And Now the Incentives for Shipping Industry

By Asad, S. Hasan | Economic Review, April 1998 | Go to article overview

And Now the Incentives for Shipping Industry


Asad, S. Hasan, Economic Review


It has been reported in the local press that now the shipping industry, dormant over the last twenty five years is being offered incentives in a bid to revive it. There is no denying the fact that merchant shipping is an important sector of the economy and can contribute to foreign exchange earning or drain of foreign exchange, depending on whether the industry is in good or bad shape. The point to be considered here is whether these incentives would really reinvigorate the shipping industry, given the experience of Nawaz Sharif regime over the period of the last one year with respect to their impact.

By the early 1960's, the shipping industry had developed with the vigour of the private sector. It was at that time that National Shipping Corporation was established by the Government of Pakistan with government as well as private share holding. With the loss of inter-wing trade in early 1970's, the shipping industry got a big jolt followed by another blow by the nationalisation of 1974. Consequently the size of the fleet started declining and by 1978-79 it fell to 48 from a peak of 71 in 197071. Ever since, the industry has remained in doldrums. By March 1997, Pakistan National Shipping Corporation (PNSC) owned only 15 vessels with a total dead weight tonnage of 264,210, less than half of the late 1980's and one-third of the early 1970's, resulting in colossal loss to the government as well as drain on the foreign exchange. In the private sector, Tristar Shipping Lines Ltd. is operating having six cargo ships with the capacity of 310,000 dead weight tonnage.

The negligence shown in the matter of grappling with the problems is evident from the meteoric rise in the accumulated losses of the Corporation to an unnerving figure of Rs.3,460 million at the end of 1987-88, as compared to Rs.84 million in 1981-82. The reasons underlying the losses in operation may be traced to the Corporation's extremely low level of cargo handling of the country's trade.

The total foreign exchange payment on account of shipping charges now tops $1 billion, up from $642 million in 1989-90. This is because, on the one hand, the cargo handled at the Karachi port exceeds 23 million tonnes up from 19 million tonnes in 1989-90 while on the other bank, the size of the PNSC fleet has declined from 28 to 15 over the period. In other words, the shipping sector has been left to the overseas owners with shrinking share of domestic ships of 10 per cent of the total freight.

In the above backdrop, there is a need to develop shipping sector on more efficient lines. At least, the strategy should be to save annual foreign exchange liability of over $1 billion, if not to earn foreign exchange through transportation of goods of foreign countries in Pakistan ships, Saving of foreign exchange should remain the primary goal at the moment as the burgeoning balance of payments deficit is battering our rupee which is shedding its value by around 10 per cent annually through periodic devaluation, with all its adverse implications on the cost of imported goods.

According to the incentive package, the import of ships will be exempted from all import duties and other levies applicable on imports. Income from operation of ships will also remain exempted from income tax. The ships purchased between 24-2-1993 and 30.6.1996 and which are presently operating outside Pakistan would be exempted from all duties and other container ships will be made duty free. Other proposals suggested by the Task Force for further deregulation of the shipping industry include:

1. No prior licence/permission would be required from the Government of Pakistan as to vessels, type, age, size, class, etc. for purchase/sale or charter.

2. All ship owners/charters/operators as corporate entities be allowed to open and operate foreign currency accounts without any control from the State Bank.

3. Bareboat charter be allowed and bareboat vessels to be flagged under the Pakistan flag under same conditions as those applicable in case of purchased vessels. …

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