Private investment in shipping sector in the context of CPEC

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Kanwar Muhammad Javed Iqbal

THE development of Pakistan’s shipping industry is categorically important in terms of economic growth and national security. Globally, there are several success stories for shipping business which have established good market trends in a shorter period of time as compared to Pakistan. Malaysian International Shipping Corporation (MISC) and Singapore International Shipping Corporation (SISC) may be considered as role models in the shipping business. Malaysia had only two second-hand vessels in 1968, whereas now it is globally ranked 14 by CIA World Fact Book. Indonesia has shown a surprising exponential growth and faster track in shipping sector, which followed the development paths and policies of Malaysia.

On the other hand, according to Lloyd’s List (March 2017), the Marshall Islands vaulted arch rival Liberia to become the world’s second-largest ship register by deadweight tonnage. According to LLI, total deadweight on the Marshall Islands flag is now 231,853,515 dwt with 3,796 vessels. Panama remains the biggest flag by some way, with 352,670,914 dwt and 9,451 vessels. Liberia slipped to third place with 225,564,394 dwt and 4,050 vessels. This is importantly noticed in the context of flag of convenience through open registry procedures. The Greece shipping industry is one of the key pillars of the Greece economy with a contribution of around $9 billion per annum.

In case of Pakistan, unfortunately, the number of national flag carrier is just 11 ships; whereas, contribution of private entrepreneurs is almost nil. From a sizeable fleet of more than 70 ships during early 70’s, the present strength of Pakistani Flag Carriers is lower than any desirable threshold. Ironically, Pakistan pays almost over 3 Billion US$ annually in seaborne freight charges to foreign carriers which is termed as the huge loss after the debt servicing and defence – a significant drain on the country’s foreign exchange.

There is an enormous growth potential for shipping industry in Pakistan. Considering the recent years’ trade growth trend and the present stagnation of the shipping industry, the total share of trade transported by the national carrier is going to shrink further and the country would be more dependent on foreign shipping. Conversely, this also means that there exists an even greater growth potential for private investment in the shipping sector especially in the context of CPEC and BRI which is an important avenue for country’s strategy to enhance and sustain growth. The overall national economy would get a quantum jump once the CPEC is fully functional and then the role of Pakistan’s shipping sector will be imperative.

Years of neglect, absence of long-term policies and the non-implementation of the ones which were ever devised, have taken a heavy toll on the local shipping. For the first time, the shipping was accorded the status of an industry in Pakistan Merchant Marine Policy 2001, but the current status is quite disappointing and challenging. Pakistani private ship owners have eight ships and all of them are registered in FOC countries. There are at least 6 Pakistani origin ship-owners working internationally that own at least 8 vessels (ownership of at least 75% equity in each vessel). These Pakistani origin ship-owners have registered their vessels outside Pakistan and refuse to adopt the Pakistani flag, their feedback is that they are weary of poor government policies, lack of understanding of international shipping by Pakistani authorities, inconsistency of polices, cumbersome procedures and memory of 1974 nationalization of private shipping companies.

Therefore, priority measures are required to jump-start Pakistan’s shipping sector. Government needs to use UN Mandated rule of 40:40:20 to lift at least 40% of cargo. Recently, the Government has taken a good policy measure that all refined petroleum products will be on FOB with National Flag ships to carry them. PNSC is carrying the crude at FOB basis but the refined petroleum products are all through foreign flagged vessels at CIF basis. To lift the whole refined products, there is a requirement of 14 Panamax size tankers. There is no reason why half of these ships cannot be under Pakistani Flag. The banks are willing to finance on assurance of long-term cargo availability.

With Pakistan’s coal imports poised to increase from 11.5 Million to 40 Million tons in next 5-6 years; at present this is monopolised by a single importer, there is scope of another 3-4 Handy-max ships to be inducted if the FOB clause is enforced properly. On the same lines, edible oil import is again a monopoly of lifting 3.623 Million tons from Indonesia/Malaysia, needs to be on FOB basis and 2-3 ships inducted. In addition, there are many capacity building and institutional development measures needed to make Pakistani shipping sector and ports efficient and competitive. Confidence in government policies will take time to materialise before the private sector returns back. However, organisations like Bahria Foundation (BF) can take part in this opportunity. PNSC is definitely poised for increasing substantially its ship’s numbers and tonnage. If the initial capital costs are high to finance with the banks then PNSC/BF may consider bare-boat charter for interim period.

—The writer is Lead Researcher at National Institute of Maritime Affairs (NIMA)