New insurance rules in Indonesia are holding back shipping orders, ICMA claims

Buyers of Indonesian coal and crude palm oil have been holding back orders after the Indonesian government issued new shipping rules for the products that would restrict transporters to Indonesian insurers and to Indonesian vessels Hendra Sinadia, executive director of the Indonesia Coal Mining Association (ICMA), told reporters on Thursday.

New Indonesian rules enacted last October required coal and palm oil exporters from April 2018 to use Indonesian-flagged vessels and Indonesian insurers, to boost the role of the archipelago’s shipping industry in its export market.

However, guidelines on implementing the rules and possible exemptions have not been released. “There was some information, and several potential buyers from abroad put on hold making any new contracts,” Sinadia said. Adding that the new rules were “dangerous” because they could affect export volumes and state revenues if shipping contracts had to be renegotiated to shift to so-called cost, insurance and freight (CIF) contracts from free-on-board (FOB) contracts.

Under CIF contracts, the seller is responsible for the shipping arrangements and must buy insurance to protect the cargo against losses during the voyage. Under FOB contracts, the buyer procures the vessel and is responsible for all shipping costs.

Indonesia Palm Oil Association (GAPKI) Secretary-General Togar Sitanggang said last month that Indonesian insurers might lack the required capacity.

Oke Nurwan, Director General of Foreign Trade at the Indonesian Ministry of Trade, said that, while most domestic shipping used Indonesian-flagged vessels very little was exported on Indonesian ships and that “it can’t be like that anymore”.