Dysfunction in Philippine shipping policy

IS the Maritime Industry Authority (Marina) a defender of public interest or a lobbyist for the shipping industry? Marina’s leaders had better figure that out because it appears it’s behaving more of the latter.

Late last week, Marina, a government agency tasked with regulating the Philippine domestic shipping industry, announced it will soon cut the number of vessels plying the same route “to stop cut-throat competition among shipping companies” and “reduce inefficiencies” that should supposedly lower cargo handling rates. “We have to limit business cost to the lowest possible figure so that we could maintain current rate levels if not reduce or prevent rate increases altogether,” said Vicente Suazo, Marina administrator.

That statement is interesting because if indeed Marina wants to raise efficiency in the industry and reduce shipping charges that are penalizing shippers of goods all over the country, that best way to ensure that is by introducing competition. Economics 101 says that only competition can force producers and suppliers of goods and services, shipping included, to make their operations more efficient and cheap. What Marina is trying to do, it seems here, is to encourage the formation of monopolies and oligopolies in the shipping industry—basically, just the forces that make the industries inefficient and uncompetitive, thus penalizing the growth of other sectors in the economy.

For so long, shippers in Mindanao have been complaining that they could not make much headway because of prohibitive freight charges. The common anecdote among the country’s poultry and livestock integrators seems to be, for instance, that it’s cheaper to import corn from Argentina than ship the same product from Mindanao—essentially because of the oligopolistic nature of the domestic interisland shipping industry.

It is the nature of these complaints that forced the government to deregulate the country’s shipping industry in the early 1990s. And indeed, analysts have noted a substantial improvement in the quality of service provided by shipping companies. Marina’s recent policy pronouncements therefore tends to reverse these gains, and bring us back to the days when most routes were operated only by one shipping firm, resulting in sloppy services and prohibitive freight charges. In fact, what Marina should do is continue the momentum of the reform process so the country could have a competitive shipping industry that provides efficient service to the rest of the economy.

Marina’s recent policy backsliding came following complaints by certain big shipping companies that “cut-throat competition” is hampering the growth of their businesses following the introduction of the roll-on/roll-off vessels. But the right response is not to remove competition but to examine the overall policy environment that has been hampering the operations of the market forces. And surely, there are still a lot of policies out there that need to reformed to ensure a more competitive and efficient industry.

For instance, the government still regulates the third-class passenger service and requires ships to devote 50 percent of passenger capacity to third class, thus making passenger ships uncompetitive vis-à-vis the cargo-only vessels. Another government policy that is stifling the shipping industry is the ceiling on return on incentives. Certainly, a ceiling on ROI deters companies from providing a better and more efficient service because the returns may not be commensurate to the level of service rendered. It’s also a disincentive to would-be investors. Of course, deregulation would allow shipping firms to raise their fare and freight charges, but at least they cannot do so indiscriminately if the industry is open to foreign competition and they would have to reckon with possibly more efficient players and lower rates. Yes, total deregulation that should include the lifting of the “cabotage law” is the key.