ASEAN KEY DESTINATIONS
Local companies expected to earn $9 billion from CIF scheme
Indonesia: Local shipping and insurance companies may potentially reap up to US$8 billion and $1 billion per year, respectively, from exporters changing their delivery system as encouraged by the government.
Director general for national export development Nus Nuzulia Ishak said on Friday that although it was not mandatory, exporters were expected to adopt the cost, insurance and freight (CIF) delivery system, instead of the currently widely used free on board (FOB) system, in coming years.
“We expect that [...] our local shipping and insurance firms will be ready [to provide quality services],” she stated at a press conference.
Most Indonesian exporters currently use the FOB delivery system, through which they pass the risk of loss onto buyers who pay the cost of insurance and freight.
Exporters previously argued that many of them were willing to shift to the CIF terms of delivery, which was revealed early last year, but were unable to move forward with it due to the lack of variety in domestic vessels that could meet international shipping standards, including meeting the requirements of loading and unloading facilities at a destination port.
Indonesian National Shipowners Association (INSA) chairwoman Carmelita Hartoto said only 10 percent of the country’s exporters and importers currently used local shipping services.
“We expect that local shipping firms will be able to serve 15 percent of Indonesian exporters and importers by 2015, and 30 to 50 percent once many exporters adopt the CIF system,” she said at the same event.
Indonesia’s shipping industry had improved in terms of both quality and number, with a total of 12,774 freight ships last year compared to the 11,628 in 2012, Carmelita said.
However, she urged the government to provide fiscal incentives for the industry to enable local companies to compete with foreign shipping firms in the export-import market.
“Currently, we have to pay 10 percent value-added tax for loading and unloading services, forcing us to charge customers $100 more compared to most foreign firms,” she said.
“If the tax is abolished and the CIF system is made obligatory, we are pretty sure that many exporters will use only national-flagged freight ships to transport their goods.”
Nus of the Trade Ministry said that her office would discuss the matter with relevant ministries, Bank Indonesia and associations before introducing a policy requiring all exporters to use the CIF system.
In the meantime, the government would calculate the real potential value that the local shipping and insurance industries could capture if the CIF system was made obligatory, Nus said.
As of March 1, all exporters are required to fill out CIF-based export declaration documents, stating their estimated insurance and freight costs, even though not all of them use the delivery system.
Estimated freight and insurance costs — which are determined by the Trade Ministry — may vary, depending on the export destination.
The freight cost for exportation to ASEAN countries is 1.53 percent (of total transaction), while it is 2.03 percent for exportation to Australia, 4.05 percent to Africa and 5.03 percent to Europe.
Indonesian Employers Association (Apindo) chairman Sofjan Wanandi said earlier that the introduction of the CIF system would help reduce the current-account deficit.
The Indonesian Chamber of Commerce and Industry (Kadin) has thrown its support behind the adoption of the CIF system by exporters. (koi)
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