Shipping only cost-effective, sustainable delivery mechanism for int’l trade, economy

PAKISTAN Commemorated World Maritime Day on 3rd October 2017, under the Auspices of Chartered institute of logistics and transport, institute of chartered ship brokers at P.C. Hotel Karachi.
The day is celebrated on 28th September at U.N. IMO Headquarters, London, to be followed by celebrations in the member countries. The theme for this year’s World Maritime Day is “Connecting Ships, Ports and People”. This year’s theme was chosen to provide an opportunity to focus on the many diverse stakeholders involved in the shipping and logistics sectors. Its aim is to build on the World Maritime Day theme for 2016, “Shipping: indispensable to the world”, by focusing on helping IMO Member States to develop and implement maritime strategies to invest in a joined-up, interagency approach that addresses the whole range of issues, including the facilitation of maritime transport and increasing efficiency, navigational safety, protection of the marine environment and maritime security. Tributes to organizer taking lead to celebrate the day in Pakistan, enable bring awareness to the common people and to those at the helm of affairs.

According to the United Nations Conference on Trade and Development (UNCTAD), around 80% of global trade by volume and over 70% of global trade by value are carried by sea and are handled by ports worldwide. These shares are even higher in the case of most developing countries. Shipping is the only truly cost-effective and sustainable delivery mechanism for international trade and the global economy. People all over the world rely on ships to transport the commodities, fuel, foodstuffs, goods and products that are so vital in their everyday lives. The shipping activities that I am referring to encompasses containerized multi-modal cargos, bulk and break-bulk goods, liquid commodities and the all essential project consignments.
The promotion of sustainable shipping and sustainable maritime development is one of the major priorities of IMO in the coming years. Therefore, energy efficiency, new technology and innovation, maritime education and training, maritime security, maritime traffic management and the development of the maritime infrastructure: the development and implementation of global standards covering these and other issues will underpin IMO’s commitment to provide the institutional framework necessary for a green and sustainable global maritime transportation system for the years and time to come.
There is indeed no denial that without efficient ports and logistics, shipping alone cannot remain viable and efficient. Similarly, we need to appreciate the concept of multi modal transport coupled with efficient supply chain management.Pakistan is blessed with two major ports, the first at Karachi and second at Bin Qasim. These ports collectively handle substantially all the sea borne cargos to and from Pakistan. The scenario is destined to change very soon with the full scale operations of the port at Gwadar and also with the sequential completion of the various projects under the CPEC initiative which is a part of the greater “One Belt – One Road” initiative. A flavor of what this change could look like has already been witnessed in the form of SAPT, the new deep sea container terminal currently being operated by Hutchison Ports which is operating four containerized berths on PPP/BOT basis efficiently. It is expected that SAPT, being deep water port may achieve the target of being a regional container hub. The Government of Sindh is equally keen to develop Keti Bandar at the Indus River Delta for which significant work remains to be done.
I had the honor and pleasure of recently being invited by the Pakistan Navy War College at Lahore to speak on topic “ How Sea blindness among leadership could affect Pakistan’s focus towards investment in maritime sector”. It was good inter active session with Senators, MNAs, MPAs, senior military and civilian officers in attendance. I reiterated what I said at Lahore that we as a nation have failed to develop shipping entrepreneurship due to inconsistency in our policies and also in the backdrop of trauma of nationalization of private sector ship owning. However, it is high time we look towards the future with a view to correct the errors of the past and to accord the importance to the shipping sector that it rightfully deserves.
We must learn from history that the British gained access in India in 1607, when their sailing ship Hector berthed at Port of Surat commanded by Capt. William Hawkins and gradually, the East India Company gained the physical territory and political grounds and end up creating an empire, thus importance of shipping is paramount and cannot be denied.
Pakistan has progressed in the port sector, but sadly the local private sector is unwilling to invest in ship owning. One must recall that between the mid 1950s and early 1970s, Pakistan had a vibrant shipping industry and that several Pakistan maritime experts took up senior management level employment in other countries to establish their shipping sectors. It is encouraging to note that the only Pak Flag bearer, PNSC, has excelled by making consistent profits inspite of being in public sector. We are proud of our PNSC as in the region Bangladesh Shipping and Ceylon Shipping are liquidated and the Shipping Corporation of India, being in Public Sector, but incurring loss, whereas PNSC is making profit with its professional team. However, one must also question how investment from the private sector can be attracted towards ship owning in Pakistan.
If our government is serious about ensuring participation from the private sector into the shipping sector, then a consistent policy regime is imperative. Funding by Banks/DFI at low interest rates is required as ship owning is capital intensive, has low IRR and long payback periods. I strongly recommend that the government engage in brain storming to remove impediments for growth of ship owning in private sector and that a think tank be set-up at the Ministry of Ports and Shipping level to come up with suggestions to resolve this and similar issues. Let the public sector compete with private sector in healthy way.
There is no denial that we need efficient ports, logistics and shipping industry to support our national trade. The aim is to reduce cost of doing business and improve global competitiveness. The aim should also be to develop self-sufficiency, strong local infrastructure and to support job creation.

Digitization of Ports and Terminals

Karachites continue to suffer due to congestion on Jinnah Bridge, leading to Keamari and West Wharf. The congestion has played havoc to commuters to port and more due to emissions to environment around the old city area. Businesses and trade has suffered as a result of these congestions as goods and commitments are delayed and in many cases, perish due to being delayed under the scotching sun.
We in Pakistan are fully aware that transportation and logistics is in dire need of modernization, but what about supply chain visibility. I need not mention the devastation caused by petrol tanker loss of over two hundred human lives and recurring incidents of containers falling on humans at Karachi, as no proper twist locks were used, thus many lives are lost. This congestion is bound to aggravate any crisis situation should it occur at or near the Karachi port areas.
Karachi now has three container terminals and Karachi Port has miserably failed to live its commitment to connect new deep water port with bridge to Manora, as planned to connect Northern By-pass. Due to this utter failure the traffic to and from these three terminals is left with no option but to use Jinnah Bridge, causing massive congestion for hours. The situation is aggravated by oil products carrying tanker lorries, bulk cargo carriers, imported vehicle carriers, public and private transport. One cannot fathom the number of hours collectively wasted and the quantity of fuel burnt unproductively as a result of the unabaiting congestion. It is common knowledge that businesses have opted to relocate away from the main business district of Karachi and this in itself shall lead to numerous problems in the coming years.
Ports and terminals inherently are very traditional industries, if they want, this problem may be somewhat resolved by value adding technology and automation. The whole I.T. infrastructure may play key role in linking the road haulage, landing system with terminal operating system. The road to Keamari and West Wharf is laden with trucks waiting to pick up boxes thus causing congestion on roads and misery to commuters. Port and Terminals can link their road haulage system with logistic providers, so to know 12/24 hours when they need trucks near the port and terminal to collect / drop the box. This concept of truck calling system is being successfully managed even in several port cities in Africa and one can only wonder why such a system has eluded implementation in Pakistan.
No truck be allowed to enter the city and be kept outside city say about 30 miles and await terminal message or call that truck is on way and who is driving and what the truck is going to pick up or drop. This may facilitate port and terminal operators to clear the box buried under three or four containers, so that truck arrives it is loaded or discharged and cleared port may not be allowed parking of truck on road leading to Keamari and west wharf. Ports and terminals may develop IT infrastructure to liaison with logistic companies and trucks be called to drop or pick up by terminal operators.
In the short term, a similar arrangement can also be made for tanker lories that call at the oil terminals situated at and near the port area and after loading are destined for up country delivery of goods that include crude oil, petroleum products, chemicals, edible oils and other non-petroleum products. A recent study commissioned by the Oil Companies Advisory Council (OCAC) has forecast that the number of petroleum products carrying tanker lories carrying 40,000 liters each calling at the Karachi port is expected to balloon to over 800 trucks per day in 2019-20 from an average of about 400 per day that were actually counted during 2014-15. One is at a loss of how the city’s infrastructure, traffic police and environment will cope with such a growth. For the long term, the Keamari Oil Installation Area shall have to be linked to up-country storage and refining facilities through pipelines thus lowering the cost of fuel to the end users and mitigating congestion.
Worldwide trucks turnaround time in port is 26 minutes whereas ours is in days, due to manual operation and permitting trucks on road in port due to poor efficiency of Port and lack of technology. It is essential that the port authorities take a lead in finding implementable solutions to this problem before a complete breakdown of the system occurs. It has been time and again witnessed that the system is strained whenever two or three holidays come up in a row. The most recent gridlock occurred immediately after the recent Eid ul Fitar holidays and is a repeat each year only that the situation get worst with each passing year.
The need for communication throughout the supply chain is imperative to line up fragmented nature of trucking infrastructure. Unfortunately, our trucking sector has not kept pace with advance in supply chain management such that today even the trucking system in Iran is much more advanced than that of Pakistan despite the years of sanctions endured by Iran. It remains to be seen how the local trucking sector will cope with the mix of right-hand drive Pakistani trucks and left-hand drive Chinese trucks once Chinese goods make their transit through Pakistan courtesy of CPEC. This may be a recipe for disaster and it puzzles me when our policy makers will realize that it is these seemingly small details that at times decide the fate of mega projects.
We, may resolve congestion and grid lock on Karachi’s roads if our ports and terminals jump to digitization the process, as it will not only reduce congestion but add value to it, ultimately digitizing the supply chain is crucial to build a mere robust and resilient chain that is flexible and maintain the visibility. The Karachi Port Trust shall also have to expedite the construction of either the elevated expressway planned to run from the deep water port all the way to Korangi Road or the cross-harbour bridge connecting Keamari with Manora and onwards with the Northern By-pass. Both these projects have been sitting on the shelf gathering dust while Karachi continues to suffer from congestions and delays resulting in an increase in the cost of doing business and environmental hazards. The cross harbor bridge was envisioned in the early 2000s and the contract for the container terminal at the deep water port was awarded to Hong Kong based Hutchison Ports with a promise that KPT will have constructed this bridge well before the congestion sets in. The new container terminal has been operational since December last year with the bridge nowhere in sight.
I, have taken pain to write this being sufferer every day at Jinnah bridge. It is time for Karachi Port to act, and digitize the supply chain to beat the gridlock. In my humble opinion project of connecting deep water port by either the elevated expressway or the cross harbor bridge is imperative as new port is our premier port and volume may increase as mother vessel will call due to 16 feet draft. Let us act by kick starting the project and ensure connecting Jinnah Bridge to northern by-pass by elevated express way by passing Mauripur road. I am sure that our Minister of Ports and Shipping may intervene to solve the issue by connectivity and avoiding congestion.

SUPPLY CHAIN ISSUES AT PORTS

Pakistan’s monthly exports volume reached an all-time high of Rs. 275,483 million in September 2013. January 2017 saw this number drop to Rs. 186,385 million whereas the number for February 2017 further declined to Rs.171,511 million. The downwards trend has followed more or less consistently in the months between September 2013 and January 2017. Naturally, this declining trend in Pakistan’s exports becomes yet more pronounced when the balance of trade is analyzed. The trade deficit that stood at Rs. 1,833 billion in fiscal 2011-12 sank to a deficit of Rs. 2,494 billion by fiscal 2015-16. One would think that the people in the corridors of power would be having sleepless nights while trying to evaluate where and how they erred and that these people would be running from pillar to post in an attempt to address and arrest this disaster.
 

Instead, I was shocked to read in an article that was published on 5th April 2017 in the Business Recorder that certain quarters within the Ministry of Commerce are of the view that the Rupee is overvalued and should be permitted a free fall. In the event that a free fall is allowed, as has been allowed a number of times in the past, and exports still don’t pick up steam, as has also happened in the past, then, what do we do? How does one get the genie back into the bottle one may ponder? A knee jerk solution to a problem that is bigger and beyond most in the Ministry of Commerce and the Ministry of Finance put together.
 

As this mindless bloodletting continues unabated, one may think that logistics and supply chain efficiencies may have come into focus with the intent to keeping costs at bay while the creases in the export strategy are being ironed out. With this goal in mind, where better to focus than the point where the biggest cash outflow is involved, i.e. at the sea ports. Well over half of the import and export cargo by value is containerized. It would be expected that the container ports might be the strongest link in the chain when all other links weaken by the day. An objective analysis of the situation may suggest otherwise. Structural impediments continue to plague the system.
 

Efficiencies and global best practices appear neither in words nor in spirit.
 

Within international shipping circles, Pakistani ports remain painfully notorious for their exceptionally high port charges in spite of their inefficiencies. August 2016 saw yet another increase in these charges when the Port of Karachi upped its port charges by an average of about 20% for a panamax sized container vessel. An analysis of total wet charges accumulated by a container vessel during a round trip for a service that regularly calls at Karachi Port reveals that the wet charges at Karachi Port were the highest during the said round trip when compared to all the other international ports that the same vessel called at during the same round trip. Not only were the charges at Karachi Port the highest, they were four times higher than the average lowest charges.
 

Naturally, this cost is promptly and diligently passed on by the shipping lines to the one next in line in the supply chain. Globally, port authorities have moved on to the "land-lord port model" to remain in step with the trends of the time.
 

The Port of Karachi, however, continues to experience gestation difficulties with time running out for a normal outcome. The matter of converting the KPT into a corporation has been pending for over a decade, with the aim of making the necessary structural and legislative changes so that KPT can be run in a business-like manner.
 

The President of the Karachi Chamber of Commerce and Industry (KCCI), Shamim Ahmed Firpo, has expressed concern over the matter of KPT’s unilateral increase in port charges in August 2016 and the matter of imposition of congestion surcharge by shipping lines. KCCI, being the largest trade Chamber in the country, was neither taken into confidence by KPT nor was invited in subsequent meetings where the issues were discussed. Both these matters, the increase in port charges by KPT and the imposition of congestion surcharge, remain unaddressed and, similar to the matter of declining exports, seem beyond the capabilities of the respective department heads.
 

Structural improvements to the national Maritime Policy are urgently warranted. This point needs to be kept in mind the next time that industry gurus bang their heads together in an attempt to improve upon the incumbent version. Our ports in general and container terminals in particular simply cannot continue to charge more in return for less.
 

The situation is prone to imploding as was witnessed during December 2016 and January 2017 when shipping lines unilaterally imposed congestion surcharge on imports to Pakistan. Some shipping lines, it has been reported, have withdrawn the congestion charge whereas other continue to collect it as a windfall. The lesson to be learned remains elusive. This lesson is that the supply chain as a whole needs improvements and a good place to start is with improvements at the ports.
 

While on the topic of surcharge, the point to ponder is why our ports and container terminals remain dumping grounds to empty and laden containers that either nobody needs or have forgotten about. The TPX yard at M.T. Khan Road in Karachi is a befitting example of what could have been achieved but was not. This stretch of prime real estate could have been developed into a modern business district or could have been put to other better use than being a resting place (final in most cases) for hundreds of thousand empty boxes that the shipping lines have forgotten all about. A similar sorry state exist within the container terminals where ground slots are occupied by empties that have nowhere to go except for creating trouble for efficiencies by increasing congestion and dwell times.
 

Empties set aside, the menace of abandoned cargos lying at terminals draws one to wonder why this should happen when customs laws permit the auction of such cargo should it remain un-claimed or un-cleared at the container terminal for a period of more than 20 days. After all, it is in the interest of customs’ revenues that the cargo be auctioned as expeditiously as possible in order for it to fetch the highest possible price at the auction. Here too, as in so many other junctions, a mafia and certain vested interests have fine-tuned their act. Such auctions, in most cases rather than less, are finely choreographed acts where each actor has practiced the moves and lines so many times that they all now come naturally when the lights are switched on. The biggest losers from these auctions remain the terminals that recover none of their dues when all is said and done.
 

Recoveries on account of customs revenues are a fraction of what was owed. Some individuals on both side of the divide, however, could be seen laughing all the way to the bank, figuratively speaking as only a trickle of what was exchanged might find its way to any banking transaction.

As an example to the above, there is an average of about 1,500 laden boxes for the three years from 2014 to 2016 that are still lying at KICT for want of auction or destruction. These boxes will neither generate revenue for the terminal nor will vacate the space that they are occupying so that the same space can be occupied by revenue yielding boxes. The terminal is handicapped to take any action regarding these and similar long idling boxes in the absence of approvals from customs. Customs, as has been the practice for the past two decades now, will continue to drag its feet on the matter. Similar idle box issued are being faced by PICT and by QICT where the aggregate of idle boxes as at the end of 2016 was over 3,600 units.
 

What is alarming is that industry experts have indicated that idle boxes have also started accumulating at SAPT which started its operations recently in December 2016 warranting serious action from the concerned authorities to contain inefficiencies in the already stressed supply chain.

The point is that these are the inefficiencies that plague the entire system. The system related inefficiencies are not confined to any one port or to any one terminal. They are now an epidemic that adds unnecessary costs to the entire national economy. The unresolved matter of the Karachi Dock Labour Board, the improvements required to the road networks within port areas, the requirements for rail based clearance of cargo, the relocation of sites for handling of dirty cargo and the training of government officials towards use of modern technologies are some of the areas where significant improvements can be made.
 

As Pakistan’s exports continue to drop and imports grow, the trade gap widens by the day. Similarly, the inefficiencies in the system become more pronounced. The cost to the economy as a result of the inefficiencies highlighted above, and the costs originating from several others that could not be addressed herein for want of space, can be estimated to run in billions of rupees on an annual basis. This is something that a developing economy like ours can ill afford to absorb in the long term.

Congestion Charge by Shipping Companies

Drewry Maritime Research, a shipping consultancy of international acclaim, in its Annual Review 2016 of Global Container Terminal Operators has forecast a lackluster average global growth of 2.7% per annum for the next five years for global container ports as the industry moves from being a growth sector to emerging as a value sector. It turns out that the only global region wherein Drewry is confident of double digit growth happened to be the South Asia region of which Pakistan is a constituent. Indeed, the annual containerized growth rate for Pakistan for the last two years has remained double digit with the 2015 growth being over 14% and 2016 over 16%. Industry pundits foresee 2017 to clock an attractive 15%, thus far above the global forecast of 2.7% as prophesized by Drewry.

As the Advisor on Shipping to the Karachi Chamber of Commerce and Industry (KCCI), the Shipping Committee of the KCCI has during a recent meeting supported me in taking up the matter of imposition of congestion charge by shipping lines at the highest level with the government. The business logic behind this action by shipping lines eludes comprehension given that this region shall remain a cash cow for these shipping lines coupled with the fact that the capacity in Pakistanout paces current volumes.

Pakistan’s capacity at the beginning of 2016 was approximately 2.5 million TEUs while the three container terminals, namely Karachi International Container Terminal (KICT), Qasim International Container Terminal (QICT) and Pakistan International Container Terminal (PICT), were handling a combined annual throughput of over 2.8 million TEUs. To elaborate this point, KICT for example handled 1.1 million TEUs in 2015 as against a designed capacity of about 0.75 million TEUs. The other two terminals too remained full past the brim to coupe with volumes above and beyond their designed capacities. Despite the difficulties faced by the container terminals in Pakistan, the profits of shipping lines calling at Pakistan remained bright green without any mention of a congestion levy.

The capacity situation by the end of 2016 changed for the better for all industry stakeholders including large importers and Customs when South Asia Pakistan Terminals (SAPT) commenced its operation by adding 0.55 million TEUs to the overall capacity upon completion of the first of four phases of the US$600 million project. With another 0.55 million TEUsin capacity expected by June this year upon completion of the second phase, the project is expected to yield a combined capacity of 3.1 million TEUs when all four phases are complete by the year 2020. With these numbers, the container terminals in Pakistan are nowhere near a state of congestion and are not foreseen to be in such a state for at least the next 8 to 10 years.

A related article published by  business recorder on 26 March 2017 states that shipping lines have initiated collecting from the consignee at destination before delivery US$150 and US$300 on 20ft and 40ft containers respectively. Shipping lines, it has emerged, claim that the dwell time for containers lying at the terminals is far beyond what it should be and thus have tried to justify this charge. The lines further contend that the loading and unloading of boxes to and from vessels has remained slow resulting in extending in port stays for the vessels. The said claims by shipping lines warrants a thread bare analysis as follows.

The overcapacity handling witnessed by terminals during 2015 and the better part of 2016 was as a result of growth in import volumes overwhelming the handling capacities available at the ports. The market shares of KICT, QICT and PICT as a percentage of total volumes remained pretty much unaltered on a year on year basis thus suggesting that there was no disruptive wheeling and dealing by the terminals resulting in kicking the market off balance by the terminals. Shipping lines continued to enjoy a growth in volumes during this period and there were no complaints by them of earning revenues above their forecasts despite terminals being overwhelmed. This was the period when a congestion charge could have been justified but not without argument. However, this was also the time when shipping lines were losing money globally and were focused on ways and means for containing the hemorrhaging to their bottom lines.

With SAPT adding not only land side capacity but also berth side capacity for shipping lines in Pakistan, the claim relating to congestion resulting in delays to the vessels seeking a berthing window remains hard to digest. As witnessed since December 2016, the capacity spillover of the terminals has been absorbed by SAPT and vessels are no longer confined to wait at the outer anchorage for up to two days at times for want of berthing space. Given rationalization of throughput post SAPT commencement of operations, the other terminals are no longer stretched beyond their limits thus naturally resulting in improved handing efficiencies both at the berth and in the yard. Thus a potentially win-win situation for all stakeholders.

It may be argued that shipping lines have been allowed to get away with imposing a congestion charge because there exists a void in the form of a unified forum empowered to take-up the matter directly with the shipping lines. The shipping lines must also remain mindful that as volumes grow in the coming years, both as a natural result of organic growth and the booster shots expected in the form of CPEC, the bargaining power of large Pakistani importers shall also grow which could potentially further depress that already rock bottom haulage rates being witnessed by these very lines. A congestion charge today may leave a nasty after taste in the years to come. This coupled with the possibility of a representative body such as the KCCI taking up the matter with the government seeking policy intervention could leave shipping lines being penny wise and pound foolish.

It remains to be seen if shipping lines will focus on developing trade within the region, especially in Pakistan or will prefer a short term quick gain in the form of a congestion charge and restricting maneuvering space in the future. Drewry in its report for 2016 also predicts a change in demographics within respective regions with this change being a natural outcome of markets within the regions maturing earlier than expected. These changes and their possible implications on the profitability for shipping lines in the long term as argued by Drewry could imply that shipping lines would be best advised to take a long term view of high grown markets as against a short term view.

Energy for our ports

World Port Terminal Operators clubbed to use alternative energy as a source to power the terminal and ports. Our resources are limited but our creativity is unlimited. Due to the power shortage, tariff is sky high particularly that of K-Electric, making Pakistan’s exports uncompetitive in world markets. At the same time, Karachi’s industrial area and its port are water-starved, and so is Gwadar Port. It is imperative to opt for desalination to make desalinated water available not only our industry and ports but also the public at large.

But how to harness our natural resources to generate power and produce desalinated water? Alternative energy is big news, as 147 gigawatts of renewable energy went online in 2015. Having enjoyed the downward spiral in fuel prices, the forecast is that oil may touch $ 70 per barrel, making it imperative to switch to solar and wind energy and hydropower.

To ports, worldwide alternative energy is becoming an ever-popular choice, as a more efficient solution that is also environment-friendly. For ports renewable energy is becoming a cornerstone of their business. Cutting cost, opting for solar arrays and wind turbines. DP World recently started the biggest distributed solar rooftops project in the Middle East. In all, 88,000 solar panels are installed at DP World in Dubai, such as warehouses, offices, car parks in the Jabel Ali free zone. Dubai expects to save 22,000 tons of carbon annually. More panels may be launched at Mina Rashid. The UAE Vision 2021 is committed to working towards a carbon-neutral future.

 

India is not lagging behind, so APM Terminal in Mumbai is generating solar power up to 361,000 KWT per year from rooftop panels. It intends to install solar panels on ship-to-shore gantry and machine houses to get an extra 220,000 KWT per year. It is unfortunate that our leased terminals and port have yet to install rooftop solar panels for power generation.

Cost is a notable factor for ports looking to use alternative energy solutions. The port of San Diego on the US west coast reduced gas emissions and cutting utility cost. The port generated 251,000KWH of solar power by spending $ 341,000 on the solar power system. The result: cost savings of roughly $ 251,000 in 2014-15.

Our government can educate users to install solar rooftop panels. Returns on the investment required may not be visible for some years, but greenhouse gas reduction is what really matters.

By looking at natural ways of generating energy, ports cannot take daily operations into account, without seeing the bigger picture: less carbon emissions mean a healthier future for the population.

Ports are sky nodes in the supply chain. They are a small part of the total supply chain emissions, they play a critical role in creating a sustainable supply chain.

Our port authorities’ concession agreements make it imperative that the concessionaire on BOT basis may generate its alternative energy and water for its use, enable us to save both power and water, to avoid burdening the local population with power cuts and water starvation. Let us begin from ports and give incentives to all industries to generate power, water and have water treatment plants, to save our marine life and our beaches. I hope that our port authorities will consider proposal. They could visit the UAE, Mumbai and other regional ports to see the use of alternative energy. They could consider replicating their use in Pakistan, because it is not too late yet. The World Bank has already published Pakistan’s solar map and is willing to fund projects as well. Our circular debt has crossed the Rs 400 billion mark, and thus IPP may cease operation. Let us kick-start renewable energy projects taking the World Bank onboard. (The writer is maritime adviser to the Karachi Chamber of Commerce and Industry)

The flag of convenience

There has been a searching query as to why Pakistan's private sector is shy to invest in shipping since that industry's demise in 1973 because of its nationalisation. Serious efforts were made to revive it, but failed to attract entrepreneurs to the shipping industry. The option in MSO 2001 for dual registry has not worked. Pakistani's ship-owners are operating on flag of convenience, but are not willing to buy incentives offered under the Pakistani flag.

Having been associated with the industry for over five decades, I am of the opinion that Pakistan may create offshore registry as flag of convenience as some European countries have done. It is food for thought, needs brainstorming and deliberation at the Ministry of Ports and Shipping and the Planning Commission. I feel it may encourage Pakistani nationals to turn to ship-owning under the Pakistani flag.

I am giving the background of flag of convenience which attracts ship-owners around the world.

According to the United Nations Convention on the Law of the Sea 1982 (UNCLOS), every ship should sail under a state's flag and every state (even States which have no marine borders, like Mongolia) has the right to have vessels flying its flag. The ships are subject to the jurisdiction and control of their flag state and have to comply with the state's laws and regulations covering the standards of vessels construction and equipment, the manning of the ships including the labour convention MLC 06 onboard, the safe navigation and the protection of the environment. Since the flag will define the requirements of the vessels construction and operation, the decision of which flag to register the vessel is of utmost importance.

In open sea, we are looking at every opportunity which helps ship-owners to cut their operational costs, so I decided to analyse one more traditional way and look on it from the charterers' perspective as well. In the past, the choice of the flag was easy since the owners registered and crewed their ships in the country where they conducted their business. However, this changed around the middle of the previous century when American owners found that there was a very high cost involved in running the ships under the American flag (mainly due to high crew wages) and it made it impossible for them to be competitive in the international shipping market. Therefore, they searched for a country/flag that would allow a foreign owning company to operate its vessels under the flag without the need for the ship-owner to have operating or financial substance in this country and would also allow the employment of crew of any nationality and without minimum wage scale, while at the same time the taxation would be minimal. Finally, they found this state of affairs in Panama and Liberia which had already established open registries. During the following decades, traditional owners from Europe and Asia adopted the same approach in an effort to lower their operating costs and become still more competitive. Therefore, a status quo was appeared with similar states/flags being known as "flags of convenience" or "free flags."

From the statistics, we see that only six flags control 77 percent of the vessels registered under flags of convenience. But why ship-owners prefer flags of convenience? There are specific advantages for using flags of convenience instead of the traditional/closed flag registries, the most important of which are the following:

Higher flexibility: Ship-owners can register their vessels in any of these states without any requirements for citizenship or presence of the (actual) shareholders or the (actual) company. Also, they are free to change the vessel's registry at any time without any restriction whatsoever, and without a pre-registry survey (except on specific occasions such as a vessel operating for more than 20 years).

-- Lower operating costs: Ship-owners who use flags of convenience can save costs mainly on the crew's wages and maintenance costs. Flags of convenience do not have any requirements as to why the nationalities of the crewmembers and are not subject to minimum wage scales. Since the crew's expense is one of the most important aspects of the vessel's OPEX (operational expenses), by not having any restrictions, ship-owner can search for the cheapest crew available anywhere in the world. Furthermore, the flags of convenience are used to have looser manning rules and more relaxed safety standards than the closed registries, which subsequently results in lower expenses on maintenance and repairs. A survey in 2010, for comparison between the US-based ship-owners those who had their vessels registered under the US flag and the US-based ship-owners who had their vessels registered under a flag of convenience showed that the average crew cost for the US-flagged vessels was about $13,600/day while the relevant average cost for those under flags of convenience was only $2,590/day. On the other hand, the average maintenance and repair cost for the US-flagged vessels was estimated at about $3,000/day while the cost for foreign-flagged vessels was at about $2,400/day. The more expensive crew wages and maintenance/repair costs for the US-flagged vessels made a huge difference on the total OPEX, which for the US-flagged vessels was about $20,000/day while for foreign-flagged vessels the daily OPEX was estimated about $7,400.

Anonymity: In order for a ship-owner to register a vessel under a flag of convenience, the only thing he needs is a P. O. Box or a virtual company/office and the actual shareholders in these jurisdictions may not be reported/disclosed at all. This might be important in order to avoid liabilities which might arise from the operation of the vessels.

Flags of convenience are generally considered registries of lower quality than the closed registries and this is because of their relaxed requirements as well as the room they give to the ship-owners to employ seamen of any nationality. In the past, the gap in quality was surely higher since the control for the implementation of the International regulations was mainly based on the flag states and the ship-owners could take advantage of their relaxed approach. Though the scene has changed in the past decades when the Port State Control regime was developed and the Port States have taken then authority to inspect foreign ships, check whether they follow the international regulations and share the results of the inspections with all the interested parties (ie, other port states, flag states, classification societies and charterers). The MoUs (ie regional memoranda of port states) also publish annual reports with an evaluation of all the flags, depending on inspection results and categorisation of all flags into white, grey and black lists.

From what we can see, there are some flags of convenience which are included in both the white list of the Paris MOU and the high-quality list of USCG. It does not necessarily mean that the flags of convenience are of higher quality than the closed ones but it definitely shows that high-quality vessels and traditional owners prefer specific flags of convenience not in order to benefit from a sub-standard maintenance programme but mainly in order to get rid of the crew synthesis requirements which is still a fact in reputable closed flags.

From the 1960s we note that less than 40 percent of the flags of convenience are included in the white list of the Paris MoU and less than 20 percent of them in the USCG Qualship21. If we also compare with the total flags included in each list we will see that about 32 percent of the Paris MoU white flags are flags of convenience and about 26 percent of all the flags described as Qualship21 are flags of convenience as well. On the other hand from the target list of the USCG, almost 65 percent are flags of convenience.

How flags of convenience affect Charterers and what is their position?

In general, when charters see a vessel, they divide flags into 4 main categories: 

-- Traditional flags of high quality according to their PSC history

-- Flags of convenience of high quality according to their PSC history

-- Traditional flags of lower quality (grey zone/black zone of the PSC MOUs)

-- Flags of convenience of lower quality (grey zone/ black zone of the PSC MOUs)

Charterers would prefer to totally avoid flags categorised in (3) and (4) above, while a point of choice between (1) and (2) might exist in case of period time-charter or in case of a voyage-charter with loading and/or discharge taking place in the ports of developed countries, which are more sensitive in international regulations and the vessels' condition. In this case, all other factors remaining the same, they would prefer to go with the (1) and in some cases, they might also pay a premium for such vessel. A problem that Charterers might face with flags of convenience is the higher cost of the cargo insurance which might be imposed on certain occasions and which would make a difference on the freight per ton. Another main problem might be a potential delay at ports due to the higher rate of PSC inspections and thus the higher risk for a long lasting detention (even if it on ship-owners' shoulders). Despite the fact that, according to the Paris MOU's evaluation, there are flags of convenience with better evaluation.

Inspections which have taken place on vessels with such type of flags seem to be much more than the inspections in similar quality closed flags. This is because the port state authorities believe that the flags of convenience are still riskier than other reputable traditional flags such as the Norwegian and Greek ones. The number of vessels registered in both closed flags and flags of convenience along with the number of inspections reported by the Paris MOU Port State authorities during the same period (2013-2015).

The Greek and Cyprus flags have about the same number of the registered vessels in their fleet, while their PSC evaluation is nearly the same (according to Paris MOU). However during a period of three years there were 2,008 inspections for Cyprus-flagged vessels and only 902 for vessels with the Greek flag. The same story applies to the Singapore flag and its comparison with two other flags of convenience (Marshall Islands and Malta). While two other flags of countries in the European region (Norway and Gibraltar) with similar PSC history seem to experience the same approach with higher inspections (proportionally compared with their registered vessels) for the country which is considered FOC.

Therefore, the Flags of Convenience seem not to be a bad thing and especially after the development of the Port State Control regime, there is an independent control on enforcement of the International regulations and the minimum vessel's standards. Therefore, we see that few of the flags of convenience rated among the best quality flags in the world. On the other hand, the risk for these flags is still considered higher than the reputable closed flags and there are a lot of charterers who would still give a credit to vessels registered under such flags, especially in more specialised vessels or trades. Though, as the minimum international regulations and standards become stricter, the quality of these FOCs will also be necessarily improved in order to comply with the minimum requirement and I expect that the quality gap which still exists will further decrease in the next couple of years.

While most ship-owners are trying to increase their profits by decreasing their OPEX, the open sea marketplace helps them explore and develop more business options, find best-paying cargoes quicker than their competitors and increase their revenues. It is food for thought for our national line, which continues to make profit under close registry due to better management. However profitability will further improve by opting for open sea flags, be it a Pakistani offshore flag.

'Go-slow policy' challenge

The Federation of Pakistan Chambers of Commerce and Industry is concerned at the "go-slow policy" adopted by the Karachi Dock Labour Board as reported in Business Recorder. This policy was adopted by the Labour Board's workers at the Karachi Port from Dec26 to 30. Going slow is an industrial action through which employees do perform their duties but with the intent to reduce efficiency or productivity. It is usually applied as a pressure tactic for the acceptance of their demands. FPCCI senior vice president Khalid Tawab urged all sides to amicably resolve their issues and stressed that the Labour Board should refrain from extreme measures and agitation as the country can ill-afford such disruption. The go-slow has resulted in serious congestion at the port with vessels having to wait for several days for want of berthing space, and cargoes piling up inside the port awaiting clearance, causing serious losses to trade and to the economy. The backlog resulting from this disruption is still being felt at the Karachi Port. Let us explore the origins of the Karachi Dock Labour Board and to the issues related to the troubles.

The Board finds its origins in the pre-mechanized era of ship handling when the loading and discharge of cargoes from freight vessels was done by way of physically handling of the cargoes. Traditionally, ships' cargo was hoisted in large cargo nets that were hoisted under a crane's hook and first lifted and then lowered into place either in the vessel's hatch or on the quay deck. The dock labour would physically carry these pallets, bales, barrels, cases and sacks onto or off the net and stack them in an orderly fashion. This was back breaking work that required dock workers to shift cargoes quickly in order to minimise the time that the vessel remained at port while it waited for the loading and discharge operation to conclude. At times this required the vessel to remain in port for several weeks. Regardless of how swiftly the dock workers managed the discharge and loadings, the logic behind physically shifting cargos remained an inefficient and inhumane concept.

With the advent of intermodal freight handling through containerised cargoes in the 1950s, the need for physically handling these cargoes subsided and cargos loaded into standardised containers dramatically reduced transport costs, supported the post-war boom in international trade and was a major element in globalisation. Containerisation did away with the manual sorting of most cargo shipments within the port area and moved this activity to the off-dock warehousing. As the economics of intermodal cargo handling became apparent to businesses the world over, it displaced many thousands of dock workers who formerly handled break bulk cargo. Containerisation also witnessed a swift reduction in congestion at ports, significantly shortening shipping times and was key for the reduction of cargo losses from damage and pilferage.

In response to the Dock Strike of 1945, the British Parliament introduced the "Dock Workers' (Regulation of Employment) Scheme" in 1947. The scheme was administered by the National Dock Labour Board and was financed by a levy on the employers. The board was responsible for keeping a register of employers and workers, paying wages and attendance money, controlling the hiring of labour and was responsible for discipline. The British National Dock Labour Scheme was abolished in 1989 by the Conservative government under Margaret Thatcher whose Employment Secretary, Norman Fowler, told MPs that the scheme had become "a total anachronism" and that it stood in the way of a modern and efficient ports industry.

With respect to dock labour, the Port of Karachi has remained stuck in the 1960s with the unnecessary burden of the Karachi Dock Labour Board. The government of Pakistan promulgated the Dock Workers (Regulation of Employment) Act, 1974, to regulate the activities of dock workers and to improve their standards of living. At present, there are about 2,800 workers registered with the Labour Board. The scheme introduced under this Act requires that a payment of cess be made to the Board for cargo handling at the Karachi Port. This cess is charged at the rate of Rs 48 per metric ton for general cargo and at Rs 800 per TEU for containerised cargo. In addition to this cess, gangs of dock workers are required to be hired in shifts for the length of the vessel's stay at the port. The cumulative cost for containerised cargo comes to about Rs 1,300 per TEU. This cost is eventually transferred to the owner of the cargo who will naturally pass on the cost to the person next in the supply chain, thus increasing the overall cost of transportation for the economy.

The two container terminals currently fully operational at the port, KICT and PICT, handle a cumulative volume of about 1.9 million TEUs per annum. At Rs 1,300 per TEU the Labour Board charge comes to approximately Rs 2.47 billion per year. This number translates to about Rs 882,000 per worker per year, given a total of about 2,800 workers registered with Labour Board at present. It must be kept in mind that these numbers only relate to the two container terminals occupying seven berths at Karachi Port and not to the other shipping activities at the other 23 berths of the port. To sum up, approximately Rs 882,000 is paid per worker per annum for doing no work at all, resulting in a straight line loss of approximately Rs 2.47 billion to the economy. With another container terminal coming into full operations by February at the KPT's flagship project, the Pakistan Deep Water Container Port, this loss to the economy is set to increase exponentially. It is the need of the hour to direct government policy towards avoidance of this loss to the economy of Pakistan. The mostly bulk cargo loading and discharge at the other non-containerised berths is also undertaken through mechanical rather than physical means, thus rendering the entire Labour Board scheme irrational and out of date.

No charges related to dock workers are prevalent at the Port Bin Qasim situated at a distance of about 48 kms from the Karachi Port as it does not fall within the jurisdiction notified by the government for the imposition of a Labour Board charge. Even liquid cargo including crude oil, molasses and petro products, handled at the Karachi Port are exempt from the Labour Board levies, given the logic that these are not physically handled and instead pumped through pipelines.

Similarly, in the case of containerised cargo, no physical handling is required with the container terminal operator managing all loading and discharge to and from the vessel by deploying cranes. The aim of the game for container terminal operators is to keep costs down and to ensure a swift turnaround times for vessels. Dock workers physically handling cargos cannot and does not factor into this equation. If this is the case, where the KDLB is paid for each container handled at the Karachi Port thus increasing overall costs.

It is time that the government of Pakistan took a cue from the British Conservative government of 1989. It should rethink the Labour Board scheme has already proved to be an anachronism and which stands in the way of turning the Karachi Port into a modern and efficient port. A compulsory payment for no work done cannot be justified on the grounds that it is backed by legislated. The legislation may have been relevant when it was formalised. However, times and methods have changed since then and so should the legislation. These unskilled workers need to be eased into skilled trades so that they can also contribute towards the uplift of the economy of Pakistan.

The Federal Minister of Ports and Shipping personally intervened to normalise the port operation, as reported in the print media.

It is food for thought for Ministry of Ports and Shipping to take a policy decision which may be a win-win situation for all stakeholders. In 2006, some initiative was taken, but it was left half way, without resolving the issue. At KCCI, trade complains of high handling cost, thus, issue may be amicably resolved, so that extra burden on trade is minimized.