Foreign competition to perk up domestic shipping

It has finally happened. A foreign shipping firm has decided to throw its hat into the Philippine domestic shipping arena, which has been plagued for decades with the high cost of doing business, lack of economies of scale and poor port infrastructure. This has made the cost of domestic shipping much higher than shipping from abroad.

Friday last week, CNC, the intra-Asia short sea specialist of the CMA CGM Group, announced the launch of a new legal entity named CMA CGM Philippines Shipping, making it the first 100 percent foreign-owned international shipping line to register and operate a domestic service in the Philippines following the government’s expanded regulations permitting foreign shipping lines to venture into domestic shipping.

Headquartered in Singapore, CNC is regionally represented by an extensive agency network throughout Asia. CNC is the sole brand of the CMA CGM Group in intra-Asia. It currently offers over 50 services, continually strengthening its service network according to market demands and shifts.

The new domestic service will be launched with the Philippines-flagged vessel CNC PILIPINAS, a 1,037 twenty-foot equivalent unit vessel. The CNC PILIPINAS will sail on the Luzon Visayas Mindanao Express (LVMX) shipping service, with weekly port calls rotating between Manila, Cagayan de Oro, Cebu, and back to Manila.

The service, according to CNC, will support the establishment of new maritime routes, improving connectivity from major ports in the Philippines to the group’s global network, reducing transit times, lowering logistics costs and fostering stronger economic ties and trade flows across the region.

Just seven months ago, the Maritime Industry Authority was still wondering why foreign shipping firms were not showing any interest in engaging in the Philippine domestic shipping trade even though Republic Act 11659, otherwise known as An Act Amending Commonwealth Act 146 or the Public Service Act, had been in effect for almost two years.

Well, the reluctance stems from the decades old problem that the local shipping sector has faced, as far back to when I first covered the trade and industry beat and subsequently the agriculture beat as a reporter, which is that it is more expensive to ship goods within the Philippines from island to island than to ship from another country to the Philippines.

According to the Philippine Inter-Island Shipping Association or PISA, the domestic shipping sector continues to suffer from the high cost of doing business, which includes the high cost of vessel acquisition, the high cost of fuel and the high cost of drydocking.

Even though the country has shipbuilding capability, the lack of a domestic steel sector has not enabled us to develop a truly viable ship building industry even as we are composed of more than 7,000 islands. Most of the local boats are small wooden boats, although Cebu has been able to create a small niche for yacht manufacturing.

Subic, of course, has been able to attract foreign investors to build ships using the skill of Filipino ship builders.

The high cost of fuel is another burden for the domestic shipping sector as our international and ASEAN neighbors enjoy subsidized fuel, a point San Miguel Corp. chairman Ramon Ang had cited in a Philippine Economic Briefing, particularly citing the subsidized fuel of Malaysia.

Likewise, the amount of inter-island trade is small and does not provide economies of scale. In major trade routes such as Cebu, the cost of freight from Manila to Cebu is higher because of demand, but the cost from Cebu to Manila is less than half indicating lower demand.

PISA also complains about the infrastructure gap that continues to persist with domestic ports lacking modern cargo handling facilities needed by the bigger and much larger ships. Additional cost is incurred to transfer shipments.

PISA also cites the lack of connectivity in terms of road infrastructure from the farms or points of production to the markets or ports. During my time as a reporter, the common joke was that members of Congress were allocating more funds to “farms-to-my house” roads.

On top of that, the PISA continues to harp on the conflict of interest of the port regulator, the Philippine Ports Authority (PPA), as it acts as both regulator and operator, setting cargo handling rates for all its ports but at the same time getting a percentage of handling fees.

Last year, House Bill 8055, was filed in early May by Quirino lone district representative Midy Cua, seeking to separate PPA’s functions by converting the agency to the Philippine Ports Corp. (Philports) and transferring its regulatory function to the MARINA. The bill, as with others previously filed, continues to languish in Congress.

Best practices

Hopefully, with a new foreign player that does not have the same problems of domestic shipping firms, CNC’s new Philippines operation will also ensure the implementation of international best practices across both land and sea organizations uses.

According to CNC’s statement, the company, for example, will use Very Low Sulfur Fuel Oil (VLSFO) in compliance with the International Maritime Organization (IMO) 2020 standards, ensuring environmentally sustainable practices in fuel usage and overall operations.

It acknowledged though that while IMO 2020 has not been fully implemented in the Philippine domestic shipping industry, CNC has proactively converted to VLSFO to contribute to reducing air pollution and protecting public health and the environment in line with the CMA CGM Group’s commitment to acting for the planet.

CNC’s domestic service, the company said, offers opportunities for Filipino seafarers to be exposed to international-standard operations and training. The CMA CGM Group actually already hires quite a large number of Filipino seafarers, accounting for almost 30 percent of its international crew. It was thus easy to allocate 20 Filipino crew for the new Philippines-flagged CNC PILIPINAS.

CNC also intends to enhance the efficiency of cargo handling within the Philippines by utilizing the same containers for both international and domestic shipping, effectively minimizing the need for additional handling and thus reducing overall transportation costs which will be particularly beneficial for the importation of essential goods, such as food and rice, where cost-effectiveness is paramount.

“Asia contributes significantly to our growth globally, and the establishment of CNC’s domestic shipping service in the Philippines is an important milestone for us as a business as we continue to develop our expertise and strength in our intra-Asia services,” Bo Wegener, CEO of CMA CGM Asia-Pacific, said during Friday’s launch.

Transportation Undersecretary for Maritime, Elmer Sarmiento welcomed the new entrant, saying, “We are very excited that CNC has chosen to launch its first domestic service in the Philippines. It is a testament to the Philippines’ commitment to fostering a competitive and dynamic maritime industry that will continue to attract international investments. This initiative will not only enhance our domestic shipping capabilities but also create valuable job opportunities for our seafarers, further strengthening our maritime sector.”

Steven Zhu, CEO of CNC, said, “The Philippines holds promising potential for maritime growth and innovation given its dynamic domestic and international trade. We are thrilled to be the first foreign company to establish our own entity here, and together with the Philippine government, will strive to bring the best of our global knowledge, technologies and infrastructure to the domestic market.”