Freeing the ports

Here's part of the summary of Patunru, Nurridzki, and Rivayani (2008) that would appear as a chapter in D. Brooks and D. Hummels (eds), Infrastructure's Role in Lowering Asia's Trade Costs: Building for Trade (Edward Elgar). And yes, I'm happy with DPR's decision to pass the new maritime law that scraps Pelindo monopoly (Bisnis Indonesia today, 8/4/2008).

The study finds that there are some important trade-offs in choosing ports. Based on the survey, the implementation of certain regulations might affect port users to choose another port. Importers located in the hinterland of Tanjung Perak Port may prefer Tanjung Emas Port since customs in the latter is less strict than the former. This could imply on extra transportation cost since Tanjung Perak Port is relatively more distant. Another trade off is between location and safety in delivering the cargoes. Geographical condition could prompt the exporter to choose the more distant port to ensure that the cargoes are delivered safely.

Currently competition is not evident among ports in Indonesia. This is due to the fact that all ports are controlled by one authority, IPC. However, users demand that ports operate more efficiently. A certain degree of competition in port handling services might be needed to drive services providers to improve their performance. Higher competition could lead to more options for port users and in turns might alter their decision in favor of more efficient ports. In addition, the competition among ports is likely to be contagious to the hinterlands as they would themselves compete over the ports.

If the control of two ports falls into two different private bodies, the competition between the two ports is more likely. However, given the public nature of port services, privatization might have to be done gradually. A few key ports in Indonesia have taken the course partially and it is expected that the improvement continues to other ports as well. Obviously port competition is relevant only within a certain limit of geographical areas, as distance is a key factor in choosing a particular port. This implies that complete privatization of all ports are not necessary. Priority should be put on the most important ports.

However, drive to competition should also be seen as an opportunity to improve "soft infrastructure" with a focus on increasing efficiency. For example, privatization as a means to foster competition will force the port management to cut unnecessary clearance process and to eliminate any illegal collection.

The study recommends the authority to encourage competition among key ports in Indonesia. This might be achieved by gradually minimize the authority of IPC to manage the ports. One suggestion is giving opportunity for private operators to provide services to shipping lines and cargo owners. As of the time of writing, the government is preparing a draft of a new shipping law (UU Pelayaran). One of the issues that is being considered is the movement towards more competition and away from monopoly.