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Shipping in the changing economic environment.

I would like to state at the very outset that the views expressed at this forum are entirely my own and do not reflect the official perception of the PNSC management.

The concept of state ownership of ports and the merchant fleet has flourished in the developing countries during the last three decades and was supported by central planners, as a means for strengthening the economy of emerging nations. Experience has shown that unfortunately the development of infrastructure and equipment, under state ownership has left much to be desired and the results achieved have been disappointing.

In order to assess the potential impact of privatisation on the likely development and future growth of the Pakistani ports and shipping it is essential to briefly examine the history of the development of the shipping industry in Pakistan since 1947 and I do hope that you will bear with me as I quickly trace the scenario in the early years of Pakistan.

The state of Pakistan at its inception in 1947 inherited a fleet of 3 ageing ships which were quite ill-equipped to cater for the shipping requirements of the country. Both International and interwing trade. Average cargo movement between East and West Pakistan at that time was in the region of 400,000 tons, besides a substantial passenger traffic between Karachi and Chittagong. In order to cater for foreign as well as interwing trade the Government had to charter vessels on immediate basis.

Since 1947 until 1964, the private sector hand an open field and a free hand. Some entrepreneurs came forward and brought in old tonnage, mostly of the liberty class, principally to cater for the inter-wing trade, where there was hardly any competition. They however, did not strive to compete for the international trade of Pakistan which was being dominated by foreign carriers. Reluctance on the part of private sector shipowners to accept the challenge of the time to come forward with substantial investments, and to equip their fleet with modern and newer tonnage, resulted in the idea of creating a state-owned national merchant fleet. An ordinance was promulgated in 1963 and the National Shipping Corporation of Pakistan came into being in 1964. Following table shows the growth of the Pakistani Merchant fleet from 1947 onwards:-


During 1957-58 about nine more older vessels were brought in the private sector fleet and inducted in the profitable interwing trade. Independent Pakistani entrepreneurs did invest in a few new vessels but these were quite inadequate to cater for the growing requirements of Pakistani seaborne foreign trade. Only with the inception of NSC did the Pakistan flag start flying on the high seas in the major sealanes of the world. The entire dependence of National trade on foreign carriers was reduced to some extent.

Today in early 93, there are only two Pakistani shipping companies in the private sector namely Pan-Islamic Steamship Company and Tristar Shipping Company. The following figures give an approximate picture of the impending state of affairs in private sector:
Fleet Age

5 General Cargo Ships 24 Years
1 Passenger Ship 30 Years

Approximate Cargo Lifted: Tons

1989-90 90,000
1990-91 95,000

I believe that since 1991 the Government of Pakistan has granted licences to 39 private sector entrepreneurs to establish shipping companies in Pakistan. However, so far only one prospective Pakistani owner has actually acquired a ship flying the Pakistani Flag. There must be some valid reasons for such lethargy and reluctance on the part of Pakistani businessmen to invest in merchant shipping. The prospective shipowners, I believe, have asked the government for the following additional concessions which have not yet been forthcoming:

1. Fair and open competition with PNSC/NTC for all cargoes reserved by the Government of Pakistan for PNSC/Pakistan flag vessels.

2. Removal of the requirements of final inspection/approval by Government authorities of second hand vessels intended to be acquired by Pakistani owners.

3. Policy of non-disclosure of financial resources as applicable for other industries should also be introduced for the shipping industry.

4. Exemption of income tax (on profits) for a period of 5 years.

5. No check on the nationality of investors in respect of equity capital and foreign investment should be welcomed as done for any other industry in Pakistan.

6. Complete freedom in selection and employment of personnel in the afloat and shore establishment.

7. Grant from exemption from union labour laws (not an unprecedented approach).

8. Procedure for registration of ships should be simplified. Undue bureaucratic control should be done away with.

9. Flagging-Out I.E. using flag of convenience facilities should be permissible to face stiff overseas competition.

10. Owners should be allowed to have "Dual Registry" for vessel acquired on bareboat charters.

11. Charter hire paid to foreign shipowners for bareboat charter of vessels to Pakistani operators should be exempt from profits (income tax).

12. A safe anchorage should be developed and allocated for the repair of vessels in Karachi and Port Qasim Ports. All efforts must be made to encourage the ship repairing industry in Pakistan to service local and foreign vessels.

I would fully support the request of our colleagues from the private sector and would recommend that the Government of Pakistan should allow them all concessions which have been asked for enabling them to invest in merchant shipping, in Pakistan. Only when such tangible concessions are forthcoming, will the private sector entrepreneur consider investing his capital into shipping flying the Pakistan flag. After all, why a Pakistani Ship-owner who is presently operating vessels out of Singapore, Hong Kong or London, flying the Panama, Bahama or the Liberian flag, should transfer his operations to Pakistan and switch over the flying the Pakistani flag. There have to be positive incentives and the Government must make it rather attractive for the overseas Pakistani shipowners and local entrepreneurs to investment in merchant shipping flying the Pakistan flag.

It is rather sad that the merchant marine of Pakistan has been somewhat neglected because of the flaws and shortcomings in our national shipping policy and perhaps due to the lack of proper perception of shipping issues and their impact on the economy of Pakistan. The fact that Pakistan today spends over US$ 800 million for ocean freight and about 90% of this bill is paid to foreign vessels, is in itself an eye-opener and should give some food for thought to those in the corridors of power and policy making in Islamabad.

I would submit to this distinguished gathering that privatisation is the only cure for the ailing Pakistani merchant marine. The bold policy decision recently taken by the Government of Pakistan to privatise ports and shipping has given blood transfusion to this ailing industry. Professionalism and accountability will be introduced at all levels of management in the ports and shipping industry of Pakistan. Accountability must start at the top echoleons of management and should filter all the way down to the most humble workers of the industry. "Professionalism" is the only answer to progressive and effective management but unfortunately at present this is sadly lacking at all levels. Urgent measures must be taken to motivate dock workers, managers, seamen and officers to work together as a team to restore the high standards of the Pakistan merchant marine, which was our goal and ideal at the inception of Pakistan in 1947. It was with the same spirit of enterprise that the professionals ashore and seafarers' afloat joined hand with workers ashore to form a management led employees buyout consortium (Panseb) in September 1992 for acquiring ownership and management of the two state-owned shipping companies PNSC and NTC.

This effort was made in response to the federal governments invitation to all interested entrepreneurs for expression of interest to acquire the ownership and management of PNSC/NTC in the private sector.

The story at the ports of Pakistan has not been any different. Our ports have been aware of the change in trade requirements, in fact a number of studies were undertaken for the ports to establish trends for liquid and dry bulks, containerized cargoes and others. But during the last 20 years we have failed to put our act together. Port Qasim was given the role of a bulk port but without the bulk handling facilities. The only true bulk handling facilities at Port Qasim owe their initiative to the Pakistan Steel project and not the port. They were the first to announce plans for the container terminal but there is nothing on the ground in 10 years.

On the one hand our ports have failed to develop their facilities by the trade, on the other hand their cumbersome procedures restrictive labour practices, over-staffing and excessive overheads have made the ports inefficient. We are not getting our money's worth which in other words equates to paying too much for the services. It is interesting to note that the average cost of handling breakbulk general cargo in Pakistani ports is about twice that of Hong Kong. This is mainly due to the prevailing malpractices in our ports.

The current status of our ports is that they are non-profit making under the trust or an authority. This does not mean that they never yield surpluses. The basic fault is that surpluses are not retained in business for growth and development. Over a period of time the surpluses earlier achieved become a part of history and the port goes into a deficit. Thereafter charges are raised to correct the balances, but the true surpluses fail to return. This does not give us a firm foundation for a dynamic port sector.

A very large part of the responsibility for the current state of affairs must lie with successive managements and on the Federal Government who puts them there. In this age of specialisation we continue to use 'Generalists' with no exposure to modern management practices. The management leaders are anyhow posted for a period of time and they while serving the ports have to eye their next appointment or prepare for retirement. What conviction can a management so constrained can bring to the job. Hence they manage by consensus of managerial levels below them and lacking professional assistance, exercise of independent judgement in the complex environment of a port indeed becomes rare.

While it may be technically and physically possible to correct the basic faults of the public sector style and practice of management but this can not be done in isolation for the ports only. Other industries should also move in the same direction to create the right management culture. But the present government has decided not to waste their time in establishing the kind of management culture we require in the public sector and instead they now decided to privatise enterprises in the public sector. The ports therefore must follow suit and see how best to associate the private sector into the ports industry with the objective of providing cost effective and efficient services to its users.

Mexico, Malaysia and Sri Lanka are a few of the developing countries which have made significant progress in recent years with the privatisation of port services. Their experience of port operations under state ownership was similar to that of Pakistan and they are now reaping the benefits of high productivity and lower unit costs, with their port services almost entirely entrusted to the private sector. We in Pakistan must learn from their experience and emulate their strategy for privatisation of port services.

Since Pakistan envisages a sustained economic growth in the run-up to the twentyfirst century and has reached the threshold of take-off stage, it is imperative that its ports and shipping industries must be modernised rapidly and this can only be achieved with the initiative and support of the private sector.
Record of Maritime Growth of Pakistan Year 1947 - 1993

Year Total Total Dead
 Ships Weight

1947 3 25,103
1948 7 59,414
1949 10 87,780
1950 14 117,460
1951 22 161,700
1952 25 190,363
1953 25 203,656
1954 24 195,256
1955 23 185,242
1956 23 185,242
1957 21 168,932
1958 29 244,922
1959 35 293,256
1960 41 353,945
1961 43 390,212
1962 43 390,212
1963 43 384,449
1964 50 458,304
1965 53 516,137
1966 59 593,826
1967 61 618,758
1968 65 682,913
1969 66 679,692
1970 71 749,046
1971 57 635,937
1972 54 608,845
1973 52 597,685
1974 52 602,741
1975 53 621,341
1976 49 584,195
1977 48 564,112
1978 48 564,112
1979 48 580,225
1980 50 645,450
1981 55 738,894
1982 50 766,601
1983 47 731,545
1984 36 602,744
1985 33 559,279
1986 30 522,517
1987 29 510,624
1988 29 510,624
1989 28 492,400
1990 28 496,914
1991 28 496,914
1992 28 496,914
1993 28 518,270
Freight Bill of Pakistan

 (Million US $)
 1987-88 1988-89 1989-90 1991-92

Imports 602 630 642 706
Exports 173 187 226 215

Total Freight 775 817 868 921

Source: Master Mariners Society of Pakistan
Share of National Fleet in Freight Bill

 (Million US $)
 1989-90 1990-91
 Revenue % Share Revenue % Share

Sea Transport

PNSC Own Ships 87 10.0 85 9.2
NTC m.t. Johar 7 0.3 9 1.0
Pan Islamic 6 0.7 7 0.8
Foreign Ships 616 71.0 652 70.3

Total: 716 82.5 753 81.8

Air Transport
P.I.A. 77 8.9 85 9.2
Foreign Airlines 75 8.6 83 9.0

Total 152 17.5 168 18.2
Grand Total 868 100.0 921 100.0

Note: Text of Speech Delivered at the International Seminar on
Ports & Shipping in the Changing Economic Environment Organised
by Federation of Pakistan Chamber of Commerce & Industry & The
Master Mariners Society of Pakistan at Karachi on 26th January
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Title Annotation:Pakistan's merchant marine industry
Author:Zaheer, Raffat
Publication:Economic Review
Article Type:Industry Overview
Date:Jun 1, 1993
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