Local shipbuilders need perks, too
Early this month, President Marcos led the inauguration of the Hyundai Heavy Industries shipyard in the free port of Subic, Zambales, where he declared his administration’s strong push to revive the country’s shipbuilding industry. For an archipelago such as the Philippines, a vibrant shipping industry is necessary to promote trade and commerce. Sadly, it remains saddled with problems that have prevented the country from taking full advantage of an efficient maritime system.
A 2023 study published by the Philippine Institute for Development Studies found that a significant potential to modernize and enhance the competitiveness of the shipping sector remains untapped. “This is unfortunate as the domestic shipping industry has a crucial role in the Philippine economy, serving as the backbone supporting domestic trade and providing an affordable means of interisland transfer,” it pointed out. It said the industry is riddled with inefficiencies that lead to other issues such as high cost of shipping, aging vessels, poor quality passenger, and cargo shipping services, as well as frequent maritime accidents.
A crucial component in developing domestic shipping is the shipbuilding and ship-repair (SBSR) industry. The President highlighted that between 2014 and 2018, the country’s shipyards produced between 1.2 million and 2 million gross tons of ships annually, or the equivalent of about 20 oil tankers or 30 large container ships.
Fourth-largest shipbuilder
However, production started to decline after 2019. With Hyundai’s expansion, the shipyard’s capacity is projected to increase from 1.3 million to 2.5 million tons. Even at its peak capacity when the Philippines rose to become the fourth-largest shipbuilder in the world, after China, South Korea, and Japan, the Philippines accounted for only 1.2 percent of the world’s total production.
Today, the only bright spot in the SBSR industry is in Subic. Hanjin, a South Korean firm that once owned the shipyard, began operations in 2006. At its peak, it employed about 30,000 workers, until the global shipbuilding downturn in 2016 led to a drastic drop in orders and forced the company to file for bankruptcy in 2019. In 2022, New York-based Cerberus Capital Management acquired and invested $40 million to revitalize the facility, renaming it Agila Subic, and Hyundai was among its four major tenants.
Elsewhere in the industry, problems abound. An in-depth report released by the Organization for Economic Cooperation and Development in April this year, titled “Peer Review of the Philippines’ Shipbuilding Industry,” highlighted the key problems in the sector.
Not hopeless
These include outdated facilities, with about 66 percent of the country’s 408 shipyard facilities nationwide requiring upgrades or rehabilitation; a shortage of skilled workers due to migration; the lack of essential machinery, equipment, and materials such as marine-grade steel in the local market; non-attractiveness of locally built ships, with 98 percent of imports composed of recreational boats, and the need for new policies to modernize, expand, and upgrade the industry.
Also besetting the industry are the high interest rates and collateral requirements for loans, making entry into the industry difficult particularly for smaller players; excessive taxation, with the 6-percent tax on fuel and 12-percent VAT on bunker fuel significantly increasing operating costs, and poor port facilities, road access, and infrastructure connectivity that result in congestion, delays, and higher operational costs.
The industry is not hopeless despite all these problems. In fact, there are pending bills in Congress that seek to address these issues. Salient provisions of House Bill No. 2598 (SBSR Development Act of 2025) includes fast-tracking the approval of permits and leases; provision of more liberal financing, and the development of the steel industry and related industries needed by the sector.
Tax incentives
Meanwhile, key provisions of HB 2597 (Shipyard Fiscal Incentives Act of 2025), which local players have supported, include VAT exemption on equipment and materials; income tax holiday for the expansion and upgrading of SBSR facilities and shipyards; tax credit on domestic capital equipment and materials; tax and duty exemption on imported capital equipment and materials; and tax incentives for green projects.
The President’s pronouncement of reviving the SBSR sector will require the collective effort of several agencies involved, among them the Maritime Industry Authority under the Department of Transportation; the Board of Investments; the Technical Education and Skills Development Authority, as well as other agencies under the Departments of Trade and Industry, Finance, Science and Technology, and Labor and Employment. But first, Congress needs to pass the bills that seek to address the problems hounding the industry.
