Buyers of Indonesian coal are holding back orders of the fuel after the government issued new shipping rules for coal and crude palm oil that would restrict exports to Indonesian vessels, an industry association said on Thursday.
Jakarta issued rules in October requiring coal and palm oil exporters to use Indonesian-flagged vessels and Indonesian insurance companies, to boost the role of the archipelago’s shipping industry in its export market.
However, guidelines on implementing the rules and possible exemptions have not been released, raising concerns among shippers in Indonesia, the world’s top thermal coal exporter and palm oil producer.
The regulation will take effect at the end of April.
“There was some information, several potential buyers from abroad put on hold making any new contracts,” Hendra Sinadia, executive director of the Indonesia Coal Mining Association (ICMA), told reporters.
Describing the new rules as “dangerous”, Sinadia said they could affect export volumes and state revenues if shipping contracts had to be renegotiated to shift to so-called cost, insurance and freight (CIF) contracts from free-on-board (FOB) contracts.
Under CIF contracts, the seller is responsible for the shipping arrangements and must buy insurance to protect the cargo against losses during the voyage. Under FOB contracts, the buyer procures the vessel and is responsible for all shipping costs.
The industry is worried that time is running out to make adjustments before the rules come into effect, Sinadia said, noting that it would be difficult to do so without the guidelines.
Indonesia Palm Oil Association (GAPKI) Secretary-General Togar Sitanggang said in an interview on Jan. 24 that there were several problems with the new rules, noting there were not enough Indonesian-flagged food-grade tankers, and that Indonesian insurers may lack capacity.
“If we’re selling CPO (crude palm oil), free-on-board at Belawan port, does this mean our buyer has to use Indonesian vessel? That is ridiculous.”
The palm oil industry is awaiting guidance on when foreign vessels can be used if local vessels are unavailable, he said.
“There should be no obstacles, but if we must do this and that, it could hold up exports,” he said.
The new rules could add to freight costs, Sitanggang said, if shipping companies were unable to find cargo for their return trips to Asia.
“If their ships are empty, of course they’ll ask for a higher price from us.”
According to Oke Nurwan, Director General of Foreign Trade at the Ministry of Trade, while most domestic shipping uses Indonesian-flagged vessels very little is exported on Indonesian ships.
“It can’t be like that any more,” Nurwan said on Jan. 25, adding that the government wanted the domestic shipping sector to compete more with multinationals.
“If (the government) didn’t intervene there would be no trigger, so we made it mandatory,” he said.