development of a national flag fleet through state equity participation . Shipping policy in Malaysia, according to the Third Malaysia Plan, has the objective of making Malaysia "a maritime nation", the meaning of which is not defined . The Ministry of Transport has chosen to define it very broadly; Malaysia's objectives are to develop I . an efficient, well-diversified and modern merchant marine fleet; 2. an efficient and economically viable shipbuilding and repairing industry; 3. appropriate supporting services such as shipping services, marine law, insurance, banking and ports; and 4. skilled and professional manpower to operate all aspects of the industryY

The prime rationale for government interest in shipping has developed from Malaysia's balance of payments difficulties. Freight and insurance costs are one of the largest contributors to the Malaysia's current service account deficit (see Exhibit 1.1.); this foreign exchange loss is frequently cited as the rationale for Malaysian efforts to develop national flag shipping. It is felt that fleet development will reduce shipping debits (payments to foreign carriers) and retain valuable foreign exchange within the country. Over the period 1975 to 1981, Malaysia's total trade (imports and exports) in Special Drawing Rights grew from 6 billion to 19 billion SDRs, a significant increase in the cargo base available for national flag shipping. Over the same period, total freight charges grew from 260 million to 1.8 billion SDRs. Freight charges grew at a rate greater than the rate of trade growth giving the Malaysian Government further cause for concern, particularly as it was anticipated national flag shipping would stem rising freight costs as well as allowing Malaysians to share in the benefits of increased trade. Although national flag carriers increased their share of the total freight bill from 10 to 15 per cent over that period, this increased share was insufficient to solve the balance of payments difficulties attributed to the freight account deficit. Therefore, the government feels that this national share must be further improved. Malaysians have not, to date, questioned the cost of increased shipping control or the advisability of fleet expansion under current market conditions. Nor have they noted that current service losses are also attributable to investment dollars going abroad. Mechanisms for Supporting Fleet Development Cargo Reservation

Government departments are required to use the vessels of the Malaysian Intemational Shipping Corporation Berhad (MISC), although a

9

RATIONALE AN D LEG ISLATIV E M EC HANISMS

EXHIBIT 1.1. BALAN CE O F PAY M ENTS - MALAYSIA C URRENT ACCOUNT - SELECTED ITEMS (in millio n SDRs)

Item

1975

1977

1979

1981

3.106

5. 169

8, 509

9,407

- 2,896 210

- 3.868 1.301

- 6,174 2.335

- 9.686 - 279

24

55

122

163

- 237 - 213

- 362 - 307

- 588 -466

- 913 - 750

34

55

8

- 16

- 317

- 566

- 750

- 1.155

91

61

- 83

140

-477

- 757

- 1.291

- 1.781

- 197

544

1.044

- 2.060

GOODS Merchandise Exports (f.o.b.) Merchandise Imports (f.o.b.) Trade Ba lance SERVICES Freight & Insurance (credit) Freight & Insurance (debit) Net Freight Passenger & Other Transportation (net) Travel & Investment (net) Government Transactions (net) Total Services (net) BALANCE ON GOODS & SERVICES Sou RCE· International Monetary Fund. Balance of

Paym~nts

Statistics Yearbook , Vol. 33, Pa rt I ( 1982).

waiver may be granted. However, the level of government cargoes is relatively insignificant when compared with that of Malaysia's rubber, palm oil and tin exports; these goods have sufficient volume to support a national fleet through cargo reservation of liner and bulk cargoes. Malaysia has adopted the UNCT AD Code of Conduct for Liner Conferences but has not formalized the means by which allocation of nongovernment cargoes is to take place . Planning for its implementation awaits the completion of the first year of data collection ( 1984) in order to determine possible options. In addition, the share of national cargo currently carried by MIS has not been determined, and published estimates have varied widely .32 As much of M ISC's activity is in cross-trading, MlSC has to date preferred to remain outside of any cargo reservation schemes. MISC may find that this posture is inconsistent with national policy in the near future, partic ularly as the Malaysian Government has recently signed bilateral

10

FL EET D EV ELOPM ENT AND TH E CONTROL OF SHIPPING

agreements with Bangladesh, Turkey and Indonesia, and plans to negotiate similar pacts with South Korea, Pakistan, India and Japan. 33 Cabotage

For many years, Malaysia followed its British heritage and did not have a cabotage policy to protect domestic shipping for national flag operators. A cabotage policy came into effect in 1980 and, in 1984, these rules were extended to include offshore supply vessels.34 Cabotage is seen both as an instrument of national unity, tying Peninsular Malaysia with Sabah and Sarawak, and a means to develop the expertise to increase national participation in international trade. Recently, Malaysia has announced that it may extend its cabotage policy to include Singapore-Malaysia feeder services. 3 5 The cabotage policy allows the granting of a waiver if Malaysian vessels are not able to carry the cargoes, with the intention that the waiver will eventually be phased out. In 1980, the waivers granted to foreign ships was greater than the number of licences issued to domestic vessels, 36 190 versus 134, and foreign tonnage accounted for 89 per cent of the total gross registered tonnage operating in cabotage trades. In 1981, the percentage of licences issued to foreign flag vessels had not decreased. 37 The increased demand for Malaysian flag coastal vessels envisaged by policy-makers does not appear to have generated increased interest by the Malaysian private sector in domestic shipping. Tax Benefits ; Financial lncentives38

The 1982 budget improved the tax benefits for Malaysian shipowners, and was specifically directed towards promoting fleet expansion by the private sector. In general, Malaysian shipowners receive a 50 per cent tax exemption if profit, after the declaration of dividends, is credited towards a fleet acquisition reserve, and 75 per cent of that reserve is used for ship acquisition. (The spending of the reserve is monitored every four years to ensure compliance.) The remaining condition imposed on the corporation is that dividends declared must not exceed 15 per cent of the paid-up capital. The 1984 budget has exempted income derived from the operation of Malaysian-registered vessels from income tax and also the income received by Malaysian crews on Malaysian flag ships. The impact of this on private sector fleet expansion remains to be seen. The government also promotes competitive fleet acquisition by not imposing duties on imported ships and by exempting vessels greater than 26 dwt. from the 5 per cent government surtax. These reduce the capital costs of foreign vessel acquisition.

RATION ALE AND LEG ISLA T IV E M ECHANISMS

//

Provision of Lahour 30 The Malaysian Government is giving priority to the development of a national flag fleet and the manning or that fleet with nationals and therefore is supporting the development of training facilities. C urrently. there a re two training centres in Malaysia : the Maritime Training Centre at Malacca which trains general purpose and catering ratings. radio officers and pre-sea cadets, and the Politeknik Ungku Omar at lpo h which offers a marine engineering diploma. All programmes. sy llabi and exa minations are to the standards set by the Department of Trade and Indus try of the United Kingdom. and intended to meet the standards or the 1978 STCW Convention, although Malaysia has yet to adopt the co nvention or organize a seamen's register.

Indonesia Indonesia's geography has been the major force behind the development of its shipping policy . As an archipelagic state or 13.66 7 islands. more than 9.000 of which are inhabited. spread over a region as wide as the United States. Indonesia views sea transportation as the lifeline of the inhabited islands. The majority of Indonesian ships are active on interisland trade routes, many of which are not profitable. Some interisland routes. to the more isolated and underdeveloped regions. are designated as "pioneer" trades; services are maintained by the government as part of a national development policy . Even smaller interisland ships. known as people's ships. are also maintained for this reason. In addition to its interisland orientation. Indonesia realizes that foreign trade is essential for its economic growth . International trade accounts for almost two-thirds of Indonesia's seaborne trade. (See Exhibit 1.2.) The country is rich in natural resources and has focused its efforts on the export of these commodities rather than on import substitution . The policies or the government in international trade ensure that Indonesian operators carry as large a share or national cargoes as possible with the intent of reducing foreign exchange costs.-~ 0 The press has. from time to time. reported the difficulties faced by foreign operators serving this trade. Particularly evident are articles on access to Indonesian ports and the myriad of licences a nd regulations governing foreign ships in Indonesian waters. This will be discussed in more detail later. In the eva luation of fleet development in Indonesia. domestic and internationa l fleet development must be distinctly separated, although the regulation of the international trades may serve to promote domestic shipping. Au:ording to the Maritime Sector Development Program in

/2

FLEET DEVELOPMENT AND THE CONTROL OF SHIPPING

EXH IBIT 1.2. INDONESIAN SEABORNE TRADE (in millions of ton s)

198 1

Dry Cargo

Liquid Cargo•

Total

DOMESTIC

30.2

39.7

69.9 (38.6%)

INTERNATIONA L

28.4

82.6

111 .0 (61.4%)

TOTAL

58.6

122.3

P3

492 24

1,708

6 16

83

319 202

139

743 n.a .

3.400

n.a.

623

does " Kapal is the shipow ning a nd management arm of the Keppel Gro up of Companies. The 1980 figure not include the 22.687 dwt held by Straits Steamshi p. Sd n " A regiona l subsid iary Straits Steamship ; operates in conjunction with Sya rika t Pcrkapalan Kris Bcrhad, a Malaysia n coastal o perator. ' Total Singapore Register: 12.8 million dwt. Sou RCE: Seatrade, Far East S hipping 1984. pp. 69- 75. Lloyd 's List of Shipowners /98(}-8 /, cross referenced to Llo.vd 's Register of Ships 1980. United Nations Conference on Trade and Development. Review ofMaritim~ Transport . 1980. TD/ B/C.4/22215 May 198 1, p. IJ .

today? As the Federal M ari time Co mmission (F MC) in the United States has declared NOL to be a '"sta te co ntrolled" ca rrier. the ex tent of governme nt control must be exami ned . Initial start-up capita l for NOL was provided thro ugh governme nt guara ntees a nd NOL was cha rged a comm ission. which event ually became more ex pensive than the interest rates commerci ally available from the banks of Singapore . Beca use of this. NOL resorted to bank financing once operation s were esta blished . By 1974, the company was still operating a t a loss a nd there was some press ure by governme nt to make a profit or cease opera ti ons. 1 ° C ha nges in managem ent fo llo wed and NOL was o ut of tlnancial difficulty in less than two years. Governme nt influence was in it ia lly exerted in gai ning NOL's admission to the FEFC and the governme nt retains the power to appoint members of the Boa rd of Directors and the Chairman . In 1983, the NOL Board provided sea ts for a number of civil servants; the only transporta tion-relate d director, o ther than the Ge nera l M anager of NOL, was Wong Hung Khim, general manager of the Port of Singapore Authority , another governme nt controlJed corporatio n . 1 7 T he compositi on of the Board, with its paucity of shipping

32

1-L EE:l DEVELOPMENT AND TH E CO NTROL OF SH IPPING

experts from the private sector, and the majority shareholding by Temasek in NOL provi de some justification for the recent failure of NOL to gain exemption from the Federal Maritime Commission classification . 1 8 However, government departments do not participate in the day-to-day operatio ns of the company, although NOL actions are expected to be consistent with national policy and no government umbrella organization has been established to set such a policy. A review ofNOL's financial performance underlines the company's solid commercia l footing . (See Exhibit2.6.) The interest expense as a percentage of EX HIBIT 2.6. NEPTUN E ORIENT LINES SELECTED FINANCIAL INFORMATION (as of 31 December) (in S$'000)

1980

1981

791 ,307 1,053,444 405,951 727,656

676,625 855,319 511 ,308 707,686

130,000 195,788 325,788

147,633

Secured by Vessel Mortgages Government Guarantee Holdmg Company Loans Unsecured Loans

139,129 59,842 19,513 344,985

205,645 78,351 12,879 267,910

Total Loans

563,469

564,785

Balance Shet'l

Fixed Assets Total Assets Long-term Liabilities Total Liabilities Share Capital Reserves Total Equity Loan Security

Income Statement

Depreciation of Assets Interest on Loans

50,442 55,205

ky Performance Indicators

Interest on Loans as % of Total Loans Liability as % of Total Assets Equity as % of Total Assets Return on Total Assets (Before Extraordinary Items) Fixed Assets u % of Total Assets Non: For NOL Group of Companies. SouRCE: Neptune Orient Lines, AMIUI/ Report /98/.

9.7% 69.0% 31.0%

82.7% 17.3%

3.0% 75.1%

2.9% 79. 1%

FL EET D EV ELOPM ENT I N SIN •APORE

33

total loans indica tes a commercia l borrowin g rate not a subsidi zed rate is used, and vesse l purchases are financed by commercial mortgages ra ther tha n by loans from the government (through Temasek Ho ldin gs). Fixed assets exceed long-term liabilities; NOL is not -uppo rtin g vessel purchases throu gh sho rt term debt. The balance sheet reflects the use of the equity acq uired through the 1981 share sale to reduce unsecured loa ns a nd initiate further vessel acq uisitio n in that year. This is a financial sta tement o f a commercia lly-run shipping operation . Conclusiom In spite of the government connections to the shipping industry through Temasek Holdings, the operations of both NOLand Straits Steamship are on a commercial basis without government subsidies. Financing tends to be sought from the private sector and equity capital is readily available. NOLand Keppel have both resorted to the stock market to raise funds a nd the recent listing of Chuan Hup Marine on the Singapore Stock Exchange has demonstrated the private sector support possible in Singapore for shipping investment. 19 This means that control of shipping is not forced upon the government by default, as will be shown to be the case in the Philippines, but is only an option which may be exercised by the government in future. At present, shipping control in Singapore remains operationalJy in the private sector, and the country's legislative climate has been effective in gaining increased participation and control by nationals.

34

FLE 'I DEVELOPM£:

T AND T H f CONT ROL OF SIIIPPI NG

Notes

These new ruks a rc discussed in Shipping G11idt! of Singapore - 8th edition, 1980, published by the Singapore Shipping Associa tion and Rcgi.l'tration of Ships in SinKapore and A.l'soriall·d Topic.\' (Supplement). by Rodyk and Davidson, Advocates and Solicitors, Si ngapo re. 2. Neptune Orient Lines. Pro.l'pl'ctll.l' (/or lss11e of Share.\' ) 3 April 1981, p. 3. :1 . Ibid .. p. 6 . 4. Tax-exempt profits arc those arising under Sec 13A of the Singapore Income Tax Act, Cap U I , which exempts from income tax profits from the operation of Singapore registered vessels. 5. NOL 's successes in penetrating the co ntainer trades is well documented by Lloyd's Shipping Economis t, October 1982, pp. 35- 39. 6. Annual Report 1981 . However, this oversubscription rate is not unusual for Singapore. The listing of Chuan Hup Marine on the Singapore Stock Exchange attracted an oversubscription for its 22 .5 million shares of 31.7 times! Seatrade, Far East Shipping 1984. p. 69 .) 7. Maritime Asia, April 1984, p. 5. 8. Business Times, 4 Aprill984, p. I; Asian Shipping, July 1983, p. 4. It should be noted that Straits Steamship is a diversified corporation with property interests which accounted for 7 per cent of sales but 56 per cent of pre-tax profits in 1982. (Seatrade, July 1983, p. 57) 9. Republic of Singapore, Annual Report of the Seamen's Registry Board for the Year 1968, p. I. 10. This is very competitive registry rate, with fees approximately 20 per cent less than the Liberian annual tonnage fee. Hairani Saabaw, "Ship Financing in Singapore", Malayan Low Journal, Appendix I. II. Business Day, 6 March 1984, p. 23; Shipping Times, March 1984, p. I. 12. Lloyd's did not report deadweight (dwt) tonnage in 1968. This practice was not begun until 1970. 13. United Nations (UNCTAD), Review of Maritime Transport 1980, TD/B/C.4/222, 25 May 1981 , p. 13. 14. Lloyd's Register of Shipping Statistical Tables . 15. Ibid . 16. Koh Seow Tee, Manager, Research and Information, NOL. Interview on 24 February 1984. 17. Based on a review of the Board of Directors from Neptune Orient Lines, The Trident Service, 1983, p. 6. 18. Containerisation lntf!rnational, April 1984, p. 9. In Containerisation International, February 1984, p. 33, NOL is quoted as being adamant that its board members are free agents and that the line is completely free of government interference . Perhaps NOL will only gain exemption once the Temasek Holdings are reduced to a minority share. 19. See footnote 6.

Fleet Development in Thailand

Ill

The Thai Fleet In 1968, the Thai fleet totalled only 49 vessels of 63,780 grt. f\lthough small, the fleet has grown steadily over the years. (See Exhibit 3.1.) By 1981, the number of vessels had grown by 450 per cent and the gross registered tonnage by twice as much. This growth rate reflects a gradual acquisition and upgrading programme by Thai shipowners, most of whom employ their ships on Thai trading routes rather than in cross-trading. The register is a closed one. By June 1983, the MMPC had detailed the characteristics of the Thai international fleet, and the routes on which they are active. (See Exhibit 3.2.) With the exception of the five Thai dry cargo companies operating in conferences serving Thailand, and the tanker operations of Thai Ocean Transportation and C P Company, the Thai fleet is composed mainly of old, small vessels and operated by a large number of companies. Government equity in Thailand is limited; two government-owned carriers, Thai Maritime Navigation Company (TMNC) and United Thai EXHIBIT 3.1. SIZE OF THAI FLAG FLEET 600

500

0 0 0

400

G R

300

T 200

100

0 YEAR SouRCE·

68

70

72

74

Lloyd's Register of Shipping Statistical Tab/11&.

35

76

78

80

82

'"""

0.

EXHIB IT 3.2. OCEAN -GOIN G VESSELS REGIS TERED UNDE R THAI FLAG (as of 30 June 198 3)

"T1

r m m -!

Operato r (Dry cargo) Thai Maritim e Naviga tion Co. Ltd . United Thai Shippin g Co . Ltd. Jutha Maritim e Co. Ltd .' Thai Interna tional Maritim e Enterpr ises Thai Mercan tile Marine Limited Sang Thai Naviga tion Thai Overseas Line Mah Boon Krong Shippin g Siam Maritim e Line Ngow Hock Co . Ltd. 19 other compan ies in ASEAN trades•

Number of Vessels 4 5 3 2 3 7 2 3 I 2 34

AYerage Age

Total DWT

Total GRT

17

27,990

19.326

14 21 22 17 17 14 21 32 15

65,534 29,372 18,531 29,705 25,204 7,214 20,453 5,080 8,086 102,890

53,222 23 ,165 12,825 23,502 15,077 4,456 16,307 2,742 6,185 63,624

0

Comments Japan -Th ailand Confe rence, 99% state equity FEFC member , 33 % state equit y Japan-T hailand Confere nce Japan-T hailand Confere nce Japan-T hailand Conference lntra-A sean Trades Bangko k-Hong Kong feeder Bangko k-Hong Kong feed er Bangko k-Hong Kong feeder Pacific Rim feeder Includes Sea Trans. which has 70% equity in Thai Merca ntile Marine Ltd.

m < m r 0 "0

3:: -! )>

z

0

-!

:c

m

"0z -!

;xi

0 r 0

"T1

Vl

8 other compan ies operatin g as tramps 8 other compan ies opc:rating in Pacific Rim

8 12

25,221 64,441

19,099 39,328

"0 "0

TOTAL DRY CARG O

86

429,721

298,858

Cl

:c

z

FLAG (as of 30 June 1983) EXHIBIT 3.2 (Cont'd) OCEAN- GOING VESSELS REGISTE RED UNDER THAI

Operator (Tanker)

Number of Vessels

Anrage Age

Total DWT

Total GRT

17 21 18 16

30,360 4,044 12, 168 140,415 56,249

17,213 2,543 9,183 79,675 34,292

C.P. Co. Ltd. Tor Phabul Transport Thai Petroleum • Thai Ocean Transport ation 16 other companies

15 4 5 2 36

TOTAL TANKER S

62

243,236

142,906

148

672,957

441,764

TOTAL VESSELS

Comments "T1

r

rn rn --1

Worldwide These 36 include I 0 gas carriers

, Jalaprathan Cement Co. and Vanakam Co. are also stale-owned . • Seatrade, Far East Shipping 1984, p. 89 indicates that Jutha Maritime, Thai Petroleum SouRCE:

, Bangkok . Thailand. Sea Transport Economics Division Office of the Mercantile Marine Promotion Commission

0

"T1


r > z

0

......

.......

3R

FLEFT DEVELOPMENT AND TH E CON TROL OF SHIPPI NG

Shipping omra ny (Un ith ai). o nl y own nin e ships o fth e to tall 98 3 Thai fl ee t of 148 vesse l . most o f whi ch a re very old . The governm ent equit y in the former is grea ter (99 per cent) tha n in the latter (33 per cent), but Unithai prov ides access to the FEFC for Thais. In addition , Seatrade's Far East Shipping J9R4 indica te that fo ur more compa nies, Jutha M ari time Co. Ltd ., Th ai Petroleu m T ra nsport Co. Ltd ., Jalaprathan Cement Co. Ltd . and Vanakarn o. Ltd ., a re sta te-owned but the equity percentage in each is not indi ca ted. Thi s brings the governm ent tota l to twenty ships, totalling 142,735 dwt , or 2 1 per cent of th e fleet. In future , the government plans to ex pa nd the Thai fleet through new acq ui siti ons by TMN C. ' with the intention of increasing Thai participation in the ca rri age of her fo reign trade. The TMNC bulk cargo ship acquisitions will doub le the number of vessels owned by TMNC and will be used to enter into the Europe/Far East liner trades with some Mediterranean / Middle East ports being served . F urther development o f the fl eet through government equity in new co mpa nies appears to be unlikely in the short-term. In 1981 , the government indica ted its interest 2 in participating in the tanker market through the esta blishment of a joint venture, National Tanker Line, between the state a nd the private sector. The government share of the equity was to be less than 50 per cent. By Ja nuary of 1983, the Thai Shipowners' Association (TSA) concluded that the private sector was not interested in the project. Investors doubted the project's commercial viability and considered the venture highly ri sky. 3 The TSA indicated that even with a long-term government contract fo r the carriage of crude oil, a per-ton subsidy would still be required . Government interest in the project has waned for the foreseeable future.

Cargoes to Support Further Fleet Development' Thailand's exports have been growing at a ra te of 14 per cent annually, according to Thailand 1983, a government publication , but the country is heavily dependent on commodity exports and must import capital goods for further industrial development . The government is pla nning massive port development and inl~nd transportation infrastructure as part of an export promotion policy . This reduces the capital available for possible infusion into the shipping sector. However, some exports might provide a base cargo for future fleet expansion by the private sector.

Tapioca Tapioca accounted for II per cent ofThailand's 1980 exports. Although Thailand exports 5-6 miJJion tons of tapioca a year to the European market

FLEET DEVELOPME NT IN THAILAND

39

(mainly to the Netherlands and Wes t Gemutny), Thai shipowners have little hope, without government intervention. of gaining a share of the transport market for this commodity . Only a few multinationals are involved in the purchase of this feed grain and they operate a complete distributi on network, with their own terminal storage facilities in Europe. Control of the tapioca market resides in European hands, minimizing the opportunities for Thais to take part in this trade. The tendency toward f.o.b. selling reinforces the European control over shipping arrangements. Hydrocarbons

Although Thailand is an energy producer, the refineries are owned by Esso and Shell, both of which operate their own fleet and use Thailand as a "topping up" point. Thai hydrocarbons are therefore transported at a freight rate lower than would otherwise be charged for a full load ofThai crude. This "topping up" process reduces the opportunity for Thai tankers to engage in the internationa l tanker trades; even Thai Ocean Transportat ion, which accounts for 21 per cent of the deadweight tonnage registered under the Thai flag, is managed by Shell Tankers (U.K.) Ltd. Maize and Rice

Rice was Thailand's largest 1980 export product, accounting for almost 15 per cent of total 1980 exports. Maize accounts for more than a million tons annually. However, for both rice and maize, sales are largely regional and already support the smaller vessels of the fleet. The potential for additional fleet involvement will grow if government-to-government sales, 5 such as the 1984 rice sales to Senegal and India, specify the use of Thai carriers for a portion of the cargo. Other Cargoes

At present it is estimated that Thai ships carry only 5 per cent of total Thai trade, 6 but the latest development plan calls for an increase to I0 per cent by 1986. 7 The opportunities however are limited by the shipper preference to sell f.o .b., and the importer's preference to purchase c.i.f., thereby leaving foreigners to make the transport decisions. Some opportunitie s are generated by special circumstances, such as the latest expansion by TMNC on the U.S./Thaila nd trade route which was made possible by Thai Governmen t purchases of U.S. arms. Thai shipowners feel they must also compete with astute Singaporean shipowners with their marketing expertise, face Indonesian restrictions on port access and cargo carriage, and counter the preference of their largest buyer, Japan, to choose

40

FL ET D EVE LOPM ENT A

D T H E CO NTRO L OF SHIPPIN G

th e ca rrier. Beca use of these diffi culti es, the progress of Thai shipowners is gradua l, a nd government-to-gove rnment sales provide the greatest oppo rtunity fo r growth in the short term .

GQvernment Participation

The Thai G overnment, as previously indicated, controls 21 per cent of the Thai fl eet. This is a relatively high share given Thailand's professed "user" o rienta tion . Perhaps. a closer examination will uncover the reasons why . Thai Ma ritime Navigation Co. Ltd . was established during World War II and the historical reasons for its development are unclear. The government holds all but seven of the I 17,612 shares outstanding. This company has not been a commercial success, as revealed by Exhibit 3.3. Its share value is well

EXHIBIT 3.3. THAI MARITIME NAVIGATION CO. LTD.• FINANCIAL REVIEW For fiscal year ending 30 September (in millions of baht)

1979

1978

1977

279.50 282 .52

153.97 164.98

193.07 209.50

( 11.00)

(16.42)

22.12 268 .84 184.94 163.80

54.80 173.57 86.66 70.66

82. 12 203.51 105.60 77.44

83.90

86.91

97.91

713 .40 31.2% 91.8%

739.00 50. 1% 68 .3%

832.50 48 .1% 59 .6%

IN COME STATEMENT Income Expenditure Operating Result

(3 .01)

BALANCE SHEET Revolving Assets Total Assets Total Debt Long-Term Debt KEY FINANCIAL INDICATORS Equity (Tolal Assets - Total Debt) Share Va1ueb in Baht (Par 1,000 Baht) Equity as % of Total Assets Fixed Assets as % of Total Assets • Company established on 22 June 1940. b

Capitahzation: 117,612 shares issued , par value of 1,000 baht. Share value calculated as equity divided by shares assued . I I 7,605 shares held by the government.

SouRCE: Based on information reported in the Nation Review (Bangkok), 5 October 1979, Section 2, p. 1.

FLEET DEV ELOPM ENT IN THAI L AND

41

below par and it has posted consistent operating losses. The equity to total assets ratio had fallen by 1979 to 31.2 per cent, well below the 40 per cent average for Thai companies.8 This government-owned carrier must, therefore, also be government-subsidized . Recently, TMNC has found itself in more desperate straits and, in spite of its conference commitments, has even resorted to rate-cutting within the Thai-Japan conference.9 Government activity in shipping has not stemmed from the perspective that shipping is a means of earning foreign exchange. The capital necessary for Thai private sector control of shipping has not been forthcoming. Equity capital is very scarce in Thailand . Any company, to be publicly traded on the Stock Exchange of Thailand, must have at least 300 ordinary shareholders, none of whom may hold more than 0.5 per cent of the total paid-up capital. 10 The logistics of organizing such shareholding arrangements make public offerings to raise share capital difficult. In addition, depressed market conditions have been blamed for the lack of new stock issues in the past five years. 1 1 Plans are afoot to amend the 1974 Stock Exchange of Thailand Act, hopefully to attract more companies into the market, and the stringent conditions mentioned above are to be relaxed. 1 2 However, Business Asia predicts that, for the forseeable future, "the Stock Exchange of Thailand will 13 remain an ineffective source of capital for most firms" . It appears that private sector investment capital is limited as are government funds for shipping investment. Finally, Thailand has very stringent foreign investment regulations which effectively bar foreign ownership of businesses operating in Thailand. Because Thai Ocean Transportation is involved in the international carriage of hydrocarbons, it is possible through the existence of local corporations to bypass these regulations and manage the corporation's activities from Britain. Likewise Nguan Nguan Shipping, a small one-vessel company, is managed by Guan Guan Shipping of Singapore. For the most part, foreign investment is difficult to attract given the recent political instability of the country and the regulatory web that accompanies such investment.

Conclusions The future of the Thai fleet does not look particularly promising. Although the government has provided some legislative support, the Thai shipping industry is in severe financial difficulty. Heavier losses than those experienced in 1983 are predicted for 1984 and overcapacity has caused cutthroat rate-setting. The situation has recently deteriorated due to government imposition of restrictions on some imports in an effort to control its worsening trade deficit.

42

LEET D V LOPM NT A D TH E CONTROL OF SHIPPI NG

Alth o ugh T ha iland 's Fifth Development Plan ( 1982- 86) includes expansio n of state-owned fl eets as a ta rget, it is doubtful that capital will be avai lable to meet it. It i a lso doubtful that Thailand will be a ble to increase it hare of na ti o na l ca rgoes in the short-and medium-term; the private sector ha lillie incli natio n to invest in shipping given current market conditions, a nd the government needs its ca pital for other economic development pr ~ects.

NOT ES

43

Notes

I. 2. 3. 4.

5. 6. 7. 8. 9.

10. II . 12. 13.

Maritime Asia, November 198 1, p. 49 . Seatrade, November 198 1, p. 59. Asian Shipping, Ja nuary 1983, p. 3. In large part, this discussion is based o n infonn at io n obta ined in an interv i·~ w with M r Chaiyos Chaimonkong, Director, Sea Transport Eco nomics Division. Office of the Mercantile Marine Promotion Commission, Bangkok 26 January 1984. a nd on information provided in Thailand 1983. a government brochure. Reported in the Bangkok Post, I February 1984, Section 2, p. I. Seatrade, June 1982, p. 103. Maritime Asia, August 1983, p. 27. Business Asia, II May 1984, p. 149. Seatrade, Far East Shipping 1984 , p. 89 . TMNC initiated price-slashing o n the ThaiJapan route by reducing freight rates 13 .6 per ce nt. The action jeopardizes Jutha Maritime's share on the route, which is reported to be aro und 40 per ce nt of the total export cargo . Business Asia, II May 1984, p. 149. Business International, Financing Foreign Operations - Thailand, February 1984, p. 25. Far Eastern Economic Review, 18 August 1983, p. 83. Business Asia, 4 May 1984, p. 143.

IV

Fleet Development in Malaysia

The Malaysian Fleet The Malaysian register has shown steady growth since the late 1960s with the rate of growth accelerating over the last few years. (See Exhibit 4.1 .) Efforts to increase Malaysian participation in shipping through tax benefits and a cabotage policy have recently intensified and the register has doubled since 1979. Unlike Singapore's register but like those of other ASEAN nations, the Malaysian register is a closed one. Malaysian shipping law was substantially revised in 1977 and again in 1978 1 and detailed disclosure of the vessel's owners, and the citizenship of those owners, is a prerequisite for the registration of a vessel under the Malaysian flag . The vessel must be wholly owned by Malaysian citizens or by corporate bodies having their principal place of business in Malaysia, and disclosure of the board of directors of such

EXHIBIT 4.1. SIZE OF THE MALAYSIAN FLAG FLEET 2000 1800 1600 1400

0 0 0 G R T

llOO 1000 800 600 400

lOO 0

YEAR

611

70 72 74 SouRCE: I.Joyd's Reguter of Shipping Statistical Tables.

44

76

78

80

8l

FLEET DEVELOPM E NT IN M A LAYS IA

45

Malaysian corporatio ns is also required . However, this ownership policy is currently under review. Maritime Asia reports that: The Merchant Shipping Ordinance of Malaysia will be amended to attrad foreign investment into the shipping industry ... during the March-April [1984) session [of Parliament] .... Equity participation will become more flexible to enable foreign investors to reftag their vessels in Malaysia. 2

The Malaysian fleet (see Exhibit 4.2.) is quite young; expansion has not come from the acquisition of older vessels, as has been the case in Thailand, but from the purchase of new buildings. In addition, a significant number of Malaysian vessels are greater than 20,000 grt. Both can be directly related to the activities of the Malaysian International Shipping Corporati on Berhad (MISC). EXHIBIT 4.2. PROFILE OF MALAYSIA N FLEET, 1983

Characteristics

Number of Vessels•

GRT

•;. or Total GRT

AGE IN YEARS 0 -9 10-19 20-29 30+

133 125 69 49

919,334 427,155 75,017 53,542

62.3 29 .0 5.1 3.6

TOTAL

376

1,476,048

100%

SIZEb IN GRT 100-999 I ,000 - 9,999 10,000- 19,999 20,000+

242 91 17 26

110,783 138,564 247,094 978,607

7.5 9.4 16.8 66.3

TOTAL

376

1,475,048

100%

• Lloyd's docs not include vessels of less than 100 grt. 11.4 per cent of the vessels b All vessels greater than 15,000 grt are less than 15 years of age. Note that accounts for 83.1 per cent of the tonnage. SouRCE:

Lloyd's Register of Shipping Statistical Tables, 1983.

Malaysian shipping and MISC are practically synonymous. Exhibit 4.3 indicates the dominant role played by MISC in the Malaysian register; approxim ately 87 per cent of the Malaysian fleet in any one year is owned by MISC. As has been pointed out by the Ministry of Transport of Malaysia,

4{)

I U I·T DFV F I OPMFNT AND Till- CONT RO L OF SH IPPI NG

EX HIBIT 0 . MJ SC VERS US MALAYSIAN R EG ISTER 1600 1400

0 0 0

1200 1000

G

R

800

T 600 400

200 0

YEAR

70

72

74

76

78

80 •

SC/l

m

>-

z

>~

Minimum STCW Convention standards and places available for students from other countries. Excess: Minimum STCW Convention standards but no places currently available for students from other countries. Adequate: Some facilities available but does not meet minimum STCW Convention standards. Inadequate: Not provided: No facilities . Meets minimum 1978 STCW Convention standards but taken as part of a comprehensive course of training. Integrated: 26 April---6 May 1980, p. 104. ESCAP, Report of the Joint ESCA.P/IMCO Regional Meeting of Experts in Maritime Training and Certification,

z

-l

>;1:1 -
. lb . Lloyd 's List, 25 Jul y 1984. p. I a nd 29 July 1984. p. 2. 17. This se..: ti o n is based o n info rmatio n collected by the a uthor and Peter Marlow in the ..:o urse o f preparing a restricted access report for Shipping Policy Branch, Transport Ca nada in 1983 entitled Canadian Tax Policy and the Shipping Industry: An Evaluation. 18. Lloyd 's List. 9 Jul y 1984, p. I; II Jul y 1984 p. I and 13 July, p. I all document the di sc ussio n a bout these chang.:s. 19. Lloyd's Shipping Economist, August 1983, p. II.

108

F LEET DEVE LOPM ENT AND TH E CONTROL OF SHIPPING

20. Ibid . 21. United Nations (U NCTAD), op. cit. , p. 13. 22. West Germany, Japan, the Netherlands and Norway have been particularly active in researching ways of red ucing crew sizes and improving skill levels. The Americans, British and Germans have also been looking at computer-generated imagery and simulator tra ining as a means of achieving improved seafaring skills. 23. Shipping Times, 21 March 1984, p. I. 24. Seatrade, Far East Shipping 1984, p. II ; Seatrade, May 1984, pp. 29, 129. 25. Straits Times, 3 April 1984, p. 14. 26. Sea trade, Jul y 1981, p. 109 suggests that France's socialist government is contemplating 66 per cent cargo reservation for coal and certain mineral products with a 40 per cent reservation scheme for other goods. 27. Frankel, op. cit. , p. 248. Also documented by Kyle and Phillips, op. cit. 28 . Shipping Times, 19 March 1984, p. Ill. 29. Ibid ., 22 February 1984, p. III . 30. Ibid. , 8 December 1983, p. II. 31. Bernard Gardner, The Return on In vestment in Liner Shipping (WP 20-84-{)7) (Ottawa: Canadian Transport Commission, February 1984), pp. 24--25. 32. Ibid ., pp. 13- 14. 33. The share structure of Overseas Containers Ltd. was as follows : 47.37 per cent to P&O, 32.80 per cent to Ocean and 19.83 per cent to B&C. (Ibid ., p. 25). 34. Ibid ., pp. 24--5. 35. Seatrade, January 1984, p. 49. 36. Lloyd's Shipping Economist, April 1984, p. 7. 37. Ibid., p. 9. 38. Seatrade, June 1984, p. 81. 39. Ibid.

APPENDIX

Singapore: Summary Files *Flag of Convenience in Cabotage and Cargo Reserva tion Policy Off' *" Hands *Seafarer Training a Priority *Ship Financing a Mechanism for Promotion of Shipbuilding Thailand: Summary File *Professed User Orientation *Some Cargo Reservation *Bilateral Agreement with Korea *" Packing Credit" as Shipper Incentive *Tax Benefits Not Availa ble Except Reduction of Charter Tax *Major Problems in Seafarer Provision Malaysia: Summary File *Shipping Policy Intends to Reduce Foreign Exchange Losses *Planned Implementation of UNCTAD Code *Cabotage Policy Introduced 1980 *Tax Benefits; Fleet Acquisition Reserve *Seafarer Training a Priority Indonesia: Summary File *Share of Na tional Cargoes as Objective *Extensive Reliance on Cargo Reservation *Use of Permits and Regulations to Bar Entry *Stringent Cabotage Policy *Minor Emphasis on Financial Incentives *Seafarer Training Needs Attention Philippines: Summary File *Seafarer Employment for Foreign Exchange Generation *Long History of Shipping as Private Industry *Some Tax Benefits and Shipper Incentives *Focus on Cargo Reservation *Seafarer Training a Priority

109

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Bernhard ·· ol'vclnrmg atr t'n~ and Ocean Transrortallon" . Ph .D. th~ ~i~. '' ' Wr~c