Indonesia amended its Shipping Act 1992 back in 2008. All commercial vessels navigating and trading along its coast between two or more ports within its territory must be registered in Indonesia or be a Indonesian majority owned joint venture.
The Indonesian Shipowners Association called for this amendment in response to data showing that 65% of 150 million tons of domestic cargo a year were shipped by foreign flagged vessels. In addition to restricting all domestic shipments of 13 specified commodities, including rice, crude palm oil, coal, oil, wood products, fertiliser, cement and fresh produce to Indonesian flagged vessels, the Maritime Law No. 17 of 2008 provides operating subsidies for vessels used on selected inter-island routes, construction subsidies for vessels used for domestic trades, and requires that crews be Indonesian citizens. The new law does not apply to voyages direct from a foreign port.
However, the announcement by the Transport Ministry that these new amendments were to have come into effect in January 2011 caught many in the shipping and oil and gas industries by surprise. The Transport Ministry has since delayed implementation until May 2011 and intends to offer a 3 year exemption for foreign-owned rigs and other specialised oilfield vessels. Given the lack of local vessels in oil and gas upstream and downstream activities, there have also been further reports that a further exemption will be offered, with the support of the government.
Analysts foresee that unless Indonesian shippers invest at least US$4.5 billion to expand their domestic shipping fleet prior to the new law being implemented, it will initially result in a shortage of dry bulk-cargo vessels and double-hull tankers which could lead to higher freight rates.
Singapore's ship owners are taking measures in anticipation of this new law coming into force. One coal shipper, for example, has begun a sale and leaseback scheme, whereby an Indonesian carrier registers 16 of its vessel under the Indonesian flag. It has also established Indonesian companies to provide management consultancy and marketing services.