New ASEAN transport links set to transform trade

Indonesia is cementing strong and growing trade ties with the Philippines, following the opening of a new roll-on/roll-off (ro-ro) route, a flagship trade link aiming to boost regional connectivity, reduce travel times and costs, and support ASEAN Economic Community (AEC) integration. The new route offers significant benefits to both countries, and should be an important catalyst for new AEC and bilateral trade growth.

BACKGROUND: The ASEAN Highway Network, or the ASEAN Ro-Ro Initiative, is a regional project aiming to establish an integrated highway and maritime trade network. The project was initiated following the publication of the 2007 AEC blueprint, a framework for ASEAN members’ integration into a single market and production base. The Asian Development Bank reports that the initiative should see the development of ro-ro routes using vessels designed to carry rolling cargoes vehicles – which do not require cranes, cargo-handling labour or specialised equipment to offload. Ro-ro transport can significantly reduce the time and cost required to access port services, and ship goods and people, and is widely used in Europe and East Asia. Japan, South Korea and China have 21 established ro-ro links.

The Philippines-based South-east Asian Regional Centre for Graduate Study and Research in Agriculture reports that the Philippines and Indonesia are designated “co-shepherds”, with the initiative included among 15 ASEAN flagship, or priority, projects slated for development. The first ASEAN ro-ro route, connecting General Santos City and Davao on Mindanao to Bitung in northern Indonesia, was opened by President Joko Widodo and the Philippines’ President Rodrigo Duterte on April 30, 2017. Operated by the Philippine’s Asian Maritime Transport Corporation (AMTC), the M/V Super Shuttle Roro 12 offers capacity for 500 twenty-foot equivalent units (TEUs). It is expected to reduce the journey time on the Davao-General Santos City-Bitung route from between three and five weeks to just 36 hours, as cargo will no longer pass through Manila and Jakarta. The route operates on a weekly schedule, with the AMTC reporting that each journey costs P10m ($203,000), while shippers will pay P34,713 ($706) per TEU, compared to P109,098 ($2220) per TEU previously.

TRADE BENEFITS: The ro-ro link is expected to garner significant benefits for trade stakeholders in both counties. Trade between the Philippines and Indonesia has grown rapidly in recent years, with Indonesia’s Ministry of Trade reporting that total bilateral trade rose from $4.5bn in 2012 to $4.6bn in 2015 and then reached $6.09bn in 2016, increasing by 32.3% in 2016 alone, and 22.2% year-on-year (y-o-y) in the first six months of 2017 to $4.7bn. Indonesia maintains a healthy and growing trade surplus with the Philippines. Total annual export receipts rose by 42.2% between 2012 and 2016 to $5.3bn, while imports have expanded only marginally, rising 2.8% to $822m during the same period. Exports increased a further 25.6% y-o-y in the first eight months of 2017 to $4.2bn. Indonesia’s trade surplus with the Philippines has grown from $2.9bn in 2012 to hit a five-year high of $4.5bn in 2016, and jumped 30.4% y-o-y in the first six months of 2017 to reach $3.6bn.

MORE TO COME: Local media reported in March 2017 that Philippines-bound exports including charcoal, coffee beans, mature coconut and cement are forecast to rise. Imports of animal feed, fertiliser, construction materials, ice cream products, poultry, fresh fruits and synthetics will likewise benefit from shorter travel times and lower transport costs. Although toys, housewares, pharmaceuticals and fresh fruit shipments are currently restricted due to some quarantine and trade issues, the AMTC told local media in May 2017 that the Philippines is still negotiating the right to export fresh fruits, which are the primary export of Mindanao.

In addition, Ramon Lopez, trade secretary of the Philippines, announced that major corporations including CDO Foodsphere, San Miguel Corporation, Franklin Baker, Unilever, FEMSA Coca-Cola and ACS Manufacturing have also expressed interest in using the new route.