Glorious Days of a Dutch Shipping Company

THE LIGHTS in the house on Jalan Pegangsaan Timur No. 56 were fully lit on the night of December 2, 1957. Over a cloud of cigarette smoke, the leaders of the Functional Group argued about the plan to nationalize all Dutch companies in Indonesia. The order to confiscate Koninklijke Paketvaart Maatschappij (KPM), a Dutch-owned shipping company, was ready to be signed by all those present. However, the meeting was deadlocked. Through its representative, the cabinet didn't support the move.

A.M. Datuk Majid, leader of the Indonesian National Labor Union (KBKI) which was affiliated with the Indonesian National Party (PNI), took the chair. “This is my responsibility. We are not controlled by the cabinet. The workers in the shipyard have their orders; they're just waiting for a phone call from me,” he said, as quoted in his biography, Datuk: An Indonesian Odyssey written by Ora Jonasson.

As the meeting ended without an agreement, Majid took matters into his own hands: ordering his members to take action.

On December 4, KBKI workers stormed the KPM headquarters, declared the takeover of KPM, expelled the Dutch managers, and replaced the Dutch flag with the Indonesian flag. Similar actions took place elsewhere and targeted all Dutch-owned companies. The military then took control of the companies. KPM had to stop its services in Indonesia before it was finally nationalized.

The directors of KPM had anticipated the worst. After his escape in Singapore, the KPM director ordered all KPM ships to stay away from Indonesian ports, but it was too late. Some ships were seized in Indonesian ports and some on the high seas.

The history of KPM, which monopolized Nusantara's shipping services, was nearing its end.

‍Monopoly and Domination

At first, the Dutch government never thought of having its own shipping company. For all shipping needs, they relied on, and even subsidized, scheduled steamship services in Nusantara such as the British Peninsular & Oriental Steam Navigation Company (P&O) and W. Cores de Vries, a Dutch firm. In 1863, through an open tender, the contract was transferred to the British India Steam Navigation Company (BISN), a British partnership. BISN later formed the Netherlands Indische Stoomvaart Maatschappij (NISM), a British-Dutch joint venture shipping company.

When the NISM contract was up for renewal in 1888, the leaders of two Dutch shipping companies, Stoomvaart Maatschappij Nederland (SMN) and Rotterdamsche Lloyd (RL), tried to replace NISM. They argued that NISM tended to favor British trade and shipping, and diverted trade from the Dutch East Indies through Singapore, the center of trade in the Southeast Asian region. NISM also neglected services between Java and the Outer Islands.

Despite the pros and cons, SMN and RL's lobbying was successful. The Dutch Parliament and the Nederlandsche Handel Maatschappij as the capital guarantee institution supported the efforts to establish a national shipping company. On July 5, 1888, Governor General Otto van Rees (from government), Jan Boissevain, P.E. Tegelberg (from SMN), and Willem Ruys (from RL) signed an agreement to establish a national shipping company, which was later known as NV Koninklijke Paketvaart Maatschappij (KPM).

“The aim was to demonstrate the strength and assertiveness of Dutch rule in the Dutch East Indies and to expand and strengthen trade between ports in the Dutch East Indies and the mother country (the Netherlands) and all other parts of the world,” wrote Edward Poelinggomang in Makassar Abad XIX: Studi Tentang Kebijakan Perdagangan Maritim (Makassar in the 19th Century: A Study of Maritime Trade Policy).

KPM began its operations on January 1, 1891 with 29 ships; 13 new ships and the rest inherited from NISM.

Initially KPM was charged with providing the transportation of military expeditions in order to integrate the colonial administration, especially in areas that were difficult to reach. KPM established shipping lanes, provided subsidies to loans, and most importantly, a monopoly on shipping in Nusantara. The government subsidies were removed in the third contract in 1915, but KPM was free to stop off outside the designated lines.

The government's contract with KPM fostered a win-win partnership. Support from the government in the form of rate policy, closure of coastal ports to non-Dutch vessels, and transshipment policy enabled KPM to build a shipping network and monopolize shipping and trade in the entire archipelago. “Within one year of operation the KPM had put together an interisland network and a half century later was running 64 lines, 130 ships, and calling at 250 "ports",” wrote Michael B. Miller in Europe and the Maritime World: A Twentieth Century History.

On the other hand, the Dutch government was able to unify the Dutch East Indies, consolidate and expand administrative control, and create economic units centered on the colony. The government used the KPM to facilitate the delivery of troops and equipment to quell rebellions such as in Lombok, Papua and Pulau Tujuh.

In other words, Joseph Norbert Frans Marie a Campo wrote in Engines of Empire: Steamshipping and State Formation in Colonial Indonesia, that KPM played an important role in “the process of colonial state formation”.

Killing the “Lion”

In the early years, KPM attempted to redirect trade from Singapore to Dutch East Indies ports. However, with Nusantara's trade centered in Singapore, there was no alternative for KPM but to “organize its first routes largely through the British port colony,” wrote Miller.  

To deal with this competition, KPM relied on the Bill of Lading or direct transportation regulations that stipulated KPM, as the first carrier, would transfer its cargo at a Dutch colony port to SMN or RL ships, at direct transportation rates that were as cheap or cheaper than the cost of transportation through Singapore.

“Commercially, KPM's tactic worked well. Because it controlled a network of shipping routes across the archipelago, it had a good opportunity to cut prices against competitors on some shipping routes, by offsetting the losses with tariffs on other routes,” wrote Howard Dick, in Perdagangan Antarpulau, Pengintegrasian Ekonomi dan Timbulnya Suatu Perekonomian Nasional” (Interisland Trade, Economic Integration and the Emergence of a National Economy) published in Economic History of Indonesia edited by Anne Both et al.

To establish its dominance, KPM had to overcome another obstacle, which was limited port facilities in the archipelago. This is also why the transportation of export commodities by small ships to Singapore remained the top choice. The only viable port was Tanjung Priok, which was built in the late 1880s. The colonial government was convinced that a modern deep-sea port was key, so investments were made in the construction and improvement of facilities at the deep-sea ports of Tanjung Priok (to serve southern Sumatra), Surabaya (for Java, Central, and South Kalimantan, and Nusa Tenggara), Belawan (for North Sumatra), and Makassar (for the “Big East”). The five ports would serve as Dutch trading nodes, where KPM would stack goods from smaller ports for transshipment to ocean-going vessels. The entire facility was fully operational by around 1920.

The move was supported by a sophisticated financial infrastructure from trading offices, banks, and insurance companies. KPM also built refueling stations and fleets of various designs and sizes.  

“Singapore's grip on foreign trade from the outer islands was broken for all major commodities except rubber,” wrote Howard Dick. Practically, by the end of the 1920s, trade in the regions outside Java was controlled by the Dutch, while Singapore remained the main port for the western part of Nusantara. However, for transportation services, this region had been controlled by KPM ships which passed through Makassar and Surabaya.

It was not easy for KPM to oust the Singapore-based Chinese shipping companies, which were known to be tenacious and had strong networks. Since the precolonial era, when they still relied on jung-jung (an ancient sailing ship from Java), the Chinese had controlled trade in Nusantara, even Southeast Asia. Their merchant ships, often dubbed the “mosquito fleet”, invaded Nusantara by offering cheap tariffs. Many of them established trading and shipping partnerships with merchants in Singapore. The prominent one was Wee Bin & Company (Wee Bin Line of Steamers), whose small ships sailed to the coasts of Malaya and Sumatra, and larger ones to Sulawesi and the Moluccas.  

“To filch business from the mosquito fleet, the KPM shrewdly combined the best of the European and Chinese systems, reflecting how colonial business, as it imposed Western manners and practice, was nearly always in turn infiltrated by local habits,” Miller wrote. Like its Chinese competitors, KPM applied the tjintjoe or credit system that was the foundation of the Chinese shipping business. The captain of a KPM ship would also usually be a banker who was knowledgeable about markets and prices. He would provide credit to KPM merchants or agents in various areas to ensure the smooth running of his company's trade.

Apart from Chinese shipping partnerships, KPM faced competition from British and German-flagged ships. The tight competition had to be addressed with a sound business strategy. After World War I, KPM and the Straits Steamship Company (SSC) from the UK agreed on their respective operational areas, which made the Chinese shipping partnership squeezed but never collapsed. Meanwhile, German shipping companies such as Norddeutscher Lloyd Bremen (NDL), which helped KPM eliminate all Singapore-based shipping east of Banjarmasin in 1915 and secure Dutch trade lines east of Nusantara, had already left.

The Chinese shipping companies survived the competition until the economic crisis left them in turmoil. Chinese shipowners could no longer compete with KPM and were willing to enter into cooperation agreements. Some Chinese conglomerates went bankrupt and sold their fleets and goodwill to KPM. As a result, after the mid-1930s there was not a single meaningful Chinese shipping company in Nusantara.

“In 1930 it is estimated that KPM accounted for 42.9 percent of total inter-island shipping traffic or almost 80 percent of inter-island shipping under the Dutch East Indies flag,” wrote Adriaan Jacob Marks in “Accounting for Services: The Economic Development of the Indonesian Service Sector, ca. 1900-2000", a dissertation at Utrecht University in 1979.

In a short time the KPM became the most important maritime transportation facility in Nusantara. To fulfill services and lines to countries outside the Dutch East Indies, KPM together with SMN and RL established the Java-China-Japan Line (JCJL) and the Nederlandsche Scheepvaart Unie in 1908. KPM also established overseas subsidiaries such as Java-Bengal Lijn (1906), Java-Australie Lijn (1908), de Java-Siam Lijn (1910), and de Deli-Straits-China Lijn (1915). These lines strengthened the regional position of the colonial state politically and economically.  

This achievement was inseparable from its well-organized organizational structure. They had an extensive network of routes, high quality and reliability of service, attention to cargo handling, and prompt and fair settlement of claims.

Nationalism

During the Japanese occupation, KPM was unable to operate fully. Apart from fleeing to Australia, many KPM ships were converted for military purposes, while some fell prey to Japanese ships. After the war, KPM had just 26 ships, compared to 136 in 1939, that spread across the Pacific and Indian Oceans.

KPM attempted to revitalize the fleet and resume operations, but could no longer restore its hegemony. According to Campo, by the end of 1946 KPM operated 22 regular lines, a number that doubled in five years, while total route mileage increased from 46,000 to 160,000 geographic miles. In 1947 all lines outside Indonesia were merged with JCPL to become Koninklijke Java-China Paketvaart Lijnen (KJCPL) or by its English name, Royal Interocean Lines (RIL).

However, the situation in Indonesia was increasingly uncertain. Nationalist fervor to break the Dutch stranglehold on shipping complicated KPM's position. In 1952, after a proposal to establish a joint venture was rejected by KPM, the Indonesian government established Pelayaran Nasional Indonesia (Pelni), a state company, to usurp KPM's role. Although Pelni was not yet a major competitor, KPM had little choice and prepared for the worst.

In December 1957, after the United Nations rejected Indonesia's claim to West Irian, KPM's facilities and ships were confiscated—although were released again a few months later after the intervention of insurance company Lloyds of London—and its services were terminated along with all other Dutch activities in Indonesia. KPM was then nationalized through Government Regulation No. 34/1960.

KPM's Jakarta headquarters moved to Singapore. Some of the ships were used to serve lines outside Indonesia or were sold, while the remaining passenger ships were used by RIL. KPM continued to operate until January 1, 1967 when it merged with KJCPL. The crew and ships continued to serve other lines until they were taken over by Nedloyd, a merger of several Dutch shipping companies including KJCPL. Nedloyd was then taken over by Maersk, a Danish business conglomerate.

KPM had finished. Despite that, until now the Indonesian government hasn't been able to follow the success of the Netherlands through KPM in the shipping sector. There is no national shipping company that is able to reach and serve transportation with the best service throughout Nusantara, as well as abroad.

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