Shipping industry in limbo due to global business downturn

Dhaka,  Monday,   2016-09-23
Published : 23 Sep 2016, 21:19:40

Shipping industry in limbo due to global business downturn

Many companies shelve business
Shihabur Rahman


 The prolonged downturn in global shipping business and some local problems are threatening the country's infant shipping industry that entrepreneurs once considered a highly potential sector.

 According to the Bangladesh Ocean-Going Ship Owners Association (BOGSOA), the number of local ocean-going merchant ships has now dwindled to 27 from 72 in 2014, a 62 per cent decline in two years.

 Industry insiders said many of the Bangladesh flag- carrier owners have sold out their vessels finding it difficult to survive with the fall of time charter (TC) rate to almost one-eighth.

TC is for a fixed period instead of a certain number of voyages or trips. Time charter rate generally does not include loading and unloading costs in the charter rate.

 According to the industry insiders,  the TC rate of a bulk carrier of 100,000-tonne capacity has now dropped to around 5,000 US dollars a day whereas it was around $40,000 in 2007 or 2008.

 "The present TC is not even enough to meet the operational expenses, let alone profit," said BOGSOA president Azam J Chowdhury.

 Insiders said shipping market has two cycles - upturn and downturn - each usually lasting for 2-3 years but the present downturn is continuing from 2009.

 They referred to the recession compelling even Hanjin Shipping Co, South Korea's largest and one of the world's top ten container carriers in terms of capacity, to seek bankruptcy.

 Sources said many entrepreneurs and business conglomerates had ventured into shipping industry seeing huge potential in the sector as a large quantity of cargoes are shipped to and from Bangladesh.

 But several of them have shut their businesses after incurring huge losses.

 The companies selling out their vessels include HRC, Transocean Lines, Symphony Ship Management, Abul Khair, Crystal Navigation, Bulk Shipping Lines, JK Maritime, Deshbandhu Shipping, Silvia Shipping Lines, and Ratanpur Shipping Services.

 The country imported 5.5 million tonnes of oil and oil products and handled 2 million twenty-foot equivalent units (TEUs) of cargo last year.

 Foreign ships handle most of the cargoes originating from or destined for Bangladesh as the local shipping industry is still very small compared to the size of the world shipping sector, which has around 87,000 ships.

 Entrepreneurs said non-implementation of the Bangladesh Flag Protection Ordinance, lack of double-taxation agreements with many countries, expensive and complicated registration procedures, and freight tax are also affecting the shipping business.

 They said many countries in the world including neighbouring India provide 100 per cent flag protection, but the existing local statute offers only 40 per cent protection to the owners of Bangladesh flag-carriers.

 According to sources, the government has agreed with BOGSOA to expand flag protection to 50 per cent and is formulating a law in this regard.

 Director General of the Department of Shipping Mohammed Zakiur Rahman Bhuiyan, however, believes giving more protection will be useless as the size of Bangladeshi shipping sector is small.

 "They (Bangladesh flag-carriers) are not capable of handling even 10 per cent cargoes to and from Bangladesh," he said.

 The official said weakness in the management of Bangladeshi shipping companies and the purchase of old ships are also contributing to their bad business performance.

 "Shipping business requires strong connectivity that many Bangladeshi companies lack. Besides, most of the local companies bought old ships which many shippers don't choose for their cargoes," he told the FE.

 Mr Chowdhury thinks that a company needs 'a lot of optimisation' to survive in the market.

 He said those who are operating oil tankers alongside cargo vessels and those who are switching to fuel-efficient ships are doing better.

 According to him, an oil tanker requires only 2-4 days to unload entire oil it carries while a cargo ship needs weeks to unload its goods meaning that a cargo ship has to wait at ports for longer period.

 Mr Chowdhury believes that full implementation of the flag protection law, waiver of freight tax and duties on import of vessels, simplification of registration procedure, cut in bank interest, introduction of maritime finance incentives and signing of double-tax avoidance agreements with more countries can help Bangladeshi shipping companies to survive.

 A Bangladeshi shipping company now has to pay 5 per cent advance income tax (AIT) during ship registration. It has also to pay 3 per cent freight tax.

 "Five per cent AIT involves a huge sum of money as shipping is a capital-intensive industry," said the BOGSOA president.

 He complained that the government had declared shipping an industry long ago but the sector is not getting any support that "an industry should be provided".

     rahmansrdk@gmail.com
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