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ince 2014, the Indonesian government has promoted its tol laut (sea toll) policy to move cargo from land to sea wherever possible. Creating a thriving roll-on/roll-off (ro-ro) shipping industry is one of the cornerstones of this policy.

Ro-ro ships are huge floating truck parks, with no need for cranes or other lifting equipment — the trucks or trailers simply drive or are pulled on and off the ship. This means that very little handling equipment or port infrastructure is required. Ro-ro is cost efficient on short-sea routes and beats land transport for quicker lead times.

Since the 1960s, ro-ro has been a huge business in Europe and Japan. Truck fuel, highway tolls, traffic congestion and driver salaries mean that road haulage is a high-cost business.

In addition, trucks produce harmful emissions and significant road damage that could be avoided by moving cargo to the sea; this is especially true when trucks are overloaded, which is a common practice. But for ro-ro to be a success in Indonesia, the tariff offered to users needs to be competitive to incentivize them to use ro-ro instead of road haulage.

To be competitive, ro-ro operators need to minimize their three key costs, which are fuel, port charges and ship capital cost. Introducing policies to lower these costs should be the government’s priority if it wants to create a thriving and successful ro-ro industry with participation from the private sector.

Recently, the Transportation Ministry put in place a ro-ro subsidy program to encourage trucking companies to use the two ro-ro/passenger ships that currently sail between Jakarta and East Java, with an eye on reducing the approximately 12,000 daily truck movements across Java’s northern coastal road.

The government is in good company in this regard; subsidies and incentives for ro-ro and related water-based transport modes are prevalent in Europe as well.

In fact, under the European Union’s “Connecting Europe Facility”, the EU is spending €22.4 billion (US$27.22 billion) between 2014 and 2020 to promote what they call the “Motorway of the Sea” and other efficient transport projects.

A programmatic and transparent incentive scheme, perhaps a “Connecting Indonesia Facility” modeled on the European program, would be welcomed by transporters in Indonesia.

There is, however, a lower-cost option: the Indonesian government can put in place policies and directives to address each of the three principal ro-ro expenses that are artificially too high.

By taking the following three steps, the government can ensure that the tol laut policy has a clear chance for great success even without a subsidy program.

First, the government should ensure state-owned ports offer reasonable port charges to ro-ro operators. Most of the ports in Indonesia, including those with ro-ro facilities, are state-owned enterprises.

On the current route between Jakarta and East Java, the ports are currently charging more than Rp 1 million ($73.50) per truck to cross their quay and use the parking area for a few hours on both ends of the route. This does not even include the cost of loading the trucks and trailers on and off the ship.

The current port charge per truck is nearly 30 percent of prospective revenue and is quite simply unaffordable for ro-ro operators. The same service in Malaysian ports costs less than a third of this rate. The government should authorize and encourage the ports to reduce their charges for ro-ro cargo in line with rates at other ASEAN ports.

Second, the government should allow ro-ro operators to pay market prices for fuel. In most global shipping markets, the price for ship fuel (called “bunker”) is set based on regional trading hubs. If bunker is bought at the hub itself, the price is the base price for the market; if bought at a distance from the hub, the price is the market price plus the cost of transporting fuel from the hub to the place where the ship takes on the bunker.

The relevant hub for Indonesia is called “FOB Straits”, and is centered on Batam, Singapore and Johor Bahru. The price paid for bunker in Jakarta should be the FOB Straits price plus the cost of transporting the bunker from the hub to Jakarta. Instead, the Jakarta price is much more expensive — typically $100 or more per ton higher than at FOB Straits.

As at this writing, for instance, according to shipandbunker.com, the cost for a ton of typical bunker at FOB Straits is $399. At Port Klang, in Malaysia, a ton costs $394. At Jakarta, the price is $570 per ton — a ridiculous premium to the hub market price considering the short transit distance between the hub and Jakarta.

Although the current operators of passenger ferry ships receive a fuel subsidy from the Transportation’ Ministry’s Directorate General of Land Transportation, cargo ro-ro operators do not need a fuel subsidy — provided they can buy bunker at a price that is determined according to international best practice.

Lastly, the government should allow operators to use foreign ro-ro vessels to launch new routes. Indonesia has a cabotage law, which means that ships trading between two Indonesian ports must fly the Indonesian flag, be at least 51 percent-owned by Indonesian individuals or firms, and be 100 percent-crewed by Indonesian nationals.

Still, for something as important as creating the tol laut, which eventually will lower prices of goods for consumers outside of Java, the government should allow ro-ro operators a period of three to five years to charter foreign ro-ro vessels to test new routes. This would allow operators to pay “rent” for the ships instead of having to buy them, and would mean that ro-ro operators would have a high incentive to try new ro-ro routes, such as from East Java to Makassar, South Sulawesi, or from Makassar to Ambon in Maluku.

Having to buy a ship to test a new route is unusual. It means the whole process of building the tol laut slows down dramatically, as investors must be convinced to purchase a ship for an unproven route.

If the government can address the three issues outlined above, the need for direct subsidies and incentives to build a competitive and thriving sea toll will be decreased. With these easy fixes, government can facilitate the rapid development of ro-ro shipping across the archipelago, and trucking companies will have a real incentive to move cargo from road haulage to ro-ro.

Indonesia’s best and most plentiful infrastructure is the sea. It has no capital cost, it requires next to no maintenance, its useful life is forever, and new sea routes can be developed every day.

Promoting the tol laut is not only good public policy for Indonesia, it is also completely logical. As the government carefully prepares a long-term “Connecting Indonesia Facility,” the sea toll can get a head-start by the government taking the indicated actions so that ro-ro operators can operate in a free and fair market. The private sector stands ready to do its part.
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J. Scott Younger is international chancellor at President University and director of Nusantara Infrastructure Tbk. Brad Gordon is the co-founder and a partner of AIM Infrastructure Limited, an ASEAN-focused infrastructure development, investment and advisory firm that is developing Indonesia’s first ro-ro business with pure cargo roll-on/roll-off vessels.