In The News

Philippines Spearheads ASEAN Effort to Establish Regional RO-RO Sea Transport Network

September 22, 2010

The benefits of a connected and integrated Association of Southeast Asian Nations (ASEAN) are evident to many. In aviation, ASEAN is home to AirAsia, the world’s fastest growing airline in the past decade. To support this growth, ASEAN leaders have agreed to implement an open skies regime by 2015. In the Greater Mekong Sub-region, significant investments have been made in road infrastructure.

But connectivity in Maritime Southeast Asia remains a serious challenge. Thousands of scattered, small, and isolated islands face enormous barriers, such as high transport costs and poor access to local and regional markets that hamper both trade and tourism.

Source: REID Foundation Inc.

ASEAN is beginning to address these issues. In 2009, the ASEAN High Level Task Force on Connectivity was established to develop a “Master Plan on ASEAN Connectivity,” which the Task Force will submit to the 17th ASEAN Summit in October 2010 in Hanoi as its flagship project.

To this debate, the Philippines is contributing its successful experience with the groundbreaking “roll-on, roll-off” nautical transportation policy, which brought down the cost of shipping among the Philippine islands by 30 to 40 percent. RO-RO allows cargo to be driven directly on and off ships, eliminating the need for time-consuming and costly cargo-handling and port-side equipment. Technical assistance to the Philippine government is provided by the Research, Educational and Institutional Development Foundation, with support from The Asia Foundation and the United States Agency for International Development.

In a recent speech, Philippine President Noynoy Aquino strongly endorsed his support for greater ASEAN connectivity, saying that “The Philippines has major interests here, with its existing nautical highway – the RO-RO project. Once it is implemented, ASEAN connectivity will bridge our nation to our neighbors, shorten transfer distances, and open more economic opportunities for more people.”

RO-RO truck in the Philippines

A RO-RO truck drives onto a ferry in Cawayan, Masbate in the Central Philippines bound for Cebu.

The stubbornly persistent after-effects of the global economic crisis have highlighted a critical vulnerability in developing Southeast Asian countries like the Philippines. According to Asian Development Bank President Haruhiko Kuroda, the crisis has “exposed developing Asia’s over-reliance on extra-regional markets for both exports and capital flows.” Despite the precipitous drop in global export demand, especially from the West, extra-ASEAN trade still accounted for 75 percent of the region’s trade in 2009, according to preliminary ASEAN figures.

Even including trade with China, intra-ASEAN trade does not exceed 40 percent of total trade value. Such low regional trade numbers can be partly attributed to inadequate linkages between Southeast Asian countries, especially in Maritime Southeast Asia. Reliance on conventional shipping, which requires cargo consolidation to be commercially viable, forces ASEAN trade into a hub-and-spoke model biased toward long-haul international trade centered on the regional hub ports of Singapore, Hong Kong, and Taiwan’s Kaohsiung. Feeder ships from each country’s major ports, such as Manila or Jakarta, carry nearly all of the respective country’s sea-going trade to the regional hubs, bypassing smaller secondary ports that cannot mount the requisite amount of traffic to support a port call. Areas very close to each other with strong trade potential, such as Northern Sulawesi in Indonesia and Mindanao in the Southern Philippines, separated by only 250 nautical miles, might not have any formal direct trade because of insufficient volumes to fill ocean-going ships. The indirect routing increases costs, time of delivery, and pollution.

While ocean-going container ships in the region require a minimum capacity of 250 TEUs (20-foot equivalent units, standard unit of measure for shipping containers) to be commercially viable, the faster turn-around time of RO-RO-capable ships allows shipping lines to operate smaller vessels with capacities ranging from 100-200 TEUs, opening up the opportunity to service secondary ports with less traffic and more rudimentary port facilities. Improving trade opportunities in areas with limited or no access to international trade lanes greatly expands their ability to participate in the regional economy and spreads the benefit of trade beyond the handful of major port hubs, similar to the low-cost carrier phenomenon in aviation.

It’s important to note that the envisioned regional RO-RO network would act as a complementary logistics backbone targeting underserved areas, rather than a replacement of the existing shipping network. For example, to help diversify Brunei’s severely limited trade links – currently, its only shipping link is with Singapore, which drives up its cost of importing agricultural products – Brunei’s Transport Ministry has proposed initiating trade operations between the fertile growing regions of Mindanao and Brunei’s oil sector, which accounts for nearly half of the nation’s GDP. A significant percentage of Southeast Asia’s developing economies consist of agriculture; the decentralization effects of RO-RO shipping would expand the types of agricultural products feasible for international trade, and expand the markets available to rural farmers.

RO-RO shipping offers a path to increasing intra-regional trade and reducing dependence on extra-regional markets. RO-RO, along with customs immigration quarantine and security standardization, has been a strong contributing factor in European trade integration, especially for the Baltic States, Scandinavian countries, and the United Kingdom. Work conducted by The Asia Foundation in the Philippines documents the impact of decentralizing trade flows through RO-RO technology. Prior to the advent of RO-RO shipping, the Philippine maritime transport industry operated on the same industry model as the current ASEAN regional model. The advent of RO-RO shipping allowed more direct connections throughout the 7,000 scattered islands of the Philippine archipelago, helping to increase ship calls throughout the islands, increasing competition, reducing turn around time, and reducing shipping costs by up to 40 percent. An ASEAN network would foster the same economic benefits throughout the region. President Aquino will no doubt express his support of greater ASEAN connectivity with his regional neighbors – many of whom he’ll meet for the first time – at the 2nd U.S.-ASEAN Leaders’ Meeting in New York on Friday.

Jaime Faustino is The Asia Foundation’s project manager for Economic Policy Reform and Jon Morales is assistant program officer in the Philippines. They can be reached at jfaustino@asiafound.org and jmorales@asiafound.org, respectively.

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