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)
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Copyright Business Recorder, 2022