About 10% (~1.5 Trillion USD) of China’s GDP is contributed by its blue economy. This is why the sector, and especially shipping, has served as an engine of development for several countries. Quaid-e-Azam Jinnah had also envisioned the establishment of a fleet of ~100 ships and economic independence for Pakistan. This article is an attempt to take stock of where we stand viz-a-viz his aforementioned objectives.
History and current status of shipping
In 1947, we inherited only four privately owned cargo vessels. By 1963, the fleet comprised 53 privately owned vessels. In 1974, the industry was nationalised, which many present as the cause for all of its later illnesses. But success or failure of a value chain depends on how it is managed. It was rather the lack of direction in conjunction with other factors, discussed herein, which affected its development.
The private industry was developing steadily till 1963 when a PSE by the name of National Shipping Company (NSC) was created. However, its first board of 9 members consisted of a bureaucrat as chairman with a naval officer as its CEO and another as a board member amongst others. The arrangement does not seem to be an appropriate start for an organisation meant to serve purely commercial objectives. Top business leaders who understand shipping, trade and commerce could, definitely, have been a better choice. However, some growth was still recorded in the national fleet till 1971. In 1973, NSCs board went through a structural change with the reduction in the number of directors to 5 only, but it made no major material change. In 1974, nine private companies, which had 26 ships, were nationalised and merged to form Pakistan Shipping Corporation (PSC).
In 1979, while targeting efficiency, NSC and PSC were integrated to form the Pakistan National Shipping Corporation (PNSC) with no major change in the governance structure or the board’s composition. Thus, only 12 years later we observe PNSC engaging a renowned consultant, for analysing its performance issues, who recommended restructuring and privatisation. However, the status quo prevailed. We now have only 11 vessels with PNSC annually generating a meager net profit of ~13 Million USD and Pakistan dependent on foreign shipping lines for ~90% of its trade entailing annual expense of Billions of USD in freight.
Where do other regional countries stand?
Bangladesh has 310 vessels. Also, it has ~10,000 inland and coastal ships which transport most of its oil products and cargo and 35% of passengers across the country. Similarly, India has more than 200 shipping companies with the Shipping Corporation of India, a PSE, holding 33% of the market. Its major strength is its 8 member board with four in-house professionals and two independent and government directors each.
India’s merchant fleet comprises 806 vessels. For effective integration, it also has a National Shipping Board (NSB) where all the stakeholders are represented. Similarly, China’s merchant fleet comprises 3,197 ships. COSCO SHIPPING, a Chinese PSE, alone has a fleet of 1371 vessels (annual revenue:~27 Billion USD). Its fundamental strength is its eight member professional board with a chairman who is an engineer having extensive leadership experience of shipping, tourism etc.
Shipbuilding and ship breaking
Karachi Shipyard-the only shipyard in Pakistan-seems dependent upon subsidies and orders from the Navy; whereas, the industry (current global market size: 34 Billion USD) has, otherwise, turned around many economies. China, with 40% share in the global business, is now leading it followed by Japan and South Korea with India sharing 1% global production through its 27 shipyards. Bangladesh also has ~50 shipyards where inland, coastal and fishing fleets are built. In 2008, it also exported an ocean going ship to Denmark.
As for ship-breaking; our Gadani yard produces ~15% of Pakistan’s rerolling steel annually. The success seems rooted in our indifference towards the industry’s safety hazards. Thus in Pakistan, it is known for frequent accidents, unsafe waste handling and disposal practices and abject poverty of its workers. Only in May this year, a ship containing 1500 tons of mercury mixed oil was allowed to dock at Gadani. Similarly, a fire incident in 2016 had caused 33 deaths.
Ports’ connectivity, coastal tourism and seafood
Effective communication necessitates an integrated transport system. However, due to gaps in the same, our ports fail to operate optimally. For example; Gwadar was to serve as a major trade artery between China, Central Asia and Middle East and Europe. However, so far connectivity issues seem to be affecting its performance. This would continue till the port is fully integrated through road and rail with Afghanistan, Central Asia and China. As for its transshipment potential, the same is again a function of its connectivity with other ports. For example: The Port of Singapore handles 20% of the globe’s transshipment traffic because, with a “Port Liner Shipping Connectivity Index” of 127.59, it is connected to 600 ports in 123 countries. As for Gwadar; the yardstick reports a meager 4.27.
When it comes to tourism, it annually contributes ~9 Trillion USD to the global GDP; ~80% of which is shared by coastal tourism. In Pakistan, the contribution is negligible against a potential of $4 billion/year because the latest Travel and Tourism Competitiveness Report of the World Economic Forum places Pakistan at 121 out of 140 countries with Spain at the top and India at 34. Similarly, Pakistan earns ~0.45 Billion USD from its sea food exports against a potential of 2 Billion USD.
What is to be done?
It is obvious that the governance capacity limitations of the sector are hampering its optimal contribution towards our economy. If left unattended, even the much trumpeted panacea, i.e. privatisation, would fail. Gradual exodus of MNCs from the E&P sector and failure to attract new investors, Tuwairqi steel and Reko Diq are a few examples of our inability to respond effectively to routine corporate sector challenges. The same also applies to the given snags of oil refining, LNG etc. The only answer to the issue, in this era of knowledge based economies, is a massive dose of meritocracy and professionalisation at every level and major structural reforms in the PSEs’ governance as already committed vide our several IMF agreements and the ruling party’s policies.
Also, introduction of a Maritime Board representing all major stakeholders for integrated direction can help. Dedicated teams of senior professionals/industry leaders can be constituted in its supervision, for helping accelerate development of the key segments i.e. shipping, shipbuilding, ports etc. Amongst other options, NCOC also provides a model which can be emulated, for the given purpose, with few modifications/improvisations.
Secondly, merchant shipping is a specialised business and needs deep relevant knowledge and leadership experience for success. Therefore, operating structures, board profiles and available core competencies in boards of a few successful shipping MNCs, such as COSCO, Maersk, and capacity mapping of PNSC in their context can help address the existing gaps.
Thirdly, Joint Ventures for shipbuilding with other countries such as Bangladesh and South Korea need to be considered. Moreover, the unfortunate circumstances in Gadani need to be addressed on priority with the help of organisations like OECD and ILO. These steps will help us realise Jinnah's vision.
History and current status of shipping
In 1947, we inherited only four privately owned cargo vessels. By 1963, the fleet comprised 53 privately owned vessels. In 1974, the industry was nationalised, which many present as the cause for all of its later illnesses. But success or failure of a value chain depends on how it is managed. It was rather the lack of direction in conjunction with other factors, discussed herein, which affected its development.
The private industry was developing steadily till 1963 when a PSE by the name of National Shipping Company (NSC) was created. However, its first board of 9 members consisted of a bureaucrat as chairman with a naval officer as its CEO and another as a board member amongst others. The arrangement does not seem to be an appropriate start for an organisation meant to serve purely commercial objectives. Top business leaders who understand shipping, trade and commerce could, definitely, have been a better choice. However, some growth was still recorded in the national fleet till 1971. In 1973, NSCs board went through a structural change with the reduction in the number of directors to 5 only, but it made no major material change. In 1974, nine private companies, which had 26 ships, were nationalised and merged to form Pakistan Shipping Corporation (PSC).
In 1979, while targeting efficiency, NSC and PSC were integrated to form the Pakistan National Shipping Corporation (PNSC) with no major change in the governance structure or the board’s composition. Thus, only 12 years later we observe PNSC engaging a renowned consultant, for analysing its performance issues, who recommended restructuring and privatisation. However, the status quo prevailed. We now have only 11 vessels with PNSC annually generating a meager net profit of ~13 Million USD and Pakistan dependent on foreign shipping lines for ~90% of its trade entailing annual expense of Billions of USD in freight.
Where do other regional countries stand?
Bangladesh has 310 vessels. Also, it has ~10,000 inland and coastal ships which transport most of its oil products and cargo and 35% of passengers across the country. Similarly, India has more than 200 shipping companies with the Shipping Corporation of India, a PSE, holding 33% of the market. Its major strength is its 8 member board with four in-house professionals and two independent and government directors each.
India’s merchant fleet comprises 806 vessels. For effective integration, it also has a National Shipping Board (NSB) where all the stakeholders are represented. Similarly, China’s merchant fleet comprises 3,197 ships. COSCO SHIPPING, a Chinese PSE, alone has a fleet of 1371 vessels (annual revenue:~27 Billion USD). Its fundamental strength is its eight member professional board with a chairman who is an engineer having extensive leadership experience of shipping, tourism etc.
Shipbuilding and ship breaking
Karachi Shipyard-the only shipyard in Pakistan-seems dependent upon subsidies and orders from the Navy; whereas, the industry (current global market size: 34 Billion USD) has, otherwise, turned around many economies. China, with 40% share in the global business, is now leading it followed by Japan and South Korea with India sharing 1% global production through its 27 shipyards. Bangladesh also has ~50 shipyards where inland, coastal and fishing fleets are built. In 2008, it also exported an ocean going ship to Denmark.
As for ship-breaking; our Gadani yard produces ~15% of Pakistan’s rerolling steel annually. The success seems rooted in our indifference towards the industry’s safety hazards. Thus in Pakistan, it is known for frequent accidents, unsafe waste handling and disposal practices and abject poverty of its workers. Only in May this year, a ship containing 1500 tons of mercury mixed oil was allowed to dock at Gadani. Similarly, a fire incident in 2016 had caused 33 deaths.
Ports’ connectivity, coastal tourism and seafood
Effective communication necessitates an integrated transport system. However, due to gaps in the same, our ports fail to operate optimally. For example; Gwadar was to serve as a major trade artery between China, Central Asia and Middle East and Europe. However, so far connectivity issues seem to be affecting its performance. This would continue till the port is fully integrated through road and rail with Afghanistan, Central Asia and China. As for its transshipment potential, the same is again a function of its connectivity with other ports. For example: The Port of Singapore handles 20% of the globe’s transshipment traffic because, with a “Port Liner Shipping Connectivity Index” of 127.59, it is connected to 600 ports in 123 countries. As for Gwadar; the yardstick reports a meager 4.27.
When it comes to tourism, it annually contributes ~9 Trillion USD to the global GDP; ~80% of which is shared by coastal tourism. In Pakistan, the contribution is negligible against a potential of $4 billion/year because the latest Travel and Tourism Competitiveness Report of the World Economic Forum places Pakistan at 121 out of 140 countries with Spain at the top and India at 34. Similarly, Pakistan earns ~0.45 Billion USD from its sea food exports against a potential of 2 Billion USD.
What is to be done?
It is obvious that the governance capacity limitations of the sector are hampering its optimal contribution towards our economy. If left unattended, even the much trumpeted panacea, i.e. privatisation, would fail. Gradual exodus of MNCs from the E&P sector and failure to attract new investors, Tuwairqi steel and Reko Diq are a few examples of our inability to respond effectively to routine corporate sector challenges. The same also applies to the given snags of oil refining, LNG etc. The only answer to the issue, in this era of knowledge based economies, is a massive dose of meritocracy and professionalisation at every level and major structural reforms in the PSEs’ governance as already committed vide our several IMF agreements and the ruling party’s policies.
Also, introduction of a Maritime Board representing all major stakeholders for integrated direction can help. Dedicated teams of senior professionals/industry leaders can be constituted in its supervision, for helping accelerate development of the key segments i.e. shipping, shipbuilding, ports etc. Amongst other options, NCOC also provides a model which can be emulated, for the given purpose, with few modifications/improvisations.
Secondly, merchant shipping is a specialised business and needs deep relevant knowledge and leadership experience for success. Therefore, operating structures, board profiles and available core competencies in boards of a few successful shipping MNCs, such as COSCO, Maersk, and capacity mapping of PNSC in their context can help address the existing gaps.
Thirdly, Joint Ventures for shipbuilding with other countries such as Bangladesh and South Korea need to be considered. Moreover, the unfortunate circumstances in Gadani need to be addressed on priority with the help of organisations like OECD and ILO. These steps will help us realise Jinnah's vision.