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Protectionism Makes a Comeback in International Shipping

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Russian bulker arrives at Dikson to load a VostokCoal cargo (VostokCoal via Barents Observer)

By MarEx 2018-02-14 15:58:00

In the last six months, two nations passed laws that will reserve certain export cargoes for their own shipping industries. Indonesia plans to require exporters to use Indonesian vessels for the carriage of crude palm oil (CPO) and coal, and Russia plans to restrict loadings of hydrocarbon cargoes at Northern Sea Route ports to Russian vessels. 

The details of these restrictions are not yet clear, but the proposed rules are attracting concern from international shipowners. Domestic cabotage restrictions are common, but it is unusual for a modern state to limit the nationality of vessels used in international trade. 

The new Russian law would appear to cover Sabetta, the seaport for Yamal LNG's icebreaking LNG tankers. These highly specialized vessels are operated by Russia's Sovcomflot, but none are Russian-built, Russian-owned or Russian-flagged. It could also affect VostokCoal, a giant project on the Taymyr peninsula that expects to ship tens of millions of tons of anthracite per year by 2025. VostokCoal's backers announced a major shipping contract with Danish firm Nordic Bulk Carriers last March. 

Despite the law's apparent restrictions, these giant contracts will likely remain in place. Russia's Duma included a loophole to exempt energy companies that already have contracted for foreign shipping services, sparing existing business arrangements.  

Danish Shipping, the industry association for Denmark's shipowners, recently met with Russian and Danish government officials to get more information on the new restrictions at Russia's Northern Sea Route ports. "We are concerned with the new Russian legislation. The meetings of the transport working group and the government council are therefore a welcome opportunity to discuss the new initiatives - and to create greater clarity for the industry about the scope and implementation of legislation," said Thomas Sylvest, senior advisor at Danish Shipping. Even if the law's immediate impact is limited, Danish shipowners are concerned that Russia's policy could set an example for other nations. "It's a regrettable signal to send to the world at a time when other nations are also starting to talk about protectionism," said Danish Shipping's executive director, Jacob Clasen, speaking to Danish industry outlet ShippingWatch. 

Uncertainty over Indonesia's cabotage laws

On October 31, Indonesia's Ministry of Trade enacted a regulation that will restrict export loadings of crude palm oil and coal to vessels controlled by Indonesian maritime transportation companies. It will take effect at the end of April, and international shipowners and Indonesian exporters are concerned about its impact. 

The Indonesian National Shipowners Association (INSA), one of the regulation's biggest backers, admits that implementation must be gradual to avoid disruption. INSA chairman Carmelita Hartoto said that to achieve the law's goals, government support and lower bank interest rates will be needed to build up the fleet of available vessels. For now, to roll out the new limits smoothly, INSA is working with the coal and palm oil associations to make a "roadmap" for the availability of Indonesian ships. The type, size and number of available vessels will be used to set the volumes that will be carried on Indonesian ships each month, ensuring that "export activities are not disturbed," he said. 

Whether disruptive to trade or not, it is unclear whether the protectionist measures are permitted under Indonesia's existing treaty agreements. In a recent letter to the Indonesian Ministry of Trade, the International Chamber of Shipping raised concerns about the regulation's compatibility with WTO requirements and with basic commitments to the freedom of maritime trade. In addition, the decree could increase shipping costs and reduce Indonesian export volumes, ICS warned, and could create an "unwelcome precedent" for other nations to follow.