You are here
Back to topThe Indonesian Government recently issued Law No. 66 of 2024 on the Third Amendment to Law No. 17 of 2008 on Shipping (the Amended Shipping Law). The key policy objective of the Amended Shipping Law is to strengthen the application of the cabotage principle and further empower the domestic maritime industry.
In summary, the Amended Shipping Law:
- requires foreign investors to partner with local shipping companies in establishing foreign owned (penanaman modal asing or PMA) Indonesian shipping companies;
- introduces new minimum vessel size requirements for PMA shipping companies; and
- provides for greater involvement of industry associations in determining port services tariffs.
FOREIGN INVESTMENT IN INDONESIAN SHIPPING COMPANIES
Continuation of Indonesian Cabotage Rules
The Amended Shipping Law does not amend the existing cabotage rules in Indonesia. As a result, foreign ownership of PMA shipping companies remains capped at 49% and all ships operating within the Indonesian domestic market must be Indonesian flagged and have an Indonesian crew.
New Shareholding Requirements for PMA Shipping Companies
The Amended Shipping Law requires all new PMA shipping companies (established on or after 28 October 2025) to have the following shareholding structure (the Shareholding Requirement):
The material consequences of the Shareholding Requirement are that:
- foreign investors must now partner with Indonesian shipping companies that hold their own Indonesian shipping licences (previously, foreign investors could partner with any 100% owned Indonesian company, including companies operating outside the shipping sector, or an Indonesian citizen); and
- the foreign entity holding shares in a PMA shipping company must itself be a licensed shipping company in its country of origin (previously, a foreign shareholder could be a special purpose vehicle without a shipping licence in its country of origin, or a foreign citizen).
Indonesian Publicly Listed Shipping Companies
The Amended Shipping Law does not regulate how the Shareholding Requirement will apply to Indonesian publicly listed shipping companies. However, in our view, the application of the Shareholding Requirement will likely depend on whether the Indonesian publicly listed shipping company is a PMA company or a domestic investment (penanaman modal dalam negeri or PMDN) shipping company.
MINIMUM VESSEL SIZE REQUIREMENT
In addition to the new Shareholding Requirement, the Amended Shipping Law now requires PMA shipping companies (as well as PMA SIOPSUS companies*) to register with the Ministry of Transportation any Indonesian-flagged vessel with a minimum size of 50,000 GT (the Minimum Vessel Size Requirement), compared with a previous minimum vessel size of 5,000 GT. The Minimum Vessel Size Requirement comes into effect on 28 October 2025.
GRANDFATHER CLAUSES
The transitional provisions of the Amended Shipping Law expressly state that the Shareholding Requirement and the Minimum Vessel Size Requirement will not apply to existing PMA companies (Grandfather Clause).
However, the Grandfather Clause will only apply for so long as:
- there are no changes to the corporate deeds, corporate data, shareholding composition or shareholders of the existing PMA company; and
- the existing PMA company does not purchase any new vessels.
In our view, the restricted nature of the Grandfather Clause means that all relevant PMA companies will need to carefully consider their corporate structure and business activities to ensure they do not inadvertently trigger the new Shareholding Requirement or Minimum Vessel Size Requirement. In the long term, we expect that relevant PMA companies will need to consider a corporate restructuring in order to comply with (or avoid triggering) the new Shareholding Requirement and Minimum Vessel Size Requirement.
DETERMINATION OF TARIFFS FOR SERVICES PROVIDED BY PORT BUSINESS ENTITIES
In the past, the tariffs for services provided by Indonesian port companies (Badan Usaha Pelabuhan or BUP) were strictly regulated and determined under the applicable regulations and subject to consultation with the relevant regulators. However, under the Amended Shipping Law, the tariffs for services provided by BUP companies will now be determined by mutual agreement between (i) the relevant BUP companies, and (ii) the relevant industry association for such services.
Upon agreement between the BUP and industry association, the tariff must be notified to the Indonesian government. If the BUP and industry association cannot agree on the applicable tariff, then the government may provide its guidance and considerations to the BUP in determining the tariff.
These new procedures represent a material reform to the process for determining port services tariffs and provide for greater direct involvement of the relevant industry associations. In practice, we expect that additional implementing regulations will be needed on the processes and procedures for determining port services tariffs.
CONCLUSION
With the Amended Shipping Law seeking to further promote and develop the domestic maritime industry, foreign investors are now subject to new investment restrictions and operational requirements. This represents a change to the recent general trend towards the liberalisation of foreign investment in Indonesia. In our view, this reflects the politically sensitive nature of the Indonesian shipping industry and Indonesia’s unique ‘island nation’ identity.
Following the passage of the Amended Shipping Law, new and existing foreign investors will need to carefully consider and potentially restructure their investments in (and exits from) the Indonesian shipping sector.
+++
Endnote
* PMA company owning vessels and holding a special sea transportation business licence (surat izin usaha perusahaan angkutan laut khusus/SIOPSUS) for its own business.
