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The cabotage principle plays an important role in maintaining the balance between ship tonnage supply and the cargo transportation demand, since in practice, shipping companies will only invest in Indonesian-flagged vessels
when long-term contractscommitments from cargo owners has been secured. The use of Indonesian-flagged vessels for all transportation modes in Indonesian waters will increase the
utilization rate of domestic vessels and in turn will create more economic return for domestic industry players. The direct impact of the implementation of cabotage principle on the Company is reflected in the relatively high
vessel utilization rate and the fact that nearly all of the vessels currently owned have been delegated to definitive charter contract, whether in the form of time charter or simultaneous spot charters. In terms of competition, the
implementation of the cabotage principle has filtered the number of industry players with the restriction of foreign players from participating in vessel charter tender when domestic players have demonstrated the ability to provide
vessels with certain specification. In the future, the implementation of cabotage principle will follow the footsteps of the United States Government,
which implemented the US Jones Act stipulating that all US domestic shipments shall be carried out by US- flagged vessels, and such vessels shall be built in American shipyards and owned by American citizens, with a
minimum ownership limit of 75. Therefore, in the future, the Company’s shipyard will receive significant number of new buildingrepairdocking orders from Indonesian-flagged vessels. The same applies for the vessel
chartering segment, which will grow in line with the growth in domestic oil and gas demandneeds. 3. The Company‟s competent operational management
The Company’s operational management system has accommodated various terms and conditions issued by various international shipping operational standard agencies as previously discussed, that is certificate of
International Safety Management from International Maritime Organisation, Tanker Management Self Assessment from OCIMF Oil Companies International Marine Forum and ISO 9001:2008 and ISO 14000 for
shipping companies quality control management. The numerous certifications obtained in addition to the ship classification issued by national and international classification bureau allows the Company to be accepted as
partner in ship procurement process for international oil companies.
In addition, the Company’s group is led by a group of people in the managerial line with various experience and competencies in their fields, with more than 30 years experience in the national and international shipping
industry and good relationships with various parties in the domestic shipping system, such as the Government and maritime authorities, oil and gas companies in Indonesia, shipping industry association such as the
Indonesian National Ship Owners Association INSA and Indonesian Shipbuilding and Offshore Association Ikatan Perusahaan Industri Kapal dan Lepas Pantai Indonesia IPERINDO.
4. Long-term contracts with customers
The majority of the Company’s fleet are allocated to time charter contracts with cargo owner, with a charter period ranging from 1 – 10 years. The contracts guarantee the Company’s vessel utilisation rateusage efficiency be
maintained at a high level. As previously discussed in Chapter Management’s Discussion and Analysis, the comparison between vessel
charter revenue using the time charter method and spot charter method is 74.87 : 25.13. 5. Good reputation and more than 30 years experience in the shipping industry
The Company’s Business Group is widely known in the national and regional shipping industry. The Company’s operational history started in 1970s, when the Company started to provide oil and gas construction services for
Pertamina. Customer satisfaction and good quality service from the Company since the earliest day of its establishment has created good reputation for the Company. Various compliance to ship technical specification
as previously stated demonstrates the relation between the Company’s quality control and the reputation it gained.
6. Good relationship with main customers
Since the early days of the Company’s Business Group’s establishment, management has committed to maintaining good relationship with various parties, in particular, the Government and maritime authorities, vessel
chartering business circle, and ship components and equipment providers, as well as good relationship with customers.
7. Economies of scale for cost efficiency
With the continuously growing size of its fleet, the Company is able to improve its operational cost efficiency economies of scale. Each year, in accordance with its capital expenditure budget, the Company increases the
number of ships as the amount of investment increases. The increase in number of ships will spread the overheadfixed cost, therefore resulting in lower vessel chartering overhead cost per ship owned.
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8. Vast vessel operational area, covering Indonesian domestic routes and South East Asia, India, and the Middle East routes.
Despite of the guarantee from the implementation of cabotage principle in Indonesia, the Company continuously strives to expand its operations to countries other than Indonesia as demonstrated by the opening of the
Company’s shipping routes to areas covering the Indonesian, South East Asia, India and Middle East waters.
3.2 Competitive advantages in shipyard business
1.
Highly strategic shipyard location
As previously discussed, there are several geographical advantages of the Company’s shipyard which is located in Tanjung Balai Karimun, Riau Islands as concluded below:
a. Total shipyard size of 219 hectares, which can accommodate simultaneous building activities of several ships with large size and capacity, up to 300,000 DWT. The average size of shipyards located in the
surrounding areas and in Singapore is around 50-60 hectares. b. Length of water face overlooking the sea of approximately 1.35 km. This condition is very helpful in
planning shipyard expansion and construction of the docking area for ship maintenance activities and new shipbuilding.
c. Depth of water draft of 12 metres, which allows for dockingbuilding of ships with large capacity up to 300,000 DWT in size. Field data indicated that the average draft of shipyards operating in Indonesia is
only around 5-6 metres. d. The location of the Company’s shipyard is situated in Malacca Strait, one of the busiest international
shipping lanes in the world, therefore ships repaired in the shipyard do not required significant amount of funds for mobilization and demobilization.
2.
FTZ Incentive
Tax, custom and excise incentives as the Company’s shipyard is located in the Free Trade Zone, which offers various convenience, for example, expeditious clearance or custom duties process for overseas, and cost wise, it
is lower for all type of works carried out in the shipyard. Cost of shipbuilding carried out in the FTZ will be lower compared to shipyards operation in non-FTZ. This
condition provides additional opportunities for the Company to compete with other shipyards in terms of ship construction cost and sales price.
3. The location of the shipyard which is in close proximity to Singapore.
There are other advantages from the shipyard’s close proximity to Singapore, i.e., easy access to reliable and experienced contractors to work on projects in the shipyards and time efficiency for the purchase of ship
components, which often need to be imported from the neighbouring countries, particularly Singapore.
4. The Company‟s Revenue in the Past 3 Years
in USD
Type of Revenue 30 June
31 December 2014
2013 2013
2012 2011
Vessel Charter Services
Time charter 37,223,934
27,720,128 61,696,073
52,783,473 44,778,512
Spot charter 12,493,191
18,340,390 40,801,995
18,172,124 20,353,255
Shipyard 5,053,909
221,904 3,906,506
435,876 -
Total Revenue 54,771,034
46,282,422 106,404,574 71,391,473
65,131,767 5.
Business Strategies
The Company’s business strategies in conducting its business activities are as follows:
a. Vessel chartering business expansion
The Company will strive to develop the vessel chartering business organically through carefully planned addition of vessels, based on several considerations, among others: 1 annual vessel procurement budget, 2
development of a market intelligence system, the main function of which is to capture all information concerning future vessel requirement plan, 3 optimalization of marketing and administration professional function in
participating in vessel charter tender, which often requires involves long documentation process.
