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Supply chain issues at ports

Pakistan’s monthly exports volume reached an all-time high of Rs. 275,483 million in September 2013. January 2017 saw this number drop to Rs. 186,385 million whereas the number for February 2017 further declined to Rs.171,511 million. The downwards trend has followed more or less consistently in the months between September 2013 and January 2017. Naturally, this declining trend in Pakistan’s exports becomes yet more pronounced when the balance of trade is analyzed. The trade deficit that stood at Rs. 1,833 billion in fiscal 2011-12 sank to a deficit of Rs. 2,494 billion by fiscal 2015-16. One would think that the people in the corridors of power would be having sleepless nights while trying to evaluate where and how they erred and that these people would be running from pillar to post in an attempt to address and arrest this disaster.

Instead, I was shocked to read in an article that was published on 5th April 2017 in the Business Recorder that certain quarters within the Ministry of Commerce are of the view that the Rupee is overvalued and should be permitted a free fall. In the event that a free fall is allowed, as has been allowed a number of times in the past, and exports still don’t pick up steam, as has also happened in the past, then, what do we do? How does one get the genie back into the bottle one may ponder? A knee jerk solution to a problem that is bigger and beyond most in the Ministry of Commerce and the Ministry of Finance put together.

As this mindless bloodletting continues unabated, one may think that logistics and supply chain efficiencies may have come into focus with the intent to keeping costs at bay while the creases in the export strategy are being ironed out. With this goal in mind, where better to focus than the point where the biggest cash outflow is involved, i.e. at the sea ports. Well over half of the import and export cargo by value is containerized. It would be expected that the container ports might be the strongest link in the chain when all other links weaken by the day. An objective analysis of the situation may suggest otherwise. Structural impediments continue to plague the system.

Efficiencies and global best practices appear neither in words nor in spirit.

Within international shipping circles, Pakistani ports remain painfully notorious for their exceptionally high port charges in spite of their inefficiencies. August 2016 saw yet another increase in these charges when the Port of Karachi upped its port charges by an average of about 20% for a panamax sized container vessel. An analysis of total wet charges accumulated by a container vessel during a round trip for a service that regularly calls at Karachi Port reveals that the wet charges at Karachi Port were the highest during the said round trip when compared to all the other international ports that the same vessel called at during the same round trip. Not only were the charges at Karachi Port the highest, they were four times higher than the average lowest charges.

Naturally, this cost is promptly and diligently passed on by the shipping lines to the one next in line in the supply chain. Globally, port authorities have moved on to the “land-lord port model” to remain in step with the trends of the time.

The Port of Karachi, however, continues to experience gestation difficulties with time running out for a normal outcome. The matter of converting the KPT into a corporation has been pending for over a decade, with the aim of making the necessary structural and legislative changes so that KPT can be run in a business-like manner.

The President of the Karachi Chamber of Commerce and Industry (KCCI), Shamim Ahmed Firpo, has expressed concern over the matter of KPT’s unilateral increase in port charges in August 2016 and the matter of imposition of congestion surcharge by shipping lines. KCCI, being the largest trade Chamber in the country, was neither taken into confidence by KPT nor was invited in subsequent meetings where the issues were discussed. Both these matters, the increase in port charges by KPT and the imposition of congestion surcharge, remain unaddressed and, similar to the matter of declining exports, seem beyond the capabilities of the respective department heads.

Structural improvements to the national Maritime Policy are urgently warranted. This point needs to be kept in mind the next time that industry gurus bang their heads together in an attempt to improve upon the incumbent version. Our ports in general and container terminals in particular simply cannot continue to charge more in return for less.

The situation is prone to imploding as was witnessed during December 2016 and January 2017 when shipping lines unilaterally imposed congestion surcharge on imports to Pakistan. Some shipping lines, it has been reported, have withdrawn the congestion charge whereas other continue to collect it as a windfall. The lesson to be learned remains elusive. This lesson is that the supply chain as a whole needs improvements and a good place to start is with improvements at the ports.

While on the topic of surcharge, the point to ponder is why our ports and container terminals remain dumping grounds to empty and laden containers that either nobody needs or have forgotten about. The TPX yard at M.T. Khan Road in Karachi is a befitting example of what could have been achieved but was not. This stretch of prime real estate could have been developed into a modern business district or could have been put to other better use than being a resting place (final in most cases) for hundreds of thousand empty boxes that the shipping lines have forgotten all about. A similar sorry state exist within the container terminals where ground slots are occupied by empties that have nowhere to go except for creating trouble for efficiencies by increasing congestion and dwell times.

Empties set aside, the menace of abandoned cargos lying at terminals draws one to wonder why this should happen when customs laws permit the auction of such cargo should it remain un-claimed or un-cleared at the container terminal for a period of more than 20 days. After all, it is in the interest of customs’ revenues that the cargo be auctioned as expeditiously as possible in order for it to fetch the highest possible price at the auction. Here too, as in so many other junctions, a mafia and certain vested interests have fine-tuned their act. Such auctions, in most cases rather than less, are finely choreographed acts where each actor has practiced the moves and lines so many times that they all now come naturally when the lights are switched on. The biggest losers from these auctions remain the terminals that recover none of their dues when all is said and done.

Recoveries on account of customs revenues are a fraction of what was owed. Some individuals on both side of the divide, however, could be seen laughing all the way to the bank, figuratively speaking as only a trickle of what was exchanged might find its way to any banking transaction.

As an example to the above, there is an average of about 1,500 laden boxes for the three years from 2014 to 2016 that are still lying at KICT for want of auction or destruction. These boxes will neither generate revenue for the terminal nor will vacate the space that they are occupying so that the same space can be occupied by revenue yielding boxes. The terminal is handicapped to take any action regarding these and similar long idling boxes in the absence of approvals from customs. Customs, as has been the practice for the past two decades now, will continue to drag its feet on the matter. Similar idle box issued are being faced by PICT and by QICT where the aggregate of idle boxes as at the end of 2016 was over 3,600 units.

What is alarming is that industry experts have indicated that idle boxes have also started accumulating at SAPT which started its operations recently in December 2016 warranting serious action from the concerned authorities to contain inefficiencies in the already stressed supply chain.

The point is that these are the inefficiencies that plague the entire system. The system related inefficiencies are not confined to any one port or to any one terminal. They are now an epidemic that adds unnecessary costs to the entire national economy. The unresolved matter of the Karachi Dock Labour Board, the improvements required to the road networks within port areas, the requirements for rail based clearance of cargo, the relocation of sites for handling of dirty cargo and the training of government officials towards use of modern technologies are some of the areas where significant improvements can be made.

As Pakistan’s exports continue to drop and imports grow, the trade gap widens by the day. Similarly, the inefficiencies in the system become more pronounced. The cost to the economy as a result of the inefficiencies highlighted above, and the costs originating from several others that could not be addressed herein for want of space, can be estimated to run in billions of rupees on an annual basis. This is something that a developing economy like ours can ill afford to absorb in the long term.

The writer is Adviser to President, Karachi Chamber of Commerce and Industry.

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