Merchant marine policy of Pakistan and international ship liners: Challenge or opportunity? – Perspectives

Eufemia Didonato

The shipping industry has surfaced as the most significant component of international transportation infrastructure and does not only connect the states, people, and regions with each other; but also provides basis for sustainable socio-economic growth, globalization, cooperation, and competition. As per Alphaliner, there are more than 6000 liner ships sailing […]

The shipping industry has surfaced as the most significant component of international transportation infrastructure and does not only connect the states, people, and regions with each other; but also provides basis for sustainable socio-economic growth, globalization, cooperation, and competition. As per Alphaliner, there are more than 6000 liner ships sailing in the seas and oceans at this time. International liner shipping has taken form of globalized business tool and activity simultaneously with constant rise in its growth and market share both through horizontal and vertical integration. The increased volumes of containerized shipping, growing vessel sizes, cumbersome system of documentation, taxation, and duties along with decreasing competition due to unmatchable economies of scale reflect certain kind of challenges the shipping industry has been facing since the maritime technological advancement.

Pakistan’s Merchant Marine Policy 2019 and further relevant notification of August 2020 to encourage private shipping owned by Pakistan residents is the step towards sustainable port and shipping industry which already has quite considerable stakeholders at national and international level. According to the UNCTAD statistics, Pakistan received 0.037% share of total world merchant fleet in the year 2018, whereas for the same year, the maritime transport indicators have been showing steady growth for which Liner Shipping Connectivity Index (LSCI) has been 35.28 in comparison with 32.94 of the year 2015, and container port throughput (TEU) has been recorded as 3,275,000 in comparison with 2,755,600 of the year 2015. In this backdrop, the maritime transport horizon has been dominated by the international ship liners in which Maersk Line is at the top with 4,084,138 TEUs and holds 17.0% share of the global trade, followed by Mediterranean Shipping Company at 2nd number with 3,816,321 TEUs and 15.9% share, COSCO Group at 3rd number with 2,984,367 TEUs and 12.5% share, CMA CGM Group at 4th number with 2,849,612 TEUs and 11.9% share, and Hapag-Lloyd at 5th number with 1,697,454 TEUs and 7.1% share of the global trade.

Pakistan has launched the State Bank of Pakistan (SBP)-sponsored policy of refinancing of the ships and all floating vessels for the indigenous investors/Pakistan residents to incentivize the private sector shipping through loans and certain subsidies and incentives in line with the amendments of Merchant Marine Policy-2019 with particular aim to balance the hold of international shipping lines and to save hefty freight charges of around $5 billion per annum. That policy certainly will entice private investors, and it was exclaimed by the Maritime Minister that sooner there would be three/four local shipping companies. At the time when there is monopoly of international shipping lines over the global trade flows, Pakistan’s shipping policy encouraging private shipping companies to decrease the reliance over international ship liners can raise some questions in which at the top would be the concern if this step has intrinsic challenges to international liners or there is any silver lining hidden in this policy for the latter.

The international liner shipping industry having business in Pakistan has rather appreciated the efforts behind the strengthening of national flag carrier and establishing private shipping sector through the Merchant Marine Policy of Pakistan-2019 and further notification of August 2020. Ms. Aruna Hussain, the Managing Director at Maersk Pakistan has valued this step and suggested few reforms through her valuable input to make the policy an all inclusive approach by saying,

“Maersk Pakistan welcomes the Government’s efforts towards the development of shipping sector. We feel that the policy updates are heading in the right direction and will ultimately help in reviving the maritime sector. The need of the hour is to focus on ease of doing business in order to be competitive in the global market where multinational companies are already operating with a wealth of knowledge and data. At the same time, there is also a need to leverage on technological opportunities in the maritime sector such as adopting TradeLens, a neutral platform backed by blockchain technology which is set to revolutionise supply chains through digitalisation. Reforms that include all stakeholders will benefit the sector and would be able to capitalise on the great potential that the country holds.”

Maersk, being at the top of the international liner shipping companies has strategic experience, knowledge of market, relevant data, relevant modern technologies, and financial muscle to build and expand the business horizontally and vertically. The suggestions coming from that side, i.e. ease of business, adopting technological modernization and digitalization, and further reforms to attract stakeholders to invest further in least-tapped areas of domain; are apt, and if adopted since beginning, that could be better for long term benefits.

Another international shipping giant, CMA CGM coming at 4th number of the top 5 list, was approached for the comments and input about the said policy. On behalf of CMA CGM team, Mr. Tahir Ayub Khan, the Customer Care Manager gave his viewpoint. He appreciated the vision behind revised Merchant Marine Policy of Pakistan, and supported approach of strengthening PNSC with an opinion for national flag carrier “to focus more and put all the efforts to increase PNSC volume share atleast upto 20% which will have a significant impact on not only savings in terms of foreign bills but also significant increase in revenue for the Govt. of Pakistan. and it should be part of five year plan.” He stated that the policy is “good initiative to encourage local investors in order to achieve and expand Pakistan flag vessels capacity upto desired one million tones.” A number of important suggestions were also discussed regarding different relevant areas of the policy and Mr. Tahir Ayub Khan emphasized upon the implementation of proper fitness test procedure of vessels prior to registration as happen for ships registered in Panama to avoid any disaster. He added that “FOB based import shipments is a good provision in the policy, though same cannot be enforced to facilitate trade and avoid any business loss. Perhaps some additional benefits related with FOB trade for imports and CIF for exports may be of help in keeping FOREX in hand.” He pointed at another significant thing regarding lessons learnt from past and need to identify reasons of lack of success of the policy and other discouraging factors to be eliminated; else it will be a futile exercise as per past practice. He advised to work on confidence building measures between business community and the government departments to encourage the investors.

There is no initiative without challenges. As the policy has just been initiated, the launching of any or few shipping companies in private sector is not going to challenge the business of liner shipping in Pakistan. The larger economies of scale enable the international shipping lines not to get affected by such initiative due to immense economic disparities. Though Pakistan will be able to save foreign exchange against the freight charges, but that would take some thorough strategic planning as the cost of supply chain management could be another challenge. The international ship liners do offer competitive rates due to the shared costs and increasing strategic up-gradation in terms of sizes of containers, bigger vessels, consortiums, mega-alliances, and mergers as part of horizontal and vertical integration. On the other hand, the international shipping industry is highly concentrated at this point. By the end of April 2018, the top five ship liners were accounting 61.1% of global vessel capacity as per UNCTAD, whereas according to MDS Transmodal Containership Database-2018 stats, almost 90% of the deep sea transportation market was being held by the top 10 international ship liners. Therefore there would be challenges for Pakistan’s expected to be emerging private shipping industry. Particular conditions would need to be addressed to increase outcomes and dividends of the policy, particularly strategy of payments against import and export, i.e. Freight on Board (FOB) and Cost, Insurance and Freight (CIF-named port of destination) principles, but with certain incentives or specifications like categories of cargo linked with FOB or CIF (currently PNSC imports crude oil on FOB, whereas refined products are coming through CIF.) On the whole, CIF can be beneficial for exports initially when the private shipping companies will start work, but as soon as cargo increases, it might be needed to switch exports from CIF to FOB, as imports on FOB delegate better control over cargo and its cost, as well as the role of freight forwarding agencies on the port, is very important for new or small scale businesses to facilitate the process in a smart way.

To make the concept of Blue Economy a reality and explore its potential, it is important to implement the revised policy and encourage the investors. Only strategic planning, implementation, along with sound governance and accountability criteria can lead the revised version of Pakistan’s Merchant Marine Policy toward utmost success while opening further avenues for upgrading current ports, developing the new feeder and transit ports, enhanced employment opportunities, and sustainable economy.

Next Post

DOWD: Business Interruption Grant to provide economic relief for small businesses hit hard by COVID | Local

The second wave of funds includes the following provisions to ensure a wide distribution of funds geographically and across business type: • Heavily Impacted Industries — $60 million for heavily distressed industries, such as movie theatres, performing arts venues, concert venues, indoor recreation, amusement parks, and more. Support Local Journalism […]