How Omnibus Law Liberated Shipping Industry in Indonesia for Foreign Investment

As the world’s largest archipelago surrounded mainly by water, Indonesia is dependent on sea transportation for international trade, making it an integral part of Indonesia’s trading regime. Unfortunately, there are still prominent barriers that hamper large volumes of trade conducted. These factors include deficiency in the infrastructure that leads to congestion at current ports. The congestion exerts an upward push on the logistical costs for domestic and international transport.

The Covid-19 pandemic has also impacted the otherwise indubitably growing shipping business, as it sees a decrease in the number of containers that passed through the Indonesian ports. High logistical costs are often influenced by the inefficient flow of goods from and to the ports due to the speed of administrative processes and the physical movement of goods.

The Growth Drivers of Indonesia’s Shipping Industry

The Indonesian National Single Window System (INSW) is a newly introduced system that overcomes the significant bottlenecks in the shipping industry, which plays a role in the downward slope of the Indonesian economy. The INSW system is an integrated information center that allows vendors to track all logistics and permit-related progress. In 2016, the government lifted ownership bans for the retail and wholesale sectors, opening it to 100% foreign ownership.

Aside from efforts by the government, companies have also started utilizing various technologies such as GPS tracking, Radio Frequency Identification (RFID) Tags, and control towers. Newer technologies such as Automated Storage and Retrieval System (ASRS) warehouse, cargo management systems, and platooning have also gained a lot of traction. They are used to diminish paperwork and reduce the time taken for procedures.

Understanding Indonesia’s Sea Transportation Strategic Plan

President Joko Widodo is firm on his intent to bolster investments and create job opportunities. The administration has been streamlining several regulations and addressing the barriers that often affect foreign investment to realize that intent. This intent stretches by passing Law no. 11 of 2020 regarding Job Creation known as the Omnibus Law, which sees through 60 articles
amended in Law No. 17 of 2008 regarding Shipping (hereinafter referred to as “Shipping Law”).

Also, the Minister of Transportation (MoT) enacted MoT Regulation No. 80 of 2020 regarding the Strategic Plan of the MoT for 2020-2024 (hereinafter referred to as “Regulation”). The Strategic Plan involves simplifying various rules and bureaucratic processes to ease sea transportation. This Regulation contains goals to be achieved within the next five years and acts as a reference and guide for the Ministry’s plan for the years to come. Furthermore, the Regulation also crystalizes the government’s intent to build nationwide connectivity for the maritime sector.

How Omnibus Law Liberated Indonesia’s Shipping Industry

Amongst others, the Regulation focuses on establishing nationwide maritime connectivity and streamlining the bureaucracy related to sea transportation by introducing several new platforms such as the Shipping-Navigation Aid. In addition, the provision of competitive infrastructure – or ports, vessels, and human resources – are also at the top of the MoT’s list. They plan on creating an integrated port hub of the seven ports mentioned below:

• Kuala Tanjung (North Sumatra);
• Batam (Riau Islands);
• Tanjung Priok (Jakarta);
• Tanjung Perak (East Java);
• Makassar (South Sulawesi);
• Bitung (North Sulawesi); and
• Sorong (West Papua)

No More Capital Requirement

The new Regulation effectively revokes older regulations that previously stipulated the minimum issued and paid-up capital requirements for sea transportation and port operator companies but still prevails for some companies. The capital requirement of a company has much to do with the registration of the shipping company. Our team at Cekindo will assist in establishing any shipping companies by guiding them through the company registration process.

Licensing And Certification Centralization

Since the main aim of the Omnibus Law is to increase efficiency and ease of doing business, the Indonesian government attempts to address the issue of inefficient bureaucracy and licensing process by implementing the Online Single Submission (OSS) System. Business licenses and grants concerning the carriage of goods are no longer issued by the MoT and are now issued by the Central Government. This centralization of licensing, which drastically reduces cost and time, would benefit foreigners looking to conduct business in Indonesia.

Foreign Vessels In Indonesia

An additional provision added to the Shipping Law now allows for using foreign-flagged vessels in particular activities through the Omnibus Law. The MoT also released a new regulation, MoT Regulation No. PM 92 of 2018, which effectively removes the deadline for the utilization of foreign vessels.

General Agent For Foreign Shipping Companies

More freedom is also awarded to foreign shipping companies as they are no longer required to appoint a national shipping company as a general agent to conduct shipping activities. Through Government Regulation No. 31 of 2021, foreign shipping companies can merely appoint a shipping agency company that is not required by the law to own a vessel of its own. Thereby, successfully reducing barriers for foreign shipping companies to conduct business in Indonesia as they are now permitted to partner up with a more significant number of Indonesian companies who can act as agents.