The Philippine Institute of Development Studies (PIDS) is pushing for the phased liberalization of cabotage regulation to provide the much-needed competition in the local shipping sector which is crucial to reduce transport cost. A PIDS study revealed that domestic shipping cost is high due to lack of meaningful competition and the weak incentives for operators to modernize brought about by the protection long enjoyed by the local industry players through cabotage restrictions. While there are other reasons for higher shipping cost such as inadequate port facilities and inefficient port practices, these do not invalidate the need to lift cabotage restrictions, the study said. "It is high time that policy makers seriously review and consider lifting cabotage restrictions in a phased-in and well-planned approach,” said PIDS president Gilberto Llanto and senior research fellow Adoracion Navarro. "There is a need for MARINA to study very closely the likely effects of the removal of cabotage restriction on domestic shipping, trade and movement of passengers and cargo,” they added.
Llanto and Navarro pointed out that the study can examine whether or not a flexible cabotage policy that applies only to certain tonnages of cargo and passenger volumes could be pursued, and whether the reform path should involve a phased cabotage liberalization accompanied by regulatory reforms in the ports sector. Such reforms include the establishment of an independent port regulator, liberalization of port management, and greater private sector participation in port development. The PIDS study also recognized the various reservations to cabotage liberalization such as cut-throat competition and the loss of jobs arising from closure or weakening of domestic shipping and allied business activities. It, however, believed that fears of foreign players immediately dominating the local shipping industry may be unfounded. Market limitations such as market size, lack of familiarity with the domestic markets and institutional barriers may not allow foreign shipping companies to do business in all sectors of coastwise trade, it noted.
The study underscored the need for domestic shipping operators to modernize their fleet and operations to be more competitive while foreign competitors are undergoing market adjustments. "Competition provides a credible threat to those who refuse to modernize and maintain efficient operation,” it said. While there are still countries that maintain closed cabotage regimes, the general trend is to move toward a more open cabotage policy, the study said.//
