Drewry Maritime Research, a shipping consultancy of international acclaim, in its Annual Review 2016 of Global Container Terminal Operators has forecast a lackluster average global growth of 2.7 percent per annum for the next five years for global container ports as the industry moves from being a growth sector to emerging as a value sector. It turns out that the only global region wherein Drewry is confident of double digit growth happened to be the South Asia region of which Pakistan is a constituent. Indeed, the annual containerized growth rate for Pakistan for the last two years has remained double digit with the 2015 growth being over 14 percent and 2016 over 16 percent. Industry pundits foresee 2017 to clock an attractive 15 percent, thus far above the global forecast of 2.7 percent as prophesized by Drewry.
As the Advisor on Shipping to the Karachi Chamber of Commerce and Industry (KCCI), the Shipping Committee of the KCCI has during a recent meeting supported me in taking up the matter of imposition of congestion charge by shipping lines at the highest level with the government. The business logic behind this action by shipping lines eludes comprehension given that this region shall remain a cash cow for these shipping lines coupled with the fact that the capacity in Pakistan outpaces current volumes.
Pakistan’s capacity at the beginning of 2016 was approximately 2.5 million TEUs while the three container terminals, namely Karachi International Container Terminal (KICT), Qasim International Container Terminal (QICT) and Pakistan International Container Terminal (PICT), were handling a combined annual throughput of over 2.8 million TEUs. To elaborate this point, KICT for example handled 1.1 million TEUs in 2015 as against a designed capacity of about 0.75 million TEUs. The other two terminals too remained full past the brim to cope with volumes above and beyond their designed capacities. Despite the difficulties faced by the container terminals in Pakistan, the profits of shipping lines calling at Pakistan remained bright green without any mention of a congestion levy.
The capacity situation by the end of 2016 changed for the better for all industry stakeholders including large importers and Customs when South Asia Pakistan Terminals (SAPT) commenced its operation by adding 0.55 million TEUs to the overall capacity upon completion of the first of four phases of the US$600 million project. With another 0.55 million TEUs in capacity expected by June this year upon completion of the second phase, the project is expected to yield a combined capacity of 3.1 million TEUs when all four phases are complete by the year 2020. With these numbers, the container terminals in Pakistan are nowhere near a state of congestion and are not foreseen to be in such a state for at least the next 8 to 10 years.
A related article published by business recorder on 26 March 2017 states that shipping lines have initiated collecting from the consignee at destination before delivery US$150 and US$300 on 20ft and 40ft containers respectively. Shipping lines, it has emerged, claim that the dwell time for containers lying at the terminals is far beyond what it should be and thus have tried to justify this charge. The lines further contend that the loading and unloading of boxes to and from vessels has remained slow resulting in extending in port stays for the vessels. The said claims by shipping lines warrants a thread bare analysis as follows.
The overcapacity handling witnessed by terminals during 2015 and the better part of 2016 was as a result of growth in import volumes overwhelming the handling capacities available at the ports. The market shares of KICT, QICT and PICT as a percentage of total volumes remained pretty much unaltered on a year on year basis thus suggesting that there was no disruptive wheeling and dealing by the terminals resulting in kicking the market off balance by the terminals. Shipping lines continued to enjoy a growth in volumes during this period and there were no complaints by them of earning revenues above their forecasts despite terminals being overwhelmed. This was the period when a congestion charge could have been justified but not without argument. However, this was also the time when shipping lines were losing money globally and were focused on ways and means for containing the hemorrhaging to their bottom lines.
With SAPT adding not only land side capacity but also berth side capacity for shipping lines in Pakistan, the claim relating to congestion resulting in delays to the vessels seeking a berthing window remains hard to digest. As witnessed since December 2016, the capacity spillover of the terminals has been absorbed by SAPT and vessels are no longer confined to wait at the outer anchorage for up to two days at times for want of berthing space. Given rationalization of throughput post SAPT commencement of operations, the other terminals are no longer stretched beyond their limits thus naturally resulting in improved handing efficiencies both at the berth and in the yard. Thus a potentially win-win situation for all stakeholders.
It may be argued that shipping lines have been allowed to get away with imposing a congestion charge because there exists a void in the form of a unified forum empowered to take-up the matter directly with the shipping lines. The shipping lines must also remain mindful that as volumes grow in the coming years, both as a natural result of organic growth and the booster shots expected in the form of CPEC, the bargaining power of large Pakistani importers shall also grow which could potentially further depress that already rock bottom haulage rates being witnessed by these very lines. A congestion charge today may leave a nasty after taste in the years to come. This coupled with the possibility of a representative body such as the KCCI taking up the matter with the government seeking policy intervention could leave shipping lines being penny wise and pound foolish.
It remains to be seen if shipping lines will focus on developing trade within the region, especially in Pakistan or will prefer a short term quick gain in the form of a congestion charge and restricting maneuvering space in the future. Drewry in its report for 2016 also predicts a change in demographics within respective regions with this change being a natural outcome of markets within the regions maturing earlier than expected. These changes and their possible implications on the profitability for shipping lines in the long term as argued by Drewry could imply that shipping lines would be best advised to take a long term view of high grown markets as against a short term view.