Philippines’ Role in Global Shipping

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(Image Courtesy: Manila Livewire)

In December 2017, Fitch Ratings said that the outlook for the global shipping industry would remain negative for 2018, and it did not expect market fundamentals to substantially improve because of lingering overcapacity. Even if the current outlook is rather bleak,  Philippines is showing a positive trend in some parts of the industry, with many opportunities for improvement.

Strength

In their “The Philippines in the Shipping Global Value Chain” study, commissioned by the Philippine government and the United States Agency for International Development (Usaid) last year, researchers from Duke University said the “Philippines has been capturing [a sizable]global ship production market share since the global recession.”

“Shipbuilding completions in the Philippines have grown from 15 ships in 2006, accounting for 335 gross tonnage (GT), or 0.6 percent of the world’s tonnage, to 42 ships in 2015, accounting for 1,865 GT, or 2.8 percent of the world’s GT,” they added.

“Based on GT, the Philippines has been the fourth largest producer of ships since 2010, and has maintained this position through 2015 (it was sixth in 2009),” they said.

In its 2017 review of the local maritime industry, Unctad said the Philippines had a 4.2-percent market share in container ships, allowing it to join South Korea, China, and Japan as the world’s top four shipbuilders. The figure is attributed to the construction of more shipyards in the country, as well as its cheap labor costs and strategic location.

This persuaded many foreign companies to transfer their shipbuilding operations here, setting up shipyards and building world-class vessels—mostly container ships, bulk carriers, and passenger ferries—for export.

Connectivity

Connectivity has great significance in the Philippine shipping industry, especially since the country is an archipelago.

The country has been showing continuous growth in its Liner Shipping Connectivity Index (LSCI) since 2012.

How well countries are linked to global shipping networks based on their maritime transport sector is determined by their LSCI score.

Established in 2004, the LSCI has five components: the number of companies; number of services provided; number of ships; their container-carrying capacity in 20-foot equivalent units (TEU); and size of the largest vessels that provide services to and from each country’s seaports.

As an important determinant of trade costs, studying how shipping connectivity works will enable lawmakers to improve the country’s trading edge. Moreover, an improved LSCI has a direct, positive impact on trade volumes, according to numerous studies. Unctad data show that the Philippines is among those with a strong membership in the network of global container shipping services. The country ranked 61st out of 159 countries in the 2012 LSCI, and this is expected to improve because of the shipping industry’s growth in the last few years.

The Philippines’ top 10 partners in the bilateral connectivity index in Unctad’s most recent report are, in descending order, China, South Korea, Hong Kong, Singapore, Taiwan, Japan, Malaysia, Thailand, Belgium, and the United States.

Trade Status

Last year, international shipping companies in the Philippines paid about P8.2 million in fees to the Maritime Industry Authority (Marina) and P60 million in withholding tax, as required by the Bureau of Internal Revenue (BIR).

Also, the country registered a +4.6 growth rate in the national fleet in 2016, with bulk carriers, general cargo, and container ships comprising most of it.

The Philippines is No. 18 among leading flag registrations in 2017, with a 1.62-percent share in world vessels, according to Clarksons Research data. This is a 3.63-percent drop in weight tonnage (DWT) growth from 2016’s figure.

According to Marina, the 10 leading countries have these in common: lack of nationality requirements among the crew and nationality share in ownership, requirement for the designation of recognized organizations in issuing statutory certificates; and use of incentives and online processing.

In contrast, the Philippine registry requires a 100-percent Filipino crew; 60 percent-40 percent foreign equity participation; and the physical presence of applicants.

Challenges

The Philippines may have a growing shipbuilding industry, but growth in international shipping is slowing and even retreating. The problem lies in the legal impediments imposed.

In Duke University’s study, researchers said that, “aside from inadequate infrastructure, the competitiveness of the international shipping industry is affected by the current tax situation. According to the international shipping community, the tax environment is too harsh and not in line with the World Trade Organization’s (WTO) principle on non-discrimination,”

“In 2013, Republic Act 10378—“An Act Recognizing the Reciprocity Among Nations as Basis for Granting Income Tax Exemption to International Ships”—was passed by the Philippine government. It exempted international carriers from paying the 3-percent common carriers tax imposed on passengers, but not on cargo,” it added.

Neither are they exempted from the 12-percent value-added tax for transporting passengers. The government attempts to overcome this with Marina’s Maritime Industry Development Plan (MIDP), which it will implement within a decade.

Last December 14 saw the year-end meeting between Marina Director for the Overseas Shipping Sector (OSS) Jean Ver P. Pia, and representatives of the overseas shipping sector. She discussed the importance of cooperation between members of the sector and authorized government agencies to realize common objectives. This was taken up as the sectoral framework and the OSS national agenda was presented to the attendees.

(Source: Manila Times)

Sea News, April 4