Protecting Mangroves

• Pakistan mangrove cover increases dramatically in two decades
• Port Qasim is blessed with the best mangrove forest in Pakistan

Whilst on a recent trip to the Port Qasim channel, I happened to recall that according to the data gathered by the Government of Pakistan, between 1999-2021, the vulnerable mangrove area along Pakistan’s 1,050 kilometer coastline had increased from 46,000 hectares (over a 113,000 acres) to over 200,000 hectares (over 494,000 acres). The term mangrove is said to have come to English from the Portuguese mangue or the Spanish mangle.

The International Day for the Conservation of the Mangrove Ecosystem is celebrated on 26th July annually and the World Wide Fund for Nature (WWF) Pakistan has observed that Pakistan is the only country where mangrove cover has increased dramatically over the last two decades. This is indeed one of many success stories of Pakistan that deserve to be highlighted.

It has been observed that there are approximately 110 species of mangroves found all around the world. They occur worldwide in the tropics and subtropics and even some temperate coastal areas, mainly between latitudes 30°N and 30°S, with the greatest mangrove area within 5° of the equator. The preferred environment for mangroves includes saline/brackish water usually near the edge of the river or swamp water and low-oxygen soil. There are four types of mangroves in Pakistan, of which 90 percent of all the mangroves are composed of the Avicennia marina species. These four types are:

1. Avicennia marina – Grey Mangrove – White Mangrove
2. Rhizophora mucronata – Loot Roop Mangrove – Red Mangrove
3. Ceriops tagal – Spurred Mangrove
4. Aegiceras corniculatum – Black Mangrove

Mangroves are significantly important for marine ecosystems and are considered the first line of defense against cyclones, strong surges, tsunamis and other natural calamities.
Over the past several decades, the coastal area of Sindh, particularly the port city of Karachi, has been reeling from a relentless process of morphological changes mainly due to anthropogenic activities including industrial pollution, soil erosion, deforestation, rapid industrialization, urbanization, and land degradation in addition to natural processes.

God has gifted us mangroves at Port Qasim and I can somewhat benchmark what I saw at the Sundarbans forest at Mangla Bangladesh, where some local inhabitant animals were spotted whereas we mostly have sea birds inhabiting our mangroves.

Port Qasim lies in or Indus river delta, thus brackish water helps in mangrove growth and sustainability. Pakistan did make a record of planting mangroves near Ketibandar but their growth has been very slow as the area lacks brackish water due to low discharge at the Indus Delta.

I admire an environmentalist lady journalist on the leading TV channel and architect cum environmentalist who had documented how to protect and recognize mangroves by airing concerns on electronic media. There is also a sizable mangrove forest at Bundal Island and some on way to Sandspit from Keamari.

Port Qasim is blessed by God to have the best mangrove forest in Pakistan. When we speak of the Blue Economy, we may also consider building resorts for tourists at Port Qasim Mangrove Forest in a controlled manner so as not to harm the environment. Yet, also make the area accessible and available to the public who can be educated about the importance of mangroves. Thus making them stakeholders in the efforts towards protecting these forests.

Port Qasim gets silting to keep water brackish thus it is imperative to dredge about 5 million cubic meters annually to maintain the depth of the channel at 12.5 meters. The soil excavated from such dredging could be used to rejuvenate those areas of the forest where erosion has occurred the most. It is well known that Khalifa Point was the most suitable site for a second port but for reasons best known to the government of the time, Port Qasim was selected as Pakistan’s second port. This was a decision that is now proven to have been a bad one.

I recently attended a meeting of the Senate Standing Committee on Maritime Affairs where the topic of discussion was mainly business related. I would suggest that the committees and forums at the national level also regularly take up matters of environmental significance that have an impact on our environmental integrity. During the said meeting of the Senate Standing Committee on Maritime Affairs, I suggested that PNSC may embark upon feeder service by acquiring four to five hundred TEU ships that may call at Port Qasim and also cabotage to Karachi, thus reducing road and terminal congestion and reducing emissions causing pollution and availing logistic benefit cutting the cost.
On the business side of things, it may not be denied that Pakistan’s logistic cost is the highest in the region while we continue to fail to use available inland waterways and sea mode being the cheapest mode of transportation. This cost is not limited to monetary costs but also includes environmental costs. We use rickety old trucks which are road diggers and cause pollution. This was conveyed to the Senate Standing Committee and the Chairperson was very gracious to listen to the recommendation.
It is hoped that in addition to planting more mangroves, we may also consider other means by which to contribute towards arresting the perineal degradation of our environment. If not done so, then we remain guilty of leaving Pakistan susceptible to the adverse effects of global warming. I strongly recommend that Pakistan should increase the use of transportation of cargo by sea instead of by land wherever possible. PNSC Feeder container services will give a kickstart to learning box trade by PNSC which is so vital to our economy.

(The writer is an advisor to the Karachi Chamber of Commerce and Industry). He can be reached at   captshah1@hotmail.com, captainanwarshah.blogspot.com)

Plans to sell PNSC

Like many aspects of Pakistan’s economy, the story of the local shipping industry has been one of disappointment and unfulfilled potential. There are quite a number of reasons why history turned out as it has. Some may say it is the Pakistani shipping industry’s lack of openness and economic inclusivity. Others will tell you the opposite, stating that our policy makers have not gone far enough to offer sufficient protection to the local industry and half-hearted attempts such as these are the reason why the industry has failed to develop.

It may be worthwhile to recall that matters have not always as grim as they are now. During the 75 years of Pakistan’s existence, Pakistani shipping experts have contributed significantly towards setting up of international shipping firms that have gone ahead to boast global presence. The 1950s and 1960s are considered to be the heydays for Pakistan’s shipping industry. That was the era that Pakistan’s shipping was featuring on the international stage and those were the years when Pakistan’s shipping heritage made history.

While both points of view offer precious kernels of insight into our business, the true reason for the lack of growth is far more banal. For decades past, instability is the malady which has stricken Pakistan’s shipping industry, relentlessly smothering it in its vice-like grip. 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 investors yearning for confidence. A viable and sustainable national fleet in line with Pakistan’s economic potential and national security remains the need of the hour.

In this scenario, there is a single ship owning company registered and operating out of Pakistan, namely the Pakistan National Shipping Corporation (PNSC), the last bastion of international seaborne shipping, left operational within this space. Its creation was the result of an experiment in nationalization which merged all existing shipping companies into a single entity, thus eliminating private enterprise.

PNSC’s unique selling proposition has been its ease of utilization and cost effectiveness. By providing Free-On-Board (FOB) contracts, unbundled from the usual Cost & Freight (CNF) contracts, it offers cheaper services to Pakistan based charterers without the need of utilizing any Letter of Credit or Pakistan’s foreign exchange reserves unlike foreign shipping lines. This saves local businesses the uncertainty and hassle of dealing with a foreign currency. It would be accurate to state that had PNSC not existed, the cost at the pump (and for other products in general) would be far higher than it is today, a fact few today know about and yet fewer appreciate.

The purpose of PNSC is to facilitate and serve the people of Pakistan for their seaborne shipping needs. PNSC currently has a fleet of thirteen vessels, eight tankers and five dry bulk carriers. Today, PNSC carries crude oil for Pakistan’s refineries, clean petroleum products (such as petrol and diesel) for oil marketing companies, provides slot charter for government entities seeking container shipping and provides carriage of dry bulk cargo. In order to sustain its operations, PNSC also operates within the international charter markets to earn valuable foreign exchange.

PNSC serves a strategic purpose, to provide Pakistan with seaborne lines of communication, keeping its trade lanes open in the event of unfavorable external circumstances such as war and sanctions. The national fleets of Iran and Russia have played a similar role, keeping their country open for business despite bearing the brunt of international sanctions. It may be argued that for any nation, its shipping industry provides the second line of defense and for Pakistan, it is PNSC that provides this second line. It may be worthwhile to review how the national shipping aided Pakistan to remain open for business during the wars of 1965 and 1971 when international shipping firms refused to call at Pakistani ports.

In the past, Pakistan’s policy makers have been cognizant of the fact that Pakistan’s underdeveloped shipping industry requires protection and support from foreign outfits with whom competition may not be possible otherwise. As a result, they have sporadically introduced policies to sustain the single shipping company in Pakistan as well as to attract new entrants and private investment within the sector thus promoting private shipping in parallel to maintain a national flag carrier. The Pakistan Merchant Marine Policy 2001 (as amended in 2019) was such a policy. Although, well intentioned the policy largely failed to accomplish its intended objectives. It failed to secure additional (government impelled) cargo for PNSC (as well as other outfits) and it failed to attract new entrants. Furthermore, the tax breaks accorded to the industry, as per policy, in order for it to remain competitive with the international industry have largely been withdrawn. Despite, all of this PNSC still remains highly profitable, surviving on its own commercial merits rather than government handouts.

While PNSC has had a history as varied and as full of ups and down as the industry within which it serves, since the turnaround of the early 2000s it has remained profitable, providing a constant source of income and foreign exchange savings to the Government of Pakistan. In fact, it is unique amongst listed companies in Pakistan consistently providing an average Net Profit Ratio of around 20%. Even the most reputable and largest corporations in Pakistan cannot boast of such a high rate of return.

Despite the strategic importance and stable profitability, reports are circulating in media that PNSC is amongst the government owned companies being considered by the Federal Government for sale to investors from the Middle East. Needless to say, that whatever funds the government may raise from this Faustian bargain, it will be giving up far more in the long term. The new entity, operating on a profit maximization basis may not be considerate towards the Pakistani ship registry preferring to move its vessels to cheaper offshore destinations as well as employing cheaper foreign crew as a means to cut cost, thereby reducing employment, taxes and foreign exchange generated by PNSC for Pakistan. Pakistan would also lose its strategic ability to carry out sea voyages in troubled times, as a private entity will not be keen to risk its neck (and international repute and standing) for the sake of national priorities.

Setting up a new shipping company is not an easy task either in today’s highly competitive and cut-throat international shipping markets. The markets are far too saturated and it is not easy for a new entrant to be able to convert business from established entities. Spot markets may offer a point of entry but their margins are lower, with high volatility and in the event of a downturn it is tough to consistently generate gainful employment opportunities.

The United Nations Convention on a Code of Conduct for Liner Conferences, adopted in 1983, aimed at taking into account the special needs and challenges faced by developing countries such as Pakistan. One of the important elements introduced by the Convention was the cargo sharing formula, also known as the 40-40-20 rule. It suggests that cargo should be divided 40 per cent each to national vessels of the originating and destination country, and 20 per cent to other vessels. The purpose of this formula was to ensure that vessels of developing countries had an opportunity to participate in the carriage of their trade. Privatizing PNSC would result in vessels being removed from Pakistan’s flag and thereby forfeiting the opportunity to take advantage of the aforementioned rule, as a means of sustaining the national fleet, generating employment and losing out on securing favorable international trade deals.

Since, 90% of all trade is carried out through the seas, the health of an economy is inextricably linked to that of the blue economy. In view of this, other developing countries in the region are encouraging and growing their national shipping companies, particularly in view of the extreme economic volatility internationally. Countries such as Ethiopia, despite being landlocked, train their own cadets and maintain their own shipping corporation, since they too realize the importance of having an independent national shipping line, particularly as a means to ensure the growth of their blue economy.

It should also be noted by readers that this is not the first time PNSC has been on the chopping block to be sold off to the highest bidder, with PNSC being nominated for sale multiple times. The last such attempt by the Federal Government was in 2012. However, on that occasion sense prevailed when the decision was reviewed based on long term analysis. Subsequently PNSC was removed from the privatization list.

All of this simply underscores the aforementioned instability. Those at the helm of affairs seem to lack long term vision and direction, with the shipping sector being worse off as a result. Attempts at policy re-calibration are interspersed over the years only punctuated with untimely reversals. It seems we are doomed to repeat history with no regard for what the future may bring. Instability is what is keeping the shipping sector and the nation as a whole from advancing. Our neighbors have progressed by leaps and bounds simply because they have stability and continuation of policy, something the Pakistan desperately needs.

The Author is an advisor to the Karachi Chamber of Commerce and Industy.

Prospects Brighten For Shipping Sector

 

Growth or development has not come to Pakistan’s shipping sector naturally. In fact, for a large chunk of its history one bad turn would shortly be followed by another. An ill wind has gripped the industry for far too long.

We have seen the forfeiture of sea routes to the then East Pakistan (now Bangladesh) and subsequent downsizing of the national fleet. We have seen investments by private enterprises come in droves after Independence and then dry up after the nationalization policies of the seventies.

Then, finally, we witnessed several attempts by various governments over the years trying to draft and fine-tune merchant marine policies (and then later recanting after suffering hardships under the sporadic, cyclical and inevitable financial adjustments as dictated by foreign creditors) to encourage growth and development of the blue economy.

After suffering through all that the last bastion of shipping left standing in the country is Pakistan National Shipping Corporation (PNSC). PNSC is the sole entity whose vessels still ply international seaborne trade routes and the last commercial fleet proudly bearing Pakistan’s flag.

PNSC too was the product of nationalization policies and as such it too remained troubled until the early 2000s. Since then PNSC has slowly and steadily grown, consistently posting healthy annual profits.

As a result, PNSC’s fleet has developed, reducing the number of vessels but substantially increasing its tonnage (carrying capacity) by inducting larger vessels. To an all-time low of 243,749 Deadweight Tons in 2001, PNSC grew to 831,711 deadweight tons by 2021.

In July 2022, PNSC inked an agreement for the purchase and delivery of two Aframax crude oil tanker vessels of 107,123 deadweight tons each, to be called M.T Mardan and M.T Sargodha, increasing the fleet-carrying capacity in excess of 1 million deadweight tons for the first time in Pakistan’s history.

The new vessels are poised to provide PNSC with additional carriage capacity to transport cargoes for Pakistan’s domestic refineries as PNSC’s existing fleet of tankers ages and are planned to be phased out gradually in favour of further newer inductions.

This latest induction spells good news for the nation. The addition of more ships to Pakistan’s national fleet means that increasingly a larger proportion of cargo carried will be on Pakistan-flagged vessels, which will result in savings of precious foreign exchange as PNSC per federal policy can be paid in Pakistani Rupees instead of US dollars, as is the case with foreign shipping lines.

In fact, it was estimated in 2018 by National Institute of Maritime Affairs that Pakistan annually pays in excess of USD 3 billion in freight. Since then, particularly due to supply chain limitations, freight rates have increased at least 2 to 3 times.

As an example, average earnings for Aframax crude oil tankers were USD 3,509/day in July 2021, with the long term average being USD 19,455/day. In July 2022, the average earnings have spiked to USD 49,161/day, representing an increase of 1,301% from July 2021 and a 153% increase from the long-term average. Therefore, we can estimate that Pakistan in 2021-2022 pays at least USD 6 to 9 billion in freight alone.

 

Just to put the aforementioned freight bill figure in perspective, the size of State Bank of Pakistan’s reserves as at the end of June, 2022 was USD 9.8 billion. Just by saving the freight bill we could double SBP’s reserves.

Now imagine, Pakistan, a country already in the clutches of an economic crisis having to arrange a large surplus of USD in order to meet its obligations and keep trade flowing to the country. This puts an unsustainable burden on the exchequer.

Had PNSC or another domestic shipping entity been providing shipping services for the entirety of the cargo being imported and exported from Pakistan this large pile of foreign exchange could have been saved. Just from that annual freight bill, Pakistan can fund and build a massive fleet not only to serve all of its needs but the international markets as well to earn and generate even more foreign exchange for the country.

Increasing the size of Pakistan’s fleet has other immediate benefits as well. It will generate employment for Pakistan’s seafarers. Due to the relatively small size of Pakistan’s blue economy, Pakistan’s seafarers in the past had been unable to secure gainful employment domestically. With the addition of more ships to the national fleet PNSC will be able to create more job opportunities for our seafarers.

Furthermore, with an increased number of domestic vessels calling at Pakistan’s ports will result in stimulating and growing ancillary industries in the country’s maritime sector to provide for and service those vessels, adding even more growth and jobs to Pakistan’s blue economy.

Given the present state of affairs of the country and the need to generate/save foreign exchange, it may be wise for the government to draft laws and policies to aid and grow the shipping industry, exempting it by law from the ‘capriciousness’ of tax authorities and ‘foreign lenders’, giving it some much needed stability so it can grow and compete at an international level.

The federal government should pass into law merchant marine policies cementing their stature and making their compliance mandatory. This consistent stance will aid in restoring investor confidence as well as providing growth to the domestic shipping industry, whereby Pakistan funds and develops its own fleet, chartered for national purposes, trading to and from Pakistan’s shores.

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

Shipping and Insurance (Opinion)

Banking and insurance services play a vital role in the economic development of any country. International trade, commerce and industry cannot develop and function without the key role of banking and insurance. We can understand how banking developed because it provides the facility to make collective investment in viable projects. But it seems nobody is certain as to how insurance came into this world. However, most people now believe that insurance originated from the needs of the shipping world.

In early days when there was no currency with universal acceptability, trade was done on the basis of barter exchange. In other words, traders used to exchange goods according to supply and demand. In those days, the ship-owner was the trader as he would collect goods and go to another land for profitable exchange. As he made money and became rich, he did not want to go to sea anymore and employed a captain. However, with the ship-owners off board, they became keenly concerned with the risks their ventures faced in their absence. Some people started taking bets on a ship’s safe return. This allowed a number of people to share the risk and thereby encourage traders and ship-owners to undertake more and perhaps bigger business ventures. This is how insurance provides the cover for risk in any investment.

The industrial revolution along with London and River Thames providing natural harbor from rough seas and piracy, galvanized its development as a trading port, eventually becoming the nucleus of maritime activities. Coffee was first imported into Great Britain in 1652 and soon became popular with the elites. After the great fire of London in 1666, the city started to re-build with coffee shops in places where people could transact business. Historical records from 1688 for the first time mentioned about Edward Lloyd’s Coffee shop situated on Tower Street. It was popular with traders, ship-owners and captains returning from overseas voyages.

Edward rented out boxes in his coffee shop for entrepreneurial businessmen to conduct insurance or risk undertaking contracts. One thing that Mr. Lloyd noticed was that there was a great demand for information for assessment of risk. Lloyd’s Coffee House started publishing daily shipping news, informing people about departures and arrivals, the cargo aboard each ship and where other country’s fleets were operating; and where pirates were known to be active. Thereafter Lloyd’s List was first published in 1734 and the last printed version was published on 25th September 2013, with the electronic version still continuing as one of the world’s oldest newspapers.

It is essential for underwriters to know about the operational and physical condition of the vessel and whether it is worth taking the risk. Underwriters need to know details such as type of ship, when and where it was built, materials used in its construction, when it was last docked and inspected, etc. Lloyd hired the services of a few ship-builders and engineers and the Lloyd’s List gradually started to provide such information as well. There was a clear need from the insurance world for an organization that was free of any vested interest that could certify the health of a ship as the doctor can certify the health of a person. This eventually led to the formation of the Lloyd’s Register of Shipping, a non-government organization not run for profit but to serve the industry with good advice and guidance, to enable ships to meet the required standards.

Until this time Lloyd’s Coffee Shop was the biggest facilitator and housed all – ship-owners/brokers, underwriters, classification society, Lloyd’s List and all others connected with the business. However, to exert its own freedom as a non-partial independent organization the Lloyd’s Classification Society had to stand alone on its own and this is precisely the reason why the two businesses eventually separated out. The insurance part of the business, i.e., the ship-owners and their brokers along with the underwriters were the first to move out to Royal Exchange in 1774. The Lloyd’s Register, the society for classification of ships moved out in 1786 to Lombard Street.

Today, the Lloyd’s Register of Ships is situated on Fenchurch Street, London, with offices and surveyors located in major international business and shipping hub cities across the world. Over the years, it has earned international reputation, trust and confidence as an organization dedicated to excellence, performing its job of quality control without any fear or influence and not having any interest in loss or profit for anyone. Underwriters accept Lloyd’s Register reports as the actual condition of the ship.

Lloyd’s House of Underwriters is simply known as Lloyds and is located at 1, Lime Street, London. It may be argued that there is no other insurance market that conducts even half the business that Lloyd’s deals with. However, it must be understood that there is no company known as Lloyd’s Insurance Company. It is the business house that provides all the facilities for its members from both sides of the industry to negotiate risk undertaking business. It operates in the same way as Lloyd’s Coffee Shop operated more than 300 years ago, except that it is now done under the law of the land as the British Parliament gave the Lloyd’s system and procedures the status of an act of parliament.

With the passage of time, ship operations became more hazardous involving too many claims from too many corners. Some of these claims run into billions, especially those relating to protection of marine environment and removal of wrecks. No one ship-owner can pay those claims nor would the insurance market like to give cover to such unknown vast sums. The ship-owners finally found their own solution by forming mutual groups to protect each other. These groups are commonly known as Protection and Indemnity (P&I) Clubs. These function to protect and indemnify the owners/ members against any sudden claim from third parties.

It is not unusual for a ship to be arrested in port for not paying all claims on time but it is also customary for the relevant P&I Club to issue a bond or bank guarantee for the vessel to get released and continue its business while the judicial process continues in court. The P&I being mutual and not for profit, is aimed at rescuing a member, facing sudden and heavy losses, by collective/additional contribution from other members. Calls are subscribed instead of paying premium. Similarly, ships that are moth-balled or laid up for period exceeding three months may request for return of calls. The principle on which it works is that no engagement in voyages and ventures mean no risk or hazard and as such 80 to 90 percent of the subscription may be refundable.

An analysis of the history of the development of financial services in London shows that shipping was the base for most other developments. The systems and procedures were developed by the industry itself.

To quote Lloyd’s CEO: “For more than three centuries, the Lloyd’s market has been sharing risk to protect people and businesses, inspiring them to create a braver world”.

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

captshah1@hotmail.com, captainanwarshah.blogspot.com

IMPEDIMENTS TO REGISTERING VESSELS IN PAKISTAN

 

Over the last few decades, Pakistan's maritime shipping sector has been on the precipice; an endangered species at risk of vanishing into the void. This has been the consequence of an economy which has failed to live up to its promise, with its marginal productivity consistently declining over the years. Put simply, we do not sell anything in meaningful volumes nor are we self-sufficient in any key area; therefore, we do not have the financial resources to pay for the necessities we end up buying from the international market.

As a result, the domestic shipping industry does not partake in exporting much of anything from Pakistan; and it is importing a limited number goods to our shores. It is not a sound business model in the long term, to say the least. Sadly, a sizeable Pakistani flagged fleet with the ability to cater to the demand for merchant shipping emanating from our homeland remains an achievable yet distant dream. This is primarily because Pakistan's shipping industry has been unable to expand and has devolved to a point where there is only a single, government owned shipping company active in the market, i.e. Pakistan National Shipping Corporation (PNSC).

Although Pakistan has tried, on several occasions to undertake reforms in the maritime sector, as well as for the economy in general, these have seldom been successful, with the country's finance gurus being a regular feature at the IMF (International Monetary Fund), worriedly pacing its lobbies every 5 years or so. This economic frailty has severely impacted Pakistan's ease of doing business and has prevented significant foreign and domestic investment from materializing for the shipping sector. Despite recording improvements in various international publications on a number of fronts, the truth is that 'ease' whilst doing business remains an elusive concept, far removed from the reality most Pakistanis face every day.

It all boils down to two factors: high costs associated primarily with high taxation rates and extensive paperwork and approvals which stem from our national anti-corruption priorities and the need to maintain transparency. While good intentioned, both these factors breed inefficiency which slowly crumble organizations from within and can be the death of private enterprise.

Unfortunately for Pakistan, our shipping industry suffers from both high taxes and onerous paperwork; with the last bastion of indigenous shipping too under threat from the government's own policies. With one arm the government attempts at shielding the domestic shipping industry while the other arm seeks to supplant and terminate any concessions given.

The government has notified the Pakistan Merchant Marine Policy 2001 (last updated in 2019), which is its 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 and inviting participation from the private sector. The said measures included 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, extending tax breaks to shipping concerns until 2030, no federal tax (direct or indirect) on resident ship owning companies, reduced fees and berthing rates for Pakistan flagged vessels, cargo preference for PNSC (being a strategic asset and national flag carrier) and Pakistani flagged vessels having preference for transportation of cargo and passengers in voyages restricted to coastal operations only.

However, the implementation of the Merchant Marine Policy 2001 remains in letter alone, with most of these incentives awaiting implementation in spirit. Pakistani flagged vessels do not get their due share of cargo as enshrined in the Policy. Furthermore, the government, which is under pressure to increase its revenue, has resorted to withdrawing the aforementioned tax exemptions and has instead proceeded towards placing a 17% sales tax on acquisition of vessels as well as taxing the salaries of seafarers. While one can understand the need to increase revenue during these challenging times, it should not come at the cost of hamstringing an entire industry.

It may be pertinent to add that the incentives offered by the Pakistan Merchant Marine Policy 2001 are but a few when compared to numerous incentives being offered by other countries that continue to successfully attract large numbers of vessels for registration, aptly known as flags of convenience. Vessels having owners scattered worldwide continue to flock towards flags of convenience primarily due to the numerous incentives that are offered by them. The said international incentive primarily related to low taxes and ease of doing business, thus, being conducive to the business of international shipping. Had our tax authorities paid attention before imposing 17% sales tax on acquisition of vessels, they would have discovered that the opportunity cost of such a knee-jerk decision is too high. The maritime industry remains a small but growing industry, with few seafarers and even fewer vessels, contributing valuable foreign exchange to Pakistan. By imposing this tax, they will not gain much (if any) revenue growth but they will have ensured that vessel acquisitions, the cornerstone of any major shipping operation, will stop and the shipping industry will die a slow and painful death.

Before the patriotic amongst us jump up to say that paying taxes is our national duty and that we owe it to our nation, it should be noted that the shipping industry, even in the best circumstances, is operating on razor thin margins and in order to stay competitive, countries around the world make exceptions for their shipping industry to maintain their strategic advantages. In the parlance of financial economics, the rate of return for the industry is barely above that of what is known as the risk free rate, i.e., the maximum guaranteed rate of return with zero risk, one can receive by investing in fixed deposits/government securities. With the burden of additional taxation on the primary asset of the industry, no feasibility can allow investment into the sector.

Registering vessels is no mean feat either. New owners have to run from pillar to post, trying to register their vessels. Pakistan should accede to an international Memorandum of Understanding (MoU) on Port State Control (PSC) inspections, with Pakistani flagged vessels along with the flags of other signatories being subject to inspection at our ports as well as ports abroad. An international MoU on PSC will give Pakistan more credibility as an attractive destination which prioritizes health, safety and rule of law. Vessel operators will gain the confidence to register their vessels under Pakistani flag as investors, insurance companies, banks and other lending institutions view countries with PSC more favorably. A number of additional measures can also be taken towards making Pakistan more competitive.

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