Pakistani Ports

 

Pakistan’s ports handled a total trade volume of approximately 110.69 million tons during 2019. In 2020, with Covid-19 slowing the global economy, the volume dropped to 92.85 million tons, thus a difference of about 17.84 million tons or about 16.12% between these two periods. Almost the entire aforementioned volumes were handled by Karachi Port and Port Qasim, both situated at Karachi. These two ports remained operational throughout the height of the pandemic while numerous ports around the world either scaled down their operations or closed up shop altogether sending the global supply chain into a tailspin the effects of which are still being felt in terms of recent sky-high freight costs in the containerized sector.

Criticism has recently been levelled against the performance of Pakistan’s ports by certain quarters sans the required technical and operational knowledge required for a deep understanding of such complex matters. I have been involved in ports- and shipping-related matters for over the past 50 years, both as a seafarer and in various capacities as a subject matter specialist. Based upon my knowledge and experience, I shall seek to clarify various issues that continue to remain hazy.

It has been said that Pakistan’s ports are inefficient and expensive and in doing so, examples of European and East Asian ports are thrown about with the implication that we should compete with those ports. Dreams for a better future are essential but before one aspires to such lofty ambitions, we should be familiar with certain ground realties. Only by diagnosing the problem rationally and dispassionately can we grow as a nation.

Ports play a central role in the materialization of economic growth in any country. Pakistan is indeed blessed and has often been touted as a geostrategic hub, a sliver of prime real estate located in close proximity to major economic power houses. Despite this, the realization of Pakistan’s geographic potential has remained elusive. Pakistan has been relegated to the position of a regional feeder port. In order for Pakistan’s ports, and consequently trade volumes, to grow and to evolve into a transshipment hub, a prime destination for global cargos, several expansive measures are required.

Geography plays an important role in the success of any port. Unfortunately, Pakistan’s two major ports of KPT and PQA are not located in close proximity to any major container shipping route. The main circum-equatorial maritime route that goes through Panama, the Strait of Malacca, the Suez and Gibraltar, which has the most traffic, passes from the Red Sea towards Sri Lanka almost entirely bypassing the Arabian Sea. The North South route, from Europe to the Middle East, moves from the Red Sea into the Arabian Gulf once again bypassing Pakistan’s territorial waters.

Since Pakistan cannot relocate near these routes the most ideal method would be for Pakistan to pull these routes towards it by growing exports substantially and sustainably. The reasons for higher imports and lower exports are well documented and beyond the scope of this article; however, a lack of significant generation of indigenous cargoes over the years has limited the growth potential of our ports.

Obviously, just like any other country, there are inefficiencies which certainly need to be resolved. Other international, high volume ports have deployed sophisticated modern technology and as a result are highly automated. Since Pakistan has lower volumes and low labour costs, the requisite investment in our ports sector has not been as substantial as that in many European ports. However, if we were to compare Pakistan’s ports with other such similar ports we would find that our volumes are not subpar. For example, Jawaharlal Nehru Port, the largest container port in India, has volumes of 56.43 million tons (2019-2020). Therefore, a comparison of Pakistan’s ports with leading ports of say Europe or Far East would be illogical. The cardinal rule is that like should be compared with like rather than unlike. Any such comparison should be restricted to similar regional ports such as Mumbai or Cochin, etc. In doing so, it will be concluded that Pakistan’s ports are efficient and the pricing of their services is competitive when compared to similar ports in the region.

In some situations, only one port can logically provide access to hinterland markets. This may result from geographical features, lack of adequate transport infrastructure from all but one port, political issues, or other factors. The port of Djibouti currently has a virtual monopoly on access to the Ethiopian market as a result of the conflict between Ethiopia and Eritrea and the lack of transport infrastructure from neighbouring Somalia. Dar es Salaam is the major entry point to Tanzania, as well as the neighbouring landlocked countries of Zambia, Burundi, Rwanda and Malawi. Although Pakistan is ideally situated to access landlocked countries such as Central Asian Republics, Afghanistan and Western China, the potential of Pakistan has not been realized primarily due to the conflict in Afghanistan resulting in low trade volumes.

More recently, containerized trade has seen record high rates which were caused by the Covid-19 pandemic and subsequent shuttering of large parts of the global economy. Containers were continuously being shipped from export intensive regions (an example would be China) to import-intensive regions (an example would be the USA). These import-intensive regions were not exporting sufficient volumes to recirculate containers back into the global pool due to the pandemic. This caused a massive shortage of containers. Combined with blank sailing imposed by carriers to compensate for faltering demand, it caused container rates to skyrocket. However, it should be mentioned that these high rates are not sustainable since they are caused by artificial means and a misallocation of resources. Pre-pandemic, volumes shipped were higher and the rates were lower but currently volumes shipped are lower and the rates are significantly higher despite the available floating tonnage remaining substantially the same during both periods. This situation is unsustainable and has already started to reverse itself as market forces, due to higher prices, are causing more supply to enter into the market.

The pricing at Pakistani ports is essentially driven by market forces beyond the control of Pakistan’s sea ports. The notion that our ports are inefficient and costly is absolutely unfounded as our ports cannot be compared with large, automated and hub ports. It must also be recognised that even though there is always room for improvement, given the available resources and ground realities, Pakistani ports remain the best performing ports in the region as already witnessed during the ongoing pandemic.

(The writer is an advisor to the Karachi Chamber of Commerce and Industry)

 

A Disaster For Seafarers

ARTICLE: Prior to 2020, it would have been considered unimaginable that a virus could disrupt the global economy, sequestering billions in their homes with global productivity sinking like a stone. It has been 8 months since the previously inconceivable became an everyday reality and since then, most of the world's population has been under lockdown.

As a result of COVID-19, in the midst of an unavoidable persistence of social distancing rules, consumer behavior may have altered permanently, which will invariably contribute towards keeping certain sectors of the economy shut. Unemployment has sky-rocketed and many industries which were previously considered the bastions of prosperity are now on the precipice of bankruptcies.

Despite all of this, essential functions such as hospitals, pharmacies, groceries and utilities kept chugging along. There have been scenes of hospital workers being applauded by entire cities (rightfully so) and countries celebrating their oft-ignored essential workers, appreciating their efforts in this time of need. Every country has allowed essential workers the freedom of movement so that they can do their jobs and maintain some semblance of social order.

However, there is one group of essential workers that has been collectively ignored by the world-the ones who ensure that hospitals have Personal Protective Equipments (PPEs), pharmacies are stocked with medicine, grocery stores are full of essential food provisions and utility companies have the energy they need to power your home. As many as 1,647,5001 hard workers honored and appreciated by none. Their movement is restricted, with a majority of countries wrenching the welcome mat from under their feet. These are our seafarers.

During this entire crisis, seafarers refused to abandon their posts and discharged their duties faithfully. While most of us were safe in our homes, seafarers were the ones who braved rough seas and inhospitable environments to ensure we continued to live our lives in relative calm. If COVID-19 penetrated their vessels, they didn't have a home to self-isolate themselves. With limited aid from outside, they had no option but to remain onboard and get the job done. When their services ended, they did not expect a congratulatory note but they did expect to go home. Every country slammed the door in their face. Fear of the coronavirus prevented them from allowing seafarers inside their borders, even if it was just for the purpose of transit, repatriation and getting replacement crew onboard.

This situation has persisted for months and now it is approaching a point where it threatens to become a humanitarian disaster, affecting nearly 40% of the world's seafarers. Approximately, three quarters of crew changes on the world's international fleet of 50,000-plus ships have not gone through since COVID-19 caused travel restrictions and grounded airlines in March, leaving an estimated 300,000 seafarers stranded at seas. Seafarer Employment Agreements have expired for about 35% to 40% of seafarers currently onboard ships. Of these, 10% have served between 12 and 17 months, far beyond the nine-month industry standard and in excess of international maritime labour conventions' limits. A further 300,000 are unemployed in their home countries, awaiting the go-ahead for crew change to relieve their colleagues2.

It is inhumane to leave our sailors stranded out on the water, whilst everyone else enjoys the fruits of their labour. They are being forced to spend months in relative isolation and all the while being unsure about whether they will be compensated for their forcibly extended tour of duty. These circumstances can have a profound effect on one's mental and physical wellbeing. None of them signed up for this sort of treatment and they certainly don't deserve it.

Society has turned a blind eye to the plight of seafarers and there will undoubtedly be consequences. With increasingly fewer numbers signing up for this profession, this incident will ensure that those numbers decline even further. No human being wants to be put in harm's way and then be abandoned wholesale. In the larger scheme of things, with diminishing numbers of seafarers to ensure the transit of goods and materials through international waters, we may witness a slowdown in global trade with a possibility that the global economy itself will be ripped apart. Should cargos cease to be transported, domestically available raw materials will not be sufficient and industries will close causing job losses, piling on top of the miseries caused by COVID-19.

Although the virus has subsided in most countries, its fear still remains. Public pressure has forced countries to keep their borders closed. The vast majority of countries still do not allow sailors to disembark from their vessels. Some countries such as the UK, the USA, Egypt, Panama, Denmark, India, Malaysia and the UAE have allowed crew change, at least for now. Others such as Singapore and Hong Kong, where crew changes were previously allowed, have introduced tougher regulations due to coronavirus resurgence, making crew change for foreign-flagged vessels almost impossible.

Pakistan's flag carrier, Pakistan National Shipping Corporation (PNSC), is also affected in arranging crew changes for its bulkers which have global tramping operations. PNSC has secured crew transfers for two of its vessels, namely Sibi at Dakar (with connecting flights through the Middle East) and Multan at Karachi anchorage. However, if the situation persists it may adversely impact operations.

Beyond irrational fear, if SOPs are followed, crew change and repatriation can be safe and simple. Countries should have testing capability at all sea ports, wherein testing of the crew can be undertaken promptly. Infected crew members, instead of being quarantined on the ship for 2 weeks, where they will be in close quarters and can cause the virus to spread, should be removed (observing necessary precautions) and placed in isolation on shore. Following negative tests, the crew should be escorted directly to the airport, where they can board their respective flights without delay.

Governments should act responsibly and take measures that will facilitate the movement of seafarers to and from their ships, to ensure an unimpeded flow of international trade and peoples' well-being. It will be the right thing to do and may just save the entire seafarer profession along with the global economy from further havoc.

 

In view of the above, it is high time that the International Labour Organization and the International Maritime Organization work towards delivering tangible results towards solving this pressing issue. Much has been said, however, actionable results are required and awaited. This writer also takes this opportunity to commend Pakistan National Shipping Corporation on making all out efforts towards crew change on their managed vessels and the Ministry of Maritime Affairs for its guidance and support in this regard.

(The writer is an advisor to the Karachi Chamber of Commerce.captshah1@hotmail.com, captainanwarshah.blogspot.com)

Inducting Private Sector Into Ship Owning

Business Recorder, Sunday, 21 July 2019

Successive governments in Pakistan have been making efforts for the revival of the shipping industry since the early 1990s. A number of policy decisions and taxation incentives have been offered from time to time, however, these efforts have remained unsuccessful for a number of reasons. The primary reasons for the failure to attract the private sector are that policies have remain inconsistent and tax incentives have been offered and withdrawn repeatedly on knee-jerk decision making basis. The 1990s and early 2000s also witnessed damaging unionization of seafarers who did more harm to the shipping sector than any government could have. These unionized crew and officers did a wonderful job of shooting themselves in the foot and destroyed investor confidence completely. The 1960s and the 1970s witnessed a preference for Pakistani seafarers globally; however, today Filipino, Greek, Russian and Indian crews and officers are much preferred over Pakistanis.

It is in this backdrop that the Ministry of Maritime Affairs has recently made attempts for the revival of the Pakistani shipping sector. Realizing that any such revival cannot be brought about by Pakistan National Shipping Corporation (PNSC) alone, the Ministry has rightly laid the grounds for the private sector to participate in local ship owning. The Ministry has adopted a policy whereby various incentives have been offered to investors to establish private shipping firms and to register their vessels under the Pakistan flag. With the annual shipping bill for imports and exports touching about US$4-5 billion, the field is open for private ship owners to enter this field considering that PNSC caters to less than 10% of the said shipping bill.

The ECC of the Federal Cabinet, on a summary moved by the Ministry, has recently extended incentives to the Pakistan flag and offered the Pakistan flagged vessels certain protections. These incentives are not PNSC-specific; these are actually designed to promote the Pakistan flag whether the vessels are PNSC-owned or privately-owned, thus not to allow any monopoly for PNSC.

PNSC currently lifts a majority of the crude oil imported by refineries into Pakistan. This shipping is done by way of Contracts of Affreightment signed between the refineries and PNSC without any government involvement. Contracts have been formalized on internationally competitive commercial basis and with freight paid to PNSC in local Rupees. In spite of these agreements, some crude oil is also being imported through foreign shipping lines. Besides crude imports, the field for shipping of imported clean petroleum products is wide open to the private shipping sector as effectively all of the clean products imported by the 30 or so local oil marketing companies (OMCs) are shipping via foreign flagged vessels. Other categories of cargo are also open to competition for the private sector. The biggest such category is containerized imports and exports. This category is also the biggest in terms of the largest quantum of annual import bill.

A major tax incentive recently allowed by the ECC for attracting the private sector is the reduced tax rate of US$ 0.75 per GRT for the first five years of operations of private shipping firms whereas PNSC shall continue to pay US$ 1.00 per GRT as a full and final discharge of income tax liability for the shipping companies. The reduced rate offered vide the recent decision is broadly speaking lower than that being offered by other countries. Similarly, tax free imports of vessels registered under the Pakistan flag are equally allowed for both the private sector and for PNSC with a view to increasing tonnage in both the private sector and in the public sector.

It must be emphasized that PNSC is a government held and controlled organisation whose primary function is to ensure that vital and strategic supply lines remain operative and reliably functioning in times of both conflict and peace. In view of this, it is understandable that government cargoes deemed vital for efficient functioning of the country are diverted to PNSC for shipping to ensure that the national interests are effectively met. It must equally be emphasized that PNSC enjoys no preference for any private sector cargoes for which PNSC shall have to compete with the private sector on commercial basis.

Pakistan is situated in a region continuously engaged in conflict and with serious security and trade challenges. World powers are now, more than ever, competing for influence and control within this region and the situation continues to remain volatile and uncertain. Pakistan's neighbours remain cautiously hostile and regionally divided with divergent self-interest and ever shifting loyalties and friendships. It is in this backdrop that Iran, despite decades of war and sanctions, has remained focused towards its own self-interests and defiant towards international pressure and influence. It is widely believed that Iran has managed to do so in large part due to its almost entire self-reliance in shipping. The most recent sanctions imposed upon Iran have proved to be the most crippling ever, yet Iran continues to engage in international trade, including that of its crude oil, entirely due to the strength of its own merchant shipping fleet and their own officers and crew.

Within the region, India and even Bangladesh have over the years continued to focus on expanding their respective shipping fleets and India specially has focused on expanding and deepening its influence in the Indian Ocean region both in the merchant shipping sector and in military adventures through its Navy. India maritime doctrine recognizes that military influence cannot be complete without strategic influence within the merchant shipping sector.

The policy recently adopted by the ECC recognizes that shipping is a very capital intensive industry and highly cyclical in nature. Any investor wishing to invest in procuring vessels shall need a long-term uniform and consistent set of policies upon which that investor can base his commercial strategy. The global shipping sector has been going through the lower curve of the economic cycle in recent years and it is widely believed that the industry will begin its rise towards recovery early next year. The policy incentives of the ECC are therefore very well timed to attract investments at a time when equity will be looking for richer avenues for returns. It must, however, also be noted that the incentives offered by the ECC are not new within the international shipping circles. A large number of countries around the world have offered similar flag incentives and protection, thus recognizing the importance of local shipping. Some of them have also gone to the extent of imposing a maximum threshold for the quantum of cargo that foreign shipping lines can lift and any cargo lifted above that threshold would attract a penalty whereby the foreign shipper would be bound to pay shipping charges to the national flag carrier of the originating country despite it having done no work at all.

With the recent incentives, flag protection benefits and taxation advantages, the Ministry of Maritime Affairs has made a fresh attempt to attract private investment into the shipping sector. This latest attempt is far more focused and result oriented than the halfhearted attempts made by previous governments. However, this attempt is also just one of the many initiatives being taken by the Ministry to promote Pakistan's maritime potential, blue economy and tourism opportunities. It now remains to be seen if the private sector will recognize the opportunity being offered to it. This is indeed an opportunity for investors to capitalize on the first-mover advantage (FMA) as has been witnessed in India when private sector shipping was incentivized in 2010 and as was also witnessed in Greece when shipping-related investment was incentivized after the financial meltdown of 2011.

(The writer is an advisor to the Karachi Chamber of Commerce)

captshah1@hotmail.com

captainanwarshah.blogspot.com 

Headwinds for Pakistan's shipping industry

PAKISTAN's shipping industry is facing severe challenges on multiple fronts. In addition to unfavourable market conditions, we also have had to grapple with our own shambolic shipping history.

Pakistan's shipping industry has devolved to a point where there is only a single, government-owned, shipping company active in the market. Much of the misfortune which has befallen the indigenous shipping industry can be chalked down to two major events in Pakistan's history, namely separation of East Pakistan and nationalisation policies of the seventies.

The forfeiture of the routes to East Pakistan and elimination of private enterprise led to a general loss of investor confidence in the local shipping industry. Despite various interspersed attempts by Pakistan's government over the years, Pakistan's shipping industry still hasn't recovered from the devastation wrought by these two events.

To further complicate matters, with the exception of Pakistan National Shipping Corporation (PNSC) there is no other local company operating in this domain. Foreign shipping companies have devoured the local market share. Moreover, these companies have large economies of scale and it is difficult to remain price competitive, as they have a higher threshold for withstanding financial pain.

The government has remained apathetic and unsupportive in this situation. An example worth highlighting is Pakistan's LNG sector which hasremained closed to the local shipping industry.

The national planers, when initially negotiating LNG contracts, failed to take the local industry into consideration and instead opted to rely on foreign companies.

In order to restore Pakistan's shipping industry to good health decisive action is required. Local industry and particularly PNSC, the last bastion of indigenous shipping in Pakistan, should be sheltered and protected from the global headwinds until it achieves the critical mass necessary for it to compete internationally.

Maritime laws should be enacted which give preference and protection to vessels flying Pakistan's flag. Unlike the current Merchant Marine Policy, legislation should be drafted to explicitly enforce United Nation's recommendations on shipping. These recommendations allocate 40pc cargo to each trading partner and 20pc to independent shippers, by adopting first right of refusal.

Furthermore, cargo preferences should be established favoring Pakistan owned and Pakistan chartered vessels. Additionally any cargos generated by an instrumentality of the government should be carried by domestic carriers.

Pakistan's maritime industry is not alone in facing poor prospects. The global maritime industry has gotten tangled up in cumbersome regulations and a massive oversupply of vessels. Costs of compliance with regulations are inevitably increasing the cost of doing business. Meanwhile oversupply of vessels has become so dire that areport by OECD stated that future vessel requirements are expected to equal only in 2030 the peak of vessel completions that was reached in 2011.

All of these conditions have coalesced into a perfect buyer's market. With opportunities for revenue enhancement limited and the cost of regulations and competition taking a toll, shipping companies across the world have unenviable prospects.

Shipping companies strained by perennially plummeting market conditions are always looking out to the horizon for new opportunities and for better, more efficient ships. The situation gets further exacerbated by the fact that governments of certain Asian countries keep subsidising both builders and buyers as an artificial means to keep their maritime economies chugging. All these conditions manifest themselves as an unintended oversupply of vessels, which ensures that freight rates remain low and the cycle continues unabated.

Ask any economist worth his salt and they will tell you that the right incentives (or disincentives) can solve almost any problem. The issue here is that due to the free hand given to the shipping industry and lack of cohesive global regulation (or incentives), everybody is acting shamelessly in their self-interest and therefore everybody is unwittingly contributing to the collective devastation of the market.

The writer is an adviser to the Karachi Chamber of Commerce and Industry. This article was also published in Daily Dawn, Monday 11-March, 2019

FLAG PROTECTION AN ECONOMIC OPPORTUNITY

Any country, when drafting its maritime policies, is faced with a dilemma that is similar in nature to most other economic matters. These countries have to choose between a protectionist stance and adopt flag protection policies or opt for openness and inclusivity allowing all individuals who choose to enter the market, the opportunity to indulge in free competition.

Although, openness and economic inclusivity clearly has merits and is largely responsible for the sustainable growth achieved by the West, it is not a one size fits all approach. Freeing up an underdeveloped market and opening it up to free market forces, in certain conditions, might yield undesirable results such as lack of local labor development as well as the dearth of essential services which are crucial yet unprofitable. 

The opposite is true as well; monopolizing and restraining the market is bound to fare badly which will eventually result in stigmatizing growth and disincentivizing new investment. However, neither of these two conditions can compare to the third economic malady which, afflicts Pakistan’s shipping industry. Non-committal policies of the past, switching between nationalist and private strategies along with the Pakistan’s high ranking in the unease of doing business have left the market devoid of stability, the one crucial factor all investors yearn for. A viable and sustainable national fleet in line with Pakistan’s economic potential and national security is the need of the hour particularly when considering the recent foreign investment programs jointly being implemented by the Chinese and Saudis. 

How we got here

Pakistan has a long history in shipping starting from 1947 when Quaid-e-Azam Muhammad Ali Jinnah asked Mr. Rustom Cowasjee along with Mr. Muhammad Ali Habib to assist in the formation of the first Pakistani shipping company which would come to be known as the Muhammadi Steamship Co. Ltd. By the early sixties there were 7 prominent Pakistani shipping companies. 

Since those days Pakistan’s shipping industry has not come very far. In fact, one can argue that it has devolved to a point where there is only a single, government owned, Pakistani shipping company is active in the market. Much of the misfortunes which have befallen the indigenous shipping industry since then can be chalked down to two major events in Pakistan’s history, namely separation of East Pakistan (read Bangladesh) and nationalization of private shipping companies during the seventies. Pakistan’s division led to the end of trade between the two wings of Pakistan upon which the local shipping industry was heavily reliant. The second blow came in the form of nationalization which effectively eliminated private enterprise and led to a general loss of investor confidence in the shipping industry. Despite various interspersed attempts by Pakistan’s government over the years, Pakistan’s shipping industry still hasn’t recovered from the devastation wrought by these two events.

The Merchant Marine Policy 2001 is the government’s most recent and forceful attempt to rectify the problems in the local shipping industry. The Merchant Marine Policy 2001 specified a number of measures for reviving the shipping industry. They included inter alia, exemption from import duties and surcharges for ships and all floating crafts purchased by a Pakistani entity or flying the Pakistani flag, prescription of tonnage tax in lieu of income tax, cargo preference for Pakistan National Shipping Corporation (PNSC) & Pakistani flagged vessels as well as Pakistani vessels having preference for transportation of cargo and passengers in voyages restricted to coastal operations only. However, the said policy has now become stale and requires urgent revamping to bring it in line with the requirements of modern maritime trade. It may also be pertinent to add that despite the provisions of the said policy, the private sector could not be attracted towards this extremely important sector that is responsible for enabling international trade.
 

What is the globally practice
 

Shipping facilitates trade. Countries which have a large shipping sector are economically strong and developed. UN in 1964 with an aim to help the poorer countries develop their shipping sector and compete with developed countries allowed a role in Maritime transportation by making a provision of 40/40/20 rule, also known as the UNCTAD Code within the maritime circles. This rule allowed carrying of 40% cargo to each trading partner and 20% to Independent shippers. 

India has implemented a flag protection policy, which gives Indian ship-owners flying the Indian Flag, “first right of refusal”. However in case an importer moving cargo for domestic entities receives bids from foreign and local ship owners, technically acceptable Indian ship owners will be asked to match the rate quoted by foreign ship owners. If they do not match the rate, Contract of Affreightment (COA) will be awarded to the foreign company.

As per India’s Merchant Shipping Act, 1958, only Indian flagged vessels or vessels chartered by an Indian citizen or company operating under a license granted by the Director General of Shipping, can carry cargo or passengers from one Indian port to another Indian port. Foreign flag vessels are permitted only if Indian flagged vessels are not available.

The Bangladesh Flag Vessels (Protection) Ordinance, 1982 specifies that, at least forty percent of sea-borne cargoes relating to foreign trade of Bangladesh shall, subject to the other provisions of this Ordinance, be carried by Bangladesh flag vessels. However this limitation does not apply to any cargo required to be carried in accordance with any reciprocal agreement made between two trading partners or cargo in respect of which a specific or general certificate of waiver has been obtained. It should be noted that the Bangladeshi government plans to revise the seaborne cargo to sixty percent upon passing of the proposed act by parliament.

The Bangladesh Flag Vessels (Protection) Ordinance, 1982 further specifies that no flag vessel of any foreign country shall carry costal trade (known as cabotage in maritime circles) cargoes of Bangladesh, unless a certificate of waiver is issued by the Director General, Department of Shipping.
The United States’ Military Cargo Preference Act of 1904 requires that 100% of cargos bought for the Army, Navy, Air Force or Marine Corps be carried on board U.S flag vessels. Charges for such transportation are limited to charges made for transporting like goods for private persons.

The Cargo Preference Act of 1954 requires U.S flag vessel participation in the carriage of United States government impelled cargoes. The 1954 Act requires that 75% of the volume of government-impelled cargoes (including humanitarian assistance and agricultural commodities) be transported in privately owned U.S.-registered vessels, but only to the extent that such vessels are reasonably available at fair and reasonable rates.

As per Public Resolution 17, all cargoes generated by an instrumentality of the government are shipped 100% on U.S Flag vessels. This applies to shipping on transactions generated by the Export Import Bank of the United States.
Maritime Security Act of 1996, extended through National Defense Authorization Act, 2013 establishes a fleet of active, commercially viable, militarily useful, privately-owned vessels to meet national defense and other security requirements. All Maritime Security Program (MSP) operating agreements are currently filled by 60 ships. Participating operators are required to make their ships and commercial transportation resources available upon request by the Secretary of Defense during times of war or national emergency.

The MSP maintains a modern U.S.-flag fleet providing military access to vessels and vessel capacity, as well as a total global, intermodal transportation network. This network includes not only vessels, but logistics management services, infrastructure, terminals facilities and U.S. citizen merchant mariners to crew the government owned/controlled and commercial fleets.
 

What can be done locally

 
There is no simple solution to fix Pakistan’s shipping industry. With the exception of PNSC there is no other local company operating in this domain. Foreign shipping companies have devoured the local market share. Even if local private enterprises were to compete directly, in the cut throat and highly regulated world of international shipping, foreign companies have large economies of scale and it would be hard to remain price competitive as these companies have a higher threshold for withstanding financial pain.

There are other concerns as well. For the sake of Pakistan’s national security a national fleet, free from influence of foreign actors, which would be able to continue its operations to transport vital goods and ensure that the economy keeps churning even in the direst of circumstances, is of the utmost priority. Similarly the national fleet should logically be manned by the local population. In order to ensure that a national fleet is maintained and local mariners are available in sufficient numbers to man the fleet, financially self-sufficient shipping companies, which offer sufficient remuneration to attract and retain their employees, is paramount.

In order to restore Pakistan’s shipping industry to good health decisive action is required. Like a sapling in a greenhouse, Pakistan’s shipping should be nurtured and protected until it achieves the critical mass necessary for it to compete globally unfettered. Therefore, Pakistan’s shipping industry and particularly PNSC, the last bastion of indigenous shipping in Pakistan, should be sheltered and given the right conditions to thrive. Maritime laws should be implemented which give preference and protection to vessels flying Pakistan’s flag. 

An example worth highlighting is the Pakistani LNG sector that has, very unfortunately, remained closed for the Pakistan flag. It is unfortunate to note that the national planners when initially negotiating LNG contracts failed to take into consideration and learn from experiences and examples of other countries engaged in the LNG trade. This oversight on the part of the planners at that time borders incompetence. Had they sat up and paid attention, they would not have had to venture far. A neighbor across the border could have provided them relevant directions pointed towards self-sufficiency. The said neighbor has ensured that their local LNG shipping capacity is developed by way of mandating their state owned shipping line to participate in this vital sector thus ensuring that their national strategic interests are appropriately addressed. It is incomprehensible to note why our planners could not have adopted a long term strategic approach.

While the measures taken by Merchant Marine Policy 2001 were steps in the right direction, they failed to produce the desired results. This is largely because one of the most important provisions of the Policy regarding cargo preference remains largely unimplemented due to the fact that it is a Policy and not a law which is enforceable on all seaborne cargos coming into or going out of Pakistan. The government needs to grant legislative protection to the shipping industry by ensuring cargo preference for Pakistani flagged vessels by all Pakistani businesses and exporters / importers.
Unlike the current Merchant Marine Policy 2001, the legislation should explicitly enforce U.N recommendations on shipping through 40/40/20 rule by adopting first right of refusal. Furthermore, a cargo preference should be established favoring Pakistan owned vessels, Pakistan chartered vessels, chartered vessels flying the Pakistan flag and foreign flag vessels in that order. Additionally any cargos generated by an instrumentality of the government should be carried by Pakistan flag carriers.
The current situation of Pakistan’s shipping industry and for its promising future, an apt quote by Winston Churchill comes to mind. ‘Success is stumbling from failure to failure with no loss of enthusiasm’. 

The writer is an advisor to the Karachi Chamber of Commerce & this article was also published in Pakistan & Gulf Economist on March 05, 2019.
captshah1@hotmail.com, captainanwarshah.blogspot.com