Commodity exporters say that there are still snags blocking a government plan to introduce CIF shipping terms for freight.
The plan calls for a shift from FOB shipping, meaning free on board, to CIF, meaning cost, insurance and freight.
Derom Bangun, the chairman of the Indonesian Palm Oil Board (DMSI), said that local seaports had a limited ability to process overseas shipments, resulting in higher charges set by local shipping firms.
This has been the main reason for maintaining the FOB system, which covers transportation of the goods to the port of shipment and loading costs, as opposed to CIF shipments, which include shipping charges, among other things.
“Our containers must wait for a quite a long time before commodities are loaded on ships,” Derom told The Jakarta Post. “This has prompted local shipping firms to quote high demurrage [delay penalty] fees to compensate for extra days of storage in ports.”
According to a DMSI example, a palm oil exporter using Belawan Port in Medan, North Sumatra, a key departure point for palm oil exports, can pay more than Rp 100 million (US$10,234) a day in demurrage for their containers due to the large volumes per shipment.
Exporters would have a greater responsibility over the quality of the commodity under the CIF system because they would assume the risk of loss and pay for insurance and freight, he noted. “With the CIF system, we hold the responsibility until the commodities reach our buyers.”
Most local exporters currently send goods overseas FOB, transferring the risk of loss and damage to buyers, who cover insurance and freight.
The buyers, typically foreign companies, tend to partner with foreign shipping and insurance companies to receive the goods.
The government has recently encouraged a shift to CIF to create more opportunities for the local shipping, banking and insurance industries.
Exporters of commodities such as palm oil, rubber and coal are among the firms expected to soon make the shift to CIF, according to the Indonesian Employers Association (Apindo).
The Indonesian National Ship Owners Association has said that shipping cargo FOB has led to Rp 120 trillion in fees paid to foreign firms.
Derom said that CIF shipments currently accounted for 12 percent of overall palm oil imports. “We need a transition period of between one and two years to reduce the major bottlenecks that hamper the use of the system.”
Indonesian Rubber Association (Gapkindo) chairman Daud Husni Bastari agreed, questioning the readiness of local shipping companies and seaports to ship rubber with CIF terms of delivery.
In most seaports near the nation’s rubber producing regions, such as Boombaru Port in Palembang and Belawan in Medan, it has been difficult to find local ships, leading to long waits that have increased costs due to low loading capacities.
“Exports of rubber to China, for example, mostly depart from Belawan Port, but most ships transporting imports from China come to Tanjung Priok Port [in Jakarta]. We cannot use these ships, meaning we cannot push down costs significantly,” Daud said.